As filed with the Securities and Exchange Commission on June 24, 1997
Registration No. 333-25301
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CPS AUTO RECEIVABLES TRUSTS
(Issuer of the Securities)
CONSUMER PORTFOLIO SERVICES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
California 33-0459135
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2 Ada
Irvine, California 92618
(714) 753-6800
(Address, including zip code, and
telephone number, including area code,
of registrant's principal executive
offices)
Charles E. Bradley, Jr.
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92618
(714) 753-6800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Laura A. DeFelice, Esq.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019
(212) 506-2500
Approximate date of commencement of
proposed sale to the public:
From time to time on or after the effective date of this registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [x]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered offering price per certificate* aggregate offering price* registration fee
Asset Backed Notes,
Class A $14,857,654.82 100% $14,857,654.82 $4,502.32**
* Estimated solely for the purpose of calculating the registration fee.
** Previously paid as follows: $344.83 was paid on April 16, 1997 and
$4,199.29 was paid as described in the following sentence. The amount
of securities being carried forward from Registration Statement No.
333-26355 pursuant to Rule 429 is $13,857,654.82, and the Registrant
previously paid a filing fee with respect to such securities of
$4,199.29 (calculated at the rate of 1/33 of 1% of the amount of
securitiess being registered, the rate in effect at the time such
Registration Statement was filed).
Pursuant to Rule 429 under the securities Act of 1933, the Prospectus
contained in this Amendment No. 1 to Registration Statement also relates to and
constitutes Post-Effective Amendment No. 1 to Registration Statement No.
333-26355, which became effective on May 20, 1997.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating
to the offering of Series of Asset Backed Securities by various CPS Auto
Receivables Trusts created from time to time by Consumer Portfolio Services,
Inc., (ii) a form of Prospectus Supplement (Form A) relating to future offerings
by a CPS Auto Receivables Trust of a Series of Asset Backed Securities described
therein, and (iii) a form of Prospectus Supplement (Form B) relating to the
offering by CPS Auto Receivables Trust 1997-3 of the particular Series of Asset
Backed Notes described therein. The forms of Prospectus Supplement relate only
to the securities described therein and are forms that may be used, among
others, by Consumer Portfolio Services, Inc. to offer Asset Backed Securities
under this Registration Statement.
PROSPECTUS
CPS Auto Receivables Trusts
Auto Receivables Backed Notes and Certificates Issuable in Series
CPS Receivables Corp.
Seller
Consumer Portfolio Services
Sponsor and Servicer
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series (each a "Series"), in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement"). Each Series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued by a trust to be formed by the Seller for the purpose of
issuing one or more Series of such Securities (each, a "Trust"). A Trust issuing
Securities as described in this Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer".
Each class of Securities of any Series will evidence beneficial
ownership in a segregated pool of assets (the "Trust Assets") (such Securities,
Certificates) or will represent indebtedness of the Issuer secured by the Trust
Assets (such Securities, Notes), as described herein and in the related
Prospectus Supplement. The Trust Assets may consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers including purchasers who are Sub-Prime
Borrowers (as defined herein). See "CPS Automobile Contract Portfolio." The
Trust Assets will be secured by new and used automobiles, light trucks, vans and
minivans financed thereby, or participation interests therein, together with all
moneys received relating thereto (the "Contracts"). The Trust Assets will also
include a security interest in the underlying new and used automobiles light
trucks, vans and minivans and property relating thereto, together with the
proceeds thereof (the "Financed Vehicles" together with the Contracts, the
"Receivables"). If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to the Trust Assets or any class of
Securities may include any one or more of the following: a financial guaranty
insurance policy (a "Policy") issued by an insurer specified in the related
Prospectus Supplement, a reserve account, letters of credit, credit or liquidity
facilities, third party payments or other support, cash deposits or other
arrangements. In addition to or in lieu of the foregoing, credit enhancement may
be provided by means of subordination, cross-support among the Receivables or
over-collateralization. See "Description of the Trust Documents - Credit and
Cash Flow Enhancement." Except to the extent that a Prospectus Supplement for a
series provides for a pre-funding period, the Receivables included in the Trust
Assets for a Series will have been originated or acquired by CPS or an
Affiliated Originator on or prior to the date of issuance of the related
Securities, as described herein and in the related Prospectus Supplement. The
Receivables included in a Trust will be serviced by a servicer (the "Servicer")
as described in the related Prospectus Supplement.
Each Series of Securities may include one or more classes (each, a
"Class"). A Series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any Series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A Series may include two or more Classes of
Securities which may differ as to the timing, order or priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a Series, together with
certain characteristics of the related Receivables, will be set forth in the
related Prospectus Supplement. The rate of payment in respect of principal of
the Securities of any Class will depend on the priority of payment of such Class
and the rate and timing of payments (including prepayments, defaults,
liquidations or repurchases of Receivables) on the related Receivables. A rate
of payment lower or higher than that anticipated may affect the weighted average
life of each Class of Securities in the manner described herein and in the
related Prospectus Supplement. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE [13] HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL
INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY CPS,
ANY SELLER, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES,
EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. 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.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any Series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is June [ ], 1997.
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder, among other things, will set forth with respect to such
Series of Securities: (i) a description of the Class or Classes of such
Securities, (ii) the rate of interest, the "Interest Rate" or other applicable
rate (or the manner of determining such rate) and authorized denominations of
each Class of such Securities; (iii) certain information concerning the
Receivables and insurance polices, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees or other forms of credit
enhancement, if any, relating to one or more pools of Receivables or all or part
of the related Securities; (iv) the specified interest, if any, of each Class of
Securities in, and manner and priority of, the distributions from the Trust
Assets; (v) information as to the nature and extent of subordination with
respect to such Series of Securities, if any; (vi) the payment date to
Securityholders; (vii) information regarding the Servicer(s) for the related
Receivables; (viii) the circumstances, if any, under which the Trust Assets may
be subject to early termination; (ix) information regarding tax considerations;
and (x) additional information with respect to the method of distribution of
such Securities.
AVAILABLE INFORMATION
This Prospectus, together with the Prospectus Supplement for each
Series of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission (the "Commission") in Washington, D.C., and may be
obtained at rates prescribed by the Commission upon request to the Commission
and may be inspected, without charge, at the Commission's offices.
The Sponsor has also filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at 500 West Madison, 14th Floor,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of the Registration Statement may 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 also maintains a web site at
http://www.sec.gov containing reports, proxy statements, information statements
and other information regarding registrants, including CPS, that file
electronically with Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Sponsor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any Series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in the accompanying Prospectus Supplement) or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
REPORTS TO SECURITYHOLDERS
So long as the Securities of a Series are in book-entry form, monthly
and annual reports concerning the Securities and the Trust will be sent by the
applicable Trustee to Cede & Co., as the nominee of DTC and as registered holder
of the Securities pursuant to the related Indenture. DTC will supply such
reports to Securityholders in accordance with its procedures. To the extent
required by the Securities Exchange Act of 1934, as amended, each Trust will
provide financial information to the Securityholders which has been examined and
reported upon, with an opinion expressed by, an independent public accountant;
to the extent not so required, such financial information will be unaudited.
Each Trust will be formed to own the Receivables, hold and administer the
Pre-Funding Account, if any, to issue the Securities and to acquire the
Subsequent Receivables, if available. No Trust will have any assets or
obligations prior to issuance of the Securities and no Trust will engage in any
activities other than those described herein. Accordingly, no financial
statements with respect to the related Trust will be included in any Prospectus
Supplement.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any Series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer............. With respect to any Series of Securities, a trust (each, a
"Trust") to be formed pursuant to a trust agreement (the
"Trust Agreement" ) between the Seller and the trustee for
such trust. A Trust issuing Securities pursuant to this
Prospectus and the related Prospectus Supplement shall be
referred to herein as the "Issuer" with respect to the
related Securities.
Seller............. CPS Receivables Corp. or another special-purpose subsidiary
of CPS (each, a "Seller"). See "The Seller and CPS".
Sponsor............ Consumer Portfolio Services, Inc. ("CPS" or the "Sponsor").
See "CPS's Automobile Contract Portfolio" and "The Seller
and CPS".
Servicer........... The entity named as Servicer in the related Prospectus
Supplement (the "Servicer"). Each Prospectus Supplement will
specify whether the Servicer will service the Receivables in
the related Receivables Pool directly or indirectly through
one or more subservicers (each, a "Subservicer").
Trustee............ The Trustee for each Series of Securities will be specified
in the related Prospectus Supplement. In addition, a Trust
may separately enter into an Indenture and may issue Notes
pursuant to such Indenture; in any such case, the Trust and
the Indenture will be administered by separate, independent
trustees as required by the rules and regulations under the
Trust Indenture Act of 1939 and the Investment Company Act
of 1940.
The Securities..... Each Class of Securities of any Series will either evidence
beneficial interests in a segregated pool of assets (the
"Trust Assets") (such Securities, "Certificates") or will
represent indebtedness of the Trust secured by the Trust
Assets (such Securities, "Notes"), as described herein and
in the related Prospectus Supplement.
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With respect to Securities that represent debt issued by the
Trust, the Trust will enter into an indenture (each, an
"Indenture") by and between the Trust and the trustee named
in such Indenture (the "Indenture Trustee"). Each Indenture
will describe the related pool of Receivables comprising the
Trust Assets and securing the debt issued by the related
Issuer. The Receivables comprising the Trust Assets will be
serviced by the Servicer pursuant to a servicing agreement
(each, a "Servicing Agreement") by and between the Servicer
and the related Issuer. In the case of the Trust Assets of
any class of Securities, the contractual arrangements
relating to the establishment of a Trust, if any, the
servicing of the related Receivables and the issuance of the
related Securities may be contained in a single agreement,
or in several agreements which combine certain aspects of
the Trust Agreement, the Servicing Agreement and the
Indenture described above (for example, a servicing and
collateral management agreement). For purposes of this
Prospectus, the term "Trust Documents" as used with respect
to Trust Assets means, collectively, and except as otherwise
described in the related Prospectus Supplement, any and all
agreements relating to the establishment of a Trust, if any,
the servicing of the related Receivables and the issuance of
the related Securities. The term "Trustee" means any and all
persons acting as a trustee pursuant to a Trust Agreement.
Securities Will Be Non-Recourse. The Securities will not be
obligations, either recourse or non-recourse, of CPS, any
Seller, the related Servicer or any person other than the
related Issuer. The Notes of a given Series represent
obligations of the Issuer, and the Certificates of a given
Series represent beneficial interests in the related Issuer
only and do not represent interests in or obligations of
CPS, any Seller, the related Servicer or any of their
respective affiliates other than the related Issuer. In the
case of Securities that represent beneficial ownership
interest in the related Issuer, such Securities will
represent the beneficial ownership interests in such Issuer
and the sole source of payment will be the assets of such
Issuer. In the case of Securities that represent debt issued
by the related Issuer, such Securities will be secured by
assets in the related Trust Assets.
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Notwithstanding the foregoing, and as to be described in the
related Prospectus Supplement, certain types of credit
enhancement, such as a letter of credit, financial guaranty
insurance policy or reserve fund may constitute a full
recourse obligation of the issuer of such credit
enhancement.
General Payment Terms of Securities. As provided in the
related Trust Documents and as described in the related
Prospectus Supplement, the holders of the Securities
("Securityholders") will be entitled to receive payments on
their Securities on specified dates (each, a "Payment
Date"). Payment Dates with respect to Securities will occur
monthly, quarterly or semi-annually, as described in the
related Prospectus Supplement. The related Prospectus
Supplement will describe a date (the "Record Date")
preceding such Payment Date, as of which the Trustee or its
paying agent will fix the identity of the Securityholders
for the purpose of receiving payments on the next succeeding
Payment Date. As described in the related Prospectus
Supplement, the Payment Date will be a specified day of each
month, (or, in the case of quarterly-pay Securities, a
specified day of every third month; and in the case of
semi-annual pay Securities, a specified day of every sixth
month) and the Record Date will be the close of business as
of a specified day preceding such Payment Date. Each
Indenture and Trust Agreement will describe a period (each,
a "Collection Period") preceding each Payment Date (for
example, in the case of monthly-pay Securities, the calendar
month preceding the month in which a Payment Date occurs).
As more fully described in the related Prospectus
Supplement, collections received on or with respect to the
related Receivables constituting Trust Assets during a
Collection Period will be required to be remitted by the
Servicer to the related Trustee prior to the related Payment
Date and will be used to fund payments to Securityholders on
such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Documents may
provide that all or a portion of the payments collected on
or with respect to the related Receivables may be applied by
the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used
to fund payments of principal to Securityholders during such
period), with the result that the related Securities will
possess an
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interest-only period, also commonly referred to as a
revolving period, which will be followed by an amortization
period. Any such interest only or revolving period may, upon
the occurrence of certain events to be described in the
related Prospectus Supplement, terminate prior to the end of
the specified period and result in the earlier than expected
amortization of the related Securities. In addition, and as
may be described in the related Prospectus Supplement, the
related Trust Documents may provide that all or a portion of
such collected payments may be retained by the Trustee (and
held in certain Eligible Investments, including Receivables)
for a specified period prior to being used to fund payments
of principal to Securityholders. Such retention and
temporary investment by the Trustee of such collected
payments may be required by the related Trust Documents for
the purpose of (a) slowing the amortization rate of the
related Securities relative to the installment payment
schedule of the related Receivables, or (b) attempting to
match the amortization rate of the related Securities to an
amortization schedule established at the time such
Securities are issued. Any such feature applicable to any
Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an
acceleration of the amortization of such Securities. As more
fully specified in the related Prospectus Supplement,
neither the Securities nor the underlying Receivables will
be guaranteed or insured by any governmental agency or
instrumentality or CPS, any Seller, the related Servicer,
any Trustee, or any of their respective affiliates.
Each Series of Securities will be issued pursuant to the
related Indenture, in the case of the Notes, and pursuant to
the related Trust Agreement, in the case of the
Certificates. The related Prospectus Supplement will specify
which Class or Classes of Securities of the related Series
are being offered thereby.
Each Class of Securities will have a stated security balance
(the "Security Balance") and will accrue interest on such
Security Balance at a specified rate (with respect to each
Class of Securities the "Interest Rate") as set forth in the
related Prospectus Supplement. Each Class of Securities may
have a
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different Interest Rate, which may be a fixed, variable or
adjustable Interest Rate, or any combination of the
foregoing. The related Prospectus Supplement will specify
the Interest Rate, or the method for determining the
applicable Interest Rate, for each Class of Securities.
A Series of Securities may include two or more Classes of
Securities that differ as to timing and priority of
distributions, seniority, allocations of losses, Interest
Rate or amount of distributions in respect of principal or
interest. Additionally, distributions in respect of
principal or interest in respect of any such Class or
Classes may or may not be made upon the occurrence of
specified events or on the basis of collections from
designated portions of the related Receivables Pool. If
specified in the related Prospectus Supplement, one or more
Classes of Securities ("Strip Securities") may be entitled
to (i) principal distributions with disproportionate,
nominal or no interest distributions or (ii) interest
distributions with disproportionate, nominal or no principal
distributions. If specified in the related Prospectus
Supplement a Series may include one or more Classes of
Securities ("Accrual Securities"), as to which certain
accrued interest will not be distributed but rather will be
added to the principal balance (or nominal balance, in the
case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date or in the manner described in
the related Prospectus Supplement. If so provided in the
related Prospectus Supplement, a Series may include one or
more other Classes of Securities (collectively, the "Senior
Securities") that are senior to one or more other Classes of
Securities (collectively, the "Subordinate Securities") in
respect of certain distributions of principal and interest
and allocations of losses on Receivables. In addition,
certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate)
Securities in respect of such distributions or losses. See
"Description of the Securities - General Payment Terms of
the Securities".
Securities will be available for purchase in the minimum
denomination specified in the related Prospectus Supplement
and will be available in book-entry form unless the related
Prospectus Supplement
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provides only for Definitive Securities. Securityholders
will only be able to receive Definitive Securities in the
limited circumstances described herein or in the related
Prospectus Supplement. See "Description of the Securities -
Definitive Notes".
If the Servicer or any Subservicer exercises its option to
purchase the Receivables of a Trust (or if not and, if and
to the extent provided in the related Prospectus Supplement,
satisfactory bids for the purchase of such Receivables are
received), in the manner and on the respective terms and
conditions described under "Description of the Trust
Documents--Termination", the Securities will be prepaid as
set forth in the related Prospectus Supplement. In addition,
if the related Prospectus Supplement provides that the
property of a Trust will include a Pre-Funding Account that
will be used to purchase additional Receivables after the
applicable Closing Date, one or more Classes of Securities
may be subject to a partial prepayment of principal at or
immediately following the end of the period specified in
such Prospectus Supplement for the purchase of such
additional Receivables, in the manner and to the extent
specified in the related Prospectus Supplement.
No Investment
Companies.......... None of CPS, any Seller or any Trust will register or is
required to register as an "investment company" under the
Investment Company Act of 1940, as amended (the "Investment
Company Act").
The Residual
Interest........... With respect to each Trust, the "Residual Interest" at any
time represents the rights to the related Trust Assets in
excess of the Securityholders' interest of all Series then
outstanding that were issued by such Trust. The Residual
Interest in any Trust Assets will fluctuate as the aggregate
Pool Balance (as hereinafter defined) of such Trust changes
from time to time. A portion of the Residual Interest in any
Trust may be sold separately in one or more public or
private transactions.
Cross-
Collateralization.. As described in the related Trust Documents and the related
Prospectus Supplement, the source of payment for Securities
of each Series will be the assets of the related Trust only.
However, as may be described in the related Prospectus
Supplement, a Series or Class of
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Securities may include the right to receive moneys from a
common pool of credit enhancement which may be available for
more than one Series of Securities, such as a master reserve
account, master insurance policy or a master collateral pool
consisting of similar Receivables. Notwithstanding the
foregoing, and as described in the related Prospectus
Supplement, no payment received on any Receivable held by
any Trust may be applied to the payment of Securities issued
by any other Trust (except to the limited extent that
certain collections in excess of the amounts needed to pay
the related Securities may be deposited in a common master
reserve account or an overcollateralization account that
provides credit enhancement for more than one Series of
Securities issued pursuant to the related Trust Documents).
Trust Assets....... The property of each Trust will include a pool of simple
interest or Rule of 78's motor vehicle installment sale
contracts or motor vehicle installment loans secured by new
and used automobiles, light trucks, vans and minivans (the
"Receivables"), including the right to receive payments
received or due on or with respect to such Receivables on or
after the date or dates specified in the related Prospectus
Supplement (each, a "Cutoff Date"), security interests in
the vehicles financed thereby (the "Financed Vehicles"), and
any proceeds from claims under certain related insurance
policies. See "The Receivables - The Receivables." On the
date of issuance of a Series of Securities specified in the
related Prospectus Supplement (the "Closing Date" for such
Series), the applicable Seller will convey Receivables
having the aggregate principal balance specified in such
Prospectus Supplement as of the Cutoff Date specified
therein to such Trust pursuant to a sale and servicing
agreement (the "Sale and Servicing Agreement") among the
Seller, the Servicer and the Trustee of such Trust. The
property of each Trust also will include amounts on deposit
in, or certain rights with respect to, certain trust
accounts, including the related Collection Account, any Pre-
Funding Account and any other account identified in the
applicable Prospectus Supplement. See "Description of the
Trust Documents - Accounts".
If the related Prospectus Supplement provides that the
property of a Trust will include moneys, in any case
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not to exceed 34% of the Trust's Assets or 25% of the
Certificate Balance, if any, initially deposited into an
account (a "Pre-Funding Account"), such moneys will be used
to purchase additional Receivables after the Closing Date,
the Seller will be obligated pursuant to the Sale and
Servicing Agreement to sell additional Receivables (the
"Subsequent Receivables") to the related Trust, subject only
to the availability thereof, having an aggregate principal
balance approximately equal to the amount deposited to the
Pre-Funding Account on the Closing Date (the "Pre-Funded
Amount"), and the Trust will be obligated to purchase such
Subsequent Receivables (subject to the satisfaction of
certain conditions set forth in the related Trust Documents)
from time to time during the period (the "Funding Period"),
not to exceed 6 months , specified in such Prospectus
Supplement for the purchase of such Subsequent Receivables.
Any Subsequent Receivables conveyed to a Trust will have
been acquired by the Seller, directly or indirectly, from
CPS or a subsidiary of CPS (such subsidiary, an "Affiliated
Originator") and will meet all of the credit, underwriting
and other criteria set forth herein and in the related
Prospectus Supplement. Any funds on deposit in the
Pre-Funding Account and not yet invested in Subsequent
Receivables will be invested in Permitted Investments. See
"Risk Factors - Varying Characteristics of Subsequent
Receivables", "The Receivables", and "Description of the
Trust Documents - Sale and Assignment of Receivables" herein
and "The Receivables Pool" in the related Prospectus
Supplement.
As used in this Prospectus, the term Receivables will
include the Receivables transferred to a Trust on the
related Closing Date (such Receivables, the "Initial
Receivables") as well as any Subsequent Receivables
transferred to such Trust during the related Funding Period,
if any.
Amounts on deposit in any Pre-Funding Account during the
related Funding Period will be invested by the Trustee (as
directed by the Servicer) in Eligible Investments, and any
resultant investment income, less any related investment
expenses ("Investment Income"), will be added, on the
Payment Date immediately following the date on which such
Investment Income is paid to the Trust, to interest
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collections on the Receivables for the related Collection
Period and distributed in the manner specified in the
related Prospectus Supplement. Any funds remaining in a
Pre-Funding Account at the end of the related Funding Period
will be distributed as a prepayment or early distribution of
principal to holders of one or more classes of the
Securities of the related Series of Securities, in the
amounts and in accordance with the payment priorities
specified in the related Prospectus Supplement. Such
distribution may affect the yield realized by
Securityholders and Securityholders may not be able to
reinvest those funds in investments realizing comparable
returns. See "Risk Factors - Distribution of Pre-Funded
Amount - Effect on Yield and Maturity".
Registration of
Securities........ Securities may be represented by global securities
registered in the name of Cede & Co. ("Cede"), as nominee of
The Depository Trust Company ("DTC"), or another nominee of
DTC. In such case, Securityholders will not be entitled to
receive definitive securities representing such
Securityholders' interests. See "Description of the
Securities - Book- Entry Registration" herein.
Credit and
Cash Flow
Enhancement....... If and to the extent specified in the related Prospectus
Supplement, credit enhancement with respect to the Trust
Assets or any Class of Securities may include any one or
more of the following: subordination of one or more other
classes of Securities of the same Series, reserve funds,
spread accounts, surety bonds, insurance policies, letters
of credit, credit or liquidity facilities, cash collateral
accounts, over- collateralization, guaranteed investment
contracts, swaps or other interest rate protection
agreements, repurchase obligations, other agreements with
respect to third party payments or other support, cash
deposits, or other arrangements. To the extent specified in
the related Prospectus Supplement, a form of credit
enhancement with respect to a Trust or a Class or Classes of
Securities may be subject to certain limitations and
exclusions from coverage thereunder.
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Repurchase
Obligations and
the Receivables
Acquisition
Agreement.......... As more fully described in the related Prospectus
Supplement, CPS will be obligated to acquire from the
related Trust Assets any Receivable which was transferred
pursuant to a Sale and Servicing Agreement or Purchase
Agreement or pledged pursuant to an Indenture if the
interest of the Securityholders therein is materially
adversely affected by a breach of any representation or
warranty made by CPS with respect to such Receivable, which
breach has not been cured. In addition, if so specified in
the related Prospectus Supplement, CPS may from time to time
reacquire certain Receivables of the Trust Assets, subject
to specified conditions set forth in the related Trust
Documents.
Servicer's
Compensation....... The Servicer shall be entitled to receive a fee for
servicing the Trust Assets equal to a specified percentage
of the value of such Trust Assets, as set forth in the
related Prospectus Supplement. See "Description of the Trust
Documents - Servicing Compensation" herein and in the
related Prospectus Supplement.
Optional
Termination........ The Servicer, CPS, or, if specified in the related
Prospectus Supplement, certain other entities may, at their
respective options, effect early retirement of a Series of
Securities under the circumstances and in the manner set
forth herein under "Description of The Trust Documents --
Termination" and in the related Prospectus Supplement.
Mandatory
Termination........ The Trustee, the Servicer or certain other entities
specified in the related Prospectus Supplement may be
required to effect early retirement of all or any portion of
a Series of Securities by soliciting competitive bids for
the purchase of the Trust Assets or otherwise, under the
circumstances and in the manner specified in "Description of
The Trust Documents -- Termination" and in the related
Prospectus Supplement.
Tax
Considerations..... Upon the issuance of each series of Securities, unless the
related Prospectus Supplement does not so provide, Federal
Tax Counsel to the applicable Trust will deliver an opinion
to the effect that, for Federal income tax purposes: (i)
either (x) the Notes of such series will be characterized as
debt or (y) the Notes of
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such series should be characterized as debt (but if not
characterized as debt, the Notes of such series will be
characterized as interests in a partnership) and (ii) such
Trust will not be characterized as an association (or
publicly traded partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note of a given series,
will agree to treat such Note as indebtedness, and each
Certificateholder, by the acceptance of a Certificate of a
given series, will agree to treat the related Trust as a
partnership in which such Certificateholder is a partner,
for Federal income tax purposes. Alternative
characterizations of such Trust and such Certificates are
possible, but would not result in materially adverse tax
consequences to Certificateholders. See "Certain Federal
Income Tax Consequences" for additional information
concerning the application of Federal income tax laws to the
Notes and Certificates of a series and to the applicable
Trust.
ERISA
Considerations..... The Prospectus Supplement for each Series of Securities will
summarize, subject to the limitations discussed therein,
considerations under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), relevant to the purchase
of such Securities by employee benefit plans and individual
retirement accounts. See "ERISA Considerations" in the
related Prospectus Supplement.
Ratings............ Each Class of Securities offered pursuant to this Prospectus
and the related Prospectus Supplement will be rated in one
of the four highest rating categories by one or more
"national statistical rating organizations", as defined in
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and commonly referred to as "Rating
Agencies". Such ratings will address, in the opinion of such
Rating Agencies, the likelihood that the Issuer will be able
to make timely payment of all amounts due on the related
Securities in accordance with the terms thereof. Such
ratings will neither address any prepayment or yield
considerations applicable to any Securities nor constitute a
recommendation to buy, sell or hold any Securities. The
ratings expected to be received with respect to any
Securities will be set forth in the related Prospectus
Supplement.
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RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Sub-Prime Obligors. The Obligors on the Receivables to be conveyed to a
Trust will include "sub-prime" borrowers who have limited or adverse credit
histories, low income or past credit problems and, therefore, are unable to
obtain financing from traditional sources of consumer credit. The average
interest rate charged by CPS to such "sub-prime" borrowers is generally higher
than that charged to more creditworthy customers. The payment experience on
receivables of obligors with this credit profile is likely to be different from
that on receivables of traditional auto financing sources in that default rates
are likely to be higher. In addition, the payment experience on such receivables
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the obligors
and the APRs of such receivables, the historical credit loss and delinquency
rates on such receivables are generally higher than those experienced by banks
and the captive finance companies of the automobile manufacturers.
Effect of Social, Economic and Other Factors on Losses. The ability of
the Obligors to make payments on the Receivables, as well as the prepayment
experience thereon, will be affected by a variety of social and economic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumer perceptions of economic conditions generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the Receivables.
Risk of Replacing CPS as Servicer. CPS Servicing receivables of
sub-prime obligors is more difficult than servicing receivables of prime
obligors. Officers and employees of CPS have many years of experience in this
type of servicing. If CPS were to cease acting as Servicer, delays in processing
payments on the Receivables and information in respect thereof could occur and
result in delays in payments to the Securityholders.
Risk of CPS's Inability to Repurchase Receivables. In certain
circumstances, CPS will be required to acquire Receivables from the related
Trust with respect to which such representations and warranties have been
breached. In the event that CPS is incapable of complying with its repurchase
obligations and no other party is obligated to perform or satisfy such
obligations, Securityholders of the applicable Trust may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
The related Prospectus Supplement will set forth certain information
regarding CPS. In addition, CPS is subject to the information requirements of
the Exchange Act and, in accordance therewith, files reports and other
information with the Commission. For further information regarding CPS reference
is made to such reports and other information which are available as described
under "Available Information".
Effect of Prepayments on Yield and Maturity. All of the Receivables are
prepayable at any time. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a receivable without the consent of CPS. (For this purpose the term
"prepayments" includes prepayments in full, certain partial prepayments related
to refunds of extended service
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contract costs and unearned insurance premiums, liquidations due to default, as
well as receipts of proceeds from physical damage, credit life and credit
accident and health insurance policies and certain other Receivables repurchased
for administrative reasons.) The rate of prepayment on the Receivables may also
be influenced by the structure of the loan, the nature of the Obligors and the
Financed Vehicles and servicing decisions as discussed above. In addition, under
certain circumstances, CPS is obligated to repurchase Receivables as a result of
breaches of representations and warranties, and under certain circumstances the
Servicer is obligated to purchase Receivables pursuant to the Sale and Servicing
Agreement as a result of breaches of certain covenants. Subject to certain
conditions, the Servicer also has the right to purchase the Receivables when the
aggregate principal balance thereof is 10% or less of the aggregate principal
balance thereof on the Cutoff Date. Any reinvestment risks resulting from a
faster or slower incidence of prepayment of Receivables will be borne entirely
by the Securityholders.
The rate of prepayments of Receivables cannot be predicted and is
influenced by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternate financing and local and
regional economic conditions. Therefore, no assurance can be given as to the
level of prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at
a discount, the risk that a slower than anticipated rate of prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
Distribution of Pre-Funded Amount - Effect on Yield and Maturity. If so
provided in the related Prospectus Supplement, on the Closing Date the Seller
will deposit the Pre-Funded Amount specified in such Prospectus Supplement into
the Pre-Funding Account. The Pre-Funded Amount will be used to purchase
Subsequent Receivables from the Seller (which, in turn, will acquire such
Subsequent Receivables from CPS or an Affiliated Originator specified in the
related Prospectus Supplement) from time to time during the related Funding
Period. During the related Funding Period and until such amounts are applied by
the Trustee to purchase Subsequent Receivables, amounts on deposit in the
Pre-Funding Account will be invested by the Trustee (as instructed by the
Servicer) in Eligible Investments, and any investment income with respect
thereto (net of any related investment expenses) will be added to amounts
received on or in respect of the Receivables during the related Collection
Period and allocated to interest and will be distributed on the Payment Date
pursuant to the payment priorities specified in the related Prospectus
Supplement.
To the extent that the entire Pre-Funded Amount has not been applied to
the purchase of Subsequent Receivables by the end of the related Funding Period,
any amounts remaining in the Pre- Funding Account will be distributed as a
prepayment of principal to Securityholders on the Payment Date at or immediately
following the end of the Funding Period, in the amounts and pursuant to the
priorities set forth in the related Prospectus Supplement. Any such prepayment
of principal could have the effect of shortening the weighted average life of
the Securities of the related Series. In addition, holders of the related
Securities will bear the risk that they may be unable to reinvest any such
principal prepayment at yields at least equal to the yield on such Securities.
Varying Characteristics of Subsequent Receivables. If so provided in
the related Prospectus Supplement, the Seller will be obligated pursuant to the
Trust Documents to sell Subsequent
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Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Trust Documents and described in the related Prospectus
Supplement. If the principal amount of the eligible Subsequent Receivables
acquired by the Seller from CPS or an Affiliated Originator during a Funding
Period is less than the Pre-Funded Amount, the Seller may have insufficient
Subsequent Receivables to transfer to a Trust and holders of one or more Classes
of the related Series of Securities may receive a prepayment or early
distribution of principal at the end of the Funding Period as described above
under "Pre- Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Purchase Agreement; (ii) the Seller shall not have selected such
Subsequent Receivables in a manner that is adverse to the interests of holders
of the related Securities; (iii) as of the respective Cutoff Dates for such
Subsequent Receivables, all of the Receivables in the Trust, including the
Subsequent Receivables to be conveyed to the Trust as of such date, must satisfy
the parameters described under "The Receivables Pools" herein and "The
Receivables Pool" in the related Prospectus Supplement; and (iv) the Seller must
execute and deliver to such Trust a written assignment conveying such Subsequent
Receivables to such Trust. In addition, as and to the extent specified in the
related Prospectus Supplement, the conveyance of Subsequent Receivables to a
Trust is subject to the satisfaction of the condition precedent, among others,
that the Seller deliver certain legal opinions to the related Trustee with
respect to the validity of the conveyance of the Subsequent Receivables to the
Trust. If any such conditions precedent are not met with respect to any
Subsequent Receivables, CPS or the Seller, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement,
there will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary significantly as Subsequent Receivables are conveyed to such
Trust from time to time during the Funding Period or Revolving Period. See "The
Receivables" herein.
Certain Legal Aspects - Lack of Perfected Security Interests in
Financed Vehicles. The transfer of the Receivables by the applicable Seller to
the Trustee pursuant to the related Sale and Servicing Agreement, perfection of
the security interests in the Receivables and the enforcement of rights to
realize on the Financed Vehicles as collateral for the Receivables are subject
to a number of federal and state laws, including the UCC as in effect in various
states. To the extent specified in a Prospectus Supplement, no action will be
taken to perfect the rights of the Trustee in proceeds of any VSI insurance
policy insurance policies covering individual Financed Vehicles or Obligors.
Therefore, the rights of a third party with an interest in such proceeds could
prevail against the rights of the Trust prior to the time such proceeds are
deposited by the Servicer into a Trust Account (as hereinafter defined). See
"Certain Legal Aspects of the Receivables".
In connection with each sale of Receivables, security interests in the
Financed Vehicles securing the Receivables will be assigned by CPS and each
Affiliated Originator to the Seller. Due to the administrative burden and
expense of retitling each of the Financed Vehicles in the appropriate state, the
certificates of title to the Financed Vehicles will not be amended or reissued
to reflect the
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assignment to the Trust. In the absence of such an amendment or reissuance, the
Trust may not have a perfected security interest in the Financed Vehicles
securing the Receivables in some states. By virtue of the assignment of the
applicable Purchase Agreement to the related Trust, CPS will be obligated to
repurchase any Receivable sold to the Trust by CPS or an Affiliated Originator
as to which there did not exist on the Closing Date a perfected security
interest in the name of CPS or the relevant Affiliated Originator in the
Financed Vehicle, and the Servicer will be obligated to purchase any Receivable
sold to the Trust as to which it failed to maintain a perfected security
interest in the name of CPS or the relevant Affiliated Originator in the
Financed Vehicle securing such Receivable if, in either case, such breach
materially and adversely affects such Receivable and if such failure or breach
is not cured prior to the expiration of the applicable cure period. To the
extent the security interest of CPS or the Affiliated Originator is perfected,
the Trust will have a prior claim over subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected security interests. However, as
against liens for repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable, or through fraud, forgery, negligence or error, CPS
or the Affiliated Originator, and therefore the Trust, could lose the priority
of its security interest or its security interest in a Financed Vehicle. Neither
CPS nor the Servicer will have any obligation to purchase a Receivable as to
which a lien for repairs of a Financed Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the priority of the security interest in
such Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables - Security Interests in the Financed Vehicles".
Consumer Protection Laws. Federal and state consumer protection laws
impose requirements on creditors in connection with extensions of credit and
collections of retail installment loans, and certain of these laws make an
assignee of such a loan (such as a Trust) liable to the obligor thereon for any
violation by the lender. To the extent specified herein and in the related
Prospectus Supplement, CPS will be obligated to repurchase any Receivable that
fails to comply with such legal requirements from the Seller and the Seller
shall be obligated to repurchase such Receivable from the Trust, and the Seller
and the Servicer will undertake to enforce such obligation on behalf of the
Trust. See "Certain Legal Aspects of the Receivables - Consumer Protection
Laws".
Non-Consolidation. Each Seller has taken or will take steps in
structuring the transactions contemplated hereby that are intended to ensure
that the voluntary or involuntary application for relief by CPS under the United
States Bankruptcy Code or similar state laws ("Insolvency Laws") will not result
in consolidation of the assets and liabilities of the Seller with those of CPS.
These steps include the creation of each Seller as a separate, limited-purpose
subsidiary pursuant to articles of incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a restriction
on the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of a Seller
would not result in a court concluding that the assets and liabilities of such
Seller should be consolidated with those of CPS in a proceeding under any
Insolvency Law. If a court were to reach such a conclusion, then delays in
distributions on the related Securities could occur or reductions in the amounts
of such distributions could result. See "The Seller and CPS".
True Sale. CPS will warrant to the Seller in each Purchase Agreement
that the sale of the Receivables by it or an Affiliated Originator to the Seller
is a valid sale of such Receivables to such Seller. In addition, CPS, each
Affiliated Originator and each Seller will treat the transactions described
herein as a sale of the Receivables to the Seller, and each Seller has taken and
will take all
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actions that are required to perfect the Seller's ownership interest in the
Receivables. Notwithstanding the foregoing, if CPS or an Affiliated Originator
were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of CPS (or such Affiliated Originator) or CPS (or such
Affiliated Originator) itself were to take the position that the sale of
Receivables to the Seller should be recharacterized as a pledge of such
Receivables to secure a borrowing of such Seller, then delays in payments of
collections of Receivables to the Seller could occur or, should the court rule
in favor of any such trustee, debtor or creditor, reductions in the amount of
such payments could result. If the transfer of Receivables to the Seller is
recharacterized as a pledge or a tax or government lien on the property of CPS
or an Affiliated Originator arising before the transfer of a Receivable to the
Seller may have priority over the Seller's interest in such Receivable. If the
transactions contemplated herein are treated as a sale, the Receivables would
not be part of the bankruptcy estate of CPS or the Affiliated Originator, as
applicable, and would not be available to creditors of CPS or the Affiliated
Originator, as applicable.
The U.S. Court of Appeals for the Tenth Circuit issued its opinion in
Octagon Gas Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May
27, 1993) in which it concluded (noting that its position is in contrast to that
taken by another court) that accounts receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables are likely to be viewed as "chattel paper", as defined
under the Uniform Commercial Code, rather than as accounts, the rationale behind
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the Octagon ruling would apply are not fully known, and the extent
to which the Octagon decision will be followed in other courts or outside of the
Tenth Circuit is not certain. If the holding in the Octagon case were applied in
a bankruptcy of CPS or an Affiliated Originator, however, even if the transfers
of Receivables to the Seller and to the Trust were treated as sales, the
Receivables would be part of the bankruptcy estate and would be subject to
claims of certain creditors and delays and reductions in payments to the
Securityholders could result. CPS will warrant in the Purchase Agreement that
the sale of the Receivables to the Seller (including Receivables sold by an
Affiliated Originator) is a valid sale of the Receivables to the Seller, and the
Seller will warrant in the Sale and Servicing Agreement that the sale of the
Receivables to the Trust is a valid sale of the Receivables to the Trust.
Risk of Changes in Delinquency Levels. There can be no assurance that
the historical levels of delinquencies and losses experienced by CPS on its
respective loan and vehicle portfolio will be indicative of the performance of
the Contracts included in the Trust or that such levels will continue in the
future. Delinquencies and losses could increase significantly for various
reasons, including changes in the federal income tax laws, changes in the local,
regional or national economies or due to other events. For a discussion and
analysis see "CPS's Automobile Contract Portfolio - Delinquency and Loss
Experience".
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Notes of a Series may be subordinated in priority of payment to interest and
principal due on other Classes of Notes of a related Series. Moreover, each
Trust will not have, nor is it permitted or expected to have, any significant
assets or sources of funds other than the related Receivables and, to the extent
provided in the related Prospectus Supplement, the related reserve account,
spread account, and any other Credit Enhancement. The Securities represent
beneficial interests in the related Trust only and will not represent a recourse
obligation to other assets of CPS or the Seller. No Securities of any Series
will be insured or guaranteed by CPS, the Seller, the Servicer, or the
applicable Trustee. Consequently,
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holders of the Securities of any Series must rely for repayment primarily upon
payments on the Receivables and, if and to the extent available, any Credit
Enhancement, all as specified in the related Prospectus Supplement.
Limited Liquidity. There can be no assurance that a secondary market
for the Securities of any Series or Class will develop or, if it does develop,
that it will provide Securityholders with liquidity of investment or that it
will continue for the life of such Securities. The Prospectus Supplement for any
Series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
Priority of Interest in Receivables. In connection with the issuance of
any Series of Securities, CPS will originate Receivables. The Seller will
warrant in a Sale and Servicing Agreement that the transfer of the Contracts to
such Trust is either a valid assignment, transfer and conveyance of the
Receivables to the Trust or the Trustee on behalf of the Securityholders has a
valid security interest in such Receivables. As will be described in the related
Prospectus Supplement, the related Trust Documents will provide that the Trustee
will be required to maintain possession of such original copies of all
Receivables that constitute chattel paper; provided that the Servicer may take
possession of such original copies as necessary for the enforcement of any
Receivables. If the Servicer, the Trustee or other third party, while in
possession of any Receivable, sells or pledges and delivers such Receivable to
another party, in violation of the Sale and Servicing Agreement, there is a risk
that such other party could acquire an interest in such Receivable having a
priority over the Trust's interest. Furthermore, if the Servicer or a third
party, while in possession of any Receivable, is rendered insolvent, such an
event of insolvency may result in competing claims to ownership or security
interests in such Receivable. Such an attempt, even if unsuccessful, could
result in delays in payments on the Securities. If successful, such attempt
could result in losses to the Securityholders or an acceleration of the
repayment of the Securities. CPS will be obligated to repurchase any Receivable
if there is a breach of CPS's representations and warranties that materially and
adversely affects the interests of the Trust in such Receivable and such breach
has not been cured.
Limitations on the Amount of Recoveries. Unless specific limitations
are described on the related Prospectus Supplement with respect to specific
Receivables, all Receivables will provide that the obligations of the Obligors
thereunder are absolute and unconditional, regardless of any defense, set-off or
abatement which the Obligor may have against CPS or any other person or entity
whatsoever. CPS will warrant that no claims or defenses have been asserted or
threatened with respect to the Receivables and that all requirements of
applicable law with respect to the Receivables have been satisfied.
In the event that CPS or the Trustee must rely on repossession and
disposition of Financed Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Sale and Servicing Agreement), the Issuer
may not realize the full amount due on a Receivable (or may not realize the full
amount on a timely basis). Other factors that may affect the ability of the
Issuer to realize the full amount due on a Receivable include whether amendments
to certificates of title relating to the Financed Vehicles had been filed,
depreciation, obsolescence, damage or loss of any financed Vehicle, and the
application of Federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
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Insurance on Financed Vehicles. Each Receivable generally requires the
Obligor to maintain insurance covering physical damage to the Financed Vehicle
in an amount not less than the unpaid principal balance of such Receivable
pursuant to which CPS is named as a loss payee. Since the Obligors select their
own insurers to provide the requisite coverage, the specific terms and
conditions of their policies vary.
In addition, although each Receivable generally gives CPS the right to
force place insurance coverage in the event the required physical damage
insurance on a Vehicle is not maintained by an Obligor, neither CPS nor the
Servicer is obligated to place such coverage. In the event insurance coverage is
not maintained by Obligors and coverage is not force placed, then insurance
recoveries may be limited in the event of losses or casualties to Financed
Vehicles included in the Trust Assets, as a result of which Securityholders
could suffer a loss on their investment.
Security Rating. The rating of Securities credit enhanced by a letter
of credit, financial guaranty insurance policy, reserve fund, credit or
liquidity facilities, cash deposits or other forms of credit enhancement
(collectively "Credit Enhancement") will depend primarily on the
creditworthiness of the issuer of such external Credit Enhancement device (a
"Credit Enhancer"). Any reduction in the rating assigned to the claims-paying
ability of the related Credit Enhancer to honor its obligations pursuant to any
such Credit Enhancement below the rating initially given to the Securities would
likely result in a reduction in the rating of the Securities.
Limitations Due to Book-Entry Registration. Issuance of the Securities
in book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain definitive physical securities representing such
Securityholders' interests, except in certain circumstances described in the
related Prospectus Supplement.
Since transactions in Securities will, in most cases, be effected only
through DTC, direct or indirect participants in DTC's book-entry system ("Direct
Participants" or "Indirect Participants") or certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities - Book-Entry
Registration".
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of the
origination of the Receivable and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Obligor's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full
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amounts of interest on certain of the Receivables. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected Receivable during the Obligor's period of active duty status.
Thus, in the event that such a Receivable goes into default, there may be delays
and losses occasioned by the inability of the Servicer to realize upon the
Financed Vehicle in a timely fashion.
THE ISSUERS
With respect to each Series of Securities, the Seller will establish a
separate Trust that will issue such Securities pursuant to the related Trust
Documents. For purposes of this Prospectus and the related Prospectus
Supplement, the related Trust, if a Trust issues the related Securities, shall
be referred to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given Series, the proceeds
from such issuance will be used by CPS to originate Receivables. The Servicer
will service the related Receivables pursuant to a sale and servicing agreement
(the "Sale and Servicing Agreement"), and will be compensated for acting as the
Servicer. To facilitate servicing and to minimize administrative burden and
expense, the Servicer may be appointed custodian for the related Receivables by
each Trustee and CPS, as may be set forth in the related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by
the subordination of another Class of Securities of such Series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such Series is insufficient, the Trust must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Financed Vehicles which secure the Defaulted Contracts. In such event,
certain factors may affect such Trust's ability to realize on the collateral
securing such Contracts, and thus may reduce the proceeds to be distributed to
the Securityholders of such Series.
THE TRUST ASSETS
To the extent specified in the Prospectus Supplement for a Trust, the
Trust Assets of a Trust will include a pool (a "Receivables Pool") of retail
installment sale contracts between dealers (the "Dealers") in new and used
automobiles, light trucks, vans and minivans and retail purchasers (the
"Obligors") (including Sub-Prime Borrowers) and, with respect to Rule of 78's
Receivables, certain moneys due thereunder after the applicable Cutoff Date and,
with respect to Simple Interest Receivables, certain moneys received thereunder
after the applicable Cutoff Date. Pursuant to agreements between the Dealers and
CPS ("Dealer Agreements"), the Receivables will be purchased by CPS. As further
described in the related Prospectus Supplement, the Trust Assets of a Trust will
also include (i) such amounts as from time to time may be held in one or more
trust accounts established and maintained by the Trustee pursuant to the Trust
Agreement or Indenture; (ii) the rights of the Seller under the Sale and
Servicing Agreement; (iii) security interests in the Financed Vehicles; (iv) the
rights of the Seller to receive any proceeds with respect to the Receivables
from claims on physical damage, credit life and credit accident and health
insurance policies covering the Financed Vehicles or the Obligors, as the case
may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. If so specified in the related Prospectus
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Supplement, the Trust Assets also will include the Credit Enhancement provided
for the benefit of Securityholders of such Trust.
If so provided in the related Prospectus Supplement, the property of a
Trust may also include a Pre-Funded Amount, which the Seller will deposit to the
Pre-Funding Account on the Closing Date and which will be used by the Trust to
purchase Subsequent Receivables from the Seller during the related Funding
Period (not to exceed 6 months). Any Subsequent Receivables so conveyed to a
Trust will also be assets of such Trust. The Pre-Funded Amount will not exceed
34% of the Trust Assets nor 25% of the Certificate Balance, if any.
If the protection provided to Securityholders, if any, by any such
Credit Enhancement is insufficient, such Securityholders will have to look to
payments by or on behalf of Obligors on the related Receivables and the proceeds
from the repossession and sale of Financed Vehicles that secure defaulted
Receivables for distributions of principal and interest on the Securities. In
such event, certain factors, such as the applicable Trust's not having perfected
security interests in all of the Financed Vehicles, may limit the ability of a
Trust to realize on the collateral securing the related Receivables, or may
limit the amount realized to less than the amount due under the related
Receivables. Securityholders may thus be subject to delays in payment on, or may
incur losses on their investment in, such Securities as a result of defaults or
delinquencies by Obligors and depreciation in the value of the related Financed
Vehicles. See "Description of the Trust Documents - Credit and Cash Flow
Enhancement" and "Certain Legal Aspects of the Receivables".
The Receivables comprising the Trust Assets will, as specifically
described in the related Prospectus Supplement, be either (i) originated by CPS
or an Affiliated Originator, (ii) originated by various manufacturers (or their
captive finance companies) and acquired by CPS or an Affiliated Originator,
(iii) originated by various Dealers and acquired by CPS or an Affiliated
Originator or (iv) acquired by CPS or an Affiliated Originator from other
originators or owners of Receivables. Such Receivables will generally have been
originated or acquired by CPS or an Affiliated Originator in accordance with
CPS's specified underwriting criteria. The underwriting criteria applicable to
the Receivables included in any Trust will be described in all material respects
in the related Prospectus Supplement.
The Receivables included in the Trust Assets will be selected from
those Receivables held by CPS or an Affiliated Originator based on the criteria
specified in the applicable Purchase Agreement or Affiliate Purchase Agreement
and described herein or in the related Prospectus Supplement.
ACQUISITION OF RECEIVABLES BY THE SELLER
On or prior to each Closing Date, CPS will, and an Affiliated
Originator may, sell and assign to the Seller, without recourse, except as
provided in the related Purchase Agreement, its entire interest in the
applicable Receivables, together with its security interests in the Financed
Vehicles, pursuant to a purchase agreement between CPS and the Seller (a
"Purchase Agreement") or pursuant to a purchase agreement between an Affiliated
Originator and the Seller (an "Affiliate Purchase Agreement").
In each Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided with respect to
the applicable Receivables is correct in all material respects; (ii) at the date
of issuance of the Securities, physical damage insurance covering
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each Financed Vehicle is in effect in accordance with CPS's normal requirements;
(iii) at the date of issuance of the applicable Securities, the related
Receivables are free and clear of all security interests, liens, charges, and
encumbrances and no offsets, defenses, or counterclaims against Dealers have
been asserted or threatened; (iv) at the date of issuance of the Securities,
each of the Receivables is or will be secured by a first-priority perfected
security interest in the Financed Vehicle in favor of CPS or the applicable
Affiliated Originator; and (v) each Receivable, at the time it was originated,
complied and, at the date of issuance of the Securities, complies in all
material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second (or, if CPS elects, the first)
month following the discovery by or notice to the Seller and CPS of a breach of
any representation or warranty that materially and adversely affects a
Receivable, unless the breach is cured, CPS will purchase such Receivable from
the Trust for the Purchase Amount. The "Purchase Amount" equals the unpaid
principal balance owed by the Obligor plus interest thereon at the respective
APR to the last day of the month of repurchase. The repurchase obligation will
constitute the sole remedy available to the Securityholders, the Credit Enhancer
(if any) or the Trustee for any such uncured breach.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Receivables
Pool will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the composition of such Receivables and the distribution of
such Receivables by geographic concentration, payment frequency and current
principal balance as of the applicable Cutoff Date.
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Sale and Servicing Agreement to sell Subsequent
Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Sale and Servicing Agreement. If the principal amount of the
eligible Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the related Series of Securities may receive a
prepayment or early distribution of principal at the end of the Funding Period
as described above under "Risk Factors--Pre-Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Sale and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Securities; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pool" in
the related Prospectus Supplement; and (iv) the Seller must execute and deliver
to such Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition subsequent, among others, which must be
satisfied within the applicable time period
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specified in the related Prospectus Supplement, that the Seller deliver certain
legal opinions to the related Trustee with respect to the validity of the
conveyance of the Subsequent Receivables to the Trust. If any such conditions
precedent are not met with respect to any Subsequent Receivables within the time
period specified in the related Prospectus Supplement, CPS or the Seller, as
specified in the related Prospectus Supplement, will be required to repurchase
such Subsequent Receivables from the related Trust, at a purchase price equal to
the related Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement,
there will be no other required characteristics of Subsequent Receivables.
Therefore, the characteristics of the entire Receivables Pool included in any
Trust may vary significantly as Subsequent Receivables are conveyed to such
Trust from time to time during the Funding Period or Revolving Period.
The Receivables
As specified in the related Prospectus Supplement, the Receivables may
consist of any combination of Rule of 78's Receivables, Actuarial Receivables or
Simple Interest Receivables. Generally, "Rule of 78's Receivables" provide for
fixed level monthly payments which will amortize the full amount of the
Receivable over its term. The Rule of 78's Receivables provide for allocation of
payments according to the "sum of periodic balances" method (also referred to as
the "sum of monthly payments" method) (the "Rule of 78's"). Each Rule of 78's
Receivable provides for the payment by the Obligor of a specified total amount
of payments, payable in monthly installments on the related due date, which
total represents the principal amount financed and finance charges in an amount
calculated on the basis of a stated annual percentage rate ("APR") for the term
of such Receivable. The rate at which such amount of finance charges is earned
and, correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal balance of the related Receivable are
calculated in accordance with the Rule of 78's. Under the Rule of 78's, the
amount of interest earned in any period is equal to the total finance charge due
under the contract multiplied by a fraction the numerator of which is the
remaining number of periods of the contract and the demonimator of which is the
sum of the digits for the term of the contract. For example, on a 36 month
contract in its 17th month, the numerator would be nineteen and the denominator
would be 666 (1+2+3+4....+36=666). Under the Rule of 78's, the portion of each
payment allocable to interest is higher during the early months of the term of a
Receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the Servicer on or in respect of the Rule of 78's Receivables may be
allocated on an actuarial or simple interest basis.
Generally, "Actuarial Receivables" provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
An Actuarial Receivable provides for amortization of the amount financed over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
Financed Vehicle to CPS, provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions.
"Simple Interest Receivables" provide for the amortization of the
amount financed under the Receivable over a series of fixed level monthly
payments. However, unlike the monthly payment under Rule of 78's Receivables,
each monthly payment consists of an installment of interest which is
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calculated on the basis of the outstanding principal balance of the receivable
multiplied by the stated APR and further multiplied by the period elapsed (as a
fraction of a calendar year) since the preceding payment of interest was made.
As payments are received under a Simple Interest Receivable, the amount received
is applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if an Obligor pays
a fixed monthly installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment was
made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if an Obligor pays a fixed
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78's Receivable in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the Obligor is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78's Receivable calculated in accordance with the Rule of 78's will always be
less than had such rebate been calculated on an actuarial basis and generally
will be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Receivable for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78's rebates
under the Rule of 78's Receivable because, as specified in the related
Prospectus Supplement, such distributions may be determined using the actuarial
or simple interest method.
Delinquencies, Repossessions And Net Losses
Certain information relating to CPS's delinquency, repossession and net
loss experience with respect to Receivables it has originated or acquired will
be set forth in each Prospectus Supplement. This information may include, among
other things, the experience with respect to all Receivables in CPS's portfolio
during certain specified periods. There can be no assurance that the
delinquency, repossession and net loss experience with respect to any Trust will
be comparable to CPS's prior experience.
Maturity And Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Receivable permits prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
CPS will be obligated to acquire Receivables from the related Trust pursuant to
the applicable Purchase Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from prepayments will be
borne entirely by the related Securityholders.
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The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related Series of
Securities, together with a description of any applicable prepayment penalties.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
CPS and certain of its subsidiaries (each such subsidiary, an
"Affiliated Originator") purchase Contracts from Dealers or independent finance
companies ("IFC's") with the intent to resell them. CPS and Affiliated
Originators may also purchase Contracts from third parties that have been
originated by others. Prior to the issuances of the Securities, Contracts have
been sold to institutional investors either as bulk sales or as private
placements or public offerings of securities collateralized by the Contracts.
Purchasers of Contracts receive a pass-through rate of interest set at the time
of the sale, and CPS receives a base servicing fee for its duties relating to
the accounting for and collection of the Contracts. In addition, CPS is entitled
to certain excess servicing fees that represent collection on the Contracts in
excess of those required to pay principal and interest due to the investor at
face value and without recourse except that the representations and warranties
made to CPS by the Dealers are similarly made to the investors by CPS. CPS has
some credit risk with respect to the excess servicing fees it receives in
connection with the sale of contracts to investors and its continued servicing
function since the receipt by CPS of such excess servicing fees is dependent
upon the credit performance of the Contracts. Additional information with
respect to CPS's automobile contract portfolio, including information regarding
CPS's underwriting criteria and servicing and collection procedures, will be set
forth in each Prospectus Supplement.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
For further information about CPS see "CPS's Automobile Contract
Portfolio" in the Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
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outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement
with respect to each Series of Securities, the related Securityholders of record
will receive reports on or about each Payment Date concerning the payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Pool Factor and various
other items of information. In addition, Securityholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a Series will be applied by the
applicable Trust to the purchase of the Receivables from the applicable Seller
and to make the deposit of the Pre-Funded Amount, if any, to the Pre-Funding
Account. CPS will use the portion of such proceeds paid to it for general
corporate purposes.
