SEC Filing | Consumer Portfolio Services, Inc.

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As filed with the Securities and Exchange Commission on February 6, 1997
No. 333-_______________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933

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CONSUMER PORTFOLIO SERVICES, INC.
(Exact name of registrant as specified in its charter)

California 6153 33-0459135
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation Industrial Number) Identification No.)
or organization) Classification Code
_____________________

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.
President
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)
_____________________

WITH COPIES TO:
WILLIAM J. FEIS, ESQ. DAVID S. KATZ, ESQ.
TROY & GOULD ORRICK, HERRINGTON & SUTCLIFFE LLP
Professional Corporation Washington Harbour
1801 Century Park East, Suite 1600 3050 K Street, N.W.
Los Angeles, California 90067 Washington, D.C. 20007
(310) 553-4441 (202) 339-8497
(310) 201-4746 (202) 339-8500
_____________________

Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
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, as amended, check the following box. /X/
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. /_/
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. /_/
If this Form is a post-effective amendment filed pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
CALCULATION OF REGISTRATION FEE

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Proposed maximum Proposed maximum
Title of each class of Amount to be offering price per aggregate offering Amount of registration
securities to be registered registered security price(1) fee
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Participating Equity Notes-SM-
due 2004 (partially convertible) $40,250,000 100% $40,250,000 $12,196.97
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Common Stock, no par value 670,833 shares (2) $15.00 (1) $10,062,500 (3) nil (3)
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Such shares are issuable upon conversion of 25% of the principal amount of
the Participating Equity Notes-SM- registered hereby, without payment of
any additional consideration.

(3) Pursuant to subdivision (i) of Rule 457 promulgated under the Securities
Act, no additional registration fee is due with respect to such common
stock.

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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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PROSPECTUS Subject to completion, dated February 6, 1997
DATED ____, 1997 $35,000,000

CONSUMER PORTFOLIO SERVICES, INC.

____% PARTICIPATING EQUITY NOTES-SM- DUE 2004

PENS-SM-

The ____% Participating Equity Notes-SM- ("PENs-SM-") due April __, 2004 (the
"Notes") being offered hereby (the "Offering") will be unsecured general
obligations of Consumer Portfolio Services, Inc., a California corporation (the
"Company"). Interest on the Notes will be payable on the ______day of each
month (each, an "Interest Payment Date"), commencing April __, 1997. The Notes
will be subordinated to all existing and future Senior Indebtedness (as defined
herein) of the Company. As of September 30, 1996, there was approximately $9.8
million of Senior Indebtedness outstanding.

The Notes are not redeemable at the option of the Company prior to April __,
2000. The Company may at its option elect to redeem the Notes from the
registered holders of the Notes ("Holders"), in whole but not in part, at any
time on or after April 15, 2000 at 100% of their principal amount, subject to
limited conversion rights, plus accrued interest to and including the date of
redemption. At maturity or upon the exercise by the Company of an optional
redemption each Holder will have the right to convert into common stock of the
Company ("Common Stock") 25% of the aggregate principal amount of the Notes held
by such Holder and if a Special Redemption Event occurs, Holders who require the
redemption of their Notes will have the right to convert up to 25% of the
principal amount thereof into Common Stock. In such events, 25% of each Note
will be convertible into Common Stock, at the conversion price of $_____ per
share of Common Stock (equivalent to approximately ____ shares of Common Stock
for each $250 portion of each $1,000 principal amount of Notes) as adjusted as
described herein. The Company will be required, at the option of the Holder and
at 100% of their principal amount plus accrued interest to and including the
redemption date, to redeem Notes properly tendered following a Special
Redemption Event. A Special Redemption Event is limited to certain events or
transactions that result in a change of control of the Company. The Common
Stock trades on the Nasdaq National Market under the symbol "CPSS." On February
5, 1997, the last reported sale price was $11.75 per share. See "Description of
the Notes."

The Notes will be initially issued only in fully registered book-entry form. The
minimum principal amount of Notes which may be purchased is $1,000. Application
has been made by the Company to have the Notes approved for listing on the New
York Stock Exchange, Inc. Although the Underwriters have each indicated an
intention to make a market in the Notes, none of the Underwriters is obligated
to make a market in the Notes and any market making may be discontinued at any
time at the sole discretion of such Underwriter. See "Underwriting."

SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.

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.

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Price to Public Underwriting Proceeds To
Discount(1) Company (2)
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Per Note. . . . . . . 100% % %
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Total(3). . . . . . . $35,000,000 $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated to be
$__________.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate principal amount of $5,250,000 of additional Notes on the same
terms and conditions shown above, solely to cover over-allotments, if any.
If the Underwriters exercise such option in full, the total Price to
Public, Underwriting Discount and Proceeds to Company will be $40,250,000,
$_________ and $_________, respectively. See "Underwriting."
_____________________________________

The Notes are offered by the several Underwriters subject to prior sale when, as
and if delivered to and accepted by the Underwriters and subject to their right
to reject orders in whole or in part. It is expected that delivery of the Notes
will be made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on
or about _________, 1997. The Notes will be issued initially as book-entry notes
in the form of one fully registered global security deposited with or on behalf
of The Depository Trust Company or its nominees ("DTC"). The Notes will not
initially be issuable in definitive certificated form to any person other than
DTC.
PIPER JAFFRAY INC.
LEGG MASON WOOD WALKER
INCORPORATED DAIN BOSWORTH
INCORPORATED

[Map of the United States. All states except Alaska, Arkansas, Connecticut,
Maine, Massachusetts, New Hampshire, Rhode Island, South Dakota, Vermont and
Wisconsin are highlighted.]

THE ABOVE MAP HIGHLIGHTS THE STATES IN WHICH CONSUMER PORTFOLIO SERVICES, INC.
(THE "COMPANY") CURRENTLY PURCHASES RETAIL AUTOMOBILE INSTALLMENT CONTRACTS.

The Company will make available, without charge, a copy of its Annual Report to
Shareholders to each person who requests a copy of such report. Such requests
should be directed to Corporate Secretary, Consumer Portfolio Services, Inc., 2
Ada, Irvine, CA 92618.

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED AND CONDENSED CONSOLIDATED FINANCIAL STATEMENTS,
AND THE RELATED NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS' OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED. THE COMPANY IN 1995
CHANGED ITS FISCAL YEAR END FROM MARCH 31 TO DECEMBER 31. UNLESS THE CONTEXT
OTHERWISE REQUIRES, "FISCAL 1992," "FISCAL 1993," "FISCAL 1994" AND "FISCAL
1995" REFER TO THE COMPANY'S FISCAL YEARS ENDED MARCH 31, 1992, 1993, 1994 AND
1995, RESPECTIVELY, THE "NINE-MONTH TRANSITION PERIOD" REFERS TO THE NINE-MONTH
PERIOD ENDED DECEMBER 31, 1995, AND "FISCAL 1996" REFERS TO THE YEAR ENDED
DECEMBER 31, 1996. EFFECTIVE MARCH 7, 1996, THE COMPANY SPLIT ITS OUTSTANDING
SHARES OF COMMON STOCK TWO-FOR-ONE. REFERENCES HEREIN TO NUMBERS OF SHARES HAVE
BEEN ADJUSTED TO REFLECT THAT SPLIT. UNLESS THE CONTEXT INDICATES OTHERWISE,
ALL REFERENCES HEREIN TO THE "COMPANY" REFER TO CONSUMER PORTFOLIO SERVICES,
INC., AND ITS SUBSIDIARIES. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS
PROSPECTUS IN ITS ENTIRETY.

THE COMPANY

Consumer Portfolio Services, Inc. (the "Company") is a consumer finance
company specializing in the business of purchasing, selling and servicing retail
automobile installment contracts ("Contracts") originated by dealers ("Dealers")
in the sale of new and used automobiles, light trucks and passenger vans.
Through its purchases, the Company provides indirect financing to borrowers with
limited credit histories, low incomes or past credit problems ("Sub-Prime
Borrowers"). The Company serves as an alternative source of financing for
Dealers, allowing sales to customers who otherwise might not be able to obtain
financing from more traditional sources of automobile financing such as banks,
credit unions, or finance companies affiliated with major automobile
manufacturers.

Since its founding in March 1991, the Company has experienced significant
growth. Its "Servicing Portfolio" (the aggregate principal amount of Contracts
for which the Company performs collection services) increased from $167.7
million at December 31, 1994 to $445.3 million at September 30, 1996. Total
revenue increased from $22.5 million for fiscal 1995, to $36.2 million for the
nine-month period ended September 30, 1996. The Company uses a combination of
employee and independent Dealer marketing representatives to solicit Dealers to
submit Contracts to the Company for purchase. In the nine months ended
September 30, 1996, the Company increased its number of Dealer marketing
representatives from 40 to 50 and the number of Dealers with which it has its
standard form dealer agreements ("Dealer Agreements") from 800 in 30 states to
1,847 in 39 states. Approximately 92.7% of these Dealers operate franchised car
dealerships. In the nine months ended September 30, 1996, the Company purchased
Contracts at an average rate of approximately $28.3 million per month.

The Company believes the Contracts that it purchases have a larger
principal balance and are secured by relatively newer cars than those purchased
by many of the other finance companies in the sub-prime automobile market.
Historically, the Company has charged Dealers a fixed acquisition fee and a
percentage discount from the amount financed under the Contract ranging from 0%
to 10%, depending on the perceived credit risk of the Contract. In the nine
months ended September 30, 1996, the average original principal amount financed
under Contracts purchased by the Company was approximately $12,550 and the
Contracts were purchased at an average discount of approximately 3.0%.
Effective January 10, 1997, the Company began purchasing all Contracts without a
percentage discount, charging Dealers only a flat acquisition fee for each
Contract purchased. The flat fees instituted in January 1997 are larger than
the fees previously charged in conjunction with percentage discounts, resulting
in a similar net purchase price on a typical Contract. The fees vary based on
the perceived credit risk and, in some cases, the interest rate on the Contract.
Approximately 12.2% of the automobiles securing Contracts purchased during the
nine months ended September 30, 1996, were new. In the aggregate, the average
age of the automobiles securing the Contracts purchased in the nine months ended
September 30, 1996 was 3.5 years. The average original term and Annual
Percentage Rate ("APR") on Contracts purchased during the past twelve months
were approximately 53.6 months and 20.6%, respectively. Based on information
contained in borrower applications, for Contracts purchased during the nine
months ended September 30, 1996, the Company's average borrower at the time of
purchase was 37.0 years old, with approximately $32,814 in average household
income and an average of 4.6 years' history with his or her current employer.

The Company generates earnings and cash flow primarily from the servicing
fees and gain on sale associated with the sales or securitizations of Contracts.
In each securitization, the Company sells Contracts to a trust which, in turn,
sells asset-backed securities to institutional investors ("Investors"). At the
closing of each sale or securitization, the Company recognizes a gain on the
sale of the Contracts to the trust. Over the life of the Contracts sold to
trusts, the Company is eligible to receive excess cash flow distributions from
the trust, in accordance with the terms of the related Spread Account (as
defined herein), resulting from the difference between the interest received
from the obligors on the Contracts and the interest paid to investors in the
asset-backed securities, net of losses and expenses. As of September 30, 1996,
the Company had sold $457.3 million of Contracts to Investors through the
issuance of AAA-rated asset-backed securities, and had also sold an aggregate of
$142.7 million of Contracts to General Electric Capital Corporation ("GECC") and
Sun Life Insurance Company of America ("Sun Life") pursuant to purchase
commitments. Since June 1996, the Company has sold its asset-backed securities
in registered public offerings. The Company services all Contracts that it
purchases and sells, for which it also receives monthly servicing fees. The
Company occasionally purchases portfolios of Contracts in bulk ("Bulk
Purchases") from other financial institutions. Contracts that were acquired in
Bulk Purchases and not yet sold currently account for 0.3% of the Servicing
Portfolio.

The Company currently operates from a centralized office in Irvine,
California, and utilizes highly sophisticated, automated data processing and
collection systems. This centralized structure, combined with significant
servicing fees and gains on sales, enabled it to achieve an annualized return on
average equity of 28.9% for the nine-month period ended September 30, 1996. To
better accomodate increased servicing and collections demand relating to
increases in its Servicing Portfolio, the Company plans to open in March 1997 a
satellite collections facility in Chesapeake, Virginia.

The Company attributes its growth to its: (i) consistent and thorough
underwriting practices; (ii) ability to pay Dealers competitive purchase prices
for Contracts; (iii) reliability as a funding source and the timely
communication of credit decisions to Dealers; and (iv) control of losses through
an aggressive monitoring and collection program. The Company's high penetration
autodialer telephone system and its interface to the Contract servicing
computers provide portfolio performance monitoring capabilities and efficiency
in contacting delinquent borrowers. At September 30, 1996, contractual
delinquencies (greater than 30 days) as a percentage of the month-end gross
Servicing Portfolio balance were 5.9% (excluding Bulk Purchases of Contracts not
yet sold). Net annualized charge-offs (excluding Bulk Purchases and uninsured
casualty losses) as a percentage of the average Servicing Portfolio (exluding
Bulk Purchases of Contracts not yet sold) were 5.0%. The Company's senior
management, including those with responsibility for underwriting, collections,
Dealer marketing, systems and financial accounting, have an average of
approximately 13 years of experience in the consumer finance industry and nine
years of experience in Sub-Prime automobile finance.

The structures under which the Company sells its Contracts generally
require that the Company establish and maintain certain credit enhancements on a
pool-specific basis for the benefit of Investors in the asset-backed securities.
Generally, the Company makes an initial cash deposit to an account (a "Spread
Account") which is controlled by a trustee and which is pledged to support the
asset-backed securities backed by the related Contracts. During the term of
each securitization, cash flows in excess of those necessary to pay investor
principal and interest and the expenses of the trust are deposited in the Spread
Account related to that trust until such time as the Spread Account balance
reaches a predetermined percentage of the outstanding related Contracts. To the
extent cash in excess of the predetermined level is generated, such cash is
either transferred to cover deficiencies, if any, in Spread Accounts for other
pools, or is released to the Company. In each securitization transaction since
June 1995, the Company has issued a subordinated class of securities (a "B
Piece") representing 5.0% of the principal balance of the Contracts in each
securitization pool. Cash flows payable on the B Piece are subordinate to those
payable on the senior class of asset-backed securities, which represent 95% of
the principal balance of the securitization pool. The aggregate of the Spread
Accounts and B Pieces are recorded by the Company on its balance sheet as
investments in credit enhancements, which equaled approximately 10.4% of the
Servicing Portfolio at September 30, 1996. Structures for future securitization
transactions may require higher or lower levels of credit enhancement than past
structures.

The principal components of the Company's strategy are to (i) maintain
consistent underwriting standards and portfolio performance; (ii) continue to
expand the volume of Contracts purchased and serviced by increasing the number
of Dealers, states and geographic areas the Company services; (iii) control
and/or reduce its cost of funds; and (iv) maintain and strengthen its
relationship with its Dealers through the development of other products and
services for its Dealers.

The Company was incorporated as a California corporation in March 1991.
The Company's offices are located at 2 Ada, Irvine, CA 92618, and its telephone
number is (714) 753-6800.

THE OFFERING

Notes offered. . . . . . $35,000,000 aggregate principal amount of ___%
Participating Equity Notes-SM-, ("PENs-SM-"),* due
April 2004, (the "Notes"), plus an Underwriters' over-
allotment option to purchase up to an additional
$5,250,000 aggregate principal amount of Notes. See
"Description of the Notes" for a more detailed
description of the Notes offered hereby.

Denomination . . . . . . $1,000 and any integral multiple thereof.

Maturity date. . . . . . April ____, 2004.

Interest . . . . . . . . Interest at the rate of ___% per annum is payable
monthly on the _______day of each month, commencing
April ____, 1997. The first interest payment will
represent interest from the date of original issuance
to and including April ____, 1997.

Conversion . . . . . . . At maturity or in connection with a redemption of the
Notes at the option of the Company or a redemption
following a Special Redemption Event, 25% of the
principal amount of each Note is convertible, in whole
but not in part, at the option of the Holder, into
Common Stock at the rate of $______ per share, subject
to adjustment under certain circumstances. See
"Description of the Notes -- Conversion Rights".

Redemption at option
of the Company . . . . The Notes may not be redeemed at the Company's option
prior to April ____, 2000. Thereafter, the Company
may, at its option, elect to redeem the Notes, in whole
but not in part, at any time, upon not less than 30
days' notice to the Holder. The redemption price will
be 100% of the principal amount of any redeemed Notes,
in each case plus accrued interest to and including the
redemption date. See "Description of the Notes --
Redemption at Option of the Company."

Special Redemption . . . In the event of a Special Redemption Event, each Holder
will have the right, at the Holder's option, to require
the Company to purchase the Holder's Notes, in whole
but not in part, at 100% of the principal amount plus
accrued interest to and including the date of
redemption. The term Special Redemption Event is
limited to certain events or transactions that result
in a change of control of the Company. See
"Description of the Notes -- Holders' Right to
Redemption After Special Redemption Event."

Subordination. . . . . . The Notes are unsecured and subordinated in right of
payment to all existing and future Senior Indebtedness
of the Company, including amounts outstanding under the
Company's existing Warehouse Line of Credit (as defined
herein). With respect to any distributions that the
Company might receive from its subsidiaries, the Notes
are also effectively subordinated to the claims of the
creditors of such subsidiaries. As of September 30,
1996, there was approximately $9.8 million of Senior
Indebtedness outstanding. See "Description of the Notes
-- Subordination."
Other Subordinated
Debt . . . . . . . . . The Notes rank equally with $20 million of previously
issued subordinated debt of the Company ("1995
Subordinated Debt"), all

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*"Participating Equity Notes" and "PENs" are service marks of
Piper Jaffray Inc.

of which remains outstanding. See "Description of
Notes -- 1995 Subordinated Debt."

Rating . . . . . . . . . The Notes will be rated below investment grade by Duff
& Phelps Credit Rating Co. ("Duff & Phelps"). Ratings
are not a recommendation to purchase, hold or sell the
Notes, as ratings do not comment as to market price or
suitability for a particular investor. The ratings are
based on current information furnished to Duff & Phelps
by the Company and obtained from other sources. The
ratings may be changed, suspended or withdrawn at any
time as a result of changes in, or unavailability of,
such information.

Listing. . . . . . . . . The Company has applied for listing of the Notes on the
New York Stock Exchange, Inc.

Certain covenants of
the Company. . . . . . . In the Indenture (as defined herein), the Company
agrees to certain limitations on dividends and
additional indebtedness and to certain restrictions on
consolidation, merger or transfer of all or
substantially all of its assets. See "Description of
the Notes -- Restrictions on Additional Indebtedness,"
"-- Restrictions on Dividends and Other Distributions"
and "-- Consolidation, Merger or Transfer."

Registration . . . . . . The Notes will be initially issued only in fully
registered book-entry form. The Notes will not
initially be issuable in definitive certificated form
to any person other than The Depository Trust Company
or its nominees. See "Description of the Notes --
Book-Entry System."

Use of proceeds. . . . . Proceeds from the sale of the Notes will be used to
increase the amount of Contracts that the Company can
acquire and hold for sale in securitization
transactions, to fund credit enhancements for such
transactions, for other working capital needs and for
general corporate purposes. See "Use of Proceeds."

Trustee. . . . . . . . . Bankers Trust Company, New York, New York.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

NINE-MONTH NINE MONTHS
ENDED TRANSITION
SEPTEMBER 30, PERIOD FISCAL YEAR ENDED MARCH 31,
-------------------- ENDED ------------------------------

1996 1995 12/31/95 1995 1994(1) 1993 1992
------ ------ ---------- ------ --------- ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net gain on sale of Contracts. . . . . . $15,864 $9,942 $11,549 $9,455 $5,425 $523 $128
Servicing fees . . . . . . . . . . . . . 12,939 7,106 6,983 7,201 3,556 1,538 779
Interest income. . . . . . . . . . . . . 7,348 5,385 5,722 5,849 1,443 400 119
Total revenue. . . . . . . . . . . . . . 36,151 22,433 24,254 22,505 10,424 2,461 1,026
Operating expenses . . . . . . . . . . . 19,081 10,805 11,597 11,358 11,712(1) 3,963 3,552
Income taxes . . . . . . . . . . . . . . 6,913 4,734 5,082 4,481 490 0 0
Net income (loss). . . . . . . . . . . . $10,157 $6,894 $7,575 $ 6,666 $ (1,778) $ (1,502) $ (2,526)
Primary net income (loss) per
common share. . . . . . . . . . . . . . $ .69 $ .54 $ .53 $ .60 $ (.21) $ (.24) $ (.44)
Fully diluted net income (loss)
per common share. . . . . . . . . . . . $ .67 $ .49 $ .52 $ .56 $ (.21) $ (.24) $ (.44)

OTHER DATA:

Principal amount of Contracts
purchased during period
(excluding Bulk Purchases). . . . . . . $254,322 $132,052 $150,943 $150,573 $ 53,103 $ 19,484 $ 3,777
Principal amount of Contracts sold
during period . . . . . . . . . . . . . 248,132 144,342 155,719 140,617 58,095 14,103 3,491
Outstanding Servicing Portfolio
at end of period(2) . . . . . . . . . . 445,332 252,272 288,927 192,800 63,208 20,436 3,718
Net charge-offs(3) . . . . . . . . . . . 13,615 7,363 8,568 4,349 964 276 0
Servicing fees as a percentage of
average principal balance of
Contracts being serviced(4) . . . . . . 4.7% 4.6% 6.4% 5.3% 7.5% 4.7% 5.4%
Delinquencies as a percentage of gross
Servicing Portfolio at end
of period(5) . . . . . . . . . . . . . . 5.9% 4.0% 5.1% 2.5% 1.3% 1.0% 0.0%
Net charge-offs as a percentage of
average Servicing Portfolio(3)(4) . . . 5.0% 4.8% 4.7% 3.4% 2.5% 2.2% 0.0%
Operating expenses (before interest and
provisions for credit losses) as a
percentage of average Servicing
Portfolio(4). . . . . . . . . . . . . . 4.8% 4.6% 4.4% 5.4% 28.9% 31.5% 195.8%
Servicing subject to recourse
provisions(6) . . . . . . . . . . . . . 426,421 233,201 268,163 169,331 62,464 14,736 3,371
Discounted allowance for credit losses
as a percentage of servicing
subject to recourse provisions(7) . . . 9.9% 8.7% 8.7% 8.5% 8.1% 10.2% 10.2%
Ratio of earnings to fixed charges(8)(9) 4.8x 5.0x 5.5x 4.2x - - -
Cash flows provided by (used in)
operating activities. . . . . . . . . . $(9,326) $(15,502) $(18,533) $(6,115) $(2,816) $(6,718) $(1,880)

BALANCE SHEET DATA:
AS OF SEPTEMBER 30, 1996
------------------------------
PRO FORMA AND
ACTUAL AS ADJUSTED (10)
-------------------- ------------------
(IN THOUSANDS)
Cash. . . . . . . . . . . . . . . . . . . . $ 145 $ 33,475
Investments in credit enhancements. . . . . 46,526 46,526
Contracts held for sale . . . . . . . . . . 17,773 17,773
Excess servicing receivables. . . . . . . . 19,111 19,111
Total assets. . . . . . . . . . . . . . . . 93,429 128,429
Total liabilities . . . . . . . . . . . . . 41,100 73,100
Total shareholders' equity. . . . . . . . . 52,329 55,329

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(1) In October 1992, as a condition to the initial public offering of
Common Stock of the Company, the then majority shareholder of the Company
deposited 1,200,000 shares of Common Stock (the "Escrow Shares") in escrow.
The escrow agreement provided that part or all of the Escrow Shares would
be released if the Company's net income after taxes (as defined in the
escrow agreement) or the average market price of the Common Stock for
specified periods exceeded specified levels. The Company's net income (as
defined in the escrow agreement) for fiscal 1994 (prior to the accounting
effect of the release of the Escrow Shares) exceeded the specified level
and, accordingly, all 1,200,000 Escrow Shares were released. The release
of the Escrow Shares was deemed compensatory for accounting purposes,
resulting in a one-time, non-cash charge of $6,450,000 against earnings for
fiscal 1994. Without that charge, net income, primary net income per share
and fully diluted net income per share for fiscal 1994 would have been
$4,672,000, $.44 and $.41, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Fiscal Year
Ended March 31, 1995 Compared to Fiscal Year Ended March 31, 1994 --
Expenses."
(2) Includes the outstanding principal amount of all Contracts purchased
by the Company, including Contracts subsequently sold by the Company which
it continues to service. Excludes Contracts serviced for third parties but
not purchased by the Company. As of December 31, 1994, the Company had
ceased servicing Contracts for third parties.
(3) Net charge-offs include the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle
(excluding accrued and unpaid interest). Post-liquidation amounts received
on previously charged-off Contracts are applied to the period in which the
related Contract was originally charged off. Excludes Bulk Purchases not
yet sold and uninsured casualty losses.
(4) The percentages set forth for the nine months ended September 30, 1996
and September 30, 1995 and for the nine-month transition period ended
December 31, 1995 are computed using annualized operating data, which do
not necessarily represent comparable data for a full twelve-month period.
(5) The Company considers a Contract delinquent when an obligor fails to
make at least 90% of a contractually due payment by the following due date
and the vehicle securing the Contract has not been repossessed. All
amounts and percentages are based on the full amount remaining to be repaid
on each Contract, including, for rule of 78s Contracts, any unearned
finance charges. Excludes Bulk Purchases not yet sold.
(6) Includes the outstanding principal amount of all Contracts purchased
and subsequently sold by the Company which it continues to service.
Excludes Contracts serviced for third parties and Contracts purchased but
not yet sold by the Company.
(7) Discounted allowance for credit losses represents the discounted
present value, calculated at a risk-free rate, of future estimated credit
losses as determined by the Company in conjunction with the recognition of
its gains on sale of Contracts.
(8) The ratio of earnings to fixed charges has been computed by dividing
income before taxes and fixed charges by fixed charges. Fixed charges
include interest expense and the portion of rent expense that is
representative of the interest factor (deemed by the Company to be one-
third).
(9) The Company incurred losses in fiscal 1994, fiscal 1993 and fiscal
1992. Earnings were inadequate to cover fixed charges by $1.3 million,
$1.5 million and $2.5 million for fiscal 1994, fiscal 1993 and fiscal 1992,
respectively. Adjusted to eliminate the one-time non-cash charge of
$6,450,000 referred to in footnote (1) above, the ratio of earnings to
fixed charges for fiscal 1994 would have been 10.1x.
(10) Adjusted to reflect (i) the conversion into 480,000 shares of Common
Stock of an outstanding $3

million convertible subordinated note, which conversion was effected on January
17, 1997, and (ii) the sale of the Notes offered hereby and the application of
the estimated net proceeds therefrom. See "Use of Proceeds."

RISK FACTORS

THE NOTES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK,
INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED BELOW.
EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
INHERENT IN AND AFFECTING THE BUSINESS OF THE COMPANY AND THE OFFERING BEFORE
MAKING AN INVESTMENT DECISION. WHEN USED IN THIS PROSPECTUS, THE WORDS "MAY,"
"WILL," "EXPECT," "ANTICIPATE," "CONTINUE," "ESTIMATE," "PROJECT," "INTEND" AND
SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 REGARDING EVENTS, CONDITIONS AND FINANCIAL
TRENDS THAT MAY AFFECT THE COMPANY'S FUTURE PLANS OF OPERATIONS, BUSINESS
STRATEGY, OPERATING RESULTS AND FINANCIAL POSITION. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INCLUDED WITHIN THE FORWARD-LOOKING STATEMENTS
AS A RESULT OF VARIOUS FACTORS. SUCH FACTORS ARE DESCRIBED UNDER THE HEADINGS
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", AND "THE COMPANY" AND IN THE RISK FACTORS SET FORTH BELOW.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY. The Company requires significant operating cash to purchase
Contracts. As a result of the Company's expansion since inception and its
program of securitizing and selling Contracts, the Company's cash requirements
have in the past exceeded cash generated from operations. The Company's primary
operating cash requirements include the funding of (a) purchases of Contracts
pending their pooling and sale, (b) Spread Accounts in connection with sales or
securitizations of Contracts, (c) fees and expenses incurred in connection with
its sales and securitizations of Contracts, (d) tax payments due in recognition
of gains on sales of Contracts and (e) ongoing administrative and other
operating expenses. Net cash used in operating activities during fiscal 1995,
the nine-month transition period ended December 31, 1995, and the nine months
ended September 30, 1996 was $6.1 million, $18.5 million, and $9.3 million,
respectively. The Company has obtained these funds in three ways: (a) loans
and warehouse financing arrangements, pursuant to which Contracts are financed
on a temporary basis; (b) securitizations or sales of Contracts, pursuant to
which Contracts are sold; and (c) external financing. At September 30, 1996 the
Company had cash and cash equivalents of approximately $145,000. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

CASH FLOWS ASSOCIATED WITH SECURITIZATION TRUSTS. Under the financial
structures the Company has used to date in its securitizations, certain excess
servicing cash flows generated by the Contracts are retained in a Spread Account
within the securitization trusts to provide liquidity and credit enhancement.
While the specific terms and mechanics of the Spread Account can vary slightly
depending on each transaction, the Company's agreements with Financial Security
Assurance, Inc. ("FSA"), the financial guaranty insurer that has provided credit
enhancements in connection with the Company's securitizations since June 1994,
generally provide that the Company is not entitled to receive any excess
servicing cash flows unless certain Spread Account balances have been attained
and/or the delinquency or losses related to the Contracts in the pool are below
certain predetermined levels. In the event delinquencies and losses on the
Contracts exceed such levels, the terms of the securitization may require
increased Spread Account balances to be accumulated for the particular pool; may
restrict the distribution to the Company of excess cash flows associated with
other pools in which asset-backed securities are insured by FSA; or, in certain
circumstances, may require the transfer of servicing on some or all of the
Contracts in FSA-insured pools to another servicer. The imposition by FSA of
any of these conditions could materially adversely affect the Company's
liquidity and financial condition. In the past, delinquency and loss levels on
some pools have attained levels which temporarily resulted in increased Spread
Account levels for those pools. As of December 31, 1996, all FSA-insured pools
were performing within the guidelines required by their related insurance
policies.

DEPENDENCE ON WAREHOUSE FINANCING. One of the Company's primary sources of
financing is its $100.0 million warehouse line of credit (the "Warehouse Line of
Credit"), under which the Company borrows against Contracts held for sale,
pending their sale in securitization transactions. The Warehouse Line of Credit
expires in 1998. The Company expects to be able to maintain existing warehouse
arrangements (or to obtain replacement or additional financing) as current
arrangements expire or become fully utilized; however, there can be no assurance
that such financing will be obtainable on favorable terms.

To the extent that the Company is unable to maintain its existing Warehouse Line
of Credit or is unable to arrange new warehouse lines of credit, the Company may
have to curtail Contract purchasing activities, which could have a material
adverse effect on the Company's financial condition and results of operations.

DEPENDENCE ON SECURITIZATION PROGRAM. The Company is dependent upon its
ability to continue to pool and sell Contracts in order to generate cash
proceeds for new purchases. Adverse changes in the market for securitized
Contract pools, or a substantial lengthening of the warehousing period, would
burden the Company's financing capabilities, could require the Company to
curtail its purchase of Contracts, and could have a material adverse effect on
the Company. In addition, as a means of reducing the percentage of cash
collateral that the Company would otherwise be required to deposit and maintain
in Spread Accounts, all of the Company's securitizations since June 1994 have
utilized credit enhancement in the form of financial guaranty insurance policies
issued by FSA to achieve "AAA/Aaa" ratings for the asset-backed securities that
have been sold to investors. The Company believes that financial guaranty
insurance policies reduce the costs of securitizations relative to alternative
forms of credit enhancements available to the Company. FSA is not required to
insure Company-sponsored securitizations and there can be no assurance that it
will continue to do so or that future securitizations will be similarly rated.
Similarly, there can be no assurance that any securitization transaction will be
available on terms acceptable to the Company, or at all. The timing of any
securitization transaction is affected by a number of factors beyond the
Company's control, any of which could cause substantial delays, including,
without limitation, market conditions and the approval by all parties of the
terms of the securitization. Any delay in the sale of a pool of Contracts
beyond a quarter-end could reduce the gain on sale recognized in such quarter
and could result in decreased earnings or possible losses for such quarter being
reported by the Company. See "Business -- Purchase and Sale of Contracts --
Securitization and Sale of Contracts to Institutional Investors."

