<PAGE> 1
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-35523
$1,109,128,000
WORLD OMNI 1997-B
AUTOMOBILE LEASE SECURITIZATION TRUST
$260,000,000
6.07% Automobile Lease Asset Backed Notes, Class A-1
$220,000,000
6.08% Automobile Lease Asset Backed Notes, Class A-2
$390,000,000
6.18% Automobile Lease Asset Backed Notes, Class A-3
$239,128,000
6.20% Automobile Lease Asset Backed Notes, Class A-4
WORLD OMNI LEASE SECURITIZATION L.P.
(Transferor)
WORLD OMNI FINANCIAL CORP.
(Servicer)
The Automobile Lease Asset Backed Notes (the "Class A Notes") will be issued by
the World Omni 1997-B Automobile Lease Securitization Trust (the "Trust"), a
Delaware business trust created pursuant to a Securitization Trust Agreement
between World Omni Lease Securitization L.P. (the "Transferor"), PNC Bank,
Delaware, as owner trustee (the "Owner Trustee") and U.S. Bank National
Association, as indenture trustee (the "Indenture Trustee"). The Class A Notes
will be issued pursuant to an Indenture between the Trust and the Indenture
Trustee. The Class A Notes will be secured by the property of the Trust, which
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 certain accounts and 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 NOTES, SEE "RISK FACTORS" ON PAGE 17 HEREIN.
------------------
THE CLASS A NOTES WILL REPRESENT OBLIGATIONS OF 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 ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO THE
TRANCHE PRICE TO PUBLIC(1) COMMISSIONS(2) TRANSFEROR(1)(3)
------- ------------------ -------------- ----------------
<S> <C> <C> <C>
Per Class A-1 Note................................... 99.983300% 0.175% 99.808300%
Per Class A-2 Note................................... 99.985040% 0.200% 99.785040%
Per Class A-3 Note................................... 99.989358% 0.215% 99.774358%
Per Class A-4 Note................................... 99.978333% 0.250% 99.728333%
Total................................................ $1,108,958,352.34 $2,331,320.00 $1,106,627,032.34
</TABLE>
(1) Plus accrued interest, if any, calculated at the related Note 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
$1,050,000.
------------------
The Class A Notes 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 Notes 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 November 20, 1997, against payment in immediately
available funds.
CREDIT SUISSE FIRST BOSTON
BANCAMERICA ROBERTSON STEPHENS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY SECURITIES, INC.
The date of this Prospectus is November 13, 1997.
<PAGE> 2
(Cover continued from previous page)
The SUBI initially will evidence a beneficial interest in specified
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
October 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 Noteholders, 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 Notes. For further information regarding the Trust, the
SUBI and the Origination Trust, see "The Trust and the SUBI" and "The
Origination Trust".
The Notes will consist of four classes of senior notes (respectively, the
"Class A-1 Notes", the "Class A-2 Notes", the "Class A-3 Notes" and the "Class
A-4 Notes", and collectively, the "Notes") and one class of subordinated Notes
(the "Class B Notes"). The Class A Notes will be the only Notes offered hereby.
The initial principal amount of the Class B Notes will be $62,950,000, and the
Class B Notes will be subordinated to the Class A Notes to the extent described
herein. The Transferor will own the undivided equity interest in the Trust (the
"Transferor Interest"). The Transferor Interest will be subordinated to the
Notes as described herein. For further information regarding the Notes, see
"Description of the Notes".
In general, no principal payments will be made on the Class A-2 Notes until
the Class A-1 Notes have been paid in full, no principal payments will be made
on the Class A-3 Notes until the Class A-1 Notes and the Class A-2 Notes have
been paid in full, and no principal payments will be made on the Class A-4 Notes
until the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes have been
paid in full.
Interest on the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes will accrue at the respective fixed per annum interest
rates specified herein and will be distributed to holders of the Class A Notes
on the twenty-fifth day of each month (or, if such day is not a Business Day, on
the next succeeding Business Day), beginning November 25, 1997 (each, a
"Distribution Date"). Principal will be distributed to holders of the Notes to
the extent described herein on each Distribution Date beginning in December
1998, or, in certain limited circumstances, earlier, as more fully described
herein. The final maturity date for each Class of Class A Notes will be the
November 2003 Distribution Date.
There currently is no secondary market for the Class A Notes 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 Notes. 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 Notes", it is a
condition of issuance that each of Moody's Investors Service, Inc., Standard &
Poor's and Fitch Investors Service, L.P. rates each Class of Class A Notes 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 NOTES.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".
ii
<PAGE> 3
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 Notes 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.
iii
<PAGE> 4
[OVERVIEW OF TRANSACTION CHART]
iv
<PAGE> 5
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 97 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-B Automobile Lease Securitization
Trust (the "Trust"). In return, the Trust will
issue certain securities, including the Class A-1
Notes, Class A-2 Notes, Class A-3 Notes and Class
A-4 Notes being offered hereby. The undivided
equity interest in the Trust 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
Noteholders 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 created pursuant to a
securitization trust agreement dated as of
October 1, 1997 (the "Agreement"), among the
Transferor, PNC Bank, Delaware ("PNC Bank"), as
owner trustee (in such capacity, the "Owner
Trustee") and U.S. Bank National Association
("U.S. Bank"), as indenture trustee (in such
capacity, the "Indenture 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 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
1
<PAGE> 6
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 Omni. VT Inc. is an Alabama
corporation and a wholly owned, special purpose
subsidiary of U.S. 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 October 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 Noteholders 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
2
<PAGE> 7
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 Notes.
The 0.2% interest in the SUBI not transferred to
the Trust 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 Notes. For further
information regarding the SUBI, see
"Summary -- Security for the Notes -- 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 October 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 Owner Trustee and
the Indenture Trustee will be third party
beneficiaries of the Servicing Agreement, as
described under "Additional Document
Provisions -- The Servicing
Agreement -- Indenture Trustee and Owner Trustee
as Third-Party Beneficiaries".
SECURITIES OFFERED......... The Automobile Lease Asset Backed Notes (the
"Notes") will consist of four classes of senior
Notes (the "Class A-1 Notes", the "Class A-2
Notes", the "Class A-3 Notes" and the "Class A-4
Notes", respectively, and collectively, the
"Class A Notes") and one class of subordinated
notes (the "Class B Notes"). Generally, no
principal payments will be made on the Class A-2
Notes until the Class A-1 Notes have been paid in
full, no principal payments will be made on the
Class A-3 Notes until the Class A-1 Notes and the
Class A-2 Notes have been paid in full, and no
principal payments will be made
3
<PAGE> 8
on the Class A-4 Notes until the Class A-1 Notes,
Class A-2 Notes and Class A-3 Notes have been
paid in full, in each case as more fully
described under "Description of the
Notes -- Distributions on the
Notes -- Application and Distributions of
Principal -- Amortization Period". The Class B
Notes will be subordinated to the Class A Notes
so that (i) interest payments generally will not
be made in respect of the Class B Notes until
interest in respect of the Class A Notes has been
paid, (ii) principal payments generally will not
be made in respect of the Class B Notes until the
Class A-1, Class A-2 and Class A-3 Notes have
been paid in full and (iii) if other sources
available to make payments of principal and
interest on the Class A-4 Notes are insufficient,
amounts that otherwise would be paid in respect
of the Class B Notes generally will be available
for that purpose, as more fully described under
"Description of the Notes -- Distributions on the
Notes". The undivided equity interest in the
Trust will be permanently retained by the
Transferor (the "Transferor Interest"). The
Transferor Interest will be subordinated to the
Notes as described under "Summary -- Security for
the Notes -- Subordination of the Transferor
Interest". Only the Class A Notes are being
offered hereby. The Class A Notes will be issued
in book-entry form in minimum denominations of
$1,000 and integral multiples thereof, as set
forth under "Description of the
Notes -- Book-Entry Registration" and
"-- Definitive Notes". The Class B Notes will be
sold in one or more private placements.
Each Note will represent the right to receive
monthly payments of interest at the related Note
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, 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.
On the date of initial issuance of the Notes (the
"Closing Date"), the Trust will issue
$260,000,000 aggregate principal amount of Class
A-1 Notes (the "Initial Class A-1 Note Balance"),
$220,000,000 aggregate principal amount of Class
A-2 Notes (the "Initial Class A-2 Note Balance"),
$390,000,000 aggregate principal amount of Class
A-3 Notes (the "Initial Class A-3 Note Balance"),
$239,128,000 aggregate principal amount of Class
A-4 Notes (the "Initial Class A-4 Note Balance"
and, together with the Initial Class A-1 Note
Balance, the Initial Class A-2 Note Balance and
the Initial Class A-3 Note Balance, the "Initial
Class A Note Balance") and $62,950,000 aggregate
principal amount of Class B Notes (the "Initial
Class B Note Balance" and, together with the
Initial Class A Note Balance, the "Initial Note
Balance"). The aggregate principal amounts of the
Class A-1, Class A-2, Class A-3 and Class A-4
Notes and the Class B Notes will, except in
certain circumstances described
4
<PAGE> 9
under "Summary -- The Revolving Period;
Subsequent Contracts and Subsequent Leased
Vehicles", remain fixed at their respective
Initial Class Note Balances during the Revolving
Period and, to the extent described herein, will
decline thereafter during the Amortization Period
as principal is paid on the Notes. The "Class
Note Balance" of any Class of Notes on any day
will equal the Initial Class Note Balance,
reduced by the sum of all distributions made in
respect of principal (including any
reimbursements of Loss Amounts allocable to such
Class and Note Principal Loss Amounts in respect
of such Class) on or prior to such day on the
related Class of Notes and those Note Principal
Loss Amounts in respect of such Class, if any,
which have not been reimbursed as described
herein. The "Class A Note Balance" will mean the
sum of the Class A-1, Class A-2, Class A-3 and
Class A-4 Note Balances. The "Note Balance" with
respect to the Notes will mean the sum of the
Class A Note Balance and the Class B Note
Balance.
The amount of the Transferor Interest will
initially equal $26,979,993 (which amount will
equal 2.25% 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 Notes -- The SUBI"
and "Summary -- The Contracts", and the Note
Balance. As more fully described under
"Description of the Notes -- General", the
Aggregate Net Investment Value can change daily.
REGISTRATION OF THE
NOTES...................... Each Class of Class A Notes initially will be
represented by one or more notes 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 Notes (each,
a "Note Owner") will 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 Note Owner will
be able to receive a definitive Note representing
such person's interest, except in the limited
circumstances described under "Description of the
Notes -- Definitive Notes". Unless and until
definitive Notes are issued, Note Owners will not
be recognized as holders of record of Class A
Notes 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 Notes, see
"Description of the Notes -- 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 November 25, 1997 (each,
a "Distribution Date"), distributions in respect
of the
5
<PAGE> 10
Class A Notes will be made to the holders of
record of the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes (respectively, the "Class A-1
Noteholders", the "Class A-2 Noteholders", the
"Class A-3 Noteholders" and the "Class A-4
Noteholders", and collectively, the "Class A
Noteholders") as of the day immediately preceding
such Distribution Date or, if Definitive Notes
are issued, the last day of the immediately
preceding calendar month (each such date, a
"Record Date"). On each Distribution Date, the
Indenture Trustee will distribute interest to the
Class A Noteholders, based on the related Class
Note Balance as of the immediately preceding
Distribution Date (after giving effect to
reductions in such Class Note Balance as of such
immediately preceding Distribution Date) or, in
the case of the first Distribution Date, on the
Initial Class Note Balance, in the case of (i)
the Class A-1 Notes, at an annual percentage rate
equal to 6.07% (the "Class A-1 Note Rate"), (ii)
the Class A-2 Notes, at an annual percentage rate
equal to 6.08% (the "Class A-2 Note Rate"), (iii)
the Class A-3 Notes, at an annual percentage rate
equal to 6.18% (the "Class A-3 Note Rate") and
(iv) the Class A-4 Notes, at an annual percentage
rate equal to 6.20% (the "Class A-4 Note Rate").
All such payments will be calculated on the basis
of a 360-day year consisting of twelve 30-day
months.
The final maturity date for each Class of Class A
Notes (the "Stated Maturity Date") will be the
November 2003 Distribution Date. A "Business Day"
will be a day other than a Saturday or Sunday or
a day on which banking institutions in New York,
New York, Chicago, Illinois, Wilmington,
Delaware, Deerfield Beach, Florida, or Mobile,
Alabama, are authorized or obligated by law,
executive order or government decree to be
closed. As described under "Description of the
Notes -- Distributions on the
Notes -- Distributions of Interest",
distributions in respect of interest on the Class
B Notes will be subordinated to distributions in
respect of interest on the Class A Notes under
certain circumstances.
THE REVOLVING PERIOD;
SUBSEQUENT CONTRACTS AND
SUBSEQUENT LEASED
VEHICLES................. No principal will be payable on the Notes until the
December 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 November 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 Note
Balances at constant levels during the Revolving
Period, except to the extent there are
unreimbursed Note Principal Loss Amounts in
respect of any such Class, in which case the Note
Balance of the related Class of Notes will
decrease until such time, if any, as such Note
Principal Loss Amounts are reimbursed as
described under "Description of the
Notes -- Distributions on the Notes -- Distribu-
6
<PAGE> 11
tions 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 Notes -- Early
Amortization Events".
Prior to the twenty-fifth calendar day (i) in each
month (beginning November 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 Noteholders
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 November
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 Noteholders 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 -- Risk of Absence of
Funds for Reimbursement of Loss Amounts", "The
Trust and the SUBI -- The SUBI" and "Description
of the Notes -- Distributions on the
Notes -- 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 Contracts -- Representations, Warranties and
Covenants". If allocations are being made in
respect of any one or more previous Other SUBI(s)
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.
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 8.0% (each, a "Discounted Contract")
will be discounted to present value at a rate
7
<PAGE> 12
of 8.0%, 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
Noteholders. "Collections" with respect to any
Collection Period will include all net
collections received on or 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, Net Repossessed
Vehicle Proceeds and other Net Liquidation
Proceeds and any Undistributed Transferor Excess
Collections in respect of the immediately
preceding Collection Period, but shall not
include, and (as appropriate) shall be net of (i)
Payments Ahead with respect to one or more future
Collection Periods, (ii) amounts paid to the
Servicer in respect of outstanding Advances,
Matured Leased Vehicle Expenses, Repossessed
Vehicle Expenses, other Liquidation Expenses and
Insurance Expenses, (iii) late payment charges,
payments of insurance premiums, excise taxes or
similar items and (iv) 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 Noteholders on the related Distribution Date
as reimbursement of Loss Amounts allocable to the
Notes (as described under "Description of the
Notes -- Distributions on the
Notes -- 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
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. "Net Matured Leased Vehicle
Proceeds" will be Matured Leased Vehicle Proceeds
received during a Collection Period net of
Matured Leased Vehicle Expenses incurred during
such Collection Period.
AMORTIZATION PERIOD;
PRINCIPAL PAYMENTS....... The "Amortization Period" will commence on the
earlier of November 1, 1998 (the "Amortization
Date") or the day on which an Early Amortization
Event occurs, and will end when each Class of
Notes has been paid in full and all Note
Principal Loss Amounts and Class B Note 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 Notes have been paid in full, all
Principal Collections for the related Collection
Period that are allocable to the Notes will be
8
<PAGE> 13
distributed as principal payments first to the
Class A-1 Noteholders until the Class A-1 Notes
have been paid in full, second, to the Class A-2
Noteholders until the Class A-2 Notes have been
paid in full, third, to the Class A-3 Noteholders
until the Class A-3 Notes 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 Noteholders
and to the holders of record of the Class B Notes
(the "Class B Noteholders" and, together with the
Class A Noteholders, the "Noteholders"),
respectively. On each Distribution Date after the
Class A-3 Notes 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 Notes will be distributed
to the Class A-4 Noteholders and the Class B
Noteholders, respectively, until the related
Class of Notes has been paid in full. Certain
Loss Amounts incurred during the Amortization
Period will be reimbursed to the Noteholders as
described below. The "Class A Percentage" will
mean the Class A Note Balance immediately after
the Class A-3 Notes have been paid in full, as a
percentage of the Note Balance at such time, and
the "Class B Percentage" will mean the Class B
Note Balance immediately after the Class A-3
Notes have been paid in full, as a percentage of
the Note 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 Notes exceed its Note
Balance. In addition, under certain
circumstances, (i) Class A Noteholders 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 Notes may instead be distributed in
respect of Loss Amounts allocable to the Class
A-4 Notes, Class A-4 Note Principal Loss Amounts
and accrued and unpaid interest thereon, as
described under "Description of the
Notes -- Distributions on the
Notes -- Distributions of Interest", "Description
of the Notes -- Distributions on the
Notes -- Application and Distributions of
Principal" and "Risk Factors -- Risk of Absence
of Funds for Reimbursement of Loss Amounts".
See "Description of the Notes -- 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 Notes 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 Note
Balance and the denominator of which is 99.8% of
the Aggregate Net Investment Value, calculated as
described under "Summary -- 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
9
<PAGE> 14
Event occurs. See "Description of the
Notes -- 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 Noteholders in amounts
that are greater relative to the declining
balance of the Note 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 Notes.
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
Noteholders in the same manner and priority as
principal is distributed in respect of the Notes
as described in the preceding paragraphs. See
"Description of the Notes -- Distributions on the
Notes -- Distributions of Interest" and
"Description of the Notes -- The Accounts -- The
SUBI Collection Account -- Withdrawals from the
SUBI Collection Account" for further information
regarding the foregoing matters.