THE SELLER AND CPS
Each Seller will be a wholly-owned subsidiary of CPS. CPS Receivables
Corp. was incorporated in the State of California in June of 1994. CPS
Receivables Corp. was, and each other Seller will be, organized for the limited
purpose of purchasing automobile installment sale contracts from CPS and
transferring such receivables to third parties and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of CPS Receivables Corp. are located at 2 Ada, Suite
100, Irvine, California 92618; telephone (714) 753-6800.
The Seller has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
petition for relief by CPS under any Insolvency Law will result in consolidation
of the assets and liabilities of the Seller or the Trust with those of CPS.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to articles of incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a restriction
on the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the Seller
would not result in a court concluding that the assets and liabilities of the
Seller should be consolidated with those of CPS in a proceeding under any
Insolvency Law.
The Seller has received the advice of Mayer, Brown & Platt to the
effect that, subject to certain facts, assumptions and qualifications, in a
properly presented case under current law, in the event that CPS becomes a
debtor in a case under the Bankruptcy Code, a United States Bankruptcy Court
would not order the substantive consolidation of the assets and liabilities of
the Seller with those of CPS. Among other things, it is assumed by Mayer, Brown
& Platt that the Seller will follow certain procedures in the conduct of its
affairs, including maintaining records and books of account separate from those
of CPS, refraining from commingling its assets with those of CPS and refraining
from holding itself out as having agreed to pay, or being liable for, the debts
of CPS. The Seller intends to follow and has represented to such counsel that it
will follow these and other procedures
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related to maintaining its separate corporate identity. However, in the event
that the Seller did not follow these procedures, and in certain other
circumstances, there can be no assurance that a court would not conclude that
the assets and liabilities of the Seller should be consolidated with those of
CPS. If a court were to reach such a conclusion, or a filing were made to
litigate any of the foregoing issues, delays in distributions on the Securities
(and possible reductions in the amount of such distributions) could occur. See
"Risk Factors - Non-Consolidation".
CPS was incorporated in the State of California on March 8, 1991. On
October 22, 1992, CPS completed a public offering of 1,300,000 shares
(approximately 31% of the shares then outstanding) of its common stock at an
initial price of $5.00 per share. Prior to that time, 100% of the common stock
of CPS was owned by CPS Holdings, Inc., a holding company the majority of the
shares of which are owned by Charles E. Bradley, Sr. On March 6, 1995, CPS
completed a second public offering of 1,000,000 shares (approximately 18.5% of
the shares then outstanding) of its common stock at $14.75 per share. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing Contracts originated by Dealers located primarily in California,
Florida, Pennsylvania, Texas, Illinois and Nevada. CPS specializes in Contracts
with Sub-Prime Borrowers who generally would not be expected to qualify for
traditional financing such as that provided by commercial banks or automobile
manufacturers' captive finance companies. Sub-Prime Borrowers generally have
limited credit history, lower than average income or past credit problems. CPS
also provides accounting and collection services to third party owners of
automobile loan portfolios that were not originated by CPS. CPS's executive
offices are located at 2 Ada, Irvine, California 92618; telephone (714)
753-6800.
THE TRUSTEE
The Trustee for each Series of Securities will be specified in the
related Prospectus Supplement. The Trustee's liability in connection with the
issuance and sale of the related Securities is limited solely to the express
obligations of such Trustee set forth in the related Trust Documents.
With respect to each Series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series (each a "Series"). Each Series
of Securities (or, in certain instances, two or more Series of Securities) will
be issued pursuant to a Trust Agreement and, if Notes are issued, an Indenture.
The following summaries (together with additional summaries under "The
Description of the Trust Documents" below) describe all material terms and
provisions relating to the Securities common to each Trust Agreement and
Indenture. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Trust Documents for the related Securities and the related Prospectus
Supplement.
All of the Securities offered pursuant to this Prospectus and the
related Prospectus Supplement will be rated in one of the four highest rating
categories by one or more Rating Agencies.
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The Securities may either represent beneficial ownership interests in
the related Receivables held by the related Trust or debt secured by certain
assets of the related Trust.
Each Series or Class of Securities offered pursuant to this Prospectus
may have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
Series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A Series may include one or more Classes of Strip Securities entitled
(i) to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a Series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such Series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a Series may
include one or more other Classes of Senior Securities that are senior to one or
more other Classes of Subordinate Securities in respect of certain distributions
of principal and interest and allocations of losses on Receivables.
In addition, certain Classes of Senior (or Subordinate) Securities may
be senior to other Classes of Senior (or Subordinate) Securities in respect of
such distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Documents and as described in the
related Prospectus Supplement, Securityholders will be entitled to receive
payments on their Securities on the specified Payment Dates. Payment Dates with
respect to the Securities will occur monthly, quarterly or semi-- annually, as
described in the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date
preceding such Payment Date, as of which the Trustee or its paying agent will
fix the identity of the Securityholders for the purpose of receiving payments on
the next succeeding Payment Date. As more fully described in the related
Prospectus Supplement, the Payment Date will be a specified day of each month
(or, in the case of quarterly-pay Securities, a specified day of every third
month; and in the case of semi-annual pay Securities, a specified day of every
sixth month) and the Record Date will be the close of business as of a specified
day preceding such Payment Date.
Each Trust Agreement and Indenture will describe a Collection Period
preceding each Payment Date (for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a Payment Date occurs). As more
fully provided in the related Prospectus Supplement, collections received on or
with respect to the related Receivables held by a Trust during a Collection
Period will be required to be remitted by the Servicer to the related Trustee
prior to the
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related Payment Date and will be used to fund payments to Securityholders on
such Payment Date. As may be described in the related Prospectus Supplement, the
related Trust Documents may provide that all or a portion of the payments
collected on or with respect to the related Receivables may be applied by the
related Trustee to the acquisition of additional Receivables during a specified
period (rather than be used to fund payments of principal to Securityholders
during such period) with the result that the related Securities will possess an
interest-only period, also commonly referred to as a revolving period, which
will be followed by an amortization period. Any such interest only or revolving
period may, upon the occurrence of certain events to be described in the related
Prospectus Supplement, terminate prior to the end of the specified period and
result in the earlier than expected amortization of the related Securities.
In addition, and as may be described in the related Prospectus
Supplement, the related Trust Documents may provide that all or a portion of
such collected payments may be retained by the Trustee (and held in certain
Eligible Investments, including Receivables) for a specified period prior to
being used to fund payments of principal to Securityholders. See "Description of
the Trust Documents - Accounts".
Such retention and temporary investment by the Trustee of such
collected payments may be required by the related Trust Documents for the
purposes of (a) slowing the amortization rate of the related Securities relative
to the installment payment schedule of the related Receivables, or (b)
attempting to match the amortization rate of the related Securities to an
amortization schedule established at the time such Securities are issued. Any
such feature applicable to any Securities may terminate upon the occurrence of
events to be described in the related Prospectus Supplement, resulting in
distributions to the specified Securityholders and an acceleration of the
amortization of such Securities.
Neither the Securities nor the underlying Receivables will be
guaranteed or insured by any governmental agency or instrumentality or CPS, any
Seller, the Servicer, any Trustee or any of their respective affiliates unless
specifically set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each Series will either evidence specified beneficial ownership interests in the
Trust Assets or represent debt secured by the related Trust Assets. To the
extent that any Trust Assets include certificates of interest or participations
in Receivables, the related Prospectus Supplement will describe the material
terms and conditions of such certificates or participations.
Book-Entry Registration
As specified in the related Prospectus Supplement, Securityholders of a
given Series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of
a given Series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
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DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable 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 the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system 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 Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders of a given Series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such Series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given Series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given Series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. Unless the related Prospectus Supplement provides for
Definitive Securities it is anticipated that the only "Securityholder" in
respect of any Series will be Cede, as nominee of DTC, or another nominee of
DTC. Securityholders of a given Series will not be recognized as Securityholders
of such Series, and such Securityholders will be permitted to exercise the
rights of Securityholders of such Series only indirectly through DTC and its
Participants.
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Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of Securities of a given Series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given Series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such Series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given Series to pledge Securities of such Series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of the related Series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such Series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its 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 depository, 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 participants of
the Euroclear System ("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 28 currencies,
including United States dollars. The Euroclear System includes various other
services, including securities lending and borrowing and interfaces with
domestic markets in several countries generally similar to the arrangements for
cross-market transfers with DTC described above. Euroclear is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the Cooperative. The
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Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. 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 the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System 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 relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a Series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
Except to the extent that the related Prospectus Supplement provides
for book-entry Securities, the Securities will be issued in fully registered,
certificated form ("Definitive Securities") to the Securityholders of a given
Series or their nominees, rather than to DTC or its nominee, only if (i) the
Trustee in respect of the related Series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Securities and such Trustee is unable to locate a qualified
successor, (ii) such Trustee, at its option, elects to terminate the
book-entry-system through DTC or (iii) after the occurrence of an "Event of
Default" under the related Indenture or a default by the Servicer under the
related Trust Documents, Securityholders representing at least a majority of the
outstanding principal amount of such Securities advise the applicable Trustee
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in such Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust
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Agreement directly to holders of Definitive Securities in whose names the
Definitive Securities were registered at the close of business on the applicable
Record Date specified for such Securities in the related Prospectus Supplement.
Such distributions will be made by check mailed to the address of such holder as
it appears on the register maintained by the applicable Trustee. The final
payment on any such Security, however, will be made only upon presentation and
surrender of such Security at the office or agency specified in the notice of
final distribution to the applicable Securityholders.
Definitive Securities in respect of a given Series of Securities will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Securities. No service charge will be imposed for any registration of
transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Reports to Securityholders
With respect to each Series of Securities, on or prior to each Payment
Date for such Series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Assets setting forth the
information specified in the related Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year, the applicable Trustee will
provide to the Securityholders a statement containing information required by
applicable tax laws, for the purpose of the Securityholders' preparation of
federal income tax returns.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Trust Documents
pursuant to which a Trust will be created and the related Securities in respect
of such Trust will be issued. For purposes of this Prospectus, the term "Trust
Documents" as used with respect to a Trust means, collectively, and except as
otherwise specified, any and all agreements relating to the establishment of the
related Trust, the servicing of the related Receivables and the issuance of the
related Securities, including without limitation the Indenture, (i.e. pursuant
to which any Notes shall be issued). A form of the Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. This summary does not purport to be complete. It is qualified in its
entirety by reference to the provisions of the Trust Documents.
Sale and Assignment of Receivables
On or prior to the closing date specified with respect to any given
Series of securities ( the "Closing Date"), CPS or an Affiliated Originator will
sell and assign to a Seller, without recourse, except as otherwise provided in
the applicable Purchase Agreement or Affiliate Purchase Agreement, its entire
interest in the Receivables to be included in such Trust, together with its
security interests in the Financed Vehicles. At the time of issuance of the
Securities, such Seller will either transfer such Receivables to a Trust
pursuant to a Sale and Servicing Agreement. The obligations of the Seller and
the Servicer under the related Sale and Servicing Agreement include those
specified below and in the related Prospectus Supplement.
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As more fully described in the related Prospectus Supplement, CPS will
be obligated to acquire from the related Trust its interest in any Receivable
transferred to a Trust or pledged to a Trustee on behalf of Securityholders if
the interest of the Securityholders therein is materially adversely affected by
a breach of any representation or warranty made by CPS with respect to such
Receivable, which breach has not been cured following the discovery by or notice
to CPS of the breach. In addition, if so specified in the related Prospectus
Supplement, CPS may from time to time reacquire certain Receivables or
substitute other Receivables for such Receivable subject to specified conditions
set forth in the related Purchase Agreement.
Accounts
With respect to each Series of Securities issued by a Trust, the
Servicer will establish and maintain with the applicable Trustee one or more
accounts, in the name of such Trustee on behalf of the related Securityholders,
into which all payments made on or with respect to the related Receivables will
be deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
[If the related Prospectus Supplement so provides, the Pre-Funding
Account will be maintained with the Indenture Trustee and is intended solely to
hold funds to be applied by the Indenture Trustee during the Funding Period to
pay to the Seller the purchase price for Subsequent Receivables and any
Permitted Investments purchased with funds not yet invested in Subsequent
Receivables. Monies on deposit in the Pre-Funding Account will not be available
to cover losses on or in respect of the Receivables and any Permitted
Investments purchased with funds not yet invested in Subsequent Receivables. On
the Closing Date, the Pre-Funding Account will be funded with the initial
Pre-Funded Amount from the sale proceeds of the Securities].
[If the related Prospectus Supplement so provides the Seller will
establish and maintain an account (the "Interest Reserve Account") in the name
of the Indenture Trustee on behalf of the Noteholders and Certificateholders. On
the Closing Date, the Seller will deposit an amount equal to the Requisite
Reserve Amount (as described below) as of the Closing Date in the Interest
Reserve Account. On certain Payment Dates to be specified in the related
Prospectus Supplement, funds on deposit in the Interest Reserve Account which
are in excess of the Requisite Reserve Amount for such Payment Date will be
withdrawn from the Interest Reserve Account and deposited in the Distribution
Account for distribution].
Any other accounts to be established with respect to a Trust, including
any other reserve account, yield supplement account or negative arbitrage
account, will be described in the related Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, the
Distribution Account, any Pre-Funding Account, any reserve account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") shall be invested as provided in the related Trust
Agreement or Indenture in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Securities. Subject to certain conditions,
Eligible Investments may include securities issued by CPS,
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the Servicer or their respective affiliates or other trusts created by CPS or
its affiliates. Except as described below or in the related Prospectus
Supplement, Eligible Investments are limited to obligations or securities that
mature not later than the business day immediately preceding the related Payment
Date. However, subject to certain conditions, funds in the reserve account may
be invested in securities that will not mature prior to the date of the next
distribution and will not be sold to meet any shortfalls. Thus, the amount of
cash in any reserve account at any time may be less than the balance of such
reserve account. If the amount required to be withdrawn from any reserve account
to cover shortfalls in collections on the related Receivables exceeds the amount
of cash in such reserve account a temporary shortfall in the amounts distributed
to the related Securityholders could result, which could, in turn, increase the
average life of the Securities of such Series. Except as otherwise specified in
the related Prospectus Supplement, investment earnings on funds deposited in the
applicable Trust Accounts, net of losses and investment expenses (collectively,
"Investment Earnings"), shall be deposited in the applicable Collection Account
on each Payment Date and shall be treated as collections of interest on the
related Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
The Servicer
The Servicer under each Sale and Servicing Agreement will be named in
the related Prospectus Supplement. The entity serving as Servicer may be CPS or
an affiliate of CPS and may have other business relationships with CPS or CPS's
affiliates. The Servicer with respect to each Series will service the
Receivables contained in the Trust for such Series. Any Servicer may delegate
its servicing responsibilities to one or more subservicers, but will not be
relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Sale and Servicing Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Securityholders will constitute a default by the Servicer
under the related Sale and Servicing Agreement.
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A Sale and Servicing Agreement may contain provisions providing for a
standby servicer ("Standby Servicer") to serve as successor servicer in the
event the Servicer is terminated or resigns as Servicer pursuant to the terms of
such Sale and Servicing Agreement. A Standby Servicer will receive a fee on each
Payment Date for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer becomes the Servicer under a
Sale and Servicing Agreement, it will receive compensation as a Servicer in an
amount set forth in such Sale and Servicing Agreement.
Servicing Procedures
Each Sale and Servicing Agreement will provide that the Servicer will
follow its then- employed standards, or such more exacting standards as the
Servicer employs in the future, in servicing the Receivables that are part of
the Trust. Each Sale and Servicing Agreement will provide that the Servicer will
make reasonable efforts to collect all payments due with respect to the
Receivables that are part of the Trust and, in a manner consistent with such
Sale and Servicing Agreement, will continue such collection procedures as it
follows with respect to automotive retail installment sale contracts it services
for itself and others. Consistent with its normal procedures, the Servicer may,
in its sole discretion, arrange with the Obligor on a Receivable to extend the
payment schedule; provided, however, that the Servicer may be limited as to the
number of times an extension may be granted and as to the timing of such
extensions. No such arrangement will, for purposes of a Sale and Servicing
Agreement, modify the original due dates or the amount of the scheduled
payments, or extend the final payment date on any Receivable beyond the last day
of the penultimate Collection Period before the Final Schedule Payment Date
under the related Trust Documents. If the Servicer grants an extension with
respect to a Receivable other than in accordance with the aforementioned
limitations, the Servicer will be required to purchase the Receivable. Following
any such purchase of a Receivable by the Servicer, such Receivable will be
released from the Trust and conveyed to the Servicer. The Servicer may sell the
Vehicle securing the respective defaulted Receivable, if any, at a public or
private sale, or take any other action permitted by applicable law.
See "Certain Legal Aspects of the Receivables".
The material aspects of any particular Servicer's collections and other
relevant procedures will be set forth in the related Prospectus Supplement.
Payments on Receivables
With respect to each Series of Securities, unless the related
Prospectus Supplement does not so provide, the Servicer will notify each Obligor
that payments made by such Obligor after the Cutoff Date with respect to a
Receivable must be mailed directly to the Post Office Box set forth in the Sale
and Servicing Agreement relating to such Receivable. On each Business Day, the
Lock-Box Processor set forth in the Sale and Servicing Agreement relating to
such Receivable (the "Lock-Box Processor") will transfer any such payments
received in the applicable post office box in the name of the applicable Trustee
for the benefit of the Securityholders and the related Credit Enhancer (if any)
(the "Post Office Box") to the applicable segregated lock-box account in the
name of the applicable Trustee for the benefit of the Securityholders and the
related Credit Enhancer (if any) (the "Lock-Box Account"). Any payments received
by the Servicer from an Obligor or from a source other than an Obligor must be
deposited in the applicable Lock-Box Account or the applicable Collection
Account upon receipt. The Servicer will, following the receipt of funds in such
Lock-Box Account, direct the Lock-Box Bank to transfer such funds to the
applicable Collection Account. Prior to the applicable
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Payment Date, the applicable Trustee, on the basis of instructions provided by
the Servicer, will transfer funds held in such Collection Account to the
applicable Payahead Account if such payments constitute Payaheads or to the
applicable Distribution Account for distribution to, the Securityholders of the
related Series.
Collections on a Rule of 78's Receivable made during a Collection
Period will be applied first, to the scheduled payment on such Rule of 78's
Receivable, and second, to any late fees accrued with respect to such Rule of
78's Receivable.
Servicing Compensation
As will be described in the related Prospectus Supplement with respect
to any Series of Securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee on each Payment Date (the "Servicing Fee"), equal to the
product of one-twelfth of the specified percentage per annum and the Pool
Balance (each as set forth in the related Prospectus Supplement) as of the close
of business on the last day of the second preceding Collection Period; provided,
however, that with respect to the first Payment Date, the Servicing Fee will
equal the product of one-twelfth of the Servicing Fee Rate and the original Pool
Balance. So long as CPS is Servicer, a portion of the Servicing Fee will be
payable to the Standby Servicer, if any (as set forth in the related Prospectus
Supplement), for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer, or any other entity serving at
the time as Standby Servicer, becomes the successor Servicer, it will receive
compensation for acting in such capacity. See "Standby Servicer" in the related
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges, including, in the
case of a Rule 78's Receivable that is part of the Trust and that is prepaid in
full, to the extent not required by law to be remitted to the related Obligor,
the difference between the principal balance of such Receivable computed on an
actuarial basis plus accrued interest to the date of prepayment and the
principal balance of such Receivable computed according to the Rule of 78's, and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables that are part of the Trust, and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to scheduled payments, late fees and other charges
and principal and interest in accordance with the Servicer's normal practices
and procedures. The Servicing Fee will be paid out of collections from the
Receivables, prior to distributions to Securityholders of the related Series.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables that are part of the Trust, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to Obligors, paying costs
of disposition of defaults and policing the collateral. The Servicing Fee also
will compensate the Servicer for administering the Receivables that are part of
the Trust, including accounting for collections and furnishing monthly and
annual statements as required with respect to a Series of Securities regarding
distributions and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Receivables that are part of the Trust.
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Distributions
With respect to each Series of Securities, beginning on the Payment
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Indenture
Trustee to the holders of Notes (the "Noteholders") and by the applicable
Trustee to the holders of Certificates (the "Certificateholders") of such
Series. The timing, calculation, allocation, order, source, priorities of and
requirements for each class of Noteholders and all distributions to each class
of Certificateholders of such Series will be set forth in the related Prospectus
Supplement.
With respect to each Series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless not provided for therein,
distributions in respect of principal of a Class of Securities of a given Series
will be subordinate to distributions in respect of interest on such Class, and
distributions in respect of the Certificates of such Series will be subordinate
to payments in respect of the Notes of such Series.
Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and
the provider thereof, if applicable, with respect to each class of Securities of
a given Series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same Series, and Credit Enhancement for a Series of Securities may cover one or
more other Series of Securities.
The presence of Credit Enhancement for the benefit of any Class or
Series of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or Series of Securities may not
provide protection against all risks of loss and may not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or Series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
Series of Securities, Securityholders of any such Series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other Series.
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Statements to Indenture Trustees and Trustees
Prior to each Payment Date with respect to each Series of Securities,
the Servicer will provide to the applicable Indenture Trustee and/or the
applicable Trustee and Credit Enhancer as of the close of business on the last
day of the preceding related Collection Period a statement setting forth
substantially the same information as is required to be provided in the periodic
reports provided to Securityholders of such Series described under "Description
of the Securities--Reports to Securityholders".
Evidence as to Compliance
Each Sale and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the related Trust and/or the
applicable Indenture Trustee and Credit Enhancer, annually, a statement as to
compliance by the Servicer during the preceding twelve months (or, in the case
of the first such certificate, the period from the applicable Closing Date) with
certain standards relating to the servicing of the Receivables.
Each Sale and Servicing Agreement will also provide for delivery to the
related Trust and the applicable Indenture Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under such Sale and Servicing Agreement in all material respects
throughout the preceding 12 months (or, in the case of the first such
certificate, the period from the applicable Closing Date) or, if there has been
a default in the fulfillment of any such obligation in any material respect,
describing each such default. The Servicer also will agree to give each
Indenture Trustee and each Trustee notice of certain Servicer Termination Events
(as hereinafter defined) under the related Sale and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
Certain Matters Regarding the Servicers
Each Sale and Servicing Agreement will provide that the Servicer may
not resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and under certain other circumstances. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the applicable Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby
Servicer, if any, will agree to assume the servicing obligations and duties
under the Sale and Servicing Agreement.
Each Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officer, employees, and agents will be under
any liability to the Trust or the Securityholders of the related Series for
taking any action or for refraining from taking any action pursuant to such Sale
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Sale and Servicing
Agreement will provide that the Servicer is under no obligation to appear in,
prosecute, or
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defend any legal action that is not incidental to its servicing responsibilities
under the applicable Sale and Servicing Agreement and that, in its opinion, may
cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor to the Servicer under the applicable Sale and
Servicing Agreement.
Servicer Termination Event
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Termination Event" under the related Trust Documents will include (i)
any failure by the Servicer to deliver to the applicable Trustee for deposit in
any of the related Trust Accounts any required payment or to direct such Trustee
to make any required distributions therefrom, which failure continues unremedied
for more than three (3) Business Days after written notice from such Trustee is
received by the Servicer or after discovery by the Servicer; (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in such Trust Documents, which failure materially and
adversely affects the rights of the related Securityholders and which continues
unremedied for more than thirty (30) days after the giving of written notice of
such failure (1) to the Servicer by the applicable Trustee or (2) to the
Servicer, and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 50% of the voting rights of such
outstanding Securities; (iii) any Insolvency Event; and (iv) any claim being
made on a Policy issued as Credit Enhancement. An "Insolvency Event" shall mean
financial insolvency, readjustment of debt, marshaling of assets and
liabilities, or similar proceedings with respect to the Servicer and certain
actions by the Servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations.
Rights upon Servicer Termination Event
As more fully described and except as otherwise provided in the related
Prospectus Supplement, as long as a Servicer Termination Event under the related
Trust Documents remains unremedied, the applicable Trustee, Credit Enhancer or
holders of Notes of the related Series evidencing not less than 50% of the
voting rights of such then outstanding Notes or, after the Notes have been paid
in full, holders of Certificates of the related Series evidencing not less than
50% of the voting rights of such then outstanding Certificates may terminate all
the rights and obligations of the Servicer, if any, under such Sale and
Servicing Agreement, whereupon a successor servicer appointed by such Trustee or
such Trustee will succeed to all the responsibilities, duties and liabilities of
the Servicer under such Trust Documents and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Termination Event other
than such appointment has occurred, such bankruptcy trustee or official may have
the power to prevent the applicable Trustee or such Securityholders from
effecting a transfer of servicing.
Waiver of Past Defaults
With respect to each Trust, except as otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a
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majority of the voting rights of such then outstanding Securities may, on behalf
of all Securityholders of the related Securities, waive any default by the
Servicer in the performance of its obligations under the related Trust Documents
and its consequences, except a default in making any required deposits to or
payments from any of the Trust Accounts in accordance with such Trust Documents.
No such waiver shall impair the Securityholders' rights with respect to
subsequent defaults.
Amendments
As more fully described in, and unless not provided for by, the related
Prospectus Supplement, each of the Trust Documents may be amended by the parties
thereto, without the consent of the related Securityholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Trust Documents or of modifying in any manner the rights of
such Securityholders; provided that such action will not, in the opinion of
counsel satisfactory to the applicable Trustee, materially and adversely affect
the interests of any such Securityholder and subject to the approval of any
Credit Enhancer. As may be described in the related Prospectus Supplement, the
Trust Documents may also be amended by CPS, the Servicer, and the applicable
Trustee with the consent of the holders of Notes evidencing at least a majority
of the voting rights of such then outstanding Notes or, after the Notes have
been paid in full, holders of Certificates of the related Series evidencing not
less than 50% of the voting rights of such then outstanding Certificates for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Trust Documents or of modifying in any manner the
rights of such Securityholders; provided, however, that no such amendment may
(i) increase or reduce in any manner the amount or priority of, or accelerate or
delay the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of such
Securityholders or (ii) reduce the aforesaid percentage of the Securities of
such Series which are required to consent to any such amendment, without the
consent of the Securityholders of such Series.
Termination
With respect to each Trust, the obligations of the Servicer, CPS and
the applicable Trustee pursuant to the related Trust Documents will terminate
upon the earlier to occur of (i) the maturity or other liquidation of the last
related Receivable and the disposition of any amounts received upon liquidation
of any such remaining Receivables and (ii) the payment to Securityholders of the
related Series of all amounts required to be paid to them pursuant to such Trust
Documents. As more fully described in the related Prospectus Supplement, in
order to avoid excessive administrative expense, the Servicer will be permitted
in respect of the applicable Trust Assets, unless the related Prospectus
Supplement does not so provide, at its option to purchase from such Trust
Assets, as of the end of any Collection Period immediately preceding a Payment
Date, if the Pool Balance of the related Contracts is less than a specified
percentage (set forth in the related Prospectus Supplement) of the initial Pool
Balance in respect of such Trust Assets, all such remaining Receivables at a
price equal to the aggregate of the Purchase Amounts thereof as of the end of
such Collection Period. The related Securities will be redeemed following such
purchase.
If and to the extent provided in the related Prospectus Supplement with
respect to the Trust Assets, the applicable Trustee will, within ten days
following a Payment Date as of which the Pool Balance is equal to or less than
the percentage of the initial Pool Balance specified in the related Prospectus
Supplement, solicit bids for the purchase of the Receivables remaining in such
Trust, in a commercially reasonable manner in compliance with law and subject to
the terms and conditions set
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forth in such Prospectus Supplement. If such Trustee receives satisfactory bids
as described in such Prospectus Supplement, then the Receivables remaining in
such Trust Assets will be sold to the highest bidder.
If and to the extent provided in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with
either of the events specified above and the subsequent distribution to the
related Securityholders of all amounts required to be distributed to them
pursuant to the applicable Trust Documents may effect the prepayment of the
Certificates of such Series.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of Receivables by the Seller to the Trust pursuant to the
related Sale and Servicing Agreement, the perfection of the security interests
in the Receivables and the enforcement of rights to realize on the Financed
Vehicles as collateral for the Receivables are subject to a number of federal
and state laws, including the UCC as in effect in various states. As specified
in each Prospectus Supplement, the Servicer will take such action as is required
to perfect the rights of the Trustee in the Receivables. If, through
inadvertence or otherwise, a third party were to purchase (including the taking
of a security interest in) a Receivable for new value in the ordinary course of
its business, without actual knowledge of the Trust's interest, and take
possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trust. Unless specified in a
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of any insurance policies covering individual Financed
Vehicles or Obligors. Therefore, the rights of a third party with an interest in
such proceeds could prevail against the rights of the Trust prior to the time
such proceeds are deposited by the Servicer into a Trust Account.
Security Interests in the Financed Vehicles
In states in which retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles, light trucks, vans and
minivans by dealers to Obligors, the contracts also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the financed
automobiles, light trucks, vans and minivans is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In all
states in which the Receivables have been originated, a security interest in
automobiles, light trucks, vans and minivans is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured party's
lien on the vehicles' certificate of title (in addition, in Louisiana, a copy of
the installment sale contract must be filed with the appropriate governmental
recording office).
Unless the related Prospectus Supplement does not so provide, each
Contract will name CPS or the applicable Affiliated Originator as obligee or
assignee and as the secured party. Unless the related Prospectus Supplement does
not so provide, CPS will have represented and warranted that it has taken all
actions necessary under the laws of the state in which the Financed Vehicle is
located to perfect CPS's or such Affiliated Originator's security interest in
the Financed Vehicle, including, where applicable, having a notation of its lien
recorded on such vehicle's certificate of title. The Obligors on the Contracts
will not be notified of the sale from CPS or an Affiliated Originator,
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directly or indirectly, to the Seller, or the sale from the Seller to the Trust,
and no action will be taken to record the transfer of the security interest from
CPS or such Affiliated Originator, directly or indirectly, to the Seller or from
the Seller to the Trust by amendment of the certificates of title for the
Financed Vehicles or otherwise.
CPS or the related Affiliated Originator will transfer and assign its
security interest in the related Financed Vehicles directly or indirectly to the
Seller, and the Seller will transfer and assign its security interest in such
Financed Vehicles to the related Trust pursuant to a Sale and Servicing
Agreement. However, because of the administrative burden and expense, neither
CPS nor the Seller will amend the certificates of title of such Financed
Vehicles to identify the related Trust as the new secured party.
In most states, an assignment such as that under each Sale and
Servicing Agreement is an effective conveyance of a security interest without
amendment of any lien noted on a vehicle's certificate of title, and the
assignee succeeds thereby to the assignor's rights as secured party. However, by
not identifying such Trust as the secured party on the certificate of title, the
security interest of such Trust in the vehicle could be defeated through fraud
or negligence.
Under the laws of most states, the perfected security interest in a
vehicle continues for four months after the vehicle is moved to a state other
than the state in which it is initially registered and thereafter until the
owner thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party will receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party will have the opportunity to re- perfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. Unless the related Prospectus Supplement does not so provide,
under each Sale and Servicing Agreement, the Servicer will be obligated to take
appropriate steps, at the Servicer's expense, to maintain perfection of security
interests in the Financed Vehicles and will be obligated to purchase the related
Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Code also grants priority to certain federal
tax liens over the lien of a secured party. The laws of certain states and
federal law permit the confiscation of vehicles by government authorities under
certain circumstances if used in unlawful activities, which may result in the
loss of a secured party's perfected security interest in the confiscated
vehicle.
Repossession
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sale contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. Among the
UCC remedies, the secured party has the right to perform self-help repossession
unless such act would constitute a breach of the peace. Unless otherwise
specified in the related Prospectus Supplement, self-help is the most likely
method to be used by the Servicer and is accomplished simply by retaking
possession of the financed vehicle. In the event of default by the
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obligor, some jurisdictions require that the obligor be notified of the default
and be given a time period within which he may cure the default prior to
repossession. Generally, the right of reinstatement may be exercised on a
limited number of occasions in any one-year period. In cases where the obligor
objects or raises a defense to repossession, or if otherwise required by
applicable state law, a court order must be obtained from the appropriate state
court, and the vehicle must then be repossessed in accordance with that order.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding and preparing the collateral for disposition
and arranging for its sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the vehicles generally will be applied first
to the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. However, the deficiency judgment would be a
personal judgment against the obligor for the shortfall, and a defaulting
obligor can be expected to have very little capital or sources of income
available following repossession. Therefore, in many cases, it may not be useful
to seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and
all indebtedness, there is a surplus of funds. In that case, the UCC requires
the creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exits or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related
regulations impose substantial requirements upon lenders and servicers involved
in consumer finance, including requirements regarding the adequate disclosure of
loan terms (including finance charges and deemed finance charges), and
limitations on loan terms (including the permitted finance charge or deemed
finance charge), collection practices and creditor remedies. The application of
these laws to particular circumstances is not always certain and some courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of such laws. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Solders' and Sailors' Civil Relief Act of 1940, state adoptions of the National
Consumer Act and the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales act, retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and
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require contract disclosures in addition to those required under federal law.
These requirements impose specific statutory liabilities upon creditors who fail
to comply with their provisions. In some cases, this liability could affect an
assignee's ability to enforce consumer finance contracts such as the
Receivables.
Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if any,
that a purchaser pays as part of the purchase price for a vehicle solely because
the purchaser is buying on credit rather than for cash (a "cash sale
differential"). If a dealer charges such a differential, applicable finance
charge ceilings could be exceeded.
To so-called "Holder-in-Due-Course" Rule of the Federal Trade
Commission (the "FTC Rule"), the provisions of which are generally duplicated by
the Uniform Consumer Credit Code, other statutes or the common law, has the
effect of subjecting an assignee of a seller of goods in a consumer credit
transaction (and certain related creditors) to all claims and defenses that the
obligor in the transaction could assert against the seller of the goods.
Liability under the FTC Rule is limited to the amounts paid by the obligor under
the contract and the holder of the contract may also be unable to collect any
balance remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or defense would constitute a breach of CPS's warranties
under the related Purchase Agreement and would create an obligation of CPS to
repurchase the Receivable unless the breach is cured. See "Description of the
Trust Documents - Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies
of secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
Under most state vehicle dealer licensing laws, sellers of automobiles,
light trucks, vans and minivans are required to be licensed to sell vehicles at
retail sale. In addition, with respect to used vehicles, the Federal Trade
Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Financed Vehicle, the Obligor may be able to assert a defense
against the seller of the Financed Vehicle. If an Obligor on a Receivable
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were successful in asserting any such claim or defense, the Servicer would
pursue on behalf of the related Trust any reasonable remedies against the seller
or the manufacturer of the vehicle, subject to certain limitations as to the
expense of any such action to be specified in the related Sale and Servicing
Agreements.
Under each Purchase Agreement, CPS will have represented and warranted
that each Receivable complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim against a Trust for violation
of any law and such claim materially and adversely affects such Trust's interest
in a Receivable, such violation would constitute a breach of the warranties of
CPS and would create an obligation of CPS to repurchase the Receivable unless
the breach is cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossession a vehicle and, as part of the rehabilitation plan,
may reduce the amount of the secured indebtedness to the market value of the
vehicle at the time of bankruptcy (as determined by the court), leaving the
creditor as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. However, the summary does not purport to deal with Federal income
tax consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. This discussion is directed to
prospective purchasers who purchase Notes or Certificates in the initial
distribution thereof and who hold the Notes or Certificates as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Prospective investors are urged to consult their own tax
advisors in determining the Federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder, judicial authority, and ruling
authority, all of which are subject to change, which change may be retroactive.
Each Trust will be provided with an opinion of Mayer, Brown & Platt, special
Federal tax counsel to such Trust ("Federal Tax Counsel"), regarding certain
Federal income tax matters discussed below. An opinion of Federal Tax Counsel,
however, is not binding on the Internal Revenue Service (the "IRS") or the
courts. Moreover, there are no cases or IRS rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the Trust, the Notes, the Certificates and related terms, parties
and documents shall be deemed to refer, unless otherwise specified herein,
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to each Trust and the Notes, Certificates and related terms, parties and
documents applicable to such Trust.
Tax Characterization of the Trust
Federal Tax Counsel will deliver its opinion that the Trust will not be
an association (or publicly traded partnership) taxable as a corporation for
Federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Documents will be complied with, and on counsel's
conclusions that the nature of the income of the Trust will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for Federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for Federal, state and local income and franchise tax purposes. Federal Tax
Counsel will advise the Trust with respect to each series of Notes that either
(i) the Notes of such series will be characterized as debt for Federal income
tax purposes or (ii) the Notes of such series should be characterized as debt
for Federal income tax purposes, but if such Notes are not characterized as
debt, such Notes will be characterized as interests in a partnership. Except as
described below under the heading "-Possible Alternative Treatment of the
Notes", below, the discussion below assumes that the characterization of the
Notes as debt for Federal income tax purposes is correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes (the Federal income tax consequences for
which will be described in the applicable Prospectus Supplement). Moreover, the
discussion assumes that the interest formula for the Notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID Regulations") relating to debt instruments issued with original issue
discount ("OID"), and that any OID on the Notes (i.e., any excess of the
principal amount of the Notes over their issue price) is de minimis (i.e., less
than 1/4% of their principal amount multiplied by the weighted average maturity
of the Notes), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes and as a
result the Notes are treated as issued with OID, additional tax considerations
with respect to such Notes will be disclosed in the applicable Prospectus
Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed below, the Notes will not be considered issued with OID. The stated
interest thereon will be taxable to a Noteholder as ordinary interest income
when received or accrued in accordance with such Noteholder's method of tax
accounting. Under the OID Regulations, a holder of a Note issued with a de
minimis amount of OID must include such OID in income, on a pro rata basis, as
principal payments are made on the Note. It is believed that any prepayment
premium paid as a result of a
-49-
mandatory redemption will be taxable as contingent interest when it becomes
fixed and unconditionally payable. A purchaser who buys a Note for more or less
than its principal amount will generally be subject, respectively, to the
premium amortization or market discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. Under the OID Regulations, all stated interest will be treated as
OID. An accrual basis holder of a Short-Term Note (and certain cash basis
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as OID
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest expense otherwise deductible on indebtedness incurred
to purchase or carry the Short-Term Note until the taxable disposition of the
Short-Term Note. A cash basis taxpayer may elect under Section 1281 of the Code
to accrue interest income on all nongovernment debt obligations with a term of
one year or less, in which case the taxpayer would include OID on the Short-Term
Note in income as it accrues, but would not be subject to the interest expense
deferral rule referred to in the preceding sentence. Certain special rules apply
if a Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder
will recognize gain or loss in an amount equal to the difference between the
amount realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used by a corporate taxpayer
only to offset capital gains, and by an individual taxpayer only to the extent
of capital gains plus $3,000 of other income.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other non-United States person (a
"foreign person") generally will be considered "portfolio interest," and
generally will not be subject to United States Federal income tax and
withholding tax, if the interest is not effectively connected with the conduct
of a trade or business within the United States by the foreign person and the
foreign person (i) is not actually or constructively a "10 percent shareholder"
of the Trust or the Seller (including a holder of 10% of the outstanding
Certificates) or a "controlled foreign corporation" with respect to which the
Trust or the Seller is a "related person" within the meaning of the Code and
(ii) provides the Trustee or other person who is otherwise required to withhold
U.S. tax with respect to the Notes with an appropriate statement (on Form W-8 or
a similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If the information provided in this statement
changes, the foreign person must inform the Trust within 30 days of such change.
If a Note is held through a securities clearing organization or certain other
financial institutions, the organization or institution may provide the relevant
signed statement to the withholding agent; in that case, however, the signed
statement must be accompanied by a Form W-8
-50-
or substitute form provided by the foreign person that owns the Note. If such
interest is not portfolio interest, then it will be subject to United States
Federal income and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States Federal income and withholding tax; provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct Federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder fail
to provide the required certification, the Trust will be required to withhold
31% of the amount otherwise payable to the holder, and remit the withheld amount
to the IRS as a credit against the holder's Federal income tax liability.
Possible Alternative Treatment of the Notes. In the opinion of Federal
Tax Counsel, in the event that any series of Notes were not treated as debt for
Federal income tax purposes, such series of Notes would be characterized for
Federal income tax purposes as interests in a partnership. If any series of the
Notes did constitute interests in such a partnership, it is expected that stated
interest payments on such Notes would be treated either as guaranteed payments
under section 707(c) of the Code or as a preferential allocation of net income
of the Trust (with all other items of Trust income, gain, loss, deduction and
credit being allocated to the holders of the Certificates). Although the Federal
income tax treatment of such Notes for most accrual basis taxpayers should not
differ materially under such characterization from the treatment of such Notes
as debt, such characterization could result in adverse effects for certain
holders of Notes. For example, holders of Notes treated as interests in a
partnership could be subject to tax on income equal to the entire amount of the
stated interest payments on the Notes (plus possibly certain other items) even
though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders would in effect be
required to report income in respect of such Notes on the accrual basis and
holders of such Notes could become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. Moreover, income
allocable to a holder of a Note treated as a partnership interest that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) would constitute "unrelated
debt-financed income" generally taxable to such a holder under the Code,
non-U.S. persons holding such Notes could be required to file a U.S. Federal
income tax return and to pay U.S. Federal income tax (and, in the case of a
corporation, branch profits tax) on their share of accruals of guaranteed
payments and Trust income, and individuals holding such Notes might be subject
to certain limitations on their ability to deduct their share of Trust expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller and the Servicer
will agree, and the Certificateholders will agree by their purchase of
Certificates, to treat the Trust as a partnership for purposes of Federal and
state income tax, franchise tax and any other tax measured in whole or in
-51-
part by income, with the assets of the partnership being the assets held by the
Trust, the partners of the partnership being the Certificateholders (including
the Seller in its capacity as recipient of distributions from the Spread Account
and any other account specified in the related Prospectus Supplement in which
the Seller has an interest), and the Notes being debt of the partnership.
However, the proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates may have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization should not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates and a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject
to Federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments from
the Trust and its allocated share of other income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of interest and
finance charges earned on the Receivables (including appropriate adjustments for
market discount, OID and premium) and any gain upon collection or disposition of
Receivables. The Trust's deductions will consist primarily of interest accruing
with respect to the Notes, guaranteed payments on the Certificates, servicing
and other fees, and losses or deductions upon collection or disposition of
Receivables.
Under the Trust Agreement, stated interest payments on the Certificates
(including interest on amounts previously due on the Certificates but not yet
distributed) will be treated as "guaranteed payments" under Section 707(c) of
the Code. Guaranteed payments are payments to partners for the use of their
capital and, in the present circumstances, are treated as deductible to the
Trust and ordinary income to the Certificateholders. The Trust will have a
calendar year tax year and will deduct the guaranteed payments under the accrual
method of accounting. Certificateholders with a calendar year tax year are
required to include the accruals of guaranteed payments in income in their
taxable year that corresponds to the year in which the Trust deducts the
payments, and Certificateholders with a different taxable year are required to
include the payments in income in their taxable year that includes the December
31 of the Trust year in which the Trust deducts the payments. It is possible
that guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii) any
other amounts of income payable to the
-52-
Certificateholders for such month. Such allocation will be reduced by any
amortization by the Trust of premium on Receivables that corresponds to any
excess of the issue price of Certificates over their principal amount. All
remaining items of income, gain, loss and deduction of the Trust will be
allocated to the Seller.
Based on the economic arrangement of the parties, this approach for
accruing guaranteed payments and allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be subject to tax on income equal to the entire amount of
stated interest payments on the Certificates plus the other items described
above even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Most of the guaranteed payments and taxable income allocated to a
Certificateholder that is a pension, profit-sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated debt-financed income" generally taxable to such a holder
under the Code.
An individual taxpayer's share of expenses of the Trust (including fees
to the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. It is not clear whether these rules would be applicable to a
Certificateholder accruing guaranteed payments.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
Discount and Premium. The purchase price paid by the Trust for the
Receivables may be greater or less than the remaining principal balance of the
Receivables at the time of purchase. If so, the Receivables will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium,
the Trust will elect to include any such discount in income currently as it
accrues over the life of the Receivables or to offset any such premium against
interest income on the Receivables. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
-53-
Section 708 Termination. Under Section 708 of the Code, the Trust will
be deemed to terminate for Federal income tax purposes if 50% or more of the
capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners, who would then be treated as
recontributing those assets to the Trust, as a new partnership. The Trust will
not comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust may be subject to
certain tax penalties and may incur additional expenses if it is required to
comply with those requirements. Furthermore, the Trust might not be able to
comply due to lack of data.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income and accruals of
guaranteed payments (includible in income) and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificates and the amount realized on a sale of a Certificate would
include the holder's share of the Notes and other liabilities of the Trust. A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a pro rata portion of
such aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss on
a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's
share of unrecognized accrued market discount on the Receivables would generally
be treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the
Trust's taxable income and losses will be determined monthly and the tax items
and accruals of guaranteed payments for a particular calendar month will be
apportioned among the Certificateholders in proportion to the principal amount
of Certificates owned by them as of the close of the last day of such month. As
a result, a holder purchasing Certificates may be allocated tax items and
accruals of guaranteed payments (which will affect its tax liability and tax
basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
and accruals of guaranteed payments of the Trust might be reallocated among the
Certificateholders. The Company is authorized to revise the Trust's method of
allocation between transferors and transferees to conform to a method permitted
by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the
-54-
selling Certificateholder had. The tax basis of the Trust's assets will not be
adjusted to reflect that higher (or lower) basis unless the Trust were to file
an election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records, as
well as potentially onerous information reporting requirements, the Trust will
not make such election. As a result, Certificateholders might be allocated a
greater or lesser amount of Trust income than would be appropriate based on
their own purchase price for Certificates.
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust issuing Certificates and will report each Certificateholder's accruals of
guaranteed payments and allocable share of items of Trust income and expense to
holders and the IRS on Schedule K-1. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust or be subject to penalties unless the holder notifies the IRS of all
such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the Trust
Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust would be considered to be engaged in a trade or business in the United
States for purposes of Federal
-55-
withholding taxes with respect to non-U.S. persons because there is no clear
authority dealing with that issue under facts substantially similar to those
described herein. Although it is not expected that the Trust would be engaged in
a trade or business in the United States for such purposes, the Trust will
withhold as if it were so engaged in order to protect the Trust from possible
adverse consequences of a failure to withhold. The Trust expects to withhold on
the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income were
effectively connected to a U.S. trade or business, at a rate of 35% for foreign
holders that are taxable as corporations and 39.6% for all other foreign
holders. Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Trust to change its withholding
procedures. In determining a holder's nonforeign status, the Trust may rely on
IRS Form W-8, IRS Form W-9 or the holder's certification of nonforeign status
signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return and pay U.S. income tax on the amount computed
therein (including, in the case of a corporation, the branch profits tax) on its
share of accruals of guaranteed payments and the Trust's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit that
number to the Trust on Form W-8 in order to assure appropriate crediting of the
taxes withheld. A foreign holder generally would be entitled to file with the
IRS a claim for refund with respect to taxes withheld by the Trust, taking the
position that no taxes were due because the Trust was not engaged in a U.S.
trade or business. However, the IRS may assert that additional taxes are due,
and no assurance can be given as to the appropriate amount of tax liability.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. See "Tax Consequences to Holders of the Notes
- - - - Backup Withholding."
ERISA CONSIDERATIONS
The Prospectus Supplement for each Series of Securities will summarize, subject
to the limitations discussed therein, considerations under ERISA relevant to the
purchase of such Securities by employee benefit plans and individual retirement
accounts.
PLAN OF DISTRIBUTION
CPS may sell Securities (i) through underwriters or dealers: (ii)
directly to one or more purchasers: or (iii) through agents. The related
Prospectus Supplement in respect of a Series offered hereby will set forth the
terms of the offering of such Securities, including the name or names of any
underwriters, the purchase price of such Securities and the proceeds to CPS from
such sale, any underwriting discounts and other items constituting underwriters'
compensation, any initial offering price and any discounts or concessions
allowed or reallowed or paid to dealers. Only underwriters so named in such
Prospectus Supplement shall be deemed to be underwriters in connection with the
Securities offered thereby.
-56-
Subject to the terms and conditions set forth in an underwriting
agreement (an "Underwriting Agreement") to be entered into with respect to each
Series of Securities, CPS will agree to sell to each of the underwriters named
therein and in the related Prospectus Supplement, and each of such underwriters
will severally agree to purchase from CPS, the principal amount of Securities
set forth therein and in the related Prospectus Supplement (subject to
proportional adjustment on the terms and conditions set forth in the related
Underwriting Agreement in the event of an increase or decrease in the aggregate
amount of Securities offered hereby and by the related Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities offered hereby and by the related Prospectus Supplement if any of
such Securities are purchased. In the event of a default by any underwriter,
each Underwriting Agreement will provide that, in certain circumstances,
purchase commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Underwriting Agreement will provide that CPS will indemnify the
related underwriters and, in certain limited circumstances, the underwriters
will indemnify CPS against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The place and time of delivery for any Series of Securities in respect
of which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
Series, including certain federal and state income tax consequences with respect
thereto and certain Bankruptcy matters, will be passed upon by Mayer, Brown &
Platt, New York, New York, or other counsel specified in the related Prospectus
Supplement.
FINANCIAL INFORMATION
Certain specified Trust Assets will secure each Series of Securities,
no Trust will engage in any business activities or have any assets or
obligations prior to the issuance of the related Series of Securities.
Accordingly, no financial statements with respect to any Trust Assets will be
included in this Prospectus or in the related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus
Supplement or the Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the Seller
or the Underwriters. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus Supplement or the Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that the information herein is correct
as of any time subsequent to the date hereof or that there has been no change in
the affairs of the Trust or the Receivables since such date.
-57-
-58-
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
$[ ]
CPS AUTO RECEIVABLES TRUST 1997-[ ]
[ ]% ASSET-BACKED CERTIFICATES, CLASS A
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO SERVICES, INC.
(SERVICER)
PROSPECTUS SUPPLEMENT
[UNDERWRITER]
[UNDERWRITER]
June [ ], 1997
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT......................................................2
AVAILABLE INFORMATION......................................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................3
REPORTS TO SECURITYHOLDERS.................................................3
SUMMARY OF TERMS...........................................................4
RISK FACTORS..............................................................15
THE ISSUERS...............................................................22
THE TRUST ASSETS..........................................................22
ACQUISITION OF RECEIVABLES BY THE SELLER..................................23
THE RECEIVABLES...........................................................24
CPS'S AUTOMOBILE CONTRACT PORTFOLIO.......................................27
POOL FACTORS..............................................................27
USE OF PROCEEDS...........................................................28
THE SELLER AND CPS........................................................28
THE TRUSTEE...............................................................29
DESCRIPTION OF THE SECURITIES.............................................29
DESCRIPTION OF THE TRUST DOCUMENTS........................................35
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES..................................44
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................48
ERISA CONSIDERATIONS......................................................51
PLAN OF DISTRIBUTION......................................................51
LEGAL OPINIONS............................................................52
FINANCIAL INFORMATION.....................................................52
INDEX OF TERMS.............................................................i
-i-
INDEX OF TERMS
Accrual Securities...........................................................8
Actuarial Receivables.......................................................25
Affiliate Purchase Agreement............................................23, 35
Affiliated Originator...................................................11, 27
APR ..........................................................25
Buyer's Guide ..........................................................47
cash sale differential......................................................47
Cede ..........................................................12
CEDEL Participants......................................................31, 33
Certificateholders..........................................................40
Certificates ........................................................1, 4
chattel paper ..........................................................19
Class ...........................................................1
clearing agency ..........................................................32
clearing corporation........................................................32
Closing Date ......................................................10, 35
Collection Account..........................................................36
Collection Period ...........................................................6
Contracts .......................................................1, 27
Cooperative ..........................................................33
CPS ...........................................................4
Credit Enhancement..........................................................21
Credit Enhancer ..........................................................21
Cutoff Date ..........................................................10
Dealer Agreements ..........................................................22
Dealers ..........................................................22
Definitive Securities.......................................................34
Depositaries ..........................................................31
Direct Participants.........................................................21
Distribution Account........................................................36
DTC ..........................................................12
Eligible Deposit Account....................................................37
Eligible Institution........................................................37
Eligible Investments........................................................36
ERISA ..........................................................14
Euroclear Operator......................................................33, 34
Euroclear Participants......................................................33
Event of Default ..........................................................34
Exchange Act .......................................................3, 14
Federal Tax Counsel.............................................13, 48, 49, 51
Financed Vehicles .......................................................1, 10
FTC Rule ..........................................................47
Funding Period ..........................................................11
Holder-in-Due-Course........................................................47
IFC's ..........................................................27
Indenture ...........................................................5
-i-
INDEX OF TERMS (cont.)
Indenture Trustee ...........................................................5
Indirect Participants...................................................21, 32
Initial Receivables.........................................................11
Insolvency Event ..........................................................42
Insolvency Laws ..........................................................18
Interest Rate ........................................................2, 7
investment company...........................................................9
Investment Company Act.......................................................9
Investment Earnings.........................................................37
Investment Income ..........................................................11
Issuer ....................................................1, 4, 22
Lock-Box Account ..........................................................38
Lock-Box Processor..........................................................38
national statistical rating organizations...................................14
Noteholders ..........................................................40
Notes ........................................................1, 4
Obligors ..........................................................22
Participants ..........................................................31
Payment Date ...........................................................6
Policy ...........................................................1
Pool Balance ..........................................................28
Pool Factor ..........................................................27
Post Office Box ..........................................................38
Pre-Funded Amount ..........................................................11
Pre-Funding Account.........................................................11
prepayment ..........................................................15
Prospectus Supplement........................................................1
Purchase Agreement..........................................................23
Purchase Amount ..........................................................24
Rating Agencies ..........................................................14
Receivables .......................................................1, 10
Receivables Pool ..........................................................22
Record Date ...........................................................6
Registration Statement.......................................................2
Relief Act ..........................................................21
Residual Interest ...........................................................9
Rule of 78's ..........................................................25
Rule of 78's Receivables....................................................25
Rules ..........................................................33
Sale and Servicing Agreement................................................23
Securities ...........................................................1
Securities Act ...........................................................2
Security Balance ...........................................................7
Securityholder .......................................................6, 32
Securityholders ...........................................................6
Seller ...........................................................4
-ii-
INDEX OF TERMS (cont.)
Senior Securities ...........................................................8
Series .......................................................1, 29
Servicer ........................................................1, 4
Servicer Default ..........................................................42
Servicing Agreement..........................................................5
Servicing Fee ..........................................................39
Simple Interest Receivables.................................................25
Sponsor ...........................................................4
Standby Servicer ..........................................................38
Strip Securities ...........................................................8
sub-prime ..........................................................15
Sub-Prime Borrowers.........................................................27
Subordinate Securities.......................................................8
Subsequent Receivables......................................................11
Subsequent Transfer Date....................................................17
Subservicer ...........................................................4
sum of monthly payments.....................................................25
sum of periodic balances....................................................25
Terms and Conditions........................................................34
The Receivables Pool........................................................17
Trust ........................................................1, 4
Trust Accounts ..........................................................36
Trust Agreement ...........................................................4
Trust Assets ........................................................1, 4
Trust Documents .......................................................5, 35
Trustee ...........................................................5
Underwriting Agreement......................................................51
-iii-
*** START HERE DB ***
Registration No. [ ]
Form of Prospectus Supplement
To Prospectus Dated [ ], 1997
[$ ]
CPS Auto Receivables Trust 199[ ]-[ ]
[$ ][ %] Asset-Backed Notes, Class A-1
[$ ][ %] Asset-Backed Notes, Class A-2
[$ ] Floating Rate Asset-Backed Notes, Class A-3
[$ ] [ %] Asset-Backed Notes, Class B
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-------
CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust") will be formed pursuant
to a Trust Agreement to be dated as of [ ] between CPS Receivables Corp., as
seller (the "Seller"), and [ ], as owner trustee (the "Owner Trustee"). The [ %]
Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), the [ %] Asset-Backed
Notes, Class A-2 (the "Class A-2 Notes") and the Floating Rate Asset-Backed
Notes, Class A-3 (the "Class A-3 Notes", and, together with the Class A-1 Notes
and Class A-2 Notes, the "Class A Notes") and the [ %] Asset-Backed Notes, Class
B (the "Class B Notes" and, together with the Class A Notes, the "Notes"), will
be issued pursuant to an Indenture (the "Indenture") to be dated as of [ ]
between the Trust and [ ], as indenture trustee (in such capacity, the
"Indenture Trustee"). The Trust also will issue [$ ] aggregate principal amount
of [ %] Asset Backed Certificates [which are not offered hereby but will be
retained initially by the Seller or an affiliate] (the "Certificates" and,
together with the Notes, the "Securities"). [The rights of [identify
subordinated classes of Securities] to receive payments of [principal] and/or
[interest] will be subordinated to the rights of [identify senior classes of
Securities] to the extent described herein.]