ECONOMIC CONSIDERATIONS

GENERAL. The Company's business is directly related to sales of new and
used automobiles, which are affected by employment rates, prevailing interest
rates and other domestic economic conditions. Delinquencies, foreclosures and
losses generally increase during economic slowdowns or recessions. Because of
the Company's focus on Sub-Prime Borrowers, the actual rates of delinquencies,
repossessions and losses on such Contracts could be higher under adverse
economic conditions than those currently experienced in the automobile finance
industry in general. Any sustained period of economic slowdown or recession
could adversely affect the Company's ability to sell or securitize pools of
Contracts. The timing of any economic changes is uncertain, and sluggish sales
of automobiles and weakness in the economy could have an adverse effect on the
Company's business and that of the Dealers from which it purchases Contracts.

CREDITWORTHINESS OF BORROWERS. The Company specializes in the purchase,
sale and servicing of Contracts to finance automobile purchases by Sub-Prime
Borrowers, which entail a higher risk of non-performance, higher delinquencies
and higher losses than Contracts with more creditworthy borrowers. While the
Company believes that the underwriting criteria and collection methods it
employs enable it to control the higher risks inherent in Contracts with Sub-
Prime Borrowers, no assurance can be given that such criteria and methods will
afford adequate protection against such risks. Since inception, the Company has
expanded its operations significantly and has rapidly increased its Servicing
Portfolio. Because there is limited performance data available with respect to
that portion of the Company's Servicing Portfolio purchased most recently,
historical delinquency and loss statistics are not necessarily indicative of
future performance. The Company has experienced fluctuations in the delinquency
and charge-off performance of its Contracts, including an upward trend for each.
The Company believes, however, that such fluctuations are normal and that the
upward trend is the result of the seasoning of the Servicing Portfolio. In the
event that portfolios of Contracts sold and serviced by the Company experience
greater defaults, higher delinquencies or higher losses than anticipated, the
Company's earnings could be negatively impacted. In addition, the Company bears
the entire risk of loss on Contracts it holds for sale. A larger number of
defaults than anticipated could also result in adverse changes in the structure
of the Company's future securitization transactions, such as increased interest
rates on the asset-backed securities issued in those transactions. See
"Business -- Purchase and Sale of Contracts -- Contract Purchase Criteria" and
"Business -- Servicing of Contracts."

GEOGRAPHIC CONCENTRATION OF BUSINESS. For the nine months ended September
30, 1996, the

Company purchased 27.5% of its Contracts from Dealers located in California,
and its prospects are dependent, in part, upon economic conditions prevailing in
this state. Such geographic concentration increases the potential impact of
collection disruptions and casualty losses on the financed vehicles which could
result from regional economic or catastrophic events. Although the percentage
of the Servicing Portfolio purchased from Dealers in California has been
declining as the Company's volume of Contract purchases has increased, an
economic slowdown in California could result in a decline in the availability of
Contracts for purchase by the Company as well as an increase in delinquencies
and repossessions. Such conditions could have a material adverse effect on the
Company's revenue and results of operations. See "Business -- Purchase and Sale
of Contracts."

INCREASES IN INTEREST RATES. The Company's profitability is determined by,
among other things, the difference between the rate of interest charged on the
Contracts purchased by the Company and the pass-through rate of interest (the
"Pass-Through Rate") payable to investors on portfolios of Contracts sold by the
Company. The Contracts purchased by the Company generally bear the maximum
finance charges permitted by applicable state law. The fixed Pass-Through Rates
payable to investors on portfolios of Contracts sold by the Company are based on
interest rates prevailing in the market at the time of sale. Consequently,
increases in market interest rates tend to reduce the "spread" or margin between
Contract finance charges and the Pass-Through Rates required by investors and,
thus, the potential operating profits to the Company from the purchase, sale and
servicing of Contracts. Operating profits expected to be earned by the Company
on portfolios of Contracts previously sold are insulated from the adverse
effects of increasing interest rates because the Pass-Through Rates on such
portfolios were fixed at the time the Contracts were sold. Any future increases
in interest rates would likely increase the Pass-Through Rates for future
portfolios sold and could have a material adverse effect on the Company's
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

PREPAYMENT AND DEFAULT RISK. Gains from the sale of Contracts in
securitization transactions have constituted a significant portion of the net
earnings of the Company and are likely to continue to represent a significant
portion of the Company's net earnings. A portion of the gains are based in part
on management's estimates of future prepayment and default rates and other
considerations in light of then-current conditions. If actual prepayments with
respect to Contracts occur more quickly than was projected at the time such
Contracts were sold, as can occur when interest rates decline, or if default
rates are greater than projected at the time such Contracts were sold, a charge
to earnings may be required and would be taken in the period of adjustment. If
actual prepayments occur more slowly or if default rates are lower than
estimated with respect to Contracts sold, total revenue would exceed previously
estimated amounts.

COMPETITION

The automobile financing business is highly competitive. The Company
competes with a number of national, local and regional finance companies. In
addition, competitors or potential competitors include other types of financial
services companies, such as commercial banks, savings and loan associations,
leasing companies, credit unions providing retail loan financing and lease
financing for new and used vehicles and captive finance companies affiliated
with major automobile manufacturers such as General Motors Acceptance
Corporation, Ford Motor Credit Corporation, Chrysler Credit Corporation and
Nissan Motors Acceptance Corporation. Many of the Company's competitors and
potential competitors possess substantially greater financial, marketing,
technical, personnel and other resources than the Company. Moreover, the
Company's future profitability will be directly related to the availability and
cost of its capital relative to that of its competitors. The Company's
competitors and potential competitors include far larger, more established
companies that have access to capital markets for unsecured commercial paper and
investment grade rated debt instruments, and to other funding sources which may
be unavailable to the Company. Many of these companies also have long-standing
relationships with Dealers and may provide other financing to Dealers, including
floor plan financing for the Dealers' purchases of automobiles from
manufacturers, which is not offered by the Company. There can be no assurance
that the Company will be able to continue to compete successfully. See
"Business -- Competition."

MANAGEMENT OF RAPID GROWTH

The Company has experienced rapid growth and expansion of its business.
The Company's ability to support and manage continued growth is dependent upon,
among other things, its ability to hire, train, supervise and manage the
increased personnel. Furthermore, the Company's ability to manage portfolio
delinquency and loss rates is dependent upon the maintenance of efficient
collection procedures, adequate collection staffing, internal controls, and
automated systems. There can be no assurance that the Company's personnel,
procedures, staff, internal controls, or systems will be adequate to support
such growth.

SUBORDINATION OF THE NOTES AND ENCUMBRANCES ON THE COMPANY'S ASSETS

The Notes are unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness of the Company, including indebtedness
under the Warehouse Line of Credit, and indebtedness that may be incurred under
the standby line of credit associated with the Warehouse Line of Credit. The
standby line is secured by substantially all of the Company's assets.
Therefore, in the event of the liquidation, dissolution, or reorganization of or
any similar proceedings regarding the Company, the assets of the Company will be
available to pay obligations on the Notes (and any other obligations ranking
PARI PASSU with the Notes, including, without limitation, the presently existing
subordinated debt) only after all Senior Indebtedness has been paid in full, and
there may not be sufficient assets to pay any or all amounts due on the Notes.
If the Company becomes insolvent or is liquidated, or if payment under the
Warehouse Line of Credit or the associated standby line of credit is
accelerated, the lenders under the lines of credit, as the holders of security
interests in substantially all of the Company's assets, would be entitled to
exercise the remedies available to a secured lender under applicable law and
pursuant to these lines of credit. See "Description of the Notes." Any right
of the Company to receive assets of any of its subsidiaries upon the latter's
liquidation or reorganization (and the consequent right of the holders of the
Notes to participate in those assets) will be effectively subordinated to the
claims of creditors of such subsidiaries, including claims of warehouse lenders,
FSA and any other credit enhancement providers, and holders of asset-backed
securities that may be secured by Spread Accounts before such assets may be
available for distribution to the Company. As a result, there can be no
assurance that in such event there will be resources available to repay the
holders of the Notes in whole or in part.

RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS

The Warehouse Line of Credit and the indentures governing the Notes
("Indenture") and the 1995 Subordinated Debt ("1995 Indenture") contain
covenants limiting, among other things, the nature and amount of additional
indebtedness that the Company may incur. These covenants could limit the
Company's ability to withstand competitive pressures or adverse economic
conditions, make acquisitions or take advantage of business opportunities that
may arise. Failure to comply with these covenants could, as provided in the
Warehouse Line of Credit, permit the lender under the Warehouse Line of Credit
to accelerate payment of the amounts borrowed under the facility or, as provided
in the Indenture and the 1995 Indenture, permit the indenture trustee thereunder
to accelerate payment of the 1995 Subordinated Debt. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

POTENTIAL FOR ADDITIONAL SENIOR INDEBTEDNESS

Under the Indenture and the 1995 Indenture, the Company will be permitted
to incur substantial additional senior indebtedness. Based on the Company's
consolidated stockholders' equity as of September 30, 1996, the Company would be
permitted to borrow approximately $314 million in Senior Indebtedness.
Effective January 17, 1997, the $3 million convertible subordinated note was
converted into 480,000 shares of the Company's Common Stock. The sale of the
Notes will increase the Company's outstanding subordinated indebtedness from
$20.0 million to $55.0 million (assuming no exercise of the Underwriters' over-
allotment option). The interest expense associated with the Notes and the
potential interest expense associated with the maximum permitted Senior
Indebtedness could substantially increase the Company's fixed charge obligations
and could potentially limit the Company's ability to meet its obligations under
the Notes.

ABILITY TO REPAY NOTES UPON ACCELERATED REDEMPTION

Upon the occurrence of a Special Redemption Event (certain events or
transactions that result in a change in control of the Company), each Holder
will have the right to require that the Company purchase the Holder's Notes at
100% of the principal amount plus accrued interest. If a Special Redemption
Event should occur, there can be no assurance that the Company will have
available funds sufficient to pay that purchase price for all of the Notes that
might be delivered by Holders seeking to exercise such rights. In the event the
Company is required to purchase outstanding Notes pursuant to a Special
Redemption Event, the Company expects that it would seek third party financing
to the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing, and, if obtained, the terms of any such financing may be less
favorable than the terms of the Notes.

LIMITED COVENANTS IN THE INDENTURE

The indenture pursuant to which the Notes will be issued (the "Indenture")
contains financial and operating covenants including, among others, limitations
on the Company's ability to pay dividends, to incur additional indebtedness and
to engage in certain transactions, including consolidations, mergers or
transfers of all or substantially all of its assets. The covenants in the
Indenture are limited and are not designed to protect holders of the Notes in
the event of a material adverse change in the Company's financial condition or
results of operations. See "Description of the Notes."

LITIGATION

Because of the consumer-oriented nature of the industry in which the
Company operates and the application of certain laws and regulations, industry
participants are regularly named as defendants in class-action litigation
involving alleged violations of federal and state laws and regulations and
consumer law torts, including fraud. Many of these actions involve alleged
violations of consumer protection laws. Although the Company is not involved in
any material litigation, a significant judgment against the Company or within
the industry in connection with any such litigation could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business - Government Regulation."

DEPENDENCE ON DEALERS

The Company is dependent upon establishing and maintaining relationships
with unaffiliated Dealers to supply it with Contracts. As of September 30, 1996
the Company was a party to Dealer Agreements with 1,847 Dealers. During the
nine months ended September 30, 1996, no Dealer accounted for more than 2.4% of
the Contracts purchased by the Company. The Dealer Agreements do not require
Dealers to submit a minimum number of Contracts for purchase by the Company.
The failure of Dealers to submit Contracts that meet the Company's underwriting
criteria would have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Purchase and Sale of
Contracts -- Dealer Contract Purchase Program."

CONTRACTUAL RECOURSE BY PURCHASERS OF CONTRACTS

Purchasers of Contracts have recourse against the Company in the event of
the Company's breach of its representations and warranties to the purchaser
(relating to the enforceability and validity of the Contracts) or certain
defaults with respect to the Contracts. In such cases, recourse is limited to
requiring the Company to repurchase the Contracts in question. In the event the
Company is required to repurchase a Contract, the Company will generally have
similar recourse against the Dealer from which it purchased the Contract;
however, there can be no assurance that any Dealer will have the financial
resources to satisfy its repurchase obligations to the Company. Subject to any
recourse against Dealers, the Company will bear any loss on repossession and
resale of vehicles financed under Contracts repurchased by it from investors,
which could have a material adverse effect on the financial condition and
results of operations of the Company. See "Business -- Purchase and Sale of
Contracts -- Sale of Contracts to Institutional Investors."

GOVERNMENT REGULATION

The Company's business is subject to numerous federal and state consumer
protection laws and regulations, which, among other things: (i) require the
Company to obtain and maintain certain licenses and qualifications; (ii) limit
the interest rates, fees and other charges the Company is allowed to charge;
(iii) limit or prescribe certain other terms of its Contracts; (iv) require the
Company to provide specified disclosures; and (v) regulate certain servicing and
collection practices and define its rights to repossess and sell collateral. An
adverse change in existing laws or regulations, or in the interpretation
thereof, the promulgation of any additional laws or regulations, the failure to
comply with such laws and regulations or the expansion of the Company's business
into jurisdictions with more stringent requirements could have a material
adverse effect on the Company's financial condition and results of operations.
See "Business -- Government Regulation."

OPERATING HISTORY

The Company incurred net losses for each of fiscal 1992, 1993 and 1994 of
$2.5 million, $1.5 million, and $1.8 million, respectively. Losses incurred
through the end of fiscal 1993 were attributable primarily to the Company's
relatively high degree of fixed operating costs as compared to its revenue in
those years. The net loss for fiscal 1994 was attributable entirely to a one-
time, non-cash accounting charge reflecting the release of the Escrow Shares.
Although the Company generated net income of $6.7 million for fiscal 1995, $7.6
million for the nine-month transition period ended December 31, 1995, and $10.2
million for the nine-month period ended September 30, 1996, there can be no
assurance that the Company will not sustain losses in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."

LIMITED MARKET

Prior to the Offering, there has been no market for the Notes. Although
the Company has applied for listing of the Notes on the New York Stock Exchange,
no assurance can be given that an active trading market in the Notes will
develop or that Holders will be able to sell their Notes at or above par. The
Company has been advised that the Underwriters currently intend to make a market
in the Notes, but they are under no obligation to do so and may discontinue such
market making activities at any time. Accordingly, in deciding whether or not
to invest in the Notes, investors should take into account the possible illiquid
and long-term nature of an investment in the Notes.

DEPENDENCE ON KEY PERSONNEL

The Company's success is largely dependent on the efforts of Charles
E. Bradley, Jr., its President, Jeffrey P. Fritz, its Senior Vice
President-Chief Financial Officer, and on Nicholas P. Brockman, William J.
Brummund, Jr., Richard P. Trotter, Curtis K. Powell, and Mark A. Creatura, each
of whom is a Senior Vice President responsible for a different aspect of the
Company's operations. The Company has not entered into employment agreements
with any of these individuals and the loss of the services of any of these
individuals could have a material adverse effect on the Company. The Company
has obtained "key man" life insurance on Messrs. Bradley and Fritz in the amount
of $1.0 million each. See "Management."

CONTROL OF THE COMPANY

As of December 31, 1996, Charles E. Bradley, Jr., his father, Charles
Bradley, Sr., and other members of his family beneficially owned 3,847,491
shares of outstanding Common Stock, and held options or other rights to acquire
an additional 867,640 shares. Such shares represent approximately 27.0% of the
outstanding Common Stock of the Company (or 31.2%, upon assumed exercise of all
such options). As a result of their ownership of Common Stock, they and the
other directors of the Company collectively are able, as a practical matter, to
elect a majority of the Company's Board of Directors, to cause an increase in
the authorized capital or the dissolution, merger or sale of the assets of the
Company, and generally to direct the affairs of the Company. See "Principal
Shareholders."

USE OF PROCEEDS

The net proceeds from the sale of the Notes (after deducting underwriting
discounts and Offering expenses) are expected to be approximately $33.3 million
(approximately $38.4 million if the Underwriters' over-allotment option is
exercised in full). The primary purpose of the Offering is to provide the
Company with additional capital to fund its growth, including increasing the
amount of Contracts that the Company can acquire and hold for pooling and sale
in the asset-backed securities market, to support securitization transactions,
for other working capital needs and for general corporate purposes. Pending
their ultimate application, the net proceeds will be used to reduce temporarily
the Company's balances under its existing Warehouse Line of Credit. As of
December 31, 1996, amounts outstanding under the Warehouse Line of Credit bore
interest at an effective rate of 6.99% per annum.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the Nasdaq National Market, under the
symbol "CPSS." The following table sets forth the high and low sale prices of
the Common Stock for the periods indicated.

High Low
January 1-March 31, 1995 . . . . . . . . $ 8.625 $ 6.625

April 1-June 30, 1995. . . . . . . . . . 9.625 7.125
July 1-September 30, 1995. . . . . . . . 13.25 9.375
October 1-December 31, 1995. . . . . . . 12.00 8.50

January 1-March 31, 1996 . . . . . . . . 10.75 7.375
April 1-June 30, 1996. . . . . . . . . . 10.50 8.25
July 1-September 30, 1996. . . . . . . . 13.125 7.75
October 1-December 31, 1996. . . . . . . 14.75 10.625

January 1-January 31, 1997 . . . . . . . 13.875 10.625

On February 5, 1997 the last reported sale price for the Common Stock on
the Nasdaq National Market was as reported on the cover page of this Prospectus.
As of February ____, 1997, there were approximately ____ holders of record of
the Company's Common Stock.

To date, the Company has not declared or paid any dividends on its Common
Stock. The payment of future dividends, if any, on the Company's Common Stock
is within the discretion of the Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition, and other
relevant factors. The Company does not intend to declare any dividends on its
Common Stock in the foreseeable future, but instead intends to retain any
earnings for use in the Company's operations. See "Description of Capital
Stock."

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
September 30, 1996 and as adjusted to give effect to (i) the conversion into
480,000 shares of Common Stock at $6.25 per share of the 9.5% Convertible
Subordinated Note due November 16, 1998, which was effected on January 17, 1997,
and (ii) the sale of the Notes offered hereby (assuming no exercise of the
Underwriters' over-allotment option) and the application of the estimated net
proceeds therefrom as described in "Use of Proceeds." The table should be read
in conjunction with the Company's Consolidated Financial Statements and the
related Notes thereto included elsewhere in this Prospectus.

AS OF SEPTEMBER 30, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
LIABILITIES:
Warehouse Line of Credit. . . . . . . . . . . . $ 9,839 $ 9,839
Subordinated Notes due 2006 . . . . . . . . . . 20,000 20,000
9.5% Convertible Subordinated Note
due November 16, 1998 . . . . . . . . . . . . 3,000 -
Other liabilities . . . . . . . . . . . . . . . 8,261 8,261
___% Participating Equity Notes-SM- due 2004. . - 35,000
---------- ----------
Total liabilities. . . . . . . . . . . . $ 41,100 $ 73,100
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred Stock, $1.00 par value,
5,000,000 shares authorized, none issued . . . $ - $ -
Common Stock, no par value, 30,000,000 shares
authorized, 13,556,842 shares issued and
outstanding and 14,036,842 shares
pro forma as adjusted(1). . . . . . . . . . . 33,956 36,956
Retained earnings . . . . . . . . . . . . . . . 18,373 18,373

---------- ----------
Total shareholders' equity. . . . . . . 52,329 55,329
---------- ----------
Total capitalization. . . . . . . . . . $ 93,429 $ 128,429
---------- ----------
---------- ----------

- --------------------

(1) Does not include: (i) 14,000 shares of Common Stock reserved for issuance
upon exercise of warrants issued in connection with the Company's 1992 initial
public offering of Common Stock; (ii) 2,116,200 shares of Common Stock reserved
for issuance upon exercise of stock options outstanding under the Company's 1991
Stock Option Plan, of which options to purchase 1,385,026 shares are currently
exercisable; (iii) 97,000 shares of Common Stock reserved for issuance upon
exercise of stock options available for future grant under the Company's 1991
Stock Option Plan; and (iv) 60,000 shares of Common Stock reserved for issuance
upon the exercise of stock options granted to certain directors of the Company.
See "Certain Transactions" and "Principal Shareholders."

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents certain summary consolidated financial
information for the nine-month transition period ended December 31, 1995, and
the fiscal years ended March 31, 1995, 1994, 1993 and 1992, which has been
derived from the Company's Consolidated Financial Statements audited by KPMG
Peat Marwick LLP, independent certified public accountants, certain of which
have been included elsewhere herein. Also presented is certain summary
consolidated financial information for the nine months ended September 30, 1996
and 1995, which has been derived from the Company's unaudited condensed
consolidated financial information for such periods included elsewhere herein.
In the opinion of management, such unaudited financial information reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of such information for these periods. Results of operations for
interim periods are not necessarily indicative of results to be expected for the
full year. The following information should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.

STATEMENT OF OPERATIONS DATA:
Net gain on sale of Contracts . . . . . . $ 15,864 $ 9,942 $ 11,549 $ 9,455 $ 5,425 $ 523 $ 128
Servicing fees. . . . . . . . . . . . . . 12,939 7,106 6,983 7,201 3,556 1,538 779
Interest income . . . . . . . . . . . . . 7,348 5,385 5,722 5,849 1,443 400 119
--------- ---------- --------- ---------- ---------- ---------- ----------
Total revenue . . . . . . . . . . . . . . 36,151 22,433 24,254 22,505 10,424 2,461 1,026
Operating expenses (including a one-time
charge of $6,450 in fiscal 1994)(1). . . 19,081 10,805 11,597 11,358 11,712 3,963 3,552
Income taxes. . . . . . . . . . . . . . . 6,913 4,734 5,082 4,481 490 0 0
--------- ---------- --------- ---------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . $ 10,157 $ 6,894 $ 7,575 $ 6,666 $ (1,778) $ (1,502) $ (2,526)
--------- ---------- --------- ---------- ---------- ---------- ----------
--------- ---------- --------- ---------- ---------- ---------- ----------
Primary net income (loss) per
common share . . . . . . . . . . . . . . $ .69 $ .54 $ .53 $ .60 $ (.21) $ (.24) $ (.44)
--------- ---------- --------- ---------- ---------- ---------- ----------
--------- ---------- --------- ---------- ---------- ---------- ----------
Weighted average common and
common equivalent shares . . . . . . . . 14,746,930 12,837,934 14,323,592 11,143,268 8,520,548 6,378,082 5,800,000
Fully diluted net income (loss)
per common share . . . . . . . . . . . . $ .67 $ .49 $ .52 $ .56 $ (.21) $ (.24) $ (.44)
--------- ---------- --------- ---------- ---------- ---------- ----------
--------- ---------- --------- ---------- ---------- ---------- ----------
Fully diluted weighted average common
and common equivalent shares . . . . . . 15,452,640 14,001,510 14,803,592 12,538,352 8,520,548 6,378,082 5,800,000
OTHER DATA:
Principal amount of Contracts
purchased during period
(excluding Bulk Purchases) . . . . . . . $254,322 $132,052 $150,943 $150,573 $ 53,103 $ 19,484 $ 3,777
Principal amount of Contracts sold
during period. . . . . . . . . . . . . . 248,132 144,342 155,719 140,617 58,095 14,103 3,491
Outstanding Servicing Portfolio
at end of period(2). . . . . . . . . . . 445,332 252,272 288,927 192,800 63,208 20,436 3,718
Net charge-offs(3). . . . . . . . . . . . 13,615 7,363 8,568 4,349 964 276 -
Servicing fees as a percentage of
average principal balance of
Contracts being serviced(4). . . . . . . 4.7% 4.6% 6.4% 5.3% 7.5% 4.7% 5.4%
Delinquencies as a percentage of gross
Servicing Portfolio at end of period(5). 5.9% 4.0% 5.1% 2.5% 1.3% 1.0% 0.0%
Net charge-offs as a percentage of
average Servicing Portfolio(3)(4). . . . 5.0% 4.8% 4.7% 3.4% 2.5% 2.2% 0.0%
Operating expenses (before interest and
provisions for credit losses)
as a percentage of average Servicing
Portfolio(4) . . . . . . . . . . . . . . 4.8% 4.6% 4.4% 5.4% 28.9% 31.5% 195.8%
Servicing subject to recourse
provisions(6). . . . . . . . . . . . . . 426,421 233,201 268,163 169,331 62,464 14,736 3,371
Discounted allowance for credit losses
as a percentage of servicing
subject to recourse provisions(7). . . . 9.9% 8.7% 8.7% 8.5% 8.1% 10.2% 10.2%

NINE-MONTH
TRANSITION
NINE MONTHS ENDED PERIOD
SEPTEMBER 30, ENDED FISCAL YEAR ENDED MARCH 31,
---------------------- ------------------------------------------------
1996 1995 12/31/95 1995 1994(1) 1993 1992
--------- ---------- ---------- --------- ------------ ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Ratio of earnings to fixed charges(8)(9). 4.8x 5.0x 5.5x 4.2x - - -
Cash flows provided by (used in) operating
activities . . . . . . . . . . . . . . . $(9,326) $(15,502) $(18,533) $(6,115) $(2,816) $(6,718) $ (1,880)

AS OF SEPTEMBER 30,AS OF DECEMBER 31, AS OF MARCH 31,
1996 1995 1995 1994 1993
------------------- ------------------ ----------- -------------- -----------

BALANCE SHEET DATA: (IN THOUSANDS)
Cash. . . . . . . . . . . . . . . . . . . . $ 145 $ 10,895 $ 5,767 $ 2,089 $ 245
Investments in credit enhancements. . . . . 46,526 30,478 23,201 10,497 0
Contracts held for sale . . . . . . . . . . 17,773 19,549 21,896 647 5,054
Excess servicing receivables. . . . . . . . 19,111 11,108 5,154 2,294 503
Total assets. . . . . . . . . . . . . . . . 93,429 77,878 57,976 16,538 6,922
Total liabilities . . . . . . . . . . . . . 41,100 36,397 30,981 6,337 2,833
Total shareholders' equity. . . . . . . . . 52,329 41,481 26,994 10,201 4,089

- ------------------
(1) In October 1992, as a condition to the initial public offering of Common
Stock of the Company, the then majority shareholder of the Company
deposited 600,000 shares of Common Stock (the "Escrow Shares") in escrow.
The escrow agreement provided that part or all of the Escrow Shares would
be released if the Company's net income after taxes (as defined in the
escrow agreement) or the average market price of the Common Stock for
specified periods exceeded specified levels. The Company's net income (as
defined in the escrow agreement) for fiscal 1994 (prior to the accounting
effect of the release of the Escrow Shares) exceeded the specified level
and, accordingly, all 600,000 Escrow Shares were released. The release of
the Escrow Shares was deemed compensatory for accounting purposes,
resulting in a one-time, non-cash charge of $6,450,000 against earnings for
fiscal 1994. Without that charge, net income, primary net income per share
and fully diluted net income per share for fiscal 1994 would have been
$4,672,000, $.44 and $.41, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Fiscal Year
Ended March 31, 1994 Compared to Fiscal Year Ended March 31, 1993 --
Expenses."
(2) Includes the outstanding principal amount of all Contracts purchased by the
Company, including Contracts subsequently sold by the Company which it
continues to service. Excludes loans serviced for third parties but not
purchased by the Company. As of December 31, 1994, the Company had ceased
servicing loans for third parties.
(3) Net charge-offs include the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle
(excluding accrued and unpaid interest). Post-liquidation amounts received
on previously charged-off Contracts are applied to the period in which the
related Contract was originally charged off. Excludes Bulk Purchases not
yet sold and uninsured casualty losses.
(4) The percentages set forth for the nine months ended September 30, 1996 and
September 30, 1995 and the nine-month transition period ended December 31,
1995, computed using annualized operating data, which do not necessarily
represent comparable data for a full twelve-month period.
(5) The Company considers a Contract delinquent when an obligor fails to make
at least 90% of a contractually due payment by the following due date and
the vehicle securing the Contract has not been repossessed. All amounts
and percentages are based on the full amount remaining to be repaid on each
Contract, including, for rule of 78s Contracts, any unearned finance
charges. Excludes Bulk Purchases not yet sold.
(6) Includes the outstanding principal amount of all Contracts purchased and
subsequently sold by the Company which it continues to service. Excludes
loans serviced for third parties and Contracts purchased but not yet sold
by the Company.
(7) Discounted allowance for credit losses represents the discounted present
value, calculated at a risk free rate, of future estimated credit losses
as determined by the Company in conjunction with the recognition of its
gains on sale of Contracts.
(8) The ratio of earnings to fixed charges has been computed by dividing income
before taxes and fixed charges by fixed charges. Fixed charges include
interest expense and the portion of rent expense that is representative of
the interest factor (deemed by the Company to be one-third).

(9) The Company incurred losses in fiscal 1994, fiscal 1993 and fiscal 1992.
Earnings were inadequate to cover fixed charges by $1.3 million, $1.5
million and $2.5 million for fiscal 1994, fiscal 1993 and fiscal 1992,
respectively. Adjusted to eliminate the one-time non-cash charge of
$6,450,000 referred to in footnote (1) above, the ratio of earnings to
fixed charges for fiscal 1994 would have been 10.1x.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis of the financial condition of the Company should be
read in conjunction with "Selected Financial Data" and the Company's
Consolidated and Condensed Consolidated Financial Statements and the Notes
thereto and the other financial data included elsewhere in this Prospectus.

OVERVIEW

The Company specializes in the business of purchasing, selling and
servicing retail automobile installment sales Contracts originated by Dealers in
the sale of new and used automobiles, light trucks and passenger vans and has
done so since its inception on March 8, 1991. Through its purchases, the
Company provides indirect financing to borrowers with limited credit histories,
low incomes or past credit problems.

The Company generates earnings and cash flow primarily from the servicing
fees and gains associated with the sales or securitizations of Contracts. In
each securitization, the Company sells Contracts to a trust which, in turn,
sells asset-backed securities to Investors. The terms of the securitization
transactions generally provide for the Company to earn a base servicing fee
computed as a percentage of the outstanding balance of the Contracts as
compensation for its duties as servicer. In addition, the Company is entitled
to certain excess servicing fees which represent collections on the Contracts in
excess of the amounts necessary to pay principal and interest to Investors and
the expenses of the trust, including, primarily, base servicing fees.

The Company also recognizes gains on its sales of Contracts. Gains are
determined based upon the difference between the sales proceeds for the portion
of Contracts sold and the Company's recorded investment in the Contracts sold.
The Company allocates the recorded investment in the Contracts between the
portion of the Contracts sold and the portion retained based on the relative
fair values of those portions on the date of the sale. In addition, the Company
recognizes gains attributable to its estimates of excess servicing receivables
for each pool of Contracts it securitizes. Excess servicing receivables are
determined by computing the difference between the weighted average yield of the
Contracts sold and the yield to the purchaser, adjusted for the normal servicing
fee based on the agreements between the Company and the purchaser. The
resulting differential is recorded as a gain at the time of sale equal to the
present value of the estimated cash flows, net of any portion of the excess that
may be due to the purchaser and adjusted for anticipated prepayments,
repossessions, liquidations and other losses. To the extent that the actual
future performance of the Contracts results in less excess cash flows than the
Company estimated, the Company's excess servicing receivables will be adjusted
at least quarterly, with corresponding charges recorded against income in the
period in which the adjustment is made. To the extent that the actual cash
flows exceed the Company's discounted estimates, the Company will record
additional servicing fees in the periods in which the excess cash is received.

RESULTS OF OPERATIONS

THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE-MONTH PERIOD
ENDED SEPTEMBER 30, 1995

REVENUE. During the nine months ended September 30, 1996, revenue
increased $13.7 million, or 61.2%, compared to the nine-month period ended
September 30, 1995. Servicing fees increased by $5.8 million, or 82.1%, and
represented 35.8% of total revenue. The increase in servicing fees is due to
the Company's continued expansion of its Contract purchase, sale and servicing
activities. As of September 30, 1996, the Company was earning servicing fees on
40,216 Contracts approximating $426.4 million compared to 22,062 Contracts
approximating $233.2 million as of September 30, 1995. In addition to the
$426.4 million in sold Contracts on which servicing fees were earned, the
Company was holding for sale and servicing an additional $18.9 million in
Contracts for an aggregate servicing portfolio of $445.3 million.