OPTIONAL REDEMPTION........ The Notes will be subject to redemption if the
Transferor exercises its option to purchase all
of the assets of the Trust, which option may be
exercised 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 Note Balance has been
reduced to an amount less than or equal to 10% of
the Initial Note Balance, at a purchase price
determined as described under "Description of the
Notes -- Termination of the Trust; Redemption of
the Notes".
SECURITY FOR THE NOTES..... The security for the Notes 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 U.S. 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
October 1, 1997 (the "SUBI Supplement" and,
together with the Origination Trust Agreement,
the "SUBI Trust Agreement"). The Indenture
Trustee and the Owner Trustee will be third party
beneficiaries of the SUBI Trust Agreement. The
Transferor will permanently hold the Retained
SUBI Interest, representing
10
<PAGE> 15
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
Notes. For more information regarding the SUBI,
see "The Trust and the SUBI" and "The Origination
Trust".
B. 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 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" or
the "RV Insurer") 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 Owner Trustee, the
Indenture Trustee 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
Notes -- 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 Notes -- Distributions on the
Notes -- Distributions of Interest". For a fuller
description of these mechanics, see "Security for
the Notes -- 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 Notes -- Distributions on the
Notes -- 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 Notes -- Subordination of the Transferor
Interest".
11
<PAGE> 16
C. THE RESERVE FUND........ The Trust will have the benefit of the Reserve Fund
maintained with the Indenture Trustee for the
benefit of the Noteholders and the Transferor (as
holder of the Transferor Interest). The Reserve
Fund is designed to provide additional funds for
the benefit of the Noteholders in the event that
on any Distribution Date Interest Collections
allocable to the Notes 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 Note
Rate on the Notes on such Distribution Date, (ii)
any Loss Amount for such Collection Period
allocable to the Notes, calculated as described
under "Description of the Notes -- Calculation of
Investor Percentage and Transferor Percentage",
and (iii) any unreimbursed Note Principal Loss
Amounts, together with interest thereon at the
applicable Note Rate. Monies on deposit in the
Reserve Fund also will be available to
Noteholders should Collections ultimately be
insufficient to pay in full any Class of Notes.
For further information regarding the Reserve
Fund, see "Security for the Notes -- The Reserve
Fund".
The Reserve Fund will be created with an initial
deposit by the Transferor of $11,990,580 (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
Notes -- Distributions on the
Notes -- 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 Notes -- 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 Notes -- The Reserve Fund". For further
information regarding deposits into the Reserve
Fund, see "Description of the
Notes -- Distributions on the
Notes -- 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.
12
<PAGE> 17
D. SUBORDINATION OF THE
TRANSFEROR INTEREST..... The Transferor Interest will initially equal
$26,979,993, and will represent the entire equity
interest in the Trust. However, to provide
additional credit enhancement for the Notes, 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 Notes -- Distributions
on the Notes -- 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 Notes -- Certain Payments to the
Transferor".
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 49,166 lease
contracts. As of the Initial Cutoff Date, the
Lease Rate of the Initial Contracts ranged from
3.08% to 12.94%, with a weighted average Lease
Rate of 8.80%. The aggregate of the original
principal balances of the Initial Contracts as of
their respective dates of origination was
$1,266,000,709. As of the Initial Cutoff Date,
the aggregate Outstanding Principal Balance of
the Initial Contracts was $1,205,609,324, the
aggregate Residual Value of the Initial Leased
Vehicles was $833,211,953 and the Initial
Contracts had a weighted average original term of
40.96 months and a weighted average remaining
term to scheduled maturity of 34.47 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
13
<PAGE> 18
(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 Noteholders,
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 the present
value of all remaining Monthly Payments on such
Contract and the Residual Value of the related
Leased Vehicle, calculated using a discount rate
of 8%, 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 $1,201,460,915.
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 Owner Trustee in the Leased Vehicles by
virtue of its beneficial interest in the SUBI or
any security interest of the Indenture Trustee.
Therefore, the Indenture Trustee will not have a
perfected lien in the Leased Vehicles, although
it will be deemed to have a perfected security
interest in the SUBI Certificate and certain
other assets. For further information regarding
the titling of the Leased Vehicles and the
interest of the Indenture 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".
THE ACCOUNTS............... The Indenture Trustee will maintain the SUBI
Collection Account for the benefit of the
Noteholders. 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
("Repos-
14
<PAGE> 19
sessed 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 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 "Description of the
Notes -- The Accounts -- The SUBI Collection
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. 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
Indenture Trustee for the benefit of the
Noteholders 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 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 Noteholders 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
Notes. 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 "Description of the Notes -- The
Accounts -- The Distribution Account" and "-- The
SUBI Collection Account".
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 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
15
<PAGE> 20
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................. Cadwalader, Wickersham & Taft, special federal
income tax counsel to the Transferor, is of the
opinion that the Class A Notes will be
characterized as indebtedness for federal income
tax purposes, as described under "Material Income
Tax Considerations -- Federal Taxation". Each
Class A Noteholder, by its acceptance of a Class
A Note, and each Note Owner, by its acquisition
of an interest in the Class A Notes, will agree
to treat the Class A Notes 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 the Class A Notes,
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 Notes, 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
Notes should consult its counsel before making a
purchase, and the fiduciary of such plan and such
legal advisors should consider the matters
discussed herein.
RATINGS.................... It is a condition of issuance of the Class A Notes
that each of Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's ("Standard &
Poor's") and Fitch Investors Service, L.P.
("Fitch" and, together with Moody's and Standard
& Poor's, the "Rating Agencies") rates each Class
of Class A Notes in its highest rating category.
The ratings of the Class A Notes 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 Notes, inasmuch as such rating does not
comment as to market price or suitability for a
particular investor. The ratings of the Class A
Notes address the likelihood of the payment of
principal of and interest on the Class A Notes
pursuant to their terms. For further information
concerning the ratings assigned to the Class A
Notes, including the limitations of such ratings,
see "Ratings of the Class A Notes".
16
<PAGE> 21
RISK FACTORS
RISK OF LIMITED LIQUIDITY; ABSENCE OF SECONDARY MARKET
There is currently no market for the Class A Notes. The Underwriters
expect, but will not be obligated, to make a market in each Class of Class A
Notes. There can be no assurance that a secondary market for the Class A Notes
will develop or, if one does develop, that it will provide the related
Noteholders with liquidity of investment or will continue for the life of the
related Class A Notes.
RISK OF ABSENCE OF FUNDS FOR 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 Noteholders 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 Noteholders will be entitled to receive the Class A-1
Allocation Percentage of the Investor Percentage of such Loss Amounts, the Class
A-2 Noteholders will be entitled to receive the Class A-2 Allocation Percentage
of the Investor Percentage of such Loss Amounts, the Class A-3 Noteholders will
be entitled to receive the Class A-3 Allocation Percentage of the Investor
Percentage of such Loss Amounts and the Class A-4 Noteholders 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) the Servicing Fee (so long as World Omni is the Servicer); (iii) Transferor
Amounts otherwise payable to the Transferor in respect of the Transferor
Interest; (iv) Insured Residual Value Loss Amounts paid under the Residual Value
Insurance Policy; (v) amounts on deposit in the Reserve Fund; (vi) amounts
otherwise payable as interest to the Class B Noteholders; and (vii) in the case
of the Class A-4 Notes, amounts otherwise payable as principal to the Class B
Noteholders. With respect to any Distribution Date, the "Class A-1 Allocation
Percentage" will mean the Class A-1 Note Balance as a percentage of the Note
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 Notes, 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 Notes. To the extent that Principal Collections and Loss
Amounts that otherwise would be reimbursed to the Noteholders 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 Notes 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 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 (up to the respective
Discounted Principal Balance)
17
<PAGE> 22
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.
As more fully described under "Security for the Notes -- 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 Notes -- Distributions on the
Notes -- 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 Notes.
MATURITY AND PREPAYMENT RISKS
No principal will be paid to any Class A Noteholders until the December
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 Noteholders 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
Notes. See "Description of the Notes -- 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 Notes 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 Noteholders during the Amortization Period
according to the timing of their receipt, the rate of principal payments on the
Notes and the yield to maturity of the Class A Notes 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 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 Noteholders as more fully described under
"Description of the Notes -- Distributions on the Notes -- Distributions of
Interest". The rate of payment of principal of the
18
<PAGE> 23
Class A Notes 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 all of the assets of the Trust at its option under certain
circumstances pursuant to the Agreement, thereby triggering a redemption of the
Notes. 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 Notes. See
"Description of the Notes -- Termination of the Trust; Redemption of the Notes",
"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, 1996 and the six months ended June 30, 1997, an average of
approximately 83% 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".
RISKS ASSOCIATED WITH SEQUENTIAL PAYMENT OF PRINCIPAL ON THE NOTES
In general, no principal payments will be made on the Class A-2, Class A-3,
Class A-4 or Class B Notes until the Class A-1 Notes have been paid in full, on
the Class A-3, Class A-4 or Class B Notes until the Class A-1 and Class A-2
Notes have been paid in full, or on the Class A-4 or Class B Notes until the
Class A-1, Class A-2 and Class A-3 Notes 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 Notes will be
distributed first to the Class A-1 Noteholders until the Class A-1 Notes have
been paid in full, second to the Class A-2 Noteholders until the Class A-2 Notes
have been paid in full, third to the Class A-3 Noteholders until the Class A-3
Notes 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 Noteholders and the Class B
Noteholders, respectively.
Principal payments in respect of the Class A-4 and Class B Notes 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 Notes have been paid in
full. The Investor Percentage of Loss Amounts will be allocated among the
Noteholders 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, and then
reimbursed out of available funds in the amounts and order of priority described
in "Description of the Notes -- Distributions on the Notes -- Distributions of
Interest". As a result, Class A-2 Notes may be allocated more Loss Amounts than
the Class A-1 Notes as a relative percentage of their respective Initial Note
Balances, Class A-3 Notes may be allocated more Loss Amounts than the Class A-1
or Class A-2 Notes as a relative percentage of their respective Initial Note
19
<PAGE> 24
Balances, and Class A-4 Notes may be allocated more Loss Amounts than the Class
A-1, Class A-2 or Class A-3 Notes as a relative percentage of their respective
Initial Note 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 Note Balance of each Class of
Class A Notes 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 Notes -- 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 Noteholders based on their respective Class Note Balances
until the Class A Notes have been paid in full, and second, to the Class B
Noteholders.
RISKS ASSOCIATED WITH 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 Notes -- The Residual Value Insurance Policy".
RISKS ASSOCIATED WITH 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 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 Notes -- 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".
20
<PAGE> 25
RISKS ASSOCIATED WITH 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. Such a PBGC lien would have priority over the interest of
Noteholders in any SUBI Assets that are not subject to a prior perfected
security interest in favor of the Indenture Trustee (i.e., the Leased Vehicles).
The ratings of the Class A Notes 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 Notes address the likelihood of the payment
of principal of and interest on the Class A Notes pursuant to their terms, as
described under "Ratings of the Class A Notes". 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. 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 these conditions will continue in the
future.
RISKS ASSOCIATED WITH VICARIOUS TORT LIABILITY
Although the Origination Trust will own the Leased Vehicles and the Trust
will have an interest therein evidenced by the SUBI, the Leased Vehicles 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 Notes could incur a
loss on their investment. See "Security for the Notes -- 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. 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 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 Notes -- 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
21
<PAGE> 26
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 Notes 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".
RISKS IN THE EVENT OF AN 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 Notes 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.
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
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
22
<PAGE> 27
Retained SUBI Interest and the rights of the Indenture Trustee as pledgee of the
SUBI Certificate, or (ii) if such transfer does not constitute a sale, then the
Agreement creates a valid perfected security interest of the Owner Trustee 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 Indenture Trustee,
as more fully described under "Security for the Notes -- 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 Noteholders 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 Notes. For
further information regarding the Origination Trust, see "The Origination
Trust".
THE TRUST
Pursuant to the Agreement, the Transferor will create the Trust by
transferring and assigning the 99.8% SUBI Interest, represented by the SUBI
Certificate, to the Owner Trustee in exchange for the Notes and a certificate
evidencing the Transferor Interest. (Agreement, Section 2.02). The property of
the Trust will primarily include (i) the 99.8% SUBI Interest which evidences a
99.8% 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 Owner 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 investments of such amounts.
If the protection provided to the Class A Noteholders by (i) the Investor
Percentage of certain excess Interest Collections; (ii) amounts otherwise
payable to the Transferor in respect of the Transferor Interest; (iii) so long
as World Omni is the Servicer, amounts otherwise payable in respect of the
Servicing Fee; (iv) Insured Residual Value Loss Amounts paid under the Residual
Value Insurance Policy; (v) available monies on deposit in the Reserve Fund;
(vi) the subordination of interest payments otherwise payable to the Class B
Noteholders; and (vii) in the case of the Class A-4 Notes, the subordination of
principal payments otherwise payable to the Class B Noteholders is insufficient,
the Class A Noteholders 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 Indenture Trustee which in turn will be
distributed to the Noteholders. 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 Notes may thus be
subject to delays in payment and may incur losses on their investment in the
Class A Notes 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
Notes -- The Reserve Fund", "Additional Document Provisions -- The
23
<PAGE> 28
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
(which account, and the funds therein, will be pledged to the Indenture Trustee
for the benefit of the Noteholders), (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 Notes -- Distributions
on the Notes -- 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 Notes 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, the Transferor will transfer and assign the SUBI Certificate to the
Owner Trustee pursuant to the Agreement, and the Owner Trustee will pledge the
SUBI Certificate to the Indenture Trustee pursuant to the Indenture. 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 Notes.
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")
24
<PAGE> 29
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 Owner Trustee) and their pledgees (including
the Indenture Trustee) 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 Notes or a beneficial interest in the Notes,
Noteholders and Note 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 "Additional Document
Provisions -- The SUBI Trust Agreement -- The SUBI, 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 partner
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.
25
<PAGE> 30
THE ORIGINATION TRUSTEE
The Origination Trustee is a wholly owned, special purpose subsidiary of
U.S. Bank that was organized in 1993 solely for the purpose of acting as
Origination Trustee. U.S. 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
U.S. 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, U.S. 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 Owner Trustee, as holder of the SUBI Certificate, or the
Indenture Trustee, as pledgee 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
26
<PAGE> 31
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 Notes (i.e., the proceeds of
the public offering of the Class A Notes 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
partner 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 asset-backed notes and
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 $90
million. The Support Agreement does not constitute a guarantee by World Omni of
the Notes 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 Indenture Trustee or the Noteholders would be able to enforce the Support
Agreement directly against World Omni.
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.
27
<PAGE> 32
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 for review and credit evaluation to one of World Omni's central
operations centers, which are located in St. Louis, Missouri (the "St. Louis
Center") and Deerfield Beach, Florida (the "Deerfield Office"), as applicable.
At the St. Louis 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 St. Louis
Center and a center located in Mobile, Alabama (the "Mobile Center"), which
handle collection activities, operational accounting, insurance verification and
dealer and customer inquiries for World Omni. In addition, the St. Louis 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 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, $228 million
and $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.
28
<PAGE> 33
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 and annual income. Upon receipt by the applicable office, 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 various 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, World Omni
implemented an updated scorecard system, also developed by Fair, Isaac
specifically for World Omni, in February 1997. The updated scorecard system
includes three retail credit and two lease scorecards (which, for lease
scorecards, differ according to the geographic location of the dealer and, for
retail scorecards, whether the vehicle is new or used and the credit "depth" of
the applicant). The revised scorecards place a greater emphasis upon 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 and, under certain
circumstances, lessees having certain minimum credit bureau scores may be
automatically approved.
For the six months ended June 30, 1997 and 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 66%, 70%, 71% and 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. A majority of all of the
29
<PAGE> 34
Initial Contracts were, and substantially all Subsequent Contracts will be,
underwritten using the updated numerical scorecards. 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 any payments due from the
customer. 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 by World Omni (through its third-party contracted agents) upon
execution of the lease contract.
COLLECTION, REPOSSESSION AND DISPOSITION PROCEDURES
Collection efforts are made by World Omni as Servicer, which are enhanced
by the use of an automated dialing system. Notwithstanding the centralization of
collection efforts, repossessions continue to be handled locally, as independent
contractors are employed in connection with repossessions. In general,
guidelines for collection of lease contracts and repossession of leased vehicles
include the following:
<TABLE>
<CAPTION>
NUMBER OF DAYS DELINQUENT ACTION
- ------------------------- ------
<S> <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
30
<PAGE> 35
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 and as of and for the six month period ended June 30, 1997.
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. During the six month period
ended June 1997, delinquencies remained steady.
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.
Net Repossession Losses as a percentage of Average Net Receivables
increased in both 1995 and 1996. The increase in 1995 was driven primarily by an
increase in the Average Net Repossession Loss per Liquidated Lease Contract
which was generally due to higher average amounts being financed and higher
residual values. These same factors continued to cause an increase in the
Average Net Repossession Loss per Liquidated Lease Contract during 1996. In
addition, loss severity during 1996 was negatively affected by a general
weakening in the used car market. 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. The
trends experienced during 1996 continued through the first six months of 1997.