-------
The Trust Assets will include a pool of retail installment sale
contracts (including contracts representing obligations of Sub- Prime Borrowers
(as defined herein)) and all rights thereunder, certain monies due or received
thereunder, security interests in the new and used automobiles, light trucks,
vans and minivans securing the Receivables (as defined herein), certain bank
accounts and the proceeds thereof, the [Credit Enhancement] with respect to the
Notes, and the right of CPS to receive certain insurance proceeds and certain
other property, as more fully described herein. The Receivables will be
purchased by the Seller from CPS and from CPS's subsidiary, [Affiliated
Originator] on or prior to the date of the issuance of the Securities.
[It is intended that from time to time on or before [ ] the Trust will
purchase from the Seller (or an Affiliated Originator) additional retail
installment sale contracts having an aggregate principal balance of up to $[ ]
with funds on deposit in the Pre-Funding Account (as defined herein).]
The Underwriter has agreed to purchase from the Seller the Notes at a
purchase price equal to [ %] of the principal amount thereof, subject to the
terms and conditions set forth in the Underwriting Agreement referred to herein
under "Underwriting". The aggregate proceeds to the Seller, after deducting
expenses payable by the Seller, estimated at [$ ] will be [$ ].
-------
The Underwriter proposes to offer the Notes from time to time in
negotiated transactions or otherwise, at varying prices to
be determined at the time of sale. For further information with respect to the
plan of distribution and any discounts, commissions or profits that may be
deemed underwriting discounts or commissions, see "Underwriting" herein.
-------
[Credit Enhancement] with respect to the Notes ["Credit Enhancement"]
will be provided by [Credit Enhancer] on each Payment Date.
-------
For a discussion of certain factors relating to the
transaction, see "Risk Factors" at page S-[ ]
herein and page [ ] in the accompanying
prospectus.
-------
THE NOTES REPRESENT OBLIGATIONS OF AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER,
THE SERVICER OR ANY AFFILIATE THEREOF. THE 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
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
[UNDERWRITER]
The date of this Prospectus Supplement is [ ].
S-1
AVAILABLE INFORMATION
CPS has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Notes offered pursuant to this Prospectus Supplement. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
office at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may 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 also maintains a web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder. Upon the receipt of a request by an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus Supplement and Prospectus, CPS, the Seller or the Underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Securities. Such
reports will not constitute financial statements prepared in accordance with
generally accepted
S-2
accounting principles. The Servicer will file with the Commission such periodic
reports as are required under the Exchange Act, and the rules and regulations
thereunder and as are otherwise agreed to by the Commission. Copies of such
periodic reports may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
S-3
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Issuer..............CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust" or the
"Issuer").
Seller..............CPS Receivables Corp. (the "Seller"). See "The Seller and
CPS" in this Prospectus Supplement.
Servicer............Consumer Portfolio Services, Inc. ("CPS" or, in its capacity
as the servicer, the "Servicer"). See "CPS's Automobile
Contract Portfolio" and "The Seller and CPS" in this
Prospectus Supplement.
Indenture Trustee...[Name and Address]
Owner Trustee.......[Name and Address]
[Credit Enhancer]...[Name and Address]
Closing Date On or about [ ] (the "Closing Date").
The Trust...........The Trust will be a business trust established under the
laws of the State of Delaware. The activities of the Trust
are limited by the terms of the Trust Agreement dated as of
[ ] between the Seller and the Owner Trustee (the "Trust
Agreement").
The Notes...........The Trust will issue [ ]% Class A-1 Asset-Backed Notes (the
"Class A-1 Notes") in the aggregate original principal
amount of $[ ], [ ]% Class A-2 Asset-Backed Notes (the
"Class A-2 Notes") in the original aggregate principal
amount of $[ ], Class A-3 Floating Rate Asset-Backed Notes
(the "Class A-3 Notes") in the original aggregate principal
amount of $[ ] and [ ]% Class B Asset-Backed Notes (the
"Class B Notes") in the original aggregate principal amount
of $[ ]. The Trust will also issue the Certificates. The
Notes and the Certificates are referred to herein
collectively as the "Securities". The Notes will be issued
pursuant to an Indenture dated as of [ ] (the "Indenture").
The Notes will be offered for purchase in minimum
denominations of [$ ] and integral multiples of $1,000 in
excess thereof, in book entry form only. See "Description of
the Securities - Book Entry Registration" in the Prospectus.
The Notes will be secured by the Trust Assets as, and to the
extent, provided in the Indenture.
The Certificates....The Trust will issue [ %] Asset-Backed Certificates (the
"Certificates") with an aggregate initial Certificate
Balance (as
S-4
defined herein) of [$ ]. The Certificates will represent
beneficial interests in the Trust. The Certificates will be
issued pursuant to the Trust Agreement. The Certificates
will be offered for purchase in denominations of $1,000 and
integral multiples thereof in book-entry form only. See
"Certain Information Regarding the Notes [and the
Certificates] - Book Entry Registration" and "- Definitive
Notes" in the Prospectus.]
Trust Assets........The property of the Trust (the "Trust Assets") will include
(i) a pool of retail installment sale contracts
(collectively, the "Receivables") secured by the new and
used automobiles, light trucks, vans and minivans financed
thereby (the "Financed Vehicles"), (ii) with respect to
Receivables that are Rule of 78's Receivables (as defined
herein), all payments due thereon after [ ] (the "Cutoff
Date"), and, with respect to Receivables that are Simple
Interest Receivables (as defined herein), all payments
received thereunder after the Cutoff Date, (iii) security
interests in the Financed Vehicles, (iv) certain bank
accounts and the proceeds thereof, (v) the right of the
Seller to receive proceeds from claims under, or refunds of
unearned premiums from, certain insurance policies and
extended service contracts, (vi) all right, title and
interest of the Seller in and to the Purchase Agreements,
(vii) the [Credit Enhancement] issued by the [Credit
Enhancer] with respect to the [Class A] Notes, and (viii)
certain other property, as more fully described herein. See
"Formation of the Trust" in this Prospectus Supplement and
"The Trust Assets" and "The Receivables" in the Prospectus.
Certain of the Receivables will be purchased by the Seller
from CPS pursuant to the Purchase Agreement (such
Receivables, the "CPS Receivables") [and certain of the
Receivables will be purchased by the Seller from CPS's
subsidiary, [Affiliated Originator], pursuant to the
[Affiliate Purchase Agreement] (such Receivables, the
"[Affiliated Originator] Receivables")] on or prior to the
Closing Date [or each Subsequent Closing Date (as defined
herein)]. The Receivables arise from loans originated by
automobile dealers or IFCs (as defined herein) for
assignment to CPS or a subsidiary of CPS pursuant to CPS's
auto loan programs.
The Receivables.....As of the Cutoff Date, the aggregate outstanding principal
balance of the Receivables was [$ ] (the "Original Pool
Balance"). The Receivables consist of retail installment
sale contracts secured by new and used automobiles, light
trucks, vans and minivans including, with respect to Rule of
78's Receivables, the rights to all payments due with
respect to such Receivables after the Cutoff Date, and, with
respect to Simple Interest Receivables, the rights to all
payments received with respect to such Receivables after the
Cutoff Date. As of the Cutoff Date, approximately [ %] of
the aggregate principal balance of the Receivables
represented financing of used vehicles. The Receivables
arise from loans originated by automobile dealers or
independent finance companies ("IFCs") for assignment to CPS
or a subsidiary of CPS pursuant to CPS's auto loan programs.
The auto loan programs target automobile purchasers with
marginal credit
S-5
ratings who are generally unable to obtain credit from banks
or other low-risk lenders. See "CPS's Automobile Contract
Portfolio - General" and "- The Receivables Pool" in this
Prospectus Supplement and "Risk Factors - Sub-Prime
Obligors" in the Prospectus. The Receivables have been
selected from the contracts owned by CPS based on the
criteria specified in the Purchase Agreement and described
herein.
[Following the Closing Date, pursuant to the Sale and
Servicing Agreement, the Seller will be obligated, subject
only to the availability thereof, to sell, and the Trust
will be obligated to purchase, subject to the satisfaction
of certain conditions set forth therein, additional
Receivables originated by CPS [or an Affiliated Originator]
under its auto loan programs and acquired by the Seller from
CPS [or an Affiliated Originator] (the "Subsequent
Receivables") from time to time during the Funding Period
(as defined below) having an aggregate Principal Balance
equal to approximately $[ ]. Subsequent Receivables will be
conveyed to the Trust on dates specified by the Seller (each
date on which Subsequent Receivables are conveyed being
referred to as a "Subsequent Closing Date") occurring during
the Funding Period. After any Subsequent Closing Date, the
Trust Assets will include payments [other than Credit
Enhancement] received with respect to the related Subsequent
Receivables after the cutoff date designated by the Seller
with respect to such Subsequent Closing Date (such date
designated by the Seller, the "Subsequent Cutoff Date" with
respect to the Subsequent Receivables conveyed to the Trust
on such Subsequent Closing Date). See "Description of the
Trust Documents - Sale and Assignment of Receivables;
Subsequent Receivables" herein. On each Subsequent Closing
Date, subject to the conditions set forth in the Trust
Documents, the Trustee shall purchase from the Seller (or an
Affiliated Originator) the Subsequent Receivables to be
transferred to the Trust on such Subsequent Closing Date.]
Pre-Funding
Account.............[The Initial Receivables and the Subsequent Receivables will
be selected from motor vehicle retail installment sale
contracts in CPS's portfolio based on the criteria specified
in the Purchase Agreement and described in this Prospectus
Supplement. No Receivable will have a scheduled maturity
date later than [ ].
Subsequent Receivables will be originated under CPS's auto
loan programs [or through an Affiliated Originator] but, as
these programs are modified from time to time by CPS due to
changes in market conditions or otherwise in the judgment of
CPS, such Subsequent Receivables may be originated using
credit criteria different from the criteria applied with
respect to the Initial Receivables and may be of a different
credit quality and seasoning. However, CPS believes that the
inclusion of the Subsequent Receivables in the pool of
Receivables will not materially adversely affect the
performance or other characteristics of the pool of
S-6
Receivables. In addition, following the transfer of
Subsequent Receivables to the Trust, the characteristics of
the entire pool of Receivables included in the Trust may
vary from those of the Initial Receivables. See "Risk
Factors - Varying Characteristics of Subsequent Receivables"
and "The Receivables Pool" herein.
On the Closing Date, the Seller will deposit into the
Pre-Funding Account (as defined below), from the proceeds
from the sale of the Securities, the sum of $[ ] (such
amount, as reduced from time to time by the aggregate
Principal Balances of all Subsequent Receivables purchased
by the Trust during the Funding Period (the "Pre-Funded
Amount"). During the period (the "Funding Period") from and
including the Closing Date until the earliest of (i) the
Record Date on which (a) the Pre-Funded Amount is less than
$100,000, (b) an Event of Default has occurred under the
Indenture or a Servicer Termination Event has occurred under
the Sale and Servicing Agreement, (c) certain events of
insolvency have occurred with respect to the Seller or the
Servicer or (ii) the close of business on the [ ] Payment
Date, the Pre-Funded Amount will be maintained as an account
in the name of the Indenture Trustee (the "Pre-Funding
Account"). The Pre-Funded Amount is expected to initially
equal approximately $[ ] and, during the Funding Period will
be reduced by the principal balance of Subsequent
Receivables purchased by the Trust from time to time in
accordance with the Sale and Servicing Agreement. The Seller
expects that the Pre-Funded Amount will be reduced to less
than $100,000 by the [ ] Payment Date. Any Pre-Funded Amount
remaining at the end of the Funding Period will be payable
to the Noteholders [and Certificateholders] pro rata in
proportion to the respective principal balances of each
class of Notes [and the Certificate Balance].]
Interest
Reserve Account.....[During the Funding Period, funds will be held in an account
(the "Interest Reserve Account") to cover any shortfalls due
to investment earnings on funds in the Pre-Funding Account
being less than the interest due on the Notes [and the
Certificates]. See "Description of the Trust Documents -
Accounts"].
Terms of the
Notes...............The principal terms of the Notes will be as described below:
A. Payment Dates...Payments of interest and principal on the Notes will be made
on the 15th day of each month or, if such 15th day is not a
Business Day, on the next following Business Day (each a
"Payment Date"), commencing [ ]. Payments will be made to
holders of record of the Notes (the "Noteholders") as of the
close of business on the Record Date applicable to such
Payment Date. A "Business Day" is a day other than a
Saturday, a Sunday or a day on which banking institutions in
the City of New York, New York, the State in which the
Corporate Trust Office is located, the State in which the
executive offices of the Servicer are located or the State
in which the principal place of business of the [Credit
Enhancer] is located are
S-7
authorized or obligated by law, executive order or
governmental decree to be closed.
B. Final Scheduled
Payment Dates....[ ].
C. Subordination
of [Class B
Notes and
Certification]..[The Class B Notes will not receive any payment of principal
or interest on a Payment Date until the full amount of the
Class A Noteholders' Interest Distributable Amount due to
the Class A Noteholders with respect to such Payment Date
has been deposited in the Distribution Account. The Class B
Notes will not receive any payment of principal on a Payment
Date until the full amount of the Class A Noteholders'
Principal Distributable Amount due to the Class A
Noteholders with respect to such Payment Date has been
deposited in the Distribution Account. The Certificates will
not receive any payments of principal until the Notes have
been paid in full. The Certificates will not receive any
payments of interest on a Payment Date until the full amount
of principal and interest due in respect of the Notes on
such Payment Date has been paid in full.]
D. Interest
Rates............The Class A-1 Notes will bear interest at a rate equal to [
%] per annum (the "Class A-1 Interest Rate"). The Class A-2
Notes will bear interest at a rate equal to [ %] per annum
(the "Class A-2 Interest Rate"). The Class A-3 Notes will
bear interest at a rate equal to [one month] [two month]
[three month] [six-month] LIBOR [other] plus [ %] (the
"Class A-3 Interest Rate"). The Class B Notes will bear
interest at a rate of [ ]% per annum (the "Class B Interest
Rate"). [See "Description of the Notes - Determination of
LIBOR" in this Prospectus Supplement.] [Additional classes
of Notes may be added.] Each such interest rate for a Class
of Notes is referred to as an "Interest Rate". Interest on
the Notes, [other than the Class A-1 Notes,] will be
calculated on the basis of a 360 day year consisting of
twelve 30 day months. [Interest on the Class A-1 Notes will
be calculated on the basis of the actual number of days in a
365-day year.]
E. Interest.........[On each Payment Date, the holders of record of the Class
A-1 Notes (the "Class A-1 Noteholders")] will be entitled to
receive, pro rata, interest at the Class A-1 Interest Rate
for the number of days elapsed from and including the most
recent Payment Date (or in the case of the initial Payment
Date, from and including the Closing Date) to but excluding
the current Payment Date, on the outstanding principal
amount of the Class A-1 Notes at the close of business on
the last day of the related Collection Period.] On each
Payment Date, the holders of record of the Class A-2 Notes
(the "Class A-2 Noteholders") as of the related Record Date
will be entitled to receive, pro rata, thirty (30) days of
interest at the Class A-2 Interest Rate on the outstanding
principal amount of the Class A-2 Notes at the close of
business on the last day of the related Collection Period.
On each Payment Date, the holders of record of the Class A-3
Notes (the "Class A-3 Noteholders") as of the related Record
Date will be entitled to receive, pro rata, thirty (30) days
of interest at the Class A-3 Interest Rate on the
outstanding principal amount of the Class
S-8
A-3 Notes at the close of business on the last day of the
related Collection Period. On each Payment Date, the holders
of record of the Class B Notes (the "Class B Noteholders")
as of the related Record Date will be entitled to receive,
pro rata, thirty (30) days of interest at the Class B
Interest Rate on the outstanding principal balance of the
Class B Notes at the close of business on the last day of
the related Collection Period. [Additional classes of Notes
may be added]. Notwithstanding the foregoing, on the first
Payment Date, the interest payable to the Noteholders of
record of each Class of Notes will be an amount equal to the
product of (a) the Interest Rate applicable to such Class of
Notes, (b) the initial principal amount of such Class of
Notes and (c) a fraction (i) the numerator of which is the
number of days from and including the Closing Date through
and including [ ] 14, 199[ ] and (ii) the denominator of
which is 360. Interest on the Notes which is due but not
paid on any Payment Date will be payable on the next Payment
Date together with, to the extent permitted by law, interest
on such unpaid amount at the applicable Interest Rate. See
"Description of the Notes Payments of Interest" in this
Prospectus Supplement.
F. Principal........Principal of the Class A Notes will be payable on each
Payment Date in an amount equal to the Class A Noteholders'
Principal Distributable Amount for the related Collection
Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the product of (x) the Class A
Noteholders' Percentage of the Principal Distributable
Amount and (y) any unpaid portion of the amount described in
clause (x) with respect to a prior Payment Date. Principal
of the Class B Notes will be payable on each Payment Date in
an amount equal to the Class B Noteholders' Principal
Distributable Amount for the related Collection Period. The
"Class B Noteholders' Principal Distributable Amount" is
equal to the product of (a) the Class B Noteholders'
Percentage of the Principal Distributable Amount and (b) any
unpaid portion of the amount described in clause (a) with
respect to a prior Payment Date.
The "Class A Noteholders' Percentage" will (a) on any
Payment Date prior to the Payment Date on which the
principal amount of the Class A-3 Notes is reduced to zero,
be [ %], (b) on the Payment Date on which the principal
amount of the Class A-3 Notes is reduced to zero, be the
percentage equivalent of a fraction, the numerator of which
is the principal amount of the Class A-3 Notes immediately
prior to such Payment Date, and the denominator of which is
the Principal Distributable Amount and (c) on any other
Payment Date, be 0%.
The "Class B Noteholders' Percentage" will (a) on any
Payment Date prior to the Payment Date on which the
principal amount of the Class A-3 Notes is reduced to zero,
be [ %], (b) on the Payment Date on which the principal
amount of the Class A-3 Notes is reduced to zero, be the
percentage equivalent of a fraction, the numerator of which
is the principal amount of the Class A-3 Notes
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immediately prior to such Payment Date, and the denominator
of which is the Principal Distributable Amount and (c) on
any other Payment Date, be 0%.
On each Payment Date, an amount equal to the lesser of (i)
the portion of the Total Distribution Amount remaining after
application thereof to pay all senior distributions as
described in "Priority of Payments" below and (ii) the Class
A Noteholders' Principal Distributable Amount will be
applied, sequentially, to pay principal of the Class A-1
Notes until the principal balance of the Class A-1 Notes has
been reduced to zero, then to the holders of the Class A-2
Notes until the principal balance of the Class A-2 Notes has
been reduced to zero, then to the holders of the Class A-3
Notes until the principal balance of the Class A-3 Notes has
been reduced to zero, [additional classes of Notes may be
added]. On each Payment Date, an amount equal to the lesser
of (i) the portion of the Total Distribution Amount
remaining after application thereof to pay all senior
distributions as described in "Priority of Payments" below
and (ii) the Class B Noteholders' Principal Distributable
Amount will be applied to pay principal of the Class B Notes
until the principal balance of the Class B Notes has been
reduced to zero.
The "Principal Distributable Amount" for a Payment Date will
equal the sum of (a) the principal portion of all Scheduled
Receivable Payments received during the preceding Collection
Period on Rule of 78's Receivables and all payments of
principal received on Simple Interest Receivables during the
preceding Collection Period; (b) the principal portion of
all prepayments in full received during the preceding
Collection Period (including prepayments in full resulting
from collections with respect to a Receivable received
during the preceding Collection Period (without duplication
of amounts included in (a) above and (d) below)); (c) the
portion of the Purchase Amount allocable to principal of
each Receivable that was repurchased by CPS or purchased by
the Servicer as of the last day of the related Collection
Period and, at the option of the [Credit Enhancer] the
Principal Balance of each Receivable that was required to be
but was not so purchased or repurchased (without duplication
of the amounts referred to in (a) and (b) above); (d) the
Principal Balance of each Receivable that first became a
Liquidated Receivable during the preceding Collection Period
(without duplication of the amounts included in (a) and (b)
above); and (e) the aggregate amount of Cram Down Losses
with respect to the Receivables that shall have occurred
during the preceding Collection Period (without duplication
of amounts included in (a) through (d) above). In addition,
the outstanding principal amount of the Notes of any Class,
to the extent not previously paid, will be payable on the
respective Final Scheduled Payment Date for such Class.
A "Collection Period" with respect to a Payment Date will be
the calendar month preceding the month in which such Payment
Date occurs; provided, however, that with respect to the
first Payment
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Date, the "Collection Period" will be the period from and
excluding the Cutoff Date to and including [ ].
G. Optional
Redemption.......The Notes, to the extent still outstanding, may be redeemed
in whole, but not in part, on any Payment Date on which the
Servicer exercises its option to purchase all the
Receivables as of the last day of any Collection Period on
or after which the aggregate Principal Balance of the
Receivables is equal to 10% or less of the Original Pool
Balance, at a redemption price equal to the unpaid principal
amount of the Notes, plus accrued and unpaid interest
thereon; provided that the Servicer's right to exercise such
option will be subject to the prior approval of the [Credit
Enhancer], but only if, after giving effect thereto, a claim
on the [Credit Enhancement] would occur or any amount owing
to the [Credit Enhancer] or the holders of the Notes would
remain unpaid. See "Description of the Notes - Optional
Redemption" in this Prospectus Supplement.
H. Mandatory
Redemption.......[Each class of Notes will be redeemed in part on the Payment
Date on or immediately following the last day of the Funding
Period in the event that any portion of the Pre-Funded
Amount remains on deposit in the Pre-Funding Account after
giving effect to the purchase of all Subsequent Receivables,
including any such purchase on such date (a "Mandatory
Redemption"). The aggregate principal amount of each class
of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current
principal balance of each class of Notes) of the Pre-Funded
Amount on such date (such class's "Note Prepayment Amount").
A limited recourse mandatory prepayment premium (the "Note
Prepayment Premium") will be payable by the Trust to the
Noteholders if the Pre-Funded Amount at the end of the
Funding Period exceeds $100,000. The Note Prepayment Premium
for each class of Notes will equal the excess, if any,
discounted as described below, of (i) the amount of interest
that would have accrued on such class's Note Prepayment
Amount at the applicable Interest Rate during the period
commencing on and including the Payment Date on which such
Note Prepayment Amount is required to be distributed to
Noteholders of such class to but excluding [ ], in the case
of the Class A-1 Notes, [ ], in the case of the Class A-2
Notes, [ ] in the case of the Class A-3 Notes, [ ] and in
the case of the Class B Notes, [ ], over (ii) the amount of
interest that would have accrued on the applicable Note
Prepayment Amount over the same period at a per annum rate
of interest equal to the bond equivalent yield to maturity
on the Record Date preceding such Payment Date on the United
States Treasury Bill due [ ], in the case of the Class A-1
Notes, the [ ]% United States Treasury Note due [ ], in the
case of the Class A-2 Notes, the [ ]% United States Treasury
Note due [ ], in the case of the Class A-3 Notes, the [ ]%
United States Treasury Note due [ ] and, in the case of the
Class B Notes, the [ ]% United States Treasury Note due [ ].
Such excess shall be discounted
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to present value to such Payment Date at the applicable
yield described in clause (ii) above. The Trust's obligation
to pay the Note Prepayment Premium shall be limited to funds
which are received from the Seller under the Purchase
Agreement [or an Affiliate Purchase Agreement] as liquidated
damages for the failure to deliver Subsequent Receivables.
No other assets of the Trust will be available for the
purpose of making such payment. [The Credit Enhancement does
not guarantee payment of the Note Prepayment Amounts or the
Note Prepayment Premiums.] In addition, the ratings assigned
to the Notes by the Rating Agencies do not address the
likelihood that the Note Prepayment Amounts or the Note
Prepayment Premiums will be paid.]
The Notes may be accelerated and subject to immediate
payment at par upon the occurrence of an Event of Default
under the Indenture. So long as no [Credit Enhancement
Default] shall have occurred and be continuing, an Event of
Default under the Indenture will occur only upon delivery by
the [Credit Enhancer] to the Indenture Trustee of notice of
the occurrence of certain events of default under the
[Credit Enhancement] Agreement dated as of [ ]. In the case
of such an Event of Default, the Notes will automatically be
accelerated and subject to immediate payment at par. See
"Description of the Trust Documents - Events of Default" in
this Prospectus Supplement.
Terms of the
Certificates........[The principal terms of the Certificates will be as
described below:
[A. Payment
Dates..........Distributions with respect to the Certificates will be made
on each Payment Date, commencing [ ]. Distributions will be
made to holders of record of the Certificates (the
"Certificateholders" and, together with the Noteholders, the
"Securityholders") as of the related Record Date.
B. Pass-Through
Rate............[ %] per annum (the "Pass-Through Rate") payable monthly at
one- twelfth of the annual rate, calculated on the basis of
a 360-day year consisting of twelve 30 day months.
C. Subordination
of
Certificates....[The Certificates will not receive any distribution with
respect to a Payment Date until the full amount of the
Noteholders' Distributable Amount with respect to such
Payment Date has been deposited in the Distribution
Account.]
D. Interest........On each Payment Date, the Owner Trustee will distribute to
Certificateholders their pro rata share of interest
distributable with respect to the Certificates. Interest in
respect of a Payment Date will accrue from the preceding
Payment Date (or, in the case of the first Payment Date,
from the Closing Date) or to but excluding the current
Payment Date. Interest on the Certificates for any Payment
Date due but not paid on such Payment Date will be due on
the next Payment Date together with interest on such amount
at one-twelfth
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of the Pass-Through Rate. The amount of interest
distributable on the Certificates on each Payment Date will
equal 30 days' interest (or in the case of the first Payment
Date, interest accrued from and including the Closing Date
to but excluding [ ]) at the Pass- Through Rate on the
Certificate Balance as of the last day of the related
Collection Period (or, in the case of the first Payment
Date, as of the Closing Date). [Distributions of interest on
the Certificates are subordinated to payments of interest
and principal on the Notes, as described above under
"Subordination of Certificates."] See "Description of the
Trust Documents - Distributions" herein.
E. Principal.......On each Payment Date [on or after the date on which the
Notes have been paid in full,] principal of the Certificates
will be payable in an amount equal to the
Certificateholders' Principal Distributable Amount for the
Monthly period preceding such Payment Date. The
Certificateholders' Principal Distributable Amount will
equal the Certificateholders' Percentage of the Principal
Distributable Amount for such Payment Date. See "Description
of the Trust Documents - Distributions" herein.
The remaining Certificate Balance, if any, will be payable
in full on the Final Scheduled Payment Date.
F. Optional
Prepayment......If the Seller or Servicer exercises its option to purchase
the Receivables, which, subject to certain provisions in the
Sale and Servicing Agreement, can occur after the aggregate
Principal Balance of the Receivables declines to 10% or less
of the Original Pool Balance, the Certificateholders will
receive an amount in respect of the Certificates equal to
the remaining Certificate Balance together with accrued
interest at the Pass-Through Rate, and the Certificates will
be retired.
G. Mandatory
Prepayment......The Certificates will be prepaid in part, on a pro rata
basis, on the Payment Date on or immediately following the
last day of the Funding Period in the event that any portion
of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of
all Subsequent Receivables, including any such purchase on
such date (a "Mandatory Prepayment"). The aggregate
principal amount of Certificates to be prepaid will be an
amount equal to the Certificateholders' pro rata share
(based on the respective current Principal Balance of each
class of Notes and the Certificate Balance) of the
Pre-Funded Amount (the "Certificate Prepayment Amount").
A limited recourse mandatory prepayment premium (the
"Certificate Prepayment Premium") will be payable by the
Trust to the Certificateholders if the Pre-Funded Amount at
the end of the Funding Period exceeds $100,000. The
Certificate Prepayment Premium will equal the excess, if
any, discounted as described below, of (i) the amount of
interest that would have accrued on the Certificate
Prepayment Amount at the Pass-Through Rate during the
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period commencing on and including the Payment Date on which
such Certificate Prepayment Amount is required to be
distributed to Certificateholders to but excluding [ ], over
(ii) the amount of interest that would have accrued on such
Certificate Prepayment Amount over the same period at a per
annum rate of interest equal to the bond equivalent yield to
maturity on the Record Date preceding such Payment Date on
the [ ]% United States Treasury Note due [ ]. Such excess
shall be discounted to present value to such Payment Date at
the yield described in clause (ii) above. The Trust's
obligation to pay the Certificate Prepayment Premium shall
be limited to funds which are received from the Seller under
the Purchase Agreement [or an Affiliate Purchase Agreement]
as liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be available
for the purpose of making such payment. [The Credit
Enhancement does not guarantee payment of the Certificate
Prepayment Amount or the Certificate Prepayment Premium.] In
addition, the ratings assigned to the Certificates by the
Rating Agencies do not address the likelihood that the
Certificate Prepayment Amount or the Certificate Prepayment
Premium will be paid.]
Priority of
Payments............[On each Payment Date, the Indenture Trustee shall make the
following distributions in the following order of priority:
(i) to the Servicer, the Servicing Fee and all unpaid
Servicing Fees from prior Collection Periods; provided,
however, that as long as CPS is the Servicer and [ ] is the
Standby Servicer, the Indenture Trustee will first pay to
the Standby Servicer out of the Servicing Fee otherwise
payable to CPS an amount equal to the Standby Fee;
(ii) in the event the Standby Servicer or any other party
becomes the successor Servicer, to the Standby Servicer or
such other successor servicer, reasonable transition
expenses (up to a maximum of [$ ] incurred in acting as
successor Servicer;
(iii) to the Indenture Trustee and the Owner Trustee, pro
rata, the Indenture Trustee Fee (as defined herein) and
reasonable out-of-pocket expenses and all unpaid Trustee
Fees and unpaid reasonable out-of-pocket expenses from prior
Collection Periods;
(iv) to the Collateral Agent, all fees and expenses payable
to the Collateral Agent with respect to such Payment Date;
(v) to the Class A Noteholders, the Class A Noteholders'
Interest Distributable Amount, to be distributed as
described under "Description of the Notes - Payments of
Interest";
(vi) to the Class B Noteholders, the Class B Noteholders'
Interest Distributable Amount, to be distributed as
described under Description of the Notes -- Payments of
Interest";
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(vii) to the Class A Noteholders, the Class A Noteholders'
Principal Distributable Amount, to be distributed as
described under "Description of the Notes - Payments of
Principal";
(viii) to the [Credit Enhancer], any amounts due to the
[Credit Enhancer] under the terms of the [Credit Enhancement
Agreement] (as defined herein);
(ix) to the Class B Noteholders, the Class B Noteholders'
Principal Distributable Amount, to be distributed as
described under Description of the Notes -- Payments of
Principal; and
(x) to the Certificateholders, or as otherwise specified in
the Trust Documents, any remaining funds. See "Description
of the Trust Documents - Distributions - Priority of
Distribution Amounts" in this Prospectus Supplement.]
Spread Account......[As part of the consideration for the issuance of the
[Credit Enhancement], the Seller has agreed to cause the
Spread Account to be established with the Collateral Agent
for the benefit of the [Credit Enhancer] and the Indenture
Trustee on behalf of the Noteholders. Any portion of the
Total Distribution Amount remaining on any Payment Date
after payment of all fees and expenses due on such date to
the Servicer, the Standby Servicer, the Indenture Trustee,
the Owner Trustee, the Collateral Agent, the [Credit
Enhancer], any successor Servicer and all principal and
interest payments due to the Noteholders on such Payment
Date, will be deposited in the Spread Account and held by
the Collateral Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and the [Credit
Enhancer]. Amounts on deposit in the Spread Account on any
Payment Date which (after all payments required to be made
on such date have been made) are in excess of the requisite
amount determined from time to time in accordance with
certain portfolio performance tests agreed upon by the
[Credit Enhancer] and the Seller as a condition to the
issuance of the [Credit Enhancement] (such requisite amount,
the "Requisite Amount") will be released to or at the
direction of the Seller. See "Description of the Trust
Documents - Distributions - The Spread Account" in this
Prospectus Supplement.]
[Describe any other Spread Account arrangement.]
Record Dates........The record date applicable to each Payment Date (each, a
"Record Date") will be the 10th day of the calendar month in
which such Payment Date occurs.
Repurchases and
Purchases of
Certain
Receivables.........CPS has made certain representations and warranties relating
to the Receivables to the Seller in the Purchase Agreement,
and the Seller has made such representations and warranties
for the benefit of the
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Trust and the [Credit Enhancer] in the Sale and Servicing
Agreement. The Indenture Trustee, as acknowledged assignee
of the repurchase obligations of CPS under the Purchase
Agreement, will be entitled to require CPS to repurchase any
Receivable if such Receivable is materially adversely
affected by a breach of any representation or warranty made
by CPS with respect to the Receivable and such breach has
not been cured as of the last day of the second (or, if CPS
elects, the first) month following discovery thereof by the
Seller or CPS or notice to the Seller or CPS. See
"Description of the Trust Documents - Sale and Assignment of
Receivables" in the Prospectus.
Certain Legal
Aspects of
the Receivables....The Servicer will be obligated to repurchase any Receivable
if, among other things, it extends the date for final
payment by the Obligor of such Receivable beyond the last
day of the penultimate Collection Period preceding the Final
Scheduled Payment Date or fails to maintain a perfected
security interest in the Financed Vehicle. See "Description
of the Trust Documents - Servicing Procedures" in this
Prospectus Supplement and "Description of the Trust
Documents Servicing Procedures" in the Prospectus.
Certain Legal
Aspects of
the Receivables.....In connection with the sale of the Receivables, security
interests in the Financed Vehicles securing the CPS
Receivables will be assigned by CPS to the Seller pursuant
to the Purchase Agreement and by the Seller to the Trustee
pursuant to the Sale and Servicing Agreement. Certain of the
Receivables (the "[Affiliated Originator] Receivables"),
representing approximately [ %] of the aggregate principal
balance of the Receivables as of the Cutoff Date, have been
originated by CPS's subsidiary, [Affiliated Originator], and
will be purchased by the Seller from [Affiliated Originator]
pursuant to the [Affiliate Purchase Agreement] and will be
transferred by the Seller to the Trust pursuant to the Sale
and Servicing Agreement. [Additional Affiliated Originators
may be added.] The certificates of title to the Financed
Vehicles securing the [Affiliated Originator] Receivables
show [Affiliated Originator] as the lienholder. Due to the
administrative burden and expense, the certificates of title
to the Financed Vehicles securing the [Affiliated
Originator] Receivables will not be amended or reissued to
reflect the assignment thereof to Seller, nor will the
certificates of title to any Financed Vehicles (including
those securing the [Affiliated Originator] Receivables) be
amended or reissued to reflect the assignment thereof to the
Trustee. In the absence of such an amendment, the Trustee
may not have a perfected security interest in the Financed
Vehicles securing the Receivables in some states.
The Seller will be obligated to purchase any Receivable sold
to the Trust as to which there did not exist on the Closing
Date a perfected security interest in the name of CPS or
[Affiliated Originator] in the Financed Vehicle, and the
Servicer will be obligated to purchase any
S-16
Receivable sold to the Trust as to which it failed to
maintain a perfected security interest in the name of CPS or
[Affiliated Originator] in the Financed Vehicle securing
such Receivable (which perfected security interest has been
assigned to, and is for the benefit of, the Trustee) if, in
either case, such breach materially and adversely affects
the interest of the Trust, the Indenture Trustee or the
[Credit Enhancer] in such Receivable and if such failure or
breach is not cured by the last day of the second (or, if
CPS or the Servicer, as the case may be, elects, the first)
month following the discovery by or notice to CPS or the
Servicer, as the case may be, of such breach. To the extent
the security interest of CPS or [Affiliated Originator] is
perfected, the Trust will have a prior claim over subsequent
purchasers of such Financed Vehicle and holders of
subsequently perfected security interest. However, as
against liens for repairs of a Financed Vehicle or for
unpaid storage charges or for taxes unpaid by an Obligor
under a Receivable, or through fraud, forgery or negligence
or error, CPS or [Affiliated Originator], and therefore the
Trust, could lose its prior perfected security interest in a
Financed Vehicle. Neither CPS nor the Servicer will have any
obligation to purchase a Receivable as to which a lien for
repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable result in losing the priority of
the security interest in such Financed Vehicle after the
Closing Date. See "Risk Factors Certain Legal Aspects" in
this Prospectus Supplement and in the Prospectus.
[Credit
Enhancement]........[Credit Enhancement to be described.]
Servicing...........The Servicer will be responsible for servicing, managing and
making collections on the Receivables. On or prior to the
next billing period after the Cutoff Date [and each
Subsequent Cutoff Date], the Servicer will notify each
Obligor to make payments with respect to the Receivables
after the Cutoff Date directly to a post office box in the
name of the Indenture Trustee for the benefit of the
Noteholders and the [Credit Enhancer] (the "Post Office
Box"). On each Business Day, [ ] as the lock-box processor
(the "Lock-Box Processor"), will transfer any such payments
received in the Post Office Box to a segregated lock-box
account at [ ] (the "Lock-Box Bank") in the name of the
Indenture Trustee for the benefit of the Noteholders and the
[Credit Enhancer] (the "Lock-Box Account"). Within two
Business Days of receipt of funds into the Lock-Box Account,
the Servicer is required to direct the Lock-Box Bank to
effect a transfer of funds from the Lock-Box Account to one
or more accounts established with the Indenture Trustee. See
"Description of the Trust Documents - Accounts" in this
Prospectus Supplement and "Description of the Trust
Documents - Payments on Receivables" in the Prospectus.
Standby Servicer....[Name and Address].
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If a Servicer Termination Event occurs and remains
unremedied, (1) provided no [Credit Enhancer] Default has
occurred and is continuing, then the [Credit Enhancer] in
its sole and absolute discretion, or (2) if an [Credit
Enhancer] Default shall have occurred and be continuing,]
then the Indenture Trustee shall, at the direction of the
Class A Note Majority) terminate the rights and obligations
of the Servicer under the Sale and Servicing Agreement. If
such event occurs when CPS is the Servicer, or if CPS
resigns as Servicer or is terminated as Servicer, by the
[Credit Enhancer], [ ] (in such capacity, the "Standby
Servicer") has agreed to serve as successor Servicer under
the Sale and Servicing Agreement pursuant to a Servicing
Assumption Agreement dated as of [ ], among CPS, the Standby
Servicer and the Indenture Trustee (the "Servicing
Assumption Agreement"). The Standby Servicer will receive a
portion of the Servicing Fee (the "Standby Fee") for
agreeing to stand by as successor Servicer and for
performing other functions. If the Standby Servicer or any
other entity serving at the time as Standby Servicer becomes
the successor Servicer, it will receive compensation at a
Servicing Fee Rate not to exceed [ %] per annum. See "The
Standby Servicer" in this Prospectus Supplement.
Servicing Fee.......The Servicer will be entitled to receive a Servicing Fee on
each Payment Date equal to the product of one-twelfth times
[ %] (the "Servicing Fee Rate") of the Pool Balance as of
the close of business on the last day of the second
preceding Collection Period; provided, however, that with
respect to the first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to the product of
one-twelfth times [ %] of the Original Pool Balance. As
additional servicing compensation, the Servicer will also be
entitled to certain late fees, prepayment charges and other
administrative fees or similar charges. For so long as CPS
is Servicer, a portion of the Servicing Fee, equal to the
Standby Fee, will be payable to the Standby Servicer.
Book-Entry
Registration........The [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"), and
will only be available in the form of book-entries on the
records of DTC and participating members thereof. Securities
will be issued in definitive form only under the limited
circumstances described herein. All references herein to
"holders" of the Notes or Certificates or "Noteholders" [or
"Certificateholders"] shall reflect the rights of beneficial
owners of the Notes (the "Note Owners") [or of the
Certificates (the "Certificate Owners")] as they may
indirectly exercise such rights through DTC and
participating members thereof, except as otherwise specified
herein. See "Registration of Notes [and the Certificates]"
in this Prospectus Supplement and "Certain Information
Regarding the Notes [and the Certificates] - Book Entry
Registration" and "- Definitive Notes" in the Prospectus.
Tax Status..........In the opinion of Mayer, Brown & Platt ("Federal Tax
Counsel"),
S-18
for Federal income tax purposes the Class A Notes will be
characterized as debt, the Class B Notes should be
characterized as debt (but if not characterized as debt, the
Class B Notes will be characterized as interests in a
partnership), and the Trust will not be characterized as an
association (or publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of a Note,
will agree to treat the Notes as indebtedness for Federal
income tax purposes and each Certificateholder, by the
acceptance of a Certificate, will agree to treat the Trust
as a partnership in which such Certificateholder is a
partner. See "Certain Federal Income Tax Consequences" in
the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the
Notes.
ERISA
Considerations......Subject to the conditions and considerations discussed under
"ERISA Considerations" in this Prospectus Supplement, the
Notes are eligible for purchase by pension, profit-sharing
or other employee benefit plans, as well as individual
retirement accounts and certain types of Keogh Plans (each,
a "Benefit Plan"). See "ERISA Considerations" in this
Prospectus Supplement.
[The Certificates may not be acquired by any employee
benefit plan, individual retirement account or Keogh Plan
subject to either Title I of ERISA or the Internal Revenue
Code of 1986, as amended. See "ERISA Considerations" in this
Prospectus Supplement and in the Prospectus.]
Legal Investment....[The Class A-1 Notes will be eligible securities for
purchase by money market funds under Rule 2A-7 under the
Investment Company Act of 1940, as amended.]
Rating of the
Notes and
Certificates........It is a condition of issuance that the Class A Notes be
rated [ ] [ ], on the basis of the issuance of the [Credit
Enhancement] by the [Credit Enhancer] and that the Class B
Notes be rated at least [ ] or higher by [ ] [and that the
Certificates be rated at least [ ] by [ ]]. A security
rating is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at any time by
the assigning Rating Agency. See "Risk Factors - Ratings of
the Notes [and the Certificates]" in this Prospectus
Supplement.
S-19
RISK FACTORS
In addition to the other information in this Prospectus Supplement and
the Prospectus, prospective Noteholders [and the Certificateholders] should
consider the following factors, as well as those matters discussed in "Risk
Factors" in the Prospectus, in evaluating an investment in the Notes [or the
Certificates]:
Sub-Prime Obligors; Servicing
CPS purchases loans originated for assignment to CPS or a subsidiary
through automobile dealers or IFCs. CPS services its dealers through a network
of employee and independent marketing representatives and through its
subsidiary, [Affiliated Originator]. CPS's customers are generally considered to
have marginal credit and fall into one of two categories: customers with
moderate income, limited assets and other income characteristics which cause
difficulty in borrowing from banks, captive finance companies of automakers or
other traditional sources of auto loan financing; and customers with a
derogatory credit record including a history of irregular employment, previous
bankruptcy filings, repossessions of property, charged-off loans and garnishment
of wages. The payment experience on Receivables of Obligors with marginal credit
is likely to be different than that on receivables of traditional auto financing
sources and is likely to be more sensitive to changes in the economic climate in
the areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated by the [Credit Enhancer] as
Servicer, the Standby Servicer has agreed to assume the obligations of successor
Servicer under the Sale and Servicing Agreement. See "Description of the Trust
Documents - Rights Upon Servicer Termination Event" in this Prospectus
Supplement. There can be no assurance, however, that collections with respect to
the Receivables will not be adversely affected by any change in Servicer. See
"The Standby Servicer" in this Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
[Credit Enhancer] for successive 90-day periods. The [Credit Enhancer] will
agree to grant continuous renewals so long as (i) no Servicer Termination Event
under the Sale and Servicing Agreement has occurred and (ii) no event of default
under the insurance and indemnity agreement among CPS, the Seller and the
[Credit Enhancer] (the "Insurance Agreement") has occurred.
[Varying Characteristics of Subsequent Receivables
On the Closing Date, approximately $[ ] of Initial Receivables will be
transferred to the Trust by the Seller and the approximately $[ ] Pre-Funded
Amount will be deposited by the Trust in the Pre-Funding Account. If the
principal amount of eligible Receivables originated by CPS [or an Affiliated
Originator] during the Funding Period is less than the Pre-Funded Amount, the
Seller will have insufficient Receivables to sell to the Trust on the Subsequent
Transfer Dates, thereby resulting in a prepayment of principal to the
Noteholders [and the Certificateholders] as described in the following
paragraph. See "- Trust's Relationship to the Seller and CPS" below. In
addition, any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the Purchase Agreement; (ii)
[Credit Enhancer (so long as no [Credit Enhancer] Default shall have occurred
and be continuing) shall in its sole and absolute discretion have approved the
transfer of such Subsequent Receivables to the Trust] (iii) as of the applicable
Subsequent Cutoff Date, the Receivables in the Trust, together with the
Subsequent Receivables to be conveyed by the Seller as of such Subsequent Cutoff
Date, meet the following criteria (computed based on the characteristics of the
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Initial Receivables on the initial Cutoff Date and any Subsequent Receivables as
of the related Subsequent Cutoff Date): [specify conditions]; (iv) the Seller
shall have executed and delivered to the Trust (with a copy to the Indenture
Trustee) a written assignment (a "Subsequent Transfer Agreement") conveying such
Subsequent Receivables to the Trust (including a schedule identifying such
Subsequent Receivables); (v) the Seller shall have delivered certain opinions of
counsel to the Indenture Trustee, the Owner Trustee, [the Credit Enhancer] and
the Rating Agencies with respect to the validity of the conveyance of all such
Subsequent Receivables; and (vi) the Rating Agencies shall have notified the
Seller, the Owner Trustee, the Indenture Trustee and [the Credit Enhancer] in
writing that, following the addition of such Subsequent Receivables, the Class
A-1 Notes the Class A-2 Notes and the Class A-3 Notes will each be rated [ ] by
[ ] and the Class B Notes will be rated at least [ ] by [ ] [and the
Certificates will be rated [ ] by [ ]]. Such confirmation of the ratings of the
Notes [and the Certificates] may depend on factors other than the
characteristics of the Subsequent Receivables, including the delinquency,
repossession and net loss experience on the Receivables in the Receivables
Pool.]
[Distribution of Pre-Funded Amount - Effect on Yield and Maturity
To the extent that the Pre-Funded Amount has not been fully applied to
the purchase of Subsequent Receivables by the Trust during the Funding Period,
the Noteholders [and the Certificateholders] will receive, on the Payment Date
on or immediately following the last day of the Funding Period, a prepayment of
principal in an amount equal to their pro rata share (based on the current
principal balance of each class of Notes [and the Certificate Balance]) of any
remaining Pre- Funded Amount following the purchase of any Subsequent
Receivables on such Payment Date. It is anticipated that the principal amount of
Subsequent Receivables sold to the trust will not be exactly equal to the
original Pre-Funded Amount and, therefore, there will be at least a nominal
amount of principal prepaid to the Noteholders [and to the Certificateholders].
Each Subsequent Receivable must satisfy the eligibility criteria
specified in the Purchase Agreement. However, Subsequent Receivables may have
been originated using credit criteria different from the criteria applied with
respect to the Initial Receivables and may be of a different credit quality and
seasoning. See "The Receivables Pool" in this Prospectus Supplement.]
Trust Relationship to the Seller and CPS
Neither the Seller nor CPS is generally obligated to make any payments
in respect of the Notes[, the Certificates] or the Receivables. However, the
ability of the Seller to convey Subsequent Receivables on a Subsequent Transfer
Date is completely dependent upon the generation of additional receivables by
CPS [or an Affiliated Originator]. If, during the Funding Period, CPS [or an
Affiliated Originator] is unable to generate or does not transfer sufficient
Receivables to the Seller, the ability of the Seller to sell Subsequent
Receivables to the Trust would be adversely affected. There can be no assurance
that CPS [or an Affiliated Originator] will continue to generate receivables
that satisfy the criteria set forth in the Purchase Agreement at the same rate
as in recent months or that [Credit Enhancer], in its sole and absolute
discretion, will approve any such transfer of Subsequent Receivables. The
Trust's obligation to pay prepayment premiums on the Notes [and Certificates],
if required at the end of the Funding Period, is limited to amounts received
from the Seller for that purpose, and the Seller's obligation to pay such
amounts is limited to amounts received from the Seller for that purpose, and the
Seller's obligation to pay such amounts is limited to amounts received from CPS
as liquidated damages under the Purchase Agreement.
In connection with each sale of Receivables by CPS [or an Affiliated
Originator] to the Seller and by the Seller to the Trust, each of CPS and the
Seller will make representations and warranties with respect to the
characteristics of such Receivables. In certain circumstances, CPS is required
to repurchase Receivables with respect to which such representations or
warranties are not true as of the date made. Neither CPS nor the Seller is
otherwise obligated with respect to the Notes [or the Certificates]. See
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"Description of the Trust Documents - Sale and Assignment of the Receivables" in
the accompanying Prospectus.]
Certain Legal Aspects - Lack of Perfected Security Interests in Financed
Vehicles
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the [Affiliated Originator] Receivables will
not be amended or reissued to reflect the assignment of such Receivables to the
Seller nor will the certificates of title to any of the Financed Vehicles
(including those securing the [Affiliated Originator] Receivables) be amended or
reissued to reflect the assignment to the Trust. In the absence of such an
amendment or reissuance, the Trust may not have a perfected security interest in
the Financed Vehicles securing the Receivables in some states. By virtue of the
assignment of the Purchase Agreement [or the Affiliate Purchase Agreement] to
the related Trust, CPS will be obligated to repurchase any Receivable sold to
the Trust as to which there did not exist on the Closing Date a perfected
security interest in the name of CPS or [Affiliated Originator] in the Financed
Vehicle, and the Servicer will be obligated to purchase any Receivable sold to
the Trust as to which it failed to maintain a perfected security interest in the
name of CPS or [Affiliated Originator] in the Financed Vehicle securing such
Receivable if, in either case, such breach materially and adversely affects such
Receivable and if such failure or breach is not cured prior to the expiration of
the applicable cure period. To the extent the security interest of CPS or
[Affiliated Originator] is perfected, the Trust will have a prior claim over
subsequent purchasers of such Financed Vehicle and holders of subsequently
perfected security interests. However, as against liens for repairs of a
Financed Vehicle or for taxes unpaid by an Obligor under a Receivable, or
through fraud, forgery, negligence or error, CPS or [Affiliated Originator], and
therefore the Trust, could lose the priority of its security interest or its
security interest in a Financed Vehicle. Neither CPS nor the Servicer will have
any obligation to purchase a Receivable as to which a lien for repairs of a
Financed Vehicle or for taxes unpaid by an Obligor under a Receivable result in
losing the priority of the security interest in such Financed Vehicle after the
Closing Date. See "Certain Legal Aspects of the Receivables" in this Prospectus
Supplement and "Certain Legal Aspects of the Receivables - Lack of Perfected
Security Interests in Financed Vehicles" in the Prospectus.
Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders [and the Certificateholders]. The Notes represent obligations solely
of, [and the Certificates represent interests solely in] the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Class A Notes by the [Credit Enhancer]
pursuant to the [Credit Enhancement], as described herein. The Seller will take
such steps as are necessary for the [Credit Enhancer] to issue the [Credit
Enhancement] to the Indenture Trustee for the benefit of the Class A
Noteholders. Under the [Credit Enhancement], the [Credit Enhancer] will
unconditionally and irrevocably guarantee to the Class A Noteholders full and
complete payment of the scheduled payments on each Payment Date. In the event of
an [Credit Enhancer] Default, the [Class A] Noteholders [and Certificateholders]
must rely on the collections on the Receivables, and the proceeds from the
repossession and sale of Financed Vehicles which secure defaulted Receivables.
In such event, certain factors, such as the Indenture Trustee not having
perfected security interests in the Financed Vehicles,
S-22
may affect the Trust's ability to realize on the collateral securing the
Receivables and thus may reduce the proceeds to be distributed to Noteholders
[or Certificateholders] on a current basis.
[The Pre-Funding Account and the Interest Reserve Account] will only be
maintained until the Payment Date on or immediately following the last day of
the Funding Period. The Pre-Funded Amount on deposit in the Pre-Funding Account
will be used solely to purchase Subsequent Receivables and is not available to
cover losses on the Receivables. The Interest Reserve Account is designed to
cover obligations of the Trust relating to that portion of its assets not
invested in Receivables and is not designed to provide substantial protection
against losses on the Receivables. [Similarly, although the Credit Enhancement
will be available on each Payment Date to cover shortfalls in distributions of
the [Class A] Noteholders' Distributable Amount [and the Certificateholders'
Distributable Amount] on such Payment Date, if the Credit Enhancer defaults in
its obligations under the applicable [Credit Enhancement], the Trust will depend
on current distribution on the Receivables to make payments on the [Class A]
Notes [and the Certificates]. See "[Credit Enhancement]" and "[The Credit
Enhancer]" herein.]
Distributions of interest and principal on the Notes [and the
Certificates] will be dependent primarily upon collections on the Receivables
and, with respect to the Class A Notes, amounts paid pursuant to the [Credit
Enhancement]. See "Description of the Notes" in this Prospectus Supplement.
Subordination of Class B Notes
[Distributions of interest and principal on the Class B Notes will be
subordinated in priority of payment to interest and principal due on the Class A
Notes. Consequently, the Class B Noteholders will not receive any distributions
with respect to a Collection Period until the full amount of interest payable on
the Class A Notes on such Payment Date has been deposited in the Distribution
Account. The Class B Noteholders will not receive any distributions of principal
with respect to a Collection Period until the full amount of interest and
principal payable on the Class A Notes on the related Payment Date has been
deposited in the Distribution Account.
If the Notes are accelerated following an Event of Default under the
Indenture, the Class A Notes must be paid in full prior to the distribution of
any amounts on the Class B Notes.]
Risk of Changes in Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio - Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on [Affiliated Originator]'s
originations is limited, CPS expects that the delinquency and net credit loss
and repossession experience with respect to the Receivables originated by
[Affiliated Originator] will be similar to that of CPS's existing portfolio.
Ratings of the Notes [and the Certificates]
It is a condition to the issuance of the Notes that the Class A Notes
be rated [ ] by [ ] [on the basis of the issuance of the [Credit Enhancement] by
the [Credit Enhancer]] and it is a condition to the issuance of the Class B
Notes be rated at least [ ] by [ ] [and it is a condition to the issuance of the
Certificates that they be rated at least [ ] by [ ]]. A rating is not a
recommendation to purchase, hold or sell the Notes, inasmuch as such rating does
not comment as to market price or suitability for a particular investor. The
Rating Agencies do not evaluate, and the ratings do not address,
S-23
the possibility that Noteholders may receive a lower than anticipated yield.
There is no assurance that a rating will remain for any given period of time or
that a rating will not be lowered or withdrawn entirely by a Rating Agency if in
its judgment circumstances in the future so warrant. [The ratings of the Class A
Notes are based primarily on the rating of the [Credit Enhancer].] Upon an
[Credit Enhancer] Default, the rating on the Notes may be lowered or withdrawn
entirely. [In the event that any rating initially assigned to the Notes were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the [Credit Enhancer], no person or entity will be obligated to
provide any additional credit enhancement with respect to any class of Notes [or
Certificates]. Any reduction or withdrawal of a rating may have an adverse
effect on the liquidity and market price of the Notes [or Certificates].
Final Scheduled Payment Dates of the Notes [and the Certificates]
The Final Scheduled Payment Date for each class of Notes [and
Certificates], which is specified at page S-2 herein, is the date by which the
principal thereof is required to be fully paid. The Final Scheduled Payment Date
for each class of Notes [and Certificates] has been determined so that
distributions on the underlying Receivables will be sufficient to retire each
such class on or before its respective Final Scheduled Payment Date without the
necessity of a claim on the applicable Policy. However, because (i) some
prepayments of the Receivables are likely and (ii) certain of the Receivables
have terms to maturity that are shorter than the term to maturity assumed in
calculating each class's Final Scheduled Payment Date, the actual payment of any
class of Notes [or the Certificates] likely will occur earlier, and could occur
significantly earlier, than such class's Final Scheduled Payment Date.