Net gain on sale of Contracts includes (i) the excess of the amount
realized on the sale of Contracts over the Company's net cost, (ii) the net
present value of estimated excess servicing fees on sold contracts, and (iii)
the recognition of deferred acquisition fees paid by Dealers net of related
acquisition costs. Net gain on sale of Contracts increased by $5.9 million, or
59.6%, and represented 43.9% of total revenue for the nine-month period ended
September 30, 1996. The increase in gain on sale is largely due to the volume
of Contracts which were sold in the period. During the nine-month period ended
September 30, 1996, the Company sold $248.1 million in Contracts, compared to
$144.3 million in the nine-month period ended September 30, 1995.

Interest income on Contracts held for sale increased by $2.0 million, or
36.4%, representing 20.3% of total revenues for the nine-month period ended
September 30, 1996. The increase is due to the increase in the volume of
contracts purchased and held for sale. During the nine-month period ended
September 30, 1996, the Company purchased $254.3 million in Contracts from
Dealers, compared to $132.1 million in the nine-month period ended September 30,
1995.

EXPENSES. During the nine-month period ended September 30, 1996, operating
expenses increased $8.3 million, or 76.6%, compared to the nine-month period
ended September 30, 1995. Employee costs increased by $3.0 million, or 98.3%,
and represented 32.1% of total operating expenses. The increase is due to the
addition of staff necessary to accommodate the Company's growth and certain
increases in salaries of existing staff. General and administrative expenses
increased by $2.5 million, or 94.5% and represented 26.6% of total operating
expenses. Increases in general and administrative expenses included increases
in telecommunications, stationery, credit reports and other related items as a
result of increases in the volume of purchasing and servicing of Contracts.
Additionally, general and administrative expenses increased by $124,000 as a
result of including the company's share of the loss incurred by MAB Asset
Corporation, a 38% equity investment acquired by the Company on June 6, 1996.

Marketing expenses increased by $408,954, or 57.8%, and represented 5.9% of
total expenses. The increase is primarily due to the increase in the volume of
contracts purchased as marketing representatives are compensated directly in
proportion to the number of Contracts the Company purchases from Dealers
serviced by the marketing representative. Additional increases in marketing
expense relate to other marketing expenses such as travel, promotion and
convention expenses.

Interest expense increased $1.5 million, or 52.0%, and represented 22.6% of
total operating expenses. The increase is primarily due to the interest paid on
the $20.0 million in subordinated debt securities issued December 20, 1995.
Interest expense was also impacted by the volume of Contracts held for sale as
well as by the Company's cost of borrowed funds.

During the nine-month period ended September 30, 1996, the provision for
losses on Contracts held for sale increased by $766,699, or 86.3%, and
represented 8.7% of total operating expenses. The increase in the provision
reflects a larger volume of Contracts held prior to sale when compared to the
same period in the prior year.

NINE-MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
MARCH 31, 1995

The Company changed its fiscal year-end from March 31 to December 31,
effective with the nine-month transition period ended December 31, 1995.
Accordingly, readers should take into account that the following discussion
compares figures for a nine-month period to a full twelve-month year. The
discussion below does not attempt to explain, for each item discussed, the
extent to which the differing length of these periods has affected the figures.

REVENUES. During the nine months ended December 31, 1995, revenues
increased $1.7 million, or 7.8%, compared to the year ended March 31, 1995.
Servicing fees decreased by $217,807, or 3.0%, and represented 28.8% of total
revenues. Servicing fees consist primarily of base and excess monthly servicing
fees earned on Contracts sold and serviced by the Company, as well as servicing
fees for certain third-party originated portfolios for which it has been engaged
as servicer. Servicing fees have been impacted by the Company's continued
expansion of its Contract purchase, sale and servicing activities. As of
December 31, 1995, the Company was earning servicing fees on 25,398 Contracts
and loans approximating $268.2 million

compared to 16,077 Contracts and loans approximating $169.3 million as of March
31, 1995. In addition to the $268.2 million in sold Contracts and loans on
which servicing fees were earned, the Company was holding for sale and servicing
an additional $20.8 million in Contracts for an aggregate total servicing
portfolio of $288.9 million at December 31, 1995.

Net gain on sale of Contracts, which includes (i) the excess of the amount
realized on the sale of Contracts over the Company's net cost, (ii) the net
present value of estimated excess servicing fees on sold Contracts, and (iii)
the recognition of acquisition fees paid by Dealers and deferred by the Company,
increased by $2.1 million, or 22.2%, and represented 47.6% of total revenues for
the nine months ended December 31, 1995. The increase in gain on sale is
largely due to the volume of Contracts which were sold in the period. During
the nine months ended December 31, 1995, the Company sold $150.8 million in
Contracts, compared to $140.6 million in the year ended March 31, 1995.

Interest income on Contracts warehoused for sale decreased by $127,109, or
2.2%, representing 23.6% of total revenues for the nine months ended December
31, 1995. Interest income is closely related to the volume of Contracts
purchased and the length of time they are held by the Company prior to their
sale. During the nine months ended December 31, 1995, the Company purchased
$151.0 million in Contracts from Dealers, compared to $150.6 million in the year
ended March 31, 1995. In addition to Contracts purchased from Dealers, the
Company made two bulk purchases of portfolios of Contracts having an aggregate
principal balance of $9.2 million during the nine months ended December 31,
1995.

EXPENSES. During the nine months ended December 31, 1995, operating
expenses increased $239,131, or 2.1%, compared to the year ended March 31, 1995.
Employee costs increased by $318,886 or 10.7%, and represented 28.5% of total
operating expenses. The increase is due to the addition of staff necessary to
accommodate the Company's growth in its business as well as certain increases in
salaries of existing staff. General and administrative expenses increased by
$894,444, or 46.9% and represented 24.1% of total operating expenses. Increases
in general and administrative expenses included increases in telephone,
stationery, credit bureaus and other related items as a result of increases in
the volume of purchases and servicing of Contracts.

Marketing expenses decreased by $533,011 or 30.2%, and represented 10.6% of
total expenses. The Company uses a combination of independent contractor and
employee marketing representatives all of whom are compensated directly in
proportion to the number of Contracts the Company purchases from Dealers
serviced by the marketing representative. Marketing expense is further impacted
by the Company's estimates for direct expenses made in accordance with deferring
contract origination costs.

Interest expense decreased by $683,195, or 20.0%, and represented 23.5% of
total operating expenses. During the nine-month period ended December 31,
1995 the Company's interest expense was affected by improved pricing on the
Line, a more favorable interest rate environment, and less reliance on other
short term financing, in part, as a result of the proceeds from the Company's
issuance of two million shares of common stock in March 1995.

During the nine months ended December 31, 1995, the provision for losses on
Contracts held for sale increased by $295,512 or 55.4% and represented 7.1% of
total operating expenses. The increase in the provision reflects a larger
volume of Contracts held for a longer period of time prior to sale when compared
to the year ended March 31, 1995, and certain losses associated with Bulk
Purchases in the nine months ended December 31, 1995.

FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1994

REVENUES. During the year ended March 31, 1995, revenues increased $12.1
million, or 115.9%, compared to the year ended March 31, 1994. Servicing fees
increased by $3.6 million, or 102.5%, and represented 32.0% of total revenues.
Servicing fees consist primarily of base and excess monthly servicing fees
earned on Contracts sold and serviced by the Company, as well as servicing fees
for certain third-party originated portfolios for which it has been engaged as
servicer. The increase in servicing fees is due to the Company's continued
expansion of its Contract purchase, sale and servicing activities. As of March
31, 1995, the Company was earning servicing fees on 16,077 Contracts and loans
approximating $169.3 million

compared to 6,345 Contracts and loans approximating $64.4 million as of March
31, 1994. Contracts purchased and sold by the Company, which generate greater
servicing revenues than loans serviced for third parties but not purchased by
the Company, have become a more significant portion of the Company's overall
portfolio of servicing, representing 100.0% of the amount of Contracts and loans
serviced at March 31, 1995, compared to 97.0% of the amount of Contracts and
loans serviced at March 31, 1994. In addition to the $169.3 million in sold
Contracts and loans on which servicing fees were earned, the Company was holding
for sale and servicing an additional $23.5 million in Contracts for an aggregate
total servicing portfolio of $192.8 million.

Net gain on sale of Contracts, which includes (i) the excess of the amount
realized on the sale of Contracts over the Company's net cost, (ii) the net
present value of estimated excess servicing fees on sold Contracts, and (iii)
the recognition of acquisition fees paid by Dealers and deferred by the Company,
increased by $4.0 million, or 74.3%, and represented 42.0% of total revenues for
the year ended March 31, 1995. The increase in gain on sale is largely due to
the volume of Contracts which were sold in the period. During the year ended
March 31, 1995, the Company sold $140.6 million in Contracts, compared to $58.1
million in the year ended March 31, 1994.

Interest income on Contracts warehoused for sale increased by $353,000, or
305.3%, representing 26.0% of total revenues for the year ended March 31, 1995.
The increase is due to the increase in the volume of Contracts purchased and the
length of time they were held by the Company prior to their sale. During the
year ended March 31, 1995 the Company purchased $150.6 million in Contracts from
Dealers, compared to $53.1 million in the year ended March 31, 1994. In
addition to Contracts purchased from Dealers, the Company made two bulk
purchases of portfolios of Contracts having an aggregate principal balance of
$13.7 million during the year ended March 31, 1995.

EXPENSES. During the year ended March 31, 1995 operating expenses
decreased $0.4 million, or 3.0%, compared to the year ended March 31, 1994.
However, the Company's expenses for the year ended March 31, 1994 included a
one-time, non-cash charge of $6.5 million, which resulted from the release from
escrow of 1,200,000 shares of Common Stock. Without giving effect to this
charge, the Company's expenses for fiscal 1995 increased by $6.1 million, or
115.9%, over fiscal 1994. Employee costs increased by $771,000 or 34.7%, and
represented 26.3% of total operating expenses. The increase is due to the
addition of staff necessary to accommodate the Company's growth in its business
as well as certain increases in salaries of existing staff. General and
administrative expenses increased by $733,000, or 62.5% and represented 16.8% of
total operating expenses. Increases in general and administrative expenses
included increases in telephone, stationery, credit bureaus and other related
items as a result of increases in the volume of purchases and servicing of
Contracts.

Marketing expenses increased by $1.1 million or 157.1%, and represented
15.5% of total expenses. The Company uses a combination of independent
contractor and employee marketing representatives all of whom are compensated
directly in proportion to the number of Contracts the Company purchases from
Dealers serviced by the marketing representative. The increase in marketing
expense, therefore, is directly related to the increase in Contract purchases
from $53.1 million in fiscal 1994 to $150.6 million in fiscal 1995, an increase
of 183.5%.

Interest expense increased $3.0 million, or 663.3%, and represented 30.0%
of total operating expenses. During the year ended March 31, 1995, interest
expense consisted of interest accrued and/or paid on a $2 million convertible
note issued March 11, 1993, a $3 million convertible note issued November 16,
1993, a $2 million short-term promissory note issued May 11, 1994, $3 million in
two short-term promissory notes issued October 25, 1994, and the Warehouse Line
of Credit.

During the year ended March 31, 1995, the provision for losses on Contracts
held for sale increased by $503,000 or 1,676.0% and represented 4.7% of total
operating expenses. The increase in the provision reflects a larger volume of
Contracts held for a longer period of time prior to sale when compared to the
same period in the previous fiscal year, and certain losses associated with Bulk
Purchases in fiscal 1995.

In the prior year, the Company had a substantial net operating loss
carryforward to offset most of that year's earnings and therefore had minimal
income tax expense. As of March 31, 1994, the Company had

utilized all of the tax benefits associated with its net operating loss
carryforward and as a result, the Company recognized an income tax provision of
$4.5 million for the year ended March 31, 1995, versus $490,000 in the prior
year.

Upon consummation of the Company's initial public offering which became
effective on October 22, 1992, the Company's controlling shareholder, Holdings,
deposited 1,200,000 shares of Common Stock (the "Escrow Shares") in escrow,
subject to release upon attainment of certain net income goals or stock price
levels. As of March 31, 1994, the Company exceeded the requisite levels. The
release of the Escrow Shares was deemed compensatory and resulted in a one-time,
non-cash charge for fiscal 1994 of $6.5 million which was equal to the market
value of the Escrow Shares at the time of their release. This one-time,
non-cash charge was offset by an identical increase in common stock and was not
tax deductible. Consequently, there was no impact on total shareholders' equity
on the Company's financial statements as a result of the release of the Escrow
Shares and the corresponding charge.

The following table illustrates the impact of this charge on the Company's
results for fiscal 1994.

FISCAL YEAR ENDED MARCH 31, 1994
------------------------------------------------------
AS STATED IMPACT OF CHARGE WITHOUT CHARGE
--------- ---------------- --------------
(IN THOUSANDS)

REVENUES:
Net gain on sale of Contracts . . . . . . . $ 5,425 $ -- $ 5,425
Servicing fees. . . . . . . . . . . . . . . 3,556 -- 3,556
Interest. . . . . . . . . . . . . . . . . . 1,443 -- 1,443
---------- -------- --------
10,424 -- 10,424
---------- -------- --------

EXPENSES:
Non-cash charge from release of Escrow Shares 6,450 (6,450) --
Interest. . . . . . . . . . . . . . . . . . 447 -- 447
Employee costs. . . . . . . . . . . . . . . 2,219 -- 2,219
General and administrative. . . . . . . . . 1,173 -- 1,173
Marketing . . . . . . . . . . . . . . . . . 686 -- 686
Related party consulting fees . . . . . . . 350 -- 350
Occupancy . . . . . . . . . . . . . . . . . 171 -- 171
Depreciation. . . . . . . . . . . . . . . . 186 -- 186
Provision for credit losses . . . . . . . . 30 -- 30
---------- -------- --------
11,712 (6,450) 5,262
---------- -------- --------
Income (loss) before income taxes . . . . . (1,288) 6,450 5,162
Income taxes. . . . . . . . . . . . . . . . 490 -- 490
---------- -------- --------

Net income (loss) . . . . . . . . . . . . . $ (1,778) $ 6,450 $ 4,672
---------- -------- --------
---------- -------- --------

The following is a summary of net income (loss) per common and common equivalent
share for fiscal 1994 as stated and without the charge:

AS STATED WITHOUT CHARGE
------------- ------------------

Primary net income (loss) per common and common equivalent
share. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (.21) $ .41

Weighted average number of common and common
equivalent shares used in net income per share . . . . . . . 8,520,548 10,398,508

Fully diluted net income (loss) per common and common
equivalent share . . . . . . . . . . . . . . . . . . . . . . $ (.21) $ .44

Fully diluted weighted average number of
common and common equivalent shares outstanding. . . . . . . 8,520,548 11,220,398

The following table, summarizes the Company's results from operations on a
calendar year basis for each of the years in the three year period ended
December 31, 1995, giving effect to the previously mentioned change in fiscal
year:

12 Months Ended December 31,
--------------------------------------------------------------
1993 1994(1) 1994(2) 1995
---- ---- ---- ----
(In thousands, except per share data)

REVENUES:
Servicing fees $ 3,008 $ 6,175 $ 6,175 $ 9,019
Net gain on sale of contracts 2,845 9,980 9,980 13,719
Interest 942 4,403 4,403 7,869
---------------------------------------------------------
6,795 20,558 20,558 30,607

EXPENSES:
Charge from release of escrow shares -- 6,450 -- --
Employee costs 1,890 3,253 3,253 3,888
Selling, general and administrative 2,114 3,651 3,651 5,276
Related party consulting fees 350 350 350 350
Depreciation 181 169 169 209
Interest 229 2,520 2,520 3,842
Provision for losses 17 384 384 1,008
---------------------------------------------------------
4,781 16,777 10,327 14,573
---------------------------------------------------------
Income before taxes 2,014 3,781 10,231 16,034

Income taxes -- 3,613 3,613 6,440
---------------------------------------------------------
Net income $ 2,014 $ 168 $ 6,618 $ 9,594
---------------------------------------------------------
---------------------------------------------------------

Primary income per share $0.22 $0.02 $0.61 $0.71
Weighted average primary shares 9,699 10,932 10,932 13,431
Fully diluted income per share $0.21 $0.02 $0.57 $0.70
Fully diluted weighted average shares 10,446 12,182 12,182 13,911

- ---------------
(1) Results include the non-cash one time charge from the release of Escrow
Shares.
(2) Results exclude the non-cash one time charge from the release of Escrow
Shares.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of cash from operating activities include
base and excess servicing fees it earns on portfolios of Contracts it has
previously sold, proceeds on the sales of Contracts in excess of its recorded
investment of the Contracts, amortization and release of investments in credit
enhancement balances pledged in conjunction with the securitization of its
Contracts, and borrower payments on Contracts held for sale. The Company's
primary uses of cash include its normal operating expenses and the establishment
and build-up of Spread Accounts used for credit enhancement to their maintenance
levels.

Net cash used in operating activities was $9.3 million during the nine
months ended September 30, 1996 compared to net cash used of $15.5 million
during the nine months ended September 30, 1995. Cash used for purchasing
Contracts was $254.3 million, an increase of $139.5 million, or 121.5%, over
cash used for purchasing Contracts in the prior year's period. Cash provided
from the liquidation of Contracts was $254.3 million, an increase of $136.4
million, or 115.7%, over cash provided from liquidation of Contracts in the
prior year's period.

Net cash used in operating activities was $18.5 million during the nine
months ended December 31, 1995, compared to net cash used of $6.1 million during
the year ended March 31, 1995. Cash used for purchasing Contracts was $160.2
million, a decrease of $4.1 million, or 2.5%, over cash used for purchasing
Contracts in the year ended March 31, 1995. Cash provided from the liquidation
of Contracts was $156.9 million, an increase of $14.4 million, or 10.1%, over
cash provided from liquidation of Contracts in the year ended March 31, 1995.

The Company's cash requirements have been and will continue to be
significant. The agreements under which the Company has securitized and sold
its Contracts required the Company to make a significant initial cash deposit,
for purposes of credit enhancement, to a Spread Account which is pledged to
support the related asset-backed securities, and is invested in high quality
liquid securities. Excess cash flows from the securitized Contracts are
deposited into the Spread Accounts until such time as the Spread Account balance
reaches a specified percent of the outstanding balance of the related
asset-backed securities. Since its June 1995 securitization, and, it is
expected, on an ongoing basis, the Company altered the credit enhancement
mechanism used in its securitizations to create a subordinated class of
asset-backed securities (a "B Piece") in order to reduce the size of the
required initial deposit to the Spread Accounts. This revised structure may, if
the Company is able to continue to sell the B Piece, reduce the amount of cash
that the Company must invest or set aside in Spread Accounts in future
securitizations. The Company continues to hold the B Piece associated with its
June 1995 transaction, but has sold and believes it will be able to continue to
sell the B Pieces created in subsequent securitizations. The aggregate balances
of the Spread Accounts associated with each securitization of Contracts,
together with the one B Piece held by the Company, are reflected as "Investments
in credit enhancements" on the Company's consolidated balance sheet.

During the nine month period ended September 30, 1996, cash used for
initial deposits to Spread Accounts was $9.0 million, an increase of $1.8
million, or 24.2%, from the amount of cash used for initial deposits to Spread
Accounts in the prior year's period. Cash from excess servicing deposited to
Spread Accounts for the nine month period ended September 30, 1996, was $13.3
million, an increase of $6.6 million, or 97.5%, over cash from excess servicing
deposited to Spread Accounts in the prior year's period. Cash released from
Spread Accounts for the nine month period ended September 30, 1996, was $6.2
million, a decrease of $1.8 million, or 22.8%, over cash released from Spread
Accounts in the prior year's period. Changes in deposits to and releases from
Spread Accounts are impacted by the relative size, seasoning and performance of
the various pools of sold Contracts that make up the Company's servicing
portfolio. In the nine month period ended September 30, 1996, certain
securitized pools exceeded predetermined delinquency levels which resulted in
increased Spread Account levels, and consequently, less releases in cash from
Spread Accounts. The Company believes that these increases in delinquency were
due to changes in its strategy regarding the timing of repossessions of vehicles
under its Contracts. The Company and the parties to the various securitization
agreements recently made modifications to the agreements that provide for
delinquency levels which are more reflective of the Company's experience. As a
result, the Company anticipates greater releases of cash from Spread Accounts in
the future.

During the nine month period ended September 30, 1996, the Company
purchased 38% of the

outstanding common stock of NAB Asset Corporation for approximately $4 million.
See "Business--Expansion and Diversification".

Net cash used in operating activities was $18.5 million during the nine
months ended December 31, 1995 compared to net cash used of $6.1 million during
the year ended March 31, 1995. Cash used for purchasing Contracts was $160.2
million, a decrease of $4.1 million, or 2.5%, over cash used for purchasing
Contracts in the year ended March 31, 1995. Cash provided from the liquidation
of Contracts was $156.9 million, an increase of $14.4 million, or 10.1%, over
cash provided from liquidation of Contracts in the year ended March 31, 1995.
The table below documents the Company's history of Contract securitizations.

STRUCTURED CONTRACT SECURITIZATIONS

PERIOD SECURITIZED RATING
FUNDED DOLLAR AMOUNT RATINGS(1) AGENCY POOL NAME
- ----------------- --------------------- -------------- ------------------- ------------------------------------
(IN THOUSANDS)

April 1993 $4,990 A Duff & Phelps Alton Grantor Trust 1993-1
May 1993 3,933 A Duff & Phelps Alton Grantor Trust 1993-1
June 1993 3,467 A Duff & Phelps Alton Grantor Trust 1993-1
July 1993 5,575 A Duff & Phelps Alton Grantor Trust 1993-2
August 1993 3,336 A Duff & Phelps Alton Grantor Trust 1993-2
September 1993 3,578 A Duff & Phelps Alton Grantor Trust 1993-2
October 1993 1,921 A Duff & Phelps Alton Grantor Trust 1993-2
November 1993 1,816 A Duff & Phelps Alton Grantor Trust 1993-3
December 1993 6,694 A Duff & Phelps Alton Grantor Trust 1993-3
January 1994 1,998 A Duff & Phelps Alton Grantor Trust 1993-3
March 1994 20,787 A Duff & Phelps Alton Grantor Trust 1993-4
June 1994 24,592 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-1
September 1994 28,916 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-2
October 1994 13,136 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-3
December 1994 28,893 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1994-4
February 1995 20,084 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-1
June 1995 49,290 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-2
September 1995 45,009 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-3
September 1995 2,369 BB S&P CPS Auto Grantor Trust 1995-3
December 1995 53,634 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1995-4
December 1995 2,823 BB S&P CPS Auto Grantor Trust 1995-4
March 1996 63,747 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1996-1
March 1996 3,355 BB S&P CPS Auto Grantor Trust 1996-1
June 1996 (2) 84,456 Aaa/AAA Moody's/S&P Fasco Auto Grantor Trust 1996-1
June 1996 4,445 BB S&P Fasco Auto Grantor Trust 1996-1
September 1996 87,523 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1996-2
September 1996 4,606 BB S&P CPS Auto Grantor Trust 1996-2
December 1996 88,215 Aaa/AAA Moody's/S&P CPS Auto Grantor Trust 1996-3
December 1996 4,643 BB S&P CPS Auto Grantor Trust 1996-3

- ------------------

(1) Commencing with the securitization completed on June 28, 1994, the
principal and interest due on the asset-backed securities issued by the various
grantor trusts are guaranteed by Financial Security Assurance Inc. ("FSA"),
enabling the issuer to obtain Aaa/AAA ratings for the asset-backed securities
issued in such transactions. See "Business -- Purchase and Sale of Contracts --
Securitization and Sale of Contracts to Institutional Investors."

(2) Commencing with the securitization completed on June 27, 1996, asset-backed
securities with Aaa/AAA ratings have been sold through public offerings pursuant
to registration statements filed with the Securities and Exchange Commission.

Cash flows are impacted by the use of the Warehouse Line of Credit which is
in turn impacted by the amount of Contracts the Company holds for sale. At
September 30, 1996, the Warehouse Line of Credit had an outstanding balance of
$9.8 million compared to $7.5 million at December 31, 1995. In June 1995 the
Company entered into two new agreements which restructured the Warehouse Line of
Credit and increased the maximum available amount to $100.0 million. The
primary agreement provides for loans by Redwood Receivables Corporation
("Redwood") to the Company, to be funded by commercial paper issued by Redwood
and secured by Contracts pledged periodically by the Company. The Redwood
facility provides for a maximum of $100.0 million of advances to the Company,
with interest at a variable rate tied to prevailing commercial paper rates.
When the Company wishes to securitize these Contracts, a substantial part of the
proceeds received from Investors is paid to Redwood, which simultaneously
releases the pledged Contracts for transfer to a pass-through securitization
trust. The second agreement is a standby line of credit with GECC, also with a
$100.0 million maximum, which the Company may use only if and to the extent that
Redwood does not provide funding as described above. The GECC line is secured
by Contracts and substantially all the other assets of the Company. Both
agreements extend through November 30, 1998. The two agreements are viewed as a
single short-term warehouse line of credit, with advances varying according to
the amount of pledged Contracts. All references in this Prospectus to the
Warehouse Line of Credit refer, since June 1995, to the Redwood facility and,
unless the context indicates otherwise, the standby line of credit with GECC.

Prior to October 29, 1992, the Company was dependent on capital
contributions and loans by Holdings (which was then the sole shareholder of the
Company) to satisfy its cash requirements. On October 29, 1992, the Company
raised approximately $4.9 million (net of offering expenses) in an initial
public offering. On March 12, 1993, the Company borrowed $2.0 million from Sun
Life through the issuance of a convertible note in conjunction with an agreement
by that investor to purchase up to $50.0 million of the Company's Contracts. On
July 5, 1995, Sun Life converted this note into 533,334 shares of the Company's
Common Stock. On November 16, 1993, the Company borrowed an additional $3.0
million from Sun Life through the issuance of a convertible note in conjunction
with that investor's commitment to purchase an additional $50.0 million in
Contracts. On January 17, 1997, Sun Life converted this note into 480,000
shares of Common Stock. On November 23, 1993, the Company issued and sold
333,334 shares of Common Stock in a private transaction at a price of $4.50 per
share ($1.5 million in the aggregate). In May and October, 1994, the Company
borrowed an aggregate of $5.0 million pursuant to three short term notes, all of
which were repaid in March 1995 with proceeds from the March 7, 1995 public
offering of 2.0million shares of the Company's stock at a price of $7.38 per
share. In December 1995, the Company issued $20 million of debt in the form of
Rising Interest Subordinated Redeemable Securities ("RISRS").

The Company anticipates that the proceeds from this offering, the funds
available under the Warehouse Line of Credit, proceeds from the sale of
Contracts, and cash from operations will be sufficient to satisfy the Company's
estimated cash requirements for at least the next 12 months, assuming that the
Company continues to have a means by which to sell its warehoused Contracts. If
for any reason the Company is unable to sell its Contracts, or if the Company's
available cash otherwise proves to be insufficient to fund operations (because
of future changes in the industry, general economic conditions, unanticipated
increases in expenses, or other factors), the Company may be required to seek
additional financing.

On November 1, 1996, the Company began to rent an additional 7,000 square
feet of contiguous office space in accordance with the Company's lease
agreement. In addition, the Company recently acquired an additional, and
significantly upgraded, IBM AS/400 computer. This hardware serves as the
primary platform on which the Company processes its Contracts. The Company
anticipates that it will incur certain limited capital expenditures during the
next twelve months as its business continues to grow. The Company expects to
incur occupancy expenses of approximately $50,000 per month in connection with
its Chesapeake, Virginia satellite facility, which were not incurred in fiscal
1996. Personnel and other expenses may also increase, depending on the extent
of any continuing growth in the Company's business (as to which there can be no
assurance) and the availability of personnel.

compensation arrangements. The Company will continue to account for stock-based
compensation under the APB Opinion 25 and, as a result, SFAS 123 will not have a
material impact on the Company's operations.

On June 28, 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 125).
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished.

SFAS No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
Management is in the process of evaluating what future effect SFAS No. 125 will
have on the Company's financial position and results of operations.

BUSINESS

GENERAL

The Company is a consumer finance company specializing in the business of
purchasing, selling and servicing Contracts originated by Dealers in the sale of
new and used automobiles, light trucks and passenger vans. Through its
purchases, the Company provides indirect financing to Sub-Prime Borrowers. The
Company serves as an alternative source of financing for Dealers, allowing sales
to customers who otherwise might not be able to obtain financing from more
traditional sources of automobile financing such as banks, credit unions or
finance companies affiliated with major automobile manufacturers.

HISTORY

The Company was incorporated in March 1991 as a wholly owned subsidiary of
CPS Holdings, Inc. ("Holdings") (formerly known as FWB Acceptance Corp.).
Holdings was formed in April 1990 by Charles E. Bradley, Sr., the Chairman of
the Board of the Company, in order to enter into the automobile financing
business. Mr. Bradley believed that the Sub-Prime Borrower segment of this
business had the potential for growth and profit due in part to the withdrawal
from such business by many savings and loan associations and other financial
institutions. In December 1995, Holdings was merged with and into the Company.

The period from March 8, 1991 (the Company's inception) through May 1991
was devoted to the start-up of the Company's operations. On May 31, 1991, the
Company first acquired certain third-party loan servicing contracts and in
June 1991 began earning servicing fee income. The Company thereafter added to
its third-party loan servicing portfolio and, in October 1991, began acquiring
Contracts and selling them to GECC. To date, the Company has sold $42.6 million
in Contracts to GECC and an additional $100.1 million to Sun Life. Since June
1994, the Company has issued an additional $545.5 million of "AAA"-rated and
$22.2 million of "BB"-rated certificates backed by Contracts to various
institutional investors. Since June 1996, all sales of "AAA"-rated certificates
have been made in public offerings pursuant to registration statements filed
with the Securities and Exchange Commission. See "Servicing of
Contracts--Third-Party Loan Servicing" and "Purchase and Sale of
Contracts--Securitization and Sale of Contracts to Institutional Investors."

AUTOMOBILE FINANCING INDUSTRY

Automobile financing is the largest category, by dollar amount, of consumer
installment debt in the United States. Most traditional sources of automobile
financing, such as commercial banks, credit unions and captive finance companies
affiliated with major automobile manufacturers, generally provide automobile
financing for the most creditworthy, or so-called "prime" borrowers. The
Company believes that the strong credit performance and large size of the market
have led to intense price competition in the financing market for prime
borrowers, and, in turn, low profit margins, effectively limiting this market to
only the largest participants. In addition, special low-rate financing programs
offered by automobile manufacturers' captive finance companies to promote the
sale of specific automobiles have added to the competition within the prime
borrower market.

Although prime borrowers represent the largest segment of the automobile
financing market, there are many potential purchasers of automobiles who do not
qualify as prime borrowers. Purchasers considered by the Company to be
Sub-Prime Borrowers have limited credit histories, low incomes or past credit
problems and, therefore, are unable to obtain credit from traditional sources of
automobile financing, such as commercial banks, credit unions or captive finance
companies affiliated with major automobile manufacturers. (The terms "prime"
and "sub-prime" reflect the Company's categorization of borrowers and bear no
relationship to the prime rate of interest or persons who are able to borrow at
that rate.) The Company believes that, because these potential purchasers
represent a substantial market, there is a demand by automobile dealers for
Sub-Prime Borrower financing that has not been effectively served by traditional
automobile financing sources.

According to the Board of Governors of the Federal Reserve System, as of
March 1996, there was approximately $359 billion in automobile-related
installment credit outstanding. The Company is unaware of

any authoritative estimates of the size of the "non-prime" portion of this
market, although various sources have estimated that the potential loan base in
this portion of the market is between $50 billion and $70 billion. Based on
these figures, the Company's Servicing Portfolio represents less than one
percent of the market.

BUSINESS STRATEGY

The Company's primary objective is to increase revenue and earnings through
the expansion of its sales and servicing of Contracts purchased from Dealers.
The Company has substantial operational and administrative capacity to expand
its business. The Company's strategy is to:

- Maintain consistent underwriting standards and portfolio performance.

- Increase the number of Contracts it purchases from its existing
Dealers.