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. There are no short term leases
included in the Initial Contracts nor will any be included in the Subsequent
Contracts. In addition, during 1996 there was some weakening in the used car
market relative to the prior three years. Generally, the 1996 trends continued
into 1997, resulting in higher vehicle returns and losses through June 1997.
Toward the end of 1996 and through the first six months of 1997, the used
car market has been relatively weak. If this trend were to continue, World
Omni's returns and losses in the future could be negatively affected. 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
its loss experience or those recent negative trends will materially adversely
affect Class A Noteholders or World Omni's business. However, no assurances can
be given in this regard.
31
<PAGE> 36
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,
AT JUNE 30, --------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount of Lease
Contracts(1)............ $5,717,470 $4,641,992 $2,798,830 $1,823,823 $1,039,888 $ 624,017
Ending Number of Lease
Contracts............... 271,827 231,942 156,471 114,298 71,198 48,646
Percentage of Lease
Contracts
Delinquent(2)(3)(4)
31-60 Days................ 1.37% 1.42% 1.12% 0.97% 0.88% 1.55%
61-90 Days................ 0.16 0.13 0.08 0.03 0.04 0.03
91 Days or More........... 0.03 0.03 0.01 0.01 0.00 0.00
---------- ---------- ---------- ---------- ---------- ----------
Total........... 1.56% 1.58% 1.21% 1.01% 0.92% 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 June 30, 1997 approximately 261
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.
32
<PAGE> 37
RETAIL VEHICLE LEASE CONTRACT REPOSSESSION AND LOSS EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ------------------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- ---------- ---------- ---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Dollar Amount of Lease
Contracts(1).............. $5,717,470 $4,641,992 $2,798,830 $1,823,823 $1,039,888 $624,017
Ending Number of Lease
Contracts................. 271,827 231,942 156,471 114,298 71,198 48,646
Average Lease Contracts
Outstanding............... 252,972 194,492 133,069 93,023 58,605 46,013
Repossessions:
Number of Repossessions... 2,863 4,297 2,519 1,776 1,287 1,916
Number of Repossessions as a
Percentage of:
Lease Contracts
Outstanding............. 2.11%(4) 1.85% 1.61% 1.55% 1.81% 3.94%
Average Lease Contracts
Outstanding............. 2.26%(4) 2.21% 1.89% 1.91% 2.20% 4.16%
Losses:
Average Net Receivables
Outstanding............. $5,206,731 $3,718,336 $2,243,790 $1,426,382 $ 817,452 $548,852
Net Repossession
Losses(2)............... $ 17,114 $ 23,196 $ 11,347 $ 6,283 $ 3,811 $ 5,759
Average Net Repossession
Loss per Liquidated
Lease Contract(1)(3).... $ 5,978 $ 5,398 $ 4,505 $ 3,538 $ 2,961 $ 3,006
Net Repossession Losses as
a Percentage of Average
Net Receivables......... 0.66%(4) 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.
(4) This number has been annualized.
RESIDUAL VALUE LOSS EXPERIENCE(1)
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, --------------------------------------------------
1997 1996 1995 1994 1993 1992
----------- --------- --------- ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Number of Leased Vehicles
Scheduled to Terminate............... 40,682 36,413 25,677 14,775 17,218 15,155
Number of Leased Vehicles Returned to
and Sold by World Omni............... 9,719 5,018 4,611 779 2,050 2,142
Full Termination Ratio(2).............. 23.9% 13.8% 18.0%(3) 5.3% 11.9% 14.1%
Total Losses/(Gains) on Vehicles that
Reached Scheduled Term(4)............ $10,228(5) $3,700(5) $ 1,893 $(168) $ 503 $ 894
Average Loss/(Gain)(4)(6).............. $ 1,052 $ 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 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.
(5) Does not include losses related to World Omni's incentive programs of
approximately $778,697 and $222,303 at June 30, 1997 and December 31, 1996,
respectively.
(6) Dollars not in thousands.
33
<PAGE> 38
THE CONTRACTS
GENERAL
The Initial Contracts will consist of a pool of 49,166 closed-end retail
lease contracts, having an aggregate Outstanding Principal Balance as of the
Initial Cutoff Date of $1,205,609,324, 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 Notes -- Distributions on the Notes -- 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 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 be reinvested in
eligible leases selected by World Omni in its discretion, except that (i)
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 (ii) 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.
34
<PAGE> 39
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 Risks" 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 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.
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 Notes.
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, 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 Noteholders and, in the case of the Class A-4 Notes, the
35
<PAGE> 40
subordination of principal payments otherwise payable to the Class B
Noteholders, in each case to the extent described herein, investors in the Class
A Notes could suffer a loss on their investment.
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 October 31, 1998 in the case of the
Subsequent Contracts; (iii) has a Maturity Date on or after February 2, 1999 and
no later than August 19, 2002 in the case of the Initial Contracts and no later
than October 31, 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.................. $25,749.52 $8,955.47 $95,634.03
Outstanding Principal Balance(1)............ $24,521.20 $8,522.29 $87,834.16
Residual Value.............................. $16,946.91 $3,181.30 $59,950.00
Lease Rate(1)............................... 8.80%(2) 3.08% 12.94%
Seasoning (months)(1)....................... 6.49(2) 2 20
Remaining Term (months)(1).................. 34.47(2) 16 58
</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.................................................. 22,330 45.42%
United States manufacturers.............................. 23,962 48.74
Other Japanese manufacturers............................. 283 0.57
Other foreign manufacturers.............................. 2,591 5.27
--------- -------
Total.......................................... 49,166 100.00%
========= =======
</TABLE>
36
<PAGE> 41
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
INITIAL AGGREGATE
PERCENTAGE OF CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING OUTSTANDING PRINCIPAL
LEASE RATE RANGE INITIAL CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE BALANCE
- ---------------- ----------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
3.00% to 3.99%............... 100 0.20% $ 1,460,037.95 0.12%
4.00% to 4.99%............... 668 1.36 10,014,879.19 0.83
5.00% to 5.99%............... 2,348 4.78 39,219,994.41 3.25
6.00% to 6.99%............... 2,202 4.48 38,995,666.87 3.24
7.00% to 7.99%............... 2,333 4.74 53,091,799.72 4.40
8.00% to 8.99%............... 19,764 40.20 540,415,038.57 44.83
9.00% to 9.99%............... 17,613 35.82 424,149,518.06 35.18
10.00% to 10.99%............... 2,645 5.38 63,288,739.00 5.25
11.00% to 11.99%............... 1,303 2.65 31,455,603.51 2.61
12.00% to 12.99%............... 190 0.39 3,518,046.56 0.29
------- ------- ----------------- -------
Total................ 49,166 100.00% $1,205,609,323.84 100.00%
======= ======= ================= =======
</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
INITIAL AGGREGATE
PERCENTAGE OF CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING OUTSTANDING PRINCIPAL
YEAR OF MATURITY INITIAL CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE BALANCE
- ---------------- ----------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
1999........................... 3,897 7.93% $ 98,769,916.91 8.19%
2000........................... 33,976 69.10 805,087,520.43 66.78
2001........................... 9,209 18.73 240,966,302.86 19.99
2002........................... 2,084 4.24 60,785,583.64 5.04
------- ------- ----------------- -------
Total................ 49,166 100.00% $1,205,609,323.84 100.00%
======= ======= ================= =======
</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
INITIAL AGGREGATE
PERCENTAGE OF CUTOFF DATE INITIAL CUTOFF DATE
NUMBER OF NUMBER OF OUTSTANDING OUTSTANDING PRINCIPAL
STATE INITIAL CONTRACTS INITIAL CONTRACTS PRINCIPAL BALANCE BALANCE
- ----- ----------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Alabama........................ 3,401 6.92% $ 78,400,628.98 6.50%
Florida........................ 15,961 32.46 363,380,607.48 30.14
Georgia........................ 6,869 13.97 159,289,986.51 13.21
North Carolina................. 8,805 17.91 200,080,496.04 16.60
South Carolina................. 2,295 4.67 53,324,895.42 4.42
All other states............... 11,835 24.07 351,132,709.41 29.13
------- ------- ----------------- -------
Total................ 49,166 100.00% $1,205,609,323.84 100.00%
======= ======= ================= =======
</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
37
<PAGE> 42
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
Noteholders) 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 Indenture 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 Notes
or the Class B Notes, after
38
<PAGE> 43
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; (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 67%. (Servicing Agreement, Section 8.02).
The Servicing Agreement will provide that upon the discovery by the
Origination Trustee, World Omni, the Owner Trustee, the Indenture 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 Noteholders 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 Notes.
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 over calendar
years 1994, 1995, 1996 and the six months ended June 30, 1997 an average of
approximately 83% 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 for the year 1996 and the six months ended June 30, 1997 the
losses relating to these incentives were $223,303 and $778,697, respectively.
World Omni anticipates expanding its use of these incentive programs 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 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
39
<PAGE> 44
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 Notes
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 Noteholders. 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 Noteholders who receive such amounts may
not be able to reinvest the related payments of principal received on the Class
A Notes at yields as high as the related Note 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 Notes. 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 Notes.
Additionally, although monies on deposit in the Accounts and Principal
Collections (and Loss Amounts that otherwise would be reimbursed to the
Noteholders) 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
Notes -- Distributions on the Notes -- 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
Noteholders will be borne entirely by the Class A Noteholders.
The yield to an investor who purchases Class A Notes 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 Notes 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 Notes, (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 Noteholders until the Class A-1 Notes have been paid in
full, by Class A-3 Noteholders until the Class A-1 and Class A-2 Notes have been
paid in full or by Class A-4 and Class B Noteholders until the Class A-1, Class
A-2 and Class A-3 Notes have been paid in full. In addition, the Class A
Percentage and the Class B Percentage of Principal Collections allocable to the
Notes will be calculated when the Class A-1, Class A-2 and Class A-3 Notes have
been paid in full, and then used to determine the distribution of principal
payments on the Class A-4 Notes and the Class B Notes, as described under "Risk
Factors -- Maturity and Prepayment Risks" and "-- Risks Associated with
Sequential Payment of Principal on the Notes", which may affect the maturity and
yield on the Class A-4 Notes. The Investor Percentage of Loss Amounts will be
allocated among the Noteholders 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, and then reimbursed out of available funds in the amounts and order of
priority described in "Description of the Notes -- Distributions on the
Notes -- Distributions of
40
<PAGE> 45
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
Indenture Event of Default (as described under "Additional Document
Provisions -- The Indenture -- Events of Default"), to the extent such net
proceeds constitute Principal Collections, will be distributed first, on a pro
rata basis, to the Class A Noteholders based on their respective Class Note
Balances until the Class A Notes have been paid in full, and second, to the
Class B Noteholders.
The following information is provided solely to illustrate the effect of
prepayments of the Contracts on the Class A-1 Note Balance, the Class A-2 Note
Balance, the Class A-3 Note Balance and the Class A-4 Note Balance and the
weighted average life of each Class of Class A Notes 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 property of the Trust as described herein; (v) all distributions
of principal (including any Accelerated Principal Distribution Amount) and
interest on the Class A Notes 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
October 31, 1998; (ix) the Initial Contracts have assumed Lease Rates of 8.0%
and were originated six 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 twenty-fifth day of the
following calendar month, in Subsequent Contracts that have stated terms of
three years, Lease Rates of 8.0% 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 Noteholders, 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 Noteholders, 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 Note Balance, the Class A-2
Note Balance, the Class A-3 Note Balance or the Class A-4 Note Balance, as the
case may be, and the weighted average lives of each Class of Class A Notes set
forth in the tables. In addition, since the Contracts will have characteristics
which differ from those
41
<PAGE> 46
assumed in preparing the tables, distributions of principal on the Class A Notes
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 Note Balance
of each Class of Class A Notes 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 NOTES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
-----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
November 1997...................................... 100% 100% 100% 100% 100%
May 1998........................................... 100 100 100 100 100
November 1998...................................... 100 100 100 100 100
May 1999........................................... 71 54 32 2 0
November 1999...................................... 23 0 0 0 0
May 2000........................................... 0 0 0 0 0
Weighted Average Life (Years)(1)................... 1.77 1.57 1.43 1.33 1.27
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The weighted average life of the Class A-1 Notes 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 Note Balance.
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-2 NOTES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
-----------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
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 42
November 1999...................................... 100 84 24 0 0
May 2000........................................... 0 0 0 0 0
Weighted Average Life (Years)(1)................... 2.42 2.24 1.95 1.71 1.55
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) The weighted average life of the Class A-2 Notes 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 Note Balance.
42
<PAGE> 47
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-3 NOTES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
November 1997........................................... 100% 100% 100% 100% 100%
May 1998................................................ 100 100 100 100 100
November 1998........................................... 100 100 100 100 100
May 1999................................................ 100 100 100 100 100
November 1999........................................... 100 100 100 58 0
May 2000................................................ 92 68 31 0 0
November 2000........................................... 0 0 0 0 0
Weighted Average Life (Years)(1)........................ 2.72 2.64 2.46 2.10 1.74
==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) The weighted average life of the Class A-3 Notes 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 Note Balance.
PERCENTAGE OF INITIAL CLASS A PRINCIPAL BALANCE REMAINING
AND WEIGHTED AVERAGE LIFE OF CLASS A-4 NOTES
<TABLE>
<CAPTION>
PREPAYMENT ASSUMPTION
-------------------------------------
DISTRIBUTION DATE 0% 50% 100% 150% 200%
- ----------------- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
November 1997.......................................... 100% 100% 100% 100% 100%
May 1998............................................... 100 100 100 100 100
November 1998.......................................... 100 100 100 100 100
May 1999............................................... 100 100 100 100 100
November 1999.......................................... 100 100 100 100 59
May 2000............................................... 100 100 100 53 0
November 2000.......................................... 65 47 0 0 0
May 2001............................................... 51 0 0 0 0
November 2001.......................................... 0 0 0 0 0
Weighted Average Life (Years)(1)....................... 3.40 3.18 2.94 2.53 2.07
==== ==== ==== ==== =====
</TABLE>
- ---------------
(1) The weighted average life of the Class A-4 Notes 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 Note Balance.
CLASS A NOTE FACTORS AND TRADING INFORMATION;
REPORTS TO CLASS A NOTEHOLDERS
The "Class A-1 Note Factor", the "Class A-2 Note Factor", the "Class A-3
Note Factor" and the "Class A-4 Note 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 Note 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
Note Balance of the related Class of Class A Notes. Each Note 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 Note Principal Loss Amounts. During the
Amortization Period, each Note Factor will decline to reflect reductions in the
related Note Balance resulting from distributions of principal and unreimbursed
Class A-1, Class A-2, Class A-3 or Class A-4 Note Principal Loss Amounts, if
any. The portion of the Class A Note Balance for a given month allocable to a
Class A Noteholder can be determined by multiplying the original denomination of
the holder's Class A Note by the related Note Factor for that month.
43
<PAGE> 48
Pursuant to the Agreement, U.S. Bank, as Indenture Trustee, will provide to
all registered holders of the Class A Notes (which shall be Cede as the nominee
of DTC unless Definitive Notes 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 Note Factors and various other items of information. Note Owners
may obtain copies of such reports upon a request in writing to the Indenture
Trustee. In addition, Class A Noteholders 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
Noteholders and Note Owners, see "Description of the Notes -- Statements to
Noteholders" and "Description of the Notes -- Book-Entry Registration".
DESCRIPTION OF THE NOTES
The Notes will be issued pursuant to the Indenture, a form of which,
together with forms of the Agreement, 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 " The Contracts -- Characteristics at the
Contracts -- Representations, Warranties and Covenants", "Security for the
Notes" 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
Indenture, 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 Notes will be issued in denominations of $1,000 and integral
multiples thereof in book-entry form. (Indenture, Section 2.02). The Class A
Notes will initially be represented by notes registered in the name of Cede, the
nominee of DTC. No Note Owner will be entitled to receive a note representing
such owner's Note, except as set forth below. Unless and until Class A Notes are
issued in fully registered certificated form ("Definitive Notes") under the
limited circumstances described below, all references herein to distributions,
notices, reports and statements to Class A Noteholders will refer to the same
actions made with respect to DTC or Cede, as the case may be, for the benefit of
Note Owners in accordance with DTC procedures. (Indenture, Section 2.10). See
"Description of the Notes -- Book-Entry Registration" and " -- Definitive
Notes".
The outstanding principal amount of each class of Notes (each, a "Class")
at any time will be equal to the initial principal amount of such Class of
Notes, less the sum of (i) all payments made on or prior to such date allocable
to principal, (ii) the amount of Note Principal Loss Amounts allocable to such
Class of Notes, if any, which have not been reimbursed as described herein and
(iii) in the case of the Class B Notes, any unreimbursed Class B Note Principal
Carryover Shortfall. (Agreement, Section 1.01). See "Description of the
Notes -- Distributions on the Notes". Each Note will represent the right to
receive payments of interest at the related Note 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 Notes of the related
Class, 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 Notes -- Distributions on the Notes", the right of the
Class B Notes to receive payments of interest and principal also will be
subordinated to the right of the Class A Notes to receive such payments.
44
<PAGE> 49
The Transferor will permanently retain the certificate representing the
Transferor Interest (the "Transferor Certificate"), which will represent the
entire equity 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 Notes -- Calculation of
Investor Percentage and Transferor Percentage". The Transferor Certificate will
be subordinated to the Notes to the extent described under "Description of the
Notes -- Certain Payments to the Transferor".