Nevertheless, there can be no assurance that the final distribution of principal
of any or all classes of Notes [or the Certificates] will be earlier than such
class's Final Scheduled Payment Date.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 199[ ]-[ ], is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes [and the Certificates], (iii) making payments in respect of
the Notes [and the Certificates] and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Trust Documents - Servicing Compensation" in this
Prospectus Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title of the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to [$ ] [and Certificates equal to such amount will be issued] to the Seller.
The equity of the Trust, together with the proceeds of the initial sale of the
Notes, will be used by the Trust to purchase the Receivables from the Seller.
The Trust will not acquire any assets other than the Trust Assets, and it is not
anticipated that the Trust will have any need for additional capital resources.
Because the Trust will have no operating history
S-24
upon its establishment and will not engage in any business other than acquiring
and holding the Trust Assets, issuing the Securities and distributing payments
on the Securities, no historical or pro forma financial statements or ratios of
earnings to fixed charges with respect to the Trust have been included herein.
The Owner Trustee
[ ], the Owner Trustee under the Trust Agreement, is a Delaware banking
corporation and its principal offices are located at [ ]. The Owner Trustee will
perform limited administrative functions under the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Securities is
limited solely to the express obligations of the Owner Trustee set forth in the
Trust Agreement and the Sale and Servicing Agreement.
The Indenture Trustee
[ ], a [ ], is the Indenture Trustee under the Indenture. The principal
offices of the Indenture Trustee are located at [ ]. The Indenture Trustee's
duties in connection with the Notes and the Certificates are limited solely to
its express obligations under the Indenture and the Sale and Servicing
Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts in new and
used automobiles, light trucks, vans and minivans between dealers (the
"Dealers") or IFCs and retail purchasers (the "Obligors") and, with respect to
Rule of 78's Receivables, certain monies due thereunder after the Cutoff Date,
and, with respect to Simple Interest Receivables, certain monies received
thereunder after the Cutoff Date. The Receivables were originated by the Dealers
or IFCs for assignment to CPS or [an Affiliated Originator]. Pursuant to
agreements between the Dealers and CPS ("Dealer Agreements") or between the IFCs
and [an Affiliated Originator], the Receivables were purchased by CPS or [an
Affiliated Originator] and, prior to the Closing Date, evidenced financing made
available by CPS or [an Affiliated Originator] to the Obligors. The Trust Assets
also include (i) such amounts as from time to time may be held in one or more
trust accounts established and maintained by the Indenture Trustee pursuant to
the Indenture, as described below; see "Description of the Trust Documents -
Accounts" in this Prospectus Supplement; (ii) the rights of the Seller under the
Purchase Agreement; (iii) security interests in the Financed Vehicles; (iv) the
rights of the Seller to receive any proceeds with respect to the Receivables
from claims on physical damage, credit life and credit accident and health
insurance policies covering the Financed Vehicles or the Obligors, as the case
may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. The Trust Assets also will include the [Credit Enhancement] for the
benefit of the [Class A] Noteholders [and the Certificateholders].
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
S-25
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial
Services, Inc., a consumer loan servicing company, whose assets consisted
primarily of servicing contracts with respect to loan portfolios owned by third
parties. G&A Financial Services, Inc. has subsequently been dissolved. On
September 1, 1991, CPS was engaged to act as a servicer for loan portfolios
aggregating $16.5 million by two companies who had purchased such portfolios
from the Resolution Trust Corp. As of December 31, 1994, CPS had terminated all
such third-party servicing arrangements. On October 1, 1991, CPS began its
program of purchasing Contracts from Dealers and selling them to institutional
investors. Through December 31, 1996, CPS had purchased $729.1 million of
Contracts from Dealers and sold $713.0 million of Contracts to institutional
investors. CPS continues to service all of the Contracts it has purchased,
including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 2,177
dealerships located in 41 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,195. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them.
CPS also purchases Contracts from third parties that have been originated by
others. Prior to the issuance of the Certificates, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of the
Contracts receive a pass-through rate of interest set at the time of the sale,
and CPS receives a base servicing fee for its duties relating to the accounting
for and collection of the Contracts. In addition, CPS is entitled to certain
excess servicing fees that represent collections on the Contracts in excess of
those required to pay principal and interest due to the investor and the base
servicing fee to CPS. Generally, CPS sells the Contracts to such institutional
investors at face value and without recourse except that the representations and
warranties made to CPS by the Dealers are similarly made to the investors by
CPS. CPS has some credit risk with respect to the excess servicing fees it
receives in connection with the sale of Contracts to investors and its continued
servicing function since the receipt by CPS of such excess servicing fees is
dependent upon the credit performance of the Contracts.
In March 1996, CPS formed [Affiliated Originator] Acceptance Corp.
("[Affiliated Originator]"), an 80 percent-owned subsidiary based in Dallas,
Texas. [Affiliated Originator]'s business plan is to provide the Company's
sub-prime auto finance products to rural areas through independently owned
finance companies. CPS believes that many rural areas are not adequately served
by other industry participants due to their distance from large metropolitan
areas where a Dealer marketing representative is most likely to be based.
[Discussion of any additional Affiliated Originators.]
[Affiliated Originator] employees call on IFCs primarily in the
southeastern United States and present them with financing programs that are
essentially identical to those which CPS markets directly to Dealers through its
marketing representatives. CPS believes that a typical rural IFC has
relationships with many local automobile purchasers as well as Dealers but,
because of limitations of financial resources or capital structure, such IFCs
generally are unable to provide 36, 48 or 60 month financing for an automobile.
IFCs may offer [Affiliated Originator]'s financing programs to borrowers
directly or indirectly through local Dealers. [Affiliated Originator] purchases
contracts from the IFCs after its credit personnel have performed all of the
same underwriting and verification procedures and have applied all the same
credit criteria that CPS performs and applies for Contracts it purchases from
Dealers. [Affiliated Originator] purchases Contracts at a discount ranging from
0% to 8% of the total amount financed under such Contracts. In addition,
[Affiliated Originator] generally charges IFCs an acquisition fee to defray the
direct administrative costs associated with the processing of Contracts that are
ultimately purchased by [Affiliated Originator]. Servicing and collection
procedures on Contracts owned by [Affiliated
S-26
Originator] are performed by CPS at its headquarters in Irvine, California. As
of December 31, 1996, [Affiliated Originator] had purchased 399 Contracts with
original balances of $4.7 million.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under four programs: the CPS
standard program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program") and the
CPS Delta Program (the "Delta Program"). CPS applies underwriting standards in
purchasing loans on new and used vehicles from Dealers based upon the particular
program under which the loan was submitted for purchase. The Alpha Program
guidelines are designed to accommodate applicants who meet all the requirements
of the Standard Program and exceed such requirements in respect of job
stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. The First
Time Buyer Program guidelines are designed to accommodate applicants who have
not previously financed an automobile; such applicants must meet all the
requirements of the Standard Program, as well as slightly higher income and down
payment requirements. CPS uses the degree of the applicant's creditworthiness
and the collateral value of the financed vehicle as the basic criteria in
determining whether to purchase an installment sales contract from a Dealer.
Each credit application provides current information regarding the applicant's
employment and residence history, bank account information, debts, credit
references, and other factors that bear on an applicant's creditworthiness. Upon
receiving from the Dealer the completed application of a prospective purchaser
and a one-page Dealer summary of the proposed financing, generally by facsimile
copy, CPS obtains a credit report compiling credit information on the applicant
from three credit bureaus. The credit report summarizes the applicant's credit
history and paying habits, including such information as open accounts,
delinquent payments, bankruptcy, repossessions, lawsuits and judgments. At this
point a CPS loan officer will review the credit application, Dealer summary and
credit report and will either conditionally approve or reject the application.
Such conditional approval or rejection by the loan officer usually occurs within
one business day of receipt of the credit application. The loan officer
determines the conditions to his or her approval of a credit application based
on many factors such as the applicant's residential situation, down payment, and
collateral value with regard to the loan, employment history, monthly income
level, household debt ratio and the applicant's credit history. Based on the
stipulations of the loan officer, the Dealer and the applicant compile a more
complete application package which is forwarded to CPS and reviewed by a
processor for deficiencies. As part of this review, references are checked,
direct calls are made to the applicant and employment income and residence
verification is done. Upon the completion of his or her review, the processor
forwards the application package to an underwriter for further review. The
underwriter will confirm the satisfaction of any remaining deficiencies in the
application package. Finally, before the loan is funded, the application package
is checked for deficiencies again by a loan review officer. CPS conditionally
approves approximately 50% of the credit applications it receives and ultimately
purchases approximately 13% of the received applications.
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From July 1, 1994 to
July 31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
S-27
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum down payment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The down payment may be made in
cash, and/or with a trade-in car and, if available, a proven manufacturer's
rebate. The cash and trade-in value must equal at least 50% of the minimum down
payment required, with the proven manufacturer's rebate constituting the
remainder of the down payment. CPS believes that the relatively high down
payment requirement will result in higher collateral values as a percentage of
the amount financed and the selection of buyers with stronger commitment to the
vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
[Affiliated Originator] offers financing programs to IFCs which are
essentially identical to those offered by CPS. The IFCs may offer [Affiliated
Originator]'s financing programs to borrowers directly or indirectly through
local Dealers. Upon submission of applications to [Affiliated Originator],
[Affiliated Originator] credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. [Affiliated Originator] purchases contracts from the IFCs after its
credit personnel have performed all of the underwriting and verification
procedures and have applied all the same credit criteria that CPS performs and
applies for Contracts it purchases from Dealers. Prior to CPS [or an affiliate]
purchasing a Contract from [Affiliated Originator], CPS personnel perform
procedures intended to verify that such Contract has been underwritten and
originated in conformity with the requirements applied by CPS with respect to
Contracts acquired by it directly from Dealers.
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Servicing and Collections
CPS' servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of other receivables
owned or originated by third parties, consist of collecting, accounting for and
posting of all payments received with respect to such Contracts or other
receivables, responding to borrower inquiries, taking steps to maintain the
security interest granted in the Financed Vehicle or other collateral,
investigating delinquencies, communicating with the borrower, repossessing and
liquidating collateral when necessary, and generally monitoring each Contract or
other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and other
receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS' services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS' computerized records.
Pursuant to the various servicing agreements with each investor or portfolio
owner, CPS is required to deliver monthly reports reflecting all transaction
activity with respect to the Contracts or other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high- penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents-Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
Servicing and collection procedures on Contracts owned by [Affiliated
Originator] are performed by CPS at its headquarters in Irvine, California.
However, [Affiliated Originator] may solicit aid from the related IFC in
collecting past due accounts with respect to which repossession may be
considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. CPS has purchased Contracts representing financing for first-time
purchasers of automobiles since the inception of its Contract purchasing
activities in 1991. Prior to the establishment of the First Time Buyer
S-29
Program in July 1996, CPS purchased such Contracts under its Standard Program
guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by [Affiliated Originator] in March 1996.
Although credit history on [Affiliated Originator]'s originations is limited,
CPS expects that the delinquency and net credit loss and repossession experience
with respect to the Receivables originated by [Affiliated Originator] will be
similar to that of CPS's existing portfolio. There can be no assurance, however,
that the delinquency and net credit loss and repossession experience on the
Receivables will continue to be comparable to CPS' experience shown in the
following tables.
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Consumer Portfolio Services, Inc.
Delinquency Experience
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- ----------------------
Number Number Number
of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------
Portfolio (1) ............. 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000
Period of Delinquency (2)
31-60 ............... 243 3,539,000 909 11,520,000 1,801 22,099,000
61-90 ............... 68 1,091,000 203 2,654,000 724 9,068,000
91+ ................. 56 876,000 272 3,899,000 768 9,906,000
Total Delinquencies ....... 367 5,506,000 1,384 18,073,000 3,293 41,073,000
Amount in Repossession
(3) .................... 271 3,759,000 834 10,151,000 1,168 14,563,000
Total Delinquencies and
Amount in
Repossession (4) ....... 638 $ 9,265,000 2,218 $ 28,224,000 4,461 $ 55,636,000
Delinquencies as a
Percent of the Portfolio 2.58% 2.70% 5.10% 5.08% 6.98% 6.80%
Repo Inventory as a
Percent of the Portfolio 1.90% 1.84% 3.08% 2.85% 2.48% 2.41%
Total Delinquencies and
Amount in
Repossession as a
Percent of Portfolio ... 4.48% 4.54% 8.18% 7.93% 9.45% 9.21%
- - - -----------
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at
least 90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually
past due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
S-31
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
Year Ended Year Ended Year Ended
December 31, 1994 December 31, 1995 December 31, 1996
----------------- ----------------- -----------------
Average Amount Outstanding During the
Period (1) ............................. $ 98,916,991 $221,926,489 $395,404,669
Average Number of Loans Outstanding
During the Period ............. 9,171 20,809 36,998
Number of Repossessions ................ 669 2,018 3,145
Gross Charge-Offs (2) .................. $ 3,166,408 $ 11,658,461 $ 23,296,775
Recoveries (3) ......................... $ 347,519 $ 1,028,378 $ 2,969,143
Net Losses ............................. $ 2,818,889 $ 10,630,083 $ 20,327,632
Annualized Repossessions as a Percentage
of Average Number of Loans
Outstanding ................... 7.29% 9.70% 8.50%
Annualized Net Losses as a Percentage of
Average Amount Outstanding .... 2.85% 4.79% 5.14%
- - - -----------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents
all Contracts originated by CPS including sold Contracts which CPS
continues to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and may pertain to charge offs from prior
periods.
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THE RECEIVABLES POOL
The Receivables Pool existing as of the Cutoff Date consists of
Receivables selected from CPS's Portfolio by several criteria, including the
following: each Receivable was originated, based on the billing address of the
Obligors, in the United States, has an original term of not more than 60 months,
provides for level monthly payments which fully amortize the amount financed
over the original term (except for the last payment, which may be different from
the level payment for various reasons, including late or early payments during
the term of the Contract), has a remaining maturity of 60 months or less as of
the Cutoff Date, has an outstanding principal balance of not more than [$ ] as
of the Cutoff Date, is not more than 30 days past due as of the Cutoff Date and
has an APR of not less than [ %]. As of the date of each Obligor's application
for the loan from which the related Receivable arises, each Obligor (i) did not
have any material past due credit obligations or any repossessions or
garnishments of property within one year prior to the date of application,
unless such amounts have been repaid or discharged through bankruptcy, (ii) was
not the subject of any bankruptcy or insolvency proceeding that is not
discharged, and (iii) had not been the subject of more than one bankruptcy
proceeding. As of the Cutoff Date, the latest scheduled maturity of any
Receivable is not later than [ ].
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Receivables, constituting [ %] of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. Approximately [ %] of the aggregate
principal balance of the Receivables were originated under the Delta Program,
approximately [ %] of the aggregate principal balance of the Receivables were
originated under the Alpha Program, approximately [ %] of the aggregate
principal balance of the Receivables were originated under the First Time Buyer
Program and approximately [ %] of the aggregate principal balance of the
Receivables represent financing under the Standard Program. As of the Cutoff
Date, approximately [ %] of the aggregate principal balance of the Receivables
were originated by unaffiliated third parties and purchased by CPS in the
ordinary course of its business. As of the Cutoff Date, [ %] of the Principal
Balance of the Receivables were [Affiliated Originator] Receivables. The
composition, geographic distribution, distribution by APR, distribution by
remaining term, distribution by date of origination, distribution by original
term, distribution by model year and distribution by original principal balance
of the Receivables as of the Cutoff Date are set forth in the following tables.
Composition of the Receivables as of the Cutoff Date
Weighted Aggregate Number of Average Weighted Weighted
Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
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Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
State(1) Principal Balance Principal Balance Receivables Receivables
all others(2)................................ % %
TOTAL........................................ $ 100.00%(3) 100.00%(3)
- - - -----------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
Distribution of the Receivables by APR as of the Cutoff Date
Percent of Percent of
APR Aggregate Aggregate Number of Number of
Range Principal Balance Principal Balance Receivables Receivables
all others(2)................................ % %
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
S-34
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Remaining Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of Receivables by
Date of Origination as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Date of Origination Principal Balance Principal Balance Receivables Receivables
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
S-35
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
S-36
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Aggregate Aggregate Number of Number of
Principal Balances Principal Balance Principal Balance Receivables Receivables
TOTAL........................................ $ 100.00%(1) 100.00%(1)
- - - -----------
(1) Percentages may not add up to because of rounding.
S-37
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables")
and, approximately [ %] of the aggregate Principal Balance of the Receivables in
the Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. Each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the final scheduled payment date,
at which time the amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, rather than receive a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining scheduled payments of interest that would have been due under a Simple
Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles
S-38
and servicing decisions. See "Risk Factors - Sub-Prime Obligors; Servicing" in
this Prospectus Supplement. Any reinvestment risks resulting from a faster or
slower incidence of prepayment of Receivables will be borne entirely by the
Noteholders. See also "Description of the Notes - Optional Redemption" in this
Prospectus Supplement regarding the Servicer's option to purchase the
Receivables and redeem the Notes when the aggregate principal balance of the
Receivables is less than or equal to 10% of the Original Pool Balance.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors, all payments and Purchase
Amounts remitted by CPS or the Servicer, as the case may be, all for such
Collection Period, all losses realized on Receivables liquidated during such
Collection Period and any Cram Down Losses with respect to such Receivables. The
Pool Balance is computed by allocating payments to principal and to interest,
with respect to Rule of 78's Receivables, using the constant yield or actuarial
method, and with respect to Simple Interest Receivables, using the simple
interest method. The "Class A-1 Pool Factor" is a seven digit decimal which the
Servicer will compute each month indicating the principal balance of the Class
A-1 Notes as a fraction of the initial principal balance of the Class A-1 Notes.
An individual Noteholder's share of the principal balance of the Class A-1 Notes
is the product of (i) the original denomination of the Noteholder's Note and
(ii) the Class A-1 Pool Factor. The "Class A-2 Pool Factor" is a seven-digit
decimal which the Servicer will compute each month indicating the principal
balance of the Class A-2 Notes as a fraction of the initial principal balance of
the Class A-2 Notes. The Class A-2 Pool Factor will be 1.0000000 as of the
Closing Date; thereafter, the Class A-2 Pool Factor will decline to reflect
reductions in the principal balance of the Class A-2 Notes. An individual
Noteholder's share of the principal balance of the Class A-2 Notes is the
product of (i) the original denomination of the Noteholder's Note and (ii) the
Class A-2 Pool Factor. The "Class A-3 Pool Factor" is a seven-digit decimal
which the Servicer will compute each month indicating the principal balance of
the Class A-3 Notes as a fraction of the initial principal balance of the Class
A-3 Notes. The Class A-3 Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Class A-3 Pool Factor will decline to reflect reductions in the
principal balance of the Class A-3 Notes. An individual Noteholder's share of
the principal balance of the Class A-3 Notes is the product of (i) the original
denomination of the Noteholder's Note and (ii) the Class A-3 Pool Factor. The
"Class B Pool Factor" is a seven-digit decimal which the Servicer will compute
each month indicating the principal balance of the Class B Notes as a fraction
of the initial principal balance of the Class B Notes. The Class B Pool Factor
will be 1.0000000 as of the Closing Date; thereafter, the Class B Pool Factor
will decline to reflect reductions in the principal balance of the Class B
Notes. An individual Noteholder's share of the principal balance of the Class B
Notes is the product of (i) the original denomination of the Noteholder's Note
and (ii) the Class B Pool Factor. [Other Classes to be added.] Pool Factors will
be made available on or about the eighth business day of each month.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors and various other items of information. Noteholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Description of the Trust Documents -
Statements to Securityholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the CPS Receivables from CPS and the
[Affiliated Originator] Receivables from [Affiliated Originator]. CPS will apply
the net proceeds received from the Seller to purchase new Contracts or to repay
debt incurred to purchase the Contracts.
S-39
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was
incorporated in the State of California in June of 1994. The Seller was
organized for the limited purpose of purchasing automobile installment sale
contracts from CPS and transferring such receivables to third parties and any
activities incidental to and necessary or convenient for the accomplishment of
such purposes. The principal executive offices of the Seller are located at 2
Ada, Irvine, California 92618; telephone (714) 753-6800. For further information
regarding the Seller and CPS, see "The Seller and CPS" in the Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement.
The Notes initially will be represented by notes registered in the name
of Cede as the nominee of The Depository Trust Company ("DTC"), and will only be
available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Noteholders" and to authorized denominations, when used with respect to the
Notes, shall reflect the rights of beneficial owners of the Notes ("Note
Owners"), and limitations thereof, as they may be indirectly exercised through
DTC and its participating members, except as otherwise specified herein.
See "Registration of Notes" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the holders of record of the Class A-1 Notes (the
"Class A-1 Noteholders") as of the related Record Date will be entitled to
receive, pro rata, interest at the Class A-1 Note Rate, on the outstanding
principal balance of the Class A-1 Notes as of the last day of the related
Collection Period, based on the number of days elapsed from and including the
preceding Payment Date (or, in the case of the initial Payment Date, from and
including the Closing Date) to but excluding the current Payment Date. On each
Payment Date, the holders of record of the Class A-2 Notes (the "Class A-2
Noteholders") as of the related Record Date will be entitled to receive, pro
rata, thirty (30) days of interest at the Class A-2 Interest Rate on the
outstanding principal amount of the Class A-2 Notes at the close of business on
the last day of the related Collection Period. On each Payment Date, the holders
of record of the Class A-3 Notes (the "Class A-3 Noteholders") as of the related
Record Date will be entitled to receive, pro rata, thirty (30) days of interest
at the Class A-3 Interest Rate on the outstanding principal amount of the Class
A-3 Notes at the close of business on the last day of the related Collection
Period. [Additional classes, if any, to be added]. On each Payment Date, the
holders of record of the Class B Notes (the "Class B Noteholders") as of the
related Record Date will be entitled to receive, pro rata, thirty (30) days of
interest at the Class B Interest Rate on the outstanding principal amount of the
Class B Notes at the close of business on the last day of the related Collection
Period. Notwithstanding
S-40
the foregoing, on the first Payment Date, the interest payable to the
Noteholders of record of each class of Notes will be an amount equal to the
product of (a) the Interest Rate applicable to such class of Notes, (b) the
initial principal amount of such class of Notes and (c) a fraction (i) the
numerator of which is the number of days from and including the Closing Date
through and including [ ] 14, 1997 and (ii) the denominator of which is 360.
Interest on the Notes which is due but not paid on any Payment Date will be
payable on the next Payment Date together with, to the extent permitted by law,
interest on such unpaid amount at the applicable Interest Rate.
S-41
Determination of LIBOR
Pursuant to the Indenture, the Indenture Trustee will determine LIBOR
for purposes of calculating the Interest Rate for the Class A-3 Notes for each
given Collection Period on the second business day prior to the commencement of
each Collection Period (each, a "LIBOR Determination Date"). For purposes of
calculating LIBOR, a business day means a Business Day and a day on which
banking institutions in the City of London, England are not required or
authorized by law to be closed.
"LIBOR" means, with respect to any Interest Period, the London
interbank offered rate for deposits in U.S. dollars having a maturity of one
month commencing on the related LIBOR Determination Date (the "Index Maturity")
which appears on Telerate Page 3750 as of 11:00 a.m., London time, on such LIBOR
Determination Date. If such rate does not appear on the Telerate Page 3750, the
rate for that day will be determined on the basis of the rates at which deposits
in U.S. dollars, having the Index Maturity and in a principal amount of not less
than U.S. $1,000,000, are offered at approximately 11:00 a.m., London time, on
such LIBOR Determination Date to prime banks in the London interbank market by
the Reference Banks. The Indenture Trustee will request the principal London
office of each of such Reference Banks to provide a quotation of its rate. If at
least two such quotations are provided, the rate for the day will be the
arithmetic mean, rounded upward, if necessary, to the nearest 1/100,000 of 1%
(0.0000001), with five one-millionths of a percentage point rounded upward, of
all such quotations. If fewer than two such quotations are provided, the rate
for that day will be the arithmetic mean, rounded upward, if necessary, to the
nearest 1/100,000 of 1% (0.0000001), with five one-millionths of a percentage
point rounded upward, of the offered per annum rates that one or more leading
banks in New York City, selected by the Indenture Trustee, are quoting as of
approximately 11:00 a.m., New York City time, on such LIBOR Determination Date
to leading European banks for United States dollar deposits for the Index
Maturity; provided that if the banks selected as aforesaid are not quoting as
mentioned in this sentence, LIBOR in effect for the applicable Interest Period
will be LIBOR in effect for the previous Interest Period.
"Telerate Page 3750" means the display page so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).
"Reference Banks" means four major banks in the London interbank market
selected by the Master Servicer.
Payment of Principal
Principal of the Class A Notes will be payable on each Payment Date in
an amount equal to the Class A Noteholders' Principal Distributable Amount for
the related Collection Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the product of (a) the Class A Noteholders' Percentage of
the Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date. Principal of the
Class B Notes will be payable on each Payment Date in an amount equal to the
Class B Noteholders' Principal Distributable Amount for the related Collection
Period. The "Class B Noteholders' Principal Distributable Amount" is equal to
the product of (a) the Class B Noteholders' Percentage of the Principal
Distributable Amount and (b) any unpaid portion of the amount described in
clause (a) with respect to a prior Payment Date.
On each Payment Date, an amount equal to the lesser of (x) the portion
of the Total Distribution Amount remaining after application thereof to pay the
distributions described in clauses (i) through (iv) under "Description of the
Trust Documents -- Distributions" and (y) the Class A Noteholders' Principal
Distributable Amount will be applied, sequentially, to pay principal of the
Class A-1 Notes until the principal balance of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been reduced to zero, then to the holders of
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the Class A-3 Notes until the principal balance of the Class A-3 Notes has been
reduced to zero [additional classes of Notes may be added].
On each Payment Date, an amount equal to the lesser of (x) the portion
of the Total Distribution Amount remaining after application thereof to pay the
distributions described in clauses (i) through (viii) under "Description of the
Trust Documents -- Distributions" and (y) the Class B Noteholders' Principal
Distributable Amount will be applied to pay principal of the Class B Notes until
the principal balance of the Class B Notes has been reduced to zero.
Mandatory Redemption
[Each class of Notes will be redeemed in part on the Payment Date on or
immediately following the last day of the Funding Period in the event that any
portion of the Pre-Funded Amount remains on deposit in the Pre-Funding Account
after giving effect to the purchase of all Subsequent Receivables, including any
such purchase on such date (a "Mandatory Redemption"). The aggregate principal
amount of each class of Notes to be redeemed will be an amount equal to such
class's pro rata share (based on the respective current Principal Balance of
each class of Notes) of the remaining Pre-Funded Amount on such date (such
class's "Note Prepayment Amount").]
[A Note Prepayment Premium will be payable by the Trust to the
Noteholders of each class if the Pre-Funded Amount at the end of the Funding
Period exceeds $100,000. The Note Prepayment Premium for a class of Notes will
equal the excess, if any, discounted as described below, of (i) the amount of
interest that would have accrued on such class's Note Prepayment Amount at the
Interest Rate borne by such class of Notes during the period commencing on and
including the Payment Date on which such class's Note Prepayment Amount is
required to be distributed to the Noteholders of such class to but excluding [
], in the case of the Class A-1 Notes, [ ], in the case of the Class A-2 Notes,
[ ], in the case of the Class A-3 Notes, [ ] in the case of the Class B Notes,
over (ii) the amount of interest that would have accrued on such class's Note
Prepayment Amount over the same period at a per annum rate of interest equal to
the bond equivalent yield to maturity on the Record Date preceding such Payment
Date on the United States Treasury Bill due [ ], in the case of the Class A-1
Notes, the [ ]% United States Treasury Note due [ ], in the case of the Class
A-2 Notes, the [ ]% United States Treasury Note due [ ], in the case of the
Class A-3 Notes, the [ ]% United States Treasury Note due [ ] and, in the case
of the Class B Notes, the [ ]% United States Treasury Note due [ ]. Such excess
shall be discounted to present value to such Payment Date at the applicable
yield described in clause (ii) above. The Trust's obligation to pay the Note
Prepayment Premiums shall be limited to funds which are received from the Seller
under the Sale and Servicing Agreement [or an Affiliate Purchase Agreement] as
liquidated damages for the failure to deliver Subsequent Receivables. No other
assets of the Trust will be available for the purpose of making such payment.
[The Credit Enhancement does not guarantee payment of the Note Prepayment
Premiums or the Note Prepayment Amounts, although the [Credit Enhancement] does
guarantee payment of the Class A Noteholders' Interest Distributable Amount and
the Class A Noteholders' Principal Distributable Amount on its respective Final
Scheduled Payment Date.] In addition, the ratings assigned to the Notes by the
Rating Agencies do not address the likelihood that the Note Prepayment Amounts
or the Note Prepayment Premiums will be paid.]
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust (with the
consent of the [Credit Enhancer] if such purchase would result in a claim under
the [Credit Enhancement] or any amount owing to the [Credit Enhancer] or on the
Certificates would remain unpaid), as of the last day of any month as of which
the then outstanding Pool Balance is equal to 10% or less of the Original Pool
Balance, all remaining Receivables at a price
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equal to the aggregate of the Purchase Amounts thereof as of such last day.
Exercise of such right will effect early retirement of the Notes. The Indenture
Trustee will give written notice of termination to each Noteholder of record.
The final distribution to any Noteholder will be made only upon surrender and
cancellation of such holder's Note at the office or agency of the Indenture
Trustee specified in the notice of termination. Any funds remaining with the
Indenture Trustee, after the Indenture Trustee has taken certain measures to
locate a Noteholder and such measures have failed, will be distributed to The
American Red Cross.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the terms of the Trust
Agreement, a form of which has been filed as an exhibit to the Registration
Statement.
The Certificates initially will be represented by certificates
registered in the name of Cede as the nominee of DTC and will only be available
in the form of book-entries on the records of DTC and participating members
thereof in denominations of $1,000. All references to "holders" or
"Certificateholders" and to authorized denominations, when used with respect to
the Certificates, shall reflect the rights of beneficial owners of the
Certificates ("Certificate Owners"), and limitations thereof, as they may be
indirectly exercised through DTC and its participating members, except as
otherwise specified herein. See "Registration of Notes and Certificates" in this
Prospectus Supplement.
On each Payment Date, the Certificateholders will, subject to the
availability of funds, be entitled to distributions (the "Certificateholders'
Interest Distributable Amount") in an amount equal to the amount of interest
accrued on the Certificate Balance at the Pass-Through Rate. Interest
distributable on a Payment Date will accrue from and including the preceding
Payment Date (or, in the case of the initial Payment Date, the Closing Date) to
but excluding the current Payment Date and will be calculated on the basis of a
360-day year consisting of twelve 30-day months. Interest distributions due on
any Payment Date but not distributed on such Payment Date will be due on the
next Payment Date, together with interest on such amount at the Pass-Through
Rate (to the extent permitted by law). See "Description of the Trust Documents -
Distributions" in this Prospectus Supplement.
Principal of the Certificates will be payable on each Payment Date in
an amount equal to the Certificateholders' Principal Distributable Amount for
the related Collection Period. The "Certificateholders' Principal Distributable
Amount" is equal to the product of (a) the Certificateholder's Percentage of the
Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date.
Mandatory Prepayment
[The Certificates will be prepaid in part, on a pro rata basis, on the
Payment Date on or immediately following the last day of the Funding Period in
the event that any portion of the Pre-Funded Amount remains on deposit in the
Pre-Funding Account after giving effect to the purchase of all Subsequent
Receivables, including any purchase on such date (a "Mandatory Prepayment"). The
aggregate principal amount of the Certificates to be prepaid will be an amount
equal to the Certificateholders' pro rata share (based on the respective current
Principal Balance of each class of Notes and the Certificate Balance) of the
remaining Pre-Funded Amount (the "Certificate Prepayment Amount").]
[The Certificate Prepayment Premium will be payable by the Trust to the
Certificateholders if the Pre-Funded Amount at the end of the funding Period
exceeds $100,000. The Certificate Prepayment Premium will equal the excess, if
any, discounted as described below, of (i) the amount of interest that
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would have accrued on the certificate Prepayment Amount at the Pass-Through Rate
during the period commencing on and including the Payment Date on which such
Certificate Prepayment Amount is required to be distributed to
Certificateholders to but excluding [ ], over (ii) the amount of interest that
would have accrued on such Certificate Prepayment Amount over the same period at
a per annum rate of interest equal to the bond equivalent yield to maturity on
the Record Date preceding such Payment Date on the [ ]% United States Treasury
Note due [ ]. Such excess shall be discounted to present value to such Payment
Date at the yield described in clause (ii) above. The Trust's obligation to pay
the Certificate Prepayment Premium shall be limited to funds which are received
from the Seller under the Sale and Servicing Agreement [or an Affiliated
Purchase Agreement] as liquidated damages for the failure to deliver Subsequent
Receivables. No other assets of the Trust will be available for the purpose of
making such payment. The [Credit Enhancement] does not guarantee payment of the
Certificate Prepayment Amount or the Certificate Prepayment Premium, although
the [Credit Enhancement] does guarantee payment of the Certificateholders'
Interest Distributable Amount and the Certificateholders' Principal
Distributable Amount on the Final Scheduled Payment Date. In addition, the
ratings assigned to the Certificates by the Rating Agencies do not address the
likelihood that the Certificate Prepayment Amount or the Certificate Prepayment
Premium will be paid.]
Optional Prepayment
If the Seller or the Servicer exercises its option to purchase the
Receivables when the aggregate Principal Balance declines to 10% or less of the
Original Pool Balance, Certificateholders will receive an amount in respect of
the Certificates equal to the outstanding Principal Balance of the Certificates
together with accrued interest at the Pass-Through Rate, which distribution will
effect early retirement of the Certificates. See "Description of the Trust
Documents - Termination" in the accompanying Prospectus.
Subordination of the Certificates
[No distribution of interest or principal will be made to
Certificateholders on any Payment Date until the Noteholders have been paid the
Noteholders' Interest Distributable Amount and the Noteholders' Principal
Distributable Amount for such Payment Date. This subordination is intended to
enhance the likelihood of timely receipt by the Noteholders of the full amount
of interest and principal distributable to them on each Payment Date and to
afford the Noteholders limited protection against losses in respect of the
Receivables.]
REGISTRATION OF NOTES AND CERTIFICATES
[The [Class A] Notes [and the Certificates] will initially be
registered in the name of Cede & Co. ("Cede"), the nominee of DTC. DTC is a
limited-purpose trust company organized under the laws of the State of New York,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. See "Certain Information Regarding
the Notes - Book-Entry Registration" in the Prospectus.]
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DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the [Affiliate
Purchase Agreement] and the Purchase Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). Forms of the [Affiliate Purchase
Agreement] and the Trust Documents have been filed as exhibits to the
Registration Statement. A copy of the [Affiliate Purchase Agreement] and the
Trust Documents will be filed with the Commission following the issuance of the
Securities. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the [Affiliate
Purchase Agreement] and the Trust Documents. The following summary supplements,
the description of the general terms and provisions of the [Affiliate Purchase
Agreement] and the Trust Documents (as such terms are used in the accompanying
Prospectus) set forth in the accompanying Prospectus, to which description
reference is hereby made.
Sale and Assignment of Receivables; Subsequent Receivables
On or prior to the Closing Date, the Seller will purchase from
[Affiliated Originator] pursuant to an agreement (the "[Affiliate Purchase
Agreement]"), without recourse, except as provided in the [Affiliate Purchase
Agreement], [Affiliated Originator's] entire interest in the [Affiliated
Originator] Receivables, together with [Affiliated Originator]'s security
interests in the related Financed Vehicles. On or prior to the Closing Date, CPS
will, pursuant to the Purchase Agreement, sell and assign to the Seller, without
recourse, except as provided in the Purchase Agreement, its entire interest in
the CPS Receivables, together with its security interests in the related
Financed Vehicles. At the time of issuance of the Securities, the Seller will
sell and assign to the Trust, without recourse except as provided in the Sale
and Servicing Agreement, its entire interest in the Receivables, together with
its security interests in the Financed Vehicles. Each Receivable will be
identified in a schedule appearing as an exhibit to the Purchase Agreement. The
Indenture Trustee will, concurrently with such sale and assignment, execute,
authenticate, and deliver the Securities to the Seller in exchange for the
Receivables. The Seller will sell the Notes to the Underwriters. See
"Underwriting" in this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the Purchase
Agreement with respect to the Receivables (including, without limitation, the
[Affiliated Originator] Receivables) is correct in all material respects; (ii)
at the dates of origination of the Receivables, physical damage insurance
covering each Financed Vehicle was in effect in accordance with CPS's normal
requirements; (iii) at the date of issuance of the Securities, the Receivables
are free and clear of all security interests, liens, charges, and encumbrances
and no offsets, defenses, or counterclaims against Dealers or IFCs have been
asserted or threatened; (iv) at the date of issuance of the Securities, each of
the Receivables is or will be secured by a first-priority perfected security
interest in the related Financed Vehicle in favor of CPS or [Affiliated
Originator]; and (v) each Receivable, at the time it was originated, complied
and, at the date of issuance of the Securities, complies in all material
respects with applicable federal and state laws, including, without limitation,
consumer credit, truth in lending, equal credit opportunity and disclosure laws.
As of the last day of the second (or, if CPS elects, the first) month following
the discovery by or notice to the Seller and CPS of a breach of any
representation or warranty that materially and adversely affects a Receivable,
unless the breach is cured, CPS will purchase such Receivable from the Trust for
the Purchase Amount. The repurchase obligation will constitute the sole remedy
available to the Noteholders, the [Credit Enhancer], the Owner Trustee or the
Indenture Trustee for any such uncured breach.
[During the Funding Period, on each Subsequent Transfer Date, subject
to the conditions described below, the Seller will sell and assign to the Trust,
without recourse, the Seller's entire interest in the Subsequent Receivables
designated by the Seller as of the related Subsequent Cutoff Date and identified
in a schedule attached to a Subsequent Transfer Agreement relating to such
Subsequent Receivables executed on such date by the Seller. Upon the conveyance
of Subsequent Receivables to the
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Trust on a Subsequent Transfer Date, (i) the aggregate Principal Balance will
increase in an amount equal to the aggregate principal balances of the
Subsequent Receivables, (ii) the Class A-1 Holdback Amount (described under
"--Accounts" below), if any, for such Subsequent Transfer Date will be withdrawn
from the Pre-Funding Account and deposited in the Class A-1 Holdback Subaccount
(described under "--Accounts" below), and (iii) an amount equal to the aggregate
principal balances of such Subsequent Receivables less the Class A-1 Holdback
Amount will be paid to or upon the order of the Seller.]
Any conveyance of Subsequent Receivables is subject to the
satisfaction, on or before the related Subsequent Transfer Date, of the
following conditions, among others: (i) each such Subsequent Receivable
satisfies the eligibility criteria specified in the Purchase Agreement; (ii)
[Credit Enhancer] (so long as no [Credit Enhancer] Default shall have occurred
and be continuing) shall in its absolute and sole discretion have approved the
transfer of such Subsequent Receivables to the Trust; (iii) as of each
applicable Subsequent Cutoff Date, the Receivables in the Trust together with
the Subsequent Receivables to be conveyed by the Seller as of such Subsequent
Cutoff Date, meet the following criteria (computed based on the characteristics
of the Initial Receivables on the Initial Cutoff Date and any Subsequent
Receivables on the related Subsequent Cutoff Date: [Conditions to be specified];
(iv) the Seller shall have executed and delivered to the Trust (with a copy to
the Indenture Trustee) a Subsequent Transfer Agreement conveying such Subsequent
Receivables to the Trust (including a schedule identifying such Subsequent
Receivables); [(v) the Class A-1 Holdback Amount, if any, shall have been
deposited in the Class A-1 Holdback Subaccount (described under "--Accounts"
below);] (vi) the Seller shall have delivered certain opinions of counsel to the
Indenture Trustee, the Owner Trustee, [Credit Enhancer] and the Rating Agencies
with respect to the validity of the conveyance of such Subsequent Receivables;
and (vii) the Rating Agencies shall have each notified the Seller, the Owner
Trustee, the Indenture Trustee and [Credit Enhancer] in writing that, following
the addition of all such Subsequent Receivables, the Class A-1 Notes, the Class
A-2 Notes and the Class A-3 Notes will be rated [ ] by [ ] and the Class B Notes
will be rated at least [ ] by [ ] [and the Certificates will be rated [ ] by [
]].
Subsequent Receivables may have been originated by CPS at a later date
using credit criteria different from the criteria applied with respect to the
Initial Receivables. See "Risk Factors - Varying Characteristics of Subsequent
Receivables" and "The Receivables Pool" herein.]
On or prior to the Closing Date [or each Subsequent Closing Date], the
related Contracts will be delivered to the Indenture Trustee as custodian, and
the Indenture Trustee thereafter will maintain physical possession of the
Receivables except as may be necessary for the servicing thereof by the
Servicer. The Receivables will not be stamped to show the ownership thereof by
the Trust. However, CPS's and [Affiliated Originator]'s accounting records and
computer systems will reflect each sale and assignment of the Receivables to the
Seller, and Uniform Commercial Code ("UCC") financing statements reflecting such
sales and assignments will be filed. See "Formation of the Trust" in this
Prospectus Supplement and "Certain Legal Aspects of the Receivables" in the
Prospectus.
Accounts
A segregated lock-box account will be established and maintained with [
] in the name of the Indenture Trustee for the benefit of the Noteholders[, the
Certificateholders] and the [Credit Enhancer], into which all payments made by
Obligors on or with respect to the Receivables must be deposited by the Lock-Box
Processor (the "Lock-Box Account"). See "Description of the Trust Documents -
Payments on Receivables" in the Prospectus. The Indenture Trustee will also
establish and maintain initially with itself one or more accounts, in the name
of the Indenture Trustee on behalf of the Noteholders and the [Credit Enhancer],
into which all amounts previously deposited in the Lock-Box Account will be
transferred within two Business Days of the receipt of funds therein (the
"Collection Account"). Upon receipt, the Servicer will deposit all amounts
received by it in respect of the Receivables in the Lock-Box Account or the
Collection Account. The Indenture Trustee will also establish and maintain
initially with itself one or more accounts, in the name of the Indenture Trustee
on
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behalf of the Noteholders[, the Certificateholders] and the [Credit Enhancer],
from which all distributions with respect to the Securities and payments to the
[Credit Enhancer] will be made (the "Distribution Account").
[The Pre-Funding Account will be maintained with the Indenture Trustee
and is intended solely to hold funds to be applied by the Indenture Trustee
during the Funding Period to pay to the Seller the purchase price for Subsequent
Receivables. Monies on deposit in the Pre-Funding Account will not be available
to cover losses on or in respect of the Receivables. On the Closing Date, the
Pre-Funding Account will be funded with the initial Pre-Funded Amount from the
sale proceeds of the Notes [and the Certificates]. The Pre-Funded Amount will
initially equal $[ ] and, during the Funding Period, will be reduced by the
[Class A Percentage] of the Principal Balances of all Subsequent Receivables
purchased by the Trust from time to time in accordance with the provisions of
the Sale and Servicing Agreement.]
The Seller expects that the Pre-Funded Amount will be reduced to less
than $100,000 by the [ ] Payment Date, although no assurances can be given in
this regard. If any Pre-Funded Amount remains at the end of the Funding Period,
such amount will be distributed as a partial prepayment to the Noteholders [and
the Certificateholders] as described above under "-- Mandatory Prepayment" and
"--Mandatory Redemption".]
[The Seller will also establish and maintain an account (the "Interest
Reserve Account") in the name of the Indenture Trustee on behalf of the
Noteholders [and the Certificateholders]. On the Closing Date, the Seller will
deposit an amount equal to the Requisite Reserve Amount (as described below) as
of the Closing Date in the Interest Reserve Account. On each of the [ ] and [ ]
Payment Dates, funds on deposit in the Interest Reserve Account which are in
excess of the Requisite Reserve Amount for such Payment Date will be withdrawn
from the Interest Reserve Account and deposited in the Distribution Account for
distribution in accordance with the priorities set forth under the heading
"Description of the Trust Documents - Distributions - Priority of Distribution
Amounts".]
[The "Requisite Reserve Amount" as of any date during the Funding
Period will equal the product of (i) the difference between (A) the weighted
average of the Interest Rates for each class of Notes [and the Pass-Through
Rate] (based on the outstanding principal amount of each class of Notes [and the
Certificate Balance] on such date) and (B) the assumed yield (2.5% per annum) of
investments of funds in the Pre-Funding Account, divided by 360, (ii) the
Pre-Funded Amount on such date and (iii) the number of days remaining until the
Payment Date in [ ].]
[In addition, on any Subsequent Transfer Date a "Class A-1 Holdback
Amount" (as defined in the Sale and Servicing Agreement, and determined by the
amount, if any, by which the actual Principal Balance of Subsequent Receivables
transferred to the Trust on or prior to such date is less than the amount set
forth in a schedule of assumed amounts), if any, will be withheld from funds in
the Pre- Funding Account that would otherwise be paid to the Seller on such
Subsequent Transfer Date and will be deposited into a subaccount (the "Class A-1
Holdback Subaccount") of the Spread Account. The Class A-1 Holdback Subaccount
is intended to ensure that, notwithstanding a slower than expected delivery of
Subsequent Receivables by the Seller during the Funding Period, sufficient funds
will be available to retire the Class A-1 Notes on the Class A-1 Final Scheduled
Payment Date. Any funds in the Class A-1 Holdback Subaccount (less the amount,
if any, required to be applied to reduce the principal balance of the Class A-1
Notes to zero on the Class A-1 Final Scheduled Payment Date) will be released to
CPS on the Payment Date on which the Class A-1 Notes are paid in full, and funds
in the Class A-1 Holdback Subaccount will not be available for any other
purpose.]
[The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.]
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Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the product of one-twelfth of the Servicing Fee Rate and
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Payment Date, the Servicing Fee will equal the product of one-twelfth of the
Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the "Servicing
Fee"). So long as CPS is Servicer, a portion of the Servicing Fee, equal to the
Standby Fee, will be payable to the Standby Servicer for agreeing to stand by as
successor Servicer and for performing certain other functions. If the Standby
Servicer, or any other entity serving at the time as Standby Servicer, becomes
the successor Servicer, it will receive compensation at a Servicing Fee Rate not
to exceed [ %] per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from the Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to scheduled payments,
late fees and other charges and principal and interest in accordance with the
Servicer's normal practices and procedures. The Servicing Fee will be paid out
of collections from the Receivables, prior to distributions to Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
[Credit Enhancer] with respect to distributions and generating federal income
tax information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Noteholders' Interest Distributable Amount, the
Class A Noteholders' Principal Distributable Amount, the Class B Noteholders'
Interest Distributable Amount, the Class B Noteholders' Principal Distributable
Amount [and the Certificateholders' Distribution Amount].
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date (being the funds available for distribution to the
Securityholders with respect to such Payment Date in accordance with the
priorities described below) will be the sum of the following amounts with
respect to the preceding Collection Period: (i) all collections on Receivables;
(ii) all proceeds received during the Collection Period with respect to
Receivables that became Liquidated Receivables during the Collection Period in
accordance with the Servicer's customary servicing procedures, net of the
reasonable expenses
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incurred by the Servicer in connection with such liquidation and any amounts
required by law to be remitted to the Obligor on such Liquidated Receivable
("Liquidation Proceeds") in accordance with the Servicer's customary servicing
procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables; (iv) any amount withdrawn from the Interest Reserve Account for
deposit in the Collection Account with respect to such Payment Date; and (v)
earnings on investments of funds in the Collection Account and the Pre-Funding
Account during the related Collection Period, and (v) the Purchase Amount of
each Receivable that was repurchased by CPS or purchased by the Servicer as of
the last day of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a scheduled payment of more than ten dollars for 120 or
more days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Class A Noteholders will be
entitled to receive the "Noteholders' Distributable Amount" with respect to each
Payment Date. The "Noteholders' Distributable Amount" with respect to a Payment
Date will be an amount equal to the sum of: (i) the "Class A Noteholders'
Principal Distributable Amount", consisting of the Class A Noteholders'
Percentage of the following: (a) the principal portion of all Scheduled
Receivable Payments received during the preceding Collection Period on Rule of
78's Receivables and all payments of principal received on Simple Interest
Receivables during the preceding Collection Period; (b) the principal portion of
all prepayments in full received during the preceding Collection Period
(including prepayments in full resulting from collections with respect to a
Receivable received during the preceding Collection Period (without duplication
of amounts included in (a) above and (d) below)); (c) the portion of the
Purchase Amount allocable to principal of each Receivable that was repurchased
by CPS or purchased by the Servicer as of the last day of the related Collection
Period and, at the option of the [Credit Enhancer] the Principal Balance of each
Receivable that was required to be but was not so purchased or repurchased
(without duplication of the
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amounts referred to in (a) and (b) above); (d) the Principal Balance of each
Receivable that first became a Liquidated Receivable during the preceding
Collection Period (without duplication of the amounts included in (a) and (b)
above); and (e) the aggregate amount of Cram Down Losses with respect to the
Receivables that shall have occurred during the preceding Collection Period
(without duplication of amounts included in (a) through (d) above) (the amounts
set forth in (a) through (e), the "Principal Distributable Amount"); (ii) the
"Class A Noteholders' Interest Distributable Amount", consisting of thirty (30)
days' interest at the applicable Interest Rate on the principal balance of each
Class of Class A Notes as of the close of business on the last day of the
related Collection Period; provided, however, that on the first Payment Date,
the Class A Noteholders' Interest Distributable Amount will include interest
from and including the Closing Date through and including [ ] 14, 199[ ]; (iii)
the Class A Noteholders' Principal Carryover Shortfall; (iv) the Class A
Noteholders' Interest Carryover Shortfall; (v) the "Class B Noteholders'
Principal Distributable Amount", consisting of the Class B Noteholders'
Percentage of the Principal Distributable Amount; (vi) the "Class B Noteholders'
Interest Distributable Amount", consisting of thirty (30) days' interest at the
Class B Interest Rate on the principal balance of the Class B Notes as of the
close of business on the last day of the related Collection Period; provided,
however, that on the first Payment Date, the Class B Noteholders' Interest
Distributable Amount will include interest from and including the Closing Date
through and including [ ] 14, 199[ ]; (vii) the Class B Noteholders' Principal
Carryover Shortfall; (viii) the Class B Noteholders' Interest Carryover
Shortfall;
On the Final Scheduled Payment Date, the Class A Noteholders' Principal
Distributable Amount will equal the then outstanding principal balance of the
Class A Notes and the Class B Noteholders' Principal Distributable Amount will
equal the then outstanding balance of the Class B Notes.
The "Class A Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class A-3 Notes
is reduced to zero, be [ %], (b) on the Payment Date on which the principal
amount of the Class A-3 Notes is reduced to zero, be the percentage equivalent
of a fraction, the numerator of which is the principal amount of the Class A-3
Notes immediately prior to such Payment Date, and the denominator of which is
the Principal Distributable Amount and (c) on any other Payment Date, be 0%.
The "Class B Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class B Notes is
reduced to zero, be [ %], (b) on the Payment Date on whcih the principal amount
of the Class B Notes is reduced to zero, be the percentage equivalent of a
fraction, the numerator of which is the principal amount of the Class B Notes
immediately prior to such Payment Date, and the denominator of which is the
Principal Distributable Amount and (c) on any other Payment Date, be 0%.
[On each Payment Date on or after the Notes have been paid in full, the
Certificateholders will be entitled to receive the "Certificateholders'
Distributable Amount". The "Certificateholders' Distributable Amount" with
respect to a Payment Date will be an amount equal to the sum of : (.i) the
"Certificateholders' Principal Distributable Amount" in an amount equal to the
Certificateholders' Percentage of the Principal Distributable Amount for such
Payment Date; (ii) the "Certificateholders' Interest Distributable Amount",
consisting of 30 days interest at the Pass-Through Rate on the Certificate
Balance as of the last day of the related Collections Period; provided, however
that on the first Payment Date, the Certificateholders' Interest Distributable
Amount will include interest from and including the Closing Date through and
including [ ] 14, 199[]; (iii) the Certificateholders' Principal Carryover
Shortfall; plus (iv) the Certificateholders' Interest Carryover Shortfall.
Distributions to the Certificateholders will be paid to the extent of the
portion of the Total Distribution Amount remaining after payment of items (i)
through (vii) under "-Priority of Distribution Amounts". See "- Distributions"
herein.
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On the Final Scheduled Payment Date, the Certificateholders' Principal
Distributable Amount will equal the then outstanding Certificate Balance.
The "Certificateholders' Percentage" will be [ %].]
Priority of Distribution Amounts. On each Determination Date, the
Servicer will calculate the amount to be distributed to the Noteholders.
On each Payment Date, the Indenture Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
[(i) to the Servicer, from the Total Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods; provided, however, that as long as CPS is the Servicer and
Norwest Bank Minnesota, National Association, is the Standby Servicer,
the Indenture Trustee will first pay to the Standby Servicer out of the
Servicing Fee otherwise payable to CPS an amount equal to the Standby
Fee;
(ii) in the event the Standby Servicer or any other party
becomes the successor Servicer, to the Standby Servicer or such other
successor servicer, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clause (i)
above), to the extent not previously paid by the predecessor Servicer
pursuant to the Sale and Servicing Agreement, reasonable transition
expenses (up to a maximum of $50,000) incurred in acting as successor
Servicer;
(iii) to the Indenture Trustee and the Owner Trustee, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) and (ii) above), the fees
payable thereto for services pursuant to the Indenture and the Trust
Agreement (the "Trustee Fee") and reasonable out-of-pocket expenses
thereof, (including counsel fees and expenses) and all unpaid Trustee
Fees and all unpaid reasonable out-of-pocket expenses (including
counsel fees and expenses) from prior Collection Periods; provided,
however, that unless an Event of Default shall have occurred and be
continuing, expenses payable to the Indenture Trustee pursuant to this
clause (iii) and expenses payable to the Collateral Agent pursuant to
clause (iv) below shall be limited to a total of $50,000 per annum;
(iv) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iii) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
(v) to the Class A Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class A Noteholders'
Interest Distributable Amount and any Class A Noteholders' Interest
Carryover Shortfall as of the close of the preceding Payment Date;
(vi) to the Class B Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class B Noteholders'
Interest Distributable Amount and any Class B Noteholders' Interest
Carryover Shortfall as of the close of the preceding Payment Date;
(vii) to the Class A Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above), the Class A Noteholders'
Principal Distributable Amount and any Class A Noteholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date;
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(viii) to the [Credit Enhancer], from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
made pursuant to clauses (i) through (vi) above), any amounts due to
the [Credit Enhancer] under the terms of the Trust Agreement and under
the [Credit Enhancement] Agreement;
(ix) to the Class B Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above), the Class B Noteholders'
Principal Distributable Amount and any Class B Noteholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date;
(x) to the Collateral Agent, for deposit into the Spread Account,
the remaining Total Distribution Amount, if any;
(xi) to the Certificateholders or as specified in the Trust
Documents, any remaining funds.]
For purposes hereof, the following terms shall have the following
meanings:
"Class A Noteholders' Interest Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class A Noteholders' Interest
Distributable Amount for such Payment Date, plus any outstanding Class A
Noteholders' Interest Carryover Shortfall from the preceding Payment Date, plus
interest on such outstanding Class A Noteholders' Interest Carryover Shortfall,
to the extent permitted by law, at the applicable Interest Rate from such
preceding Payment Date through the current Payment Date, over the amount of
interest distributed to the Class A Noteholders on such current Payment Date.
"Class A Noteholders' Principal Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class A Noteholders' Principal
Distributable Amount plus any outstanding Class A Noteholders' Principal
Carryover Shortfall from the preceding Payment Date over the amount of principal
distributed to the Class A Noteholders on such current Payment Date.
"Class B Noteholders' Interest Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class B Noteholders' Interest
Distributable Amount for such Payment Date, plus any outstanding Class B
Noteholders' Interest Carryover Shortfall from the preceding Payment Date, plus
interest on such outstanding Class B Noteholders' Interest Carryover Shortfall,
to the extent permitted by law, at the applicable Interest Rate from such
preceding Payment Date through the current Payment Date, over the amount of
interest distributed to the Class B Noteholders on such current Payment Date.