- Expand its Dealer network, in part by entry into other geographic
areas. During the nine months ended September 30, 1996, 69.9% of the
Contracts acquired by the Company related to borrowers who resided in
California, Florida, Illinois, Nevada, Pennsylvania and Texas (see
"Purchase and Sale of Contracts--Dealer Contract Purchase Program").

- Control and/or reduce its cost of funds by proper structuring of its
securitization offerings and by obtaining the necessary ratings from
nationally recognized credit rating agencies.

- Evaluate opportunities to provide additional products and services,
such as automobile insurance, credit cards and extended maintenance
contracts.

EXPANSION AND DIVERSIFICATION

In March 1996, the Company 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. The Company 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 independent finance companies ("IFCs"), primarily
in the southeastern United States and present them with financing programs that
are essentially identical to those which the Company markets directly to Dealers
through its marketing representatives. The Company believes that a typical
rural IFC has relationships with many local automobile purchasers as well as
Dealers who, because of their financial resources or capital structure are
generally unable to provide 36, 48 or 60 month financing for an automobile.
IFCs may offer Samco's financing programs to borrowers directly or to local
Dealers. Upon submission of applications to Samco, credit personnel who have
been trained by the Company use the Company'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 that the Company performs for Contracts it purchases
from Dealers. Servicing and collection procedures on Samco Contracts are
performed by the Company at its headquarters in Irvine, California. However,
Samco may solicit aid from the IFC in collecting accounts that are seriously
past due. As of September 30, 1996, Samco had purchased 156 Contracts with
original balances of $1.7 million.

In May 1996, the Company formed LINC Acceptance Corp. ("LINC"), an 80
percent-owned subsidiary based in Norwalk, Connecticut. LINC's business plan is
to provide the Company's sub-prime auto finance products to credit unions, banks
and savings and loans ("Deposit Institutions"). The Company believes that
credit unions, banks and savings and loans do not generally make loans to
sub-prime borrowers, even though they may have relationships with Dealers and
have sub-prime borrowers as deposit customers.

LINC proposes to have certain of its employees call on various Deposit
Institutions and present them with a financing program that is similar to those
which the Company markets directly to Dealers through its marketing
representatives. The LINC program is intended to result in a slightly more
creditworthy borrower

than the Company's regular programs by requiring slightly higher income and
lower debt-to-income ratios. LINC's customers may offer its financing program
to borrowers directly or to local Dealers. Unlike Samco, which has employees
who evaluate applications and make decisions to purchase Contracts, LINC
applications will be submitted by the Deposit Institution directly to the
Company, where the approval, underwriting and purchase procedures will be
performed by Company staff who will work with LINC as well as with the Company's
Dealers. Servicing and collection procedures on LINC Contracts will be
performed entirely by the Company at its headquarters in Irvine, California. As
of September 30, 1996, LINC had not purchased any Contracts.

In June 1996, the Company acquired 38% of the outstanding shares of NAB
Assets, Inc. ("NAB") for $4 million. At the time of the acquisition, NAB had
approximately $3.5 million in cash and no significant operations. Subsequent to
the Company's investment in NAB, NAB purchased Mortgage Portfolio Services, Inc.
("MPS") from the Company for $300,000. MPS is a Dallas, Texas-based mortgage
broker-dealer which the Company formed in April 1996. MPS specializes in the
origination and sale of sub-prime residential mortgages. In July 1996, NAB
formed CARSUSA, Inc., which subsequently purchased a Mitsubishi dealership in
Riverside, California. The Company provides CARS USA with an $800,000 line of
credit for financing its vehicle inventory. In November 1996, NAB purchased
Mack Financial Ltd, a small appliance "rent to own" company based in Dallas,
Texas.

In January 1997, the Company purchased 80% of the outstanding shares of an
equipment financing company, Stanwich Leasing, Inc. ("SLI"), from two directors
of the Company, Charles E. Bradley, Sr. and John G. Poole. The purchase price
was $100,000 in cash and the assumption of certain liabilities of SLI. As of
September 30, 1996, SLI owned and serviced an outstanding equipment lease
portfolio of $2.2 million. Its primary customers are companies affiliated with
Charles E. Bradley, Sr.

PURCHASE AND SALE OF CONTRACTS

DEALER CONTRACT PURCHASE PROGRAM. As of September 30, 1996, the Company
was a party to Dealer Agreements with 1,847 Dealers. Approximately 92.7% of
these Dealers are franchised new car dealers that sell both new and used cars
and the remainder are independent used car dealers. For the nine months ended
September 30, 1996, approximately 87.8% of the Contracts purchased by the
Company consisted of financing for used cars and the remaining 12.2% for new
cars. Most of these Dealers regularly submit Contracts to the Company for
purchase, although such Dealers are under no obligation to submit any Contracts
to the Company, nor is the Company obligated to purchase any Contracts. During
the nine months ended September 30, 1996, no Dealer accounted for more than 2.4%
of the total number of Contracts purchased by the Company. In addition, the
Company continues to diversify geographically, and has reduced its concentration
of Contract purchases in California from 36.1% for the nine months ended
September 30, 1995, to 27.5% for the nine months ended September 30, 1996. The
following table sets forth the geographical sources of the Contracts purchased
by the Company (based on the addresses of the borrowers as stated on the
Company's records) during each of the nine-month periods ended September 30,
1996 and September 30, 1995.

CONTRACTS PURCHASED DURING NINE MONTHS ENDED
--------------------------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
--------------------------------------------------------
NUMBER PERCENT NUMBER PERCENT
----------- ------------ ----------- -------------
California 5,621 27.5% 3,601 36.1%
Florida 2,073 10.1% 1,008 10.1%
Pennsylvania 2,018 9.9% 981 9.8%
Texas 1,463 7.2% 624 6.3%
Illinois 953 4.7% 729 7.3%
Ohio 851 4.2% 87 0.9%
Nevada 798 3.9% 530 5.3%
New York 792 3.9% 251 2.5%
Louisiana 758 3.7% 143 1.4%
Tennessee 743 3.6% 76 0.8%
Alabama 686 3.4% 37 0.4%
Maryland 667 3.3% 49 0.5%
Michigan 570 2.8% 404 4.0%
New Jersey 422 2.1% 210 2.1%
Hawaii 344 1.7% 364 3.6%
Other states 1,672 8.2% 885 10.0%
------ -----
Total 20,431 9,979
------ -----
------ -----

When a retail automobile buyer elects to obtain financing from a Dealer, an
application is taken for submission by the Dealer to its financing sources.
Typically, a Dealer will submit the buyer's application to more than one
financing source for review. The Company believes the Dealer's decision to
finance the automobile purchase with the Company, rather than other financing
sources, is based primarily upon an analysis of the discounted purchase price
offered for the Contract, the timeliness, consistency and predictability of
response, the cash resources of the financing source, and any conditions to
purchase.

Upon receipt of an application from a Dealer, the Company's administrative
personnel order a report containing information from the three major national
credit bureaus on the applicant to document the buyer's credit history. If,
upon review by a Company loan officer, it is determined that the application
meets the Company's underwriting criteria, or would meet such criteria with
modification, the Company requests and reviews further information and
supporting documentation and, ultimately, decides whether to purchase the
Contract. When presented with an application, the Company attempts to notify
the Dealer within four hours as to whether it intends to purchase such Contract.
The Company buys Contracts directly from Dealers and does not make loans
directly to purchasers of automobiles.

The Company has historically purchased Contracts from Dealers at discounts
ranging from 0% to 10% of the total amount financed under the Contracts,
depending on the perceived credit risk of the Contract, plus a flat acquisition
fee for each Contract purchased. Discounts averaged 4.5% and 3.0% for the nine
months ended September 30, 1995 and 1996, respectively. The Company believes
that the level of discounts and fees are a significant factor in the Dealer's
decision to submit a Contract to the Company for purchase, and will continue to
play such a role in the future. Effective January 10, 1997, the Company began
purchasing all Contracts without a percentage discount, charging Dealers only a
flat acquisition fee for each Contract purchased. The fees vary based on the
perceived credit risk and, in some cases, the interest rate on the Contract.
The flat fees instituted in January 1997 are larger than the fees previously
charged in conjunction with percentage discounts, so as to result in a similar
net purchase price on a typical Contract.

The Company attempts to control Dealer misrepresentation by carefully
screening the Contracts it purchases, by establishing and maintaining
professional business relationships with Dealers, and by including certain
representations and warranties by the Dealer in the Dealer Agreement. Pursuant
to the Dealer Agreement, the Company may require the Dealer to repurchase any
Contract in the event that the Dealer breaches its representations or warranties
or if a borrower fails, for any reason, to make timely payment of the first
installment due under a Contract. There can be no assurance, however, that any
Dealer will have the

financial resources to satisfy its repurchase obligations to the Company.

BULK PURCHASES. The Company has purchased portfolios of Contracts and
assumed the servicing thereon in bulk from other companies that had previously
purchased the Contracts from Dealers. To date, the Company has made four such
bulk purchases aggregating approximately $22.9 million. In considering Bulk
Purchases, the Company 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 similar
to those in the underwriting standards used by the Company in its normal course
of business. The Bulk Purchases were made at purchase prices ranging from 93.0%
to 100.0% of the aggregate principal balance of the Contracts. The Company may
consider the purchase of additional portfolios from third parties, but has not
made any such purchases since August 1995. Contracts that were acquired in Bulk
Purchases and not yet sold currently account for 0.3% of the Servicing
Portfolio.

CONTRACT PURCHASE CRITERIA. To be eligible for purchase by the Company, a
Contract must have been originated by a Dealer that has entered into a Dealer
Agreement to sell Contracts to the Company. The Contracts must be secured by a
first priority lien on a new or used automobile, light truck or passenger van
and must meet the Company's underwriting criteria. In addition, each Contract
requires the borrower to maintain physical damage insurance covering the
financed vehicle and naming the Company as a loss payee. The Company or any
purchaser of the Contract from the Company may, nonetheless, suffer a loss upon
theft or physical damage of any financed vehicle if the borrower fails to
maintain insurance as required by the Contract and is unable to pay for repairs
to or replacement of the vehicle or is otherwise unable to fulfill its
obligations under the Contract.

The Company believes that its objective underwriting criteria enable it to
evaluate effectively the creditworthiness of Sub-Prime Borrowers and the
adequacy of the financed vehicle as security for a Contract. These criteria
include standards for price; term; amount of down payment, installment payment
and add-on interest rate; mileage, age and type of vehicle; amount of the
Contract in relation to the value of the vehicle; borrower's income level, job
and residence stability, credit history and debt serviceability; and other
factors. These criteria are subject to change from time to time as
circumstances may warrant. Upon receiving this information with the borrower's
application, the Company's underwriters will verify the borrower's employment,
residency, insurance and credit information provided by the borrower by
contacting various parties noted on the borrower's application, credit
information bureaus and other sources. The Company typically completes its
credit review and responds to the Dealer within four hours.

CREDIT SCORING. Since its inception the Company has purchased $632.2
million in Contracts and, as of September 30, 1996, has an outstanding servicing
portfolio of $445.3 million. The Company's management information systems are
structured to include a variety of credit and demographic data for each Contract
as well as maintaining data which indicate each Contract's past or current
performance characteristics. Furthermore, the Company's technical staff have
the ability to interrogate the database to compare performing and non-performing
Contracts and to ascertain which demographic and credit related data elements
may be predictors of credit performance.

In November 1996, the Company implemented a scoring model which assigns
each Contract a numeric value (a "credit score") at the time the application is
received from the Dealer and the borrower's credit information is retrieved from
the credit reporting agencies. The credit score is based on a variety of
parameters such as the borrower's job and residence stability, the amount of the
down payment, and the age and mileage of the vehicle. The Company has developed
the credit score as a means of improving its productivity by identifying
Contracts where the characteristics are so strong (or alternatively, so weak),
that the initial notification to the Dealer can be given without the more
extensive analysis that a Company loan officer would give to a more average
scoring Contract. Regardless of the credit score a Contract originally
receives, the Company's underwriters perform the same extensive review and
verification procedures on all Contracts. In addition to productivity
improvements, the credit score is used to identify Contracts for which review by
a supervisor or manager prior to approval and purchase may be appropriate.

Once an application is approved, financing documents are generated by the
Dealer and the Company obtains a certificate of title for the vehicle when a
lien is recorded, and various other documents pertaining to

the borrower's credit application. After the documents are signed by the Dealer
and the borrower, the Dealer sells the Contract to the Company. The borrower
then receives monthly billing statements.

All of the Contracts purchased by the Company are fully amortizing and
provide for level payments over the term of the Contract. The average original
principal amount financed under Contracts purchased in the nine months ended
September 30, 1996 was approximately $12,550, with an average original term of
approximately 53.6 months and an average down payment of 15.5%. Based on
information contained in borrower applications, for this nine month period, the
retail purchase price of the related automobiles averaged $12,830 (which
excludes tax and license fees, and any additional costs such as a maintenance
contract), and the Company's average borrower at the time of purchase was 37.0
years old, with approximately $32,814 in average household income and an average
of 4.6 years' history with his or her current employer.

All Contracts may be prepaid at any time without penalty. In the event a
borrower elects to prepay a Contract in full, the payoff amount is calculated by
deducting the unearned interest (as determined by the "Rule of 78s" method,
where applicable) from the Contract balance. When a partial prepayment is made
on a Contract originated in California, at the option of the borrower, the
future monthly payments may be reduced pro rata by the aggregate amount of the
prepayment, payment of the next succeeding regular monthly payments may be
suspended, or the borrower may continue to make the regular monthly payments and
thereby pay the Contract in full prior to its scheduled amortization. With
respect to Contracts originated outside of California, the portion of each
payment on the Contracts allocated to principal and interest and the payoff
amount in the event of a full prepayment would be determined by the Rule of 78s
method or such other interest amortization method as is permitted by applicable
state law.

Each Contract purchased by the Company prohibits the sale or transfer of
the financed vehicle without the Company's consent and allows for the
acceleration of the maturity of a Contract upon a sale or transfer without such
consent. In most circumstances, the Company will not consent to a sale or
transfer of a financed vehicle unless the related Contract is prepaid in full.

The Company believes that the most important requirements to succeed in the
sub-prime automobile financing market are the ability to control borrower and
Dealer misrepresentation at the point of origination; the development and
consistent implementation of objective underwriting criteria specifically
designed to evaluate the creditworthiness of Sub-Prime Borrowers; and the
maintenance of an active program to monitor performance and collect payments.

SECURITIZATION AND SALE OF CONTRACTS TO INSTITUTIONAL INVESTORS. The
Company purchases Contracts with the intention of reselling them to Investors
either as bulk sales or as asset-backed securities. Asset-backed securities are
generally structured as follows: First, the Company sells a portfolio of
Contracts to a wholly-owned subsidiary which has been established for the
limited purpose of buying and reselling the Company's Contracts. The subsidiary
then sells the same Contracts to a grantor trust, and the grantor trust in turn
issues interest-bearing asset-backed securities in an amount equal to the
aggregate principal balance of the Contracts. One or more Investors purchase
these asset-backed securities, the proceeds of which are used by the grantor
trust to purchase the Contracts from the subsidiary, which uses such proceeds to
purchase the Contracts from the Company. In addition, the Company provides a
credit enhancement for the benefit of investors in the form of an initial cash
deposit to a specific trust account ("Spread Account") and a deposit of certain
excess servicing cash flows. Since its September 1995 securitization, and, it
is expected, on an ongoing basis in the future, the Company altered the credit
enhancement mechanism used in its securitizations to create and sell a
subordinated security ("B Piece") in order to reduce the size of the required
initial deposit to the Spread Account. The B Piece provides an additional
credit enhancement to the senior security holders because distributions of
interest on the B Piece are subordinated in priority of payment to interest due
on the senior certificates and distributions of principal on the B Piece are
subordinated in priority of payment to interest and principal due on the senior
certificates. This revised structure may, if the Company is able to continue to
sell the B Piece, reduce the amount of cash effectively used in securitizations.
The Company continues to hold the B Piece associated with the June 1995
securitization but has sold all subsequent B Pieces. The Company believes it
will be able to continue to sell the B Pieces created in its future
securitizations. Purchasers of the asset-backed securities receive a particular
coupon rate (the "Pass-Through Rate") established at the time of the sale. The
Company receives periodic base servicing fees for its duties relating

to the accounting for and collection of the Contracts. In addition, the Company
is entitled to certain excess servicing fees that represent collections on the
Contracts in excess of the amounts required to pay investor principal and
interest, the base servicing fees and certain other fees such as trustee and
custodial fees. Generally, the Company sells the Contracts at face value and
without recourse except that the representations and warranties provided by the
Dealer to the Company are similarly provided by the Company to the investor.

At the end of the month, the aggregate cash collections are allocated first
to the base servicing fees and certain other fees such as trustee and custodial
fees for the period, then to the asset-backed securities certificateholder in an
amount equal to the interest accrued at the Pass-Through Rate on the portfolio
plus the amount by which the portfolio balance decreased (due to payments,
payoffs or charge-offs) during the period. If the amount of cash required for
the above allocations exceeds the amount collected during the monthly period,
the shortfall is drawn from the Spread Account. If the cash collected during
the period exceeds the amount necessary for the above allocations, and there is
no shortfall in the related Spread Account, the excess is returned to the
Company or one of its subsidiaries. The excess cash flows are considered by the
Company to be excess servicing fees, part of which the Company recognizes as a
gain on sale based on an estimate of the discounted present value of the excess
cash flows.

Each sale of asset-backed securities results in an increase in the Excess
Servicing Receivables account on the Company's Consolidated Balance Sheet and
the recognition of a "Net Gain on Sale of Contracts" on the Company's
Consolidated Statement of Operations for the period in which the sale was made.
The Excess Servicing Receivables account is increased by a portion of the gain
recognized on each securitization which represents principally the net present
value of estimated future cash flows relating to the Contracts which were sold,
calculated as follows:

(i) the present value of all future interest and principal payments
expected to be received by the Company over the remaining life of the Contracts;

less

(ii) the Contracts' principal payments which are required to be passed
through to the investors in the period in which they were received plus interest
payments required to be made to investors at the Pass-Through Rate established
at the time of securitization, and certain other fees and expenses associated
with the securitization transaction, including the base servicing fee paid to
the Company in respect of its obligations to service the borrowers' Contracts.

Because the APR on the Contracts received by the Company is relatively high
in comparison to the Pass-Through Rate paid to investors, the net present value
described above can be significant. In calculating the net gain on sale
described above, the Company must estimate the future rates of prepayments,
delinquencies, defaults and default loss severity as they impact the amount and
timing of the cash flows in the net present value calculation. The cash flows
received by the Company are then discounted at an interest rate that the Company
believes a third-party purchaser would require as a rate of return. Expected
losses are discounted using a rate equivalent to the risk free rate for
securities with a duration similar to that estimated for the underlying
Contracts.

In future periods, the Company will recognize additional revenue in the
Servicing Fees account if the actual performance of the Contracts is better than
the original discounted estimate. Although the Company has never recognized a
writedown against the Excess Servicing Receivables account, if the actual
performance of the Contracts is worse than the original discounted estimate,
then such a writedown would be required. The Company's actual excess servicing
cash flows, however, historically have exceeded the Company's original
discounted estimates.

The Company's first significant sales consisted of an aggregate of $17.6
million of Contracts sold from October 1, 1991 through January 31, 1993 to GECC
pursuant to an agreement that expired on December 31, 1992. On April 7, 1993,
the Company began selling Contracts to Sun Life pursuant to various agreements.
On March 16, 1995, the Company sold an additional $25.0 million in Contracts to
GECC for an aggregate total of $42.6 million sold to GECC. As of September 30,
1996, the Company had sold approximately

$100.1 million in Contracts to Sun Life, $42.1 million of which was sold in the
form of "Aaa/AAA" rated securities, as discussed below. As of September 30,
1996, the unpaid balance of the Contracts sold to Sun Life was approximately
$29.9 million and the unpaid balance of Contracts sold to GECC was approximately
$13.1 million.

Contract sales to GECC were in the form of whole loan sales. All of the
Contracts sold to Sun Life have been in the form of asset-backed securities
issued by grantor trusts to which a wholly-owned subsidiary of the Company has
sold the Contracts. The first $58.1 million of the certificates sold to Sun
Life were rated "A" by Duff & Phelps Credit Rating Co. The principal and
interest due on the remaining $42.0 million of the certificates sold to Sun Life
are guaranteed by Financial Security Assurance Inc. ("FSA"), and, as a result,
such certificates were rated "Aaa" by Moody's Investors Service and "AAA" by
Standard & Poor's Corporation.

On June 23, 1994, the Company began using various investment banking firms
to place its asset-backed securities issues. The certificates have been issued
by grantor trusts to which a wholly owned subsidiary of the Company has sold the
related Contracts. Through September 30, 1996, the Company had delivered
approximately $516.9 million principal amount of Contracts (of which
approximately $400.7 million was outstanding at September 30, 1996) to eleven
grantor trusts pursuant to these arrangements. The principal and interest due
on the certificates issued pursuant to these arrangements are guaranteed by FSA
and, as a result, such certificates are rated "Aaa" by Moody's Investors
Services and "AAA" by Standard & Poor's Corporation. Since June 1996, the
Company has sold such "AAA"-rated certificates in public offerings pursuant to
registration statements filed with the Securities and Exchange Commission.

In connection with the sale of the Contracts, the Company is required to
make certain representations and warranties, which generally duplicate the
substance of the representations and warranties made by Dealers in connection
with the Company's purchase of the Contracts. If the Company breaches any of
its representations or warranties to a purchaser of the Contracts, the Company
will be obligated to repurchase the Contract from such purchaser at a price
equal to such purchaser's purchase price less the related cash securitization
reserve and any payments received by such purchaser on the Contract. In most
cases, the Company would then be entitled under the terms of its Dealer
Agreement to require the selling Dealer to repurchase the Contract at a price
equal to the Company's purchase price, less any payments made by the borrower.
Subject to any recourse against Dealers, the Company will bear the risk of loss
on repossession and resale of vehicles under Contracts repurchased by it.

TERMS OF SERVICING AGREEMENTS. The Company currently services all
Contracts sold and expects to service all Contracts that it purchases and sells
in the future, whether structured as whole loan sales or sales of asset-backed
securities. Pursuant to the Company's usual form of servicing agreement (the
Company's servicing agreements are collectively referred to as the "Servicing
Agreements"), the Company is obligated to service all Contracts sold to the
investors or trusts in accordance with the Company's standard procedures. The
Servicing Agreements generally provide that the Company will bear all costs and
expenses incurred in connection with the management, administration and
collection of the Contracts serviced. The Servicing Agreements also provide
that the Company will take all actions necessary or reasonably requested by the
investor to maintain perfection and priority of the investor's or the trust's
security interest in the financed vehicles.

Upon the sale of a portfolio of Contracts to an investor or a trust, the
Company mails to borrowers monthly billing statements directing them to mail
payments on the Contracts to a lock-box account. The Company 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's or
the trust's bank account of the entire amount of each day's lock-box receipts
and the simultaneous electronic data transfer to the Company of borrower payment
data for posting to the Company's computerized records. Pursuant to the
Servicing Agreements, the Company is required to deliver monthly reports to the
investor or the trust reflecting all transaction activity with respect to the
Contracts. The reports contain, among other information, a reconciliation of
the change in the aggregate principal balance of the Contracts in the portfolio
to the amounts deposited into the investor's or the trust's bank account as
reflected in the daily reports of the lock-box processing agent.

The Company is entitled under most of the Servicing Agreements to receive a
base monthly servicing fee of 2.0% per annum computed as a percentage of the
declining outstanding principal balance of each Contract in the portfolio that
is not in default as of the beginning of the month. Each month, after payment
of the Company's base monthly servicing fee and certain other fees, the investor
receives the paid principal reduction of the Contracts in its portfolios and
interest thereon at the Pass-Through Rate. If, in any month, collections on the
Contracts are insufficient to pay such amounts and any principal reduction due
to charge-offs, the shortfall is satisfied from the Spread Account established
in connection with the sale of the portfolio. (If the Spread Account is not
sufficient to satisfy a shortfall, then the investor or trust may suffer a loss
to the extent that the shortfall exceeds the Spread Account.) If collections on
the Contracts exceed such amounts, the excess is utilized, first, to build up or
replenish the Spread Account to the extent required, next, to cover deficiencies
in Spread Accounts for other portfolios, and the balance, if any, constitutes
excess servicing fees, which are distributed to the Company. If, in any month,
the Spread Account balance is in excess of that required under the commitment or
the Servicing Agreements, the Company is entitled to receive such excess. The
Servicing Agreements also provide that the Company is entitled to receive
certain late fees collected from borrowers.

Pursuant to the Servicing Agreements, the Company is generally required to
charge off the balance of any Contract by the earlier of the end of the month in
which the Contract becomes five scheduled installments past due or, in the case
of repossessions, the month that the proceeds from the liquidation of the
financed vehicle are received by the Company. In the case of a repossession,
the amount of the charge-off is the difference between the outstanding principal
balance of the defaulted Contract and the repossession sale proceeds. In the
event collections on the Contracts are not sufficient to pay to the investor the
entire principal balance of any Contracts charged off during the month, the
Spread Account established in connection with the sale of the Contracts is
reduced by the unpaid principal amount of such Contracts. Such amount would
then have to be restored to the Spread Account from future collections on the
Contracts remaining in the portfolio before the Company would again be entitled
to excess servicing fees. In addition, the Company would not be entitled to
receive any further base monthly servicing fees with respect to the defaulted
Contracts. Subject to any recourse against the Company in the event of a breach
of the Company's representations and warranties with respect to any Contracts
and after any recourse to any FSA guarantees backing the certificates, the
investor bears the risk of all charge-offs on the Contracts in excess of the
Spread Account. However, the Company would experience a reduction of excess
servicing fees in the event of greater than anticipated charge-offs or
prepayments on Contracts sold and serviced by the Company.

The Servicing Agreements are terminable by the investor in the event of
certain defaults by the Company and under certain other circumstances.

SERVICING OF CONTRACTS

GENERAL. The Company's servicing activities, both with respect to
portfolios of Contracts sold by it and with respect to loans owned or originated
by third parties, consist of collecting, accounting for and posting of all
payments received; responding to borrower inquiries; taking all necessary action
to maintain the security interest granted in the financed vehicle or other
collateral; investigating delinquencies; communicating with the borrower to
obtain timely payments; repossessing and reselling the collateral when
necessary; and generally monitoring each Contract and any related collateral.

COLLECTION PROCEDURES. The Company believes that its ability to monitor
performance and collect payments owed from Sub-Prime Borrowers is primarily a
function of its collection approach and support systems. The Company believes
that if payment problems are identified early and the Company's collection staff
works closely with borrowers to address these problems, it is possible to
correct many of them before they deteriorate further. To this end, the Company
utilizes pro-active collection procedures, which include making early and
frequent contact with delinquent borrowers; educating borrowers as to the
importance of maintaining good credit; and employing a consultative and customer
service approach to assist the borrower in meeting his or her obligations, which
includes attempting to identify the underlying causes of delinquency and cure
them whenever possible. In support of its collection activities, the Company
maintains a computerized collection system specifically designed to service
automobile installment sale contracts with Sub-Prime Borrowers and similar
consumer loan contracts. See "Business -- Management Information Systems."

With the aid of its high penetration auto dialer, the Company typically
attempts to make telephonic contact with delinquent borrowers on the sixth day
after their monthly payment due date. Using coded instructions from a
collection supervisor, the automatic dialer will attempt to contact borrowers
based on their physical location, state of delinquency, size of balance or other
parameters. If the automatic dialer obtains a "no-answer" or a busy signal, it
records the attempt on the borrower's record and moves on to the next call. If
a live voice answers the automatic dialer's call, the call is transferred to a
waiting collector at the same time that the borrower's pertinent information is
simultaneously displayed on the collector's workstation. The collector then
inquires of the borrower the reason for the delinquency and when the Company can
expect to receive the payment. The collector will attempt to get the borrower
to make a promise for the delinquent payment for a time generally not to exceed
one week from the date of the call. If the borrower makes such a promise, the
account is routed to a pending queue and is not contacted until the outcome of
the promise is known. If the payment is made by the promise date and the
account is no longer delinquent, the account is routed out of the collection
system. If the payment is not made, or if the payment is made, but the account
remains delinquent, the account is returned to the automatic dialing queue for
subsequent contacts.

If a borrower fails to make or keep promises for payments, or if the
borrower is uncooperative or attempts to evade contact or hide the vehicle, a
supervisor will review the collection activity relating to the account to
determine if repossession of the vehicle is warranted. Generally, such a
decision will occur between the 45th and 90th day past the borrower's payment
due date, but could occur sooner or later, depending on the specific
circumstances.

If a decision to repossess is made by a supervisor, such assignment is
given to one of many licensed, bonded repossession agents used by the Company.
When the vehicle is recovered, the repossession agent delivers it to a wholesale
auto auction where it is kept until it is liquidated, usually within 30 days of
the repossession. Liquidation proceeds are applied to the borrower's
outstanding obligation under the Contract and the borrower is advised of his
obligation to pay any deficiency balance that remains. The Company uses all
practical means available to collect deficiency balances, including filing for
judgments against borrowers where applicable.

The goal of the Company's collection efforts under the Servicing Agreements
is to minimize delinquencies, repossessions and charge-offs under the portfolios
of Contracts serviced. If the situation so merits, the Company may extend or
modify a Contract within parameters specified in the Servicing Agreement.

The Company's excess servicing fees are impacted by the relative
performance of the portfolios of Contracts it has sold to institutional
investors. The tables below document the delinquency, repossession and net
credit loss experience of all Contracts originated by the Company since its
inception:

DELINQUENCY EXPERIENCE(1)

SEPTEMBER 30, 1996 DECEMBER 31, 1995 MARCH 31, 1995
----------------------- ----------------------- -----------------------
NUMBER NUMBER NUMBER
OF LOANS AMOUNT OF LOANS AMOUNT OF LOANS AMOUNT
-------- ------ ----------------------- -----------------------
(DOLLARS IN THOUSANDS)

Gross Servicing Portfolio. . 41,758 $535,737 27,113 $355,965 18,106 $247,642
Period of delinquency (2)
31-60 days . . . . . . . . 1,526 18,473 909 11,520 298 3,865
61-90 days . . . . . . . . 674 8,334 203 2,654 63 885
91+ days . . . . . . . . . 380 4,873 272 3,899 87 1,370
Total delinquencies. . . . . 2,580 31,680 1,384 18,073 448 6,120
Amount in repossession (3) . 1,319 14,523 834 10,151 323 4,792
Total delinquencies and
amount in repossession (2). 3,899 46,203 2,218 28,224 771 10,912
Delinquencies as a percent
of gross Servicing Portfolio. 6.2% 5.9% 5.1% 5.1% 2.5% 2.5%
Total delinquencies and amount
in repossession as a percent
of gross Servicing Portfolio. . . 9.3% 8.6% 8.2% 7.9% 4.3% 4.4%

- ---------------
(1) All amounts and percentages are based on the full amount remaining to be
repaid on each Contract, including, for Rule of 78s Contracts, any unearned
finance charges. The information in the table represents the principal amount
of all Contracts purchased (excluding Bulk Purchases not yet sold) by the
Company, including Contracts subsequently sold by the Company which it continues
to service.

(2) The Company considers a Contract delinquent when an obligor fails to make
at least 90% of a contractually due payment by the following due date. The
period of delinquency is based on the number of days payments are contractually
past due. Contracts less than 31 days delinquent are not included.

(3) Amount in repossession represents financed vehicles which have been
repossessed but not yet liquidated.

NET CHARGE-OFF EXPERIENCE(1)

NINE MONTHS NINE MONTHS TRANSITION PERIOD FISCAL YEAR
ENDED ENDED ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 DECEMBER 31, 1995 MARCH 31, 1995
------------------ ------------------ ------------------- --------------
(DOLLARS IN THOUSANDS)

Average Servicing Portfolio
outstanding . . . . . . . . . . . $365,055 $206,262 $221,926 $129,174
Net charge-offs as a percent of
average Servicing Portfolio(3). . 5.0% 4.8% 4.8% 3.4%

- ---------------
(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
purchased by the Company including Contracts subsequently sold by the Company
which it continues to service.

(2) The percentages set forth for the nine months ended September 30, 1996 and
September 30, 1995, and the nine-month transition period ended December 31,
1995, are computed using annualized operating data which do not necessarily
represent comparable data for a full twelve-month period.