During the Revolving Period, the Note Balance will remain constant except
in certain limited circumstances where there are unreimbursed Note Principal
Loss Amounts. During the Amortization Period, the Note Balance will decline as
the Investor Percentage of Principal Collections allocable to the SUBI Interest
and Accelerated Principal Distribution Amounts are distributed to the
Noteholders and as Note 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.
TRANSFER OF THE SUBI INTEREST
On the Closing Date, pursuant to the Agreement, the Transferor will deliver
the SUBI Certificate to the Owner Trustee and transfer and assign to the Owner
Trustee, without recourse, all of its right, title and interest in and to the
SUBI Interest represented by the SUBI Certificate. The Owner Trustee will,
concurrently with such delivery, transfer and assignment, deliver the Notes and
the Transferor Certificate 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
Owner 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 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 Notes and the Transferor
Certificate, based on the applicable Investor Percentage and the Transferor
Percentage for the related Collection Period, all Interest Collections and
(during the
45
<PAGE> 50
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 Note Balance on the last day of the
immediately preceding Collection Period (or, in the case of the first Collection
Period, the Initial Note 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 Note 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 Noteholders based on the relationship of the Note 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 Note 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 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 Indenture 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
Noteholders.
46
<PAGE> 51
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
Notes -- Distributions on the Notes -- 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 NOTES
General
On the second Business Day prior to each Distribution Date (each, a
"Determination Date"), the Servicer will inform the Indenture 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 Note 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 Noteholders and to the Transferor in respect of the
Transferor Interest and the Reserve Fund Supplemental Requirement (if any).
(Servicing Agreement, Sections 9.02 and 10.01).
Distributions of Interest
On each Distribution Date, the Indenture Trustee will make the following
payments in the amounts and order of priority described below. The Indenture
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 Noteholders during the
Amortization Period, amounts that would otherwise be distributable to the Class
B Noteholders 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 Indenture Event of Default as a result of the
Indenture Trustee having received written instructions from holders of
Notes evidencing Voting Interests of not less than a majority in interest
of the Class A Notes (voting together as a single class) or a majority in
interest of the Class A Notes and Class B Notes (voting together as a
single class) to sell or dispose of the SUBI Interest, to the Indenture
Trustee, the Investor Percentage of Capped Indenture Trustee Administrative
Expenses, and to the Owner Trustee, the Investor Percentage of Capped Owner
Trustee Administrative Expenses;
(ii) to each Class of Class A Noteholders, interest at the related
Note Rate on the Class A-1, Class A-2, Class A-3 or Class A-4 Note Balance,
as applicable, as of the immediately preceding Distribution Date (after
giving effect to any reduction in such Note 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 Note
Balance, as applicable, 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 Noteholders, interest at a specified rate per
annum not expected to exceed 8.0% (the "Class B Note Rate" and, together
with the Class A-1, Class A-2, Class A-3 and Class A-4 Note Rates, the
"Note Rates"), on the Class B Note Balance as of the immediately preceding
Distribution
47
<PAGE> 52
Date (after giving effect to any reduction in the Class B Note Balance on
such immediately preceding Distribution Date) or, in the case of the first
Distribution Date, on the Initial Class B Note Balance, 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 Indenture Trustee, the Investor Percentage of Capped Indenture Trustee
Administrative Expenses, and to the Owner Trustee, the Investor Percentage
of Capped Owner Trustee 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 Noteholders, 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 Noteholders, 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 Note Principal Loss Amount", "Class A-2 Note Principal
Loss Amount," "Class A-3 Note Principal Loss Amount" or "Class A-4 Note
Principal Loss Amount", respectively);
(xi) to each Class of Class A Noteholders, accrued and unpaid interest
at the related Note Rate, on any unreimbursed Class A-1, Class A-2, Class
A-3 and Class A-4 Note Principal Loss Amount, as applicable;
(xii) to the Class B Noteholders, 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;
(xiii) to the Class B Noteholders, 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 Note Principal Loss Amount"), together with any Class B Note
Principal Carryover Shortfall;
(xiv) to the Class B Noteholders, accrued and unpaid interest at the
Class B Note Rate on any unreimbursed Class B Note Principal Loss Amount
and any unreimbursed Class B Note 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 Indenture Trustee, the Owner Trustee and the Origination
Trustee, as applicable, the Investor Percentage of all specified expenses
incurred with respect to the Indenture, the Notes, 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"). (Agreement, Sections 1.01 and 3.03).
48
<PAGE> 53
Notwithstanding the foregoing, as more fully described under "Description
of the Notes -- Distributions on the Notes -- 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
Noteholders 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 Notes 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 Noteholders 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 Indenture 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 Noteholders 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
Noteholders until the Class A-1 Notes have been paid in full, second, to the
Class A-2 Noteholders until the Class A-2 Notes have been paid in full, third,
to the Class A-3 Noteholders until the Class A-3 Notes 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 Noteholders and the Class
B Noteholders, 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, Sections 1.01 and 3.03).
In the event on any Distribution Date there remains any shortfall in
amounts required to be distributed to the Class A-1 Noteholders, Class A-2
Noteholders, Class A-3 Noteholders and Class A-4 Noteholders under clauses (ii),
(ix), (x) or (xi) above, then the amount available will be distributed pro rata
to such Noteholders based on the Class A-1 Allocation Percentage, the Class A-2
Allocation 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). (Agreement, Section 3.03).
"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).
49
<PAGE> 54
"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 Indenture
Trustee Administrative Expenses" will equal the amounts sufficient to pay the
Indenture Trustee's compensation and certain other expenses up to but not
exceeding $50,000 in any calendar year (or $100,000 in a calendar year in which
an Indenture Event of Default occurs with respect to which the Indenture Trustee
sells or otherwise disposes of the SUBI Interest). "Capped Owner Trustee
Administrative Expenses" will equal amounts sufficient to pay the Owner
Trustee's compensation and certain other expenses up to but not exceeding $5,000
in any calendar year. (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 $550,000 in any calendar year.
A "Note 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 Note
Principal Loss Amount and will represent a loss of principal in respect of Loss
Amounts allocable to the Notes 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 Note Principal Loss Amount, amounts otherwise
payable in respect of principal to the Class B Noteholders are not sufficient to
cover such loss. As described under "Description of the Notes -- General", any
Note Principal Loss Amounts allocable to a Class of Class A Notes which are not
reimbursed as provided herein will reduce the Note Balance of such Class of
Class A Notes. (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 Notes 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 Note 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 Noteholders 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 Notes, the Class A-3 Notes, the Class A-4 Notes and the Class B
Notes, respectively. (Agreement, Section 1.01).
The "Class B Note 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 Notes 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
Noteholders, 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 Note Balance as a percentage of the Note Balance,
calculated as of the last day of the related Collection Period.
The "Voting Interests" of the (i) Class A Notes will be allocated among the
Class A-1, Class A-2, Class A-3 and Class A-4 Noteholders or Note Owners, as the
case may be, in accordance with their respective Class Note Balances, as the
context may require, and (ii) Class B Notes will be allocated among the Class B
Noteholders in accordance with the Class B Note Balance represented thereby.
Notwithstanding the foregoing, in certain circumstances, any Class A Notes or
Class B Notes, 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).
50
<PAGE> 55
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 Notes -- The Reserve Fund".
Application and Distributions of Principal
Revolving Period. No principal will be payable to the Class A Noteholders
until the December 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 Noteholders which for this purpose are treated as Principal
Collections, as described under "Description of the Notes -- Distributions on
the Notes -- 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 Indenture 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 Noteholders) 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 November 25, 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 distributed as principal
to the Trust and then to Noteholders 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
Notes have been paid in full, the Indenture 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 Notes as
principal first to the Class A-1 Noteholders until the Class A-1 Notes have
51
<PAGE> 56
been paid in full, second, to the Class A-2 Noteholders until the Class A-2
Notes have been paid in full, third, to the Class A-3 Noteholders until the
Class A-3 Notes 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 Noteholders and the Class B
Noteholders, respectively. The Indenture Trustee will also distribute to Class
A-1 Noteholders 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
Noteholders of each Class of Class A Notes will not exceed the Initial Note
Balances of such Class of Notes. (SUBI Trust Agreement, Section 11.02;
Indenture, Section 2.06; Agreement, Section 3.03).
In general, no principal payments will be made on the Class A-2 Notes until
the Class A-1 Notes have been paid in full, on the Class A-3 Notes until the
Class A-1 and Class A-2 Notes have been paid in full, or on the Class A-4 or
Class B Notes until the Class A-1, Class A-2 and Class A-3 Notes have been paid
in full. The Investor Percentage of Loss Amounts will be allocated among
Noteholders 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 Notes -- Distributions on the
Notes -- Distributions of Interest". Loss Amounts will not be allocated or
reimbursed to any Noteholder once the related Notes 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 Indenture Event
of Default (as described under "Additional Agreement Provisions -- The
Indenture -- Events of Default"), 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 Noteholders based on their
respective Class Note Balances until the Class A Notes have been paid in full,
and second, to the Class B Noteholders.
In addition, on any Distribution Date relating to the Amortization Period
from and after the Distribution Date on which the Class A-3 Notes 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
Noteholders 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 Noteholders 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 Note Principal Loss Amounts and (iii) accrued and
unpaid interest on any Class A-4 Note Principal Loss Amounts, as set forth under
"Description of the Notes -- Distributions on the Notes -- Distributions of
Interest."
Principal payments made during the Amortization Period in respect of the
Class A-1 Notes, the Class A-2 Notes or Class A-3 Notes, as applicable, will
consist primarily of the Investor Percentage 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 Notes and the Class B Notes (once the
Class A-1 Notes, Class A-2 Notes and Class A-3 Notes 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.
THE ACCOUNTS
The Distribution Account
On or prior to the Closing Date, the Servicer will establish a trust
account with and in the name of the Indenture Trustee for the benefit of the
Noteholders and the Transferor, as holder of the Transferor Certificate, from
which all payments with respect to the Notes will be made (the "Distribution
Account"). (Agreement, Section 3.01). Within one Business Day of receipt, the
Servicer will deposit all Insured Residual
52
<PAGE> 57
Value Loss Amounts paid under the Residual Value Insurance Policy (if they
relate to the Amortization Period) into the Distribution Account (Agreement,
Section 3.02). 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 Note Balance is less than or equal to 10% of the Initial Note Balance.
The SUBI Collection Account
On or prior to the Closing Date, the Origination Trustee will establish a
trust account with and in the name of the Indenture Trustee for the benefit of
the Noteholders and the Transferor, as holder of the Transferor Certificate,
into which collections on or in respect of the Contracts and the Leased Vehicles
generally will be deposited (the "SUBI Collection Account" and, together with
the Distribution Account and the Reserve Fund, the "Accounts"). (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 and (ix) Insured Residual Value Loss Amounts paid
under the Residual Value Insurance Policy with respect to the Revolving Period.
(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 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 Indenture 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
53
<PAGE> 58
qualification, reduction or withdrawal of its then-current rating of any Class
of Notes. (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 Indenture Trustee, as pledgee of the SUBI Interest, and the
Transferor on the related Deposit Date. The Servicer, however, will account to
the Indenture Trustee, the Origination Trustee, the Noteholders 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 Notes --
Distributions on the Notes -- 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 Indenture Trustee with an officer's certificate setting forth the basis
for such withdrawal, the Indenture 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, 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".
Maintenance of the Accounts
The Accounts will be maintained with the Indenture Trustee so long as
either (i) the short-term unsecured debt obligations of the Indenture Trustee
are rated at least P-1 by Moody's and A-1 by Standard & Poor's (and, if such
obligations are rated by Fitch, at least F-1 by Fitch) (the "Required Deposit
Ratings") or (ii) the Indenture Trustee 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 Indenture Trustee. If the
Indenture Trustee at any time does not qualify under either of these criteria,
the Servicer shall, with the assistance of the Indenture Trustee, 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 Indenture Trustee 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 or the Reserve Fund 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
54
<PAGE> 59
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, Section 12.01; Agreement, Sections 3.01 and 3.04;
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 Moody's and Standard & Poor's (and, if such investments are rated by
Fitch, of Fitch) from time to time as being consistent with its then-current
rating of each Class of Notes. (Agreement, Section 1.01).
EARLY AMORTIZATION EVENTS
As described above, the Revolving Period will continue until the close of
business on the last day of October 1998 and the Amortization Period will begin
on November 1, 1998 and continue to the earlier of the payment in full of the
Notes 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 Notes 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 Noteholders
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 Indenture Trustee or the Origination Trustee or (b) to the
Transferor or the Servicer, as the case may be, and to the Indenture
Trustee by holders of Notes evidencing not less than 25% of the Voting
Interests of the Class A Notes and the Class B Notes, 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 Noteholders 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 Indenture,
the Agreement, the Backup Security Agreement, the SUBI Trust Agreement or
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
Indenture, the Agreement, the Backup Security Agreement, the SUBI Trust
Agreement or the Servicing Agreement on the SUBI Assets, which lien or
encumbrance is not released or bonded over 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
Indenture, the Agreement, the Backup Security Agreement, the SUBI Trust
Agreement or the Servicing Agreement, which, in the case of the imposition
of a lien or encumbrance, is not released or bonded over 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;
55
<PAGE> 60
(viii) if on the twenty-fifth day of any month (beginning November 25,
1997) the amount of Principal Collections and Loss Amounts that otherwise
would be available to be reimbursed to the Noteholders 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 or an Event of Default under
the Indenture (an "Indenture Event of Default") 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 $2,997,645 (i.e., 0.25% multiplied by 99.8% of the
Aggregate Net Investment Value as of the Initial Cutoff Date); or
(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 Noteholders 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 Noteholders 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 Noteholders 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 Notes.
STATEMENTS TO NOTEHOLDERS
On each Distribution Date, the Indenture Trustee will include with each
distribution to each Noteholder as of the close of business on the related
Record Date (which, in the case of the Class A Notes, shall be Cede as the
nominee of DTC unless Definitive Notes 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 Noteholders (the "Note
Distribution Amount");
(iii) the amount of the Note Distribution Amount allocable to interest
and to principal on each Class of Notes;
(iv) the amount of the Note 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 Note Distribution Amount;
(vi) the Note Balance, the Class A-1 Note Balance, the Class A-2 Note
Balance, the Class A-3 Note Balance, the Class A-4 Note Balance, the Class
A-1 Note Factor, the Class A-2 Note Factor, the Class A-3 Note Factor, the
Class A-4 Note 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
56
<PAGE> 61
the Class B Allocation Percentage as of such Distribution Date, in each
case after giving effect to distribution of the Note Distribution Amount;
(vii) the aggregate amount, if any, of the reimbursement of Loss
Amounts included in distribution of the Note Distribution Amount and the
amount thereof allocated to each Class of Noteholders;
(viii) the amount of the Note Distribution Amount allocable to
reimbursement of previous Class A-1 Note Principal Loss Amounts, Class A-2
Note Principal Loss Amounts, Class A-3 Note Principal Loss Amounts, Class
A-4 Note Principal Loss Amounts and Class B Note 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 Note
Principal Loss Amounts, Class A-2 Note Principal Loss Amounts, Class A-3
Note Principal Loss Amounts, Class A-4 Note Principal Loss Amounts and
Class B Note Principal Loss Amounts, after giving effect to distribution of
the Note Distribution Amount;
(x) the amount of any unreimbursed Class B Note Principal Carryover
Shortfall;
(xi) the Investor Percentage of the Servicing Fee;
(xii) the amount of any Required Amount included in the Note
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 Note
Distribution Amount;
(xiv) the Aggregate Net Investment Value as of the end of such
Collection Period;
(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) certain information used in determining compliance with the
Charge-off Test Rate and the Delinquency Test; and
(xviii) 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 Note or Class B
Note, as applicable. Copies of such statements may be obtained by Noteholders or
Note Owners by a request in writing addressed to the Indenture 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 Indenture
Trustee will mail to each person who at any time during such calendar year shall
have been a Class A or Class B Noteholder or a Note 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; REDEMPTION OF THE NOTES
The respective obligations and responsibilities of the Transferor and the
Indenture Trustee created by the Agreement will terminate upon the earliest to
occur of (i) the disposition of the SUBI Interest, or its expiration or
termination by virtue of 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 Notes
have been paid in full and after which there is no unreimbursed Note Principal
Loss Amount or Class B Note Principal Carryover
57
<PAGE> 62
Shortfall (together with accrued interest thereon) and (iii) the purchase of the
corpus of the Trust and the resulting redemption of the Notes as described
below. In order to avoid excessive administrative expenses, the Transferor will
be permitted at its option to purchase all of the assets of 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 Note Balance is
less than or equal to 10% of the Initial Note Balance. The purchase price will
be equal to the greater of (i) the sum of the Class A Note Balance and the Class
B Note Balance, in each case plus accrued and unpaid interest thereon at the
related Note Rate, plus certain other accrued and unpaid amounts, if any, due to
the Investor Noteholders or the Servicer, and (ii) 99.8% of the Aggregate Net
Investment Value as of the last day of the preceding Collection Period. If the
Transferor purchases the assets of the Trust, the Indenture Trustee will furnish
a redemption notice to each Noteholder not more than 30 days and not less than
15 days prior to the applicable Redemption Date. Failure to give notice of
redemption, or any defect in the notice, to any Noteholder of any Note selected
for redemption will not impair or affect the validity of the redemption of any
Note. The Notes will, on the Redemption Date, become due and payable and no
interest will accrue on the Notes for any period after such Redemption Date.