"Class B Noteholders' Principal Carryover Shortfall" means, as of the
close of any Payment Date, the excess of the Class B Noteholders' Principal
Distributable Amount plus any outstanding Class B Noteholders' Principal
Carryover Shortfall from the preceding Payment Date over the amount of principal
distributed to the Class B Noteholders on such current Payment Date.
On the third business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set forth in the priorities
of distribution in the Indenture, to distribute the Class A Noteholders'
Distributable Amount and the Class B Noteholders' Distributable Amount.
[The Spread Account. As part of the consideration for the issuance of
the [Credit Enhancement], the Seller has agreed to cause to be established with
[ ] (in such capacity, the "Collateral Agent") an account (the "Spread Account")
for the benefit of the [Credit Enhancer] and the Indenture Trustee on behalf of
the Noteholders. Any portion of the Total Distribution Amount remaining on any
Payment Date after payment of all fees and expenses due on such date to the
Servicer, the Standby Servicer, the Indenture Trustee and the Collateral Agent
and all principal and interest payments due to
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the Noteholders on such Payment Date, will be deposited in the Spread Account
and held by the Collateral Agent for the benefit of the [Credit Enhancer] and
the Indenture Trustee on behalf of the Noteholders. If on any Payment Date, the
Total Distribution Amount is insufficient to pay all distributions required to
be made on such day pursuant to priorities (i) through (vii) under "-Priority of
Distribution Amounts", then amounts on deposit in the Spread Account will be
applied to pay the amounts due on such Payment Date pursuant to such priorities
(i) through (vii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date have been made) are
in excess of the Requisite Amount will be released to the Certificateholders on
such Payment Date.
So long as a [Credit Enhancer] Default shall not have occurred and be
continuing, the [Credit Enhancer] will be entitled to exercise in its sole
discretion all rights under the master spread account agreement among the
Seller, the [Credit Enhancer], the Indenture Trustee and the Collateral Agent
(the "Master Spread Account Agreement") with respect to the Spread Account and
any amounts on deposit therein and will have no liability to the Indenture
Trustee or the Noteholders for the exercise of such rights. The [Credit
Enhancer] (so long as a [Credit Enhancer] Default shall not have occurred and be
continuing) may, with the written consent of CPS, the Seller and the Collateral
Agent but without the consent of the Indenture Trustee or any Noteholder, reduce
the Requisite Amount or modify any term of the Master Spread Account Agreement
(including terminating the Master Spread Account Agreement and releasing all
funds on deposit in the Spread Account). Because the Requisite Amount or the
existence of the Spread Account may be modified or terminated by the [Credit
Enhancer] as described above, there is no assurance that funds will be available
in the Spread Account to pay principal of or interest on the Notes in the event
that collections on the Receivables and other amounts available under the
Indenture are insufficient to make any distribution of principal of or interest
on the Notes on any Payment Date.
Events of Default
[Unless a [Credit Enhancer] Default shall have occurred and be
continuing, "Events of Default" under the Indenture will consist of those events
defined in the Insurance Agreement as [Credit Enhancement] Cross Defaults, and
will constitute an Event of Default under the Indenture only if the [Credit
Enhancer] shall have delivered to the Indenture Trustee a written notice
specifying that any such Insurance Agreement Indenture Cross Default constitutes
an Event of Default under the Indenture. A "[Credit Enhancement] Cross Default"
may result from: (i) a demand for payment under the [Credit Enhancement]; (ii)
an Insolvency Event (as defined herein); (iii) the Trust becomes taxable as an
association (or publicly traded partnership) taxable as a corporation for
federal or state income tax purposes; (iv) the sum of the Total Distribution
Amount with respect to any Payment Date plus the amount (if any) available from
certain collateral accounts maintained for the benefit of the [Credit Enhancer]
is less than the sum of the amounts described in clauses (i) through (vii) under
"Description of the Trust Documents - Distributions" herein; and (v) any failure
to observe or perform in any material respect any other covenants,
representation, warranty or agreements of the Trust in the Indenture, any
certificate or other writing delivered in connection therewith, and such failure
continues for 30 days after written notice of such failure or incorrect
representation or warranty has been given to the Trust and the Indenture Trustee
by the [Credit Enhancer].]
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default shall not have occurred and be continuing, the [Credit
Enhancer] will have the right but not the obligation, to cause the Indenture
Trustee to liquidate the Trust Assets, in whole or in part, on any date or dates
following the acceleration of the Notes due to such Event of Default as the
[Credit Enhancer], in its sole discretion, shall elect, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture. The
[Credit Enhancer] may not, however, cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, if the proceeds of such liquidation would not
be sufficient to pay all outstanding principal and accrued interest on the
Notes, unless such Event of Default arose from a claim
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being made on the [Credit Enhancement] or from certain events of bankruptcy,
insolvency, receivership or liquidation of the Trust. Following the occurrence
of any Event of Default, the Indenture Trustee will continue to submit claims as
necessary under the [Credit Enhancement] for any shortfalls in the scheduled
payments on the Class A Notes, except that the [Credit Enhancer], in its sole
discretion, may elect to pay all or any portion of the outstanding amount of the
Class A Notes, plus accrued interest thereon. See ["Credit Enhancement"] herein.
Statements to Securityholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Securityholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
[or the Certificates] a statement (prepared by the Servicer) setting forth the
following information with respect to the preceding Collection Period, to the
extent applicable: (i) the amount of the distribution allocable to principal of
the Notes; (ii) the amount of the distribution allocable to interest on the
Notes; (iii) the Pool Balance and the Pool Factor for each Class of Notes [or
the Certificates] as of the close of business on the last day of the preceding
Collection Period; (iv) the aggregate principal balance of each Class of Notes
[or the Certificates] as of the close of business on the last day of the
preceding Collection Period, after giving effect to payments allocated to
principal reported under (i) above; (v) the amount of the Servicing Fee paid to
the Servicer with respect to the related Collection Period (inclusive of the
Standby Fee), the amount of any unpaid Servicing Fees and the change in such
amount from that of the prior Payment Date; (vi) the amount of the Class A
Noteholders' Interest Carryover Shortfall, if applicable, the Class A
Noteholders' Principal Carryover Shortfall, if applicable, the Class B
Noteholders' Interest Carryover Shortfall, if applicable, and the Class B
Noteholders' Principal Carryover Shortfall, if applicable, on such Payment Date
and the change in such amounts from those on the prior Payment Date; (vii) the
amount paid to the Class A Noteholders under the [Credit Enhancement] for such
Payment Date; (viii) the amount distributable to the [Credit Enhancer] on such
Payment Date; (ix) the aggregate amount in the Spread Account and the change in
such amount from the previous Payment Date; (x) the number of Receivables and
the aggregate gross amount scheduled to be paid thereon, including unearned
finance and other charges, for which the related Obligors are delinquent in
making scheduled payments between 31 and 59 days and 60 days or more; (xi) the
number and the aggregate Purchase Amount of Receivables repurchased by CPS or
purchased by the Servicer; and (xii) the cumulative Principal Balance of all
Receivables that have become Liquidated Receivables, net of Recoveries, during
the period from the Cutoff Date to the last day of the related Collection
Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Note.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Securityholder and received any payment on
such holder's Securities, a statement (prepared by the Servicer) containing the
sum of the amounts described in (i), (ii) and (v) above for the purposes of such
Securityholder's preparation of federal income tax returns. See "Description of
the Notes [and Certificates] - Statements to Securityholders" and "Certain
Federal Income Tax Consequences" in the Prospectus.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the [Credit Enhancer] on or before July 31 of each year, beginning July 31,
[ ], a report as to compliance by the Servicer during the preceding twelve
months ended March 31 with certain standards relating to the servicing of the
Receivables (or in the case of the first such certificate, the period from the
Cutoff Date to July 31, [ ]).
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The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the [Credit Enhancer], on or before July 31 of each year,
commencing July 31, [ ] of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Sale and
Servicing Agreement throughout the preceding twelve months ended March 31 or, if
there has been a default in the fulfillment of any such obligation, describing
each such default (or in the case of the first such certificate, the period from
the Cutoff Date to July 31, [ ]). The Servicer has agreed to give the Indenture
Trustee and the [Credit Enhancer] notice of any Events of Default under the Sale
and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the [Credit Enhancer]. No such
resignation will become effective until a successor servicer has assumed the
servicing obligations and duties under the Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby Servicer
has agreed pursuant to the Servicing Assumption Agreement to assume the
servicing obligations and duties under the Sale and Servicing Agreement.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
The Servicer is retained for an initial term commencing on the Closing
Date and ending on [ ], which term may be extended in ninety day increments by
the [Credit Enhancer]. In the absence of an Event of Default under the Sale and
Servicing Agreement, the [Credit Enhancer] has agreed to extend such term. See
"Description of the Notes [and the Certificates] - Certain Matters Regarding the
Servicer" in the Prospectus.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days, or
any failure to deliver to the Indenture Trustee the annual accountants' report,
the annual statement as to compliance or the statement to the Securityholders,
in each case, within five days of the date it is due; (ii) any failure by the
Servicer duly to observe or perform in any material respect any other covenant
or
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agreement in the Sale and Servicing Agreement which failure materially and
adversely affects the rights of the related Securityholders (without regard to
the availability of funds from the [Credit Enhancement]) and continues
unremedied for 30 days after the giving of written notice of such failure (1) to
the Servicer or the Seller, as the case may be, by the [Credit Enhancer] or by
the Indenture Trustee, or (2) to the Servicer or the Seller, as the case may be,
and to the Indenture Trustee and the [Credit Enhancer] by the holders of Class A
Notes evidencing not less than 25% of the outstanding principal balance of the
Class A Notes; or, after the Class A Notes have been paid in full, the holders
of Class B Notes evidencing not less than 25% of the outstanding principal
balance of the Class B Notes, (iii) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities, or similar proceedings with
respect to the Servicer or, so long as CPS is Servicer, of any of its
affiliates, and certain actions by the Servicer, the Seller or, so long as CPS
is Servicer, of any of its affiliates, indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations; (iv) a
claim is made under the [Credit Enhancement]; or (v) the occurrence of an Event
of Default under the Insurance Agreement.
Rights Upon Servicer Termination Event
As long as a Servicer Termination Event remains unremedied, (x)
provided no [Credit Enhancer] Default shall have occurred and be continuing, the
[Credit Enhancer] in its sole and absolute discretion or (y) if an [Credit
Enhancer] Default shall have occurred and be continuing, then the Indenture
Trustee or the holders of Class A Notes evidencing not less than 25% of the
outstanding principal balance of the Class A Notes or, after the Class A Notes
have been paid in full, the holders of Class B Notes evidencing not less than
25% of the outstanding principal balance of the Class B Notes, may terminate all
the rights and obligations of the Servicer under the Sale and Servicing
Agreement, whereupon the Standby Servicer, or such other successor Servicer as
shall be or have been appointed by the [Credit Enhancer] (or, if an [Credit
Enhancer] Default shall have occurred and be continuing, by the Indenture
Trustee, the Class A Noteholders or the Class B Noteholders, as described above)
will succeed to all the responsibilities, duties and liabilities of the Servicer
under the Sale and Servicing Agreement; provided, however, that such successor
Servicer shall have no liability with respect to any obligation which was
required to be performed by the predecessor Servicer prior to the date such
successor Servicer becomes the Servicer or the claim of a third party (including
a Securityholder) based on any alleged action or inaction of the predecessor
Servicer as Servicer.
["Credit Enhancer Default" shall mean any one of the following events
shall have occurred and be continuing: (i) the [Credit Enhancer] fails to make a
payment required under the [Credit Enhancement] in accordance with its terms;
(ii) the [Credit Enhancer] (A) files any petition or commences any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (B) makes a general assignment
for the benefit of its creditors, or (C) has an order for relief entered against
it under the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or (iii) a court of competent
jurisdiction, the New York Department of Insurance or other competent regulatory
authority enters a final and nonappealable order, judgment or decree (A)
appointing a custodian, trustee, agent or receiver for the [Credit Enhancer] or
for all or any material portion of its property or (B) authorizing the taking of
possession by a custodian, trustee, agent or receiver of the [Credit Enhancer]
(or the taking of possession of all or any material portion of the property of
the [Credit Enhancer]).]
Waiver Of Past Defaults
With respect to the Trust, subject to the approval of the [Credit
Enhancer], the holders of Class A Notes evidencing more than 50% of the
outstanding principal balance of the Class A Notes (the "Class A Note Majority")
or, after the Class A Notes have been paid in full, the holders of Class B Notes
evidencing more than 50% of the outstanding principal balance of the Class B
Notes (the "Class B Note
S-57
Majority") may, on behalf of all Noteholders waive any default by the Servicer
in the performance of its obligations under the Sale and Servicing Agreement and
its consequences, except a default in making any required deposits to or
payments from any of the Trust Accounts in accordance with the Sale and
Servicing Agreement. No such waiver shall impair the Noteholders' rights with
respect to subsequent defaults.
CREDIT ENHANCEMENT
[Description of Credit Enhancement]
THE CREDIT ENHANCER
[Description of Credit Enhancer]
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
In all states in which the Receivables have been originated, a security
interest in automobiles, light trucks, vans and minivans is perfected by
notation of the secured party's lien on the vehicles's certificate of title and
the filing of the certificate of title with the state motor vehicle department.
The Contracts representing the [Affiliated Originator] Receivables name
[Affiliated Originator] as obligee and as the secured party. [Affiliated
Originator] also takes all actions necessary under the laws of the state in
which the financed vehicle is located to perfect [Affiliated Originator's]
security interest in the Financed Vehicle, including, where applicable, having a
notation of its lien recorded on such vehicle's certificate of title and filed
with the state motor vehicle department.
Pursuant to the [Affiliated Purchase Agreement], [Affiliated
Originator] will sell and assign to the Seller its interests in the Financed
Vehicles securing the [Affiliated Originator] Receivables, and pursuant to the
Trust Agreement, the Seller will assign its interests in such Financed Vehicles
to the Trustee. However, because of the administrative burden and expense, the
certificates of title for the Financed Vehicles securing the [Affiliated
Originator] Receivables will not be amended or reissued to reflect the
assignment thereof to the Seller, nor will the certificates of title to any
Financed Vehicles (including those securing the [Affiliated Originator]
Receivables) be amended or reissued to identify the Trust as the new secured
party on the certificate of title relating to the Financed Vehicles. The
Indenture provides that the Indenture Trustee, however, will hold any
certificates of title relating to the Financed Vehicles in its possession
pursuant to the Indenture.
In most states, an assignment such as that under the Sale and Servicing
Agreement and such as that under the Purchase Agreement and [Affiliated Purchase
Agreement] is an effective conveyance of a security interest without amendment
of any lien noted on a vehicle's certificate of title and the assignee succeeds
thereby to the assignor's rights as secured party. By not identifying the Seller
as the secured party on the certificates of title for the Financed Vehicles
securing the [Affiliated Originator] Receivables, the security interest of the
Seller (and, therefore, the security interest of the Trust) could be defeated
through fraud or negligence on the part of [Affiliated Originator]. Similarly,
by not identifying the Trust as the secured party on the certificate of title,
the security interest of the Trust in the Financed Vehicle could be defeated
through fraud or negligence on the part of the Servicer. In the absence of fraud
or forgery by the vehicle owner, the Servicer or (with respect to [Affiliated
Originator] Receivables) [the Affiliated Originator], or administrative error by
state or local agencies, the notation of [Affiliated Originator's] lien on the
certificates of title for the Financed Vehicles financed under the [Affiliated
Originator] Receivables, and the notation of CPS's lien on the certificates of
title for all other Financed
S-58
Vehicles, will be sufficient to protect the Trust against the rights of
subsequent purchasers of a vehicle or subsequent lenders who take a security
interest in a vehicle securing a Receivable. If there are any Financed Vehicles
as to which CPS or [Affiliated Originator] failed to obtain and assign to the
Seller or the Trust a perfected security interest, the security interest of CPS
or [Affiliated Originator], as applicable, would be subordinate to, among
others, subsequent purchasers of such Financed Vehicles and holders of perfected
security interests therein. Such a failure, however, would constitute a breach
of the warranties of CPS under the Purchase Agreement and would create an
obligation of CPS to repurchase the related Receivables unless the breach is
cured. The Seller will assign its rights pursuant to the Sale and Servicing
Agreement to the Trust. See "Description of the Trust Documents - Sale and
Assignment of Receivables; Subsequent Receivables" in this Prospectus
Supplement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Federal Tax Counsel, for Federal income tax purposes
the Class A Notes will be characterized as debt, the Class B Notes should be
characterized as debt (but if not characterized as debt, the Class B Notes will
be characterized as interests in a partnership), and the Trust will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of a Note, will agree to treat
the Notes as indebtedness for Federal income tax purposes. See "Certain Federal
Income Tax Consequences" in the Prospectus for additional information concerning
the application of Federal income tax laws to the Trust and the Notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as an individual
retirement account and a Keogh plan (each 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-2 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 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 Seller
believes that, at the time of their issuance, the 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 Notes, including the reasonable expectation of purchasers of
Notes that the 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 Notes for ERISA purposes could change if the Trust incurred
losses.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Seller, the Servicer or the Owner
S-59
Trustee 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 Notes by a Benefit Plan
depending on the type and circumstances of the plan fiduciary making the
decision to acquire such Notes. Included among these exemptions are: Prohibited
Transaction Class Exemption ("PTCE") 90-1, regarding investments by insurance
company pooled separate accounts; PTCE 91-38, regarding investments by bank
collective investment funds; 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 Notes with
the assets of a Benefit Plan; or (ii) the acquisition of the Notes will not give
rise to a nonexempt prohibited transaction under Section 406(a) of ERISA or
Section 4975 of the Code.
[The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e)(1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity. By its acceptance of a Certificate, each
Certificateholder will be deemed to have represented and warranted that it is
not subject to the foregoing limitation. For additional information regarding
treatment of the Certificates under ERISA, see "ERISA Considerations" in the
accompanying Prospectus.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.]
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the related Trust would be
considered plan assets, the possibility of exemptive relief from the prohibited
transaction rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ], (the "Underwriting Agreement") among CPS, the
Seller, and [ ] (the "Underwriter"), the Seller has agreed to cause the Seller
to sell to the Underwriter, and the Underwriter has agreed to purchase, Notes
[and Certificates] in the following respective amounts:
Underwriter Principal Amount
Total................................................ ____________________
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all the Notes offered hereby if any of such Notes are purchased.
CPS and the Seller have been advised by the Underwriter that the
Underwriter proposes to offer the Securities from time to time for sale in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. The Underwriter may effect such transactions by selling the
Securities to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriter and any purchasers of
S-60
Securities for whom they may act as agents. The Underwriter and any dealers that
participate with the Underwriter in the distribution of the Securities may be
deemed to be underwriters, and any discounts or commissions received by them and
any profit on the resale of Securities by them may be deemed to be underwriting
discounts or commissions, under the Securities Act.
The Securities are a new issue of securities with no established
trading market. The Underwriter has advised CPS and the Seller that it intends
to act as a market maker for the Securities. However, the Underwriter is not
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of any trading market for
the Securities.
CPS and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriter may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for CPS and the Underwriter by Mayer, Brown & Platt, New York, New York.
S-61
INDEX OF TERMS (cont.)
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Actuarial Receivables...............................................37
Alpha Program ..................................................26
Benefit Plan ..............................................18, 56
Business Day ...................................................7
Cede ..............................................17, 43
Certificate Majority................................................55
Certificate Owners..............................................17, 41
Certificate Prepayment Amount...................................12, 42
Certificate Prepayment Premium......................................12
Certificateholders' Distributable Amount............................48
Certificateholders' Interest Distributable Amount...................42
Certificateholders' Percentage......................................49
Certificateholders' Principal Distributable Amount..............42, 48
Certificates ................................................1, 4
Class A-1 Interest Rate..............................................8
Class A-1 Noteholders............................................8, 39
Class A-1 Notes ...................................................1
Class A-2 Interest Rate..............................................8
Class A-2 Noteholders................................................8
Class A-2 Notes ...................................................1
Class A-1 Holdback Amount...........................................46
Class A-1 Pool Factor...............................................38
Class A-2 Pool Factor...............................................38
Class A-3 Interest Rate..............................................8
Class A-3 Noteholders...............................................39
Class A-3 Notes ................................................1, 4
Class A-3 Pool Factor...............................................38
Closing Date ...................................................4
Collateral Agent ..................................................50
Collection Account..................................................45
Collection Period ...................................................9
Commission ...................................................2
Contracts ..................................................24
CPS Receivables ...................................................5
CPS ...................................................4
Cram Down Loss ..................................................48
Cutoff Date ...................................................5
Dealer Agreements ..................................................24
Dealers ..................................................24
Delta Program ..................................................26
Determination Date..................................................47
Distribution Account................................................45
DTC ...........................................2, 17, 39
ERISA ..................................................56
Events of Default ..................................................51
Exchange Act ...................................................2
Financed Vehicles ...................................................5
S-i
INDEX OF TERMS (cont.)
First Time Buyer Program.............................................26
Funding Period ....................................................7
holders ...........................................17, 39, 41
IFCs ....................................................5
Indenture Trustee ....................................................1
Indenture .................................................1, 4
Index Maturity ...................................................40
Insurance Agreement..................................................20
Interest Rate ....................................................8
Interest Reserve Account..........................................7, 45
Issuer ....................................................4
LIBOR Determination Date.............................................40
Liquidated Receivable................................................47
Liquidation Proceeds.................................................47
Lock-Box Account ...............................................16, 45
Lock-Box Bank ...................................................16
Lock-Box Processor...................................................16
Mandatory Prepayment.............................................12, 42
Mandatory Redemption.............................................10, 40
Master Spread Account Agreement......................................51
Note Majority ...................................................55
Note Owners ...............................................17, 39
Note Prepayment Amount...........................................10, 40
Note Prepayment Premium..............................................10
Noteholders ............................................7, 17, 39
Noteholders' Distributable Amount....................................48
Noteholders' Interest Carryover Shortfall............................50
Noteholders' Percentage...........................................9, 48
Noteholders' Principal Carryover Shortfall...........................50
Notes ....................................................1
Obligors ...................................................24
Original Pool Balance.................................................5
Owner Trustee ....................................................1
Participants ...................................................43
Pass-Through Rate ...................................................11
Payment Date ....................................................7
Pool Balance ...................................................38
Post Office Box ...................................................16
prepayments ...................................................37
Pre-Funded Amount ....................................................7
Pre-Funding Account...................................................7
Principal Balance ...................................................47
Principal Distributable Amount....................................9, 48
PTCE ...................................................56
Purchase Amount ...................................................47
Receivables ....................................................5
Recoveries ...................................................47
Reference Banks ...................................................40
Registration Statement................................................2
Regulation ...................................................56
S-ii
INDEX OF TERMS (cont.)
Requisite Amount ...................................................14
Requisite Reserve Amount.............................................46
Rule of 78's Receivables.............................................37
Scheduled Receivable Payment.........................................48
Securities Act ....................................................2
Securities .................................................1, 4
Securityholders ...................................................11
Seller .................................................1, 4
Servicer Termination Event...........................................54
Servicer ....................................................4
Servicing Assumption Agreement.......................................17
Servicing Fee Rate...................................................17
Servicing Fee ...................................................46
Simple Interest Receivables..........................................37
Spread Account ...............................................14, 50
Standard Program ...................................................26
Standby Fee ...................................................17
Standby Servicer ...............................................17, 39
Sub-Prime Borrowers..................................................24
Subsequent Closing Date...............................................6
Subsequent Cutoff Date................................................6
Subsequent Receivables................................................6
Subsequent Transfer Agreement........................................19
Telerate Page 3750...................................................40
Total Distribution Amount............................................47
Trust Agreement ....................................................4
Trust Assets ....................................................5
Trustee Fee ...................................................49
Trust .................................................1, 4
UCC ...................................................45
Underwriter ...................................................57
Underwriting Agreement...............................................57
[Affiliate Purchase Agreement].......................................43
[Affiliated Originator] Receivables...............................5, 15
[Affiliated Originator]..............................................25
[Credit Enhancement] Cross Default...................................51
S-iii
No person has been authorized in connection with the offering made
hereby to give any information or to make any representation not contained in
this Prospectus Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CPS, the Seller or any Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------
S-iv
TABLE OF CONTENTS
Page
Prospectus Supplement
Available Information.................................................2
Incorporation of Certain Documents by Reference ......................2
Reports to Securityholders............................................2
Summary .............................................................4
Risk Factors.........................................................18
Formation of the Trust...............................................22
The Trust Assets.....................................................23
CPS's Automobile Contract Portfolio..................................23
The Receivables Pool.................................................30
Yield Considerations.................................................35
Pool Factors and Other Information...................................36
Use of Proceeds......................................................36
The Seller and CPS...................................................36
The Standby Servicer.................................................37
Description of the Notes.............................................37
Registration of Notes................................................41
Description of the Trust Documents...................................41
Credit Enhancement...................................................41
The Credit Enhancer..................................................52
Certain Legal Aspects of the Receivables.............................52
ERISA Considerations.................................................53
Underwriting.........................................................54
Legal Opinions.......................................................55
Index of Terms........................................................i
Prospectus
Prospectus Supplement.................................................2
Available Information.................................................2
Incorporation of Certain Documents by Reference.......................2
Reports to Noteholders................................................3
Summary of Terms......................................................4
Risk Factors.........................................................10
Formation of the Trust...............................................16
The Trust Assets.....................................................16
Acquisition of Receivables by the Seller.............................17
The Receivables......................................................18
CPS's Automobile Contract Portfolio..................................20
Pool Factors.........................................................20
Use of Proceeds......................................................21
The Seller and CPS...................................................21
Description of the Certificates......................................22
S-v
Certain Information Regarding the Certificates.......................23
Description of the Trust Documents...................................31
Certain Legal Aspects of the Receivables.............................40
Certain Federal Income Tax Consequences..............................43
ERISA Considerations.................................................47
Methods of Distribution..............................................47
Legal Opinions.......................................................48
Financial Information................................................48
Additional Information...............................................48
Defined Terms........................................................49
-----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver this Prospectus Supplement and the Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
[$ ]
CPS AUTO RECEIVABLES TRUST 1997-[ ]
[ %] ASSET-BACKED
NOTES
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO
SERVICES, INC.
(SERVICER)
-
PROSPECTUS SUPPLEMENT
-
[UNDERWRITER] BLACK DIAMOND SECURITIES, LLC
[ ], 199[ ]
S-vi
Prospectus Supplement
To Prospectus Dated [ ], 1997
[$ ]
CPS Auto Receivables Trust 1997-3
[$ ][ %] Asset-Backed Notes
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-------
CPS Auto Receivables Trust 1997-3 (the "Trust") will be formed pursuant
to a Trust Agreement to be dated as of [ ], 1997 between CPS Receivables Corp.,
as seller (the "Seller"), and [ ], as owner trustee (the "Owner Trustee"). The [
%] Asset Backed Notes, Class A (the "Class A Notes"), the Asset Backed Notes,
Class B (the "Class B Notes") [additional classes of notes to be specified (the
"Class [ ] Notes", and, together with the Class A Notes and the Class B Notes,
the "Notes")], will be issued pursuant to an Indenture (the "Indenture") to be
dated as of [ ], 1997 between the Trust and Norwest Bank Minnesota, National
Association, as indenture trustee (in such capacity, the "Indenture Trustee").
The Trust also will issue [$ ] aggregate principal amount of Asset Backed
Certificates which are not offered hereby but will initially be retained by the
Seller (the "Certificates" and, together with the Notes, the "Securities") [The
rights of [identify subordinated classes of Securities] to receive payments of
[principal] and/or [interest] will be subordinated to the rights of [identify
senior classes of Securities] to the extent described herein.].
-------
The Trust Assets will include a pool of retail installment sale
contracts (including contracts representing obligations of Sub- Prime Borrowers
(as defined herein)) and all rights thereunder, certain monies due or received
thereunder, security interests in the new and used automobiles, light trucks,
vans and minivans securing the Receivables (as defined herein), certain bank
accounts and the proceeds thereof, the Policy with respect to the Notes, and the
right of CPS to receive certain insurance proceeds and certain other property,
as more fully described herein. The Receivables will be purchased by the Seller
from CPS and from CPS's subsidiary, Samco Acceptance Corp. on or prior to the
date of the issuance of the Securities.
-------
The Underwriters have agreed to purchase from the Seller the Class A
Notes at a purchase price equal to [ %] of the principal amount thereof, subject
to the terms and conditions set forth in the Underwriting Agreement referred to
herein under "Underwriting". The aggregate proceeds to the Seller, after
deducting expenses payable by the Seller, estimated at [$ ] will be [$ ].
-------
The Underwriters propose to offer the Class A Notes from time to time
in negotiated transactions or otherwise, at varying prices to be determined at
the time of sale. For further information with respect to the plan of
distribution and any discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
-------
Full and timely payment of the Scheduled Payments in respect of the
Class A Notes on each Payment Date is unconditionally and irrevocably guaranteed
pursuant to a financial guaranty insurance policy (the "Policy") to be issued by
[FSA Logo]
-------
For a discussion of certain factors relating to the
transaction, see "Risk Factors" at page S-[ ]
herein and page [ ] in the accompanying
prospectus.
-------
THE NOTES REPRESENT OBLIGATIONS OF AND THE CERTIFICATES REPRESENT INTERESTS IN,
THE TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER,
THE SERVICER OR ANY AFFILIATE THEREOF. THE 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
SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------
The Class A Notes are offered hereby by the Underwriters when, as and
if issued by the Seller, delivered to and accepted by them and subject to the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the Class A Notes will be made on or about [ ], only
through The Depository Trust Company.
-------
ALEX BROWN & SONS BLACK DIAMOND SECURITIES, LLC
INCORPORATED
The date of this Prospectus Supplement is [ ], 1997.
AVAILABLE INFORMATION
CPS has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Notes offered pursuant to this Prospectus Supplement. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
office at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may 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 also maintains a web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder. Upon the receipt of a request by an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriters (as defined herein) or a request by such investor's
representative within the period during which there is an obligation to deliver
a Prospectus Supplement and Prospectus, CPS, the Seller or the Underwriters will
promptly deliver, or cause to be delivered, without charge, a paper copy of the
Prospectus Supplement and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes offered hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
In addition to the documents described above and in the accompanying
Prospectus under "Incorporation of Certain Documents by Reference", the
consolidated financial statements of Financial Security Assurance Inc. and its
Subsidiaries included in, or as exhibits to, the following documents, which have
been filed with the Commission by Financial Security Assurance Holdings Ltd.
("Holdings"), are hereby incorporated by reference in this Prospectus
Supplement:
(a) Annual Report on Form 10-K for the period ended December 31, 1996,
(b) Quarterly Report on Form 10-Q for the period ended June 30, 1997,
All financial statements of Financial Security Assurance Inc.
("Financial Security") and Subsidiaries included in documents filed by Holdings
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Prospectus Supplement and prior to the termination of the
offering of the Notes shall be deemed to be incorporated by reference into this
Prospectus Supplement and to be a part hereof from the respective dates of
filing of such documents.
S-2
The Seller on behalf of the Trust hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Trust's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act and
each filing of the financial statements of Financial Security included in or as
an exhibit to the annual report of Holdings filed pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
Class A Notes offered hereby, and the offering of such Class A Notes at that
time shall be deemed to be the initial bona fide offering thereof.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92618,
Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO SECURITYHOLDERS
Unless and until Definitive Securities are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co., as nominee of The
Depository Trust Company ("DTC") and registered holder of the Securities. Such
reports will not constitute financial statements prepared in accordance with
generally accepted accounting principles. The Servicer will file with the
Commission such periodic reports as are required under the Exchange Act, and the
rules and regulations thereunder and as are otherwise agreed to by the
Commission. Copies of such periodic reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
S-3
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Issuer..................... CPS to Receivables Trust 1997-3 (the "Trust"
or the "Issuer").
Seller...................... CPS Receivables Corp. (the "Seller"). See
"The Seller and CPS" in this Prospectus
Supplement.
Servicer.................... Consumer Portfolio Services, Inc. ("CPS" or,
in its capacity as the servicer, the
"Servicer"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS" in this
Prospectus Supplement.
Indenture Trustee........... Norwest Bank Minnesota, National
Association, a national banking association,
located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota.
Owner Trustee............... [Name and Address]
Insurer..................... Financial Security Assurance, Inc., a
financial guaranty insurance company
incorporated under the laws of the State of
New York (the "Insurer"). See "The Insurer"
in this Prospectus Supplement.
Closing Date................ On or about [ ], 1997 (the "Closing Date").
The Trust................... The Trust will be a business trust
established under the laws of the State of
Delaware. The activities of the Trust are
limited by the terms of the Trust Agreement
dated as of [ ], 1997 between the Seller and
the Owner Trustee (the "Trust Agreement").
The Trust will issue Notes in the aggregate
original principal amount of [$ ]. The Trust
will also issue the Certificates, which are
not offered hereby and which will initially
be retained by the Seller. The Notes will be
issued pursuant to an Indenture dated as of
[ ], 1997 (the "Indenture"). The Notes will
be offered for purchase in minimum
denominations of [$ ] and integral multiples
of $1,000 in excess thereof, in book entry
form only. See "Description of the
Securities - Book-Entry Registration" in the
Prospectus.
The Notes will be secured by the Trust
Assets as, and to the extent, provided in
the Indenture.
Trust Assets................ The property of the Trust (the "Trust
Assets") will include (i) a pool of retail
installment sale contracts (collectively,
the "Receivables") secured by the new and
used automobiles, light trucks, vans and
minivans financed thereby (the "Financed
S-4
Vehicles"), (ii) with respect to Receivables
that are Rule of 78's Receivables (as
defined herein), all payments due thereon
after [ ], 1997 (the "Cutoff Date"), and,
with respect to Receivables that are Simple
Interest Receivables (as defined herein),
all payments received thereunder after the
Cutoff Date, (iii) security interests in the
Financed Vehicles, (iv) certain bank
accounts and the proceeds thereof, (v) the
right of the Seller to receive proceeds from
claims under, or refunds of unearned
premiums from, certain insurance policies
and extended service contracts, (vi) all
right, title and interest of the Seller in
and to the Sale and Servicing Agreement,
(vii) the Policy issued by the Insurer with
respect to the Class A Notes, and (viii)
certain other property, as more fully
described herein. See "Formation of the
Trust" in this Prospectus Supplement and
"The Receivables" in the Prospectus. Certain
of the Receivables will be purchased by the
Seller from CPS pursuant to the Purchase
Agreement (such Receivables, the "CPS
Receivables") and certain of the Receivables
will be purchased by the Seller from CPS's
subsidiary, Samco Acceptance Corp. pursuant
to the Samco Purchase Agreement (such
Receivables, the "Samco Receivables") on or
prior to the Closing Date. The Receivables
arise from loans originated by automobile
dealers or IFCs (as defined herein) for
assignment to CPS or a subsidiary of CPS
pursuant to CPS's auto loan programs.
The Receivables............. As of the Cutoff Date, the aggregate
outstanding principal balance of the
Receivables was [$ ] (the "Original Pool
Balance"). The Receivables consist of retail
installment sale contracts secured by new
and used automobiles, light trucks, vans and
minivans including, with respect to Rule of
78's Receivables, the rights to all payments
due with respect to such Receivables after
the Cutoff Date, and, with respect to Simple
Interest Receivables, the rights to all
payments received with respect to such
Receivables after the Cutoff Date. As of the
Cutoff Date, approximately [ %] of the
aggregate principal balance of the
Receivables represented financing of used
vehicles. The Receivables arise from loans
originated by automobile dealers or
independent finance companies ("IFCs") for
assignment to CPS or a subsidiary of CPS
pursuant to CPS's auto loan programs. The
auto loan programs target automobile
purchasers with marginal credit ratings who
are generally unable to obtain credit from
banks or other low-risk lenders. See "CPS's
Automobile Contract Portfolio - General" and
"The Receivables Pool" in this Prospectus
Supplement and "Risk Factors - Sub-Prime
Obligors" in the Prospectus. The Receivables
have been selected from the contracts owned
by CPS or Samco based on the criteria
specified in the Purchase Agreement and
described herein.
Terms of the Notes.......... The principal terms of the Notes will be as
described below:
A. Payment Dates........... Payments of interest and principal on the
Notes will be made on the 15th day of each
month or, if such 15th day is not a Business
Day, on the next following Business Day
(each a "Payment
S-5
Date"), commencing [ ]. Payments will be
made to holders of record of the Notes (the
"Noteholders") as of the close of business
on the Record Date applicable to such
Payment Date. A "Business Day" is a day
other than a Saturday, a Sunday or a day on
which banking institutions in the City of
New York, New York, the State in which the
Corporate Trust Office is located, the State
in which the executive offices of the
Servicer are located or the State in which
the principal place of business of the
Insurer is located are authorized or
obligated by law, executive order or
governmental decree to be closed.
B. Final Scheduled
Payment Dates....... [ ].
C. Interest Rates......... The Class A Notes will bear interest at a
rate equal to [ %] per annum (the "Class A
Interest Rate"). The Class B Notes will bear
interest at a rate equal to [ %] per annum
(the "Class B Interest Rate"). [Additional
classes to be added.] Each such interest
rate for a Class of Notes is referred to as
an "Interest Rate".
D. Interest............... On each Payment Date, the holders of record
of the Class A Notes (the "Class A
Noteholders") as of the related Record Date
will be entitled to receive, pro rata,
thirty (30) days of interest at the Class A
Interest Rate on the outstanding principal
amount of the Class A Notes at the close of
business on the last day of the related
Collection Period. On each Payment Date, the
holders of record of the Class B Notes (the
"Class B Noteholders") as of the related
Record Date will be entitled to receive, pro
rata, thirty (30) days of interest at the
Class B Interest Rate on the outstanding
principal balance of the Class B Notes at
the close of business on the last day of the
related Collection Period. [Additional
classes, if any, to be added].
Notwithstanding the foregoing, on the first
Payment Date, the interest payable to the
Noteholders of record of each Class of Notes
will be an amount equal to the product of
(a) the Interest Rate applicable to such
Class of Notes, (b) the initial principal
amount of such Class of Notes and (c) a
fraction (i) the numerator of which is the
number of days from and including the
Closing Date through and including [ ] 14,
1997 and (ii) the denominator of which is
360. Interest on the Notes which is due but
not paid on any Payment Date will be payable
on the next Payment Date together with, to
the extent permitted by law, interest on
such unpaid amount at the applicable
Interest Rate. See "Description of the Notes
- Distributions" in this Prospectus
Supplement.
E. Principal................ Principal of the Class A Notes will be
payable on each Payment Date in an amount
equal to the Class A Noteholders' Principal
Distributable Amount for the related
Collection Period. The "Class A Noteholders'
Principal Distributable Amount" is equal to
the product of (x) the Class A Noteholders'
Percentage of the Principal Distributable
Amount and (y) any unpaid portion of the
amount described in clause (x) with respect
to a prior Payment Date. Principal of the
Class B Notes will be payable on each
S-6
Payment Date in an amount equal to the Class
B Noteholders' Principal Distributable
Amount for the related Collection Period.
The "Class B Noteholders' Principal
Distributable Amount" is equal to the
product of (a) the Class B Noteholders'
Percentage of the Principal Distributable
Amount and (b) any unpaid portion of the
amount described in clause (a) with respect
to a prior Payment Date.
The "Class A Noteholders' Percentage" will
(a) on any Payment Date prior to the Payment
Date on which the principal amount of the
Class A-3 Notes is reduced to zero, be [ %],
(b) on the Payment Date on which the
principal amount of the Class A-3 Notes is
reduced to zero, be the percentage
equivalent of a fraction, the numerator of
which is the principal amount of the Class
A-3 Notes immediately prior to such Payment
Date, and the denominator of which is the
Principal Distributable Amount and (c) on
any other Payment Date, be 0%.
The "Class B Noteholders' Percentage" will
(a) on any Payment Date prior to the Payment
Date on which the principal amount of the
Class A-3 Notes is reduced to zero, be [ %],
(b) on the Payment Date on which the
principal amount of the Class A-3 Notes is
reduced to zero, be the percentage
equivalent of a fraction, the numerator of
which is the principal amount of the Class
A-3 Notes immediately prior to such Payment
Date, and the denominator of which is the
Principal Distributable Amount and (c) on
any other Payment Date, be 0%.
On each Payment Date, an amount equal to the
lesser of (i) the portion of the Total
Distribution Amount remaining after
application thereof to pay all senior
distributions as described in "Priority of
Payments" below and (ii) the Class A
Noteholders' Principal Distributable Amount
will be applied, sequentially, to pay
principal of the Class A-1 Notes until the
principal balance of the Class A-1 Notes has
been reduced to zero, then to the holders of
the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been
reduced to zero, then to the holders of the
Class A-3 Notes until the principal balance
of the Class A-3 Notes has been reduced to
zero, [additional classes of Notes may be
added]. On each Payment Date, an amount
equal to the lesser of (i) the portion of
the Total Distribution Amount remaining
after application thereof to pay all senior
distributions as described in "Priority of
Payments" below and (ii) the Class B
Noteholders' Principal Distributable Amount
will be applied to pay principal of the
Class B Notes until the principal balance of
the Class B Notes has been reduced to zero.
The "Principal Distributable Amount" for a
Payment Date will equal the sum of (a) the
principal portion of all Scheduled
Receivable Payments received during the
preceding Collection Period on Rule of 78's
Receivables and all payments of principal
received on Simple Interest Receivables
during the preceding Collection Period; (b)
the principal portion of all prepayments in
full received during the preceding
Collection Period (including
S-7
prepayments in full resulting from
collections with respect to a Receivable
received during the preceding Collection
Period (without duplication of amounts
included in (a) above and (d) below)); (c)
the portion of the Purchase Amount allocable
to principal of each Receivable that was
repurchased by CPS or purchased by the
Servicer as of the last day of the related
Collection Period and, at the option of the
[Credit Enhancer] the Principal Balance of
each Receivable that was required to be but
was not so purchased or repurchased (without
duplication of the amounts referred to in
(a) and (b) above); (d) the Principal
Balance of each Receivable that first became
a Liquidated Receivable during the preceding
Collection Period (without duplication of
the amounts included in (a) and (b) above);
and (e) the aggregate amount of Cram Down
Losses with respect to the Receivables that
shall have occurred during the preceding
Collection Period (without duplication of
amounts included in (a) through (d) above).
In addition, the outstanding principal
amount of the Notes of any Class, to the
extent not previously paid, will be payable
on the respective Final Scheduled Payment
Date for such Class.
A "Collection Period" with respect to a
Payment Date will be the calendar month
preceding the month in which such Payment
Date occurs; provided, however, that with
respect to the first Payment Date, the
"Collection Period" will be the period from
and excluding the Cutoff Date to and
including [ ].
F. Optional
Redemption.............. The Notes, to the extent still outstanding,
may be redeemed in whole, but not in part,
on any Payment Date on which the Servicer
exercises its option to purchase all the
Receivables as of the last day of any
Collection Period on or after which the
aggregate Principal Balance of the
Receivables is equal to 10% or less of the
Original Pool Balance, at a redemption price
equal to the unpaid principal amount of the
Notes, plus accrued and unpaid interest
thereon; provided that the Servicer's right
to exercise such option will be subject to
the prior approval of the Insurer, but only
if, after giving effect thereto, a claim on
the Policy would occur or any amount owing
to the Insurer or the holders of the Notes
would remain unpaid. See "Description of the
Notes - Optional Redemption" in this
Prospectus Supplement.
G. Mandatory
Redemption.............. The Notes may be accelerated and subject to
immediate payment at par upon the occurrence
of an Event of Default under the Indenture.
So long as no Insurer Default shall have
occurred and be continuing, an Event of
Default under the Indenture will occur only
upon delivery by the Insurer to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the Insurance Agreement dated as of [
]. In the case of such an Event of Default,
the Notes will automatically be accelerated
and subject to immediate payment at par. See
"Description of the
S-8
Trust Documents - Events of Default" in this
Prospectus Supplement.
Priority of Payments........ On each Payment Date, the Indenture Trustee
shall make the following distributions in
the following order of priority:
(i) to the Servicer, the Servicing Fee and
all unpaid Servicing Fees from prior
Collection Periods; provided, however, that
as long as CPS is the Servicer and Norwest
Bank Minnesota, National Association is the
Standby Servicer, the Indenture Trustee will
first pay to the Standby Servicer out of the
Servicing Fee otherwise payable to CPS an
amount equal to the Standby Fee;
(ii) in the event the Standby Servicer or
any other party becomes the successor
Servicer, to the Standby Servicer or such
other successor servicer, reasonable
transition expenses (up to a maximum of
$50,000 incurred in acting as successor
Servicer;
(iii) to the Indenture Trustee and the Owner
Trustee, pro rata, the Indenture Trustee Fee
(as defined herein) and reasonable
out-of-pocket expenses and all unpaid
Trustee Fees and unpaid reasonable
out-of-pocket expenses from prior Collection
Periods;
(iv) to the Collateral Agent, all fees and
expenses payable to the Collateral Agent
with respect to such Payment Date;
(v) to the Class A Noteholders, the Class A
Noteholders' Interest Distributable Amount,
to be distributed as described under
"Description of the Notes - Distributions";
(vi) to the Class B Noteholders, the Class B
Noteholders' Interest Distributable Amount,
to be distributed as described under
Description of the Notes - Distributions";
(vii) to the Class A Noteholders, the Class
A Noteholders' Principal Distributable
Amount, to be distributed as described under
"Description of the Notes - Distributions";
(viii) to the [Credit Enhancer], any amounts
due to the [Credit Enhancer] under the terms
of the [Credit Enhancement Agreement] (as
defined herein);
(ix) to the Class B Noteholders, the Class B
Noteholders' Principal Distributable Amount,
to be distributed as described under
Description of the Notes -- Payments of
Principal; and
(x) to the Certificateholders, or as
otherwise specified in the Trust Documents,
any remaining funds. See "Description of the
Trust Documents - Distributions - Priority
of Distribution Amounts" in this Prospectus
Supplement.]
See "Description of the Notes -
Distributions on Notes - Priority of
Distribution Amounts" in this Prospectus
Supplement;
S-9
Spread Account.............. As part of the consideration for the
issuance of the Policy, the Seller has
agreed to cause the Spread Account to be
established with the Collateral Agent for
the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any
portion of the Total Distribution Amount
remaining on any Payment Date after payment
of all fees and expenses due on such date to
the Servicer, the Standby Servicer, the
Indenture Trustee, the Owner Trustee, the
Collateral Agent, the Insurer, any successor
Servicer and all principal and interest
payments due to the Noteholders on such
Payment Date, will be deposited in the
Spread Account and held by the Collateral
Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders, and
the Insurer. Amounts on deposit in the
Spread Account on any Payment Date which
(after all payments required to be made on
such date have been made) are in excess of
the requisite amount determined from time to
time in accordance with certain portfolio
performance tests agreed upon by the Insurer
and the Seller as a condition to the
issuance of the Policy (such requisite
amount, the "Requisite Amount") will be
released to or at the direction of the Owner
Trustee. See "Description of the Notes -
Distributions - The Spread Account" in this
Prospectus Supplement.
Record Dates................ The record date applicable to each Payment
Date (each, a "Record Date") will be the
10th day of the calendar month in which such
Payment Date occurs.
Repurchases and Purchases
of Certain Receivables...... CPS has made certain representations and
warranties relating to the Receivables to
the Seller in the Purchase Agreement, and
the Seller has made such representations and
warranties for the benefit of the Trust and
the Insurer in the Sale and Servicing
Agreement. The Indenture Trustee, as
acknowledged assignee of the repurchase
obligations of CPS under the Purchase
Agreement, will be entitled to require CPS
to repurchase any Receivable if such
Receivable is materially adversely affected
by a breach of any representation or
warranty made by CPS with respect to the
Receivable and such breach has not been
cured as of the last day of the second (or,
if CPS elects, the first) month following
discovery thereof by the Seller or CPS or
notice to the Seller or CPS. See
"Description of the Trust Documents -- Sale
and Assignment of Receivables" in the
Prospectus.
The Servicer will be obligated to repurchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the last
day of the penultimate Collection Period
preceding the Final Scheduled Payment Date
or fails to maintain a perfected security
interest in the Financed Vehicle. See
"Description of the Notes -- Servicing
Procedures" in this Prospectus Supplement
and "Description of the Trust Documents --
Servicing Procedures" in the Prospectus.
The Policy.................. On the Closing Date, the Insurer will issue
the Policy to the Indenture Trustee for the
benefit of the Noteholders (the "Policy").
Pursuant to the Policy, the Insurer will
S-10
unconditionally and irrevocably guarantee to
the Class A Noteholders payment of the Class
A Noteholders' Interest Distributable Amount
and the Class A Noteholders' Principal
Distributable Amount (collectively, the
"Scheduled Payments") on each Payment Date.
Servicing................... The Servicer will be responsible for
servicing, managing and making collections
on the Receivables. On or prior to the next
billing period after the Cutoff Date, the
Servicer will notify each Obligor to make
payments with respect to the Receivables
after the Cutoff Date directly to a post
office box in the name of the Indenture
Trustee for the benefit of the Noteholders
and the Insurer (the "Post Office Box"). On
each Business Day, [Bank of America], as the
lock-box processor (the "Lock-Box
Processor"), will transfer any such payments
received in the Post Office Box to a
segregated lock-box account at Bank of
America (the "Lock-Box Bank") in the name of
the Indenture Trustee for the benefit of the
Noteholders and the Insurer (the "Lock-Box
Account"). Within two Business Days of
receipt of funds into the Lock-Box Account,
the Servicer is required to direct the
Lock-Box Bank to effect a transfer of funds
from the Lock-Box Account to one or more
accounts established with the Indenture
Trustee. See "Description of the Notes --
Accounts" in this Prospectus Supplement and
"Description of the Trust Documents --
Payments on Receivables" in the Prospectus.
Standby Servicer............ Norwest Bank Minnesota, National
Association, a national banking association,
located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota.
If a Servicer Termination Event occurs and
remains unremedied, (1) provided no Insurer
Default has occurred and is continuing, then
the Insurer in its sole and absolute
discretion, or (2) if an Insurer Default
shall have occurred and be continuing, then
the Indenture Trustee may, with the consent
of the Insurer (so long as an Insurer
Default shall not have occurred and be
continuing) or shall, at the direction of
the Insurer (or, if an Insurer Default shall
have occurred and be continuing, at the
direction of the Note Majority) terminate
the rights and obligations of the Servicer
under the Sale and Servicing Agreement. If
such event occurs when CPS is the Servicer,
or if CPS resigns as Servicer or is
terminated as Servicer by the Insurer,
Norwest Bank Minnesota, National Association
(in such capacity, the "Standby Servicer")
has agreed to serve as successor Servicer
under the Sale and Servicing Agreement
pursuant to a Servicing Assumption Agreement
dated as of [ ], 1997 among CPS, the Standby
Servicer and the Indenture Trustee (the
"Servicing Assumption Agreement"). The
Standby Servicer will receive a portion of
the Servicing Fee (the "Standby Fee") for
agreeing to stand by as successor Servicer
and for performing other functions. If the
Standby Servicer or any other entity serving
at the time as Standby Servicer becomes the
successor Servicer, it will receive
compensation at a Servicing Fee Rate not to
exceed 2.12% per annum. See "The Standby
Servicer" in this Prospectus Supplement.
S-11
Servicing Fee............... The Servicer will be entitled to receive a
Servicing Fee on each Payment Date equal to
the product of one-twelfth times 2.12% (the
"Servicing Fee Rate") of the Pool Balance as
of the close of business on the last day of
the second preceding Collection Period;
provided, however, that with respect to the
first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to
the product of one- twelfth times 2.12% of
the Original Pool Balance. As additional
servicing compensation, the Servicer will
also be entitled to certain late fees,
prepayment charges and other administrative
fees or similar charges. For so long as CPS
is Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to
the Standby Servicer.
Certain Legal Aspects
of the Receivables........ In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the CPS
Receivables will be assigned by CPS to the
Seller pursuant to the Purchase Agreement
and by the Seller to the Trustee pursuant to
the Sale and Servicing Agreement. The Samco
Receivables, representing approximately [ %]
of the aggregate principal balance of the
Receivables as of the Cutoff Date, have been
originated by CPS's 80% owned subsidiary,
Samco, and will be purchased by the Seller
from Samco prior to consummation of the
transfer of Receivables contemplated in the
Sale and Servicing Agreement. The
certificates of title to the Financed
Vehicles securing the CPS Receivables show
CPS as the lienholder and the certificates
of title to the Samco Receivables show Samco
as the lienholder. Due to the administrative
burden and expense, the certificates of
title to the Financed Vehicles securing the
Receivables will not be amended or reissued
to reflect the assignment thereof to the
Seller, nor will the certificates of title
to any Financed Vehicles be amended or
reissued to reflect the assignment thereof
to the Trust. In the absence of such an
amendment, the Trust may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states.
The Seller will be obligated to purchase any
Receivable sold by the Seller to the Trust
as to which there did not exist on the
Closing Date a perfected security interest
in the name of CPS or Samco in the Financed
Vehicle, and the Servicer will be obligated
to purchase any Receivable sold to the Trust
as to which it failed to maintain a
perfected security interest in the name of
CPS or Samco in the Financed Vehicle
securing such Receivable (which perfected
security interest has been assigned to, and
is for the benefit of, the Trust) if, in
either case, such breach materially and
adversely affects the interest of the Trust,
the Indenture Trustee or the Certificate
Insurer in such Receivable and if such
failure or breach is not cured by the last
day of the second (or, if CPS or the
Servicer, as the case may be, elects, the
first) month following the discovery by or
notice to CPS or the Servicer, as the case
may be, of such breach. To the extent the
security interest of CPS or Samco is
perfected, the Trust will have a prior claim
over subsequent purchasers of such Financed
Vehicle and holders of subsequently
perfected security
S-12
interests. However, as against liens for
repairs of a Financed Vehicle or for unpaid
storage charges or for taxes unpaid by an
Obligor under a Receivable, or through
fraud, forgery or negligence or error, CPS
or Samco, and therefore the Trust, could
lose its prior perfected security interest
in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to
purchase a Receivable as to which a lien for
repairs of a Financed Vehicle or for taxes
unpaid by an Obligor under a Receivable
result in losing the priority of the
security interest in such Financed Vehicle
after the Closing Date. See "Risk Factors --
Certain Legal Aspects" in this Prospectus
Supplement and in the Prospectus.
Book-Entry Notes............ The 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"), and will only be available in the
form of book-entries on the records of DTC
and participating members thereof. Class A
Notes will be issued in definitive form only
under the limited circumstances described
herein. All references herein to "holders"
of the Class A Notes or "Class A
Noteholders" shall reflect the rights of
beneficial owners of the Class A Notes (the
"Note Owners") as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein. See "Description
of the Notes - Registration of Notes" in
this Prospectus Supplement and "Description
of the Securities - Book-Entry Registration"
and "- Definitive Notes" in the Prospectus.
Tax Status.................. In the opinion of Mayer, Brown & Platt
("Federal Tax Counsel"), for Federal income
tax purposes the Class A Notes will be
characterized as debt, the Class B Notes
should be characterized as debt, and the
Trust will not be characterized as an
association (or publicly traded partnership)
taxable as a corporation. Each Noteholder,
by the acceptance of a Note, will agree to
treat the Notes as indebtedness for Federal
income tax purposes and "Certain Federal
Income Tax Consequences" in this Prospectus
Supplement. See "Certain Federal Income Tax
Consequences" in the Prospectus for
additional information concerning the
application of Federal tax laws to the Trust
and the Notes.
ERISA Considerations........ Subject to the conditions and considerations
discussed under "ERISA Considerations" in
this Prospectus Supplement, the Notes are
eligible for purchase by pension,
profit-sharing or other employee benefit
plans, as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan"). See "ERISA
Considerations" in this Prospectus
Supplement.
Rating of the
Notes....................... It is a condition of issuance that the Class
A Notes be rated "Aaa" by Moody's Investors
Service, Inc. ("Moody's") and "AAA" by
Standard & Poor's Rating Services ("Standard
& Poor's" and together with Moody's, the
"Rating Agencies"), on the basis of the
issuance of the Policy by the Insurer and
that the
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Class B Notes be rated at least "BB" or the
equivalent by a nationally recognized rating
agency. A security rating is not a
recommendation to buy, sell or hold
securities and may be revised or withdrawn
at any time by the assigning Rating Agency.