(3) Net charge-offs include the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle (excluding
accrued and unpaid interest). Post-liquidation amounts received on previously
charged-off Contracts are applied to the period in which the related Contract
was originally charged off. Excludes Bulk Purchases not yet sold and uninsured
casualty losses.

MANAGEMENT INFORMATION SYSTEMS

The Company maintains sophisticated data processing support and management
information systems. To support its collection efforts, the Company utilizes
Digital Systems International's Intelligent Dialing System-TM-, a
high-penetration automatic dialer, in conjunction with the American
Management Systems' Computer Assisted Collection System software, which has
been customized by the Company, and numerous accounting software programs.
All systems are operated at the Company's offices on an Advance System IBM
AS/400 computer.

The Company's high-penetration automatic dialer controls multiple telephone
lines and automatically dials numbers from file records in accordance with
programmed instructions established by management. If the dialer receives a
busy signal or no answer, it will generally route the number for a subsequent
re-call. The dialer has the ability to distinguish a pre-recorded voice and
will leave the appropriate digitized human voice message on the borrower's
answering machine. Generally, the dialer transfers the call to a collector only
after it has determined that there is a live voice on the line. In most
instances, this is accomplished so rapidly that the individual receiving the
call is unaware that an automatic dialer has been used. The efficiency of the
auto dialer allows the Company to place as many as 5,000 telephone calls per
day.

The high-penetration automatic dialer also monitors telephone activity and
activates more telephone lines when connect rates are low or shuts down lines
when connect rates are high. Once a live call is passed to a collector, all
relevant account information, including one of 99 account status codes,
automatically appears on the collector's video screen. The Company believes the
capabilities of the automatic dialer reduce the likelihood that an account will
remain delinquent for a prolonged period without appropriate follow-up.

The Company's automation allows it to electronically sort and prioritize
each collector's workload as well

as to implement specific collection strategies. Moreover, the Company has
adopted certain procedural controls designed to ensure that certain important
decisions, such as ordering a repossession, initiating legal action or
materially modifying an account, are automatically routed to a supervisor for
review and approval.

The Company believes that the capacity of its existing data processing
support and management information systems is sufficient to allow the Company to
substantially expand its business without significant additional capital
expenditures.

COMPETITION

The automobile financing business is highly competitive. The Company
competes with a number of national, local and regional finance companies with
operations similar to those of the Company. In addition, competitors or
potential competitors include other types of financial services companies, such
as commercial banks, savings and loan associations, leasing companies, credit
unions providing retail loan financing and lease financing for new and used
vehicles, and captive finance companies affiliated with major automobile
manufacturers such as General Motors Acceptance Corporation, Ford Motor Credit
Corporation, Chrysler Credit Corporation and Nissan Motors Acceptance
Corporation. Many of the Company's competitors and potential competitors
possess substantially greater financial, marketing, technical, personnel and
other resources than the Company. Moreover, the Company's future profitability
will be directly related to the availability and cost of its capital in relation
to the availability and cost of capital to its competitors. The Company's
competitors and potential competitors include far larger, more established
companies that have access to capital markets for unsecured commercial paper and
investment grade-rated debt instruments and to other funding sources which may
be unavailable to the Company. Many of these companies also have long-standing
relationships with Dealers and may provide other financing to dealers, including
floor plan financing for the Dealers' purchase of automobiles from
manufacturers, which is not offered by the Company.

The Company believes that the principal competitive factors affecting a
Dealer's decision to offer Contracts for sale to a particular financing source
are the purchase price offered for the Contracts, the reasonableness of the
financing source's underwriting guidelines and documentation requests, the
predictability and timeliness of purchases and the financial stability of the
funding source. The Company believes that it can obtain from Dealers sufficient
Contracts for purchase at attractive prices by consistently applying reasonable
underwriting criteria and making timely purchases of qualifying Contracts.

The Company believes that it can compete effectively for the interest of
institutional investors in purchasing Contracts acquired by the Company based
upon the historical performance of portfolios of Contracts sold and serviced by
it and its willingness to establish substantial Spread Accounts for the benefit
of investors and to derive a portion of its revenues from excess servicing fees
paid on a monthly basis rather than up-front fees paid at the time of sale of
the Contracts.

MARKETING

The Company establishes relationships with Dealers through Company
representatives that contact a prospective Dealer to explain the Company's
Contract purchases and thereafter provide Dealer training and support services.
As of September 30, 1996, the Company had 50 representatives, 23 of whom are
employees and 27 of whom are independent. The independent representatives are
contractually obligated to represent the Company's financing program
exclusively. The Company's representatives present the Dealer with a marketing
package, which includes the Company's promotional material containing the
current discount rate offered by the Company for the purchase of Contracts, a
copy of the Company's standard-form Dealer Agreement, examples of monthly
reports and required documentation relating to Contracts, but they have no
authority relating to the decision to purchase Contracts from Dealers. The
Company's acceptance of a Dealer is subject to its analysis of, among other
things, the Dealer's operating history.

The Company has not actively advertised its automobile financing or
third-party loan servicing businesses, although it may do so selectively in the
future.

GOVERNMENT REGULATION

The Company intends to obtain and maintain all licenses necessary to the
lawful conduct of its business and operations. The Company is not licensed to
make loans directly to borrowers.

Several federal and state consumer protection laws, including the Federal
Truth-In-Lending Act, the Federal Equal Credit Opportunity Act, the Federal Fair
Debt Collection Practices Act and the Federal Trade Commission Act, regulate the
extension of credit in consumer credit transactions. These laws mandate certain
disclosures with respect to finance charges on Contracts and impose certain
other restrictions on Dealers. In addition, laws in a number of states impose
limitations on the amount of finance charges that may be charged by Dealers on
credit sales. The so-called Lemon Laws enacted by the federal government and
various states provide certain rights to purchasers with respect to motor
vehicles that fail to satisfy express warranties. The application of Lemon Laws
or violation of such other federal and state laws may give rise to a claim or
defense of a borrower against a Dealer and its assignees, including the Company
and purchasers of Contracts from the Company. The Dealer Agreement contains
representations by the Dealer that, as of the date of assignment of Contracts,
no such claims or defenses have been asserted or threatened with respect to the
Contracts and that all requirements of such federal and state laws have been
complied with in all material respects. Although a Dealer would be obligated to
repurchase Contracts that involve a breach of such warranty, there can be no
assurance that the Dealer will have the financial resources to satisfy its
repurchase obligations to the Company. Certain of these laws also regulate the
Company's servicing activities, including its methods of collection.

Although the Company believes that it is currently in compliance with
applicable statutes and regulations, there can be no assurance that the Company
will be able to maintain such compliance. The failure to comply with such
statutes and regulations could have a material adverse effect upon the Company.
Furthermore, the adoption of additional statutes and regulations, changes in the
interpretation and enforcement of current statutes and regulations or the
expansion of the Company's business into jurisdictions that have adopted more
stringent regulatory requirements than those in which the Company currently
conducts business could have a material adverse effect upon the Company. In
addition, due to the consumer-oriented nature of the industry in which the
Company operates and the application of certain laws and regulations, industry
participants are regularly named as defendants in litigation involving alleged
violations of federal and state laws and regulations and consumer law torts,
including fraud. Many of these actions involve alleged violations of consumer
protection laws. Although the Company is not involved in any material
litigation, a significant judgment against the Company or within the industry in
connection with any such litigation could have a material adverse effect on the
Company's financial condition and results of operations.

Upon the purchase of Contracts by the Company, the original Contracts and
related title documents for the financed vehicles are delivered by the selling
Dealers to the Company. Upon the sale of each portfolio of Contracts by the
Company, a financing statement is filed under the Uniform Commercial Code as
adopted in the applicable state (the "UCC") to perfect and give notice of the
purchaser's security interest in the Contracts.

The Dealer Agreement and related assignment contain representations and
warranties by the Dealer that an application for state registration of each
financed vehicle, naming the Company as secured party with respect to the
vehicle, was effected at the time of sale of the related Contract to the
Company, and that all necessary steps have been taken to obtain a perfected
first priority security interest in each financed vehicle in favor of the
Company under the laws of the state in which the financed vehicle is registered.
If a Dealer or the Company, because of clerical error or otherwise, has failed
to take such action in a timely manner, or to maintain such interest with
respect to a financed vehicle, neither the Company nor any purchaser of the
related Contract from the Company would have a perfected security interest in
the financed vehicle and its security interest may be subordinate to the
interest of, among others, subsequent purchasers of the financed vehicle,
holders of perfected security interests and a trustee in bankruptcy of the
borrower. The security interest of the Company or the purchaser of a Contract
may also be subordinate to the interests of third parties if the interest is not
perfected due to administrative error by state recording officials. Moreover,
fraud or forgery by the borrower could render a Contract unenforceable against
third parties. In such events, the Company could be required by the purchaser
to repurchase the Contract. In the event the Company is required to repurchase
a Contract, it will generally have recourse against the Dealer from which it
purchased

the Contract. This recourse will be unsecured except for a lien on the vehicle
covered by the Contract, and there can be no assurance that any Dealer will have
the financial resources to satisfy its repurchase obligations to the Company.
Subject to any recourse against Dealers, the Company will bear any loss on
repossession and resale of vehicles financed under Contracts repurchased by it
from investors.

Under the laws of many states, liens for storage and repairs performed on a
vehicle and for unpaid taxes take priority over a perfected security interest in
the vehicle. Pursuant to its securitization purchase commitments, the Company
generally warrants that, to the best of the Company's knowledge, no such liens
or claims are pending or threatened with respect to a financed vehicle, which
may be or become prior to or equal with the lien of the related Contracts. In
the event that any of the Company's representations or warranties proves to be
incorrect, the trust or the investor would be entitled to require the Company to
repurchase the Contract relating to such financed vehicle.

The Company, on behalf of purchasers of Contracts, may take action to
enforce the security interest in financed vehicles with respect to any related
Contracts in default by repossession and resale of the financed vehicles. The
UCC and other state laws regulate repossession sales by requiring that the
secured party provide the borrower with reasonable notice of the date, time and
place of any public sale of the collateral, the date after which any private
sale of the collateral may be held and of the borrower's right to redeem the
financed vehicle prior to any such sale and by providing that any such sale be
conducted in a commercially reasonable manner. Financed vehicles repossessed
generally are resold by the Company through unaffiliated wholesale automobile
networks or auctions, which are attended principally by used car dealers.

In the event of a repossession and resale of a financed vehicle, after
payment of outstanding liens for storage, repairs and unpaid taxes, to the
extent those liens take priority over the Company's security interest, and after
payment of the reasonable costs of retaking, holding and selling the vehicle,
the secured party would be entitled to be paid the full outstanding balance of
the Contract out of the sale proceeds before payments are made to the holders of
junior security interests in the financed vehicles, to unsecured creditors of
the borrower, or, thereafter, to the borrower. Under the UCC and other laws
applicable in most states (including California), a creditor is entitled to
obtain a deficiency judgment from a borrower for any deficiency on repossession
and resale of the motor vehicle securing the unpaid balance of such borrower's
Contract. However, some states impose prohibitions or limitations on deficiency
judgments. If a deficiency judgment were granted, the judgment would be a
personal judgment against the borrower for the shortfall, and a defaulting
borrower may often have very little capital or few sources of income available
following repossession. Therefore, in many cases, it may not be useful to seek
a deficiency judgment against a borrower or, if one is obtained, it may be
settled at a significant discount.

PROPERTY

The Company's headquarters are located in Irvine, California, where it
leases approximately 51,400 square feet of general office space from an
unaffiliated lessor. The annual rent is $524,596 through the year 2000, the
final year of the lease. In addition, the Company pays the property taxes,
maintenance and other common area expenses of the premises, currently at the
approximate annual rate of $98,000. All such amounts are payable monthly. The
Company has an option to extend the lease for an additional five years upon
terms substantially similar to those of the existing lease.

The Company plans to establish a branch facility in Chesapeake, Virginia.
The Company has agreed to lease approximately 18,600 square feet of general
office space in Chesapeake at an initial annual rent of $260,666, increasing to
$333,652 over a ten-year term. In addition, the Company is in discussions with
its current landlord in California regarding a lease of a larger headquarters
location or of additional space. Although the terms of any such lease have not
been fixed as yet, the Company believes that adequate facilities are available.

EMPLOYEES

As of September 30, 1996, the Company had 286 full-time and 3 part-time
employees, of whom 10 are management personnel, 89 are collections personnel,
104 are Contract origination personnel, 33 are marketing representatives, 46 are
operations personnel, and 7 are accounting personnel. The Company believes that
its relations with its employees are good. The Company is not a party to any
collective bargaining agreement.

LEGAL PROCEEDINGS

As of the date of this Prospectus, the Company was not involved in any
material litigation in which it is the defendant. The Company regularly
initiates legal proceedings as a plaintiff in connection with its routine
collection activities.

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The current directors and executive officers of the Company are as follows:

Name Age Position
---- --- --------
Charles E. Bradley, Sr. 67 Chairman of the Board of Directors
Charles E. Bradley, Jr. 37 President, Chief Executive Officer, and Director
William B. Roberts 59 Director
John G. Poole 54 Vice Chairman of the Board of Directors
Robert A. Simms 58 Director
Thomas L. Chrystie 63 Director
Jeffrey P. Fritz 37 Senior Vice President - Chief Financial Officer
and Secretary
William L. Brummund, Jr. 43 Senior Vice President - Systems Administration
Nicholas P. Brockman 51 Senior Vice President - Asset Recovery &
Liquidation
Richard P. Trotter 53 Senior Vice President - Contract Origination
Curtis K. Powell 39 Senior Vice President - Marketing
Mark A. Creatura 37 Senior Vice President - General Counsel

CHARLES E. BRADLEY, SR. has been the Chairman of the Board of the Company
since its formation in March 1991. Mr. Bradley is one of the founders of
Stanwich Partners, Inc. ("Stanwich"), a Connecticut investment firm which
acquires controlling interests in companies in conjunction with the existing
operating management of such companies, and has been President, a director and a
shareholder of that company since its formation in 1982. He is also President
and director of Reunion Industries, Inc., a publicly held company which
manufactures precision plastic products and provides engineered plastics
services. Mr. Bradley also served as President and a director of CPS Holdings,
Inc., the Company's former parent corporation, from August 1989 until its merger
into the Company in December 1995. He currently is a director of
DeVlieg-Bullard, Inc., Chatwins Group, Inc., Texon Energy Corp., General
Housewares Corp., NAB Asset Corporation (38% of whose outstanding shares of
voting stock are held by the Company), Zydeco Exploration, Inc., Sanitas, Inc.
and Triangle Corporation, all of which are publicly-held corporations or are
required to file periodic reports under Section 13 or 15(d) of the Securities
Exchange Act of 1934. Mr. Bradley is the father of Charles E. Bradley, Jr.

CHARLES E. BRADLEY, JR. has been the President and a director of the
Company since its formation in March 1991. In January 1992, Mr. Bradley was
appointed Chief Executive Officer of the Company. From March 1991 until December
1995 he served as Vice President and a director of CPS Holdings, Inc. From
April 1989 to November 1990, he served as Chief Operating Officer of Barnard and
Company, a private investment firm. From September 1987 to March 1989, Mr.
Bradley, Jr. was an associate of The Harding Group, a private investment banking
firm. Mr. Bradley, Jr. is currently serving as a director of NAB Asset
Corporation, Chatwins Group, Inc., Texon Energy Corporation, Thomas Nix
Distributor, Inc., and CARS USA. Charles E. Bradley, Sr. is his father.

WILLIAM B. ROBERTS has been a director of the Company since its formation
in March 1991. Since 1981, he has been the President of Monmouth Capital Corp.,
an investment firm which specializes in management buyouts. Mr. Roberts serves
on the board of directors of Atlantic City Racing Association, a publicly-held
corporation, which owns and operates a race track.

JOHN G. POOLE has been a director of the Company since November 1993 and
its Vice Chairman since January 1996. He was a co-founder of Stanwich in 1982
and has been a director, vice president and shareholder of that company since
its formation. Mr. Poole is a director of Reunion Industries, Inc., Sanitas,
Inc. and Chatwins Group, Inc. Mr. Poole served as a director and Vice President
of CPS Holdings, Inc. from 1993 to 1995.

ROBERT A. SIMMS has been a director of the Company since April 1995.
He has been the Chairman and Chief Executive Officer of Simms Capital
Management, Inc. since 1984. He is also a director of New York Bancorp, The
Halecrest Company, Arrhythmia Research Technology, Inc. and the National
Football Foundation and Hall of Fame. Mr. Simms also serves on the Board of
Overseers of Rutgers University and was formerly a partner in Bear Stearns & Co.

THOMAS L. CHRYSTIE has been a director of the Company since April 1995.
He has been self-employed as an investor since 1988. His previous experience
includes 33 years at Merrill Lynch & Co. in various capacities including
heading Merrill Lynch's investment banking, capital markets and merchant
banking activities. In addition, he served as Merrill Lynch & Co.'s Chief
Financial Officer. He is also a director of Titanium Industries, Eonyx
Corporation and Wyoming Properties.

JEFFREY P. FRITZ has been Senior Vice President - Chief Financial Officer
and Secretary of the Company since March 1991. From December 1988 to March
1991, Mr. Fritz was Vice President and Chief Financial Officer of Far Western
Bank. From 1985 to December 1988, Mr. Fritz was a management consultant for
Price Waterhouse in St. Louis, Missouri.

WILLIAM L. BRUMMUND, JR. has been Senior Vice President - Systems
Administration since March 1991. From 1986 to March 1991, Mr. Brummund was Vice
President and Systems Administrator for Far Western Bank.

NICHOLAS P. BROCKMAN has been Senior Vice President - Asset Recovery &
Liquidation since January 1996. He was Senior Vice President of Contract
Originations from April 1991 to January 1996. From 1986 to March 1991, Mr.
Brockman served as a Vice President and Branch Manager of Far Western Bank.

RICHARD P. TROTTER has been Senior Vice President-Contract Origination
since January 1995. He was Senior Vice President of Administration from April
1995 to December 1995. From January 1994 to April 1995 he was Senior Vice
President-Marketing of the Company. From December 1992 to January 1994, Mr.
Trotter was Executive Vice President of Lange Financial Corporation, Newport
Beach, California. From May 1992 to December 1992, he was Executive Director of
Fabozzi, Prenovost & Normandin, Santa Ana, California. From December 1990 to
May 1992 he was President/Chief Operating Officer of R. Thomas Ashley, Newport
Beach, California. From April 1984 to December 1990, he was President/Chief
Executive Officer of Far Western Bank, Tustin, California.

CURTIS K. POWELL has been Senior Vice President - Marketing of the Company
since April 1995. He Joined the Company in January 1993 as an independent
marketing representative until being appointed Regional Vice President of
Marketing for Southern California in November 1994. From June 1985 through
January 1993, Mr. Powell was in the retail automobile sales and leasing
business.

MARK A. CREATURA has been Senior Vice President - General Counsel since
October 1996. From October 1993 through October 1996, he was Vice President and
General Counsel at Urethane Technologies, Inc., a polyurethane chemicals
formulator. Mr. Creatura was previously engaged in the private practice of law
with the Los Angeles law firm of Troy & Gould Professional Corporation, from
October 1985 through October 1993.

The Board of Directors has established an Audit Committee and Compensation
and Stock Option Committee. The members of the Audit Committee are Robert A.
Simms, Thomas L. Chrystie and William B. Roberts. The Audit Committee is
empowered by the Board of Directors to review the financial books and records of
the Company in consultation with the Company's accounting and auditing staff and
its independent auditors and to review with the accounting staff and independent
auditors any questions raised with respect to accounting and auditing policy and
procedure.

The members of the Compensation and Stock Option Committee are Robert A.
Simms, Thomas L. Chrystie and William B. Roberts. This Committee makes
recommendations to the Board of Directors as to general levels of compensation
for all employees of the Company, the annual salary of each of the executive
officers of the Company, authorizes the grants options to employees under the
Company's 1991 Stock Option Plan, and reviews and approves compensation and
benefit plans of the Company.

CERTAIN TRANSACTIONS

On January 3, 1996, the Company and Stanwich (an affiliate of the Company)
entered into an agreement pursuant to which Stanwich provides consulting
services on a non-exclusive basis for a three year period ended December 31,
1998 for fee of $75,000 per year.

The Company has purchased 80% of the outstanding stock of Stanwich Leasing,
Inc. ("SLI") from Charles E. Bradley, Sr., Chairman of the Board of Directors
and a principal stockholder, and John G. Poole, a director of the Company, for a
purchase price of $100,000. The transaction was considered and approved by the
independent members of the Board of Directors of the Company, namely Messrs.
Chrystie, Roberts and Simms.

The agreements and arrangements described above were not entered into
between parties negotiating or dealing on an arm's length basis, but were
entered into by the Company with the parties who personally benefited from such
transactions and who had a control or fiduciary relationship with the Company.

PRINCIPAL SHAREHOLDERS

The following table sets forth the number and percentage of shares of
Common Stock owned beneficially as of January 1, 1997: (i) by each person known
to the Company to own more than 5% of the outstanding Common Stock, (ii) by each
director and executive officer of the Company, and (iii) by all directors and
officers of the Company as a group.

Except as otherwise indicated, and subject to applicable community property
and similar laws, each of the persons named has sole voting and investment power
with respect to the shares shown as beneficially owned by such persons. The
address of Messrs. Bradley, Jr., Brockman, Fritz, Brummund, Trotter, Powell and
Creatura is c/o Consumer Portfolio Services, Inc., 2 Ada, Irvine, CA 92618.

Amount & Nature of
Name & Address of Beneficial Ownership Percent of
Beneficial Owner (1) Class
--------------------- -------------------- ----------

Charles E. Bradley, Sr.
c/o Stanwich Partners, Inc., 62 Southfield Avenue,
Stamford, CT 06902 2,895,137 (2) 19.5%

William B. Roberts
Monmouth Capital Corp., 126 East 56th Street, 12th Floor
New York, NY 10022 1,233,982 8.5%

John G. Poole
c/o Stanwich Partners, Inc., 62 Southfield Avenue,
Stamford, CT 06902 294,360 (3) 2.1%

Thomas L. Chrystie,
P.O. Box 640, Wilson, WY 83014 60,000 (4) *

Robert A. Simms, 55 Railroad Ave., Plaza Suite
Greenwich, CT 06830 217,144 (5) 1.5%

Charles E. Bradley, Jr. 1,572,920 (6) 10.8%

Nicholas P. Brockman 72,200 *

Jeffrey P. Fritz 72,200 *

William L. Brummund, Jr. 71,200 *

Richard P. Trotter 56,198 *

Curtis K. Powell 19,300 *

Mark A. Creatura 8,000 *

All officers and directors as a group (sixteen persons) 6,038,121 (7) 38.7%

Sun Life Insurance Company of America
One Sun America Center, Los Angeles, CA 90067 1,013,332 7.1%

Robert T. Gilhuly and Kimball J. Bradley, Trustees
c/o Cummings & Lockwood
Two Greenwich Plaza, Box 2505, Greenwich, CT 06830 1,058,818 (8) 7.4%

- ---------------
* Less than 1%
(1) Includes the following shares which are not currently outstanding but which
the named individuals have the right to acquire currently or within 60 days
of January 1, 1997 upon exercise of options: Charles E. Bradley, Sr. -
600,000 shares; William B. Roberts - 200,000 shares; Thomas L. Chrystie -
20,000 shares;

Robert A. Simms - 20,000 shares; Charles E. Bradley, Jr. - 267,640 shares;
Jeffrey P. Fritz - 52,200 shares; William L. Brummund, Jr. - 31,200 shares;
Richard P. Trotter - 35,686 shares; Curtis K. Powell - 19,300 shares; Mark
A. Creatura - 8,000 shares; and all directors and officers as a group (16
persons) - 1,292,706 shares. The shares described in this note are deemed
to be outstanding for the purpose of computing the percentage of
outstanding Common Stock owned by such persons individually and by the
group, but are not deemed to be outstanding for the purpose of computing
the percentage of ownership of any other person.

(2) Includes 207,490 shares owned by the named person's spouse as to which he
has no voting or investment power; and 600,000 shares that Mr. Bradley,
Jr., has the presently exercisable right to acquire from Mr. Bradley, Sr.

(3) Includes 2,000 shares held by Mr. Poole as custodian for his children.

(4) Includes 40,000 shares held by the Thomas L. Chrystie Living Trust.

(5) Includes 16,944 shares owned by Mr. Simms' spouse as to which he has no
voting or investment power.

(6) Includes 211,738 shares held by a trust of which Mr. Bradley is the
beneficiary, as to which he has no voting or investment power. Also
includes 600,000 shares that Mr. Bradley, Jr. has the presently exercisable
right to acquire from Mr. Bradley, Sr.

(7) Includes an aggregate of 1,347,818 shares which are not currently
outstanding, but which may be acquired by officers and directors of the
company within 60 days of January 1, 1997.

(8) These shares are held in trusts of which the beneficiaries are Charles E.
Bradley, Sr.'s adult children, including, among others, Charles E. Bradley,
Jr., (as to 211,738 shares) and Kimball J. Bradley (as to 211,802 shares).

DESCRIPTION OF THE NOTES

THE NOTES WILL BE ISSUED UNDER AN INDENTURE BETWEEN THE COMPANY AND BANKERS
TRUST COMPANY, AS TRUSTEE (THE "TRUSTEE"), THE FORM OF WHICH HAS BEEN FILED AS
AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART.
THE INDENTURE IS SUBJECT TO AND IS GOVERNED BY THE TRUST INDENTURE ACT OF 1939,
AS AMENDED (THE "TRUST INDENTURE ACT"). THE FOLLOWING STATEMENTS, UNLESS THE
CONTEXT OTHERWISE REQUIRES, ARE SUMMARIES OF THE SUBSTANCE OR GENERAL EFFECT OF
CERTAIN PROVISIONS OF THE INDENTURE, DO NOT PURPORT TO BE COMPLETE AND ARE
SUBJECT TO, AND QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, THE INDENTURE,
INCLUDING THE DEFINITIONS OF CERTAIN TERMS IN THE INDENTURE AND THOSE TERMS MADE
A PART OF THE INDENTURE BY THE TRUST INDENTURE ACT. WHEREVER PARTICULAR
PROVISIONS AND DEFINITIONS CONTAINED IN THE INDENTURE ARE REFERRED TO, SUCH
PROVISIONS AND DEFINITIONS ARE INCORPORATED BY REFERENCE AS PART OF THE
STATEMENTS MADE, AND THE STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY THOSE
REFERENCES. ARTICLE AND SECTION REFERENCES ARE TO ARTICLES AND SECTIONS OF THE
INDENTURE. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS HAVE THE SAME
MEANINGS AS DEFINED IN THE INDENTURE. FOR DEFINITIONS OF CERTAIN TERMS USED IN
THIS SECTION, SEE "-- CERTAIN DEFINITIONS" BELOW.

GENERAL

The Notes will be general, unsecured obligations of the Company and will be
limited to $35,000,000 aggregate principal amount, plus up to an additional
$5,250,000 aggregate principal amount if the Underwriters' over-allotment option
is exercised in full. The Notes will be subordinated to all existing and future
Senior Indebtedness of the Company as described under "Subordination" below. At
September 30, 1996, there was approximately $9.8 million of Senior Indebtedness
outstanding. The Notes will mature on April _____, 2004, unless redeemed
earlier (i) at the option of the Company or (ii) at the option of Holders
following the occurrence of a Special Redemption Event. See "-- Redemption at
Option of the Company" and "-- Holders' Right to Redemption After Special
Redemption Event."

Interest on the Notes will be payable on the final day of each month
commencing __________, 1997 (each on Interest Payment Date) to the person who is
the Holder as of the close of business on the seventh day of the month (whether
or not a Business Day) immediately preceding an Interest Payment Date. Interest
will accrue, at the rate per annum stated on the cover page of this Prospectus,
from and including each Interest Payment Date (or, in the case of the first
Interest Payment Date, from the date of issuance) to but excluding the next
Interest Payment Date. In the event an Interest Payment Date falls on a day
other than a Business Day, interest will be paid on the next succeeding Business
Day and no interest on such payment shall accrue for the period from and after
such Interest Payment Date to such next succeeding Business Day. The amount of
interest payable on each Interest Payment Date will be computed on the basis of
a 360-day year consisting of twelve 30-day months. (Sections 301, 307, 308, 310
and Supplement Sections 1.4 and 1.5) Principal and interest will be payable at
an office or agency to be maintained by the Company in __________, ___________.
(Sections 301, 307, 1002 and Supplement Section 1.3)

The Company will issue the Notes in denominations of $1,000 and integral
multiples thereof. (Section 302) The Notes will be initially issued only in
fully registered book-entry form with The Depository Trust Company, as the
book-entry depositary (the "Depositary"). Except as described in this
Prospectus or in the Indenture, the Notes will not be issuable in definitive
certificated form to any person other than the Depositary or its nominees
(Article 2 and Supplement 1.3). See "-- Book-Entry System."

The Company will furnish to Holders annual reports containing financial
statements of the Company audited by independent certified public accountants.
(Section 704)

CONVERSION RIGHTS

At maturity or upon the exercise by the Company of an optional redemption,
each Holder of Notes will have the right to convert into Common Stock 25% of the
aggregate principal amount of the Notes held by such Holder and if a Special
Redemption Event occurs, each Holder who elects to require the redemption of its
Notes will have the right to convert into Common Stock 25% of the principal
amount of its Notes. Accordingly, 25% of each Note when subject to conversion
will be convertible into Common Stock, at the

conversion price of $______ per share (equivalent to approximately ______ shares
of Common Stock for each $250 portion of each $1,000 principal amount of Notes)
provided that such price may be adjusted from time to time as provided in the
Indenture. The right to convert a Note called for redemption or delivered for
repurchase pursuant to a Special Redemption Event will terminate at the close of
business on the second Business Day next preceding the redemption date for such
Note (unless the Company shall default in making the redemption payment when
due, in which case the conversion right shall terminate at the close of business
on the date such default is cured or such Note is redeemed). Holders of the
Notes will have the right to convert Notes called for redemption until
terminated in accordance with the preceding sentence. (Supplement Sections 1.9
and 1.10)

The conversion price will be subject to adjustment in certain events,
including (i) dividends (and other distributions) payable in Common Stock on any
class of capital stock of the Company, (ii) the issuance to all holders of
Common Stock of rights, options or warrants entitling them to subscribe for or
purchase Common Stock (or securities convertible into Common Stock) at less than
the then-current market price (as determined in accordance with the Notes)
unless holders of Notes are entitled to receive the same upon conversion, (iii)
subdivisions, combinations and reclassifications of Common Stock and (iv)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company or assets (including securities, but excluding not only those rights,
options, warrants, but also dividends and distributions referred to above,
dividends and distributions paid in cash out of the retained earnings of the
Company). In addition to the foregoing adjustments, in case the Company shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, in case the outstanding shares of Common
Stock of the Company shall be combined into a smaller number of shares, the
conversion price in effect immediately prior to such combination shall be
proportionately increased. In addition, if any capital reorganization or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another corporation, or the sale of all or substantially all
of its assets to another corporation shall result in the holders of Common stock
being entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then provision is to be made whereby the Holders
shall have the right to purchase and receive such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for such
Common Stock. Adjustments in the conversion price of less than $0.25 per share
will not be required, but any adjustment that would otherwise be required to be
made will be taken into account in the computation of any subsequent adjustment.
Fractional shares of Common Stock are not to be issued or delivered upon
conversion, but, in lieu thereof, a cash adjustment will be paid based upon the
then-current market price of Common Stock. (Supplement Sections 1.11 and 1.12)

Subject to the foregoing, no payments or adjustments will be made upon
conversion on account of accrued interest on the Notes or for any dividends or
distributions on any shares of Common Stock delivered upon such conversion.

Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends under the Code to holders of Notes or of Common Stock.

In the event that the Company should merge with another company, become a
party to a consolidation or sell or transfer all or substantially all of its
assets to another company, each Note then outstanding would, without the consent
of any Holder of Notes, become convertible only into the kind and amount of
securities, cash and other property receivable upon the merger, consolidation or
transfer by a holder of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such merger, consolidation
or transfer. Such a transaction, or the securities, cash or other property
received in such a transaction, could result in United States federal taxes
being imposed on the Holder of a Note at a time or in a manner not anticipated
at the time such Note was purchased by such Holder.