(Agreement, Sections 7.01 and 7.02; Indenture, Section 2.06).
The final distribution to any Noteholder will be made only upon surrender
and cancellation of such Noteholder's Note at an office or agency of the
Indenture Trustee specified in the notice of termination. Any funds remaining
that are payable in such final distribution to a Noteholder, after the Indenture
Trustee has taken certain measures to locate such Noteholder and such measures
have failed, will be distributed to the Transferor. (Indenture, Section 2.06).
BOOK-ENTRY REGISTRATION
Note 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 Notes. 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 Notes are issued, it is anticipated that the
only Class A Noteholder will be Cede, as the nominee of DTC. Note 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 Notes by or through a Cedel
Participant or Euroclear Participant to a DTC Participant will be received with
value on the DTC settlement
58
<PAGE> 63
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.
Note 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 Notes 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 Notes in DTC's records. The ownership interest of each Note Owner in
turn will be recorded on the DTC Participants' and Indirect DTC Participants'
respective records. Note Owners will not receive written confirmation from DTC
of their purchase, but Note Owners are expected 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
Note Owner entered into the transaction. Transfers of ownership interests in the
Class A Notes will be accomplished by entries made on the books of DTC
Participants acting on behalf of Note Owners.
To facilitate subsequent transfers, all Class A Notes deposited by DTC
Participants with DTC will be registered in the name of Cede, as nominee of DTC.
The deposit of Class A Notes 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 Note Owners and its records will reflect only the identity of the DTC
Participants to whose accounts such Class A Notes are credited, which may or may
not be the Note 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 Note 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 Notes 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 Note 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 Indenture Trustee, the Owner 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 Notes to DTC will be the responsibility of the Indenture Trustee,
disbursement of such payments to DTC Participants will be the responsibility of
DTC and disbursement of such payments to Note Owners will be the responsibility
of DTC Participants and Indirect DTC Participants. As a result, under the
book-entry format, Note 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 Note
Owner to pledge Class A Notes to persons or entities that
59
<PAGE> 64
do not participate in the DTC system, or otherwise take actions with respect to
such Class A Notes, may be limited due to the lack of a physical Note for such
Class A Notes.
Neither DTC nor Cede will consent or vote with respect to the Class A
Notes. Under its usual procedures, DTC mails an "Omnibus Proxy" to the Indenture
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 Notes are credited on that record
date (identified in a listing attached to the Omnibus Proxy).
None of the Transferor, the Servicer, the Origination Trustee, the Owner
Trustee nor the Indenture 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 Notes 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 34 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 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 34 currencies, including United States dollars. The Euroclear System
includes various other services, including securities lending and borrowing, and
interfaces with domestic markets in more than 25 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 Board establishes policy for the
Euroclear System. 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.
60
<PAGE> 65
Distributions with respect to Class A Notes 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 Noteholder 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 Notes 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 NOTES
Definitive Notes will be issued to Note 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 Notes, and neither the Indenture Trustee nor the
Transferor is able to locate a qualified successor, (ii) the Transferor, at its
option, elects to terminate the book-entry system through DTC or (iii) after an
Indenture Event of Default, Note Owners representing in the aggregate more than
50% of the Voting Interests of the Class A Notes (voting together as a single
class) advise the Indenture 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 Note Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee will be required to notify all Note
Owners, through Participants, of the availability through DTC of Definitive
Notes. Upon surrender by DTC of the certificates representing the related Class
A Notes and the receipt of instructions for re-registration, the Indenture
Trustee will issue Definitive Notes to Note Owners, who thereupon will become
Noteholders for all purposes of the Agreement. (Indenture, Section 2.12).
Payments on the related Class A Notes will thereafter be made by the
Indenture Trustee directly to holders of such Class A Notes in accordance with
the procedures set forth herein and to be set forth in the Indenture. Interest
payments and any principal payments on the Definitive Notes on each Distribution
Date will be made to holders in whose names the Definitive Notes 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 Note 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. (Indenture,
Section 2.06). The final payment on any Class A Notes (whether Definitive Notes
or global certificates registered in the name of Cede representing the Class A
Notes), however, will be made only upon presentation and surrender of such
Definitive Notes or global certificates at the office or agency specified in the
notice of final distribution to Class A Noteholders. (Indenture, Section 2.06).
Definitive Notes will be transferable and exchangeable at the offices of
the Indenture Trustee or the Note Registrar to be set forth in the Agreement. No
service charge will be imposed for any registration of transfer or exchange, but
the Indenture Trustee may require payment of a sum sufficient to cover any tax
or other governmental charge imposed in connection therewith. (Indenture,
Section 2.04).
THE INDENTURE TRUSTEE
U.S. Bank will be the Indenture Trustee under the Indenture. The Corporate
Trust Office of the Indenture Trustee is located at One Illinois Center, 111
East Wacker Drive, Suite 3000, Chicago, IL 60601. U.S. Bank is not affiliated
with World Omni, although it does act as a service provider to World Omni.
61
<PAGE> 66
The Indenture Trustee may resign at any time, in which event the Trust will
be obligated to appoint a successor Indenture Trustee. Noteholders representing
in the aggregate more than 50% of the Voting Interests of the outstanding Notes
(voting together as a single class) may remove the Indenture Trustee by
delivering notice thereof to the Indenture Trustee and the Trust. The Trust may
also remove the Indenture Trustee if the Indenture Trustee ceases to be eligible
to continue as such under the Indenture, becomes legally unable to act or
becomes insolvent. In such circumstances, the Trust will be obligated to appoint
a successor Indenture Trustee. Any resignation or removal of the Indenture
Trustee and appointment of a successor Indenture Trustee will not become
effective until acceptance of the appointment by such successor Indenture
Trustee. (Indenture, Section 6.10).
The Indenture 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. As co-trustee or separate trustee need not meet these eligibility
requirements. (Indenture, Sections 6.08 and 6.14).
Noteholders representing in the aggregate more than 50% of the Voting
Interests of the outstanding Notes (voting together as a single class) generally
will have the power to direct any proceeding for any remedy available to the
Indenture Trustee under the Agreement, and the exercise of any trust or power
conferred on the Indenture Trustee by the Agreement (including actions by the
Indenture Trustee in its capacity as a party to, or a third-party beneficiary
of, the SUBI Trust Agreement or the Servicing Agreement). However, the Indenture
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
Noteholders. (Indenture, Section 5.14).
A Noteholder may institute proceedings under the Indenture, but only if
such holder previously has given to the Indenture Trustee written notice of
default and unless the Noteholders representing in the aggregate not less than
25% of the Voting Interests of the outstanding Notes (voting together as a
single class) have made written request upon the Indenture Trustee to institute
such proceeding in its own name as Indenture Trustee and have offered to the
Indenture Trustee reasonable indemnity and the Trustee for 60 days has neglected
or refused to institute any such proceeding. (Indenture, Section 5.09). The
Indenture 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
Noteholders, unless such holders have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby. (Indenture, Section 6.03). Noteholders
will have no express right to institute a proceeding directly under the SUBI
Trust Agreement or the Servicing Agreement.
List of Noteholders
Upon a written request of the Servicer, the Indenture Trustee, as Note
Registrar, will provide to the Servicer within 15 days after receipt of such
request a list of the names and addresses of all Noteholders. In addition, three
or more Noteholders or Noteholders representing in the aggregate not less than
25% of the Voting Interests of any Class of outstanding Notes, upon compliance
by such Noteholders with certain provisions of the Agreement, may request that
the Indenture Trustee, as Note Registrar, afford such Noteholders access during
business hours to the current list of Noteholders for purposes of communicating
with other Noteholders with respect to their rights under the Indenture.
(Indenture, Section 7.02). For further information regarding communications with
Noteholders, see "Description of the Notes -- Book-Entry Registration" and
"-- Definitive Notes".
The Indenture will not provide for the holding of any annual or other
meetings of Noteholders.
62
<PAGE> 67
SECURITY FOR THE NOTES
GENERAL
The Notes will be secured by all of the property of the Trust, which will
primarily consist of the SUBI Interest evidenced by the SUBI Certificate, as
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. 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 Indenture Trustee also will have a security interest in the Contracts and
Contract Rights susceptible of perfection by the filing of a financing statement
under the Uniform Commercial Code (the "UCC"). The Indenture Trustee will also
have a security interest in the SUBI Collection Account, the Distribution
Account and the Reserve Fund, the Contingent and Excess Liability Insurance
Policies and the Residual Value Insurance Policy described below and will be a
third-party beneficiary of the SUBI Trust Agreement and the Servicing Agreement.
In no event will the Owner Trustee or the Indenture Trustee be deemed to have a
perfected security interest in the Leased Vehicles.
THE RESERVE FUND
On or prior to the Closing Date, the Owner Trustee will establish a trust
account with and in the name of the Indenture Trustee for the benefit of the
Noteholders and the Transferor, as holder of the Transferor Certificate (the
"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 Notes -- Distributions
on the Notes -- Distributions of Interest", monies on deposit in the Reserve
Fund will be available to make payments to the Noteholders should Collections
ultimately be insufficient to reduce the Class A-1 Note Balance, the Class A-2
Note Balance, the Class A-3 Note Balance, the Class A-4 Note Balance or the
Class B Note 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) $11,990,580 (i.e.,
1.0% of 99.8% of the Aggregate Net Investment Value as of the Initial Cutoff
Date) and (ii) the Note Balance as of the related Distribution Date (after
giving effect to reductions in the Note Balance on such Distribution Date).
So long as all of the Reserve Fund Tests (as described under "Security for
the Notes -- The Reserve Fund -- Reserve Fund Tests") are satisfied and there is
no RV Insurer Trigger Event or Downgrade Trigger Event, the Reserve Fund Cash
Requirement is expected to be $11,990,580 for each Distribution Date relating to
the Revolving Period. (Agreement, Sections 3.03 and 3.04).
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 Noteholders or otherwise from the Reserve Fund, as described
under "Description of the Notes -- Distributions on the Notes -- Distributions
of Interest", to the extent that
63
<PAGE> 68
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) $5,995,290 (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 the RV Insurer, or if certain other events relating to the bankruptcy or
insolvency of the RV Insurer 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 "RV Insurer 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) $41,967,030
(i.e., 3.5% of 99.8% of the Aggregate Net Investment Value as of the Initial
Cutoff Date) (the "RV Insurer 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 mechanism is implemented to support the Residual Values of the
Leased Vehicles as described above, the Reserve Fund Cash Requirement shall be
$41,967,030 (i.e., 3.5% of 99.8% of the Aggregate Net Investment Value as of the
Initial Cutoff Date).
In the event that the RV Insurer's claims paying ability is downgraded to
"Aa3" or lower by Moody's, or below "AAA" by Standard & Poor's (or, if such
ability is rated by Fitch, below "AAA" by Fitch) (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 Notes (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 Notes and the Rating
Agencies may impose additional conditions to the maintenance of their
then-current ratings on each Class of Notes, 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 Notes 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 Noteholders to the extent allocable to the Accelerated
Principal Distribution Amount). (Agreement, Sections 1.01 and 3.04).
Payment of the Reserve Fund Supplemental Requirement, the RV Insurer
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 RV
Insurer Trigger Event or a Downgrade Trigger Event, the Reserve Fund
Supplemental Requirement, the RV Insurer Reserve Fund Supplemental Requirement
or the Downgrade Reserve Fund Supplemental Require-
64
<PAGE> 69
ment, 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, RV Insurer 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, RV Insurer 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 RV Insurer 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 Note Balance as of such
Distribution Date (after giving effect to any reduction in the Note 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. 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 Notes -- Distributions on the Notes -- 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 month of October 1997 in the case of the
November 1997 Determination Date, or the months of October and November 1997 in
the case of the December 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 month of October 1997 in the case of the November 1997
Determination Date, or the months of October and November 1997 in the case of
the December 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. (Agreement, Section 1.01).
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 RV Insurer
Reserve Fund Supplemental Requirement and/or the Downgrade Reserve Fund
65
<PAGE> 70
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 RV Insurer 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 RV Insurer Reserve
Fund Supplemental Requirement and/or the Downgrade Reserve Fund Supplemental
Requirement. If each Rating Agency confirms (in writing or orally) to the
Indenture 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 Notes, 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 Noteholder or Note Owner.
(Agreement, Section 9.01).
Withdrawals from the Reserve Fund. On each Deposit Date the Indenture
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 Noteholders and the Transferor as described under "Security
for the Notes -- 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 Indenture Trustee or the Noteholders and
shall not be available to the Indenture Trustee or the Trust for the purpose of
making deposits to the Reserve Fund or making payments to the Noteholders, 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 the RV Insurer will issue the Residual
Value Insurance Policy to the Transferor (with the Origination Trustee, the
Indenture Trustee, the Owner Trustee 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 the RV Insurer. 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, the RV Insurer 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
66
<PAGE> 71
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 Notes -- Distributions on the
Notes -- 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 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 and 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 Indenture Trustee. Audited financial statements of
AISLIC, prepared in accordance with Alaska insurance regulations, for the two
years ended December 31, 1996 and the two years ended December 31, 1995, 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 Indenture
Trustee on behalf of the Noteholders) 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 and 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 Indenture
Trustee on behalf of the Noteholders) may enforce the AIG Support Agreement only
if AIG fails to meet its obligations thereunder on demand.
67
<PAGE> 72
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
Notes 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
the RV Insurer for a specified percentage of claims paid under the Residual
Value Insurance Policy, although the failure to make such reimbursement will not
affect the RV Insurer'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 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
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 Notes
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 -- Risks Associated with 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, under certain limited
circumstances where the lessee does not maintain required insurance, will be
required to make payments in respect of damaged Leased Vehicles. 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 Notes could incur a loss on their investment.
The Servicing Agreement will provide that so long as any Notes 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 Indenture Trustee to the effect that the obtaining of
any such replacement insurance will not cause its then-current rating of any
Class of Notes 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).
68
<PAGE> 73
ADDITIONAL DOCUMENT PROVISIONS
AMENDMENT OF TRANSACTION DOCUMENTS
The Indenture, the Agreement, the SUBI Supplement, the Servicing Agreement
and the other agreements and instruments relating to the transactions discussed
herein (collectively, the "Transaction Documents") may be amended by the
respective parties thereto, without the consent of the Noteholders, 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 Indenture which are not
inconsistent with provisions of the Indenture or to add or amend any provision
therein in connection with permitting transfers of the Class B Notes; provided
that any such action will not, in the good faith judgment of the parties,
materially and adversely affect the interests of any Noteholder, and the
Indenture Trustee shall have been furnished with an opinion of counsel to the
effect that such amendment will not adversely and materially affect the legal
interest of any Noteholder. (Indenture, Section 9.02; Agreement, Section 9.01).
See "Security for the Notes -- The Reserve Fund -- The Reserve Fund Cash
Requirement".
The Transaction Documents may also be amended from time to time by the
respective parties thereto, (including with respect to changing the formula for
determining the Reserve Fund Cash Requirement, the Reserve Fund Supplemental
Requirement, the RV Insurer Reserve Fund Supplement Requirement and/or the
Downgrade Reserve Fund Supplemental Requirement, 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 Indenture 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 Notes to be qualified, reduced or withdrawn or (b) the Indenture Trustee has
received the consent of the holders of Notes evidencing more than 50% of the
Voting Interests of the Class A Notes and the Class B Notes (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 Indenture or of modifying in
any manner the rights of each Class of Noteholders; 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) $11,990,580 and (B) the Note Balance as of the related Distribution Date
(after giving effect to reductions in the Note Balance on such Distribution
Date), or eliminating or reducing the RV Insurer Reserve Fund Supplement
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
Notes will, and the Class B Notes 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 Notes or the
applicable Note Rate and (B) no amendment of any type shall reduce the
percentage of the aggregate Voting Interests of the Notes of any Class required
to consent to any such amendment, in each case without the consent of all
Noteholders and Note Owners. (Indenture, Section 9.02; Agreement, Section 9.01.
THE INDENTURE
Events of Default
"Indenture Events of Default" will be any of the following events: (a) the
Trust defaults in the payment of any interest or principal on any Note for a
period of five Business Days after any such payment is due; (b) the Trust
defaults in the observance or performance in any material respect of any other
covenant or agreement made in the Indenture, or any representation or warranty
of the Trust made in the Indenture was incorrect in any material respect as of
the time made, which default materially and adversely affects the rights of the
Noteholders and which continues uncured for a period of 60 days after written
notice shall have been given to the Trust by the Indenture Trustee or to the
Trust and the Indenture Trustee by the Holders of at least 25% of the aggregate
outstanding principal amount of the Notes; or (c) certain insolvency events with
respect to the Trust. Investors should be aware that the amount of principal and
interest required to be paid to
69
<PAGE> 74
holders of any Class of the Notes prior to the maturity date for that Class of
Notes generally will be limited to amounts available in the Distribution Account
for payment to Noteholders. Therefore, the failure to pay principal or interest
on a Class of Notes generally will not result in the occurrence of an Indenture
Event of Default until the Stated Maturity Date for such Class of Notes.
(Indenture, Section 5.01).
If an Indenture Event of Default occurs and is continuing, then the
Indenture Trustee or Noteholders representing in the aggregate not less than 25%
of the Voting Interests of the outstanding Notes (voting together as a single
class) may declare all the Notes to be immediately due and payable, by a notice
in writing to the Trust (and to the Indenture Trustee if given by Noteholders),
and upon any such declaration the Notes will become immediately due and payable,
except that upon an insolvency event with respect to the Trust, the Notes will
become immediately due and payable automatically without the giving of any
notice.