See "Risk Factors -- Ratings of the Notes"
in this Prospectus Supplement.
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RISK FACTORS
In addition to the other information in this Prospectus Supplement and
the Prospectus, prospective Noteholders should consider the following factors,
as well as those matters discussed in "Risk Factors" in the Prospectus, in
evaluating an investment in the Notes:
Sub-Prime Obligors; Servicing
CPS purchases loans originated for assignment to CPS or a subsidiary
through automobile dealers or IFCs. CPS services its dealers through a network
of employee and independent marketing representatives and through its 80% owned
subsidiary, Samco Acceptance Corp. ("Samco"). CPS's customers are generally
considered to have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income characteristics
which cause difficulty in borrowing from banks, captive finance companies of
automakers or other traditional sources of auto loan financing; and customers
with a derogatory credit record including a history of irregular employment,
previous bankruptcy filings, repossessions of property, charged-off loans and
garnishment of wages. The payment experience on Receivables of Obligors with
marginal credit is likely to be different than that on receivables of
traditional auto financing sources and is likely to be more sensitive to changes
in the economic climate in the areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated by the Insurer as Servicer, the
Standby Servicer has agreed to assume the obligations of successor Servicer
under the Sale and Servicing Agreement. See "Description of the Notes-Rights
Upon Servicer Termination Event" in this Prospectus Supplement. There can be no
assurance, however, that collections with respect to the Receivables will not be
adversely affected by any change in Servicer. See "The Standby Servicer" in this
Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
Insurer for successive 90-day periods. The Insurer will agree to grant
continuous renewals so long as (i) no Servicer Termination Event under the Sale
and Servicing Agreement has occurred and (ii) no event of default under the
insurance and indemnity agreement among CPS, the Seller and the Insurer (the
"Insurance Agreement") has occurred.
Certain Legal Aspects
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the Receivables will not be amended or
reissued to reflect the assignment of the Receivables to the Seller by CPS or
Samco, as applicable, nor will the certificates of title to any of the Financed
Vehicles be amended or reissued to reflect the assignment to the Trust. In the
absence of such an amendment or reissuance, the Trust may not have a perfected
security interest in the Financed Vehicles securing the Receivables in some
states. By virtue of the assignment of the Purchase Agreement to the Trust, CPS
will be obligated to repurchase any Receivable sold to the Trust by the Seller
(including any Samco Receivable) as to which there did not exist on the Closing
Date a perfected security interest in the name of CPS or Samco in the Financed
Vehicle, and the Servicer will be obligated to purchase any Receivable sold to
the Trust as to which it failed to maintain a perfected security interest in the
name of CPS or Samco in the Financed Vehicle securing such Receivable if, in
either case, such breach materially and adversely affects such Receivable and if
such failure or breach is not cured prior to the expiration of the applicable
cure period. To the extent the security interest of CPS or Samco is perfected,
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the Trust will have a prior claim over subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected security interests. However, as
against liens for repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable, or through fraud, forgery, negligence or error, CPS
or Samco, and therefore the Trust, could lose the priority of its security
interest or its security interest in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to purchase a Receivable as to which a lien
for repairs of a Financed Vehicle or for taxes unpaid by an Obligor under a
Receivable result in losing the priority of the security interest in such
Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables" in this Prospectus Supplement and "Certain Legal Aspects of the
Receivables -- Security Interest in Vehicles" in the Prospectus.
Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders. The Notes represent obligations solely of the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Notes by the Insurer pursuant to the
Policy, as described herein. The Seller will take such steps as are necessary
for the Insurer to issue the Policy to the Indenture Trustee for the benefit of
the Noteholders. Under the Policy, the Insurer will unconditionally and
irrevocably guarantee to the Noteholders full and complete payment of the
Scheduled Payments on each Payment Date. In the event of an Insurer Default, the
Noteholders must rely on the collections on the Receivables, and the proceeds
from the repossession and sale of Financed Vehicles which secure defaulted
Receivables. In such event, certain factors, such as the Trust not having
perfected security interests in the Financed Vehicles, may affect the Trust's
ability to realize on the collateral securing the Receivables and thus may
reduce the proceeds to be distributed to Noteholders on a current basis.
Distributions of interest and principal on the Notes will be dependent
primarily upon collections on the Receivables and amounts paid pursuant to the
Policy. See "Description of the Notes -- Distributions on Notes" in this
Prospectus Supplement.
Risk of Changes in Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio-Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on Samco's originations is
limited, CPS expects that the delinquency and net credit loss and repossession
experience with respect to the Receivables originated by Samco will be similar
to that of CPS's existing portfolio.
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Ratings of the Notes
It is a condition to the issuance of the Notes that the Notes be rated
"Aaa" by Moody's and "AAA" by Standard & Poor's on the basis of the issuance of
the Policy by the Insurer. A rating is not a recommendation to purchase, hold or
sell the Notes, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The Rating Agencies do not evaluate, and
the ratings do not address, the possibility that Noteholders may receive a lower
than anticipated yield. There is no assurance that a rating will remain for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a Rating Agency if in its judgment circumstances in the future so warrant.
The ratings of the Notes are based primarily on the rating of the Insurer. Upon
an Insurer Default the rating on the Notes may be lowered or withdrawn entirely.
In the event that any rating initially assigned to the Notes were subsequently
lowered or withdrawn for any reason, including by reason of a downgrading of the
Insurer's claims-paying ability, no person or entity will be obligated to
provide any additional credit enhancement with respect to the Notes. Any
reduction or withdrawal of a rating may have an adverse effect on the liquidity
and market price of the Notes.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 1997-3, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes and the Certificates, (iii) making payments in respect of the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Notes -- Servicing Compensation" in this Prospectus
Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title of the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to [$ ] and Certificates equal to such amount will be issued to the Seller. The
equity of the Trust, together with the proceeds of the initial sale of the
Notes, will be used by the Trust to purchase the Receivables from the Seller.
The Trust will not acquire any assets other than the Trust Assets, and it is not
anticipated that the Trust will have any need for additional capital resources.
Because the Trust will have no operating history upon its establishment and will
not engage in any business other than acquiring and holding the Trust Assets,
issuing the Securities and distributing payments on the Securities, no
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to the Trust have been included herein.
The Owner Trustee
[ ], the Owner Trustee under the Trust Agreement, is a Delaware banking
corporation and its principal offices are located at [ ]. The Owner Trustee will
perform limited administrative functions under the Trust Agreement. The Owner
Trustee's duties in connection with the issuance and sale of the Securities is
limited solely to the express
S-17
obligations of the Owner Trustee set forth in the Trust Agreement and the Sale
and Servicing Agreement.
The Indenture Trustee
Norwest Bank Minnesota, National Association, a national banking
association, is the Indenture Trustee under the Indenture. The principal offices
of the Indenture Trustee are located at Sixth Street and Marquette Avenue,
Minneapolis, Minnesota. The Indenture Trustee's duties in connection with the
Notes are limited solely to its express obligations under the Indenture and the
Sale and Servicing Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts on new and
used automobiles, light trucks, vans and minivans between dealers (the
"Dealers") or IFCs and retail purchasers (the "Obligors") and, with respect to
Rule of 78's Receivables, certain monies due thereunder after the Cutoff Date,
and, with respect to Simple Interest Receivables, certain monies received
thereunder after the Cutoff Date. The Receivables were originated by the Dealers
or IFCs for assignment to CPS or Samco. Pursuant to agreements between the
Dealers and CPS ("Dealer Agreements") or between the IFCs and Samco, the
Receivables were purchased by CPS or Samco and, prior to the Closing Date,
evidenced financing made available by CPS or Samco to the Obligors. The Trust
Assets also include (i) such amounts as from time to time may be held in one or
more trust accounts established and maintained by the Indenture Trustee pursuant
to the Sale and Servicing Agreement, as described below; see "Description of the
Notes -- Accounts" in this Prospectus Supplement; (ii) the rights of the Seller
under the Purchase Agreement; (iii) security interests in the Financed Vehicles;
(iv) the rights of the Seller to receive any proceeds with respect to the
Receivables from claims on physical damage, credit life and credit accident and
health insurance policies covering the Financed Vehicles or the Obligors, as the
case may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. The Trust Assets also will include the Policy for the benefit of the
Noteholders.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial
Services, Inc., a consumer loan servicing company, whose assets consisted
primarily of servicing contracts with respect to loan portfolios owned by third
parties. G&A Financial Services, Inc. has subsequently been dissolved. On
September 1, 1991, CPS was engaged to act as a servicer for loan portfolios
aggregating $16.5 million by two companies who had purchased such portfolios
from the Resolution Trust Corp. As of December 31, 1994, CPS had terminated all
such third-party servicing arrangements. On October 1, 1991, CPS began its
program of purchasing Contracts from Dealers and selling them to institutional
investors. Through December 31, 1996, CPS had purchased $729.1 million of
Contracts from Dealers and sold $713.0 million of Contracts to
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institutional investors. CPS continues to service all of the Contracts it has
purchased, including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 2,177
dealerships located in 41 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,195. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them.
CPS also purchases Contracts from third parties that have been originated by
others. Contracts have been sold by CPS to institutional investors either as
bulk sales or as private placements or public offerings of securities
collateralized by the Contracts. Purchasers of the Contracts receive a
pass-through rate of interest set at the time of the sale, and CPS receives a
base servicing fee for its duties relating to the accounting for and collection
of the Contracts. In addition, CPS is entitled to certain excess servicing fees
that represent collections on the Contracts in excess of those required to pay
principal and interest due to the investor and the base servicing fee to CPS.
Generally, CPS sells the Contracts to such institutional investors at face value
and without recourse except that the representations and warranties made to CPS
by the Dealers are similarly made to the investors by CPS. CPS has some credit
risk with respect to the excess servicing fees it receives in connection with
the sale of Contracts to investors and its continued servicing function since
the receipt by CPS of such excess servicing fees is dependent upon the credit
performance of the Contracts.
In March 1996, CPS formed Samco Acceptance Corp. ("Samco"), an 80
percent-owned subsidiary based in Dallas, Texas. Samco's business plan is to
provide the Company's sub-prime auto finance products to rural areas through
independently owned finance companies. CPS believes that many rural areas are
not adequately served by other industry participants due to their distance from
large metropolitan areas where a Dealer marketing representative is most likely
to be based.
Samco employees call on IFCs primarily in the southeastern United
States and present them with financing programs that are essentially identical
to those which CPS markets directly to Dealers through its marketing
representatives. CPS believes that a typical rural IFC has relationships with
many local automobile purchasers as well as Dealers but, because of limitations
of financial resources or capital structure, such IFCs generally are unable to
provide 36, 48 or 60 month financing for an automobile. IFCs may offer Samco's
financing programs to borrowers directly or indirectly through local Dealers.
Samco purchases contracts from the IFCs after its credit personnel have
performed all of the same underwriting and verification procedures and have
applied all the same credit criteria that CPS performs and applies for Contracts
it purchases from Dealers. Samco purchases Contracts at a discount ranging from
0% to 8% of the total amount financed under such Contracts. In addition, Samco
generally charges IFCs an acquisition fee to defray the direct administrative
costs associated with the processing of Contracts that are ultimately purchased
by Samco. Servicing and collection procedures on Contracts owned by Samco are
performed by CPS at its headquarters in Irvine, California. As of December 31,
1996, Samco had purchased 399 Contracts with original balances of $4.7 million.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under four programs: the CPS
standard program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program") and the
CPS Delta Program (the "Delta Program"). CPS applies underwriting standards in
purchasing loans on new and used vehicles from Dealers based upon the particular
program under which the loan was submitted for
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purchase. The Alpha Program guidelines are designed to accommodate applicants
who meet all the requirements of the Standard Program and exceed such
requirements in respect of job stability, residence stability, income level or
the nature of the credit history. The Delta Program guidelines are designed to
accommodate applicants who may not meet all of the requirements of the Standard
Program but who are deemed by CPS to be generally as creditworthy as Standard
Program applicants. The First Time Buyer Program guidelines are designed to
accommodate applicants who have not previously financed an automobile; such
applicants must meet all the requirements of the Standard Program, as well as
slightly higher income and down payment requirements. CPS uses the degree of the
applicant's creditworthiness and the collateral value of the financed vehicle as
the basic criteria in determining whether to purchase an installment sales
contract from a Dealer. Each credit application provides current information
regarding the applicant's employment and residence history, bank account
information, debts, credit references, and other factors that bear on an
applicant's creditworthiness. Upon receiving from the Dealer the completed
application of a prospective purchaser and a one-page Dealer summary of the
proposed financing, generally by facsimile copy, CPS obtains a credit report
compiling credit information on the applicant from three credit bureaus. The
credit report summarizes the applicant's credit history and paying habits,
including such information as open accounts, delinquent payments, bankruptcy,
repossessions, lawsuits and judgments. At this point a CPS loan officer will
review the credit application, Dealer summary and credit report and will either
conditionally approve or reject the application. Such conditional approval or
rejection by the loan officer usually occurs within one business day of receipt
of the credit application. The loan officer determines the conditions to his or
her approval of a credit application based on many factors such as the
applicant's residential situation, downpayment, and collateral value with regard
to the loan, employment history, monthly income level, household debt ratio and
the applicant's credit history. Based on the stipulations of the loan officer,
the Dealer and the applicant compile a more complete application package which
is forwarded to CPS and reviewed by a processor for deficiencies. As part of
this review, references are checked, direct calls are made to the applicant and
employment income and residence verification is done. Upon the completion of his
or her review, the processor forwards the application package to an underwriter
for further review. The underwriter will confirm the satisfaction of any
remaining deficiencies in the application package. Finally, before the loan is
funded, the application package is checked for deficiencies again by a loan
review officer. CPS conditionally approves approximately 50% of the credit
applications it receives and ultimately purchases approximately 13% of the
received applications.
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From July 1, 1994 to
July 31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. CPS has not purchased any portfolios of Contracts in
bulk since July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the servicer contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum downpayment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The downpayment may be made in cash,
and/or with a trade-in car and, if available, a proven manufacturer's rebate.
The cash and trade-in value must equal at least 50% of the minimum downpayment
required, with the proven manufacturer's rebate constituting
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the remainder of the downpayment. CPS believes that the relatively high
downpayment requirement will result in higher collateral values as a percentage
of the amount financed and the selection of buyers with stronger commitment to
the vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Samco offers financing programs to IFCs which are essentially identical
to those offered by CPS. The IFCs may offer Samco's financing programs to
borrowers directly or indirectly through local Dealers. Upon submission of
applications to Samco, Samco credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. Samco purchases contracts from the IFCs after its credit personnel have
performed all of the underwriting and verification procedures and have applied
all the same credit criteria that CPS performs and applies for Contracts it
purchases from Dealers. Prior to CPS [or an affiliate] purchasing a Contract
from Samco, CPS personnel perform procedures intended to verify that such
Contract has been underwritten and originated in conformity with the
requirements applied by CPS with respect to Contracts acquired by it directly
from Dealers.
Servicing and Collections
CPS' servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of other receivables
owned or originated by third parties, consist of collecting, accounting for and
posting of all payments received with respect to such Contracts or other
receivables, responding to borrower inquiries, taking steps to maintain the
security interest granted in the Financed Vehicle or other collateral,
investigating delinquencies, communicating with the borrower, repossessing and
liquidating collateral when necessary, and generally monitoring each Contract or
other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and other
receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS' services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent
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lock-box processing agent to retrieve and process payments received in the
lock-box account. This results in a daily deposit to the investor or portfolio
owner's account of the day's lock-box account receipts and a simultaneous
electronic data transfer to CPS of the borrower payment data for posting to CPS'
computerized records. Pursuant to the various servicing agreements with each
investor or portfolio owner, CPS is required to deliver monthly reports
reflecting all transaction activity with respect to the Contracts or other
receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high- penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents-Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
Servicing and collection procedures on Contracts owned by Samco are
performed by CPS at its headquarters in Irvine, California. However, Samco may
solicit aid from the related IFC in collecting past due accounts with respect to
which repossession may be considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. CPS has purchased Contracts representing financing for first-time
purchasers of automobiles since the inception of its Contract purchasing
activities in 1991. Prior to the establishment of the First Time Buyer Program
in July 1996, CPS purchased such Contracts under its Standard Program
guidelines. CPS expects that the delinquency and net credit loss and
repossession experience with respect to loans originated under the First Time
Buyer Program will be similar to that under the Standard Program. CPS began
servicing Contracts originated by Samco in March 1996. Although credit history
on Samco's originations is limited, CPS expects that the delinquency and net
credit loss and repossession experience with respect to the Receivables
originated by Samco will be similar to that of CPS's existing portfolio. There
can be no assurance, however, that the delinquency and net credit loss and
repossession experience on the Receivables will continue to be comparable to
CPS' experience shown in the following tables.
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Consumer Portfolio Services, Inc.
Delinquency Experience
December 31, 1994 December 31, 1995 December 31, 1996 March 31, 1996 March 31, 1997
----------------- ----------------- ----------------- -------------- --------------
Number Number Number Number Number
of Loans Amount of Loans Amount of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Portfolio (1)................ 14,235 $203,879,000 27,113 $355,965,000 47,187 $604,092,000 $ $
Period of Delinquency (2)
31-60 243 3,539,000 909 11,520,000 1,801 22,099,000
61-90 68 1,091,000 203 2,654,000 724 9,068,000
91+.......................... 56 876,000 272 3,899,000 768 9,906,000
-- ------- --- --------- --- --------- ------ ------ -------- -------
Total Delinquencies.......... 367 5,506,000 1,384 18,073,000 3,293 41,073,000
Amount in Repossession (3)... 271 3,759,000 834 10,151,000 1,168 14,563,000
--- --------- --- ---------- ----- ---------- ------ ------ -------- -------
Total Delinquencies and
Amount in Repossession (4)... 638 $9,265,000 2,218 $28,224,000 4,461 $55,636,000 $ $
=== ========== ===== =========== ===== =========== ====== ====== ======== =======
Delinquencies as a Percent of
the Portfolio................ 2.58% 2.70% 5.10% 5.08% 6.98% 6.80% % % % %
Repo Inventory as a Percent
of the Portfolio............. 1.90% 1.84% 3.08% 2.85% 2.48% 2.41% % % %
---- ---- ---- ---- ---- ---- ------ ------ -------- ------
Total Delinquencies and
Amount in Repossession as a
Percent of Portfolio 4.48% 4.54% 8.18% 7.93% 9.45% % % % % %
==== ==== ==== ==== ==== ===== ====== ====== ======= ======
- - - -----------
(1) All amounts and percentages are based on the full amount remaining to
be repaid on each Contract, including, for Rule of 78's Contracts, any
unearned finance charges. The information in the table represents all
Contracts originated by CPS including sold Contracts CPS continues to
service.
(2) CPS considers a Contract delinquent when an obligor fails to make at
least 90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually
past due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
S-23
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
Year Ended Year Ended Year Ended Three Months Ended Three Months Ended
December 31, 1994 December 31, 1995 December 31, 1995 March 31, 1996 March 31, 1997
----------------- ----------------- ----------------- -------------- --------------
Average Amount Outstanding During the
Period (1).................................. $98,916,991 $221,926,489 $395,404,669
Average Number of Loans Outstanding During
the Period.................................. 9,171 20,809 36,998
Number of Repossessions..................... 669 2,018 3,145
Gross Charge-Offs (2)....................... $3,166,408 $11,658,461 $23,296,775
Recoveries (3).............................. $347,519 $1,028,378 $2,969,143
Net Losses.................................. $2,818,889 $10,630,083 $20,327,632
Annualized Repossessions as a Percentage of
Average Number of Loans Outstanding......... 7.29% 9.70% 8.50%
Annualized Net Losses as a Percentage of
Average Amount Outstanding.................. 2.85% 4.79% 5.14%
- - - -----------
(1) All amounts and percentages are based on the principal amount scheduled
to be paid on each Contract. The information in the table represents
all Contracts originated by CPS including sold Contracts which CPS
continues to service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and
may pertain to charge offs from prior periods.
S-24
THE RECEIVABLES POOL
The Receivables Pool existing as of the Cutoff Date consists of
Receivables selected from CPS's Portfolio by several criteria, including the
following: each Receivable was originated, based on the billing address of the
Obligors, in the United States, has an original term of not more than 60 months,
provides for level monthly payments which fully amortize the amount financed
over the original term (except for the last payment, which may be different from
the level payment for various reasons, including late or early payments during
the term of the Contract), has a remaining maturity of 60 months or less as of
the Cutoff Date, has an outstanding principal balance of not more than [$ ] as
of the Cutoff Date, is not more than 30 days past due as of the Cutoff Date and
has an APR of not less than [ %]. As of the date of each Obligor's application
for the loan from which the related Receivable arises, each Obligor (i) did not
have any material past due credit obligations or any repossessions or
garnishments of property within one year prior to the date of application,
unless such amounts have been repaid or discharged through bankruptcy, (ii) was
not the subject of any bankruptcy or insolvency proceeding that is not
discharged, and (iii) had not been the subject of more than one bankruptcy
proceeding. As of the Cutoff Date, the latest scheduled maturity of any
Receivable is not later than [ ].
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Receivables, constituting [ %] of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. Approximately [ %] of the aggregate
principal balance of the Receivables were originated under the Delta Program,
approximately [ %] of the aggregate principal balance of the Receivables were
originated under the Alpha Program, approximately [ %] of the aggregate
principal balance of the Receivables were originated under the First Time Buyer
Program and approximately [ %] of the aggregate principal balance of the
Receivables represent financing under the Standard Program. As of the Cutoff
Date, approximately [ %] of the aggregate principal balance of the Receivables
were originated by unaffiliated third parties and purchased by CPS in the
ordinary course of its business. As of the Cutoff Date, [ %] of the Principal
Balance of the Receivables were Samco Receivables. The composition, geographic
distribution, distribution by APR, distribution by remaining term, distribution
by date of origination, distribution by original term, distribution by model
year and distribution by original principal balance of the Receivables as of the
Cutoff Date are set forth in the following tables.
Composition of the Receivables as of the Cutoff Date
Weighted Aggregate Number of Average Weighted Weighted
Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
- - - -------------- ------- ------- ------- --------------- -------------
S-25
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
State(1) Principal Balance Principal Balance Receivables Receivables
- - - -------- ----------------- ----------------- ----------- -----------
all others(2)... % %
------- ---- ---- ------
TOTAL........... $ 100.00%(3) 100.00%(3)
======= =============== ===== ==========
- - - -----------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
Distribution of the Receivables by APR as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
APR Range Principal Balance Principal Balance Receivables Receivables
- - - -------- ----------------- ----------------- ----------- -----------
all others(2)... % %
------- ---- ---- ------
TOTAL........... $ 100.00%(1) 100.00%(1)
======= =============== ===== ==========
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
S-26
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Remaining Term Percent of Percent of
to Scheduled Aggregate Aggregate Number of Number of
Maturity Principal Balance Principal Balance Receivables Receivables
- - - -------- ----------------- ----------------- ----------- -----------
------- ---- ---- ------
TOTAL........... $ 100.00%(1) 100.00%(1)
======= =============== ===== ==========
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of Receivables by
Date of Origination as of the Cutoff Date
Percent of Percent of
Date of Aggregate Aggregate Number of Number of
Origination Principal Balance Principal Balance Receivables Receivables
- - - -------- ----------------- ----------------- ----------- -----------
------- ---- ---- ------
TOTAL........... $ 100.00%(1) 100.00%(1)
======= =============== ===== ==========
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
S-27
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
- - - ------------------ ----------------- ----------------- --------- -----------
------- ---- ---- ------
TOTAL........... $ 100.00%(1) 100.00%(1)
======= =============== ===== ==========
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
Distribution of Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
- - - ---------- ----------------- ----------------- ----------- -----------
------- ---- ---- ------
TOTAL........... $ 100.00%(1) 100.00%(1)
======= =============== ===== ==========
- - - -----------
(1) Percentages may not add up to 100% because of rounding.
S-28
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Aggregate Aggregate Number of Number of
Principal Balances Principal Balance Principal Balance Receivables Receivables
- - - ------------------ ----------------- ----------------- ----------- -----------
------- ---- ---- ------
TOTAL........... $ 100.00%(1) 100.00%(1)
======= =============== ===== ==========
- - - -----------
(1) Percentages may not add up to because of rounding.
S-29
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables")
and, approximately [ %] of the aggregate Principal Balance of the Receivables in
the Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. Each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the Final Scheduled Payment date,
at which time the amount of the final installment is increased or decreased as
necessary to repay the then outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, instead of receiving a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining Scheduled Receivable Payments of interest that would have been due
under a Simple Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
On each Payment Date, interest will be paid to the Noteholders to the
extent of thirty (30) days' interest at the applicable Interest Rate; provided,
however, that on the first Payment Date, the interest payable to the Noteholders
of record of each Class of Notes will be an amount equal to the product of (a)
the Interest Rate applicable to such Class of Notes, (b) the initial principal
amount of such Class of Notes and (c) a fraction (i) the numerator of which is
the number of days from and including the Closing Date through and including [ ]
14, 1997 and (ii) the denominator of which is 360.
S-30
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles and servicing decisions. See "Risk Factors -- Nature of
Obligors; Servicing" in this Prospectus Supplement. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne entirely by the Noteholders. See also "Description of the Notes --
Optional Redemption" in this Prospectus Supplement regarding the Servicer's
option to purchase the Receivables and redeem the Notes when the aggregate
principal balance of the Receivables is less than or equal to 10% of the
Original Pool Balance.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors, all payments and Purchase
Amounts remitted by CPS or the Servicer, as the case may be, all for such
Collection Period, all losses realized on Receivables liquidated during such
Collection Period and any Cram Down Losses with respect to such Receivables. The
Pool Balance is computed by allocating payments to principal and to interest,
with respect to Rule of 78's Receivables, using the constant yield or actuarial
method, and with respect to Simple Interest Receivables, using the simple
interest method. The "Class A Pool Factor" is a seven-digit decimal which the
Servicer will compute each month indicating the principal balance of the Class A
Notes as a fraction of the initial principal balance of the Class A Notes. The
Class A Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the
Class A Pool Factor will decline to reflect reductions in the principal balance
of the Class A Notes. The "Class B Pool Factor" is a seven-digit decimal which
the Servicer will compute each month indicating the principal balance of the
Class B Notes as a fraction of the initial principal balance of the Class B
Notes. The Class B Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Class B Pool Factor will decline to reflect reductions in the
principal balance of the Class B Notes. An individual Noteholder's share of the
principal balance of the Class B Notes is the product of (i) the original
denomination of the Noteholder's Note and (ii) the Class B Pool Factor. An
individual Noteholder's share of the principal balance of a Class of Notes is
the product of (i) the original denomination of the Noteholder's Note of such
Class and (ii) the Class' Pool Factor. Pool Factors will be made available on or
about the eighth business day of each month.
[Other classes of Notes, if any, to be added.]
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors and various other items of information. Noteholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Description of the Notes --
Statements to Noteholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the CPS Receivables from CPS and the
Samco Receivables from Samco. CPS will apply the net proceeds received from the
Seller to purchase new Contracts or to repay debt incurred to purchase the
Contracts.
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was
incorporated in the State of California in June of 1994. The Seller was
organized for the limited purpose of purchasing automobile installment sale
contracts from CPS and transferring such receivables to third parties and
S-31
any activities incidental to and necessary or convenient for the accomplishment
of such purposes. The principal executive offices of the Seller are located at 2
Ada, Suite 100, Irvine, California 92718; telephone (714) 753-6800. For further
information regarding the Seller and CPS, see "The Seller and CPS" in the
Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
DESCRIPTION OF THE NOTES
General
The Notes will be issued pursuant to the terms of the Indenture, a form
of which has been filed as an exhibit to the Registration Statement.
The Class A Notes initially will be represented by notes registered in
the name of Cede as the nominee of The Depository Trust Company ("DTC"), and
will only be available in the form of book-entries on the records of DTC and
participating members thereof in denominations of $1,000. All references to
"holders" or "Noteholders" and to authorized denominations, when used with
respect to the Notes, shall reflect the rights of beneficial owners of the Notes
("Note Owners"), and limitations thereof, as they may be indirectly exercised
through DTC and its participating members, except as otherwise specified herein.
See " -- Registration of Certificates" below.
On each Payment Date, the holders of record of the Class A Notes (the
"Class A Noteholders") as of the related Record Date will be entitled to
receive, pro rata, thirty (30) days of interest at the Class A Interest Rate on
the outstanding principal amount of the Class A Notes at the close of business
on the last day of the related Collection Period. On each Payment Date, the
holders of record of the Class B Notes (the "Class B Noteholders") as of the
related Record Date will be entitled to receive, pro rata, thirty (30) days of
interest at the Class B Interest Rate on the outstanding principal amount of the
Class B Notes at the close of business on the last day of the related Collection
Period. [Additional classes, if any, to be added]. Notwithstanding the
foregoing, on the first Payment Date, the interest payable to the Noteholders of
record of each Class of Notes will be an amount equal to the product of (a) the
Interest Rate applicable to such Class of Notes, (b) the initial principal
amount of such Class of Notes and (c) a fraction (i) the numerator of which is
the number of days from and including the Closing Date through and including [ ]
14, 1997 and (ii) the denominator of which is 360. Interest on the Notes which
is due but not paid on any Payment Date will be payable on the next Payment Date
together with, to the extent permitted by law, interest on such unpaid amount at
the applicable Interest Rate. See "Description of the Notes - Distributions" in
this Prospectus Supplement.
Principal of the Class A Notes will be payable on each Payment Date in
an amount equal to the Class A Noteholders' Principal Distributable Amount for
the related Collection Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the product of (a) the Class A Noteholders' Percentage of
the Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date. Principal of the
Class B Notes will be payable on each Payment Date in an amount equal to the
Class B Noteholders' Principal Distributable Amount for the related Collection
Period. The "Class B Noteholders Principal Distributable Amount" is equal to the
product of (a) the Class B Noteholders' Percentage of the
S-32
Principal Distributable Amount and (b) any unpaid portion of the amount
described in clause (a) with respect to a prior Payment Date.
Registration of Notes
The Class A Notes will initially be registered in the name of Cede &
Co. ("Cede"), the nominee of DTC. DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. See "Certain Information Regarding the Notes -- Book-Entry
Registration" in the Prospectus.
Sale and Assignment of Receivables
On or prior to the Closing Date, the Seller will purchase from Samco
pursuant to a purchase agreement (the "Samco Purchase Agreement"), without
recourse, except as provided in the Samco Purchase Agreement, Samco's entire
interest in the Samco Receivables, together with Samco's security interests in
the related Financed Vehicles. On or prior to the Closing Date, CPS will,
pursuant to the Purchase Agreement, sell and assign to the Seller, without
recourse, except as provided in the Purchase Agreement, its entire interest in
the CPS Receivables, together with its security interests in the related
Financed Vehicles. At the time of issuance of the Securities, the Seller will
sell and assign to the Trust, without recourse except as provided in the Sale
and Servicing Agreement, its entire interest in the Receivables, together with
its security interests in the Financed Vehicles. Each Receivable will be
identified in a schedule appearing as an exhibit to the Purchase Agreement. The
Indenture Trustee will, concurrently with such sale and assignment, execute,
authenticate, and deliver the Securities to the Seller in exchange for the
Receivables. The Seller will sell the Notes to the Underwriters. See
"Underwriting" in this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the Purchase
Agreement with respect to the Receivables (including, without limitation, the
Samco Receivables) is correct in all material respects; (ii) at the dates of
origination of the Receivables, physical damage insurance covering each Financed
Vehicle was in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the Securities, the Receivables are free and clear of all
security interests, liens, charges, and encumbrances and no offsets, defenses,
or counterclaims against Dealers or IFCs have been asserted or threatened; (iv)
at the date of issuance of the Securities, each of the Receivables is or will be
secured by a first-priority perfected security interest in the related Financed
Vehicle in favor of CPS or Samco; and (v) each Receivable, at the time it was
originated, complied and, at the date of issuance of the Securities, complies in
all material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second (or, if CPS elects, the first)
month following the discovery by or notice to the Seller and CPS of a breach of
any representation or warranty that materially and adversely affects a
Receivable, unless the breach is cured, CPS will purchase such Receivable from
the Trust for the Purchase Amount. The repurchase obligation will constitute the
sole remedy available to the Noteholders, the Insurer, the Owner Trustee or the
Indenture Trustee for any such uncured breach.
On or prior to the Closing Date, the Contracts will be delivered to the
Indenture Trustee as custodian, and the Indenture Trustee thereafter will
maintain physical possession of the Receivables
S-33
except as may be necessary for the servicing thereof by the Servicer. The
Receivables will not be stamped to show the ownership thereof by the Trust.
However, CPS's and Samco's accounting records and computer systems will reflect
the sale and assignment of the Receivables to the Seller, and Uniform Commercial
Code ("UCC") financing statements reflecting such sales and assignments will be
filed. See "Formation of the Trust" in this Prospectus Supplement and "Certain
Legal Aspects of the Receivables" in the Prospectus.
Accounts
A segregated lock-box account will be established and maintained with
Bank of America in the name of the Indenture Trustee for the benefit of the
Noteholders and the Insurer, into which all payments made by Obligors on or with
respect to the Receivables must be deposited by the Lock-Box Processor (the
"Lock-Box Account"). See "Description of the Trust Documents-Payments on
Receivables" in the Prospectus. The Indenture Trustee will also establish and
maintain initially with itself one or more accounts, in the name of the
Indenture Trustee on behalf of the Noteholders and the Insurer, into which all
amounts previously deposited in the Lock-Box Account will be transferred within
two Business Days of the receipt of funds therein (the "Collection Account").
Upon receipt, the Servicer will deposit all amounts received by it in respect of
the Receivables in the Lock-Box Account or the Collection Account. The Indenture
Trustee will also establish and maintain initially with itself one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders and
the Insurer, from which all distributions with respect to the Securities and
payments to the Insurer will be made (the "Distribution Account").
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the product of one-twelfth of the Servicing Fee Rate and
the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Payment Date, the Servicing Fee will equal the product of one-twelfth of the
Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the "Servicing
Fee"). So long as CPS is Servicer, a portion of the Servicing Fee, equal to the
Standby Fee, will be payable to the Standby Servicer for agreeing to stand by as
successor Servicer and for performing certain other functions. If the Standby
Servicer, or any other entity serving at the time as Standby Servicer, becomes
the successor Servicer, it will receive compensation at a Servicing Fee Rate not
to exceed 2.12% per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
will be entitled to reimbursement from the Trust for certain liabilities.
Payments by or on behalf of Obligors will be allocated to Scheduled Receivable
Payments, late fees and other charges and principal and interest in accordance
with the Servicer's normal practices and procedures. The Servicing Fee will be
paid out of collections from the Receivables, prior to distributions to
Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
Insurer with respect to distributions and generating federal income tax
information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
S-34
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Noteholders' Interest Distributable Amount, the
Class A Noteholders' Principal Distributable Amount, the Class B Noteholders'
Interest Distributable Amount and the Class B Noteholders' Principal
Distributable Amount.
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date will be the sum of the following amounts with respect
to the preceding Collection Period: (i) all collections on Receivables; (ii) all
proceeds received during the Collection Period with respect to Receivables that
became Liquidated Receivables during the Collection Period in accordance with
the Servicer's customary servicing procedures, net of the reasonable expenses
incurred by the Servicer in connection with such liquidation and any amounts
required by law to be remitted to the Obligor on such Liquidated Receivable
("Liquidation Proceeds") in accordance with the Servicer's customary servicing
procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables, (iv) earnings on investments of funds in the Collection Account
during the related Collection Period and (v) the Purchase Amount of each
Receivable that was repurchased by CPS or purchased by the Servicer as of the
last day of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a Scheduled Receivable Payment of more than ten dollars
for 120 or more days as of the end of a Collection Period, or (iv) with respect
to which proceeds have been received which, in the Servicer's judgment,
constitute the final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
S-35
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Class A Noteholders will be
entitled to receive the "Noteholders' Distributable Amount" with respect to each
Payment Date. The "Noteholders' Distributable Amount" with respect to a Payment
Date will be an amount equal to the sum of: (i) the "Class A Noteholders'
Principal Distributable Amount", consisting of the Class A Noteholders'
Percentage of the following: (a) the principal portion of all Scheduled
Receivable Payments received during the preceding Collection Period on Rule of
78's Receivables and all payments of principal received on Simple Interest
Receivables during the preceding Collection Period; (b) the principal portion of
all prepayments in full received during the preceding Collection Period
(including prepayments in full resulting from collections with respect to a
Receivable received during the preceding Collection Period (without duplication
of amounts included in (a) above and (d) below)); (c) the portion of the
Purchase Amount allocable to principal of each Receivable that was repurchased
by CPS or purchased by the Servicer as of the last day of the related Collection
Period and, at the option of [the Insurer] the Principal Balance of each
Receivable that was required to be but was not so purchased or repurchased
(without duplication of the amounts referred to in (a) and (b) above); (d) the
Principal Balance of each Receivable that first became a Liquidated Receivable
during the preceding Collection Period (without duplication of the amounts
included in (a) and (b) above); and (e) the aggregate amount of Cram Down Losses
with respect to the Receivables that shall have occurred during the preceding
Collection Period (without duplication of amounts included in (a) through (d)
above) (the amounts set forth in (a) through (e), the "Principal Distributable
Amount"); (ii) the "Class A Noteholders' Interest Distributable Amount",
consisting of thirty (30) days' interest at the applicable Interest Rate on the
principal balance of each Class of Class A Notes as of the close of business on
the last day of the related Collection Period; provided, however, that on the
first Payment Date, the Class A Noteholders' Interest Distributable Amount will
include interest from and including the Closing Date through and including [ ]
14, 1997; (iii) the Class A Noteholders' Principal Carryover Shortfall; (iv) the
Class A Noteholders' Interest Carryover Shortfall; (v) the "Class B Noteholders'
Principal Distributable Amount", consisting of the Class B Noteholders'
Percentage of the Principal Distributable Amount; (vi) the "Class B Noteholders'
Interest Distributable Amount", consisting of thirty (30) days' interest at the
Class B Interest Rate on the principal balance of the Class B Notes as of the
close of business on the last day of the related Collection Period; provided,
however, that on the first Payment Date, the Class B Noteholders' Interest
Distributable Amount will include interest from and including the Closing Date
through and including [ ] 14, 1997; (vii) the Class B Noteholders' Principal
Carryover Shortfall; (viii) the Class B Noteholders' Interest Carryover
Shortfall;
On the Final Scheduled Payment Date, the Class A Noteholders' Principal
Distributable Amount will equal the then outstanding principal balance of the
Class A Notes and the Class B Noteholders' Principal Distributable Amount will
equal the then outstanding balance of the Class B Notes.
The "Class A Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class A Notes is
reduced to zero, be [ %], (b) on the Payment Date on which the principal amount
of the Class A Notes is reduced to zero, be the percentage equivalent of a
fraction, the numerator of which is the principal amount of the Class A Notes
immediately prior to such Payment Date, and the denominator of which is the
Principal Distributable Amount and (c) on any other Payment Date, be 0%.
The "Class B Noteholders' Percentage" will (a) on any Payment Date
prior to the Payment Date on which the principal amount of the Class B Notes is
reduced to zero, be [ %], (b) on the Payment Date on which the principal amount
of the Class B Notes is reduced to zero, be the percentage equivalent of a
fraction, the numerator of which is the principal amount of the Class B
S-36
Notes immediately prior to such Payment Date, and the denominator of which is
the Principal Distributable Amount and (c) on any other Payment Date, be 0%.
Priority of Distribution Amounts. On each Determination Date, the
Servicer will calculate the amount to be distributed to the Noteholders.
On each Payment Date, the Indenture Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
(i) to the Servicer, from the Total Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection
Periods; provided, however, that as long as CPS is the Servicer and
Norwest Bank Minnesota, National Association, is the Standby Servicer,
the Indenture Trustee will first pay to the Standby Servicer out of the
Servicing Fee otherwise payable to CPS an amount equal to the Standby
Fee;
(ii) in the event the Standby Servicer or any other party
becomes the successor Servicer, to the Standby Servicer or such other
successor servicer, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clause (i)
above), to the extent not previously paid by the predecessor Servicer
pursuant to the Sale and Servicing Agreement, reasonable transition
expenses (up to a maximum of $50,000) incurred in acting as successor
Servicer;
(iii) to the Indenture Trustee and the Owner Trustee, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) and (ii) above), the fees
payable thereto for services pursuant to the Indenture and the Trust
Agreement (the "Trustee Fee") and reasonable out-of-pocket expenses
thereof, (including counsel fees and expenses) and all unpaid Trustee
Fees and all unpaid reasonable out-of-pocket expenses (including
counsel fees and expenses) from prior Collection Periods; provided,
however, that unless an Event of Default shall have occurred and be
continuing, expenses payable to the Indenture Trustee pursuant to this
clause (iii) and expenses payable to the Collateral Agent pursuant to
clause (iv) below shall be limited to a total of $50,000 per annum;
(iv) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iii) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
(v) to the Class A Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class A Noteholders'
Interest Distributable Amount and any Class A Noteholders' Interest
Carryover Shortfall as of the close of the preceding Payment Date;
(vi) to the Class B Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class B Noteholders'
Interest Distributable Amount and any Class B Noteholders' Interest
Carryover Shortfall as of the close of the preceding Payment Date;
(vii) to the Class A Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above), the Class A Noteholders'
Principal Distributable Amount and any Class A Noteholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date;
(viii) to the [Insurer], from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments made
pursuant to clauses (i) through
S-37
(vi) above), any amounts due to the [Insurer] under the terms
of the Trust Agreement and under the [Insurance] Agreement;
(ix) to the Class B Noteholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above), the Class B Noteholders'
Principal Distributable Amount and any Class B Noteholders' Principal
Carryover Shortfall as of the close of the preceding Payment Date;
(x) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any;
The Spread Account. As part of the consideration for the issuance of
the Policy, the Seller has agreed to cause to be established with Norwest Bank
Minnesota, National Association (in such capacity, the "Collateral Agent") an
account (the "Spread Account") for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any portion of the Total Distribution
Amount remaining on any Payment Date after payment of all fees and expenses due
on such date to the Servicer, the Standby Servicer, the Indenture Trustee and
the Collateral Agent and all principal and interest payments due to the
Noteholders on such Payment Date, will be deposited in the Spread Account and
held by the Collateral Agent for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. If on any Payment Date, the Total
Distribution Amount is insufficient to pay all distributions required to be made
on such day pursuant to priorities (i) through (vii) under " -- Priority of
Distribution Amounts", then amounts on deposit in the Spread Account will be
applied to pay the amounts due on such Payment Date pursuant to such priorities
(i) through (vii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date have been made) are
in excess of the Requisite Amount will be released to the Owner Trustee on such
Payment Date.
So long as an Insurer Default shall not have occurred and be
continuing, the Insurer will be entitled to exercise in its sole discretion all
rights under the master spread account agreement among the Seller, the Insurer,
the Indenture Trustee and the Collateral Agent (the "Master Spread Account
Agreement") with respect to the Spread Account and any amounts on deposit
therein and will have no liability to the Indenture Trustee or the Noteholders
for the exercise of such rights. The Insurer (so long as an Insurer Default
shall not have occurred and be continuing) may, with the written consent of CPS,
the Seller and the Collateral Agent but without the consent of the Indenture
Trustee or any Noteholder, reduce the Requisite Amount or modify any term of the
Master Spread Account Agreement (including terminating the Master Spread Account
Agreement and releasing all funds on deposit in the Spread Account). Because the
Requisite Amount or the existence of the Spread Account may be modified or
terminated by the Insurer as described above, there is no assurance that funds
will be available in the Spread Account to pay principal of or interest on the
Notes in the event that collections on the Receivables and other amounts
available under the Indenture are insufficient to make any distribution of
principal of or interest on the Notes on any Payment Date.
Events of Default
Unless an Insurer Default shall have occurred and be continuing,
"Events of Default" under the Indenture will consist of those events defined in
the Insurance Agreement as Insurance Agreement Indenture Cross Defaults, and
will constitute an Event of Default under the Indenture only if the Insurer
shall have delivered to the Indenture Trustee a written notice specifying that
any such Insurance Agreement Indenture Cross Default constitutes an Event of
Default under the Indenture. An "Insurance Agreement Indenture Cross Default"
may result from: (i) a demand for payment under the Policy; (ii) an Insolvency
Event (as defined herein); (iii) the Trust becoming taxable as an association
(or publicly traded partnership) taxable as a corporation for federal or state
income tax purposes; (iv) the sum of the Total Distribution Amount with respect
to any Payment Date plus the amount (if any) available from certain collateral
accounts maintained for the benefit of the Insurer is less than the sum of the
amounts described in clauses (i) through (vii) under "Description of the
S-38
Notes -- Distributions" herein; and (v) any failure to observe or perform in any
material respect any other covenants, representation, warranty or agreements of
the Trust in the Indenture, any certificate or other writing delivered in
connection therewith, and such failure continues for 30 days after written
notice of such failure or incorrect representation or warranty has been given to
the Trust and the Indenture Trustee by the Insurer.
Upon the occurrence of an Event of Default, and so long as an Insurer
Default shall not have occurred and be continuing, the Insurer will have the
right but not the obligation, to cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default as the Insurer, in its
sole discretion, shall elect, and to distribute the proceeds of such liquidation
in accordance with the terms of the Indenture. The Insurer may not, however,
cause the Indenture Trustee to liquidate the Trust Assets, in whole or in part,
if the proceeds of such liquidation would not be sufficient to pay all
outstanding principal and accrued interest on the Notes, unless such Event of
Default arose from a claim being made on the Policy or from certain events of
bankruptcy, insolvency, receivership or liquidation of the Trust. Following the
occurrence of any Event of Default, the Indenture Trustee will continue to
submit claims as necessary under the Policy for any shortfalls in the Scheduled
Payments on the Notes, except that the Insurer, in its sole discretion, may
elect to pay all or any portion of the outstanding amount of the Notes in excess
thereof, plus accrued interest thereon. See "The Policy" herein.
Statements to Noteholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Noteholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
a statement (prepared by the Servicer) setting forth the following information
with respect to the preceding Collection Period, to the extent applicable: (i)
the amount of the distribution allocable to principal of the Notes; (ii) the
amount of the distribution allocable to interest on the Notes; (iii) the Pool
Balance and the Pool Factor as of the close of business on the last day of the
preceding Collection Period; (iv) the aggregate principal balance of each Class
of Notes as of the close of business on the last day of the preceding Collection
Period, after giving effect to payments allocated to principal reported under
(i) above; (v) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period (inclusive of the Standby Fee), the amount of
any unpaid Servicing Fees and the change in such amount from that of the prior
Payment Date; (vi) the amount of the Noteholders' Interest Carryover Shortfall,
if applicable, and Noteholders' Principal Carryover Shortfall, if applicable, on
such Payment Date and the change in such amounts from those on the prior Payment
Date; (vii) the amount paid to the Noteholders under the Policy for such Payment
Date; (viii) the amount distributable to the Insurer on such Payment Date; (ix)
the aggregate amount in the Spread Account and the change in such amount from
the previous Payment Date; (x) the number of Receivables and the aggregate gross
amount scheduled to be paid thereon, including unearned finance and other
charges, for which the related Obligors are delinquent in making Scheduled
Receivable Payments between 31 and 59 days and 60 days or more; (xi) the number
and the aggregate Purchase Amount of Receivables repurchased by CPS or purchased
by the Servicer; and (xii) the cumulative Principal Balance of all Receivables
that have become Liquidated Receivables, net of Recoveries, during the period
from the Cutoff Date to the last day of the related Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vi)
above shall be expressed in the aggregate and as a dollar amount per $1,000 of
original principal balance of a Certificate.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Noteholder and received any payment on such
holder's Notes, a statement (prepared by the Servicer) containing the sum of the
amounts described in (i), (ii) and (v) above for the purposes of such
Noteholder's preparation of federal income tax returns. See "Description of the
Notes-Statements to Noteholders" and "Certain Federal Income Tax Consequences"
in this Prospectus Supplement.
S-39
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the Insurer on or before July 31 of each year, beginning July 31, 1998, a
report as to compliance by the Servicer during the preceding twelve months ended
March 31 with certain standards relating to the servicing of the Receivables (or
in the case of the first such certificate, the period from the Cutoff Date to
March 31, 1998).
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Insurer, on or before July 31 of each year, commencing
July 31, 1998 of a certificate signed by an officer of the Servicer stating that
the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement throughout the preceding twelve months ended March 31 or, if there has
been a default in the fulfillment of any such obligation, describing each such
default (or in the case of the first such certificate, the period from the
Cutoff Date to March 31, 1998). The Servicer has agreed to give the Indenture
Trustee and the Insurer notice of any Events of Default under the Sale and
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the Insurer. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the Sale and Servicing Agreement. In the event CPS
resigns as Servicer or is terminated as Servicer, the Standby Servicer has
agreed pursuant to the Servicing Assumption Agreement to assume the servicing
obligations and duties under the Sale and Servicing Agreement; however, so long
as an Insurer Default shall not have occurred and be outstanding, the Insurer in
its sole and absolute discretion may appoint a successor Servicer other than the
Standby Servicer.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate after 90 days unless renewed by the
Insurer for successive 90-day periods. The Insurer will agree to grant
continuous renewals so long as (i) no Servicer Termination Event under the Sale
and Servicing Agreement has occurred and (ii) no event of default under the
Insurance Agreement has occurred. See "Description of the Securities -- Certain
Matters Regarding the Servicer" in the Prospectus.
S-40
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days (or,
in the case of a payment or deposit to be made no later than a Payment Date, the
failure to make such payment or deposit by such Payment Date), or any failure to
deliver to the Indenture Trustee the annual accountants' report, the annual
statement as to compliance or the statement to the Noteholders, in each case,
within five days of the date it is due; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement and continues unremedied for 30 days after the
giving of written notice of such failure (1) to the Servicer or the Seller, as
the case may be, by the Insurer or by the Indenture Trustee, or (2) to the
Servicer or the Seller, as the case may be, and to the Indenture Trustee and the
Insurer by the holders of Notes evidencing not less than 25% of the outstanding
principal balance of the Notes; (iii) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities, or similar proceedings with
respect to the Servicer or, so long as CPS is Servicer, of any of its
affiliates, and certain actions by the Servicer, the Seller or, so long as CPS
is Servicer, of any of its affiliates, indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations; (iv) a
claim is made under the Policy; or (v) the occurrence of an Event of Default
under the Insurance Agreement.
Rights Upon Servicer Termination Event
Following the occurrence a Servicer Termination Event remains
unremedied, (x) provided no Insurer Default shall have occurred and be
continuing, the Insurer in its sole and absolute discretion or (y) if an Insurer
Default shall have occurred and be continuing, then the Indenture Trustee or the
holders of Notes evidencing not less than 25% of the outstanding principal
balance of the Notes may terminate all the rights and obligations of the
Servicer under the Sale and Servicing Agreement, whereupon the Standby Servicer,
or such other successor Servicer as shall be or have been appointed by the
Insurer (or, if an Insurer Default shall have occurred and be continuing, by the
Indenture Trustee or the Noteholders, as described above) will succeed to all
the responsibilities, duties and liabilities of the Servicer under the Sale and
Servicing Agreement; provided, however, that such successor Servicer shall have
no liability with respect to any obligation which was required to be performed
by the predecessor Servicer prior to the date such successor Servicer becomes
the Servicer or the claim of a third party (including a Noteholder) based on any
alleged action or inaction of the predecessor Servicer as Servicer.
"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing: (i) the Insurer fails to make a payment required
under the Policy in accordance with its terms; (ii) the Insurer (A) files any
petition or commences any case or proceeding under any provision or chapter of
the United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is
final and nonappealable; or (iii) a court of competent jurisdiction, the New
York Department of Insurance or other competent regulatory authority enters a
final and nonappealable order, judgment or decree (A) appointing a custodian,
trustee, agent or receiver for the Insurer or for all or any material portion of
its property or (B) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Insurer (or the taking of possession of all or
any material portion of the property of the Insurer).
S-41
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase from the Trust (with the
consent of the Insurer if such purchase would result in a claim under the Policy
or any amount owing to the Insurer or on the Notes would remain unpaid), as of
the last day of any month as of which the then outstanding Pool Balance is equal
to 10% or less of the Original Pool Balance, all remaining Receivables at a
price equal to the aggregate of the Purchase Amounts thereof as of such last
day. Exercise of such right will effect early retirement of the Notes. The
Indenture Trustee will give written notice of termination to each Noteholder of
record. The final distribution to any Noteholder will be made only upon
surrender and cancellation of such holder's Note at the office or agency of the
Indenture Trustee specified in the notice of termination. Any funds remaining
with the Indenture Trustee, after the Indenture Trustee has taken certain
measures to locate a Noteholder and such measures have failed, will be
distributed to The American Red Cross.
CREDIT ENHANCEMENT
The Policy
Concurrently with the issuance of the Securities, the Insurer will
issue the Policy to the Indenture Trustee for the benefit of the Class A
Noteholders. Under the Policy, the Insurer will unconditionally and irrevocably
guarantee the full, complete and timely payment of (i) the Class A Noteholders'
Interest Distributable Amount and (ii) the Class A Noteholders' Principal
Distributable Amount. See "The Policy" in this Prospectus Supplement.
Subordination of the Class B Notes
No distribution of interest will be made to Class B Noteholders on any
Payment Date until the Class A Notes have been paid the Noteholders' Interest
Distributable Amount and no distributions of principal will be made to Class B
Noteholders on any Payment Date until the Class A Notes have been paid the
Noteholders' Principal Distributable Amount for such Payment Date. This
subordination is intended to enhance the likelihood of timely receipt by the
Class A Noteholders of the full amount of interest and principal distributable
to them on each Payment Date and to afford the Noteholders limited protection
against losses in respect of the Receivables.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Policy to the Indenture Trustee for the benefit of each Class A Noteholder.
Under the Policy, the Insurer unconditionally and irrevocably guarantees to the
Indenture Trustee for the benefit of each Class A Noteholder the full and
complete payment of (i) Scheduled Payments (as defined below) on the Class A
Notes and (ii) any Scheduled Payment which subsequently is avoided in whole or
in part as a preference payment under applicable law.
"Scheduled Payments" means payments that are scheduled to be made on
the Notes during the term of the Policy in an amount equal to the sum of (i) the
Class A Noteholders' Interest Distributable Amount and (ii) the Class A
Noteholders' Principal Distributable Amount on a Payment Date, in each case, in
accordance with the original terms of the Class A Notes when issued and without
regard to any amendment or modification of the Class A Notes or the Indenture
which has not been consented to by the Insurer. Scheduled Payments do not
include payments which become due on an accelerated basis as a result of (a) a
default by the Issuer, (b) an election by the Issuer to pay principal on an
accelerated basis, (c) the occurrence of an Event of Default under the Indenture
or (d) any other cause, unless the Insurer elects, in its sole discretion, to
pay in whole or in part such
S-42
principal due upon acceleration, together with any accrued interest to the date
of acceleration. In the event the Insurer does not so elect, the Policy will
continue to guarantee Scheduled Payments due on the Class A Notes. Scheduled
Payments shall not include, nor shall coverage be provided under the Policy in
respect of, (i) any portion of a Class A Noteholders' Interest Distributable
Amount due to Class A Noteholders because a notice and certificate in proper
form was not timely Received by the Insurer, (ii) any portion of the Class A
Noteholders' Interest Distributable Amount due to Class A Noteholders
representing interest on any Noteholders' Interest Carryover Shortfall accrued
from and including the date of payment of the amount of such Noteholders'
Interest Carryover Shortfall pursuant to the Policy, or (iii) any taxes,
withholding or other charge imposed with respect to any Class A Noteholder by
any governmental authority.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the Insurer following Receipt by the Insurer of the appropriate
notice for payment on the later to occur of (a) 12:00 noon, New York City time,
on the third Business Day following Receipt of such notice for payment, and (b)
12:00 noon, New York City time, on the Payment Date on which such payment was
due on the Class A Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Insurer shall cause such payment to be made on the later of the
date when due to be paid pursuant to the Order referred to below or the first to
occur of (a) the fourth Business Day following Receipt by the Insurer from the
Indenture Trustee of (i) a certified copy of the order (the "Order") of the
court or other governmental body which exercised jurisdiction to the effect that
the Class A Noteholder is required to return the amount of any Scheduled Payment
distributed with respect to the Class A Notes during the term of the Policy
because such distributions were avoidable as preference payments under
applicable bankruptcy law, (ii) a certificate of the Noteholder that the Order
has been entered and is not subject to any stay, and (iii) an assignment duly
executed and delivered by the Class A Noteholder, in such form as is reasonably
required by the Insurer and provided to the Class A Noteholder by the Insurer,
irrevocably assigning to the Insurer all rights and claims of the Class A
Noteholder relating to or arising under the Class A Notes against the debtor
which made such preference payment or otherwise with respect to such preference
payment, or (b) the date of Receipt by the Insurer from the Indenture Trustee of
the items referred to in clauses (i), (ii) and (iii) above if, at least four
Business Days prior to such date of Receipt, the Insurer shall have received
written notice from the Indenture Trustee that such items were to be delivered
on such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Indenture Trustee or any Class A
Noteholder directly (unless a Class A Noteholder has previously paid such amount
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy
named in the Order, in which event, such payment shall be disbursed to the
Indenture Trustee for distribution to such Class A Noteholder upon proof of such
payment reasonably satisfactory to the Insurer). In connection with the
foregoing, the Insurer shall have the rights provided pursuant to the Indenture.