REDEMPTION AT OPTION OF THE COMPANY

The Notes may not be redeemed at the Company's option prior to April ___,
2000. The Notes are subject to redemption at the option of the Company, in
whole but not in part, at any time, upon not less than 30 nor more than 90 days'
notice mailed to the person in whose name the Note is registered, commencing on
April ___, 2000 at the redemption price of 100% of the principal amount of the
Notes. The redemption price will be paid with interest accrued to and including
the date fixed for redemption. After the redemption date, interest will cease
to accrue on the Notes. (Article 11 and Supplement Section 1.6)

HOLDERS' RIGHT TO REDEMPTION AFTER SPECIAL REDEMPTION EVENT

In the event of any Special Redemption Event, each Holder will have the
right, at such Holder's option and subject to the terms and conditions, of the
Indenture, to require the Company to redeem such Holder's Notes, in whole, but
not in part, on the date that is 75 days after the occurrence of the Special
Redemption Event at a price equal to 100% of the principal amount thereof, plus
interest accrued to and including the date of redemption. Neither the Board of
Directors of the Company nor the Trustee will have the ability to waive the
Company's obligation to redeem a Holder's Notes upon request in the event of a
Special Redemption Event. (Section 1303 and Supplement Section 1.7)

If a Special Redemption Event occurs, the Company is obligated to provide
promptly, but in any event within three Business Days after expiration of a
40-day period following the occurrence of such event, notice to the Trustee, who
shall promptly (within five days after receipt of notice from the Company)
notify all Holders of the Special Redemption Event, which notice shall state
among other things, (i) the occurrence of such Special Redemption Event, (ii)
the date before which a Holder must notify the Trustee of such Holder's
intention to exercise the redemption option (which date shall be no more than
three Business Days prior to the date of redemption) and (iii) the procedure
such Holder must follow to exercise such right. To exercise such right, the
Holder must deliver to the Trustee on or before the close of business on the
date of redemption, written notice of such Holder's redemption election and the
Note(s) to be redeemed free of liens or encumbrances. (Section 1303)

The definition of "Special Redemption Event" is forth herein under the
caption "Description of the Notes -- Certain Definitions."

Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder to require the
Company to redeem such Notes as a result of a conveyance, transfer or lease of
less than all of the assets of the Company to another person may be uncertain.

Except as described above with respect to a Special Redemption Event, the
Indenture does not contain any other provisions that permit the Holders to
require that the Company redeem the Notes in the event of a takeover or similar
transaction. Moreover, a recapitalization of the Company or a transaction
entered into by the Company with management or their affiliates would not
necessarily be included within the definition of a "Special Redemption Event."
Accordingly, while such definition covers a wide variety of arrangements which
have traditionally been used to effect highly leveraged transactions, the
Indenture does not afford the Holders protection in all circumstances from
highly leveraged transactions, reorganizations, restructurings, mergers or
similar transactions involving the Company that may adversely affect Holders.

The Special Redemption Event redemption feature of the Notes may, in
certain circumstances, make more difficult or discourage a takeover of the
company and thus removal of incumbent management. The Special Redemption Event
redemption feature, however, is not the result of management's knowledge of any
specific effort to obtain control of the Company or part of a plan by management
to adopt a series of antitakeover provisions. Rather, the terms of the Special
Redemption Event redemption feature are a result of negotiations between the
Company and the Underwriters.

To the extent that the right of redemption by a Holder in the event of a
Special Redemption Event constitutes a tender offer under Section 14(d) of the
Exchange Act and the rules promulgated thereunder, the

Company will comply with all applicable tender offer rules.

SUBORDINATION

The Notes will be subordinated, in the manner and to the extent set forth
in the Indenture, to the prior payment in full of all Senior Indebtedness of the
Company. (Article Fourteen)

From and after the receipt by the Trustee of a written notice (a "Default
Notice") from the holder or holders of not less than 51% in principal amount of
the outstanding Senior Indebtness specifying that any payment default under any
Senior Indebtness has occurred (a "Senior Event of Default"), the Company may
not make any principal payments to the holders of the Notes and neither the
Trustee nor the holders of not less than 25% in principal amount of the
outstanding notes may accelerate the maturity of the Notes until (i) such Senior
Event of Default is cured, (ii) such Senior Event of Default is waived by the
holders of such Senior Indebtness, or (iii) the expiration of 180 days after the
date the Default Notice is received by the Trustee, if the maturity of such
Senior Indebtness has not been accelerated at such time.

Upon payment in full of the Senior Indebtness, payment of principal may be
made to the holders of the Notes.

Upon a distribution of assets, dissolution, winding up, liquidation or
reorganization of the Company, upon an assignment for the benefit of creditors,
or if the principal of the Notes has been declared due and payable and such
declaration has not been rescinded or annulled, then in any such instance all
Senior Indebtedness must be repaid in full before any payment of principal of
interest on the Notes can be made. Any subordination will not prevent the
occurrence of an Event of Default under the Indenture. See "-- Events of
Default; Notice and Waiver."

As stated above, by reason of the subordination of the Notes, in the event
of liquidation of the Company, the Holders of the Notes will not receive payment
until the holders of Senior Indebtedness have been satisfied. Also, by reason
of the subordination provisions, the Holders of the Notes may receive payments
less ratably than other creditors of the Company. As of September 30, 1996, the
Company had $9.8 million of outstanding Senior Indebtedness. Substantial
additional Senior Indebtedness may be issued or incurred in the future, subject
only to certain limitations on Indebtedness for Money Borrowed. See "--
Limitations on Additional Indebtedness."

LIMITATIONS ON ADDITIONAL INDEBTEDNESS

The Indenture provides that the Company will not, nor will it permit any
Subsidiary to, create, incur, assume, guarantee or be liable with respect to any
Indebtedness for Money Borrowed (other than Subordinated Indebtedness and
[Nonrecourse Indebtedness]) if, immediately after giving effect thereto
(including the retirement of any existing indebtedness from the proceeds of such
additional Indebtedness for Money Borrowed), the aggregate amount of
Indebtedness for Money Borrowed outstanding would exceed six times the sum of
the Company's Consolidated Net Worth plus Subordinated Indebtedness and
[Nonrecourse Indebtedness]. For purposes of the limitation on additional
indebtedness set forth in this paragraph, Indebtedness for Borrowed Money shall
not include the "Warehouse Indebtedness," and in calculating the Consolidated
Net Worth, the Warehouse Indebtedness shall not be included as a liability.
(Sections 101 and 1008) At September 30, 1996, the Company's Consolidated Net
Worth was $52.3 million and Indebtedness for Money Borrowed other than
Subordinated Indebtedness was $9.8 million and $20 million of Subordinated
Indebtedness was outstanding.

The Indenture provides that the Company will not, nor will it permit any
Subsidiary to, create, incur, assume, guarantee or be liable with respect to any
Subordinated Indebtedness, if immediately after giving effect thereto (including
the retirement of any existing indebtedness from the proceeds of such
Subordinated Indebtedness), the aggregate amount of Subordinated Indebtedness
outstanding would exceed the Company's Consolidated Net Worth. (Section 1009)

LIMITATION ON RANKING OF FUTURE INDEBTEDNESS

The Indenture provides that the Company may not, directly or indirectly,
incur, create, assume or guarantee any Indebtedness for Money Borrowed which is
not Senior Indebtedness other than Subordinated Indebtedness that is PARI PASSU
or subordinate in right of payment to the Notes). (Section 1014)

LIMITATION ON RESTRICTED PAYMENTS

The Indenture provides that the Company shall not (i) declare or pay any
dividend, either in cash or property, on any shares of its capital stock (except
dividends or other distributions payable solely in shares of capital stock of
the Company or warrants, options or other rights solely to acquire capital stock
of the Company) or (ii) purchase, redeem or retire any shares of its capital
stock or any warrants, rights or options to purchase or acquire any shares of
its capital stock (except from employees in connection with the termination of
their employment) or (iii) make any other payment or distribution, either
directly or indirectly through any Subsidiary, in respect of its capital stock
(such dividends, purchases, redemptions, retirements, payments and distributions
being herein collectively called "Restricted Payments") if, after giving effect
thereto,

(1) an Event of Default would have occurred; or

(2) (A) the sum of (i) such Restricted Payment plus (ii) the aggregate
amount of all Restricted Payments made during the period after September 30,
1996 would exceed (B) the sum of (i) $_____ million plus (ii) 50% of
Consolidated Net Income for the period commencing September 30, 1996 and ending
on the date of payment of such Restricted Payment, treated as one accounting
period plus (iii) 100% of the cumulative cash and non-cash proceeds received by
the Company from contributions to capital or the issuance or sale after
[September 30, 1996] of capital stock of the Company or of any warrants, rights
or other options to purchase or acquire its capital stock.

Notwithstanding the foregoing, the Company may make a previously declared
Restricted Payment if at the date of the declaration, such Restricted Payment
would have been permitted under this covenant. For purposes of this covenant,
the amount of any Restricted Payment payable in property shall be deemed to be
the fair market value of such property as determined by the Board of Directors
of the Company. (Section 1007)

RESTRICTIONS ON SUBSIDIARIES

The Indenture provides that the Company will not organize and own directly
or indirectly the Voting Stock of any Person that directly or indirectly owns or
holds finance receivables (with an aggregate principal amount in excess of $1.0
million) originated by the Company or any Subsidiary unless (i) the net income
and net worth of such Person is accounted for as a consolidated subsidiary of
the Company in accordance with generally accepted accounting principles, (ii)
the Company owns directly or indirectly at least 80% of the outstanding Voting
Stock of such Person and (iii) the Company owns directly or indirectly stock or
equity interests in such Person having a value equal to at least 80% of the
total value of the stock or equity interests in such Person. For purposes of
clause (iii), "stock" or "equity interests" shall not include preferred stock or
any similar equity interest which (A) is not entitled to vote except as required
by law, (B) is limited and preferred as to dividends or distributions and does
not participate in the economic growth of the Person to any significant extent,
(C) has, to the extent provided for, redemption rights and liquidation rights
which do not exceed the issue price of such stock or equity interests (except
for a reasonable redemption or liquidation premium), and (D) is not convertible
into another class of stock or equity interest. (Section 1015)

LIMITATIONS ON TRANSACTIONS WITH AFFILIATES

The Indenture provides that the Company shall not, and shall not permit any
of its Subsidiaries to, enter into or permit to exist any transaction (or series
of related transactions), including, without limitation, any loan, advance,
guarantee or capital contribution to, or for the benefit of, or any sale,
purchase, lease, exchange or other disposition of any property or the rendering
of any service, or any other direct or indirect

payment, transfer or other disposition (a "Transaction"), involving payments,
with any Affiliate of the Company, on terms and conditions less favorable to the
Company or such Subsidiary, as the case may be, than would be available at such
time in a comparable Transaction in arm's-length dealings with an unrelated
Person as determined by the Board of Directors, such approval to be evidenced by
a Board Resolution.

The provisions of the immediately preceding paragraph will not apply to:

(i) Restricted Payments otherwise permitted pursuant to the Indenture; or

(ii) fees and compensation (including amounts paid pursuant to employee
benefit plans) paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or any Subsidiary, as
determined by the Board of Directors or the senior management thereof in the
exercise of their reasonable business judgment; or

(iii) payments for goods and services purchased in the ordinary course of
business on an arm's-length basis; or

(iv) Transactions which do not exceed $200,000; or

(v) Transactions between or among any of the Company and its wholly owned
subsidiaries. (Section 1016)

CONSOLIDATION, MERGER OR TRANSFER

The Indenture provides that except in connection with a sale, financing or
securitization of receivables or transfers made in the ordinary course of
business, the Company may not consolidate with, merge with or transfer all or
substantially all of its assets to another entity (other than a wholly owned
subsidiary) unless such other entity assumes the Company's obligations under the
Indenture and unless, after giving effect thereto, no event shall have occurred
and be continuing which, after notice or lapse of time, would become an Event of
Default. (Section 801)

BOOK-ENTRY SYSTEM

Upon issuance of the Notes to the Depositary, the Depositary will credit on
its book-entry registration and transfer system to the accounts of institutions
that have accounts with the Depositary or the Depositary's nominee (the
"Participants") the aggregate principal amounts of such Notes beneficially owned
by such Participants. The accounts to be credited initially shall be designated
by the Underwriters. Beneficial ownership of the Notes issued to the Depositary
will be limited to the Participants or persons holding interests through the
Participants. The Participants' beneficial ownership of the Notes will be shown
on, and the transfer of such ownership interest will be effected only through,
records maintained by the Depositary or its nominee. Beneficial ownership of
the Notes by persons who hold through the Participants will be shown on, and the
transfer of such ownership interest will be effected only through, records
maintained by such Participant. The laws of some jurisdictions require that
certain purchasers of securities take physical delivery of such securities in
definitive form. Such laws and limits may impair a Holder's ability to transfer
beneficial ownership in the Notes.

Except as set forth below, book-entry beneficial owners of the Notes will
not be entitled to have such book-entry beneficial ownership registered in their
names on the Security Register, will not receive or be entitled to receive
physical delivery of the Notes beneficially owned by book-entry registration,
and will not be deemed to be the registered holders of the Notes under the
Indenture.

Accordingly, such person holding a book-entry beneficial interest in the
Notes must rely upon the procedures of the Depositary and, if such person is not
a Participant, on the procedures of the Participant through which such person
owns its interest, to exercise any rights of a Holder of the Notes under the
Indenture. The Indenture provides that the Depositary may grant proxies or
otherwise authorize Participants to take any action which a registered holder of
a Note under the Indenture is entitled to take. (Section 104) The Company
understands that under existing industry practice, in the event that the Company
requests any

action of registered holders of the Notes; under the Indenture or a book-entry
beneficial owner of such Notes desires to take any action which a registered
holder of a Note under the Indenture would be entitled to take, the Depositary
would authorize the Participants to take any such action and the Participants
would authorize the book-entry beneficial owners holding the Notes through such
Participants to take such action or would otherwise act upon the instructions of
the book-entry beneficial owners holding the Notes through them.

The total amount of any principal and/or interest due to book-entry
beneficial owners with regard to the Notes on any Interest Payment Date,
redemption date or upon maturity will be made available by the Company to the
Paying Agent on such date. As soon as practicable thereafter, the Paying Agent
will make such payments available to the Depositary in accordance with
arrangements between the Paying Agent and the Depositary. The Company expects
that the Depositary upon receipt of any payment of interest or principal in
respect of the Notes will credit immediately the Participants' book-entry
accounts in amounts proportionate to their respective book-entry beneficial
interests in the Notes as reflected on the records of the Depositary. The
Company also expects that payments by the Participants to the book-entry owners
of beneficial interests in the Notes will be governed by standing instructions
and customary practices, as is the case with any securities held for the
accounts of customers in bearer form or registered in "street name." Neither
the Company, the Paying Agent, the Trustee nor any agent of the Company, Paying
Agent or Trustee will have any responsibility or liability for any aspect of
such payments to the book-entry accounts by the Depositary or the Participants
or for maintaining, supervising or reviewing any records relating to book-entry
beneficial interests in the Notes.

Pursuant to the policies of the Depositary, the Notes held by the
Depositary may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by the Depositary or such nominee to a
successor depositary or its nominees. Book-entry beneficial interests in the
Notes are exchangeable for Notes in denominations of $1,000 and integral
multiples thereof and fully registered in such names as the Depositary directs
if: (i) the Depositary holding the Notes notifies the Company that the
Depositary is unwilling, unable or ineligible to continue as Depositary for the
Notes and a successor depositary is not appointed by the Company within 60 days;
(ii) the Company, executes and delivers to the Trustee a Company Order that such
book-entry beneficial interests in the Notes be exchangeable for fully
registered Notes; or (iii) an Event of Default occurs and shall be continuing as
to the Notes. Subject to the foregoing, the book-entry beneficial interests in
the Notes shall not otherwise be exchangeable for fully registered Notes.
(Section 305)

EVENTS OF DEFAULT, NOTICE AND WAIVER

An Event of Default under the Indenture includes: (i) failure to pay the
principal on the Notes when due at Maturity, upon redemption or upon repayment,
as provided in the Indenture, or, with respect to any Securities issued under
the Indenture which provides for sinking fund payments, failure to deposit a
sinking fund payment and, in each case, which default continues for five days;
(ii) failure to pay any interest on the Notes when due, which default continues
for ten days; (iii) failure to perform any other covenant set forth in the
Indenture for 30 days after receipt of written notice from the Trustee or
holders of at least 25% in principal amount of the outstanding Securities under
the Indenture specifying the default and requiring the Company to remedy such
default; (iv) default in the payment at stated maturity of any Indebtedness for
Money Borrowed of the Company or a Significant Subsidiary having an outstanding
principal amount greater than $1,000,000 and such default having continued for a
period of 30 days beyond any applicable grace period; (v) an event of default as
defined in any mortgage, indenture or instrument of the Company or any
Significant Subsidiary shall have happened and resulted in indebtedness in a
principal amount in excess of $1,000,000 being accelerated, and such
acceleration having continued for a period of 30 days after notice has been
given to the Company by the Trustee or Holders of at least 25% in principal
amount of the outstanding Securities under the Indenture requesting such
acceleration be rescinded or annulled; (vi) certain events of insolvency,
receivership, or reorganization of the Company or any Significant Subsidiary,
and (vii) entry of a final judgment, decree or order against the Company or any
Significant Subsidiary for the payment of money in excess of $5,000,000 in
certain circumstances. (Section 501)

If an Event of Default shall occur and be continuing, the Trustee, in its
discretion may, and, at the written request of Holders of at least 25% in
aggregate principal amount of the outstanding Notes and upon

being indemnified to its satisfaction shall, proceed to protect and enforce its
rights and the rights of the Holders. If an Event of Default shall occur and be
continuing, subject to the subordination provisions of the Indenture, either the
Trustee or the Holders of at least 25% in aggregate principal amount of
outstanding Notes may accelerate the maturity of all such outstanding Notes.
Prior to any judgment or decree for the payment of money being obtained, the
Holders of a majority in aggregate principal amount outstanding Notes may waive
an Event of Default resulting in acceleration of such Notes but only if all
Events of Default have been remedied and all payments due, other than those due
as a result of acceleration, have been made. (Sections 502, 503, 512 and 513)

The Company must furnish annually to the Trustee an Officers' Certificate
stating whether, to the best of the knowledge of the officers executing such
certificate, the Company is in default under any of the provisions of the
Indenture, and specifying all such defaults, and the nature thereof, of which
they have knowledge. (Section 1012)

A Holder will not have any right to institute any proceeding with respect
to the Indenture or for any remedy thereunder, unless (i) such Holder shall have
previously given to the Trustee written notice of a continuing Event of Default,
(ii) the Holders of at least 25% in aggregate principal amount of the
outstanding Notes shall have made a written request, and offered reasonable
indemnity, to the Trustee to institute such proceedings, (iii) the Trustee shall
have failed to institute such proceeding within 60 days and (iv) the Trustee
shall not have received from the Holders of a majority in aggregate principal
amount of the outstanding Notes a direction inconsistent with such request.
(Section 507) However, the Holder of any Note will have an absolute right to
receive payment of the principal of and interest on such Note on or after the
respective due dates and to institute suit for the enforcement of any such
payments. (Section 508)

MODIFICATION AND WAIVER

With certain limited exceptions which permit modification of the Indenture
by the Company and Trustee only and without the consent of any holders of the
Securities, the Indenture may be modified by the Company with the consent of
Holders of not less than a majority in aggregate principal amount of outstanding
Notes, if the Notes are affected thereby; provided, however, that no such
changes shall without the consent of the Holder of each Note affected thereby
(i) change the Maturity or the principal of, or the due date of any installment
of principal or interest on, any Note, (ii) reduce the principal of, or the rate
of interest on any Note, (iii) change the coin or currency it which any portion
of the principal of, or interest on, any Note is payable, (iv) impair the right
to institute suit for the enforcement of any such payment, (v) reduce the
above-stated percentage of Holders of the outstanding Notes necessary to modify
the Indenture, (vi) modify the foregoing requirements or reduce the percentage
of outstanding Notes necessary to waive any past default, (vii) impair the
Special Redemption Event or any optional right to redemption or repayment
provided the Holders, or (viii) adversely affect a Holder's rights to convert
25% of the principal amount of its Notes into Common Stock. (Sections 513, 901
and 902)

The Holders of a majority in aggregate principal amount of outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (Section 1013)

SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE

The Indenture provides that the Company may terminate its obligations under
the Indenture with respect to all Notes which have become due and payable, will
become due and payable at their Stated Maturity within one year or are
redeemable at the option of the Company within one year, by delivering to the
Trustee, in trust for such purpose, money and/or Government Obligations which,
through the payment of interest and principal in respect thereof in accordance
with their terms, will provide on the due dates of any payment of principal and
any premium, and interest with respect thereof, or a combination thereof, money
in an amount sufficient to discharge the entire indebtedness on such Notes.
Defeasance of the Notes is subject to delivery to the Trustee of an opinion of
independent counsel that Holders of the outstanding Notes will not recognize
income, gain or loss for Federal income tax purposes as a result of such deposit
and termination and certain other conditions. (Sections 401 and 402)

CERTAIN DEFINITIONS

"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.

"Capitalized Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as capital lease obligations on a
balance sheet of such Person under generally accepted accounting principles and,
for purposes of the Indenture, the amount of such obligations at any date shall
be the capitalized amount thereof at such date, determined in accordance with
generally accepted accounting principles.

"Consolidated Net Income" means the amount of net income (loss) of the
Company and its Subsidiaries determined in accordance with generally accepted
accounting principles; provided, however, that there shall not be included in
Consolidated Net Income any net income (loss) of any Person acquired or disposed
of in a pooling of interests transaction for any period prior to the acquisition
thereof or subsequent to the disposition thereof.

"Consolidated Net Worth" means the excess, as determined in accordance with
generally accepted accounting principles, after making appropriate deductions
for any minority interest in the net worth of Subsidiaries of (i) the assets of
the Company and its Subsidiaries over (ii) the liabilities of the Company and
its Subsidiaries; provided, however, that any write-up in the book value of any
assets owned subsequent to the date of the Indenture, other than as required for
and at the time of assets acquired in connection with the purchase of a Person
or business, shall not be taken into account.

"Indebtedness for Money Borrowed" means any of the following obligations of
the Company or any Subsidiary which by its terms matures at or is extendable or
renewable at the sole option of the obligor without requiring the consent of the
obligee to a date more than twelve months after the date of the creation or
incurrence of such obligation: (i) any obligations, contingent or otherwise, for
borrowed money or for the deferred purchase price of property, assets,
securities, or services (including, without limitation, any interest accruing
subsequent to an Event of Default), (ii) all obligations (including the Notes)
evidenced by bonds, notes, debentures, letters of credit, or other similar
instruments, (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property),
except any such obligation that constitutes a trade payable and an accrued
liability arising in the ordinary course of business, if and to the extent any
of the foregoing indebtedness would appear as a liability on a balance sheet
prepared in accordance with generally accepted accounting principles, (iv) all
Capitalized Lease Obligations, (v) all indebtedness of the type referred to in
clause (i), (ii), (iii) or (iv) above secured by (or for which the holder of
such indebtedness has an existing

right, contingent or otherwise, to be secured by) any lien upon or in property
of the Company (including, without limitation, accounts and contract rights),
even though the Company has not assumed or become liable for the payment of such
indebtedness, and (vi) any guaranty or endorsement (other than for collection or
deposit in the ordinary course of business) or discount with recourse of, or
other agreement, contingent or otherwise, to purchase, repurchase, or otherwise
acquire, to supply or advance funds, or become liable with respect to, any
indebtedness or any obligation of the type referred to in any of the foregoing
clauses (i) through (v), regardless of whether such obligation would appear on a
balance sheet; provided, however, that Indebtedness for Money Borrowed shall not
include (x) Interest Rate Swap Obligations with respect to any obligations
included in the foregoing clauses (i) through (vi), or any guarantees of any
such Interest Rate Swap Obligations or (y) amounts due under or represented by
asset-backed securities or other interest-bearing certificates issued by trusts
formed by Subsidiaries in connection with the securitization of automobile
installment sale contracts or other receivables.

"Interest Rate Swap Obligations" means the obligation of the Company or any
Subsidiary pursuant to any interest rate swap agreement, interest rate collar
agreement, forward rate agreement, interest rate cap insurance, option or
futures contract or other similar agreement or arrangement, and any renewal or
extension thereof, designed to protect the Company or any of its Subsidiaries
against interest rate risk.

"Nonrecourse Indebtedness" means an obligation, the payment or performance
of which is secured by a security interest in any property or asset if recourse
by the obligee under such obligation upon the non-payment or non-performance
thereof is limited to realization pursuant to such security interest upon such
property or asset.

"Senior Indebtedness" means the principal amount of, premium, if any, and
interest on (i) any Indebtedness for Money Borrowed whether outstanding as of
the date of the Indenture or thereafter created, incurred, assumed or
guaranteed, unless in the instrument creating or evidencing such Indebtedness
for Money Borrowed or pursuant to which such Indebtedness for Money Borrowed is
outstanding it is provided that such Indebtedness for Money Borrowed is
subordinate in right of payment or in rights upon liquidation to any other
Indebtedness for Money Borrowed of the Company and (ii) refundings, renewals,
extensions, modifications, restatements, and increases of any such indebtedness.

"Significant Subsidiary" means any Subsidiary which accounted for more than
10% of the Company's Consolidated Net Worth or more than 10% of the Company's
consolidated revenue, in each case, as of the end of the Company's most recent
fiscal year.

"Special Redemption Event" means the occurrence of any one or more of the
following: (i) (x) the Company shall consolidate with or merge into another
Person, (y) the Company shall convey, transfer or lease all or substantially all
of its assets to any Person or (z) any Person shall consolidate with or merge
into the Company pursuant to a transaction in which the outstanding common stock
of the Company is reclassified, changed or exchanged; provided that the
following shall be excluded from the operation of this clause (i): a transaction
which is part of a sale, financing or securitization of receivables, entered
into in the ordinary course of business; a transaction between the Company and
one or more of its wholly-owned Subsidiaries; or a transaction of the type
described in clause (i) (x) or (i) (z) above unless immediately after giving
effect to such transaction, a Person or "group" (as such term is used for
purposes of Section 13 (d) and 14(d) of the Exchange Act), other than any Person
who is a director of the Company or a "related Person" on the date of the
Indenture, is or becomes the "beneficial owner," directly or indirectly, of more
than 50% of the total voting power in the aggregate normally entitled to vote in
the election of directors; and (ii) any Person or "group" (as such term is used
for purposes of Section 13(d) or 14(d) of the Exchange Act) other than any
Person who is a director of the Company or a "related Person" on the date of the
Indenture, shall purchase or otherwise acquire in one or more transactions or
series of transactions beneficial ownership of 50% or more of the outstanding
common stock of the Company on the date immediately prior to the last such
purchase or other acquisition. For purposes of this definition, "related
Person" means, in addition to such director, (a) any relative or spouse of such
director, or any relative of such spouse, (b) any trust or estate in which such
Person or any of the Persons specified in clause (a) collectively own 50% or
more of the total beneficial interest or (c) any corporation or other
organization (other than the Company) in which such director or any of the
Persons specified in clause (a) or (b) are the beneficial owners collectively of
50% or

more the voting power.

"Subordinated Indebtedness" means any Indebtedness for Money Borrowed that
is not Senior Indebtedness.

"Subsidiary" means any corporation of which at that time of determination
the Company or one or more Subsidiaries owns or controls directly or indirectly
more than 50% of the shares of Voting Stock.

"Voting Stock" means stock of a corporation of the class or classes having
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers, or trustees of such corporation, provided
that, for the purposes hereof, stock which carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock
whether or not such event shall have happened.

"Warehouse Indebtedness" means the Warehouse Line of Credit and any
replacement or additional facility under which the Company borrows money against
Contracts held for sale, pending their sale in securitization transactions.

RATING

The Notes are rated "______" by Duff & Phelps Credit Rating Co. ("Duff &
Phelps"), which is below investment grade. Ratings are not a recommendation to
purchase, hold or sell the Notes, as ratings do not comment as to market price
or suitability for a particular investor. The ratings are based on current
information furnished to Duff & Phelps by the Company and obtained from other
sources. The ratings may be changed, suspended or withdrawn at any time as a
result of changes in, or unavailability of, such information.

THE TRUSTEE

Bankers Trust Company is the Trustee under the Indenture. Its principal
corporate trust office is located at ______________________________.

DESCRIPTION OF COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders, except that holders
of Common Stock are entitled to cumulate their votes in the election of
directors if they comply with the provisions of the Company's Bylaws as to
cumulative voting. In cumulative voting, each holder is permitted to cast such
number of votes in the aggregate as equals the number of shares of stock held
multiplied by the number of directors to be elected. The holders may cast the
whole number of such votes for one nominee for director or distribute the votes
among two or more nominees as the holder sees fit. The shareholders of the
Company have approved a proposal to change the Company's state of incorporation
to Delaware. If that change is made, then directors will be elected by a simple
plurality, and no cumulative voting rights will apply.

Holders of Common Stock are entitled to such dividends as the Company's
Board of Directors, in its discretion, may declare out of funds available
therefore, subject to the terms of any outstanding shares of preferred stock and
other restrictions. In the event of liquidation of the Company, holders of the
Common Stock are entitled to receive, pro rata, all of the assets of the Company
available for distribution after payment of any liquidation preference to the
holders of any preferred stock then outstanding. No shares of preferred stock
are presently outstanding. Holders of the shares of Common Stock have no
conversion or preemptive or other subscription rights and there are no
redemption or sinking fund provisions applicable to the Common Stock. All of
the outstanding shares of Common Stock are, and the shares of Common Stock
issuable upon conversion of the Notes offered hereby will be, validly issued,
fully paid and nonassessable.

UNDERWRITING

Subject to the terms and conditions set forth in the Purchase Agreement
between the Company and the Underwriters named below, the Underwriters have
severally agreed to purchase from the Company the respective principal amounts
of the Notes set forth opposite their names below.

Principal
Underwriters Amount of Notes
------------ ---------------
Piper Jaffray Inc....................... $
Legg Mason Wood Walker Incorporated..... $
Dain Bosworth Incorporated.............. $
----------

Total.............................. $35,000,000
-----------
-----------

The Purchase Agreement provides that the obligations of the several
Underwriters are subject to certain conditions precedent set forth therein and
that the Underwriters must purchase all of the Notes if they purchase any Notes.

The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the Price to Public and to selected dealers at
such price less a concession of not more than ___% of the principal amount of
the Notes. The Underwriters may allow, and such dealers may reallow,
concessions not in excess of ___% of the principal amount of the Notes to
certain other brokers and dealers. After the initial distribution of the Notes
has been completed, the Price to Public and other selling terms may be changed
by the Underwriters.

The Offering of the Notes is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the Notes.

The Company has granted the Underwriters an option, exercisable within 30
days from the date of this Prospectus, to purchase up to an additional
$5,250,000 in aggregate principal amount of Notes at the Price to Public less
the Underwriting Discount. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, incurred in the sale of the
Notes offered hereby. To the extent that the Underwriters exercise this option,
each Underwriter will be obligated, subject to certain conditions, to purchase a
principal amount of Notes approximately proportionate to that Underwriter's
initial commitment, and the Company will be obligated, pursuant to the option,
to sell such Notes to the Underwriters.

The Company has applied to have the Notes approved for listing on the New
York Stock Exchange. The Underwriters have indicated an intention to make a
market in the Notes as permitted by applicable laws and regulations. No
Underwriter, however, is obligated to make a market in the Notes, and any such
market making may be discontinued at any time at the sole discretion of such
Underwriter. There can be no assurance that an active trading market for the
Notes will develop. If the Notes are traded after their initial issuance, they
may trade at a discount from their principal amount.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereof.

Piper Jaffray Inc. has provided certain investment banking services to the
Company from time to time and has received compensation customary for such
services.

LEGAL MATTERS

The legality of the Notes offered hereby is being passed upon for the
Company by Troy & Gould Professional Corporation, Los Angeles, California.
Certain legal matters in connection with the sale of the Notes offered hereby
will be passed upon for the Underwriters by Orrick, Herrington & Sutcliffe LLP,
Washington, D.C.