At any time after such a declaration of acceleration of maturity has been
made and before a judgment or decree for payment of the money due has been
obtained by the Indenture Trustee, Noteholders representing in the aggregate
more than 50% of the Voting Interests of the outstanding Notes (voting together
as a single class) by written notice to the Trust and the Indenture Trustee, may
rescind and annul such declaration and its consequences under certain
circumstances. (Indenture, Section 5.02).
After acceleration of the Notes, the Indenture Trustee may institute a
proceeding to collect amounts due or foreclose on Trust property, exercise
remedies as a secured party, sell the SUBI Interest (in accordance with the
procedures described below) or elect to have the Trust maintain possession of
the SUBI Interest and continue to apply collections as if there had been no
declaration of acceleration. (Indenture, Section 5.04 and 5.05).
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any of the
holders of the Notes, if such Noteholders shall not have offered to the
Indenture Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in complying with such request or
direction. Subject to the provisions for indemnification and certain limitations
contained in the related Indenture, Noteholders representing in the aggregate
more than 50% of the Voting Interests of the outstanding Notes (voting together
as a single class) will have the right to direct the time, method and place of
conducting any proceeding or any remedy available to the Indenture Trustee, and
Noteholders representing in the aggregate more than 50% of the Voting Interests
of the outstanding Notes (voting together as a single class)may, in certain
cases, waive any default with respect thereto, except a default in the payment
of principal or interest or a default in respect of a covenant or provision of
the Indenture that cannot be modified without the waiver or consent of all the
holders of the outstanding Notes. (Indenture, Section 5.14 and 5.15).
No holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such holder previously has given to the
Indenture Trustee written notice of a continuing Indenture Event of Default,
(ii) Noteholders representing in the aggregate not less than 25% of the Voting
Interests of the outstanding Notes (voting together as a single class) have made
written request to the Indenture Trustee to institute such proceeding in its own
name as Indenture Trustee, (iii) such holder or holders have offered the
Indenture Trustee reasonable indemnity, (iv) the Indenture Trustee has for 60
days failed to institute such proceeding, and (v) no direction inconsistent with
such written request has been given to the Indenture Trustee during such 60-day
period by more than 50% of the Voting Interests of the outstanding Notes (voting
together as a single class). (Indenture, Section 5.09).
If an Indenture Event of Default occurs, the Indenture Trustee may, and,
upon receipt of written instructions from Noteholders representing in the
aggregate Voting Interests of not less than a majority of interest of the
outstanding Class A Notes (voting together as a single class) or more than 50%
of the Voting Interests of the outstanding Notes (voting together as a single
class), shall (subject to its election to maintain possession of the SUBI
Interest as described above), publish a notice stating that the Indenture
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
Indenture 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
70
<PAGE> 75
shall not be made without the consent of all the Noteholders if proceeds
realized as a result of such sale would not be sufficient to discharge in full
the amounts then due and unpaid upon the Notes for principal and interest. The
net sale or disposition proceeds of the SUBI Interest, the SUBI Certificate and
such other property will be distributed to the Noteholders 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 Noteholders based on their respective Class
Note Balances until the Class A-1, Class A-2, Class A-3 and Class A-4 Notes have
been paid in full, and second, to the Class B Noteholders. If such proceeds,
together with all amounts on deposit in the Accounts, the Reserve Fund, 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 Notes, certain amounts otherwise distributable in respect of the
Class B Notes, are insufficient to pay the Note Balance of a Class of Class A
Notes, any unreimbursed Note Principal Loss Amount in respect of such Class of
Class A Notes and any accrued and unpaid interest thereon in full, the related
Class A Noteholders will suffer a corresponding loss. (Indenture, Section 5.08
and 5.17).
Annual Compliance Statement.
The Trust will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
(Indenture, Section 3.09).
Indenture Trustee's Annual Report.
The Indenture Trustee will be required to mail each year to all Noteholders
a brief report relating to its eligibility and qualification to continue as
Indenture Trustee, any amounts advanced by it under the Indenture, the amount,
interest rate and maturity date of certain indebtedness owing by the Trust to
the Indenture Trustee in its individual capacity, the property and funds
physically held by the Indenture Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported.
(Indenture, Section 7.03).
Satisfaction and Discharge of Indenture.
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the Indenture Trustee for cancellation of all
Notes or, with certain limitations, upon deposit with Indenture Trustee of funds
sufficient for the payment in full of all such Notes. (Indenture, Section 4.01).
No Petition
The Indenture Trustee (or any co-trustee or separate trustee appointed
pursuant to the Indenture) will agree not to institute, or join in, any
bankruptcy or similar proceeding against the Trust until one year and one day
after the payment of the Notes in full. (Indenture, Section 6.17)
ADDITIONAL AGREEMENT PROVISIONS
Certain provisions of the Agreement are described under "Description of the
Notes". The following summarizes certain additional provisions of the Agreement.
No Petition
Each of the Indenture Trustee and the Owner 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 Notes
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).
71
<PAGE> 76
The Owner Trustee
PNC Bank will be the Owner Trustee under the Agreement. The Corporate Trust
Office of the Owner Trustee is located at 222 Delaware Avenue, 17th Floor,
Wilmington, DE 19801. PNC Bank is not affiliated with World Omni, although it
does act as a service provider to World Omni.
The Owner Trustee may resign at any time, in which event the Transferor
will be obligated to appoint a successor Owner Trustee. The Transferor may also
remove the Owner Trustee if the Owner 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
Owner Trustee. Any resignation or removal of the Owner Trustee and appointment
of a successor Owner Trustee will not become effective until acceptance of the
appointment by such successor Owner Trustee. (Agreement, Section 6.10).
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, 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 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
72
<PAGE> 77
SUBI" for a discussion of related risks. For purposes of making calculations
with respect to distributions on the Notes, "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 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
Indenture Trustee, as pledgee of the SUBI Certificate, on behalf of the
Noteholders may, or at the direction of Noteholders representing in the
aggregate more than 50% of the Voting Interests of the outstanding Notes (voting
together as a single class) will, exercise its powers under the SUBI Trust
Agreement to cause the Origination Trustee to remove or replace the Trust Agent
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 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).
73
<PAGE> 78
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
U.S. 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 Notes -- Distributions on the
Notes -- Distributions of Interest".
Indemnity of Origination 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 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
Indenture 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).
74
<PAGE> 79
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).
Owner Trustee and Indenture Trustee as Third-Party Beneficiaries
As the holder of the SUBI Interest, the Owner Trustee, and as the pledgee
of the SUBI Interest, the Indenture Trustee, will be third-party beneficiaries
of the SUBI Trust Agreement. Therefore, the Owner Trustee or the Indenture
Trustee may, and, upon the direction of Noteholders representing in the
aggregate more than 50% of the Voting Interests of the outstanding Notes (voting
together as a single class), the Indenture Trustee will, exercise any right
conferred by the SUBI Trust Agreement upon a holder or pledgee of any interest
in the SUBI. (SUBI Trust Agreement, Section 10.02).
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 Indenture
Trustee and the Owner Trustee will be third-party beneficiaries 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 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).
75
<PAGE> 80
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 Class B Stated Maturity
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 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 "Description of the Notes -- 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 Indenture 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 certain 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
76
<PAGE> 81
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.
Insurance on Leased Vehicles
Each lessee is required to maintain in full force and effect during the
term of a Contract a comprehensive and collision 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
77
<PAGE> 82
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
Indenture 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 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 upon presentation of an
officer's certificate by the Servicer. (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 Indenture Trustee, the Owner Trustee, the
Origination Trustee and the Noteholders, including the preparation and delivery
to the Indenture 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 Notes -- Statements to Noteholders", and an annual officer's
certificate specifying the occurrence and status of any Event of Servicing
Termination. (Servicing Agreement, Sections 3.03, 10.01 and 10.03).
Evidence as to Compliance
The Servicing Agreement will provide that a firm of nationally recognized
independent accountants will furnish to the Indenture 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).
78
<PAGE> 83
The Servicing Agreement will also provide for delivery to the Indenture
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 Note Owners
or Class A Noteholders by a request in writing addressed to the Indenture
Trustee at its Corporate Trust Office. (Agreement, Section 3.06).
Compliance with ERISA
On or before each Determination Date, the Servicer shall provide the
Indenture 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 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 Noteholders to the extent allocable to the Accelerated Principal
Distribution Amount). See "Security for the Notes -- 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
Indenture 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
79
<PAGE> 84
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 Origination
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 Indenture 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 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 Origination 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 Indenture Trustee for distribution to
Noteholders 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 Indenture Trustee, the
Origination Trustee or holders of Notes evidencing not less than 25% of the
Voting Interests of the Class A Notes and the Class B Notes, 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 Noteholders 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 Indenture Trustee any report required to be delivered to the Origination
Trustee or the Indenture 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
80
<PAGE> 85
amount equal to the RV Insurer Reserve Fund Supplemental Requirement after an RV
Insurer 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 Indenture Trustee, the
Origination Trustee, the Transferor and the Noteholders 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 Indenture Trustee or Noteholders
representing in the aggregate more than 50% of the Voting Interests of the
outstanding Notes (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 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 Indenture Trustee or
such Noteholders 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).
Noteholders representing in the aggregate more than 50% of the Voting
Interests of the outstanding Notes (voting together as a single class), with the
consent of the Origination Trustee and the Indenture 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
Noteholder (in which event the related waiver will require the approval of
holders of all of the Notes). No such waiver will impair the rights of the
Noteholders with respect to subsequent defaults. (Servicing Agreement, Section
4.01).
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).
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).
81
<PAGE> 86
Indenture Trustee and Owner Trustee as Third-Party Beneficiaries
As the holder of the SUBI Interest, the Owner Trustee, and as the pledgee
of the SUBI Interest, the Indenture Trustee, will be third-party beneficiaries
of the Servicing Agreement. (Servicing Agreement, Section 12.12).
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 -- Risks in the Event of an Insolvency of World
Omni; Substantive Consolidation with World Omni".
QUALIFICATION OF VT INC. AS FIDUCIARY
State laws, including the laws in the Five State Area, differ as to whether
a corporate trustee that leases vehicles in that state, such as VT Inc., must
qualify as a fiduciary. The consequences of the failure to be qualified as a
fiduciary in a State where such qualification is required differ by State, and
could include penalties against VT Inc. and its directors and officers ranging
from fines to the inability of VT Inc. to maintain action in the courts of that
State.
World Omni believes that VT Inc. does not exercise sufficient discretion in
the performance of its duties under the SUBI Trust Agreement or take such other
discretionary actions that it should be considered to be exercising fiduciary
powers within the meaning of any applicable State law. However, no assurance can
be given that World Omni will prevail in this view. Because no State in which
(i) this issue is uncertain, (ii) VT Inc. has not taken the actions necessary to
qualify as a fiduciary and (iii) the consequences of such failure would be
material represents a significant percentage of the value of the SUBI Assets,
World Omni believes that the failure to be qualified as a fiduciary in any State
where such qualification may ultimately be required will not materially and
adversely affect the Noteholders. However, no assurance can be given in this
regard. World Omni, as Servicer, has agreed to indemnify VT Inc., as Origination
Trustee for, among other things, any and all liabilities, losses, damages and
expenses that may be incurred by the Origination Trustee as a result of any act
or omission by the Servicer in connection with its undertakings to identify from
time to time the periodic governmental filings, registrations and approvals
arising with respect to or required of the Origination Trustee or the
Origination Trust.
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 Notes 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
82
<PAGE> 87
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
Notes 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 Notes could
incur a loss on their investment.
Because the Owner Trustee and the Indenture Trustee will not own directly
or have a direct security interest in the Leased Vehicles and certain other SUBI
Assets, and since their respective interests therein generally will be an
indirect beneficial ownership interest and a security interest in such indirect
beneficial ownership interest, perfected liens of third-party creditors of the
Origination Trust in one or more of such SUBI Assets will take priority over the
interests of the Owner Trustee and the Indenture Trustee in such SUBI Assets.
Therefore, a general creditor of the Origination Trust may obtain a lien on one
or more such 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 -- Risks Associated with Consumer Protection Laws", "-- Risks Associated
with ERISA Liabilities" and "-- Risks Associated with Vicarious Tort Liability"
and "Certain Legal 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 -- Risks in the Event
of an 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
83
<PAGE> 88
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 Notes 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
Absent prior perfection of a security interest by the Owner Trustee or the
Indenture Trustee in the SUBI Assets, the holder of a perfected lien in one or
more SUBI Assets would have priority over the respective interests of the
Indenture Trustee and Owner Trustee in such SUBI Assets. Therefore, certain
actions have been taken to ensure that the Indenture Trustee will 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 by the filing of a financing statement 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, 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
Indenture 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 any lien that the Indenture Trustee may be deemed to have in
the Leased Vehicles. 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 Indenture 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 Notes 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 Indenture 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 Indenture 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 Indenture 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 Indenture
Trustee's interest therein. Such liens could 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 -- Risks Associated with ERISA Liabilities", in
favor of the PBGC. Additionally, any perfected security interest of the
Indenture Trustee in all or part of the property of the Trust could also be
subordinate to claims of any trustee
84
<PAGE> 89
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 -- Risks in the Event of an 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 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 -- Risks Associated with
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 Indenture Trustee has
a prior perfected security interest therein (such as 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
Notes could incur a loss on their investment.
85
<PAGE> 90
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
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
January 1998) 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
86
<PAGE> 91
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 Owner Trustee and the Indenture 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 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 Servicing 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.
87
<PAGE> 92
MATERIAL INCOME TAX CONSIDERATIONS
FEDERAL TAXATION
General
Set forth below is a discussion representing the opinion of Cadwalader,
Wickersham & Taft, special federal income tax counsel to the Trust, as to
material federal income tax consequences to holders of the Class A Notes who are
original owners and who hold the Class A Notes 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
Noteholders or Note Owners in light of their particular circumstances, nor to
certain types of Class A Noteholders or Note 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 Notes, as well as the tax consequences arising under the laws of any
state, foreign country or other taxing jurisdiction.
Characterization of the Class A Notes as Indebtedness
The Transferor, the Owner Trustee, each Noteholder, and each Note Owner (by
acquiring a beneficial interest in a Class A Note) will express in the Agreement
and in the Indenture their intent that, for federal, state and local income and
franchise tax purposes, the Class A Notes will be indebtedness, secured by the
assets of the Trust. The Transferor and the Owner Trustee, by entering into the
Agreement and the Indenture, and each Noteholder and each Note Owner, by
acquiring a beneficial interest in a Class A Note, will agree to treat the Class
A Notes as indebtedness for federal, state and local income and franchise tax
purposes.
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 Notes are issued is consistent with the treatment of the
Class A Notes as debt 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, Cadwalader, Wickersham & Taft
is of the opinion that, for federal income tax purposes the characterization of
the Class A Notes 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 Notes will properly be characterized as
indebtedness that is secured by the Trust assets.
Taxation of Interest and Discount Income
Assuming that the Note 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 Note Owners utilizing the cash
method of accounting and when accrued by Note Owners utilizing the accrual
88
<PAGE> 93
method of accounting. Interest received on the Class A Notes 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 Notes 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 Notes, 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 Notes 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 Notes, 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 Noteholders have reasonable remedies to compel payment of interest
deficiencies (e.g., default and acceleration rights). Because Class A
Noteholders will not be entitled to penalty payments of interest on interest
deficiencies, and Class A Noteholders will have no default and acceleration
rights in the event of interest shortfalls, interest paid on the Class A Notes
may not be treated by the IRS as qualified stated interest, and, in such event,
would be treated as OID. A Class A Noteholder must include OID income over the
term of the related Class A Note 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 Noteholder's method of accounting.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Class A Note and its issue price. A holder of
a Class A Note 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 Note 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 Note is the first price at which a substantial
amount of Class A Notes 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 Notes 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 Note also includes
the amount paid by a Class A Noteholder for accrued interest that relates to a
period prior to the issue date of the Class A Note. The stated redemption price
at maturity of a Class A Note includes the original principal amount of the
Class A Note, 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 Note 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 Note multiplied by the weighted average maturity of the Class A
Note. Noteholders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the Class A Note
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 Note issued with OID must include in gross income,
for all days during its taxable year on which it holds such Class A Note, the
sum of the "daily portions" of such original issue discount. The amount of OID
includible in income by a Noteholder 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 Noteholder purchases a Class A Note issued with OID at an "acquisition
premium" (i.e., at a price in excess of the adjusted issue price of the Class A
Note, but less than or equal to the "stated redemption price at maturity"), the
amount includible by such Noteholder in income in each taxable year as OID will
be reduced by that portion of the premium properly allocable to such year.
89
<PAGE> 94
Although the matter is not entirely clear, the Transferor currently intends
to report all stated interest on the Class A Notes as qualified stated interest
and not as OID.
Market Discount. Note Owners should be aware that the resale of a Class A
Note 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 Note 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 Note,
the lesser of such gain or the portion of the market discount that accrued while
the Class A Note 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 Note Owner who purchases a Class A Note for more than its
stated redemption price at maturity will be subject to the premium amortization
rules of the Code. Under those rules, the Note Owner may elect to amortize such
premium on a constant yield method. Amortizable premium reduces interest income
on the related Class A Note. If the Note Owner does not make such an election,
the premium paid for the Class A Note generally will be included in the tax
basis of the Class A Note in determining the gain or loss on its disposition.