The terms "Receipt" and "Received" with respect to the Policy, shall
mean actual delivery to the Insurer and to its fiscal agent, if any, prior to
12:00 noon, New York City time, on a Business Day; delivery either on a day that
is not a Business Day or after 12:00 noon, New York City time, shall be deemed
to be Receipt on the next succeeding Business Day. If any notice or certificate
given under the Policy by the Indenture Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee and the Indenture Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York or Minneapolis, Minnesota, or any other location of any
successor Trustee or successor Collateral Agent are authorized or obligated by
law or executive order to be closed.
S-43
The Insurer's obligations under the Policy in respect of the Scheduled
Payments shall be discharged to the extent funds are transferred to the
Indenture Trustee as provided in the Policy whether or not such funds are
properly applied by the Indenture Trustee.
The Insurer shall be subrogated to the rights of each Class A
Noteholder to receive payments of principal and interest to the extent of any
payment by the Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under the Policy and claims against the Insurer under each
other financial guaranty insurance policy issued thereby constitute pari passu
claims against the general assets of the Insurer. The terms of the Policy cannot
be modified or altered by any other agreement or instrument, or by the merger,
consolidation or dissolution of the Trust. The Policy may not be canceled or
revoked prior to distribution in full of all Scheduled Payments with respect to
the Class A Notes. The Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law. The Policy
is governed by the laws of the State of New York.
THE INSURER
General
Financial Security Assurance Inc. (the "Insurer" and, for purposes of
this Section, "Financial Security") is a monoline insurance company incorporated
in 1984 under the laws of the State of New York. Financial Security is licensed,
to engage in financial guaranty insurance business in all 50 states, the
District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of Scheduled Payments of an
issuer's securities-thereby enhancing the credit rating of those securities in
consideration for the payment of a premium to the insurer. Financial Security
and its subsidiaries principally insure asset-backed, collateralized and
municipal securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized
securities include public utility first mortgage bonds and sale/leaseback
obligation bonds. Municipal securities consist largely of general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly-owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at
350 Park Avenue, New York, New York 10022, and its telephone number at that
location is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by Financial Security
or any of its domestic operating insurance company subsidiaries are reinsured
among such companies on an agreed-upon percentage substantially proportional to
their respective capital, surplus and reserves, subject to applicable statutory
risk
S-44
limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit Financial Security's
obligations under any financial guaranty insurance policy.
Rating of Claims-Paying Ability
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, a
division of McGraw-Hill, Inc., Nippon Investors Service Inc. and Standard &
Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Risk Factors-Ratings of the Certificates" in this Prospectus
Supplement.
Capitalization
The following table sets forth the capitalization of Financial Security
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of December 31, 1996 (in thousands):
December 31, 1996
-----------------
(audited)
Deferred Premium Revenue (net of prepaid reinsurance premiums)...
Shareholder's Equity:
Common Stock..................................................
Additional Paid-In Capital....................................
Unrealized Gain on Investments (net of deferred income taxes)
Accumulated Earnings..........................................
--------------
Total Shareholder's Equity ......................................
--------------
Total Deferred Premium Revenue and Shareholder's Equity .........
==============
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security and Subsidiaries, and
the notes thereto, incorporated by reference herein. Copies of the statutory
quarterly and annual statements filed with the State of New York Insurance
Department by Financial Security are available upon request to the State of New
York Insurance Department.
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each insurer to financial guaranty
insurance and related lines, requires that each such insurer maintain a minimum
surplus to policyholders, establishes contingency, loss and unearned premium
reserve requirements for each such insurer, and limits the size of individual
transactions ("single risks") and the volume of
S-45
transactions ("aggregate risks") that may be underwritten by each such insurer.
Other provisions of the New York Insurance Law, applicable to non-life insurance
companies such as Financial Security, regulate, among other things, permitted
investments, payment of dividends, transactions with affiliates, mergers,
consolidations, acquisitions or sales of assets and incurrence of liability for
borrowings.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Federal Tax Counsel, for Federal income tax purposes
the Class A Notes will be characterized as debt, the Class B Notes should be
characterized as debt (but if not characterized as debt, the Class B Notes will
be characterized as interests in a partnership), and the Trust will not be
characterized as an association (or publicly traded partnership) taxable as a
corporation. Each Noteholder, by the acceptance of a Note, will agree to treat
the Notes as indebtedness for Federal income tax purposes. See "Certain Federal
Income Tax Consequences" in the Prospectus for additional information concerning
the application of Federal income tax laws to the Trust and the Notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan, as well as an individual
retirement account and a Keogh plan (each 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 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 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 Seller believes
that, at the time of their issuance, the 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
Notes, including the reasonable expectation of purchasers of Notes that the
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 Notes for
ERISA purposes could change if the Trust incurred losses.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee 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 Notes by a
Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments by
bank collective investment
S-46
funds; 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 Notes with the assets of a
Benefit Plan; or (ii) the acquisition of the Notes will not give rise to a
nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975
of the Code.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ], 1997 (the "Underwriting Agreement") among CPS,
the Seller, Alex. Brown & Sons Incorporated and Black Diamond Securities, LLC
(the "Underwriters"), the Seller has agreed to cause the Seller to sell to the
Underwriters, and the Underwriters have agreed to purchase, Class A Notes in the
following respective amounts:
Underwriters Principal Amount
- - - ------------ ----------------
Alex. Brown & Sons Incorporated.....................
Black Diamond Securities, LLC.......................
-----------------------
Total...............................................
========================
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the Class A Notes offered hereby if any of such
Class A Notes are purchased.
CPS and the Seller have been advised by the Underwriters that the
Underwriters propose to offer the Class A Notes from time to time for sale in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. The Underwriters may effect such transactions by selling the Class
A Notes to or through dealers and such dealers may receive compensation in the
form of underwriting discounts, concessions or commissions from the Underwriters
and any purchasers of Class A Notes for whom they may act as agents. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of the Class A Notes may be deemed to be underwriters, and any
discounts or commissions received by them and any profit on the resale of Class
A Notes by them may be deemed to be underwriting discounts or commissions, under
the Securities Act.
The Class A Notes are a new issue of securities with no established
trading market. The Underwriters have advised CPS and the Seller that they
intend to act as a market maker for the Class A Notes. However, the Underwriters
are not obligated to do so and may discontinue any market making at any time
without notice. No assurance can be given as to the liquidity of any trading
market for the Class A Notes.
S-47
CPS and the Seller have 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.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon by
Mayer, Brown & Platt, New York, New York. Certain legal matters related to the
Policy will be passed upon for the Insurer by Bruce E. Stern, Esq., General
Counsel of the Insurer.
EXPERTS
The consolidated balance sheets of the Insurer and Subsidiaries as of
December 31, [1996], 1995 and 1994 and the related consolidated statements of
income, changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1996, incorporated by reference in this
Prospectus Supplement, have been incorporated herein in reliance on the report
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
S-48
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Actuarial Receivables......................................................S-30
Alpha Program .........................................................S-19
Benefit Plan ...................................................S-13, S-46
Business Day ....................................................S-6, S-43
Cede ...................................................S-13, S-33
Certificates ..........................................................S-1
Class A Noteholders.............................................S-6, S-13, S-32
Class A Noteholders' Interest Distributable Amount.........................S-36
Class A Noteholders' Principal Distributable Amount.............S-6, S-32, S-36
Class A Notes ..........................................................S-1
Class B Noteholders...................................................S-6, S-32
Class B Noteholders' Interest Distributable Amount.........................S-36
Class B Noteholders' Principal Distributable Amount...................S-7, S-36
Class B Notes ..........................................................S-1
Closing Date ..........................................................S-4
Collateral Agent .........................................................S-38
Collection Account.........................................................S-34
Collection Period ..........................................................S-8
Commission ..........................................................S-2
Contracts .........................................................S-18
CPS Receivables ..........................................................S-5
CPS ..........................................................S-4
Cutoff Date ..........................................................S-5
Dealer Agreements .........................................................S-18
Dealers .........................................................S-18
Delta Program .........................................................S-19
Determination Date.........................................................S-35
Distribution Account.......................................................S-34
DTC ..............................................S-3, S-13, S-32
ERISA .........................................................S-46
Events of Default .........................................................S-38
Exchange Act ..........................................................S-2
Financed Vehicles ..........................................................S-5
Financial Security....................................................S-2, S-44
First Time Buyer Program...................................................S-19
holders ...................................................S-13, S-32
Holdings ....................................................S-2, S-44
IFCs ..........................................................S-5
Indenture Trustee ..........................................................S-1
Indenture .....................................................S-1, S-4
Insurance Agreement........................................................S-15
Insurer Default .........................................................S-41
Insurer ....................................................S-4, S-44
Interest Rate ..........................................................S-6
Issuer ..........................................................S-4
Liquidated Receivable......................................................S-35
Liquidation Proceeds.......................................................S-35
S-i
INDEX OF TERMS (cont.)
Lock-Box Account ...................................................S-11, S-34
Lock-Box Bank .........................................................S-11
Lock-Box Processor.........................................................S-11
Master Spread Account Agreement............................................S-38
Moody's .........................................................S-13
Note Owners ...................................................S-13, S-32
Noteholders ....................................................S-6, S-32
Noteholders' Distributable Amount..........................................S-36
Notes ..........................................................S-1
Obligors .........................................................S-18
Order .........................................................S-43
Original Pool Balance.......................................................S-5
Owner Trustee ..........................................................S-1
Participants .........................................................S-33
Payment Date ..........................................................S-6
Policy ....................................................S-1, S-10
Pool Balance .........................................................S-31
Post Office Box .........................................................S-11
prepayments .........................................................S-31
Principal Balance .........................................................S-35
Principal Distributable Amount........................................S-7, S-36
PTCE .........................................................S-46
Purchase Amount .........................................................S-35
Rating Agencies .........................................................S-13
Receipt .........................................................S-43
Receivables ..........................................................S-4
Received .........................................................S-43
Record Date .........................................................S-10
Recoveries .........................................................S-35
Registration Statement......................................................S-2
Regulation .........................................................S-46
Requisite Amount .........................................................S-10
Rule of 78's Receivables...................................................S-30
Samco Purchase Agreement...................................................S-33
Samco Receivables ..........................................................S-5
Samco ...................................................S-15, S-19
Scheduled Payments...................................................S-11, S-42
Scheduled Receivable Payment...............................................S-36
Securities Act ..........................................................S-2
Securities ..........................................................S-1
Seller .....................................................S-1, S-4
Servicer Termination Event.................................................S-41
Servicer ..........................................................S-4
Servicing Assumption Agreement.............................................S-11
Servicing Fee Rate.........................................................S-12
Servicing Fee .........................................................S-34
Simple Interest Receivables................................................S-30
Spread Account .........................................................S-38
Standard & Poor's .........................................................S-13
Standard Program .........................................................S-19
S-ii
INDEX OF TERMS (cont.)
Standby Fee .........................................................S-11
Standby Servicer ...................................................S-11, S-32
Sub-Prime Borrowers........................................................S-18
Total Distribution Amount..................................................S-35
Trust Agreement ..........................................................S-4
Trust Assets ..........................................................S-4
Trustee Fee .........................................................S-37
Trust .....................................................S-1, S-4
UCC .........................................................S-34
Underwriters .........................................................S-47
Underwriting Agreement.....................................................S-47
S-iii
===============================================
No person has been authorized in connection with the offering made
hereby to give any information or to make any representation not contained in
this Prospectus Supplement or the Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by CPS, the Seller or any Underwriter. This Prospectus Supplement and the
Prospectus do not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby to any person or by anyone in any
jurisdiction in which it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus Supplement or the Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------
S-iv
TABLE OF CONTENTS
Page
----
Prospectus Supplement
Summary ...................................................................S-4
Risk Factors...............................................................S-15
Formation of the Trust.....................................................S-17
The Trust Assets...........................................................S-18
CPS's Automobile Contract Portfolio........................................S-18
The Receivables Pool.......................................................S-25
Yield Considerations.......................................................S-30
Pool Factors and Other Information.........................................S-31
Use of Proceeds............................................................S-31
The Seller and CPS.........................................................S-31
The Standby Servicer.......................................................S-32
Description of the Notes...................................................S-32
Credit Enhancement.........................................................S-42
The Policy.................................................................S-42
The Insurer................................................................S-44
Certain Federal Income Tax Consequences....................................S-46
ERISA Considerations.......................................................S-46
Underwriting...............................................................S-47
Legal Opinions.............................................................S-48
Experts ..................................................................S-48
Index of Terms..............................................................S-i
Prospectus
Prospectus Supplement.........................................................2
Available Information.........................................................2
Incorporation of Certain Documents by Reference...............................2
Reports to Noteholders........................................................3
Summary of Terms..............................................................4
Risk Factors.................................................................10
Formation of the Trust.......................................................16
The Trust Assets.............................................................16
Acquisition of Receivables by the Seller.....................................17
The Receivables..............................................................18
CPS's Automobile Contract Portfolio..........................................20
Pool Factors.................................................................20
Use of Proceeds..............................................................21
The Seller and CPS...........................................................21
Description of the Certificates..............................................22
Certain Information Regarding the Certificates...............................23
Description of the Trust Documents...........................................31
Certain Legal Aspects of the Receivables.....................................40
Certain Federal Income Tax Consequences......................................43
ERISA Considerations.........................................................47
S-v
Methods of Distribution......................................................47
Legal Opinions...............................................................48
Financial Information........................................................48
Additional Information.......................................................48
Defined Terms................................................................49
-----------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Certificates offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition to the obligation of dealers
to deliver this Prospectus Supplement and the Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
[$ ]
CPS AUTO RECEIVABLES TRUST 1997-2
[ %] ASSET-BACKED
NOTES
CPS RECEIVABLES CORP.
(SELLER)
CONSUMER PORTFOLIO
SERVICES, INC.
(SERVICER)
-
PROSPECTUS SUPPLEMENT
-
ALEX. BROWN & SONS BLACK DIAMOND SECURITIES, LLC
INCORPORATED
[ ], 1997
S-vi
INSERT
PART II
Item 14. Other Expenses of Issuance and Distribution
Registration Fee.............................................. $ 4,502.32
Printing and Engraving........................................ 40,000.00
Legal Fees and Expenses....................................... 150,000.00
Accountants' Fees and Expenses................................ 20,000.00
Rating Agency Fees............................................ 50,000.00
Miscellaneous Fees............................................ 10,000.00
Total......................................................... $274,502.32
Item 15. Indemnification of Directors and Officers
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such person's status as an
agent of Consumer Portfolio Services, Inc., if that person acted in good faith
and in a manner reasonably believed to be in the best interests of Consumer
Portfolio Services, Inc. and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful.
Article IV of the Articles of Incorporation and Section 2 of Article VI
of the Amended and Restated By-Laws of Consumer Portfolio Services, Inc.
provides that all officers and directors of the corporation shall be indemnified
by the corporation from and against all expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with such
person's status as an agent of Consumer Portfolio Services, Inc., if that person
acted in good faith and in a manner reasonably believed to be in the best
interests of Consumer Portfolio Services, Inc. and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of that person was
unlawful.
The form of the Underwriting Agreement, to be filed as an exhibit to
this Registration Statement, will provide that Consumer Portfolio Services, Inc.
will indemnify and reimburse the underwriter(s) and each controlling person of
the underwriter with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement will provide that the underwriter(s) will similarly
indemnify and reimburse Consumer Portfolio Services, Inc. with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of
the registrant, the registrant's Amended and Restated By-Laws permit the board
of directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the registrant would have the power to indemnify them against
such liability under applicable law.
II-1
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 --Form of Underwriting Agreement.
4.1 --Form of Trust Agreement, and certain other related agreements
as Exhibits thereto.
4.2 --Form of Indenture, and certain other related agreement as Exhibits
thereto.
5.1 --Opinion of Mayer, Brown & Platt with respect to legality.
8.1 --Opinion of Mayer, Brown & Platt with respect to tax matters.
10.1 --Form of Sale and Servicing Agreement, and certain other related
agreements as Exhibits thereto.
10.2 --Form of Purchase Agreement.
10.3 --Form of Samco Purchase Agreement.
23.1 --Consent of Mayer, Brown & Platt (included in its opinions filed as
Exhibit 5.1 and Exhibit 8.1).
24.1 --Powers of Attorney. *
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
- - - --------
* Previously Filed.
II-2
Item 17. Undertakings
A. Undertaking pursuant to Rule 415
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement; provided, however, that paragraphs (1) and (2)
do not apply if the information required to be included in the
post-effective amendment is contained in periodic reports filed by the
Issuer pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
B. Undertaking pursuant to Rule 415
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
capacities indicated.
CONSUMER PORTFOLIO SERVICES, INC.,
as sponsor and manager of the Trust (Registrant)
By: /s/ Jeffrey P. Fritz
-------------------------
Name: Jeffrey P. Fritz
Title: Senior Vice President
II-4
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to Registration Statement has been signed on June 24, 1997 by
the following persons in the capacities indicated.
Signatures
Title
*
-------------------------------
Charles E. Bradley, Sr.
Director
/s/ Charles E. Bradley, Jr.
Charles E. Bradley, Jr.
President and Director
*
-------------------------------
William B. Roberts
Director
*
-------------------------------
John G. Poole
Director
*
-------------------------------
Thomas L. Chrystie
Director
*
-------------------------------
Robert A. Simms
Director
/s/ Jeffrey P. Fritz
-------------------------------
Jeffrey P. Fritz
Chief Financial Officer and Secretary
*By: /s/ Jeffrey P. Fritz
-------------------------------
Jeffrey P. Fritz
as attorney-in-fact
II-5
EXHIBIT INDEX
1.1 -- Form of Underwriting Agreement.
4.1 -- Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.
4.2 -- Form of Indenture, and certain other related agreements as
Exhibits thereto.
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.
10.1 -- Form of Sale and Servicing Agreement, and certain other related
agreements in Exhibits thereto.
10.2 -- Form of Receivables Purchase Agreement.
10.3 -- Form of Samco Purchase Agreement.
23.1 -- Consent of Mayer, Brown & Platt (included in its opinions filed
as Exhibit 5.1 and Exhibit 8.1).
24.1 -- Powers of Attorney.*
- - - --------
* Previously Filed.
II-6
Exhibit 1.1
CPS AUTO RECEIVABLES TRUST 199[ ]
[$ ] [ %] Class A-1 Asset Backed Notes
[$ ] [ %] Class A-2 Asset Backed Notes
[$ ] Floating Rate Class A-3 Asset Backed Notes
[[$ ] [ %] Class B Asset Backed Notes]
FORM OF UNDERWRITING AGREEMENT
[ ]
[UNDERWRITER]
Ladies and Gentlemen:
CPS Receivables Corp. (the "Company"), a California corporation and
wholly-owned subsidiary of Consumer Portfolio Services, Inc., a California
corporation ("CPS"), proposes to issue and sell to you in your capacities as the
Underwriter(s) (the "Underwriters"), $[
] aggregate principal amount of CPS Auto Receivables Trust
199[-] [ ]% Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), $[ ]
aggregate principal
amount of [ ]% Asset Backed Notes, Class A-2 (the "Class A-2 Notes"), $[ ]
aggregate principal amount of Floating Rate Asset Backed Notes, Class A-3 (the
"Class A-3 Notes" and together with the Class A-1 Notes and the Class A-2 Notes
[the "Notes") and $[ ] aggregate principal amount of [ ]% Asset Backed Notes,
Class B (the "Class B Notes" and, together with the Class A Notes,] the
"Notes"). The Notes will be issued by CPS Auto Receivables Trust 199[ ] (the
"Trust") pursuant to the Indenture (the "Indenture") dated as of [ ], 199[ ]
among [the Company], and Norwest Bank Minnesota, National Association, as
trustee (the "Indenture Trustee"). The assets of the Trust will include, among
other things, a pool of retail installment sale contracts and all rights and
obligations thereunder (collectively, the "Receivables"), with respect to Rule
of 78's Receivables, all payments due thereunder after [
], (the "Cutoff Date"), with respect to Simple Interest
Receivables, all payments received thereunder after the Cutoff Date, security
interests in the new and used automobiles, light trucks, vans and minivans
securing the Receivables, certain bank accounts and the proceeds thereof, the
Policy (for the benefit of the Noteholders only) and the right of
the Company to receive certain insurance proceeds and certain other property,
all as more specifically described in the Sale and Servicing Agreement, dated as
of [ ], among [the Trust, CPS, as servicer (in such capacity, the "Servicer")
the Company, as Seller and [Norwest Bank Minnesota National Association], as
trustee (the "Trustee").
The Class A-1 Notes will be issued in an aggregate principal amount of
$[ ] and will bear interest at an annual rate equal to [ ]% (the "Class A-1
Interest Rate"). The Class A-2 Notes will be issued in an aggregate principal
amount of $[ ] and will bear interest at an annual rate equal to [ ]% (the
"Class A-2 Interest Rate"). The Class A-3 Notes will be issued in an aggregate
principal amount of $[ ] and will bear interest at a rate equal to [one-month]
[two-month] [three-month] [six-month] LIBOR [other] plus [ ]% (the "Class A-3
Interest Rate"). The Class B Notes will be issued in an aggregate principal
amount of $[ ] and will bear interest at an annual rate equal to [ ]% (the
"Class B Interest Rate"). The aggregate principal amount of the Notes will equal
[
%] of the aggregate principal balance of the Receivables as of the Cutoff Date.
Calculations of interest for each class of Notes will be in accordance with the
provisions of the Sale and Servicing Agreement.
[The Certificates will be issued in an aggregate principal amount of $[
] which is equal to [ %] of the aggregate principal balance of the Receivables
as of the Cutoff Date. The Certificates will bear interest at an annual rate
equal to [ ]% (the "Pass-Through Rate") in accordance with the provisions of the
Trust Agreement].
To the extent not otherwise defined herein, capitalized terms used
herein shall have the meanings assigned to such terms in the Indenture or, if
not defined therein, in the Sale and Servicing Agreement.
As the Underwriters, each of you have advised the Company that (a) you
are authorized to enter into this Agreement and (b) each of you is willing,
acting severally and not jointly, to purchase the aggregate principal amount of
the Notes set forth opposite your respective names in Schedule I hereto.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company, with respect to the Company, and CPS, with respect to CPS,
and Samco, with respect to Samco, and both the Company and CPS in all other
instances, each represents and warrants to, and agrees with each Underwriter, as
of the date hereof and as of the Issuance, that:
(a) CPS has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 333-25301),
including a Base
-2-
Prospectus, for registration of the offering and sale of the Notes under the
Securities Act of 1933, as amended (the "1933 Act"), and the rules and
regulations (the "1933 Act Regulations") of the Commission thereunder which
conforms with the requirements of the 1933 Act and the 1933 Act Regulations. CPS
has complied with the conditions for the use of a Registration Statement on Form
S-3. CPS may have filed with the Commission one or more amendments to such
Registration Statement, and may have used a Preliminary Final Prospectus, each
of which has been previously furnished to each of the Underwriters. The offering
of the Notes is a Delayed Offering and, although the Base Prospectus may not
include all the information with respect to the Notes and the offering thereof
required by the 1933 Act and the 1933 Act Regulations to be included in the
Final Prospectus, the Base Prospectus includes all such information required by
the 1933 Act and the 1933 Act Regulations to be included therein as of the
Effective Date. The Company will hereafter file with the Commission pursuant to
Rules 415 and 424(b), a final supplement to the Base Prospectus relating to the
Notes and the offering thereof. As filed, such final supplement shall include
all required information with respect to the Notes and, except to the extent the
Underwriters shall agree in writing to any modification thereof, shall be in all
substantive respects in the form furnished to each of the Underwriters prior to
the Execution Time or, to the extent not completed at the Execution Time, shall
be in such form with only such specific additional information and other changes
(beyond that contained in the Base Prospectus and any Preliminary Final
Prospectus) as the Company has advised each of the Underwriters, prior to the
Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and
when the Final Prospectus is first filed (if required) in accordance with Rule
424(b) and on the Closing Date (as defined below), the Final Prospectus (as
supplemented and amended as of the Closing Date) will, comply in all material
respects with the applicable requirements of the 1933 Act, the 1933 Act
Regulations, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the rules and regulations thereunder (the "1934 Act Regulations"); on the
Effective Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Final Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Final Prospectus (as
supplemented and amended in the case of the Closing Date) will not, include any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading; provided, however, that
each of CPS and the Company makes no representations or warranties as to the
information contained in or omitted from the Registration Statement or the Final
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with information specified in Section 9(b) furnished in writing to
the Company by or on behalf of any Underwriter specifically for inclusion in the
Registration Statement or the Final Prospectus (or any supplement or amendment
thereto) or the information regarding the Insurer set forth under the heading
"THE INSURER" in or incorporated by reference in the Preliminary Final
Prospectus and the Final Prospectus.
-3-
(c) The terms which follow, when used in this Agreement, shall have the
meanings indicated.
"Base Prospectus" shall mean the prospectus referred to in
Section 1(a) hereof contained in the Registration Statement at the
Effective Date.
"Delayed Offering" shall mean the offering of the Notes
pursuant to Rule 415 which does not commence promptly after the
effective date of the Registration Statement, with the result that only
information required pursuant to Rule 415 need be included in such
Registration Statement at the effective date thereof with respect to
the Notes.
"Effective Date" shall mean each date that the Registration
Statement and any post-effective amendment(s) thereto became or become
effective and each date after the date hereof on which a document
incorporated by reference in the Registration Statement is filed by the
Company.
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Final Prospectus" shall mean the prospectus supplement
relating to the Notes that is first filed pursuant to Rule 424(b) under
the 1933 Act after the Execution Time, together with the Base
Prospectus.
"Preliminary Final Prospectus" shall mean any preliminary
prospectus supplement to the Base Prospectus which describes the Notes
and the offering thereof and is used prior to filing of the Final
Prospectus.
"Prospectus" shall mean, collectively, the Base Prospectus,
any Preliminary Final Prospectus and the Final Prospectus.
"Registration Statement" shall mean (i) the Registration
Statement referred to in Section 1(a) hereof, including all documents
incorporated therein by reference, exhibits, financial statements and
notes thereto and related schedules and other statistical and financial
data and information included therein, as amended at the Execution Time
(or, if not effective at the Execution Time, in the form in which it
shall become effective); (ii) in the event any post-effective amendment
thereto becomes effective prior to the Closing Date, such Registration
Statement as so amended; and (iii) in the event any Rule 462(b)
Registration Statement becomes effective prior to the Closing Date,
such Registration Statement as so modified by the Rule 462(b)
Registration Statement, from and after the effectiveness thereof. Such
term shall include any Rule 430A Information deemed to be included
therein at the Effective Date as provided by Rule 430A.
-4-
"Rule 415", "Rule 424", "Rule 430A" and "Regulation S-K" refer
to such rules or regulation under the 1933 Act.
"Rule 430A Information" means information with respect to the
Notes and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" means a Registration
Statement filed pursuant to Rule 462(b) under the 1933 Act relating to
the offering covered by the Registration Statement (File No.
333-25301).
Any reference herein to the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 which were filed under the 1934 Act on or before
the Effective Date of the Registration Statement or the issue date of the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the
case may be; and any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Registration Statement, the Base Prospectus,
any Preliminary Final Prospectus or the Final Prospectus shall be deemed to
refer to and include the filing of any document under the 1934 Act after the
Effective Date of the Registration Statement or the issue date of the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the
case may be, deemed to be incorporated therein by reference.
(d) Each of the Company and CPS is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which it is required to be so qualified and in which the failure
to so qualify, taken in the aggregate, would have a material adverse effect on
it.
(e) Samco Acceptance Corp. ("Samco") is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and is duly
qualified to transact business as a foreign corporation in each jurisdiction in
which it is required to be so qualified and in which failure to so qualify,
taken in the aggregate, would have a material adverse affect on it.
(f) Since the respective dates as of which information is given in the
Registration Statement and the Final Prospectus, there has not been any material
adverse change, or any development which could reasonably be expected to result
in a material adverse change, in or affecting the financial position,
shareholders' equity or results of operations of the Company, CPS or Samco or
the Company's or CPS's or Samco's ability to perform its obligations under this
Agreement, the Indenture, the Trust Agreement or the Sale and Servicing
Agreement or any of the other Basic Documents (as defined below), other than as
set forth or incorporated by reference in the Registration Statement or as set
forth in the Final Prospectus.
-5-
(g) Except for the registration of the Notes under the 1933 Act and
such consents, approvals, authorizations, registrations or qualifications as may
be required under the 1934 Act and applicable State securities or Blue Sky laws
in connection with the purchase and distribution of the Notes by the
Underwriters or the filing requirements of Rule 430A or Rule 424(b) under the
1933 Act, no consent, approval, authorization or order of or declaration or
filing with any governmental authority is required for the issuance or sale of
the Notes or the consummation of the other transactions contemplated by this
Agreement or the Sale and Servicing Agreement or any of the other Basic
Documents, except such as have been duly made or obtained or as will be duly
made or obtained on or before the Closing Date.
(h) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Notes, nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Final Prospectus together with any amendments or supplements thereto
will contain, all statements which are required to be stated therein by, and
will conform to, the requirements of the 1933 Act and the 1933 Act Regulations.
(i) The documents (other than the financial statements of the Insurer,
as to which no representation is made by CPS or the Company) which are
incorporated by reference in the Registration Statement and the Final Prospectus
or from which information is so incorporated by reference, as of the dates they
were filed with the Commission, complied in all material respects with the
requirements of the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
1934 Act Regulations, as applicable, and any documents so filed and incorporated
by reference subsequent to the Effective Date shall, when they are filed with
the Commission, conform in all material respects with the requirements of the
1934 Act and the 1934 Act Regulations.
(j) Each of the Company, CPS and Samco confirms as of the date hereof
that it is in compliance with all provisions of Section 1 of Laws of Florida,
Chapter 92-198, An Act Relating to Disclosure of doing Business with Cuba, and
each of the Company, CPS and Samco further agrees that if it commences engaging
in business with the government of Cuba or with any person or affiliate located
in Cuba after the date the Registration Statement becomes or has become
effective with the Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, or if the information
included in the Final Prospectus, if any, concerning either the Company's, CPS's
or Samco's business with Cuba or with any person or affiliate located in Cuba
changes in any material way, each of the Company, CPS and Samco, as the case may
be, will provide the Department notice of such business or change, as
appropriate, in a form acceptable to the Department.
(k) All representations and warranties of the Company and CPS and Samco
contained in each of the Basic Documents, including this Agreement, will be true
and correct in all material respects when delivered and as of the Closing Date
and are hereby
-6-
incorporated by reference as if each such representation and warranty were
specifically made herein.
(l) Each of the Company and CPS and Samco has full power and authority
(corporate and other) to enter into and perform its obligations under this
Agreement, the Indenture, the Trust Agreement, the Sale and Servicing Agreement,
the CPS Purchase Agreement, the Samco Purchase Agreement, the Insurance
Agreement, the Indemnification Agreement, the Spread Account Agreement, the
Lock-Box Agreement and the Servicing Assumption Agreement (collectively, the
"Basic Documents"), and to consummate the transactions contemplated hereby and
thereby.
(m) On or before the Closing Date, the direction by the Company to the
Indenture Trustee to authenticate the Notes will have been duly authorized by
the Company, the Notes will have been duly executed and delivered by the Company
and, when authenticated by the Indenture Trustee in accordance with the
Indenture and delivered and paid for pursuant to this Agreement, will be duly
issued and will entitle the holder thereof to the benefits and security afforded
by the Indenture, subject as to the enforcement of remedies (x) to applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
affecting creditors' rights generally and (y) to general principles of equity
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(n) This Agreement and each Basic Document to which the Company or CPS
or Samco is a party has been duly authorized, executed and delivered by each of
the Company and CPS and Samco, as applicable, and constitutes a valid and
binding agreement of each of the Company and CPS and Samco, as applicable,
enforceable against the Company and CPS and Samco in accordance with its terms,
subject as to the enforcement of remedies (x) to applicable bankruptcy,
insolvency, reorganization, moratorium, and other similar laws affecting
creditors' rights generally, (y) to general principles of equity (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law) and (z) with respect to rights of indemnity under this Agreement, to
limitations of public policy under applicable securities laws.
(o) None of the Company, CPS or Samco is in breach or violation of its
Articles of Incorporation or Charter, as applicable, or By-Laws or in default in
the performance or observance of any credit or security agreement or other
agreement or instrument to which it is a party or by which it or its properties
may be bound, or in violation of any applicable law, statute, regulation, order
or ordinance of any governmental body having jurisdiction over it, which breach
or violation would have a material adverse effect on the ability of the Company
or CPS or Samco to perform its obligations under any of the Basic Documents or
the Notes.
(p) The issuance and delivery of the Notes, the consummation of any
other of the transactions contemplated herein or in the Indenture, the Trust
Agreement, the Sale and Servicing Agreement or in any of the other Basic
Documents or the fulfillment of the terms
-7-
of this Agreement, the Indenture, the Trust Agreement, or the Sale and Servicing
Agreement or any of the other Basic Documents, subject to the registration of
the Notes under the 1933 Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the 1934 Act and
applicable State securities or Blue Sky laws in connection with the purchase and
distribution of the Notes by the Underwriters or the filing requirements of Rule
430A or Rule 424(b) under the 1933 Act, do not and will not conflict with or
violate any term or provision of the Articles of Incorporation or Charter, as
applicable, or By-Laws of the Company or CPS or Samco, any statute, order or
regulation applicable to the Company or CPS or Samco of any court, regulatory
body, administrative agency or governmental body having jurisdiction over the
Company or CPS or Samco and do not and will not conflict with, result in a
breach or violation or the acceleration of or constitute a default under or
result in the creation or imposition of any lien, charge or encumbrance upon any
of the property or assets of the Company or CPS or Samco (other than in favor of
the Indenture Trustee, the Indenture Trustee or as otherwise permitted under the
Indenture or the Sale and Servicing Agreement) pursuant to the terms of any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or CPS or Samco is a party or by which the
Company or CPS or Samco may be bound or to which any of the property or assets
of the Company or CPS or Samco may be subject except for conflicts, violations,
breaches, accelerations and defaults which would not, individually or in the
aggregate, be materially adverse to the Company or CPS or Samco or materially
adverse to the transactions contemplated by this Agreement or the Basic
Documents.
(q) Any taxes, fees and other governmental charges due on or prior to
the Closing Date (including, without limitation, sales taxes) in connection with
the execution, delivery and issuance of this Agreement, the Indenture, the Trust
Agreement, the Sale and Servicing Agreement, the other Basic Documents and the
Notes have been or will have been paid at or prior to the Closing Date.
(r) The Receivables are chattel paper as defined in the Uniform
Commercial Code as in effect in the State of California.
(s) Under generally accepted accounting principles, CPS will report its
transfer of the CPS Receivables to the Company pursuant to the CPS Purchase
Agreement as a sale of the CPS Receivables, Samco will report its transfer of
the Samco Receivables to the Company pursuant to the Samco Purchase Agreement as
a sale of the Samco Receivables and the Company will report its transfer of the
Receivables to the Indenture Trustee pursuant to the Pooling and Servicing
Agreement as a sale of the Receivables. Each of CPS and the Company has been
advised by [ ], Certified Public Accountants, that the transfers pursuant to the
CPS Purchase Agreement and the Samco Purchase Agreement will be so classified
under generally accepted accounting principles in accordance with Statement No.
77 of the Financial Accounting Standards Board (December 1983) and with
Statement No. 125 of the Financial Accounting Standards Board (June 1996).
-8-
(t) Pursuant to the CPS Purchase Agreement and the Samco Purchase
Agreement, CPS and Samco are transferring to the Company ownership of the
Receivables, the security interests in the Financed Vehicles securing the
Receivables, certain other property related to the Receivables and the proceeds
of each of the foregoing (collectively, the "Trust Assets"), and, immediately
prior to the transfer thereof to the Trust, the Company will be the sole owner
of all right, title and interest in, and has good and marketable title to, the
Receivables and the other Trust Assets. The assignment of the Receivables and
the other Trust Assets, including all the proceeds thereof, to the Trust
pursuant to the Sale and Servicing Agreement, vests in the Trust all interests
which are purported to be conveyed thereby, free and clear of any liens,
security interests or encumbrances.
(u) Immediately prior to the transfer of the Receivables to the Trust,
the Company's interest in the Receivables and the proceeds thereof shall have
been perfected, UCC-1 financing statements (the "Financing Statements")
evidencing (i) the transfer of the CPS Receivables to the Seller shall have been
filed in the Office of the Secretary of State of the State of California, (ii)
the transfer of the Samco Receivables to the Seller shall have been filed in the
Office of the Secretary of State of the State of Texas and (iii) the transfer of
the Receivables to the Trust shall have been filed in the Office of the
Secretary of State of the State of California and there shall be no unreleased
statements affecting the Receivables filed in either such office other than the
Financing Statements. If a court concludes that the transfer of the Receivables
from the Company to the Trust is a sale, then the interest of the Trust in the
Receivables, the other Trust Assets and the proceeds thereof, will be perfected
by virtue of the Financing Statements having been filed in the office of the
Secretary of State of the State of California. If a court concludes that such
transfer is not a sale, the Sale and Servicing Agreement and the transactions
contemplated thereby constitute a grant by the Company to the Trust of a valid
security interest in the Receivables, the other Trust Assets and the proceeds
thereof, which security interest will be perfected by virtue of the Financing
Statements having been filed in the office of the Secretary of State of the
State of California. No filing or other action, other than the filing of the
Financing Statements in the offices of the Secretaries of State of the States of
California and Texas referred to above and the execution and delivery of the
Sale and Servicing Agreement, is necessary to perfect the interest or the
security interest of the Trust in the Receivables and the proceeds thereof
against third parties.
(v) The Indenture is not required to be qualified under the Trust
Indenture Act.
(w) None of the Company, CPS, Samco or the Trust is required to be
registered as an "investment company" under the Investment Company Act.
2. PURCHASE, SALE AND DELIVERY OF THE NOTES.
Subject to the terms and conditions and in reliance upon the
representations, warranties and covenants herein set forth, the Company agrees
to sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company the
-9-
initial principal amount of the Notes set forth opposite such Underwriter's name
in Schedule I hereto, at the purchase price equal to [ ]% of such initial
principal amount.
The Company will deliver against payment of the purchase price the
Notes in the form of one or more permanent global Notes in definitive form (the
"Global Notes") deposited with the Indenture Trustee as custodian for The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee for DTC. Interests in any Global Notes will be held only in book-entry
form through DTC except in the limited circumstances described in the Final
Prospectus. Payment for the Notes will be made by the Underwriters by wire
transfer of same day funds to an account previously designated to the
Underwriters by the Company at the offices of Mayer, Brown & Platt, 1675
Broadway, New York, New York 10019, at 9:30 a.m. (New York time) on [ ], 199[ ],
or at such other time as is mutually agreed (such time being herein referred to
as the "Closing Date") against delivery of the Global Notes representing all of
the Notes. The Global Notes will be made available for checking at the above
office of Mayer, Brown & Platt at least 24 hours prior to the Closing Date.
As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York, California and
Minnesota are open for business and are not permitted by law or executive order
to be closed.
3. OFFERING BY THE UNDERWRITERS.
The Company is advised by the Underwriters that they propose to make a
public offering of the Notes, as set forth in the Final Prospectus, from time to
time as and when the Underwriters deem advisable after the Registration
Statement becomes effective. The Company agrees that the Underwriters may, but
are not obligated to, make a market in the Notes and that any such market making
by an Underwriter may be discontinued at any time in the sole discretion of such
Underwriter.
4. COVENANTS OF THE COMPANY AND CPS.
The Company, and CPS (if so stated), covenants and agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereto, to
become effective as soon as reasonably practicable thereafter or, if the
procedure in Rule 430A is followed, prepare and timely file with the Commission
under Rule 424(b) a Final Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance upon Rule
430A. Prior to the termination of the offering of the Notes the Company will not
file any amendment of the Registration Statement or amendment or supplement
(including the Final Prospectus or any Preliminary Final Prospectus) to the Base
Prospectus
-10-
or any Rule 462(b) Registration Statement unless the Company has furnished to
each of the Underwriters a copy for its review prior to filing and will not file
any such proposed amendment or supplement to which any of the Underwriters
reasonably objects and which is not in compliance with the 1933 Act Regulations.
The Company will promptly advise the Underwriters (i) when the Registration
Statement, if not effective at the Execution Time, and any amendment thereto,
shall have become effective; (ii) when the Final Prospectus, and any supplement
thereto, shall have been filed with the Commission pursuant to Rule 424(b);
(iii) when, prior to termination of the offering of the Notes, any amendment to
the Registration Statement shall have been filed or become effective; (iv) of
any request by the Commission for any amendment of the Registration Statement or
supplement to the Final Prospectus or for any other additional information; (v)
of the issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the institution of any proceeding for that
purpose; and (vi) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Notes for sale in any jurisdiction
or the initiation of any proceeding for such purpose. The Company will use its
best efforts to prevent the issuance of any such stop order or the suspension of
any such qualification and, if issued or suspended, to obtain as soon as
possible the withdrawal thereof.
(b) Prior to the filing thereof with the Commission, the Company will
submit to each of the Underwriters, for its approval after reasonable notice
thereof, such approval not to be unreasonably withheld or delayed, a copy of any
post-effective amendment to the Registration Statement, any Rule 462(b)
Registration Statement proposed to be filed or a copy of any document proposed
to be filed under the 1934 Act before the termination of the offering of the
Notes by the Underwriters if such document would be deemed to be incorporated by
reference into the Registration Statement or Final Prospectus.
(c) The Company will deliver to, or upon the order of, the
Underwriters, from time to time, as many copies of any Preliminary Final
Prospectus as the Underwriters may reasonably request. The Company will deliver
to, or upon the order of, the Underwriters during the period when delivery of a
Final Prospectus is required under the 1933 Act, as many copies of the Final
Prospectus, or as thereafter amended or supplemented, as the Underwriters may
reasonably request. The Company will deliver to the Underwriters at or before
the Closing Date, two signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Underwriters such number of copies of the Registration Statement (including
such number of copies of the exhibits filed therewith that may reasonably be
requested), including documents filed under the 1934 Act and deemed to be
incorporated by reference therein, and of all amendments thereto, as the
Underwriters may from time to time reasonably request.
(d) The Company will, and will cause the Trust to, comply with the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, so as
to permit the completion of the distribution of the Notes as contemplated in
this Agreement and the Final Prospectus. If during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer in
connection with the sale of any Notes, any event shall occur as a
-11-
result of which, in the judgment of the Company or in the reasonable opinion of
the Underwriters, it becomes necessary to amend or supplement the Final
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Final Prospectus is delivered to a
purchaser, not misleading, or, if it is necessary at any time to amend or
supplement the Final Prospectus to comply with any law or to file under the 1934
Act any document which would be deemed to be incorporated by reference in the
Registration Statement to comply with the 1933 Act or the 1934 Act, the Company
will promptly notify each of the Underwriters and will promptly either (i)
prepare and file, or cause to be prepared and filed, with the Commission an
appropriate amendment to the Registration Statement or supplement to the Final
Prospectus or (ii) prepare and file, or cause to be prepared and filed, with the
Commission (at the expense of the Company) an appropriate filing under the 1934
Act which shall be incorporated by reference in the Final Prospectus so that the
Final Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Final
Prospectus will comply with applicable law.
(e) The Company will cooperate with the Underwriters in endeavoring to
qualify the Notes for sale under the laws of such jurisdictions as the
Underwriters may designate and will maintain such qualifications in effect so
long as required for the distribution of the Notes, except that the Company will
not be obligated to qualify the Notes in any jurisdiction in which such
qualification would require the Company to qualify to do business as a foreign
corporation, file a general or unlimited consent to service of process or
subject itself to taxation in any such jurisdiction to which it is not subject
and will arrange for the determination of the legality of the Notes for purchase
by institutional investors. The Company will, from time to time, prepare and
file such statements, reports, and other documents as are or may be required to
continue such qualifications in effect for so long a period as the Underwriters
may reasonably request for distribution of the Notes.
(f) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Notes in such a manner as would
require the Company, CPS or the Trust to register as an investment company under
the 1940 Act.
(g) Until the retirement of the Notes, or until such time as the
Underwriters shall cease to maintain a secondary market in the Notes, whichever
occurs first, the Company will deliver to each Underwriter the annual statements
of compliance and the annual independent certified public accountant's reports
furnished to the Indenture Trustee pursuant to the Pooling and Servicing
Agreement, as soon as such statements and reports are furnished to the Indenture
Trustee.
(h) The Company, CPS and Samco shall, from the date hereof through and
including the Closing Date, furnish, or cause to be furnished, or make
available, or cause to be made available, to each Underwriter or its counsel
such additional documents and information regarding each of them and their
respective affairs as each Underwriter may from time to time reasonably request
and which the Company, CPS or Samco possesses or
-12-
can acquire without unreasonable effort or expense, including any and all
documentation requested in connection with such Underwriter's due diligence
efforts regarding information in the Registration Statement and the Final
Prospectus and in order to evidence the accuracy or completeness of any of the
conditions contained in this Agreement; and all actions taken by the Company or
CPS to authorize the sale of the Notes shall be reasonably satisfactory in form
and substance to each Underwriter.
(i) The Company will cause the Trust to make generally available to
Noteholders as soon as practicable, but no later than sixteen months after the
Effective Date, an earnings statement of the Trust covering a period of at least
twelve consecutive months beginning after such Effective Date and satisfying the
provisions of Section 11(a) of the Act (including Rule 158 promulgated
thereunder).
(j) So long as any of the Notes are outstanding, the Company will
furnish to the Underwriters copies of all reports or other communications
(financial or otherwise) furnished or made available to Noteholders, and deliver
to the Underwriters during such period, (i) as soon as they are available,
copies of any reports and financial statements filed by or on behalf of the
Trust or the Company with the Commission pursuant to the Securities Exchange Act
of 1934, as amended, and (ii) such additional information concerning the
business and financial condition of the Company and CPS as the Underwriter may
from time to time reasonably request.
(k) On or before the Closing Date, the Company and CPS and Samco shall
cause the respective computer records of the Company and CPS and Samco relating
to the Receivables to be marked to show the Indenture Trustee's absolute
ownership of the Receivables, and from and after the Closing Date neither the
Company nor CPS nor Samco shall take any action inconsistent with the Indenture
Trustee's ownership of such Receivables, other than as expressly permitted by
the Pooling and Servicing Agreement.
(l) To the extent, if any, that the ratings provided with respect to
the Notes by either of the Rating Agencies is conditional upon the furnishing of
documents or the taking of any other actions by the Company, CPS or Samco, CPS
shall, or shall cause the Company or Samco to, furnish such documents and take
any such other actions.
(m) On the Closing Date, the Company and CPS shall cause the Insurer to
issue the Policy to the Indenture Trustee for the benefit of the holders of the
Notes in form and substance satisfactory to each Underwriter.
5. [RESERVED]
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6. COSTS AND EXPENSES.
The Company and CPS will pay upon receipt of a written request therefor
all costs, expenses and fees incident to the performance of the obligations of
the Company and CPS under this Agreement and will, jointly and severally,
reimburse the Underwriters for all reasonable out-of-pocket expenses, including
reasonable fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Notes or in
contemplation of performing the Underwriters' obligations hereunder and
including, without limiting the generality of the foregoing, the following: (i)
accounting fees of the Company; (ii) the fees and disbursements of Mayer, Brown
& Platt; (iii) the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Final
Prospectuses, the Final Prospectus, this Agreement, the listing application in
respect of the Notes, the Blue Sky Survey, if any, and any supplements or
amendments thereto; (iv) the filing fees of the Commission; (v) any fees charged
by the Rating Agencies for rating the Notes; and (vi) the fees and expenses of
the Indenture Trustee, including the fees and disbursements of counsel for the
Indenture Trustee, in connection with the Notes, the Pooling and Servicing
Agreement and the other Basic Documents to which the Indenture Trustee is a
party and the expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Notes under
State securities or Blue Sky laws. If this Agreement shall not be consummated
because the conditions in Section 7 hereof are not satisfied, or because this
Agreement is terminated by each of the Underwriters pursuant to Section 12
hereof (other than on the basis of a default by the Underwriters pursuant to
Section 10 hereof), or by reason of any failure, refusal or inability on the
part of the Company or CPS to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with said
terms be due to the default or omission of any Underwriter, then the Company and
CPS, jointly and severally, shall reimburse the Underwriters for reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Notes or in contemplation of performing their obligations hereunder
upon receipt of a written request therefor; but the Company shall not in any
event be liable to any of the Underwriters for damages on account of loss of
anticipated profits from the sale by them of the Notes. Except to the extent
expressly set forth in this Section 6, the Underwriters shall each be
responsible for their own costs and expenses, including the fees and expenses of
their counsel.
7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase and pay for the
Notes on the Closing Date are subject to the accuracy in all material respects
as of the Closing Date of the representations and warranties of the Company, CPS
and Samco contained herein, to the performance by the Company, CPS and Samco of
their respective covenants and obligations hereunder and to the following
additional conditions precedent:
-14-
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Underwriters agree in writing to a later time, the
Registration Statement will become effective not later than (i) 5:30 p.m. New
York City time on the date of determination of the public offering price of the
Notes, if such determination occurred at or prior to 3:00 p.m. New York City
time on such date or (ii) 12:00 noon New York City time on the business day
following the day on which the public offering price of the Notes was
determined, if such determination occurred after 3:00 p.m. New York City time on
such date; if filing of the Final Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Final Prospectus, and any such supplement,
shall have been filed within the applicable time period prescribed for such
filing by Rule 424(b), and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise) shall
have been disclosed to the Underwriters and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the knowledge of the
Company, shall be contemplated by the Commission and no injunction, restraining
order, or order of any nature by a Federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would prevent
the issuance of the Notes.
(b) On or prior to the date of this Agreement and on or prior to the
Closing Date, each Underwriter shall have received a letter or letters, dated as
of [ ], and as of the Closing Date, respectively, of [ ], Certified Public
Accountants, substantially in the form of the drafts to which each of the
Underwriters has previously agreed and otherwise in form and substance
satisfactory to each Underwriter and
its counsel.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company, CPS or any Affiliate of the Company or CPS which, in the judgment
of each Underwriter, materially impairs the investment quality of the Notes or
the ability of CPS to act as Servicer or (ii) any downgrading in the rating of
any debt securities or preferred stock of the Company, CPS or any Affiliate
thereof by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Securities Act), or any public
announcement that any such organization has under surveillance or review its
rating of any debt securities or preferred stock of the Company, CPS or any
Affiliate thereof (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading of such
rating); (iii) any suspension or limitation of trading in securities generally
on the New York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the Company or
CPS or any Affiliate of the Company or CPS on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by Federal, New
York or California authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity,
-15-
emergency or change in financial markets if, in the judgment of each
Underwriter, the effect of any such outbreak, escalation, declaration, calamity,
emergency or change makes it impractical or inadvisable to market the Notes on
the terms and in the manner set forth in the Final Prospectus.
(d) The Company, CPS and Samco shall have furnished each Underwriter
with such number of conformed copies of such opinions, Notes, letters and
documents as it may reasonably request.
(e) On the Closing Date, each of the Basic Documents and the Notes
shall have been duly authorized, executed and delivered by the parties thereto,
shall be in full force and effect and no default shall exist thereunder, and the
Indenture Trustee shall have received a fully executed copy thereof or, with
respect to the Notes, a conformed copy thereof. The Basic Documents and the
Notes shall be substantially in the forms heretofore provided to each
Underwriter.
(f) Each Underwriter shall have received a certificate of the Indenture
Trustee, as to the due authorization, execution and delivery of the Pooling and
Servicing Agreement by the Indenture Trustee.
(g) Each Underwriter shall have received evidence satisfactory to such
Underwriter that the Notes have been rated "Aaa" by Moody's and "AAA" by
Standard & Poor's.
(h) Each Underwriter shall have received from [
], special counsel for CPS, Samco and the Company, opinions dated the Closing
Date, addressed to such Underwriter, in a form satisfactory to such Underwriter.
(i) Each Underwriter shall have received from [ ], special Federal tax
counsel for the Company, an opinion dated the Closing Date, addressed to such
Underwriter, with respect to the status of the Trust for federal income tax
purposes.
(j) Each Underwriter shall have received from [ ], an opinion dated the
Closing Date, addressed to such Underwriter, with respect to the validity of the
Notes and such other related matters as such Underwriter shall require and the
Company or CPS shall have furnished or caused to be furnished to such counsel
such documents as they may reasonably request for the purpose of enabling them
to pass upon such matters.
(k) Each Underwriter shall have received from counsel to the Indenture
Trustee, the Standby Servicer and the Collateral Agent (which counsel shall be
reasonably acceptable to such Underwriter), an opinion addressed to such
Underwriter dated the Closing Date, in form and substance satisfactory to such
Underwriter and its counsel.
-16-
(l) Each Underwriter shall have received from counsel to the Owner
Trustee, which counsel shall be reasonably acceptable to such Underwriter, an
opinion addressed to such Underwriter, dated the Closing Date, in form and
substance satisfactory to such Underwriter and its counsel.
(m) Each Underwriter shall have received from special Delaware counsel
to the Trust, which counsel shall be reasonably acceptable to such Underwriter,
an opinion addressed to such Underwriter, dated the Closing Date, in form and
substance satisfactory to such Underwriter and its counsel.
(n) Each Underwriter shall have received from counsel to the Insurer,
which counsel shall be reasonably acceptable to such Underwriter, an opinion
addressed to such Underwriter, dated the Closing Date, in form and substance
satisfactory to such Underwriter and its counsel.
(o) At the Closing Date, each Underwriter shall have received any and
all opinions of counsel to the Company and CPS supplied to the Rating Agencies
and the Insurer relating to, among other things, the interest of the Indenture
Trustee in the Receivables and the other Trust Assets and the proceeds thereof
and certain monies due or to become due with respect thereto, certain bankruptcy
issues and certain matters with respect to the Notes. Any such opinions shall be
addressed to each Underwriter or shall indicate that such Underwriter may rely
on such opinions as though they were addressed to such Underwriter, and shall be
dated the Closing Date.
(p) At the Closing Date, the Company, CPS and Samco shall have
furnished to each Underwriter a certificate, dated the Closing Date, of the
President, the Chief Financial Officer or any Vice President of the Company, CPS
or Samco, as the case may be, in which each such officer shall state that: (i)
the representations and warranties of the Company, CPS or Samco, as applicable,
in this Agreement are true and correct on and as of the Closing Date; (ii) the
Company, CPS or Samco, as applicable, has complied with all agreements and
satisfied all conditions on its part required to be performed or satisfied
hereunder and under each of the other Basic Documents at or prior to the Closing
Date; (iii) the representations and warranties of the Company, CPS or Samco, as
applicable, in each of the Basic Documents are true and correct as of the dates
specified therein; (iv) with respect to the certificate delivered by CPS, the
Registration Statement has become effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceedings for such purpose have been taken or are, to his or her knowledge,
contemplated by the Commission; (v) with respect to the certificates delivered
by CPS and the Company, he or she has carefully examined the Registration
Statement and the Final Prospectus and, in his or her opinion, as of the
Effective Date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and as of the Closing Date the
Registration Statement and the Final Prospectus do not contain any untrue
statement of a material fact or omit to state a material fact with respect to
the Company, CPS or Samco necessary in order to make the statements therein, in
light of the
-17-
circumstances under which they were made, not misleading, and since the
Effective Date of the Registration Statement, no event has occurred with respect
to the Company, CPS or Samco which should have been set forth in a supplement to
or an amendment of the Final Prospectus which has not been so set forth in such
supplement or amendment; and (vi) with respect to the certificate delivered by
the Company and CPS, subsequent to the respective dates as of which information
is given in the Registration Statement and the Final Prospectus, there has been
no material adverse change, or any development with respect to the Company, CPS
or Samco which could reasonably be expected to result in a material adverse
change, in or affecting particularly the business or properties of the Trust,
the Company, CPS or Samco except as contemplated by the Final Prospectus or as
described in such certificate.