EXPERTS

The consolidated financial statements of Consumer Portfolio Services, Inc.
and subsidiaries as of December 31, 1995 and March 31, 1995, and for the
nine-month period ended December 31, 1995 and for each of the years in the
two-year period ended March 31, 1995, have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

There are hereby incorporated by reference herein (i) the Company's Annual
Report on Form 10-KSB for the nine-month transition period ended December 31,
1995, (ii) the Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1996, (iii) the Company's Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1996, (iv) the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1996, (v) the Company's current report on
Form 8-K dated September 20, 1996, (vi) the Company's current report on Form 8-K
dated September 26, 1996, (vii) the Company's current report on Form 8-K dated
December 11, 1996, (viii) the Company's current report on Form 8-K dated
December 19, 1996, and (ix) the description of the Common Stock contained in the
Company's registration statement on Form 8-A filed September 4, 1992, as amended
on October 21, 1992, and December 6, 1995.

The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits thereto, unless such exhibits are specifically incorporated by
reference into the information that this Prospectus incorporates). Written or
telephone requests for such copies should be directed to the Company's principal
office: Consumer Portfolio Services, Inc., 2 Ada, Suite 100, Irvine, California
92618, Attention: Corporate Secretary, (714) 753-6800.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"SEC") a registration statement (as amended, the "Registration Statement") under
the Securities Act with respect to the securities offered by this Prospectus.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement. For
further information with respect to the Company and the securities offered
hereby, reference is made to the Registration Statement and to the exhibits
filed therewith, which may be inspected without charge at the principal office
of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of the
material contained therein may be obtained from the SEC upon payment of
applicable copying charges. Statements contained in this Prospectus as to the
contents of any contract or other document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.

The Company is subject to the reporting and other informational
requirements of the Exchange Act and, in accordance therewith, files reports and
other information with the SEC. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the SEC at the offices of the SEC at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's regional offices at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, New
York, New York

10048. The SEC also maintains a Web site on the Internet that contains reports,
proxy and information statements and other information regarding issuers,
including the Company, that file electronically with the SEC. The address of
such site is http://www.sec.gov. Copies of such materials can also be obtained
by written request to the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
Reference
---------

Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1995 . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the nine-month period ended December 31, 1995
and for each of the years in the two-year period ended March 31, 1995. . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Shareholders' Equity for the nine-month period ended December 31, 1995
and for each of the years in the two-year period ended March 31, 1995. . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the nine-month period ended December 31, 1995
and for each of the years in the two-year period ended March 31, 1995. . . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements for the nine-month period ended December 31, 1995
and for each of the years in the two-year period ended March 31, 1995. . . . . . . . . . . . . . . . . . . . . F-6
Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 (unaudited) . . . . . . . . F-22
Condensed Consolidated Statements of Operations for the nine-month periods ended
September 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Condensed Consolidated Statements of Cash Flows for the nine-month periods ended
September 30, 1996 and 1995 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Notes to Condensed Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . F-25

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Consumer Portfolio Services, Inc.

We have audited the accompanying consolidated balance sheets of Consumer
Portfolio Services, Inc. and subsidiaries ( the "Company" ) as of December
31, 1995 and March 31, 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for the nine-month period
ended December 31, 1995 and for each of the years in the two-year period
ended March 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Consumer
Portfolio Services, Inc. and subsidiaries as of December 31, 1995 and March
31, 1995 and the results of their operations and their cash flows for the
nine-month period ended December 31, 1995 and for each of the years in the
two-year period ended March 31, 1995, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Orange County, California
February 22, 1996

F-1

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

December 31, March 31,
--------------------------------
1995 1995
---- ----

ASSETS (note 11)

Cash $ 10,895,157 $ 5,767,372
Contracts held for sale (notes 5 and 11) 19,548,842 21,896,386
Servicing fees receivable 1,454,707 796,322
Investment in subordinated certificates (note 2) 2,174,666 --
Investments in credit enhancements (note 2) 30,477,793 23,201,485
Excess servicing receivables (note 7) 11,108,251 5,154,361
Furniture and equipment, net (note 3) 548,535 459,594
Deferred tax asset (note 10) -- 555,814
Deferred financing costs (note 11) 1,100,430 --
Other assets 569,944 144,249
--------------------------------
$ 77,878,325 $ 57,975,583
--------------------------------
--------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Accounts payable & accrued expenses $ 1,341,905 $ 1,473,288
Warehouse line of credit (note 11) 7,500,000 19,730,389
Taxes payable 2,912,084 4,777,548
Deferred tax liability (note 10) 1,643,254 --
Notes payable (note 11) 20,000,000 --
Convertible subordinated debt (note 11) 3,000,000 5,000,000
--------------------------------
36,397,243 30,981,225

SHAREHOLDERS' EQUITY (notes 8 and 11)

Preferred stock, $1 par value; authorized
5,000,000 shares; none issued -- --

Series A preferred stock, $1 par value;
authorized 5,000,000 shares; 3,415,000
shares issued; none outstanding (note 8) -- --

Common stock, no par value; authorized
30,000,000 shares; 13,298,642 and 10,820,800
shares issued and outstanding at December 31,
1995 and March 31, 1995, respectively 33,265,239 26,353,637

Retained earnings 8,215,843 640,721
--------------------------------
41,481,082 26,994,358
Commitments and contingencies (notes 2,
4, 5, 6, 7, 8, 9 and 12)
Subsequent event (note 14)
--------------------------------
$ 77,878,325 $ 57,975,583
--------------------------------
--------------------------------

See accompanying notes to consolidated financial statements

F-2

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Nine Months Ended
December 31, Year Ended March 31,
-------------------------------------------------
1995 1995 1994
---- ---- ----

REVENUES:
Net gain on sale of contracts (note 7) $ 11,549,413 $ 9,454,620 $ 5,424,584
Servicing fees (note 6) 6,983,255 7,201,062 3,556,019
Interest 5,722,045 5,849,154 1,443,083
-------------------------------------------------
Total revenues 24,254,713 22,504,836 10,423,686

EXPENSES:
Charge from release of escrow shares (note 8) -- -- 6,450,000
Interest 2,724,403 3,407,598 446,402
Employee costs 3,309,139 2,990,253 2,219,199
General and administrative 2,799,599 1,905,155 1,172,414
Marketing 1,231,110 1,764,121 686,118
Occupancy 267,641 254,845 171,362
Related party consulting fees (note 4) 262,500 350,000 350,000
Depreciation 174,555 153,355 186,226
Provision for credit losses (note 5) 828,458 532,947 30,008
-------------------------------------------------
Total expenses 11,597,405 11,358,274 11,711,729
-------------------------------------------------
Income (loss) before income taxes 12,657,308 11,146,562 (1,288,043)

Income taxes (note 10) 5,082,186 4,480,932 490,026
-------------------------------------------------
Net income (loss) $ 7,575,122 $ 6,665,630 $ (1,778,069)
-------------------------------------------------
-------------------------------------------------
Net income (loss) per common and common
equivalent share $ 0.53 $ 0.60 $ (0.21)
-------------------------------------------------
-------------------------------------------------
Weighted average number of common
and common equivalent shares 14,323,592 11,143,268 8,520,548
-------------------------------------------------
-------------------------------------------------
Fully diluted net income (loss) per common
and common equivalent share $ 0.52 $ 0.56 $ (0.21)
-------------------------------------------------
-------------------------------------------------
Fully diluted weighted average number of
common and common equivalent shares 14,803,592 12,538,352 8,520,548
-------------------------------------------------
-------------------------------------------------

See accompanying notes to consolidated financial statements

F-3

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Series A Retained
Preferred Stock Common Stock Earnings
------------------------- ------------------------- (Accumulated)
Shares Amount Shares Amount Deficit) Total
------ ------ ------ ------ -------- -----

Balance at March 31, 1993 3,415,000 $ 3,415,000 8,400,000 $ 4,920,686 $ (4,246,840) $ 4,088,846
Common stock issuance, net of offering
costs of $60,000 -- -- 333,334 1,440,003 -- 1,440,003
Value of Escrow Shares released (note 8) -- -- -- 6,450,000 -- 6,450,000
Net Loss -- -- -- -- (1,778,069) (1,778,069)
---------- ------------ ---------- ------------ ------------ ------------
Balance at March 31, 1994 3,415,000 $ 3,415,000 8,733,334 $ 12,810,689 $ (6,024,909) $ 10,200,780

Common stock issued upon exercise
of warrants -- -- 39,466 118,398 -- 118,398
Common stock issued upon exercise
of options -- -- 48,000 120,000 -- 120,000
Common stock issuance, net of offering
costs of $1,445,450 -- -- 2,000,000 13,304,550 -- 13,304,550
Redemption of Preferred Stock (note 8) (3,415,000) (3,415,000) -- -- -- (3,415,000)
Net income -- -- -- -- 6,665,630 6,665,630
---------- ------------ ---------- ------------ ------------ ------------
Balance at March 31, 1995 -- $ -- 10,820,800 $ 26,353,637 $ 640,721 $ 26,994,358

Common stock issued upon exercise of
warrants -- -- 100,534 301,602 -- 301,602
Common stock issued upon exercise
of options -- -- 1,843,974 4,610,000 -- 4,610,000
Common stock issued upon conversion
of debt (note 11) -- -- 533,334 2,000,000 -- 2,000,000
Net income 7,575,122 7,575,122
---------- ------------ ---------- ------------ ------------ ------------
Balance at December 31, 1995 -- $ -- 13,298,642 $ 33,265,239 $ 8,215,843 $ 41,481,082
---------- ------------ ---------- ------------ ------------ ------------
---------- ------------ ---------- ------------ ------------ ------------

See accompanying notes to consolidated financial statements

F-4

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended
December 31, Year Ended March 31,
---------------------------------------------------------
1995 1995 1994
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 7,575,122 $ 6,665,630 $ (1,778,069)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Charge from release of escrow shares (note 8) -- -- 6,450,000
Depreciation 174,555 153,355 186,226
Amortization of purchased and excess servicing 2,023,938 1,210,120 240,114
Amortization of financing costs 5,265
Provision for credit losses 828,458 532,947 30,008
Gain on sale of contracts from excess
servicing receivables (7,977,828) (4,065,899) (1,994,307)
Changes in operating assets and liabilities:
Purchases of contracts held for sale (160,150,781) (164,263,577) (53,102,819)
Liquidation of contracts held for sale 156,890,700 142,472,028 57,443,126
Prepaid committment fees -- -- 100,000
Servicing fees receivable (658,385) (615,063) 29,586
Prepaid related party expenses -- 233,333 (233,333)
Initial deposits to credit enhancement accounts (4,931,325) (13,237,454) (10,457,138)
Excess servicing deposited to credit enhancement accounts (7,553,086) (5,390,422) (1,953,489)
Release of cash from credit enhancement accounts 7,693,839 5,923,201 1,913,817
Deferred taxes 2,199,068 (381,616) (174,198)
Other assets (425,695) 3,810 (18,787)
Accounts payable and accrued expenses (131,382) 528,256 111,893
Warehouse line of credit (12,230,389) 19,730,389 --
Taxes payable (1,865,464) 4,385,724 391,824
------------- ------------- ------------
Net cash used in operating activities: (18,533,390) (6,115,238) (2,815,546)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment (263,496) (334,458) (80,072)
Advances to affiliate on note receivable -- -- (714,494)
Payments from affiliate on note receivable -- -- 1,014,494
Payments received on subordinated certificates 118,764 -- --
------------- ------------- ------------
Net cash provided by (used in) investing activities (144,732) (334,458) 219,928

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of convertible subordinated debt -- -- 3,000,000
Issuance of promissory notes 2,000,000 5,000,000 --
Issuance of promissory note to related party 2,000,000 -- --
Issuance of long term notes 20,000,000 -- --
Payment of financing costs (1,105,695) -- --
Repayment of promissory notes (2,000,000) (5,000,000) --
Repayment of promissory note to related party (2,000,000) -- --
Issuance of common stock -- 13,304,550 1,440,003
Redemption of preferred stock -- (3,415,000) --
Exercise of options and warrants 4,911,602 238,398 --
------------- ------------- ------------
Net cash provided by financing activities 23,805,907 10,127,948 4,440,003
------------- ------------- ------------
Increase in cash 5,127,785 3,678,252 1,844,385

Cash at beginning of period 5,767,372 2,089,120 244,735
------------- ------------- ------------
Cash at end of period $ 10,895,157 $ 5,767,372 $ 2,089,120
------------- ------------- ------------
------------- ------------- ------------
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 2,542,718 $ 3,288,848 $ 136,244
Income taxes $ 4,759,050 $ 523,000 $ 167,400
Supplemental disclosure of non-cash investing and financing
activities:
Issuance of common stock upon conversion of debt $ 2,000,000 $ -- $ --

See accompaying notes to consolidated financial statements

F-5

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Consumer Portfolio Services, Inc. ("the Company") was incorporated in California
on March 8, 1991. The Company and its subsidiaries engage primarily in the
business of purchasing, selling and servicing retail automobile installment sale
contracts ("Contracts") originated by dealers located throughout the US and
predominantly in California. The Company specializes in Contracts with
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. Because of the Company's concentration of dealers
located in California, a significant decline in regional economic conditions, or
some other regional catastrophe, could result in fewer Contracts available for
purchase by the Company and ultimately a decline in gain on sale of contracts
and servicing fees. Moreover, such an event or events could affect the ability
of borrowers to make timely scheduled principal and interest payments on the
Company's Contracts held for sale. The Company's maximum potential loss in such
an event, could be equal to the amount of California Contracts held for sale at
the time of the event, restricted cash and the excess servicing receivables. At
December 31, 1995, approximately 19.4% of the Company's Contracts held for sale
were California Contracts.

The automobile financing business is highly competitive. The Company competes
with a number of national, local and regional finance companies with operations
similar to those of the Company. In addition, competitors or potential
competitors include other types of financial services companies, such as
commercial banks, savings and loan associations, leasing companies, credit
unions providing retail loan financing and lease financing for new and used
vehicles, and captive finance companies affiliated with major automobile
manufacturers such as General Motors Acceptance Corporation, Ford Motor Credit
Corporation, Chrysler Credit Corporation and Nissan Motors Acceptance
Corporation. Many of the Company's competitors and potential competitors
possess substantially greater financial, marketing, technical, personnel and
other resources than the Company. Moreover, the Company's future profitability
will be directly related to the availability and cost of its capital in relation
to the availability and cost of capital to its competitors. The Company's
competitors and potential competitors include far larger, more established
companies that have access to capital markets for unsecured commercial paper and
investment grade-rated debt instruments and to other funding sources which may
be unavailable to the Company. Many of these companies also have long-standing
relationships with dealers and may provide other financing to dealers, including
floor plan financing for the dealers' purchase of automobiles from
manufacturers, which is not offered by the Company.

The Company purchases Contracts with the intent to re-sell them to institutional
investors either as bulk sales or in the form of securities backed by the
Contracts. Purchasers of the Contracts receive a pass through rate of interest
set at the time of the sale and the Company receives a base servicing fee for
its duties relating to the accounting for and collection of the Contracts. In
addition, the Company is entitled to certain excess servicing fees which
represent collections on the Contracts in excess of those required to pay
investor principal and interest, and the base servicing fees.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Consumer Portfolio
Services, Inc. and its wholly-owned subsidiaries, G&A Financial Services, Inc.
("G&A"), a consumer loan servicing company, Alton Receivables Corp. ("Alton") ,
CPS Receivables Corp. ("CPSRC") and CPS Funding Corp. ("CPSFC"). Alton, CPSRC
and CPSFC are limited purpose corporations formed to accommodate the structures
under which the Company sells its Contracts. All significant intercompany
balances and transactions have been eliminated in consolidation.

F-6

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

CONTRACTS HELD FOR SALE

The Contracts which the Company purchases from dealers provide for annual
percentage rates of approximately 20%, in most cases. Each Contract provides
for full amortization, equal monthly payments and can be fully prepaid by the
borrower at any time without penalty. The Company typically purchases the
Contracts from dealers at a discount from the amount financed under the
Contract. Contracts are generally sold to institutional investors at par. In
the case of whole loan sales, the investor withholds a portion of the purchase
price as an initial credit enhancement. In the case of Contracts sold in the
form of asset backed securities, the Company pledges certain cash balances as
an initial credit enhancement. Contracts are generally sold by the Company
within one to three months of their purchase, although they may be held longer.

Contracts held for sale are stated at the lower of cost or market value. Market
value is determined by purchase commitments from investors and prevailing market
prices. Gains and losses are recorded as appropriate when contracts are sold.

ALLOWANCE FOR CREDIT LOSSES

The Company provides an allowance for credit losses which management believes
provides adequately for current and possible future losses that may develop in
the Contracts held for sale. Management evaluates the adequacy of the allowance
by examining current delinquencies, the characteristics of the portfolio, the
value of underlying collateral, and general economic conditions and trends.

CONTRACT ACQUISITION FEES AND COSTS

The Company generally receives an acquisition fee from the dealer for each
Contract purchased. Fee proceeds are used to offset the direct expenses
associated with the purchase of the Contracts, with any excess amount deferred
until the Contracts are sold at which time the deferred portions are recognized
as a component of the gain on sale.

INVESTMENTS

The Company determines the appropriate classification of its investments in debt
securities at the time of purchase or creation. Debt securities for which the
Company does not have the intent or ability to hold to maturity are classified
as available for sale. Securities available for sale are carried at fair value,
with unrealized gains and losses, net of tax, reported in a separate component
of shareholders' equity. At December 31, 1995, the Company had no investments
that qualified as trading or held to maturity.

The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts, over the
estimated life of the security. Such amortization and interest are included in
interest income.

GAIN ON SALE OF CONTRACTS

Gains or losses are determined based upon the difference between the sales
proceeds for the portion of Contracts sold and the Company's recorded investment
in the Contracts sold. The Company allocates the recorded investment in the
Contracts between the portion of the Contracts sold and the portion retained
based on the relative fair values of those portions on the date of sale.

F-7

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

EXCESS SERVICING RECEIVABLES

Excess servicing receivables ("ESR") result from the sale of Contracts on which
the Company retains servicing rights and all, or a portion of, the excess cash
flows. ESRs are determined by computing the difference between the weighted
average yield of the Contracts sold and the yield to the purchaser, adjusted for
the normal servicing fee based on the agreements between the Company and the
purchaser. The resulting differential is recorded as a gain at the time of the
sale equal to the present value of the estimated cash flows, net of any portion
of the excess that may be due to the purchaser and adjusted for anticipated
prepayments, repossessions, liquidations and other losses. The excess servicing
cash flows are only available to the Company to the extent that there is no
impairment of the credit enhancement that is established at the time the
Contracts are sold to the purchaser. The excess servicing cash flows over the
estimated remaining life of the Contracts have been calculated for all
applicable periods using estimates for prepayments, losses (charge-offs) and
weighted average discount rates, which the Company expects market participants
would use for similar instruments. Losses are discounted at an assumed risk
free rate. The ESRs are amortized using the interest method and are offset
against servicing fees. To the extent that the actual future performance of the
Contracts results in less excess cash flows than the Company estimated, the
Company's ESRs will be adjusted at least quarterly, with corresponding charges
recorded against income in the period in which the adjustment is made. To the
extent that the actual cash flows exceed the Company's estimates the Company
will record additional servicing fees.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost net of accumulated depreciation which
is calculated using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are amortized over the lesser of the
estimated useful lives of the assets or the related lease term.

SERVICING

Servicing fees are reported as income when earned, net of related amortization
of purchased and excess servicing. Servicing costs are charged to expense as
incurred.

NET INCOME (LOSS) PER SHARE

The computation of net income (loss) per common and common equivalent share is
based upon the Treasury Stock Method using the weighted average number of common
shares outstanding during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable, primarily
from stock options and warrants. The fully diluted net income per share
computation reflects the effect of common shares contingently issuable upon the
conversion of convertible debt in which such conversion would cause dilution.
Fully diluted net income per common share also reflects additional dilution
related to stock options and warrants due to the use of the market price at the
end of the period, when higher than the average price for the period.

INCOME TAXES

The Company and its subsidiaries file a consolidated Federal income and combined
state franchise tax return on a fiscal year basis. The Company utilizes the
asset and liability method of accounting for income taxes under which deferred
income taxes are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date. The
Company has accounted for income taxes in this manner since its inception.

F-8

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

STOCK SPLIT

On February 16, 1996, the Board of Directors authorized a two-for-one stock
split to be distributed on or about March 14, 1996, to shareholders of record on
March 7, 1996. All references in the consolidated financial statements to
number of shares, per share amounts and market prices of the Company's common
stock have been retroactively restated to reflect the increased number of common
shares outstanding.

CURRENT ACCOUNTING PRONOUNCEMENTS

In November 1995, the FASB issued Statement of Financial Accounting Standards
No. 123 (SFAS 123), "Accounting for Stock-Based Compensation." This
statement establishes financial accounting standards for stock-based employee
compensation plans. SFAS 123 permits the Company to choose either a new fair
value based method or the current APB Opinion 25 intrinsic value based method
of accounting for its stock-based compensation arrangements. SFAS 123
requires pro forma disclosures of net income and earnings per share computed
as if the fair value based method had been applied in financial statements of
companies that continue to follow current practice in accounting for such
arrangements under Opinion 25. SFAS 123 applies to all stock-based employee
compensation plans in which an employer grants shares of its stock or other
equity instruments to employees except for employee stock ownership plans.
SFAS 123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock, i.e., stock
option plans, stock purchase plans, restricted stock plans, and stock
appreciation rights. The statement also specifies the accounting for
transactions in which a company issues stock options or other equity
instruments for services provided by non-employees or to acquire goods or
services from outside suppliers or vendors. The recognition provisions of
SFAS 123 for companies choosing to adopt the new fair value based method of
accounting for stock-based compensation arrangements may be adopted
immediately and will apply to all transactions entered into in fiscal years
that begin after December 15, 1995. The disclosure provisions of SFAS 123
are effective for fiscal years beginning after December 15, 1995; however,
disclosure of the pro forma net income and earnings per share, as if the fair
value method of accounting for stock-based compensation had been elected, is
required for all awards granted in fiscal years beginning after December 31,
1994. The Company will continue to account for stock-based compensation
under APB Opinion 25 and, as a result, SFAS 123 will not have a material
impact on the Company's operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the financial statements, as well as the reported amounts of income and
expenses during the reported periods. Specifically, a number of estimates
were made in connection with the recording of excess servicing receivables
and the related gain. Actual results could differ from those estimates.

RECLASSIFICATION

Certain amounts for the prior periods have been reclassified to conform to the
current presentation.

(2) INVESTMENTS

F-9

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

amount of the certificates purchased by the investor. The SPC then deposits the
initial cash deposit, and subsequent excess servicing cash flows as required by
the terms of the various agreements, to an account held by a trustee (the
"Spread Account") and pledges the cash to the Trust, which in turn invests the
cash in high quality liquid investment securities as defined by the various
agreements. In the securitizations since June 1995, the Company altered the
credit enhancement mechanism to create a subordinated class of asset-backed
securities ("B Piece") in order to reduce the size of the required initial
deposit to the Spread Account. The Company's June 1995 securitization was
structured to include a B Piece with an initial principal balance of $2,485,736
as a component of the Spread Account. The Company's September and December 1995
securitizations were structured with B Pieces separate from the Spread Accounts
and had initial principal balances of $2,293,430 and $2,822,863, respectively.
These B Pieces are accounted for as available for sale and, when originated, are
treated as non-cash investing activities in the Company's consolidated statement
of cash flows. The B Piece of the December 1995 securitization was sold at the
time of securitization. The carrying value of the September 1995 B Piece was
$2,174,666 at December 31, 1995. In the event that the cash flows generated by
the Contracts transferred to the Trust are insufficient to pay obligations of
the Trust, including principal or interest due to certificateholders or expenses
of the Trust, the trustee will draw an amount necessary for the Spread Accounts
to pay the obligations of the Trust. The agreements provide that the Spread
Accounts shall be maintained at a specified percent of the principal balance of
the certificates, which can be increased in the event delinquencies and/or
losses exceed certain specified levels. In the event delinquencies and/or
losses on the Contracts serviced exceed specified levels defined in certain of
the Company's securitization agreements, the terms of those securitizations may
require the transfer of servicing to another servicer. Consequently, as
principal payments are made to the certificateholders, and if the Spread
Accounts are in excess of the specified percent of the principal balance of the
certificates, the trustee shall release to the SPC the portion of the pledged
cash that is in excess of the amount necessary to equal the specified percent of
the principal balance of the certificates. Except for releases in this manner,
the cash in the Spread Accounts is restricted from use by the SPC or the
Company. Spread Account balances for the periods shown were made up of the
following components:

December 31, March 31,
-----------------------------
1995 1995
------------ ------------
Cash $ -- $ 145,006
Funds held by investor 2,211,363 2,473,260
Investment in subordinated
certificates 2,137,333 --
Commercial paper -- 7,706,661
US government securities 26,129,097 12,876,558
------------ ------------
$ 30,477,793 $ 23,201,485
------------ ------------
------------ ------------

F-10

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

(3) FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:

December 31, March 31,
------------ ---------
1995 1995
---- ----
Furniture and fixtures $ 629,613 $ 603,133
Computer equipment 682,541 489,921
Leasehold improvements 65,103 20,707
---------- ----------
1,377,257 1,113,761
Less accumulated depreciation (828,722) (654,167)
---------- ----------
$ 548,535 $ 459,594
---------- ----------
---------- ----------

(4) RELATED PARTY TRANSACTIONS

Prior to December 11, 1995 the Company was a majority-owned subsidiary of CPS
Holdings, Inc., a Delaware corporation ("Holdings"). In September 1995, the
shareholders of the Company approved the merger of Holdings into the Company, as
well as a change in the Company's state of incorporation from California to
Delaware. The merger was completed on December 11, 1995 and had no effect on
the Company's consolidated finanical statements. Management of the Company
anticipates that the reincorporation into the state of Delaware will be
completed in April 1996. Prior to the merger, Charles E. Bradley, Sr., the
Company's Chairman of the Board, was the principal shareholder of Holdings.

The Company is a party to a consulting agreement with Stanwich Partners, Inc.
("SPI") that called for monthly payments of $29,167 through December 31, 1995.
Included in the accompanying consolidated statements of operations for the nine
months ended December 31, 1995 and for the years ended March 31, 1995 and 1994
is $262,500, 350,000 and $350,000, respectively, of consulting expense related
to this consulting agreement. In December 1995, a new consulting agreement was
signed for $75,000 per year for three years beginning January 1, 1996. The
Chairman of the Board of Directors of the Company is a principal shareholder of
SPI.

During the years ended March 31, 1995 and 1994, the Company advanced to Holdings
$714,494 and $300,000, respectively, pursuant to various notes which were to
mature on or before July 1, 1995. As of March 31, 1995 all principal and
interest under the notes had been paid in full.

On September 27, 1995, the Company borrowed $2 million through a promissory note
to Charles E. Bradley, Sr., Chairman of the Board of Directors. Interest
accrues as 11.5% and was payable on the maturity date, December 31, 1995, or
upon the exercise of an option by CPS Holdings, Inc., for the purchase of
1,800,000 shares of the Company's common stock at $2.50 per share, whichever is
earlier. On December 6, 1995, Holdings exercised its option and the note was
repaid in full.

F-11

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

(5) CONTRACTS HELD FOR SALE

The balance of Contracts held for sale was made up of the following components:

December 31, March 31,
------------ ------------
1995 1995
---- -----

Gross receivable balance $ 24,694,964 $ 30,358,454

Unearned finance charges (3,820,267) (6,889,231)

Dealer discounts (1,054,776) (1,123,726)

Deferred loan origination fees (net of related costs) 59,077 (125,480)

Allowance for credit losses (330,156) (323,631)
------------- -------------
Net contracts held for sale $ 19,548,842 $ 21,896,386
------------- -------------
------------- -------------

Activity in the allowance for credit losses consisted of the following:

December 31, Year ended March 31,
-------------- ------------------------
1995 1995 1994
---- ---- ----
Balance, beginning of period $ 323,631 $ 50,169 $ 17,446

Provisions 828,458 532,947 30,008

Charge-offs (1,076,982) (386,408) (7,788)

Recoveries 255,049 126,923 10,503
------------ ----------- ---------
Balance, end of period $ 330,156 $ 323,631 $ 50,169
------------ ----------- ---------
------------ ----------- ---------

The Company is required to represent and warrant certain matters with respect to
the Contracts sold to the investors, which generally duplicate the substance of
the representations and warranties made by the dealers in connection with the
Company's purchase of the Contracts. In the event of a breach by the Company of
any representation or warranty, the Company is obligated to repurchase the
Contracts from the investors at a price equal to the investors' purchase price
less the related credit enhancement and any principal payments received from the
borrower. In most cases, the Company would then be entitled under the terms of
its agreements with its dealers to require the selling dealer to repurchase the
Contracts at the Company's purchase price less any principal payments received
from the borrower.

As of December 31, 1995, March 31, 1995 and March 31, 1994, the Company had
commitments to purchase approximately $910,325, $706,720 and $309,343,
respectively of Contracts from Dealers. The Company signed an agreement with an
investment bank for the placement of up to $65.0 million in securities backed by
its Contracts. The Company expects to fulfill this commitment in March 1996 and
further expects that the terms associated with this securitization will be
similar to the terms of the December 1995 securitization.

F-12

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

(6) SERVICING

Servicing fees are reported as income when earned, net of related amortization
of purchased and excess servicing. Servicing costs are charged to expense as
incurred. Servicing fees for the periods shown included the following
components:

Nine months ended
December 31, Year ended March 31,
----------------- ------------------------------
1995 1995 1994
---- ---- ----

Gross loan servicing fees $ 9,007,193 $ 8,411,182 $ 3,796,133
Amortization of purchased servicing -- (4,849) (36,243)
Amortization of excess servicing (2,023,938) (1,205,271) (203,871)
------------ ------------ ------------
Net Servicing fees $ 6,983,255 $ 7,201,062 $ 3,556,019
------------ ------------ ------------
------------ ------------ ------------

For the year ended March 31, 1994, servicing fees for the two clients to whom
the Company had sold its Contracts accounted for approximately 32% of its total
revenues.

Contracts serviced for the Company's largest servicing client were $49.2 million
at December 31, 1995. The Company services Contracts and loans to borrowers
residing in approximately 50 states, with the largest concentrations of loans in
California, Florida, Pennsylvania, Texas, Illinois and Nevada. Servicing
balances for the periods shown were made up of the following components:

December 31, March 31,
------------ ----------------------------
1995 1995 1994
---- ---- ----

Third party servicing $ -- $ -- $ 1,958,592
Contracts held for sale 20,764,205 23,469,223 744,210
Servicing subject to recourse provisions:
Whole loan portfolios 21,213,050 29,754,103 9,604,485
Alton Receivables Corp. 22,732,021 35,324,463 52,859,416
CPS Receivables Corp. 224,218,079 104,252,042 --
------------ ------------ ------------
$288,927,355 $192,799,831 $ 65,166,703
------------ ------------ ------------
------------ ------------ ------------

(7) EXCESS SERVICING RECEIVABLES

The following table summarizes ESR activity for the periods shown:

Nine months ended
December 31, Year ended March 31,
----------------- ----------------------------
1995 1995 1994
---- ---- -----
Balance, beginning of period $ 5,154,361 $ 2,293,733 $ 503,297
ESR gains recognized 7,977,828 4,065,899 1,994,307
Amortization of ESR (2,023,938) (1,205,271) (203,871)
------------- ------------ ------------
Balance, end of period $ 11,108,251 $ 5,154,361 $ 2,293,733
------------- ------------ ------------
------------- ------------ ------------

F-13

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

December 31, March 31,
------------- -----------------------------
1995 1995 1994
---- ---- ----

Present value of future cash flows $ 34,538,442 $ 19,551,370 $ 7,319,713
Discounted allowance for credit losses (23,430,191) (14,397,009) (5,025,980)
------------- ------------- ------------
Net ESR balance $ 11,108,251 $ 5,154,361 $ 2,293,733
------------- ------------- ------------
------------- ------------- ------------

Servicing subject to recourse provisions $ 268,163,150 $ 169,330,608 $ 62,463,901
------------- ------------- ------------
------------- ------------- ------------

Discounted allowance as percentage of
servicing subject to recourse provisions 8.74% 8.50% 8.05%
------------- ------------- ------------
------------- ------------- ------------

(8) SHAREHOLDERS' EQUITY

PREFERRED STOCK

The holders of the Series A Preferred Stock were entitled to receive non-
cumulative annual dividends equal to 6% of par value, payable quarterly in cash
(or, at the option of the Company, in-kind in additional shares of Series A
Preferred Stock), when and as declared by the Board of Directors, after the
Company's cumulative net income from the date of the Company's initial public
offering reached $5,000,000. No dividends or other distributions may be made
with respect to the common stock until accrued dividends have been declared and
paid (or reserved for payment) on the Series A Preferred Stock. Upon
liquidation, the Series A Preferred Stock is entitled to receive, in preference
to any payment on the common stock, an amount equal to par value plus any
accrued and unpaid dividends. After March 31, 1994, the Series A Preferred Stock
was subject to redemption at the option of the Company at a price of $1.00 per
share plus accrued and unpaid dividends. On March 15, 1995 the company
redeemed, for an aggregate price of $3.4 million, all of the outstanding Series
A Preferred stock with proceeds from the March 7, 1995 public offering of
2,000,000 shares of its common stock.