Each Note Owner should consult his own tax advisor regarding the impact of
the original issue discount, market discount, and premium amortization rules.
Sales of Class A Notes
In general, a Note Owner will recognize gain or loss upon the sale,
exchange, redemption or other taxable disposition of a Class A Note 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 Note Owner's tax basis in the Class A Note (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 Note). 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 Note 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 20% for capital assets held
for more than 18 months and 28% for capital assets held for more than 12 months
and not more than 18 months. 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 Notes 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 (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (iii) an estate whose income is subject to United States
federal income tax, regardless of its source or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
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
90
<PAGE> 95
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 Notes 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 Notes.
For the Class A Notes to constitute portfolio debt investments exempt from
United States withholding tax, the withholding agent must receive from the Note
Owner an executed IRS Form W-8 signed under penalty of perjury by the Note Owner
stating that the Note Owner is a Foreign Investor and providing such Note
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 Note 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 Note, provided that (i) such gain is not
effectively connected with a trade or business carried on by the Note Owner in
the United States, (ii) in the case of a Note Owner that is an individual, such
Note 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 Note Owner may be subject to a backup withholding at the rate of 31% with
respect to interest paid on the Class A Notes if the Note Owner, upon issuance,
fails to supply the Trustee or his broker with such Note 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 Note Owner is not subject to backup withholding.
Information returns will be sent annually to the IRS and to each Note Owner
setting forth the amount of interest paid on the Class A Notes and the amount of
tax withheld thereon.
NEW WITHHOLDING REGULATIONS
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the withholding, backup
withholding and information reporting rules described above. The New Regulations
attempt to unify certification requirements and modify reliance standards. The
New Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
Possible Alternative Treatment of the Class A Notes
Although, as described above, it is the opinion of Cadwalader, Wickersham &
Taft that the Class A Notes 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 Notes did not represent debt for
federal income tax purposes, certain adverse tax consequences to the Class A
Noteholders could result. For example, income to certain tax-exempt entities
(including pension funds) generally would be "unrelated business taxable
income", and income to foreign holders generally would 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
Notes.
91
<PAGE> 96
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 Notes, then a financial organization investing in the
Class A Notes 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 Notes 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 Notes and to their
ability to offset any such Florida tax against any other state tax liabilities
that such investors might have.
ERISA CONSIDERATIONS
Subject to the following discussion, the Class A Notes may be acquired by
pension, profit-sharing or other employee benefit plans, as well as an
individual retirement accounts and Keogh plan (each a "Benefit Plan"). Section
406 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and Section 4975 of the Code prohibit a Benefit Plan 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 Plan. A
violation of these "prohibited transaction" rules may result in an excise tax or
other penalties and liabilities under ERISA and the Code for such persons or the
fiduciaries of the Benefit Plan. In addition, Title I of ERISA also requires
fiduciaries of a Benefit Plan subject to ERISA to make investments that are
prudent, diversified and in accordance with the governing plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Class A Notes if assets of the Trust were deemed to be assets of
the Benefit Plan. Under a regulation issued by the United States Department of
Labor (the "Regulation"), the assets of the Trust would be treated as plan
assets of a Benefit Plan for the purposes of ERISA and the Code only if the
Benefit Plan acquired an "equity interest" in the Trust and none of the
exceptions to plan assets contained in the Regulation was applicable. An equity
interest is defined under the Regulation as an interest other than an instrument
which is treated as indebtedness under applicable local law and which has no
substantial equity features. Although there is little guidance on the subject,
the Transferor believes that, at the time of their issuance, the Class A Notes
should be treated as indebtedness of the Trust without substantial equity
features for purposes of the Regulation. This determination is based in part
upon the traditional debt features of the Class A Notes, including the
reasonable expectation of purchasers of Class A Notes that the Class A Notes
will be repaid when due, as well as the absence of conversion rights, warrants
and other typical equity features. The debt treatment of the Class A Notes for
ERISA purposes could change if the Trust incurred losses.
However, without regard to whether the Class A Notes are treated as an
equity interest for purposes of the Regulation, the acquisition or holding of
Class A Notes by or on behalf of a Benefit Plan could be considered to give rise
to a prohibited transaction if the Trust, the Indenture Trustee, the Owner
Trustee, the Origination Trustee, the Transferor or World Omni is or becomes a
party in interest or a disqualified person with respect to such Benefit Plan.
Certain exemptions from the prohibited transaction rules could be applicable to
the purchase and holding of Class A Notes by a Benefit Plan depending on the
type and circumstances of the plan fiduciary making the decision to acquire such
Class A Notes. Included among these
92
<PAGE> 97
exemptions are: Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding
transactions effected by "in-house asset managers"; PTCE 95-60, regarding
investments by insurance company general accounts; PTCE 91-38, regarding
investments by bank collective investment funds; PTCE 90-1, regarding
investments by insurance company pooled separate accounts; and PTCE 84-14,
regarding transactions effected by "qualified professional asset managers." By
acquiring a Note, each purchaser will be deemed to represent that either (i) it
is not acquiring the Class A Notes with the assets of a Benefit Plan; or (ii)
the acquisition and holding of the Class A Notes will not give rise to a
nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975
of the Code.
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 Notes consult with its
counsel regarding whether the assets of the Trust would be considered plan
assets, and the applicability of 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 Notes 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 November 13, 1997 (the "Underwriting Agreement"), the
Underwriters named below (the "Underwriters"), for whom Credit Suisse First
Boston Corporation 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 Notes, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes:
<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 NOTES NOTES NOTES NOTES
- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Credit Suisse First Boston
Corporation........................... $ 65,000,000 $ 55,000,000 $ 97,500,000 $ 59,782,000
BancAmerica Robertson Stephens.......... 65,000,000 55,000,000 97,500,000 59,782,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............... 65,000,000 55,000,000 97,500,000 59,782,000
NationsBanc Montgomery Securities,
Inc................................... 65,000,000 55,000,000 97,500,000 59,782,000
------------ ------------ ------------ ------------
Total......................... $260,000,000 $220,000,000 $390,000,000 $239,128,000
============ ============ ============ ============
</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 Notes 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 Notes.
The Transferor has been advised by the Representative that the Underwriters
propose to offer the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes
and the Class A-4 Notes 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 0.105%, 0.120%, 0.130% and 0.150% of the principal
amount per Class A-1 Note, Class A-2 Note, Class A-3 Note and Class A-4 Note,
respectively, and the Underwriters and such dealers may allow a discount of
0.100%, 0.100%, 0.125% and 0.125% of such principal amount per Class A-1 Note,
Class A-2 Note, Class A-3 Note and Class A-4 Note, 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.
93
<PAGE> 98
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 Notes 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 fifth 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 expressly agree otherwise. Accordingly,
purchasers who wish to trade Class A Notes on the date hereof will be required,
by virtue of the fact that the Class A Notes initially will settle five 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 Notes
who wish to trade Class A Notes 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 Notes 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 Notes. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Class A Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Class A Notes.
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 Notes. 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 Notes 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 Notes are effected. Accordingly, any resale
of the Class A Notes 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 Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Class A Notes 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 Notes
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
94
<PAGE> 99
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 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 Notes 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 Notes 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 Notes acquired on the same date and
under the same prospectus exemption.
RATINGS OF THE CLASS A NOTES
It is a condition of issuance that each of Moody's, Standard & Poor's and
Fitch rates each Class of Class A Notes in its highest rating category. The
ratings of the Class A Notes will be based primarily upon the value of the
Initial Contracts, the Residual Value Insurance Policy (see "Security for the
Notes -- The Reserve Fund -- Other Reserve Fund Requirements" for information
regarding the effect of a downgrade by a Rating Agency of the credit rating of
the RV Insurer), the Reserve Fund and the terms of the Transferor Interest and
the Class B Notes. 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 Notes 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 Notes.
The ratings of the Class A Notes 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 Notes, 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 Notes addresses the likelihood of the payment of
principal of and interest on such Notes pursuant to their terms.
There can be no assurance as to whether any rating agency other than
Moody's, Standard & Poor's and Fitch will rate the Class A Notes, or, if one
does, what rating will be assigned by such other rating agency. A rating on any
Class of Class A Notes by another rating agency, if assigned at all, may be
lower than the ratings assigned to such Class A Notes by each of Moody's,
Standard & Poor's and Fitch.
LEGAL MATTERS
Certain legal matters with respect to the Class A Notes 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. Cadwalader, Wickersham & Taft, New York, New York will
act as special federal income tax counsel to the Transferor. Mayer, Brown &
Platt, Chicago, Illinois will act as counsel for the Underwriters.
95
<PAGE> 100
EXPERTS
The Statement of Admitted Assets, Liabilities, Capital and Surplus
(Statutory Basis) as of December 31, 1996 and 1995, the Statement of Income and
Capital and Surplus Account (Statutory Basis) for the Years Ended December 31,
1996 and 1995, the Statement of Cash Flows (Statutory Basis) for the Years Ended
December 31, 1996 and 1995, the Statement of Admitted Assets, Liabilities,
Capital and Surplus (Statutory Basis) as of December 31, 1995 and 1994, the
Statement of Income and Capital and 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, all of AISLIC, have been
included herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent 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.
96
<PAGE> 101
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>
Accelerated Principal Distribution Amount................... 10
Accounts.................................................... 53
Additional Loss Contract.................................... 65
Additional Loss Amount...................................... 72
Administrative Lien......................................... 26
Administrative Lienholders.................................. 26
Advance..................................................... 15
Agency Agreement............................................ 74
Aggregate Net Investment Value.............................. 13
Agreement................................................... 1
AIG......................................................... 11
AIG Support Agreement....................................... 67
AISLIC...................................................... 11
ALFI........................................................ 1
ALFI L.P.................................................... 1
Alternate Reserve Fund Formula.............................. 65
Amortization Date........................................... 8
Amortization Period......................................... 8
Benefit Plan................................................ 92
Business Day................................................ 6
Capped Contingent and Excess Liability Premiums............. 50
Capped Indenture Trustee Administrative Expenses............ 50
Capped Origination Trust Administrative Expenses............ 50
Capped Owner Trustee Administrative Expenses................ 50
Capped Trust Administrative Expenses........................ 51
Cede........................................................ 5
Cedel....................................................... 5
Cedel Participants.......................................... 58
Charge-off Rate............................................. 65
Charge-off-Rate Test........................................ 65
Charged-off Amount.......................................... 46
Charged-off Contract........................................ 46
Claims...................................................... 74
Class....................................................... 44
Class A Noteholders......................................... 6
Class A Note Balance........................................ 5
Class A Notes............................................... 3
Class A Percentage.......................................... 9
Class A-1 Allocation Percentage............................. 17
Class A-1 Interest Carryover Shortfall...................... 50
Class A-1 Note Balance...................................... 5
Class A-1 Note Principal Loss Amount........................ 48
Class A-1 Note Rate......................................... 6
Class A-1 Noteholders....................................... 6
Class A-1 Notes............................................. 3
Class A-2 Allocation Percentage............................. 17
</TABLE>
97
<PAGE> 102
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Class A-2 Interest Carryover Shortfall...................... 50
Class A-2 Note Balance...................................... 5
Class A-2 Note Principal Loss Amount........................ 48
Class A-2 Note Rate......................................... 6
Class A-2 Noteholders....................................... 6
Class A-2 Notes............................................. 3
Class A-3 Allocation Percentage............................. 17
Class A-3 Interest Carryover Shortfall...................... 50
Class A-3 Note Balance...................................... 5
Class A-3 Note Principal Loss Amount........................ 48
Class A-3 Note Rate......................................... 6
Class A-3 Noteholders....................................... 6
Class A-3 Notes............................................. 3
Class A-4 Allocation Percentage............................. 17
Class A-4 Interest Carryover Shortfall...................... 50
Class A-4 Note Balance...................................... 5
Class A-4 Note Principal Loss Amount........................ 48
Class A-4 Note Rate......................................... 6
Class A-4 Noteholders....................................... 6
Class A-4 Notes............................................. 3
Class B Allocation Percentage............................... 50
Class B Interest Carryover Shortfall........................ 50
Class B Note Balance........................................ 5
Class B Note Principal Carryover Shortfall.................. 50
Class B Note Principal Loss Amount.......................... 48
Class B Note Rate........................................... 47
Class B Noteholders......................................... 9
Class B Notes............................................... 3
Class B Percentage.......................................... 9
Closing Date................................................ 4
Code........................................................ 88
Collection Period........................................... 7
Collections................................................. 8
Commission.................................................. iii
Contingent and Excess Liability Insurance Policies.......... 68
Contracts................................................... 2
Cooperative................................................. 60
Current Contracts........................................... 65
Cutoff Dates................................................ 51
Dealers..................................................... 1
Deerfield Office............................................ 28
Definitive Notes............................................ 44
Delinquency Rate............................................ 65
Delinquency Test............................................ 65
Deposit Date................................................ 15
Depositaries................................................ 5
Determination Date.......................................... 47
Discounted Contract......................................... 7
Discounted Principal Balance................................ 14
Distribution Account........................................ 52
Distribution Date........................................... 5
</TABLE>
98
<PAGE> 103
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Downgrade Reserve Fund Supplemental Requirement............. 64
Downgrade Trigger Event..................................... 64
DTC......................................................... 5
DTC Participants............................................ 58
Early Amortization Event.................................... 56
Early Termination Charge.................................... 35
ERISA....................................................... 16
ERISA Compliance Test....................................... 79
Euroclear................................................... 5
Euroclear Operator.......................................... 60
Euroclear Participants...................................... 58
Events of Servicing Termination............................. 80
Excess Collections.......................................... 49
Exchange Act................................................ iii
Extension Fee............................................... 30
Fair, Isaac................................................. 29
Fitch....................................................... 16
Five State Area............................................. 3
Foreign Investors........................................... 90
Global Securities........................................... 102
Indenture Event of Default.................................. 56
Indenture Events of Default................................. 69
Indenture Trustee........................................... 1
Indirect DTC Participants................................... 58
Initial Class A Note Balance................................ 4
Initial Class A-1 Note Balance.............................. 4
Initial Class A-2 Note Balance.............................. 4
Initial Class A-3 Note Balance.............................. 4
Initial Class A-4 Note Balance.............................. 4
Initial Class B Note Balance................................ 4
Initial Contracts........................................... 2
Initial Cutoff Date......................................... 2
Initial Deposit............................................. 12
Initial Leased Vehicles..................................... 2
Initial Note Balance........................................ 4
Insolvency Event............................................ 22
Insolvency Laws............................................. 22
Insurance Proceeds.......................................... 53
Insured Residual Value Loss Amount.......................... 11
Interest Collections........................................ 8
Investor Percentage......................................... 9
IRS......................................................... 88
JMFE........................................................ 3
Lease Rate.................................................. 13
Leased Vehicles............................................. 2
Lemon Law................................................... 87
Liquidated Contract......................................... 65
Liquidation Expenses........................................ 15
Liquidation Proceeds........................................ 15
Loan Rule................................................... 92
Loss Amounts................................................ 17
</TABLE>
99
<PAGE> 104
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Matured Contract............................................ 14
Matured Leased Vehicle Expenses............................. 15
Matured Leased Vehicle Inventory............................ 14
Matured Leased Vehicle Proceeds............................. 14
Maturity Date............................................... 35
Mobile Center............................................... 28
Monthly Payments............................................ 13
Moody's..................................................... 16
National Union.............................................. 67
Net Liquidation Proceeds.................................... 8
Net Matured Leased Vehicle Proceeds......................... 8
Net Repossessed Vehicle Proceeds............................ 8
New Regulations............................................. 91
Nonrecoverable Advance...................................... 76
Note Balance................................................ 5
Note Distribution Amount.................................... 56
Note Owner.................................................. 5
Note Principal Loss Amount.................................. 50
Note Rates.................................................. 49
Noteholders................................................. 9
Notes....................................................... 3
OID......................................................... 89
Origination Trust........................................... 1
Origination Trust Agreement................................. 10
Origination Trust Assets.................................... 26
Origination Trustee......................................... 1
Other SUBI Assets........................................... 24
Other SUBI Certificates..................................... 24
Other SUBI Supplement....................................... 72
Other SUBIs................................................. 1
Outstanding Principal Balance............................... 13
Owner Trustee............................................... 1
Participants................................................ 58
Payment Ahead............................................... 14
PBGC........................................................ 83
Permitted Investments....................................... 55
PNC Bank.................................................... 1
Prepayment.................................................. 53
Prepayment Assumption....................................... 41
Principal Allocation........................................ 9
Principal Collections....................................... 7
PTC......................................................... 93
Rating Agencies............................................. 16
Realized Value.............................................. 35
Reallocation Deposit Amount................................. 45
Reallocation Payment........................................ 39
Record Date................................................. 6
Registration Statement...................................... iii
Regulation.................................................. 92
Repossessed Vehicle Expenses................................ 15
</TABLE>
100
<PAGE> 105
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
Repossessed Vehicle Proceeds................................ 14
Representative.............................................. 93
Required Amount............................................. 51
Required Deposit Ratings.................................... 54
Reserve Fund................................................ 63
Reserve Fund Cash Requirement............................... 64
Reserve Fund Deficiency..................................... 64
Reserve Fund Supplemental Requirement....................... 64
Reserve Fund Tests.......................................... 65
Residual Value.............................................. 13
Residual Value Insurance Policy............................. 11
Residual Value Loss Amount.................................. 17
Retained SUBI Interest...................................... 3
Revolving Period............................................ 6
RV Insurer.................................................. 11
RV Insurer Reserve Fund Supplemental Requirement............ 64
RV Insurer Trigger Event.................................... 64
Schedule of Contracts and Leased Vehicles................... 38
Securities Act.............................................. iii
Security Deposits........................................... 77
Servicer.................................................... 3
Servicer Letter of Credit................................... 53
Servicer's Certificate...................................... 78
Servicing Agreement......................................... 3
Servicing Fee............................................... 16
SET......................................................... 3
St. Louis Center............................................ 28
Standard & Poor's........................................... 16
Stated Maturity Date........................................ 6
SUBI........................................................ 1
SUBI Assets................................................. 24
SUBI Certificate............................................ 2, 10
SUBI Collection Account..................................... 53
SUBI Interest............................................... 1
SUBI Supplement............................................. 10
SUBI Trust Agreement........................................ 10
Subsequent Contracts........................................ 2
Subsequent Cutoff Date...................................... 51
Subsequent Leased Vehicles.................................. 2
Support Agreement........................................... 27
Terms and Conditions........................................ 60
TMS......................................................... 28
Transfer Date............................................... 7
Transferor.................................................. 1
Transferor Amounts.......................................... 46
Transferor Certificate...................................... 45
Transaction Documents....................................... 69
Transferor Interest......................................... 4
Transferor Percentage....................................... 46
Trust....................................................... 1
Trust Agent................................................. 10
</TABLE>
101
<PAGE> 106
<TABLE>
<CAPTION>
TERM PAGE
- ---- -------
<S> <C>
UCC......................................................... 63
Unallocated Principal Collections........................... 46
Uncapped Administrative Expenses............................ 48
Underwriters................................................ 93
Underwriting Agreement...................................... 93
Undistributed Transferor Excess Collections................. 49
U.S. Bank................................................... 1
U.S. Persons................................................ 104
UTI......................................................... 1
UTI Assets.................................................. 24
UTI Certificates............................................ 24
Voting Interests............................................ 50
WOLSI....................................................... 3
World Omni.................................................. 1
</TABLE>
102
<PAGE> 107
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Class A Notes
(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 Notes 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 U.S. corporate debt obligations. 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 U.S. corporate
debt obligations 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
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
103
<PAGE> 108
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's 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 the 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 Participant 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.