(q) Each Underwriter shall have received evidence satisfactory to such
Underwriter that the Insurer shall have issued the Policy to the Indenture
Trustee for the benefit of the Noteholders in form and substance satisfactory to
such Underwriter.
(r) Each Underwriter shall have received evidence satisfactory to it
that, on or before the Closing Date, the Financing Statements have been filed in
(i) the office of the Secretary of State of California reflecting the assignment
of the interest of CPS in the CPS Receivables and the related other Trust Assets
and the proceeds thereof to the Company, (ii) the office of the Secretary of
State of Texas reflecting the assignment of the interest of Samco in the Samco
Receivables and the related other Trust Assets and the proceeds thereof to the
Company and (iii) the office of the Secretary of State of California reflecting
the transfer of the interest of the Company in the Receivables and the other
Trust Assets and the proceeds thereof to the Indenture Trustee.
(s) All proceedings in connection with the transactions contemplated by
this Agreement, the Pooling and Servicing Agreement and each of the other Basic
Documents and all documents incident hereto or thereto shall be satisfactory in
form and substance to each Underwriter.
(t) The Company shall have furnished to the Underwriters such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Underwriters may reasonably have requested.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects reasonably satisfactory to the Underwriters and to Mayer,
Brown & Platt, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Underwriters by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date. In such event, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 6 and 9 hereof).
-18-
8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Notes required to be delivered as and when specified in this Agreement are
subject to the condition that, at the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and in effect
or proceedings therefor initiated or threatened.
9. INDEMNIFICATION.
(a) The Company and CPS, jointly and severally, agree to indemnify and
hold harmless each Underwriter, its directors, officers, employees and agents
and each person, if any, who controls any Underwriter within the meaning of the
1933 Act or the 1934 Act, against any losses, claims, damages or liabilities to
which such Underwriter or any such other person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Base Prospectus, any Preliminary
Final Prospectus, the Final Prospectus or any amendment or supplement thereto
(other than information contained therein under the heading "the Insurer" and
information incorporated by reference therein), or (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse each Underwriter
and each such person within 30 days of presentation of a written request
therefor for any legal or other expenses reasonably incurred by such Underwriter
in connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or governmental
inquiry related to the offering of the Notes, whether or not such Underwriter or
such person is a party to any action or proceeding; provided, however, that
neither the Company nor CPS will be liable in any such case to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement, or omission or alleged omission
made in the Registration Statement, the Base Prospectus, any Preliminary Final
Prospectus, the Final Prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished to the
Company or CPS, as the case may be, by, through or on behalf of the Underwriters
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company or CPS may otherwise have. The
indemnity agreement of the Company and CPS in this Agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in the Registration Statement, the
Base Prospectus, any Preliminary Final Prospectus or in the Final Prospectus, or
any amendment or supplement thereto, such indemnity agreement shall not inure to
the benefit of any Underwriter if such Underwriter failed to send or give a copy
of the Final Prospectus (as amended or supplemented, if the Company or CPS, as
the case may be, shall have furnished any amendment or supplement thereto to
such Underwriter, which corrected such untrue statement or omission that is the
basis of the loss, liability, claim, damage or expense for
-19-
which indemnification is sought) to the person asserting any such loss,
liability, claim, damage or expense at such time as the Final Prospectus, as so
amended or supplemented, was required under the 1933 Act to be delivered to such
person.
(b) (i) Each Underwriter, severally and not jointly, will indemnify and
hold harmless each of the Company and CPS, each of their directors, officers,
employees and agents and each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, to the same extent as the foregoing
indemnity from each of the Company and CPS to any Underwriter, its directors,
officers, employees and agents and each person who controls any such
Underwriter, but only with respect to untrue statements or omissions or alleged
untrue statements or omissions made in the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus, the Final Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company or CPS, as the case may be, by, through or
on behalf of such Underwriter specifically for use in the preparation of the
Registration Statement, the Base Prospectus, any Preliminary Final Prospectus,
the Final Prospectus or any amendment or supplement thereto. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have. The Company and the Underwriters acknowledge and agree that the
only information furnished or to be furnished by any Underwriter to the Company
for inclusion in the Registration Statement, the Base Prospectus, any
Preliminary Final Prospectus or the Final Prospectus, or any amendments or
supplements thereto, consists of the information set forth in the [last
paragraph on the front cover page] concerning the terms of the offering by the
Underwriters (insofar as such information relates to the Underwriters), legends
required by Item 502(d) of Regulation S-K under the 1933 Act and the information
under the caption "Methods of Distribution" in the Final Prospectus and under
the caption "Underwriting" in the Final Prospectus.
(ii) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, CPS, the other Underwriter; the
respective officers, directors, employees and agents of any such party, and each
person who controls the Company, CPS or such other Underwriter within the
meaning of the 1933 Act or the 1934 Act against any losses, claims, damages or
liabilities to which such person may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (a) any untrue
statement or alleged untrue statement of any material fact contained in the
Computational Materials (as defined below) provided by such indemnifying
Underwriter or (b) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances in which they were made, not
misleading (except, in each case, to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission results from the
failure of the Company Provided Information to be accurate in all material
respects); and will reimburse each such party within 30 days of written request
therefor for any legal or other expenses reasonably incurred by such person in
connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or governmental
-20-
inquiry related thereto, whether or not such person is a party to any action or
proceeding. The obligations of each Underwriter under this subsection (ii) shall
be in addition to any other liability which such Underwriter may otherwise have.
For purposes hereof, the term "Computational Materials" means information
provided by an Underwriter to a prospective purchaser of Notes, which
information is not part of the Prospectus. For purposes hereof, the term
"Company Provided Information" means [the information contained in the table on
page [ ] of the Preliminary Final Prospectus dated [ ], 1997 as to the weighted
average APR of the Receivables, the weighted average remaining term of the
Receivables and the aggregate principal balance of the Receivables as of the
Preliminary Cutoff Date].
(iii) Each Underwriter shall, no later than the date on which
the Prospectus is required to be filed pursuant to Rule 424, provide to CPS for
filing with the Commission on Form 8-K a copy of any Computational Materials
delivered by such Underwriter to any prospective purchaser of Notes.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 9, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. The failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party for indemnity or contribution or otherwise
than on account of the provisions of Section 9(a) or (b), except and only to the
extent such omission so to notify shall have materially prejudiced the
indemnifying party under Section 9(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation of an invoice)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the indemnified party has
reasonably concluded (based on advice of counsel) that there may be legal
defenses available to it or other indemnified parties that are different from or
in addition to those available to the indemnifying party, (iii) the named
parties to any such proceeding (including any impleaded parties) include both
the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them or (iv) the indemnifying party shall have
failed to assume the defense and employ counsel acceptable to the indemnified
party within a reasonable period of time after notice of commencement of the
action. It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be liable
for the reasonable fees and expenses of more than one separate firm for all such
indemnified
-21-
parties. Such firm shall be designated in writing by the Underwriters in the
case of parties indemnified pursuant to Section 9(a) and by the Company in the
case of parties indemnified pursuant to Section 9(b). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party (which consent shall not be
unreasonably withheld or delayed), settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding of
which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 9(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and CPS
on the one hand and the Underwriters on the other from the offering of the
Notes. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of the Company or CPS on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters
(in each case as set forth in the table on the cover page of the Final
Prospectus). As between the Underwriters, the relative benefits received by
[Underwriter], on the one hand, and [Underwriter], on the other, shall be deemed
to be in the same proportion as the respective portions of the total
underwriting discounts and commissions received by each of them. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, CPS and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this Section 9(d) were determined by
pro rata allocation (even if
-22-
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this Section 9(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to above in this Section
9(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim, subject to the limitations set forth above. Notwithstanding the
provisions of this Section 9(d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Notes purchased by such Underwriter and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this Section
9(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus, the Final Prospectus, or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 9 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon it by any other contributing party
and consents to the service of such process and agrees that any other
contributing party may join it as an additional defendant in any such proceeding
in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
obligations of the Company and CPS pursuant to Section 6, the indemnity and
contribution agreements contained in this Section 9 and the representations and
warranties of each of the Company and CPS set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter, the Company or CPS, their
respective directors, officers, employees or agents or any persons controlling
any Underwriter or the Company, (ii) acceptance of any Notes and payment thereof
or hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, the Company or CPS, their respective directors, officers, employees
or agents, or any person controlling any Underwriter, the Company or CPS, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 9.
10. DEFAULT BY THE UNDERWRITERS.
If on the Closing Date, [defaulting Underwriter] shall fail to purchase
and pay for all or any portion of the Notes which such Underwriter has agreed to
purchase and pay for on such date (otherwise than by reason of any default on
the part of the Company, CPS or
-23-
Samco), then [non-defaulting Underwriter] shall use reasonable efforts to
procure within 36 hours thereafter one or more additional Underwriters to
purchase from the Company such amounts as may be agreed upon and upon the terms
set forth herein, the Notes which the defaulting Underwriter failed to purchase.
If during such 36 hours [non-defaulting Underwriter] shall not have procured one
or more additional Underwriters to purchase the Notes agreed to be purchased by
the defaulting Underwriter, then (a) if the aggregate amount of Notes with
respect to which such default shall occur does not exceed 10% of the Notes
covered hereby, [non-defaulting Underwriter] shall be obligated to purchase the
Notes which [defaulting Underwriter] failed to purchase, or (b) if the aggregate
principal balance of Notes with respect to which such default shall occur
exceeds 10% of the principal balance of Notes covered hereby, the Company or
(provided [non-defaulting Underwriter] has not defaulted) [non-defaulting
Underwriter] will have the right, by written notice given within the next 36-
hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriter or of the
Company except to the extent provided in Section 9 hereof. In the event of a
default by [defaulting Underwriter] as set forth in this Section 10, the Closing
Date may be postponed for such period, not exceeding seven days, as the
non-defaulting Underwriter may determine in order that the required changes in
the Registration Statement or in the Final Prospectus or in any other documents
or arrangements may be effected. For purposes of this Agreement, the term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 10 shall not relieve [defaulting Underwriter]
from liability in respect of any default of such Underwriter under this
Agreement.
11. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows:
if to the Underwriters, to each of the following addresses: [
]
if to the Company, at the following address:
CPS Receivables Corp.
2 Ada
Irvine, California 92618
Attention: Charles Bradley, Jr.
Facsimile No.: (714) 753-6805;
-24-
or, if sent to CPS at the following address:
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92618
Attention: Charles Bradley, Jr.
Facsimile No.: (714) 753-6805
12. TERMINATION.
This Agreement may be terminated by the Underwriters by notice by each
of the Underwriters to the Company as follows:
(a) at any time prior to the Closing Date, if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Final Prospectus, any material adverse change or
any development involving a prospective material adverse change in the business,
properties, results of operations, financial condition or business prospects of
CPS, Samco or the Company, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of war
or national emergency or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in each of the Underwriters' reasonable
judgment, make it impracticable to market the Notes or to enforce contracts for
the sale of the Notes, (iii) any suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such Exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in each of the Underwriters' reasonable
opinion materially and adversely affects or may materially and adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by United States or New York State authorities, (vi) any downgrading
or the giving of notice of any intended or potential downgrading in the rating
of the Company's debt securities by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the 1934
Act), (vii) the suspension of trading of the Common Stock by the Commission on
the New York Stock Exchange or (viii) the taking of any action by any
governmental body or agency in respect of its monetary or fiscal affairs which
in each of the Underwriters' reasonable opinion has a material adverse effect on
the securities markets in the United States; or
(b) as provided in Sections 7 and 10 of this Agreement.
-25-
13. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, CPS, Samco and the Company and their respective successors,
executors, administrators, heirs and assigns, and the respective affiliates,
officers, directors, employees, agents and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. No
purchaser of any of the Notes from any Underwriter shall be deemed a successor
or assign merely because of such purchase.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement, the obligations of the Company and CPS under
Section 6 and the representations, warranties and covenants in this Agreement
shall remain in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of any Underwriter or the
Company, their respective directors, officers, employees or agents or any
controlling person of any Underwriter or the Company indemnified herein and (c)
delivery of and payment for the Notes under this Agreement.
Each Underwriter agrees that, prior to the date which is one year and
one day after the payment in full of all securities issued by the Company or by
a trust for which the Company was the depositor, which securities were rated by
any nationally recognized statistical rating organization, it will not institute
against, or join any other person in instituting against, the Company any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other proceedings under any Federal or state bankruptcy or similar law.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York without regard to the conflict of laws
provisions thereof. With respect to any claim arising out of this Agreement (i)
each party irrevocably submits to the exclusive jurisdiction of the courts of
the State of New York and the United States District Court for the Southern
District of New York, and (ii) each party irrevocably waives (1) any objection
which it may have at any time to the laying of venue of any suit, action or
proceeding arising out of or relating hereto brought in any such court, (2) any
claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum and (3) the right to object, with respect
to such claim, suit, action or proceeding brought in any such court, that such
court does not have jurisdiction over such party. To the extent permitted by
applicable law, each Underwriter, the Company, Samco and CPS irrevocably waive
all right of trial by jury in any action, proceeding or counterclaim arising out
of or in connection with this Agreement or any matter arising hereunder.
-26-
This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
Any provision of this Agreement which is prohibited, unenforceable or
not authorized in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition, unenforceability or
non-authorization without invalidating the remaining provisions hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.
[Rest of page intentionally left blank.]
-27-
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
CPS RECEIVABLES CORP.
By:
Name:
Title:
CONSUMER PORTFOLIO SERVICES, INC.
By:
Name:
Title:
SAMCO ACCEPTANCE CORP.
By:
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written:
[ ]
By:
Name:
Title:
[ ]
By:
Name:
Title:
SCHEDULE I
Schedule of Underwriters
Portion of Initial Principal
Amount of the Notes to be
Underwriter Purchased
[ ] $[ ]
[ ] [ ]
Total $[ ]
Exhibit 4.1
TRUST AGREEMENT
between
CPS RECEIVABLES CORP.,
[ LLC]
and
[ ]
Owner Trustee
Dated as of [ ]
TABLE OF CONTENTS
Page
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms...............................................1
SECTION 1.2. Other Definitional Provisions...................................4
ARTICLE II.
Organization
SECTION 2.1. Name...........................................................5
SECTION 2.2. Office.........................................................5
SECTION 2.3. Purposes and Powers............................................5
SECTION 2.4. Appointment of Owner Trustee...................................6
SECTION 2.5. Initial Capital Contribution of Trust Estate...................6
SECTION 2.6. Declaration of Trust...........................................7
SECTION 2.7. Liability of Depositor as Depositor............................7
SECTION 2.8. Title to Trust Property........................................8
SECTION 2.9. Situs of Trust.................................................8
SECTION 2.10. Representations and Warranties of the Depositor..... ..........9
SECTION 2.11. Federal Income Tax Allocations................................10
SECTION 2.12. Covenants of the Depositor....................................12
SECTION 2.13. Covenants of the Owners.......................................13
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership..............................................14
SECTION 3.2. The Certificates...............................................14
SECTION 3.3. Authentication of Certificates.................................15
SECTION 3.4. Registration of Transfer and Exchange of Certificates..........15
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates..............16
SECTION 3.6. Persons Deemed Certificateholders..............................17
SECTION 3.7. Access to List of Certificateholders' Names and Addresses......17
SECTION 3.8. Maintenance of Office or Agency................................17
SECTION 3.9. Disposition by the Depositor...................................18
[SECTION 3.10.ERISA Restrictions.............................................18
[SECTION 3.11.Book-Entry Certificates........................................18
[SECTION 3.12.Notices to Clearing Agency.....................................19
- i -
Page
SECTION 3.13. Definitive Certificates........................................19
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters.........20
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters....21
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.........21
SECTION 4.4. Restrictions on Certificateholders' Power.......................21
SECTION 4.5. Majority Control................................................22
SECTION 4.6. Rights of Insurer...............................................22
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders, Certificateholders,
the Internal Revenue Service and Others.........................23
SECTION 5.2. Signature on Returns; Tax Matters Partner.......................24
[SECTION 5.3. Underwriting Agreement..........................................24
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority...............................................24
SECTION 6.2. General Duties..................................................24
SECTION 6.3. Action upon Instruction.........................................25
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions....................................................26
SECTION 6.5. No Action Except under Specified Documents or Instructions......26
SECTION 6.6. Restrictions ...................................................27
ARTICLE VII.
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties.................................27
SECTION 7.2. Furnishing of Documents.........................................29
SECTION 7.3. Representations and Warranties..................................29
SECTION 7.4. Reliance; Advice of Counsel.....................................29
SECTION 7.5. Not Acting in Individual Capacity...............................30
- ii -
Page
SECTION 7.6. Owner Trustee Not Liable for Certificates or Receivables........30
SECTION 7.7. Owner Trustee May Own Certificates and Notes....................31
SECTION 7.8. Payments from Owner Trust Estate................................31
SECTION 7.9. Doing Business in other Jurisdictions...........................31
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses...............................32
SECTION 8.2. Indemnification.................................................32
SECTION 8.3. Payments to the Owner Trustee...................................32
SECTION 8.4. Non-recourse Obligations........................................32
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement..................................33
SECTION 9.2. Dissolution upon Bankruptcy of the Depositor....................34
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee.....................35
SECTION 10.2. Resignation or Removal of Owner Trustee........................35
SECTION 10.3. Successor Owner Trustee........................................36
SECTION 10.4. Merger or Consolidation of Owner Trustee.......................37
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee..................37
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments.....................................39
SECTION 11.2. No Legal Title to Owner Trust Estate in Certificateholders.....40
SECTION 11.3. Limitations on Rights of Others................................41
SECTION 11.4. Notices........................................................41
SECTION 11.5. Severability...................................................41
SECTION 11.6. Separate Counterparts..........................................42
SECTION 11.7. Assignments; Insurer...........................................42
SECTION 11.8. No Petition....................................................42
SECTION 11.9. No Recourse....................................................42
SECTION 11.10. Headings.......................................................42
SECTION 11.11. GOVERNING LAW..................................................43
- iii -
Page
SECTION 11.12. Servicer......................................................43
EXHIBITS
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
- iv -
TRUST AGREEMENT dated as of [ ] between CPS RECEIVABLES CORP., a
California corporation (the "Depositor"), [ ], a [ ] limited liability company
("LLC"), and [ ], a Delaware banking corporation as Owner Trustee.
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms. For all purposes of this Agreement, the
following terms shall have the meanings set forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
and supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Certificate of Trust,
the Sale and Servicing Agreement, the Spread Account Agreement, the Spread
Account Agreement Supplement, the Insurance Agreement, the Indenture and the
other documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
3.10.
"Book Entry Certificates" means a beneficial interest in the
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 3.11.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss. 3801 et. seq. as the same may be amended from
time to time.
"Certificate" means a trust certificate evidencing the beneficial
interest of a Certificateholder in the Trust, substantially in the form of
Exhibit A attached hereto.
"Certificate Distribution Account" shall mean the account designated as
such as established and maintained pursuant to the Sale and Servicing Agreement.
"Certificate Percentage Interest" shall mean with respect to any
Certificate, the percentage interest of ownership in the Trust represented
thereby as set forth on the face thereof.
- 1 -
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at [ ], or at
such other address as the Owner Trustee may designate by notice to the
Certificateholders and the Depositor, or the principal corporate trust office of
any successor Owner Trustee (the address of which the successor owner trustee
will notify the Certificateholders and the Depositor).
"Definitive Certificates" shall mean either or both (as the context
requires) of (i) Book-Entry Certificates issued in certificated, fully
registered form as provided in Section 3.11 and (ii) Certificates issued in
certificated, fully registered form as provided in Section 3.13.
"Demand Note" shall have the meaning assigned to such term in Section
2.10(h).
"Depositor" shall mean the Depositor in its capacity as Depositor
hereunder.
"ERISA" shall have the meaning assigned to such term in Section 3.10.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose name a
Certificate is registered on the Certificate Register.
- 2 -
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.2.
"Indenture" shall mean the Indenture dated as of [ ], among the Issuer
and [Norwest Bank Minnesota, National Association], as Trust Collateral Agent
and Trustee, as the same may be amended and supplemented from time to time.
"Minimum Net Worth" means at any time of determination, and with
respect to the Depositor, net worth equal to 10 percent of the sum of (i)
amounts paid to the Trust in respect of the issuance of Certificates and (ii)
amounts contributed to the capital of the Trust (including by sale of property
to the Trust for less than fair market value consideration). For the purpose of
the determination of Minimum Net Worth: (i) any Demand Note issued to the
Depositor shall be valued at par, (ii) assets subject to a lien shall be valued
at zero, (iii) Certificates or any interests in any entity taxable as a
partnership for federal income tax purposes shall be valued at zero, (iv)
investments shall be valued at their respective purchase prices plus accrued
interest, and (v) demand notes of CPS issued as contributions to the Depositor
in connection with its status as a Depositor of any other partnership formed
pursuant to trust agreements substantially similar to this Agreement shall be
valued at an amount equal to the excess, if any, of (a) the aggregate current
amount of all such demand notes over (b) 10% of the aggregate Certificate
Balance (as such terms are defined in the related trust agreement) of all
certificates issued by such partnerships, as of such date of determination.
"Owner" shall mean each Person who is the beneficial owner of a Book
Entry Certificate as reflected in the records of the Clearing Agency or if a
Clearing Agency Participant is not the Owner, then as reflected in records of a
Person maintaining an account with such Clearing Agency (directly or indirectly,
in accordance with the rules of such Clearing Agency).
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and the Certificate Distribution Account and all
other property of the Trust from time to time, including any rights of the Owner
Trustee and the Trust pursuant to the Sale and Servicing Agreement and the
Spread Account Agreement.
"Owner Trustee" shall mean [ ], a Delaware banking corporation, not in
its individual capacity but solely as owner trustee under this Agreement, and
any successor Owner Trustee hereunder.
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"Record Date" shall mean with respect to any Payment Date, the close of
business on the last Business Day immediately preceding such Payment Date.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement among the Trust, the Depositor, Consumer Portfolio Services, Inc. and
the Trust Collateral Agent, dated as of [ ], as the same may be amended and
supplemented from time to time.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Insurer" shall mean Financial Security Assurance Inc., or its
successor in interest.
"Spread Account" shall mean the Spread Account established and
maintained pursuant to the Spread Account Agreement.
"Spread Account Agreement" shall mean the Spread Account Agreement,
dated as of May 1, 1997, among the Depositor, the Insurer, and the Trust
Collateral Agent, as the same may be amended, supplemented or otherwise modified
in accordance with the terms thereof.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Collateral Agent" shall mean, initially, [Norwest Bank
Minnesota, National Association], in its capacity as collateral agent, including
its successors in interest, until and unless a successor Person shall have
become the Trust Collateral Agent pursuant to the Sale and Servicing Agreement,
and thereafter "Trust Collateral Agent" shall mean such successor Person.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined have the
meanings assigned to them in the Sale and Servicing Agreement or, if not defined
therein, in the Spread Account Agreement or in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document
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made or delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles as in effect on the date of
this Agreement or any such certificate or other document, as applicable. To the
extent that the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Agreement or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
ARTICLE II.
Organization
SECTION 2.1. Name. There is hereby formed a trust to be known as "CPS
Auto Receivables Trust [ ]", in which name the Owner Trustee may conduct the
business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Certificateholders and the
Depositor.
SECTION 2.3. Purposes and Powers. (a) The purpose of the Trust is, and
the Trust shall have the power and authority, to engage in the following
activities:
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(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement, and to sell the Notes and the
Certificates;
(ii) with the proceeds of the sale of the Notes and the
Certificates, to fund the Pre-Funding Account, the Capitalized Interest
Account and the Spread Account and to pay the organizational, start-up
and transactional expenses of the Trust and to pay the balance to the
Depositor pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate (other than the Certificate Distribution
Account) to the Trust Collateral Agent pursuant to the Indenture for
the benefit of the Insurer and the Indenture Trustee on behalf of the
Noteholders and to hold, manage and distribute to the
Certificateholders and the Depositor pursuant to the terms of the Sale
and Servicing Agreement any portion of the Owner Trust Estate released
from the Lien of, and remitted to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the Basic
Documents to which it is a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $99.00 and LLC hereby sells, assigns,
transfers, conveys and sets
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over to the Owner Trustee, as of the date hereof, the sum of $1.00. The Owner
Trustee hereby acknowledges receipt of the foregoing contributions in trust from
the Depositor and LLC, as of the date hereof, which contribution shall
constitute the initial Owner Trust Estate and shall be deposited in the
Certificate Distribution Account. The Depositor shall pay organizational
expenses of the Trust as they may arise.
SECTION 2.6. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Owners, subject to
the conditions of the Trust under the Basic Documents. It is the intention of
the parties hereto that the Trust constitute a business trust under the Business
Statute and that this Agreement constitute the governing instrument of such
business trust. It is the intention of the parties hereto that (i) so long as
the Depositor is the Owner of 100 percent of the Certificates (either directly
or indirectly through wholly-owned non-corporate subsidiaries), for federal
income tax purposes and to the extent consistent with the laws of any other
jurisdiction other than California for which the characterization of the Trust
as an entity is relevant, the Trust shall be treated solely as a security device
and not as a separate entity, and (ii) if the Depositor is not the direct or
indirect Owner of 100 percent of the Certificates, then for federal income tax
purposes and for purposes of the laws of any other jurisdiction other than
California for which the characterization of the Trust as an entity is relevant,
and in all events for California franchise tax purposes, the Trust shall be
treated as a partnership and not as an association (or publicly traded
partnership) taxable as a corporation. The parties agree that, unless otherwise
required by appropriate tax authorities, the Trust will file or cause to be
filed annual or other necessary returns, reports and other forms, if any,
consistent with such characterization of the Trust. Effective as of the date
hereof, the Owner Trustee shall have all rights, powers and duties set forth
herein and to the extent not inconsistent herewith, in the Business Trust
Statute with respect to accomplishing the purposes of the Trust. The Owner
Trustee shall file the Certificate of Trust with the Secretary of State.
SECTION 2.7. Liability of Depositor as Depositor. (a) The Depositor
shall pay organizational expenses of the Trust as they may arise or shall upon
the request of the Owner Trustee, promptly reimburse the Owner Trustee for any
such expenses paid by the Owner Trustee. The Depositor shall also be liable
directly to and will indemnify each injured party for all losses, claims,
damages, liabilities and expenses of the Trust (including Expenses, to the
extent not paid out of the Owner Trust Estate) to the extent that the Depositor
would be liable if the Trust were a partnership under the Delaware Revised
Uniform Limited
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Partnership Act in which the Depositor were a Depositor; provided, however, that
the Depositor shall not be liable for any losses incurred by a Holder in the
capacity of an investor in the Certificates or a Noteholder in the capacity of
an investor in the Notes; provided further, that the Depositor shall not be
liable to indemnify any injured party if such party has agreed that its recourse
against the Trust for any obligation or liability of the Trust to such party
shall be limited to the assets of the Trust. In addition, any third party
creditors of the Trust (other than in connection with the obligations described
in the preceding sentence for which the Depositor shall not be liable) shall be
deemed third party beneficiaries of this paragraph. The obligations of the
Depositor under this paragraph shall be evidenced by the Certificates described
in Section 3.9, which for separate purposes of the Business Trust Statute shall
be deemed to be a separate class of Certificates from all other Certificates
issued by the Trust.
(b) No Holder, other than to the extent set forth in clause (a), shall
have any personal liability for any liability or obligation of the Trust.
SECTION 2.8. Title to Trust Property. (a) Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction required title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Holders shall not have legal title to any part of the
Trust Property. The Holders shall be entitled to receive distributions with
respect of their undivided ownership interest therein only in accordance with
Articles V and IX. No transfer, by operation of law or otherwise, of any right,
title or interest by any Certificateholder of its ownership interest in the
Owner Trust Estate shall operate to terminate this Agreement for the trusts
hereunder or entitle any transferee to an accounting or the transfer to it of
legal title to any part of the Trust Property.
SECTION 2.9. Situs of Trust. The Trust will be located and administered
in the State of Delaware. All bank accounts maintained by the Owner Trustee on
behalf of the Trust shall be located in the State of Delaware or the State of
Minnesota. Payments will be received by the Trust only in Delaware or Minnesota
and Payments will be made by the Trust only from Delaware or Minnesota. The
Trust shall not have any employees in any state other than Delaware; provided,
however, that nothing herein shall restrict or prohibit the Owner Trustee, the
Servicer or any agent of the Trust from having employees within or without
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the State of Delaware. The only office of the Trust will be at the Corporate
Trust Office in Delaware.
SECTION 2.10. Representations and Warranties of the Depositor. The
Depositor makes the following representations and warranties on which the Owner
Trustee relies in accepting the Owner Trust Estate in trust and issuing the
Certificates and upon which the Insurer relies in issuing the Policy.
(a) Organization and Good Standing. The Depositor is duly organized and
validly existing as a California corporation with power and authority to own its
properties and to conduct its business as such properties are currently owned
and such business is presently conducted and is proposed to be conducted
pursuant to this Agreement and the Basic Documents.
(b) Due Qualification. The Depositor is duly qualified to do business
as a foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or lease of
its property, the conduct of its business and the performance of its obligations
under this Agreement and the Basic Documents requires such qualification.
(c) Power and Authority. The Depositor has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; the
Depositor has full power and authority to sell and assign the property to be
sold and assigned to and deposited with the Trust and the Depositor has duly
authorized such sale and assignment and deposit to the Trust by all necessary
corporate action; and the execution, delivery and performance of this Agreement
has been duly authorized by the Depositor by all necessary corporate action.
(d) No Consent Required. No consent, license, approval or authorization
or registration or declaration with, any Person or with any governmental
authority, bureau or agency is required in connection with the execution,
delivery or performance of this Agreement and the Basic Documents, except for
such as have been obtained, effected or made.
(e) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the certificate of
incorporation or by-laws of the Depositor, or any material indenture, agreement
or other instrument to which the Depositor is a party or by which it is bound;
nor result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than pursuant to
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the Basic Documents); nor violate any law or, to the best of the Depositor's
knowledge, any order, rule or regulation applicable to the Depositor of any
court or of any Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Depositor or its
properties.
(f) No Proceedings. There are no proceedings or investigations pending
or, to its knowledge, threatened against it before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over it or its properties (A) asserting the invalidity of this
Agreement or any of the Basic Documents, (B) seeking to prevent the issuance of
the Certificates or the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Basic Documents, (C) seeking any
determination or ruling that might materially and adversely affect its
performance of its obligations under, or the validity or enforceability of, this
Agreement or any of the Basic Documents, or (D) seeking to adversely affect the
federal income tax or other federal, state or local tax attributes of the
Certificates.
(g) Minimum Net Worth. The Depositor has been duly capitalized such
that its aggregate net worth is not less than the Minimum Net Worth.
(h) Demand Note. If the Depositor is capitalized, in whole or in part
by the delivery of a demand note (a "Demand Note") from CPS, the proceeds of
such Demand Note will not be used to pay (i) any of the expenses of the
Depositor in connection with the transactions contemplated by the Basic
Documents or (ii) the purchase price for the Certificates purchased pursuant to
Section 3.9. Such Demand Note shall be enforceable against CPS, subject to its
terms, and subject to applicable bankruptcy, insolvency, moratorium, fraudulent
conveyance, reorganization and similar laws now or hereafter in effect relating
to creditors' rights generally or the rights of creditors of banks the deposit
accounts of which are insured by the Federal Deposit Insurance Corporation and
subject to general principles of equity (whether applied in a proceeding at law
or in equity).
SECTION 2.11. Federal Income Tax Allocations. For purposes of the laws
of any jurisdiction for which the Trust is characterized as a partnership
(consistent with the characterization of the Trust described in Section 2.6
above), the following allocations shall apply for Federal income tax purposes.
If Principal Certificates are held by any person, interest payments on the
Principal Certificates at the Certificate Rate (including interest on amounts
previously due on the Principal Certificates but not yet distributed) shall be
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treated as "guaranteed payments" under Section 707(c) of the Code. Net income of
the Trust for any month as determined for Federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation thereof)
shall be allocated:
(a) among the holders of Principal Certificates as of
the close of business on the last day of such month, in
proportion to their ownership of the principal amount of
Principal Certificates on such date, an amount of net income
up to the sum of: (i) the portion of the market discount on
the Receivables accrued during such month that is allocable to
the excess, if any, of the Initial Certificate Balance over
their initial aggregate issue price, (ii) Certificateholders'
Prepayment Premium, if any, payable for such month and (iii)
any other amounts of income payable to the Certificateholders
for such month; and such sum of amounts specified in clauses
(i) through (iii) of this sentence shall be reduced by any
amortization by the Trust of premium on Receivables that
corresponds to any excess of the issue price of Trust
Certificates over their principal amount; and
(b) to the Holders of Certificates, to the extent of
any remaining net income, in accordance with their respective
interests therein.
If the net income of the Trust for any month is insufficient for the
allocations described in clause (a), subsequent net income shall first
be allocated to make up such shortfall before being allocated as
provided in the preceding sentence. Net losses of the Trust, if any,
for any month as determined for Federal income tax purposes (and each
item of income, gain, loss and deduction entering into the computation
thereof) shall be allocated to the Holders of Certificates, to the
extent such holders are reasonably expected to bear the economic burden
of such net losses, and any remaining net losses shall be allocated
among the Holders of Principal Certificates as of the close of business
on the last day of such month in proportion to their ownership of
principal amount of Principal Certificates on such day. The Depositor
is authorized to modify the allocations in this paragraph if necessary
or appropriate, in its sole discretion, for the allocations to fairly
reflect the economic income, gain or loss to the holders of
Certificates or Principal Certificates, or as otherwise required by the
Code. Notwithstanding anything provided in this Section 2.11, if
Principal Certificates are not held by any person and the Certificates
are held solely
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by the Depositor, the application of this Section 2.11 shall be
disregarded.
SECTION 2.12. Covenants of the Depositor. The Depositor agrees and
covenants for the benefit of each Owner, the Insurer and the Owner Trustee,
during the term of this Agreement, and to the fullest extent permitted by
applicable law, that:
(a) it shall not assign, sell, convey, pledge, transfer,
reconvey, cancel, forgive, compromise or otherwise dispose of any
Demand Note held by it, in whole or in part;
(b) it shall not sell, assign, transfer, give or encumber, by
operation of law or otherwise, in whole or in part, the interest
evidenced by its certificates acquired pursuant to Section 3.9 without
the consent of the Insurer;
(c) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as
permitted by its certificate of incorporation and the Basic Documents;
(d) it shall not, for any reason, institute proceedings for
the Trust to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the Trust,
or file a petition seeking or consenting to reorganization or relief
under any applicable federal or state law relating to the bankruptcy of
the Trust, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Trust or a substantial part of the property of the Trust or cause or
permit the Trust to make any assignment for the benefit of creditors,
or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the
debt of the Trust or take any action in furtherance of any such action;
(e) it shall obtain from each counterparty to each Basic
Document to which it or the Trust is a party and each other agreement
entered into on or after the date hereof to which it or the Trust is a
party, an agreement by each such counterparty that prior to the
occurrence of the event specified in Section 9.1(e) such counterparty
shall not institute against, or join any other Person in instituting
against, it or the Trust, any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings or other similar proceedings
under the laws of the United States or any state of the United States;
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(f) it shall not, for any reason, withdraw or attempt to
withdraw from this Agreement, dissolve, institute proceedings for it to
be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against it, or file a petition
seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of it or a substantial part of its
property, or make any assignment for the benefit of creditors, or admit
in writing its inability to pay its debts generally as they become due,
or declare or effect a moratorium on its debt or take any action in
furtherance of any such action; and
(g) it shall not make any distribution other than to the Trust
or unless the aggregate net worth of the Depositor following such
distribution shall be at least equal to the Minimum Net Worth unless
the Depositor shall deliver to the Owner Trustee, the Trustee and the
Insurer an opinion of Counsel to the effect that the failure to
maintain such Minimum Net Worth shall not cause the Trust to be an
association taxable as a corporation or a publicly traded partnership
for California franchise tax purposes.
SECTION 2.13. Covenants of the Owners. Each Certificateholder and each
Owner by becoming a beneficial owner of the Book-Entry Certificate agrees:
(a) to be bound by the terms and conditions of the
Certificates of which such party is the record or beneficial owner and
of this Agreement, including any supplements or amendments hereto and
to perform the obligations of a Holder or Owner as set forth therein or
herein, in all respects as if it were a signatory hereto. This
undertaking is made for the benefit of the Trust, the Owner Trustee,
the Insurer and all other Holders and Owners present and future;
(b) to hereby appoint the Depositor as its agent and
attorney-in-fact to sign any federal income tax information return
filed on behalf of the Trust and agree that, if requested by the Trust,
it will sign such federal income tax information return in its capacity
as a Holder or Owner of an interest in the Trust. Each Holder and each
Owner also hereby agrees that in its tax returns it will not take any
position inconsistent with those taken in any tax returns filed by the
Trust;
(c) if such Holder or Owner is other than an individual or
other entity holding its Certificate through a broker who reports
securities sales on Form 1099-B, to
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notify the Owner Trustee of any transfer by it of a Certificate or a
beneficial interest in a Certificate in a taxable sale or exchange,
within 30 days of the date of the transfer; and
(d) until the completion of the events specified in Section
9.1(e), not to, for any reason, institute proceedings for the Trust or
the Depositor to be adjudicated a bankrupt or insolvent, or consent to
the institution of bankruptcy or insolvency proceedings against the
Trust, or file a petition seeking or consenting to reorganization or
relief under any applicable federal or state law relating to
bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Trust or a substantial part of its property, or cause or permit the
Trust to make any assignment for the benefit of its creditors, or admit
in writing its inability to pay its debts generally as they become due,
or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor and LLC pursuant to Section 2.5 and until the
issuance of the Certificates, the Depositor and LLC shall be the sole
beneficiaries of the Trust.
SECTION 3.2. The Certificates. The Certificates shall be issued
initially to the Depositor in a Certificate Percentage Interest of 99% and to
LLC in a Certificate Percentage Interest of 1.00% [and the Principal
Certificates shall be issued in denominations of $1,000 and integral multiples
thereof]; [provided, however, that certificates may be issued to the Depositor
pursuant to Section 3.9 in such denominations as to represent at least 1% of the
initial Certificate Balance.] The Certificates shall be executed on behalf of
the Trust by manual or facsimile signature of an authorized officer of the Owner
Trustee. Certificates bearing the manual or facsimile signatures of individuals
who were, at the time when such signatures shall have been affixed, authorized
to sign on behalf of the Trust, shall be validly issued and entitled to the
benefit of this Agreement, notwithstanding that such individuals or any of them
shall have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of authentication
and delivery of such Certificates. A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of
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a Certificateholder hereunder, upon due registration of such Certificate in such
transferee's name pursuant to Section 3.4.
SECTION 3.3. Authentication of Certificates. Concurrently with the
initial sale of the Receivables to the Trust pursuant to the Sale and Servicing
Agreement, the Owner Trustee shall cause the Certificates in an aggregate
Certificate Percentage Interest equal to 100% [and the Principal Certificates in
an aggregate Certificate Balance equal to [$ ]] to be executed on behalf of the
Trust, authenticated and delivered to or upon the written order of the
Depositor, signed by its chairman of the board, its president or any vice
president, its treasurer or any assistant treasurer without further corporate
action by the Depositor, in authorized denominations. No Certificate shall
entitle its holder to any benefit under this Agreement, or shall be valid for
any purpose, unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee or the Owner Trustee's authentication agent, by manual signature;
such authentication shall constitute conclusive evidence that such Certificate
shall have been duly authenticated and delivered hereunder. All Certificates
shall be dated the date of their authentication.
SECTION 3.4. Registration of Transfer and Exchange of Certificates. The
Certificate Registrar shall keep or cause to be kept, at the office or agency
maintained pursuant to Section 3.8, a Certificate Register in which, subject to
such reasonable regulations as it may prescribe, the Owner Trustee shall provide
for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. [ ] shall be the initial Certificate Registrar.
The Certificate Registrar shall provide the Trust Collateral Agent with
a list of the names and addresses of the Certificateholders on the Closing Date
in the form which such information is provided to the Certificate Registrar.
Upon any transfers of Certificates, the Certificate Registrar shall notify the
Trust Collateral Agent of the name and address of the transferee in writing, by
facsimile, on the day of such transfer.
Upon surrender for registration of transfer of any Certificate at the
office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver (or shall cause as its authenticating agent to
authenticate and deliver), in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of a like
class and aggregate Certificate Percentage Interest [and face amount] dated the
date of authentication by the Owner Trustee or any authenticating agent. At the
option of a Holder, Certificates may be exchanged
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for other Certificates of the same class in authorized denominations of a like
aggregate Certificate Percentage Interest [or face amount] upon surrender of the
Certificates to be exchanged at the office or agency maintained pursuant to
Section 3.8.
Every Certificate presented or surrendered for registration of transfer
or exchange shall be accompanied by a written instrument of transfer in form
satisfactory to the Owner Trustee and the Certificate Registrar duly executed by
the Certificateholder or his attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Certificate Registrar, which requirements include membership
or participation in the Securities Transfer Agent's Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Certificate Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act. Each Certificate surrendered for registration
of transfer or exchange shall be canceled and subsequently disposed of by the
Owner Trustee in accordance with its customary practice.
No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar, the Owner Trustee and (unless an Insurer Default
shall have occurred and be continuing) the Insurer, such security or indemnity
as may be required by them to save each of them harmless, then in the absence of
notice that such Certificate shall have been acquired by a bona fide purchaser,
the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee, or
the Owner Trustee's authenticating agent, shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like class, tenor and denomination. In
connection with the issuance of any new Certificate under this Section, the
Owner Trustee or the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
shall constitute conclusive evidence of an ownership interest in the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
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SECTION 3.6. Persons Deemed Certificateholders. Every Person by virtue
of becoming a Certificateholder or owner in accordance with this Agreement and
the rules and regulations of the Clearing Agency shall be deemed to be bound by
the terms of this Agreement. Prior to due presentation of a Certificate for
registration of transfer, the Owner Trustee, the Certificate Registrar and the
Insurer and any agent of the Owner Trustee, the Certificate Registrar and the
Insurer, may treat the Person in whose name any Certificate shall be registered
in the Certificate Register as the owner of such Certificate for the purpose of
receiving distributions pursuant to the Sale and Servicing Agreement and for all
other purposes whatsoever, and none of the Owner Trustee, the Certificate
Registrar or the Insurer nor any agent of the Owner Trustee, the Certificate
Registrar or the Insurer shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.
The Owner Trustee shall furnish or cause to be furnished to the Servicer, the
Depositor or (unless an Insurer Default shall have occurred and be continuing)
the Insurer, within 15 days after receipt by the Owner Trustee of a request
therefor from such Person in writing, a list, of the names and addresses of the
Certificateholders as of the most recent Record Date. If three or more Holders
or Owners of Certificates or one or more Holders or Owners of Certificates
evidencing not less than 25% Certificate Percentage Interest [or Certificate
Balance] apply in writing to the Owner Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and such
application is accompanied by a copy of the communication that such applicants
propose to transmit, then the Owner Trustee shall, within five Business Days
after the receipt of such application, afford such applicants access during
normal business hours to the current list of Certificateholders. Each Holder or
Owner, by receiving and holding a Certificate or a beneficial interest therein,
shall be deemed to have agreed not to hold any of the Depositor LLC, the
Servicer, the Owner Trustee or the Insurer or any agent thereof accountable by
reason of the disclosure of its name and address, regardless of the source from
which such information was derived.
SECTION 3.8. Maintenance of Office or Agency. The Owner Trustee shall
maintain in New York, an office or offices or agency or agencies where
Certificates may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Owner Trustee in respect of the
Certificates and the Basic Documents may be served. The Owner Trustee initially
designates [ ] as its principal corporate trust office for such purposes. The
Owner Trustee shall give prompt written notice to the Depositor, the
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Certificateholders and (unless an Insurer Default shall have occurred and be
continuing) the Insurer of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9. Disposition by the Depositor. On the Closing Date, the
Depositor shall purchase for adequate consideration and retain beneficial and
record ownership of Certificates representing not less than 1 percent of all
Certificates issued by the Trust, which Certificates issued to the Depositor
shall be issued in definitive form. Any attempted transfer of any Certificate,
and any purported issuance of any Certificate to any person, that would reduce
such interest of the Depositor to below 1 percent of all Certificates issued by
the Trust shall be void. The Owner Trustee shall cause any Certificate issued to
the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE,
EXCEPT UNDER THE LIMITED CONDITIONS SPECIFIED IN THE TRUST AGREEMENT".
[SECTION 3.10. ERISA Restrictions. The Certificates may not be acquired
by or for the account of (i) an employee benefit plan (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1985, as
amended, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its beneficial ownership interest in its Certificate, the
Owner thereof shall be deemed to have represented and warranted that it is not a
Benefit Plan.]
[SECTION 3.11. Book-Entry Certificates. The Certificates, upon original
issuance, will be issued in the form of a typewritten Certificate or
Certificates representing Book-Entry Certificates, to be delivered by or on
behalf of the Trust to The Depository Trust Company, the initial Clearing
Agency; provided, however, that one Definitive Certificate (as defined below)
may be issued to the Depositor, as Depositor pursuant to Section 3.9. Such
Book-Entry Certificate shall initially be registered on the Certificate Register
in the name of Cede & Co., the nominee of the initial Clearing Agency, and no
beneficial owner (other than the Depositor) will receive a definitive
Certificate representing such beneficial owner's interest in such Certificate,
except as provided in Section 3.13. Unless and until Definitive Certificates
have been issued to beneficial owners pursuant to Section 3.13:
(i) the provisions of this Section shall be in full force and
effect;
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(ii) the Certificate Registrar and the Owner Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Agreement relating to the Book-Entry Certificates (including the
payment of principal of and interest on the Book-Entry Certificates and
the giving of instructions or directions to Owners of Book-Entry
Certificates) as the sole Certificateholder and shall have no
obligations to the Owners thereof;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Agreement, the provisions of
this Section shall control;
(iv) the rights of the owners of the Book-Entry Certificates
shall be exercised only through the Clearing Agency and shall be
limited to those established by law and agreements between such owners
and the Clearing Agency and/or the Clearing Agency Participants. Unless
and until Definitive Certificates are issued pursuant to Section 3.16,
the Clearing Agency will make book-entry transfers among the Clearing
Agency Participants and receive and transmit payments of principal of
and interest on the Book-Entry Certificates to such Clearing Agency
Participants; and
(v) whenever this Agreement requires or permits actions to be
taken based upon instructions or directions of Certificateholder
evidencing a specified percentage of the Certificate Balance, the
Clearing Agency shall be deemed to represent such percentage only to
the extent that it has received instructions to such effect from Owners
and/or Clearing Agency Participants owning or representing,
respectively, such required percentage of the beneficial interest in
the Book-Entry Certificates and has delivered such instructions in
writing to the Owner Trustee.]
[SECTION 3.12. Notices to Clearing Agency. Whenever a notice or other
communication to the owners is required under this Agreement, unless and until
Definitive Certificates shall have been issued to Owners pursuant to Section
3.13, the Owner Trustee shall give all such notices and communications specified
herein to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners, except to the Depositor.
SECTION 3.13. Definitive Certificates. If (i) the Servicer advises the
Owner Trustee in writing that the Clearing Agency is no longer willing or able
to properly discharge its responsibilities with respect to the Certificates, and
the Servicer is unable to locate a qualified successor, (ii) the Servicer at its
option advises the Owner Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of
an Event of Default,
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owners of Certificates representing beneficial interests aggregating at least a
majority of the Certificate Balance advise the Clearing Agency in writing that
the continuation of a book-entry system through the Clearing Agency is no longer
in the best interest of the Owners of Certificates, then the Clearing Agency
shall notify all Owners and the Owner Trustee of the occurrence of any such
event and of the availability of the Definitive Certificates to Owners
requesting the same. Upon surrender to the Owner Trustee of the typewritten
Certificate or Certificates representing the Book Entry Certificates by the
Clearing Agency, accompanied by registration instructions, the Owner Trustee
shall execute and authenticate the Definitive Certificates in accordance with
the instructions of the Clearing Agency. Neither the Certificate Registrar nor
the Owner Trustee shall be liable for any delay in delivery of such instructions
and may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive certificates, the Owner Trustee
shall recognize the Holders of the Definitive Certificates as
Certificateholders. The Definitive Certificates shall be printed, lithographed
or engraved or may be produced in any other manner as is reasonably acceptable
to the Owner Trustee, as evidenced by its execution thereof.]
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 30 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders in writing of the proposed action and
the Certificateholders shall not have notified the Owner Trustee in writing
prior to the 30th day after such notice is given that such Certificateholders
have withheld consent or provided alternative direction:
(a) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed
under the Business Trust Statute or unless such amendment would not
materially and adversely affect the interests of the Holders);
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required;
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any
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Noteholder is not required and such amendment materially adversely
affects the interest of the Certificateholders; or
(d) except pursuant to Section 13.1(b) of the Sale and
Servicing Agreement, the amendment, change or modification of the Sale
and Servicing Agreement, except to cure any ambiguity or defect or to
amend or supplement any provision in a manner that would not materially
adversely affect the interests of the Certificateholders.
The Owner Trustee shall notify the Certificateholders in writing of any
appointment of a successor Note Registrar, Trust Collateral Agent or Certificate
Registrar within five Business
Days thereof.
SECTION 4.2. Action by Certificateholders with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders or the Insurer in accordance with the Basic Documents,
to (a) remove the Servicer under the Sale and Servicing Agreement pursuant to
Section 8.1 thereof or (b) except as expressly provided in the Basic Documents,
sell the Receivables after the termination of the Indenture. The Owner Trustee
shall take the actions referred to in the preceding sentence only upon written
instructions signed by the Certificateholders and the furnishing of
indemnification satisfactory to the Owner Trustee by the Certificateholders.
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.
The Owner Trustee shall not have the power to, and shall not, commence any
proceeding or other actions contemplated by Section 2.12(d) relating to the
Trust without the prior written consent of the Insurer (unless an Insurer
Default shall have occurred and be continuing) and the unanimous prior approval
of all Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholders' Power. (a) The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this Agreement or any of the Basic
Documents or would be contrary to Section 2.3 nor shall the Owner Trustee be
obligated to follow any such direction, if given.
(b) No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement
or any Basic
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Document, unless the Certificateholders are the Instructing Party pursuant to
Section 6.3 and unless a Certificateholder previously shall have given to the
Owner Trustee a written notice of default and of the continuance thereof, as
provided in this Agreement, and also unless Certificateholders evidencing not
less than 25% Certificate Percentage Interest [or Certificate Balance] shall
have made written request upon the Owner Trustee to institute such action, suit
or proceeding in its own name as Owner Trustee under this Agreement and shall
have offered to the Owner Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby,
and the Owner Trustee, for 30 days after its receipt of such notice, request,
and offer of indemnity, shall have neglected or refused to institute any such
action, suit, or proceeding, and during such 30-day period no request or waiver
inconsistent with such written request has been given to the Owner Trustee
pursuant to and in compliance with this Section or Section 6.3; it being
understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Owner Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb, or prejudice the rights of the Holders of any
other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner provided in this Agreement and for the equal,
ratable, and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 4.4, each and every
Certificateholder and the Owner Trustee shall be entitled to such relief as can
be given either at law or in equity. Nothing in this Agreement shall be
construed as giving the Certificateholders any right to make a claim under the
Certificate Policy.
SECTION 4.5. Majority Control. No Certificateholder shall have any
right to vote or in any manner otherwise control the operation and management of
the Trust except as expressly provided in this Agreement. Except as expressly
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of Certificates evidencing not less
than a majority of the Certificate Percentage Interest [or Certificate Balance].
Except as expressly provided herein, any written notice of the
Certificateholders delivered pursuant to this Agreement shall be effective if
signed by Certificateholders evidencing not less than a majority of the
Certificate Balance at the time of the delivery of such notice.
SECTION 4.6. Rights of Insurer. Notwithstanding anything to the
contrary in the Basic Documents, without the prior written consent of the
Insurer (so long as no Insurer Default shall have
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occurred and be continuing), the Owner Trustee shall not (i) remove the
Servicer, (ii) initiate any claim, suit or proceeding by the Trust or compromise
any claim, suit or proceeding brought by or against the Trust, other than with
respect to the enforcement of any Receivable or any rights of the Trust
thereunder, (iii) authorize the merger or consolidation of the Trust with or
into any other business trust or other entity (other than in accordance with
Section 3.10 of the Indenture) or (iv) amend the Certificate of Trust.
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholders, the Internal Revenue Service and Others. Subject to Sections
12.1(b)(iii) and 12.1(c) of the Sale and Servicing Agreement, the Depositor
shall (a) maintain (or cause to be maintained) the books of the Trust on a
calendar year basis on the accrual method of accounting, (b) deliver (or cause
to be delivered) to each Certificateholder or Owner, as may be required by the
Code and applicable Treasury Regulations, such information, if any, as may be
required (including, if appropriate consistent with the characterization of the
Trust pursuant to Section 2.6, Schedule K-1) to enable each Certificateholder or
Owner to prepare its Federal and state income tax returns, (c) file or cause to
be filed such tax returns, if any, relating to the Trust (including, if
appropriate consistent with the characterization of the Trust pursuant to
Section 2.6, a partnership information return on Internal Revenue Service Form
1065), and direct the Owner Trustee to make such elections as may from time to
time be required or appropriate under any applicable state or Federal statute or
rule or regulation thereunder so as to maintain the Trust's characterization
pursuant to Section 2.6 for Federal income and California franchise tax purposes
and for purposes of any other jurisdiction for which the characterization of the
Trust is relevant and (d) collect or cause to be collected any withholding tax
as described in and in accordance with Section 5.9 of the Sale and Serving
Agreement with respect to income or distributions to Certificateholders and the
appropriate forms relating thereto. The Owner Trustee shall make all elections
pursuant to this Section as directed by the Depositor. The Owner Trustee shall
sign all tax information returns filed pursuant to this Section 5.1 and any
other returns as may be required by law, and in doing so shall rely entirely
upon, and shall have no liability for information provided by, or calculations
provided by, the Depositor. In the event the Trust is treated as a partnership
for federal income tax purposes, the Owner Trustee
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shall not make the election provided under Section 754 of the Code.
SECTION 5.2. Signature on Returns; Tax Matters Partner.
(a) Notwithstanding the provisions of Section 5.1, the Owner Trustee
shall sign on behalf of the Trust the tax returns of the Trust, unless
applicable law requires a Certificateholder or an Owner to sign such documents,
in which case such documents shall be signed by the Depositor.
(b) In the event the Trust is treated as a partnership for federal
income tax purposes, the Depositor shall be the "tax matters partner" of the
Trust pursuant to the Code.
[SECTION 5.3. Underwriting Agreement. The Servicer is hereby authorized
to execute and deliver the Underwriting Agreement with respect to the Notes and
the Certificates.]
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Depositor shall approve
as evidenced conclusively by the Owner Trustee's execution thereof, and on
behalf of the Trust, to direct the Indenture Trustee to authenticate and deliver
Class A-1 Notes in the aggregate principal amount of [$ ], Class A-2 Notes in
the aggregate principal amount of [$ ] and Class A-3 Notes in the aggregate
principal amount of [$ ] and Class B Notes in the aggregate principal amount of
[$ ]. [Other Classes of Notes, if any to be added]. In addition to the
foregoing, the Owner Trustee is authorized but shall not be obligated, to take
all actions required of the Trust pursuant to the Basic Documents. The Owner
Trustee is further authorized from time to time to take such action as the
Instructing Party recommends with respect to the Basic Documents so long as such
activities are consistent with the terms of the Basic Documents.
SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Sale and Servicing Agreement and to
administer the Trust in the interest of the Holders, subject to the Basic
Documents and in accordance with the provisions of this Agreement.
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