104
<PAGE> 109
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 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 Note 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
105
<PAGE> 110
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, partnership or other entity organized in or under
the laws of the United States or any state or political subdivision thereof
(other than a partnership that is not treated as a United States person under
any applicable Treasury regulations), (iii) an estate whose income is subject to
United States federal income tax, regardless of its source or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in regulations, certain trusts in existence on August 20,
1996 and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered U.S. Persons.
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.
106
<PAGE> 111
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, 1996
and 1995.................................................. F-2
Statement of Income and Capital and Surplus Account
(Statutory Basis) of American International Specialty
Lines Insurance Company for the Years Ended December 31,
1996 and 1995............................................. F-3
Statement of Cash Flows (Statutory Basis) of American
International Specialty Lines Insurance Company for the
Years Ended December 31, 1996 and 1995.................... F-4
Notes to Financial Statements of American International
Specialty Lines Insurance Company for the Two Years Ended
December 31, 1996......................................... F-5
Report of Coopers & Lybrand L.L.P........................... F-10
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-11
Statement of Income and Capital and Surplus Account
(Statutory Basis) of American International Specialty
Lines Insurance Company for the Years Ended December 31,
1995 and 1994............................................. F-12
Statement of Cash Flows (Statutory Basis) of American
International Specialty Lines Insurance Company for the
Years Ended December 31, 1995 and 1994.................... F-13
Notes to Financial Statements of American International
Specialty Lines Insurance Company for the Two Years Ended
December 31, 1995......................................... F-14
</TABLE>
107
<PAGE> 112
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder
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, 1996 and
1995, and related statements of income and changes in capital and surplus, 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 audits 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, 1996 and 1995 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, 1996 and 1995, 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 20, 1997
F-1
<PAGE> 113
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF ADMITTED ASSETS, LIABILITIES, CAPITAL AND SURPLUS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------
1996 1995
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Bonds, principally at amortized cost (market value:
1996 -- $428,374,610; 1995 -- $364,071,111)............... $408,951,827 $342,660,008
Short-term investments, at amortized cost (approximates
market)................................................... 2,881,520 1,816,577
Other invested assets, at market............................ 774,090 13,536,699
Cash........................................................ 3,756,500 7,093,727
------------ ------------
Total invested assets and cash.................... 416,363,937 365,107,011
Agents' balances or uncollected premiums:
Premiums in course of collection (including ceded
reinsurance balances payable of, 1996 -- $122,822,137;
1995 -- $51,082,419)................................... 22,119,963 (7,984,299)
Premiums and installments booked but deferred and not yet
due (including ceded reinsurance balances payable of,
1996 -- $78,001,716; 1995 -- $15,045,483).............. 48,902,443 73,458,478
Reinsurance recoverable on loss payments.................... 10,731,446 11,231,396
Interest and dividends due and accrued...................... 7,514,358 7,031,860
Receivable from parent, subsidiaries and affiliates......... 57,000 --
Loss funds on deposit....................................... 3,403,226 1,258,000
------------ ------------
Total admitted assets............................. $509,092,373 $450,102,446
============ ============
LIABILITIES
Unpaid losses............................................... $157,261,155 $137,464,053
Reinsurance payable on paid loss and loss adjustment
expenses.................................................. 17,901,733 9,247,912
Unpaid loss adjustment expenses............................. 44,732,880 34,805,997
Unearned premiums........................................... 77,925,706 64,227,729
Funds held under reinsurance treaties....................... 1,271,081 7,315
Provision for reinsurance................................... 8,322,009 7,738,123
Drafts outstanding.......................................... 8,375,056 19,581,459
Federal income tax payable.................................. 46,412 1,981,087
Payable to affiliates....................................... -- 1,955,319
Other liabilities........................................... 907,006 2,655,650
------------ ------------
Total liabilities................................. 316,743,038 279,664,644
============ ============
CAPITAL AND SURPLUS
Common 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.......................................... 88,969,335 67,057,802
------------ ------------
Total capital and surplus......................... 192,349,335 170,437,802
------------ ------------
Total liabilities, capital and surplus............ $509,092,373 $450,102,446
============ ============
</TABLE>
See Notes to Financial Statements
F-2
<PAGE> 114
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF INCOME AND CAPITAL AND SURPLUS ACCOUNT
(STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
1996 1995
-------------- --------------
<S> <C> <C>
Underwriting income:
Premiums earned........................................... $ 97,505,461 $ 81,810,517
------------ ------------
Deductions:
Losses incurred........................................ 60,951,620 48,588,886
Loss adjustment expenses incurred...................... 21,162,771 17,797,396
Other underwriting expenses incurred................... 11,741,435 8,604,097
------------ ------------
Total underwriting deductions..................... 93,855,826 74,990,379
------------ ------------
Net underwriting gain....................................... 3,649,635 6,820,138
------------ ------------
Investment income:
Net investment income earned.............................. 24,101,919 22,771,754
Net realized capital (losses) gains......................... (298,241) 301,028
------------ ------------
Net investment gain......................................... 23,803,678 23,072,782
------------ ------------
Income before federal income taxes.......................... 27,453,313 29,892,920
Federal income tax provision................................ 5,295,642 6,900,296
------------ ------------
Net income........................................ $ 22,157,671 $ 22,992,624
============ ============
CAPITAL and SURPLUS ACCOUNT
Total capital and surplus, December 31, previous year....... $170,437,802 $149,544,522
------------ ------------
Gains and (losses) in surplus:
Net income.................................................. 22,157,671 22,992,624
Change in non-admitted assets............................... 337,748 316,586
Change in provision for reinsurance......................... (583,886) (2,415,930)
------------ ------------
Change in surplus as regards policyholders for the year..... 21,911,533 20,893,280
------------ ------------
Total capital and surplus, December 31, current
year............................................ $192,349,335 $170,437,802
============ ============
</TABLE>
See Notes to Financial Statements
F-3
<PAGE> 115
AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY
STATEMENT OF CASH FLOWS
(STATUTORY BASIS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Premiums collected (net of reinsurance)..................... $105,998,970 $ 39,968,249
Loss and loss adjustment expenses paid (net of salvage,
subrogation and reinsurance).............................. 54,443,638 35,203,305
Underwriting expenses paid.................................. 12,154,628 8,866,433
------------ ------------
Net cash flows from underwriting............................ 39,401,304 (4,101,489)
------------ ------------
Investment income collected (net of investment expenses
paid)..................................................... 23,600,054 22,659,696
Other income (expenses)..................................... 1,263,766 --
Federal income taxes paid................................... (7,320,317) (5,182,995)
------------ ------------
Net cash flows from operations.................... 56,944,807 13,375,212
------------ ------------
Proceeds from investments sold, matured or repaid:
Bonds..................................................... 54,626,495 95,416,214
Other invested assets..................................... 172,166,000 89,750,000
------------ ------------
Total investment proceeds......................... 226,792,495 185,166,214
Cost on investments acquired (long-term only):
Bonds..................................................... 120,713,170 91,338,032
Other invested assets..................................... 160,118,547 103,364,787
------------ ------------
Total investments acquired........................ 280,831,717 194,702,819
------------ ------------
Net cash from investments................................... (54,039,222) (9,536,605)
Other cash provided:
Net transfers from affiliates............................. -- 3,662,933
------------ ------------
Total other cash provided......................... -- 3,662,933
------------ ------------
Other cash applied:
Net transfers to affiliates............................... 2,012,313 --
Other applications........................................ 3,165,556 3,495,334
------------ ------------
Total other cash applied.......................... 5,177,869 3,495,334
------------ ------------
Net cash from financing and miscellaneous sources........... (5,177,869) 167,599
------------ ------------
Net change in cash and short-term investments............... (2,272,284) 4,006,206
RECONCILIATION
Cash and short-term investments:
Beginning of year......................................... 8,910,304 4,904,098
------------ ------------
End of year............................................... $ 6,638,020 $ 8,910,304
============ ============
</TABLE>
See Notes to Financial Statements
F-4
<PAGE> 116
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING 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. (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 as 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)
provision is made for deferred income taxes relating to unrealized appreciation
on investments; (4) 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 income as opposed to
unassigned surplus; (5) non-admitted assets and statutory basis reserves are
restored to surplus; (6) the reserve for losses and loss expenses and reserve
for unearned premiums are presented gross of ceded reinsurance by establishing a
reinsurance asset; and (7) debt securities deemed to be available for sale and
trading securities are reported at fair value.
Other significant accounting practices are as follows:
A. The preparation of 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 effect 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 adjustors' evaluations and other estimates, including historical
loss experience. The methods of making such estimates and for establishing
the resulting
F-5
<PAGE> 117
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 $955,000
and $686,000 at December 31, 1996 and December 31, 1995, 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 market value.
Certain prior year 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/from the Parent.
The U.S. federal income tax rate applicable to ordinary income is 35% for
1996 and 1995. 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 approximately $2,961,000
and $2,258,000 in 1996 and 1995, 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-6
<PAGE> 118
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS:
The amortized cost and NAIC market values of investments in fixed
maturities carried at December 31, 1996 and December 31, 1995, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NAIC
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1996
Fixed maturities:
States, municipalities and political
subdivisions.............................. $408,952 $19,818 $395 $428,375
-------- ------- ---- --------
Total bonds......................... $408,952 $19,818 $395 $428,375
======== ======= ==== ========
</TABLE>
<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
======== ======= ==== ========
</TABLE>
The amortized cost and NAIC market values of fixed maturities at December
31, 1996, 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
COST MARKET VALUE
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less..................................... $ 17,574 $ 18,409
Due after one year through five years....................... 30,505 31,954
Due after five years through ten years...................... 42,005 44,000
Due after ten years......................................... 318,868 334,012
-------- --------
Total............................................. $408,952 $428,375
======== ========
</TABLE>
Proceeds from sales of investments in fixed maturities during 1996 and 1995
were $40,033,470 and $91,960,014, respectively. Gross gains of $364,892 and
$1,822,167, and gross losses of $402,706 and $1,155,012 were realized on those
sales in 1996 and 1995, respectively.
Securities carried at amortized cost of $10,272,320 and $10,020,220 were
deposited with regulatory authorities as required by law, at December 31, 1996,
and December 31, 1995, respectively.
Included in "Net investment income earned" are investment expenses of
$229,672 and $200,564 for 1996 and 1995, respectively.
6. REINSURANCE:
In the ordinary course of business, the Company reinsures certain risks
with affiliates and other companies. Such arrangements serve to limit the
Company's maximum loss on catastrophes, large 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> 119
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>
1996
Affiliates........................................ $ 465,016 $1,413,526
Non-Affiliates.................................... 41,953 133,042
--------- ----------
Total................................... $ 506,969 $1,546,568
========= ==========
1995
Affiliates........................................ $ 330,190 $1,126,806
Non-Affiliates.................................... 52,364 161,213
--------- ----------
Total................................... $ 382,554 $1,288,019
========= ==========
</TABLE>
Net premiums written and earned comprise the following:
<TABLE>
<CAPTION>
WRITTEN EARNED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
1996
Direct business............................................. $ 780,243 $ 655,126
Reinsurance assumed
Affiliates................................................ 31,522 18,502
Non-Affiliates............................................ -- 23
--------- ---------
Reinsurance ceded
Affiliates................................................ (645,572) (510,745)
Non-Affiliates............................................ (54,990) (65,401)
--------- ---------
Net premiums................................................ $ 111,203 $ 97,505
========= =========
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
========= =========
</TABLE>
For the years ended December 31, 1996 and 1995, reinsurance recoveries,
which reduced loss and loss expenses incurred, amounted to $523,014,777 and
$588,295,952, respectively.
The following unsecured reinsurance recoverables exceeded 3% of the capital
and surplus of the Company at December 31, 1996:
<TABLE>
<CAPTION>
REINSURER AMOUNT
--------- ----------
(IN THOUSANDS)
<S> <C>
Affiliates.................................................. $1,659,389
General Reinsurance Company................................. 54,528
----------
Total............................................. $1,713,917
==========
</TABLE>
F-8
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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,
1996, amounted to approximately $19,235,000.
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 indentify 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.
The Company has no known exposure to asbestos or environmental claims.
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>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net Balance at January 1.................................... $172,270 $142,296
Incurred related to:
Current year.............................................. 82,288 71,109
Prior years............................................... (174) (4,723)
-------- --------
Total incurred.................................... 82,114 66,386
-------- --------
Paid related to:
Current year.............................................. 7,280 3,277
Prior years............................................... 45,110 33,135
-------- --------
Total paid........................................ 52,390 36,412
-------- --------
Net Balance at December 31.................................. $201,994 $172,270
======== ========
</TABLE>
F-9
<PAGE> 121
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-10
<PAGE> 122
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-11
<PAGE> 123
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-12
<PAGE> 124
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 flows 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 flows 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-13
<PAGE> 125
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-14
<PAGE> 126
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-15
<PAGE> 127
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-16
<PAGE> 128
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.................................. -- --
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-17
<PAGE> 129
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-18
<PAGE> 130
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-19
<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..................... iii
Overview of Transaction................... iv
Summary................................... 1
Risk Factors.............................. 17
The Trust and the SUBI.................... 23
The Origination Trust..................... 24
Use of Proceeds........................... 27
The Transferor............................ 27
World Omni................................ 27
The Contracts............................. 34
Maturity, Prepayment and Yield
Considerations.......................... 39
Class A Note Factors and Trading
Information; Reports to Class A
Noteholders............................. 43
Description of the Notes.................. 44
Security for the Notes.................... 63
Additional Document Provisions............ 69
Certain Legal Aspects of the Origination
Trust and the SUBI...................... 82
Certain Legal Aspects of the Contracts and
the Leased Vehicles..................... 84
Material Income Tax Considerations........ 88
ERISA Considerations...................... 92
Underwriting.............................. 93
Notice to Canadian Residents.............. 94
Ratings of the Class A Notes.............. 95
Legal Matters............................. 95
Experts................................... 96
Index of Capitalized Terms................ 97
Global Clearance, Settlement and Tax
Documentation Procedures................ 103
Index to Financial Statements of American
International Specialty Lines Insurance
Company................................. 107
</TABLE>
UNTIL FEBRUARY 11, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A
NOTES, 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.
======================================================
$1,109,128,000
WORLD OMNI
1997-B AUTOMOBILE LEASE
SECURITIZATION TRUST
$260,000,000
6.07% Automobile Lease
Asset Backed Notes,
Class A-1
$220,000,000
6.08% Automobile Lease
Asset Backed Notes,
Class A-2
$390,000,000
6.18% Automobile Lease
Asset Backed Notes,
Class A-3
$239,128,000
6.20% Automobile Lease
Asset Backed Notes,
Class A-4
WORLD OMNI LEASE
SECURITIZATION L.P.
(Transferor)
WORLD OMNI FINANCIAL CORP.
(Servicer)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
BANCAMERICA ROBERTSON STEPHENS
MERRILL LYNCH & CO.
NATIONSBANC MONTGOMERY
SECURITIES, INC.
------------------------------------------------------