COMMON STOCK

On October 29, 1992 the Company completed its initial public offering of
2,400,000 shares of common stock. On November 12, 1992 the underwriter
executed its option to sell an additional 200,000 shares of the Company's common
stock. Net of related expenses, the Company raised $4,910,686 in the offering.
On November 19, 1993 the Company sold 333,334 shares of its common stock in a
private placement resulting in net proceeds of $1,440,003. On March 7, 1995 the
Company completed a public offering of 2,000,000 shares of its common stock.
Net of related expenses, the company raised $13,304,550 in this offering.

Holders of the common stock are entitled to such dividends as the Company's
Board of Directors, in its discretion, may declare out of funds available,
subject to the terms of any outstanding shares of preferred stock and other
restrictions. In the event of liquidation of the Company, holders of common
stock are entitled to receive, pro rata, all of the assets of the Company
available for distribution, after payment of any liquidation preference to the
holders of outstanding shares of preferred stock. Holders of the shares of
common stock have no conversion or preemptive or other subscription rights and
there are no redemption or sinking fund provisions applicable to the common
stock.

F-14

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

Upon the consummation of the Company's initial public offering which became
effective on October 22, 1992, Holdings deposited 1,200,000 shares of common
stock (the "Escrow Shares") in escrow with the Company's transfer agent for the
common stock, pursuant to an agreement by and among Holdings, the Company, the
escrow agent and Whale Securities Co., LP. During the escrow period, Holdings
may vote, but may not transfer, the Escrow Shares. While in escrow, the Escrow
Shares have been excluded from computations of primary earnings per common and
common equivalent share due to the contingent nature of their release. The
escrow agreement provided for the Escrow Shares to be released either in their
entirety or in increments of 600,000 depending on the Company's attainment of
certain net income levels for the fiscal years ending March 31, 1994 and March
31, 1995, or, alternatively, if the Company's common stock trades above certain
levels for a specified period of time during the fiscal years ending March 31,
1994 and March 31, 1995. The release of the Escrow Shares is deemed to be
compensatory and results in a charge to the Company equal to the fair market
value of the Escrow Shares as of the date on which they are released. This
charge related to the release of the shares is not deductible for income tax
purposes.

As of March 31, 1994, the Company had exceeded the target in the escrow
agreement which provided for the release of all of the Escrow Shares in the
event that the Company's net income for the fiscal year ended March 31, 1994
exceeded $2.9 million. For purposes of the escrow agreement, net income is
measured after full provision for taxes, without benefit from any net operating
loss carryforwards, and without consideration for any compensation charges
associated with the release of the Escrow Shares.

The release of the Escrow Shares was deemed compensatory and resulted in a one-
time expense for the year ended March 31, 1994 of $6,450,000, or the estimated
fair market value of the Escrow Shares at the time of their release. This one-
time charge is offset by an increase in common stock. There was no impact on
total shareholders' equity on the Company's financial statements as a result of
the release of the Escrow Shares and the corresponding charge.

OPTIONS AND WARRANTS

The Board of Directors of the Company adopted the 1991 Stock Option Plan (the
"Plan") on December 16, 1991 that was subsequently approved by the Company's
then sole shareholder. In September 1995, the Board of Directors and
Shareholders approved a 500,000 share increase to the Plan increasing the total
number of shares reserved for issuance pursuant to the Plan to 2,700,000. The
Plan provides for the grant of options to purchase shares of Common Stock to
officers and other key employees of the Company. The Plan is administered by a
committee of the Board of Directors. Options granted under the Plan may or may
not be incentive stock options as defined in section 422 of the Internal Revenue
Code, depending upon the terms agreed by the Board of Directors at the time of
the grant. The Plan is effective for ten years.

F-15

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

The following table summarizes option activity for the periods shown:

Options Outstanding
-------------------------------
Number of
Shares Price Per Share
--------- ---------------

Options outstanding March 31,1993 1,352,520 $2.50
Granted 355,720 $2.50 - $4.38
Exercised -- --
Canceled 30,400 $2.50
---------
Options outstanding March 31, 1994 1,677,840 $2.50 - $4.38
Granted 415,200 $5.38 - $6.63
Exercised 48,000 $2.50
Canceled -- --

Options outstanding March 31, 1995 2,045,040 $2.50 - $6.63
Granted 84,160 $7.25
Exercised 44,000 $2.50
Canceled -- --
---------
Options outstanding December 31, 1995 2,085,200 $2.50 - $7.25
---------
---------

Vesting schedules and expiration dates vary with each grant. As of December 31,
1995, 1,276,786 options were vested and exerciable and 522,800 shares were
available for grant under the Plan.

On August 21, 1992, the Board of Directors approved the grant to Holdings of a
non-qualified option to purchase 1,800,000 shares of common stock at an exercise
price of $2.50 per share, the estimated fair market value at the date of grant.
This option is in addition to and is not part of the Plan. This option vests in
full on the date of grant and expires ten years from the date of grant. On
December 6, 1995, Holdings exercised its option in full.

In connection with the Company's initial public offering, the Company has sold
to the underwriter of the offering, for an aggregate price of $120, warrants to
purchase up to 240,000 shares of the Company's common stock at an exercise price
of $3.00 per share. The warrants are exercisable during the four year period
commencing one year from the date of the offering. The shares represented by
the warrants have been registered by the Company. During the nine months ended
December 31, 1995, and the year ended March 31, 1995, the underwriter exercised
100,534 and 39,466 warrants, respectively, leaving a balance of 100,000 at
December 31, 1995.

F-16

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

(9) COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases its facilities and certain computer equipment under non-
cancelable operating leases which expire through 2001. Future minimum lease
payments at December 31, 1995 under these leases are as follows:

1996 $ 648,826
1997 685,675
1998 611,290
1999 590,169
2000 590,169
Thereafter 87,433
------------
$ 3,213,562
------------
------------

Rent expense for the nine months ended December 31, 1995 and the years ended
March 31, 1995 and 1994 was $186,483, $219,835 and $157,203, respectively. The
Company's facility lease contains certain rental concessions and escalating
rental payments which are recognized as adjustments to rental expense and are
amortized on a straight-line basis over the term of the lease.

LITIGATION

The Company is subject to lawsuits which arise in the ordinary course of its
business. Management is of the opinion, based in part upon consultation with its
counsel, that the liability of the Company, if any, arising from existing and
threatened lawsuits would not have a material adverse effect on the Company's
financial position and results of operations.

(10) INCOME TAXES

Income taxes are comprised of the following:

Nine months ended
December 31, Year ended March 31,
----------------- --------------------------
1995 1995 1994
---- ---- ----

Current
Federal $ 2,156,799 $ 3,718,390 $ 326,668
State 726,319 1,144,158 337,556
------------ ------------ -----------
Current tax expense 2,883,118 4,862,548 664,224
Deferred
Federal 1,683,960 (353,739) 1,327,087
State 515,108 (27,877) 234,614
------------ ------------ -----------
2,199,068 (381,616) 1,561,701
Change in valuations allowance -- -- (1,735,899)
------------ ------------ -----------
Deferred tax benefit 2,199,068 (381,616) (174,198)
------------ ------------ -----------
Total tax expense $ 5,082,186 $ 4,480,932 $ 490,026
------------ ------------ -----------
------------ ------------ -----------

F-17

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

The Company's effective tax expense differs from the amount determined by
applying the statutory Federal rate of 35% for the nine months ended
December 31, 1995, and the year ended March 31, 1995, and 34% for the year
ended March 31, 1994, to income (loss) before income taxes as follows:

Nine months ended
December 31, Year ended March 31,
----------------- ---------------------------
1995 1995 1994
---- ---- ----

Expense at Federal tax rate $ 4,430,058 $ 3,901,297 $ (437,935)
California franchise tax, net of
Federal income tax benefit 737,192 727,267 470,860
Change in valuation allowance -- -- (1,735,899)
Escrow share expense -- -- 2,580,000
Other (85,064) (147,632) (387,000)
------------ ------------ -----------
$ 5,082,186 $ 4,480,932 $ 490,026
------------ ------------ -----------
------------ ------------ -----------

The tax effected cumulative temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 1995 and March 31, 1995 are as
follows:

December 31, March 31,
------------- ----------
1995 1995
---- ----

Deferred Tax Assets:
Accruals $ 77,716 $ 11,793
Furniture and equipment 52,938 28,337
Provision for credit losses 33,727 142,398
State taxes 489,856 375,046
------------- ----------
654,237 557,574

Valuation allowance -- --
------------- ----------
Total tax asset 654,237 557,574

Deferred Tax Liabilities:
Excess servicing receivables (2,297,491) --
Organization costs -- (1,760)
------------- ----------
Net deferred tax asset (liability) $ (1,643,254) $ 555,814
------------- ----------
------------- ----------

In determining the possible future realization of deferred tax assets, future
taxable income from the following sources be taken into account: (a) the
reversal of taxable temporary differences, (b) future operations exclusive of
reversing temporary differences and (c) tax planning strategies that, if
necessary, would be implemented to accelerate taxable income into years in which
net operating losses might otherwise expire.

The Company believes that the deferred tax asset will more likely than not be
realizable due to the reversal of the deferred tax liability and expected future
taxable income.

F-18

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

(11) DEBT

At March 31, 1995 the Company had a $50 million warehouse line of credit (the
"Line") with General Electric Capital Corp. The Line provides the Company with
an interim financing facility to hold Contracts for sale in greater numbers and
for longer periods of time prior to their sale to other institutional investors.
In June 1995 the Company entered into two new agreements which restructured the
Line and increased the maximum available amount to $100.0 million. The primary
agreement provides for loans by Redwood Receivables Corporation ("Redwood") to
the Company, to be funded by commercial paper issued by Redwood and secured by
Contracts pledged periodically by the Company. The Redwood facility provides
for a maximum of $100.0 million of advances to the Company, with interest at a
variable rate tied to prevailing commercial paper rates. When the Company
wishes to securitize these Contracts, a substantial part of the proceeds
received from Investors is paid to Redwood, which simultaneously releases the
pledged Contracts for transfer to a pass-through securitization trust. The
second agreement is a standby line of credit with GECC, also with a $100.0
million maximum, which the Company may use only if and to the extent that
Redwood does not provide funding as described above. The GECC line is secured
by Contracts and substantially all the other assets of the Company. Both
agreements extend through November 30, 1998. The two agreements are viewed as a
single short-term warehouse line of credit, with advances varying according to
the amount of pledged Contracts. At December 31, 1995 and March 31, 1995, there
was $7.5 million and $19.7 million, respectively, outstanding under the Line
which was secured by contracts held for sale.

On December 20, 1995, the Company issued $20.0 million in rising interest
subordinated redeemable securities due January 1, 2006 ("the Notes"). The Notes
are unsecured general obligations of the Company. Interest on the Notes will be
payable on the first day of each month, commencing February 1, 1996, at an
annual interest rate of 10.0% per annum. The interest rate increases 0.25% on
each January 1 for the first nine years and 0.50% in the last year. In
connection with the issuance of the Notes, the Company incurred and capitalized
issuance costs of $1,105,695. The Company recognizes interest and amortization
expense related to the Notes using a method which approximates the effective
interest method over the expected redemption period. At December 31, 1995,
there was $1,100,430 of unamortized deferred financing costs related to the
Notes. The Notes are subordinated to certain existing and future indebtedness
of the Company as defined in the indenture agreement. The Company is required
to redeem, subject to certain adjustments, $1.0 million of the aggregate
principal amount of the Notes through the operation of a sinking fund on each of
January 1, 2000, 2001, 2002, 2003, 2004 and 2005. The Notes are not redeemable
at the option of the Company prior to January 1, 1998. The Company may at its
option elect to redeem the Notes from the registered holders of the Notes, in
whole or in part, at any time, on or after January 1, 1998 and prior to January
1, 1999 at 102% of their principal amount, on or after January 1, 1999 and prior
to January 1, 2000 at 101% of their principal amount, and on or after January 1,
2000 at 100% of their principal amount, in each case plus accrued interest to
and including the date of redemption.

On March 12, 1993, the Company issued a $2 million Five Year Convertible
Subordinated Note ("Note 1") to an institutional investor in conjunction with an
agreement by that investor to commit to purchase up to $50 million of the
Company's Contracts. Interest accrues at 11% and is payable semi-annually. At
any time prior to the maturity date, and subject to a full pre-payment of Note
1, the holder may convert it, in its entirety, to 533,334 shares of common
stock, at $3.75 per share, of the Company. On July 5, 1995, the holder
converted Note 1. On November 16, 1993, the Company issued a $3 million Five
Year Convertible Subordinated Note ("Note 2") to the same institutional investor
in conjunction with an agreement by that investor to commit to purchase an
additional $50 million of the Company's Contracts. Interest accrues at 9.5% and
is payable semi-annually. At any time prior to the maturity date, and subject to
a full pre-payment of Note 2, the holder may convert it, in its entirety, to
480,000 shares of common stock, at $6.25 per share, of the Company. At December
31, 1995, $71,250 of interest related to the notes is included in accounts
payable and accrued expenses

F-19

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

The terms of Note 2 provide that the Company shall not make any distributions to
holders of its common stock (other than dividends or distributions payable in
common stock of the Company) or purchase, redeem or otherwise acquire or retire
for value any of its common stock or any warrants, rights or options, if at the
time of such action the Company is in default on Note 2, or if it would be in
default after giving effect to such action. Note 2 is subordinate to all other
debt of the Company. The Company is in compliance with all of the terms and
conditions of Note 2.

On May 15, 1994 the Company issued a promissory note in the amount of $2 million
to the same institutional investor who holds Note 2. On October 25, 1994, the
Company borrowed an additional $3 million under two new promissory notes from
two different institutional investors. These Promissory notes bear interest at
400 basis points over the Citibank Base Rate and mature on February 28, 1995,
with provisions for extensions to April 30, 1995, at the option of the Company.
The Company repaid each of these notes with the proceeds from its March 7, 1995
public common stock offering.

On July 6, 1995, the Company borrowed $2.0 million from the same investor who
holds Note 2 pursuant to a promissory note which bears interest at the rate
which Citibank, NA announces from time to time as its base rate plus 2.00% and
which matures on December 31, 1995. On December 6, 1995, the note was repaid in
full. On September 27, 1995, the Company borrowed $2.0 million from Charles E.
Bradley, Sr., which was repaid on December 6, 1995.

(12) EMPLOYEE BENEFITS

The Company sponsors a pretax savings and profit sharing plan under section
401(k) of the Internal Revenue Code (the "Plan"). Under the Plan, eligible
employees are able to contribute up to 1% to 15% of their compensation. The
Company matches 20% of employees contributions up to $400 per employee per
calendar year. The Company's contribution to the Plan was $13,811 and $16,245
for the nine months ended December 31, 1995 and the year ended March 31, 1995,
respectively.

(13) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active market values do not exist. Therefore, considerable
judgments were required in estimating fair value for certain items. The
subjective factors include, among other things, the estimated timing and amount
of cash flows, risk characteristics, credit quality and interest rates, all of
which are subject to change. Since the fair value is estimated as of December
31, 1995, the amounts that will actually be realized or paid at settlement or
maturity of the instruments could be significantly different. The estimated
fair values of financial assets and liabilities at December 31, 1995, were as
follows:

Financial Instrument Carrying Value Fair Value
- ---------------------------------------- -------------- ------------

Cash $ 10,895,157 $ 10,895,157
Contracts held for sale 19,548,842 20,700,000
Investment in subordinated certificates 2,174,666 2,174,666
Investment in credit enhancements 30,477,793 30,477,793
Excess servicing receivable 11,108,251 11,108,251
Warehouse line of credit 7,500,000 7,500,000
Notes payable 20,000,000 20,000,000
Convertible subordinated debt $ 3,000,000 $ 3,000,000

F-20

Consumer Portfolio Services, Inc.
Notes to Consolidated Financial Statements
Nine months ended December 31, 1995 and
years ended March 31, 1995 and 1994

CASH

The carrying value approximates fair value.

CONTRACTS HELD FOR SALE

The fair value of the Company's contracts held for sale is determined in the
aggregate based upon current investor yield requirements and by discounting the
future cash flows using the current credit and discount rates that the Company
believes reflect the estimated credit, interest rate and prepayment risks
associated with similar types of instruments.

INVESTMENTS IN SUBORDINATED CERTIFICATES

The fair value is estimated by discounting future cash flows using credit and
discount rates that the Company believes reflect the estimated credit, interest
rate and prepayment risks associated with similar types of instruments.

INVESTMENTS IN CREDIT ENHANCEMENTS

EXCESS SERVICING RECEIVABLES

WAREHOUSE LINE OF CREDIT

The carrying value approximates fair value because the warehouse line of credit
is short-term in nature and the related interest rates are estimated to reflect
current market conditions for similar types of instruments.

NOTES PAYABLE

The fair value is estimated based on quoted market prices and on current rates
for similar debt with similar remaining maturities.

CONVERTIBLE SUBORDINATED DEBT

The carrying value approximates fair value because the related interest rates
are estimated to reflect current market conditions for similar types of
instruments.

(14) SUBSEQUENT EVENT

In February 1996, the Company entered into an agreement to acquire 1.6 million
shares (approximately 38%) of NAB Asset Corporation ("NAB"), for $2.50 per
share.

F-21

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

September 30, December 31,
------------ ------------
1996 1995
---- ----

ASSETS
Cash $ 145,109 $ 10,895,157
Contracts held for sale (note 3) 17,772,503 19,548,842
Servicing fees receivable 2,732,971 1,454,707
Investment in subordinated certificates (note 2) -- 2,174,666
Investments in credit enhancements (note 2) 46,525,564 30,477,793
Excess servicing receivables 19,110,958 11,108,251
Furniture and equipment, net 630,520 548,535
Deferred financing costs 982,524 1,100,430
Other assets 5,528,007 569,944
------------ ------------
$ 93,428,156 $ 77,878,325
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

LIABILITIES

Accounts payable & accrued expenses $ 4,526,558 $ 1,341,905
Warehouse line of credit 9,838,856 7,500,000
Taxes payable 2,091,084 2,912,084
Deferred tax liability 1,643,254 1,643,254
Notes payable 20,000,000 20,000,000
Convertible subordinated debt 3,000,000 3,000,000
------------ ------------
41,099,752 36,397,243
SHAREHOLDERS' EQUITY

Preferred stock, $1 par value; authorized
5,000,000 shares; none issued -- --

Series A preferred stock, $1 par value;
authorized 5,000,000 shares; 3,415,000
shares issued; none outstanding -- --

Common stock, no par value; authorized
30,000,000 shares; 13,556,842 and 13,298,642
shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 33,955,739 33,265,239

Retained earnings 18,372,665 8,215,843
------------ ------------
52,328,404 41,481,082
Subsequent event (note 5)
------------ ------------
$ 93,428,156 $ 77,878,325
------------ ------------
------------ ------------

See accompanying notes to condensed consolidated financial statements

F-22

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

Nine Months Ended
September 30,
------------------------------
1996 1995
---- ----

REVENUES:
Net gain on sale of contracts $15,864,442 $ 9,941,674
Servicing fees (note 4) 12,939,146 7,105,684
Interest 7,347,704 5,384,990
----------- -----------
36,151,292 22,432,348
----------- -----------
EXPENSES:
Interest 4,309,859 2,835,237
Employee costs 6,121,280 3,087,263
General and administrative 5,072,144 2,607,669
Marketing 1,117,051 708,097
Occupancy 542,009 271,411
Related party consulting fees 56,250 262,500
Depreciation and amortization 207,527 143,898
Provision for credit losses 1,655,330 888,631
----------- -----------
19,081,450 10,804,706
----------- -----------
Income before income taxes 17,069,842 11,627,642

Income taxes 6,913,020 4,733,542
----------- -----------
Net income $10,156,822 $ 6,894,100
----------- -----------
----------- -----------
Net income per common and common
equivalent share $ 0.69 $ 0.54
----------- -----------
----------- -----------

Weighted average number of common
and common equivalent shares 14,746,930 12,837,934
----------- -----------
----------- -----------

Fully diluted net income per common
and common equivalent share $ 0.67 $ 0.49
----------- -----------
----------- -----------

Fully diluted weighted average number of
common and common equivalent shares 15,452,640 14,001,510
----------- -----------
----------- -----------

See accompanying notes to condensed consolidated financial statements

F-23

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

Nine Months Ended
September 30,
----------------------------
1996 1995
---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,156,822 $ 6,894,100
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 207,527 143,898
Amortization of excess servicing receivables 4,401,858 1,617,628
Amortization of deferred financing costs 117,906 --
Provision for credit losses 1,655,330 888,631
Gain on sale of contracts from excess
servicing receivables (12,404,565) (6,198,271)
Loss on investment in NAB Asset Corporation 124,000 --
Changes in operating assets and liabilities:
Purchases of contracts held for sale (254,322,070) (114,803,980)
Liquidation of contracts held for sale 254,443,079 117,891,066
Servicing fees receivable (1,278,264) (1,099,273)
Prepaid related party expenses -- (30,834)
Initial deposits to credit enhancement
accounts (9,020,145) (7,262,503)
Excess servicing deposited to credit
enhancement accounts (13,274,535) (6,721,998)
Release of cash from credit enhancement
accounts 6,246,909 8,087,419
Deferred taxes -- (381,616)
Other assets (1,082,063) 304,931
Accounts payable and accrued expenses 3,184,653 288,795
Warehouse line of credit 2,338,856 (15,416,779)
Taxes payable (821,000) 329,681
Deferred rent -- (33,677)
------------- -------------
Net cash used in operating activities: (9,325,702) (15,502,782)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subordinated certificates 2,022,220 --
Investment in NAB Asset Corporation (4,000,000) --
Purchases of furniture and equipment (289,512) (381,616)
Payments received on subordinated certificates 152,446 118,764
------------- -------------
Net cash used in investing activities (2,114,846) (262,852)

CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of note to related party -- 2,000,000
Repayment of notes payable -- (5,000,000)
Issuance of common stock -- 13,304,550
Exercise of options and warrants 690,500 227,764
------------- -------------
Net cash provided by financing activities 690,500 10,532,314
------------- -------------
Decrease in cash (10,750,048) (5,233,320)
Cash at beginning of period 10,895,157 6,686,844
------------- -------------
Cash at end of period $ 145,109 $ 1,453,524
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period
Interest $ 3,766,359 $ 2,568,007
Income taxes $ 6,679,000 $ 4,844,050
Supplemental disclosure of non-cash investing and
financing activities:
Issuance of common stock upon conversion of debt $ -- $ 2,000,000

See accompanying notes to condensed consolidated financial statements

F-24

Consumer Portfolio Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(Unaudited)

NOTE 1: BASIS OF PRESENTATION

The Company is engaged in the business of purchasing, selling and servicing
retail installment sales contracts ("Contracts") originated by automobile
dealers ("Dealers") that sell both new and used automobiles, light trucks and
passenger vans.

The unaudited condensed consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the results for the interim periods presented. All such
adjustments are, in the opinion of management, of a normal recurring nature.
Results for the nine month periods ended September 30, 1996 and 1995 are not
necessarily indicative of the operating results to be expected for the full
year.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the audited
consolidated financial statements and notes thereto included elsewhere herein.

The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Alton Receivables Corp. ("Alton"),
CPS Receivables Corp. ("CPSRC") and CPS Funding Corp. ("CPSFC"). The
consolidated financial statements also include the accounts of SAMCO Acceptance
Corp. ("SAMCO") and LINC Acceptance Company, LLC ("LINC") both of which are 80%
owned subsidiaries of the Company. All significant intercompany transactions
and balances have been eliminated.

On June 5, 1996, the Company purchased 38% of the outstanding common stock of
NAB Asset Corporation ("NAB") for approximately $4 million. The investment in
NAB is included in other assets and is accounted for by the Company under the
equity method. All significant intercompany transactions and balances have been
eliminated.

Included in other assets is a loan to a subsidiary of NAB. At September 30,
1996, the balance of the loan was approximately $600,000.

NOTE 2: INVESTMENTS IN CREDIT ENHANCEMENTS

The Company is a party to various agreements with institutional investors and
investment banks for the sale of the Company's Contracts. The agreements call
for the Company to sell Contracts to one of its special purpose corporation
subsidiaries, either Alton or CPSRC (the "SPCs"), which subsequently transfer
the Contracts to various grantor trusts (the "Trusts") which then issue interest
bearing certificates which are purchased by institutional investors. The terms
of the agreements provide that simultaneous with each purchase of certificates
by the investor, the Company is required to provide a credit enhancement in the
form of a cash capital contribution to the SPC equal to a specified percentage
of the amount of the certificates purchased by the investor. The SPC then
deposits the initial cash deposit, and subsequent excess servicing cash flows as
required by the terms of the various agreements, to an account held by a trustee
(the "Spread Account") and pledges the cash to the Trust, which in turn invests
the cash in high quality liquid investment securities as defined by the various
agreements. In the securitizations since June 1995, the Company altered the
credit enhancement mechanism to create a subordinated class of asset-backed
securities ("B Piece") in order to reduce the size of the required initial
deposit to the Spread Account. The Company has sold five of six B Pieces
created in conjunction with the sale of the related senior certificates. Unsold
B Pieces are accounted for as available for sale and, when originated, are
treated as non-cash investing activities.

F-25

Consumer Portfolio Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(Unaudited)

In the event that the cash flows generated by the Contracts transferred to
the Trust are insufficient to pay obligations of the Trust, including
principal or interest due to certificate holders or expenses of the Trust,
the trustee will draw an amount necessary from the Spread Accounts to pay the
obligations of the Trust. The agreements provide that the Spread Accounts
shall be maintained at a specified percent of the principal balance of the
certificates, which are increased in cases where delinquencies, repossessions
or losses exceed certain specified levels. In the event delinquencies,
repossessions or losses on the Contracts serviced exceed specified higher
levels defined in certain of the Company's securitization agreements, the
terms of those securitizations may allow for the transfer of servicing to
another servicer. As principal payments are made to the certificate holders,
and if the Spread Accounts are in excess of the specified percent of the
principal balance of the certificates, the trustee shall release to the SPC
the portion of the pledged cash that is in excess of the specified percent of
the principal balance of the certificates. Except for releases in this
manner, the cash in the Spread Accounts is restricted from use by the SPC or
the Company.

NOTE 3: CONTRACTS HELD FOR SALE

The Contracts which the Company purchases from dealers provide for finance
charges of approximately 20% per annum, in most cases. Each Contract provides
for full amortization, equal monthly payments and can be fully prepaid by the
borrower at any time without penalty. The Company generally purchases the
Contracts from dealers at a discount, ranging from zero to ten percent, from the
amount financed under the Contract. In addition, the Company generally charges
the Dealer a fee of $200 per Contract purchased. Contracts are generally sold
by the Company within three months of their purchase, although they may be held
longer. Contracts held for sale are stated at the lower of aggregate cost or
market value, net of related reserves. At September 30, 1996 and December 31,
1995, the balance of Contracts held for sale was made up of the following
components:

September 30, December 31,
1996 1995
------------- -------------

Gross receivable balance $ 23,351,660 $ 24,694,964
Unearned finance charges (4,327,496) (3,820,267)
Dealer discounts (956,968) (1,054,776)
Deferred contract acquisition net costs 61,127 59,077
Reserves for losses (355,820) (330,156)
------------- -------------
Net contracts held for sale $ 17,772,503 $ 19,548,842
------------- -------------
------------- -------------

F-26

Consumer Portfolio Services, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1996
(Unaudited)

NOTE 4: SERVICING FEES

Servicing fees are reported as income when earned, net of related amortization
of excess servicing. Servicing costs are charged to expense as incurred.
Servicing fees for the nine month periods ended September 30, 1996 and 1995,
included the following components:

Nine Months Ended September 30,
-------------------------------
1996 1995
---- ----
Gross contract servicing fees $ 17,341,004 $ 8,723,312
Amortization of excess servicing (4,401,858) (1,617,628)
------------- ------------
Net servicing fees $ 12,939,146 $ 7,105,684
------------- ------------
------------- ------------

NOTE 5: SUBSEQUENT EVENT

On January 17, 1997 the holder of the 9.5% $3 million convertible note exercised
its right to convert the note into 480,000 shares of common stock.

NOTE 6: NEW ACCOUNTING PRONOUNCEMENTS

On June 28, 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No.
125). This statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Under the
financial-components approach, after a transfer of financial assets, an
entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished.

SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not
permitted. Management is in the process of evaluating what future effect SFAS
No. 125 will have on the Company's financial position and results of
operations.

F-27

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF
THIS PROSPECTUS.

-----------------------------

TABLE OF CONTENTS

PAGE
----
Prospectus Summary......................................................... 3
Risk Factors............................................................... 11
Use of Proceeds............................................................ 17
Price Range of Common Stock and Dividend Policy............................ 17
Capitalization............................................................. 18
Selected Consolidated Financial Data....................................... 19
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 22
Business................................................................... 33
Management................................................................. 48
Certain Transactions....................................................... 51
Principal Shareholders..................................................... 52
Description of the Notes................................................... 54
Underwriting............................................................... 65
Legal Matters.............................................................. 66
Experts.................................................................... 66
Incorporation of Certain Information by Reference.......................... 66
Additional Information..................................................... 66
Index to Consolidated Financial Statements................................. 68

$35,000,000

CONSUMER PORTFOLIO
SERVICES, INC.

____% PARTICIPATING EQUITY NOTES-SM-
DUE 2004
"PENs-SM-"

- --------------------------------------------------------------------------------
PROSPECTUS

- --------------------------------------------------------------------------------

PIPER JAFFRAY INC.
LEGG MASON WOOD WALKER
INCORPORATED
DAIN BOSWORTH
INCORPORATED

, 1997

PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14.OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

Set forth below are the expenses estimated in connection with the issuance
and distribution of the Company's securities, other than underwriting discounts
and commissions. All expenses incurred with respect to the distribution will be
paid by the Company. Except for the SEC registration fee, the NASD filing fee,
and the NYSE filing fee, all expenses are estimated and assume that the
Underwriters' over-allotment option is not exercised.

SEC registration fee . . . . . . . . . . . . . . . . . . . $12,197
NASD filing fee. . . . . . . . . . . . . . . . . . . . . . 4,525
NYSE filing fee. . . . . . . . . . . . . . . . . . . . . . 2,500
Printing and engraving expenses. . . . . . . . . . . . . . 70,000
Accounting fees and expenses . . . . . . . . . . . . . . . 75,000
Legal fees and expenses
(not including blue sky). . . . . . . . . . . . . . . . . 50,000
Blue sky filing fees and expenses. . . . . . . . . . . . . 10,000
Rating agency fees . . . . . . . . . . . . . . . . . . . . 35,000
Trustee fees . . . . . . . . . . . . . . . . . . . . . . . 5,000
Miscellaneous expenses . . . . . . . . . . . . . . . . . . 5,878
--------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $270,000
--------
--------

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under California law, a California corporation may eliminate or limit the
personal liability of a director to the corporation for monetary damages for
breach of the director's duty of care as a director, provided that the breach
does not involve certain enumerated actions, including, among other things,
intentional misconduct or knowing and culpable violation of the law, acts or
omissions which the director believes to be contrary to the best interests of
the corporation or its shareholders or which reflect an absence of good faith on
the director's part, the unlawful purchase or redemption of stock, payment of
unlawful dividends, and receipt of improper personal benefits. The Company's
Board of Directors believes that such provisions have become commonplace among
major corporations and are beneficial in attracting and retaining qualified
directors, and the Company's Articles of Incorporation include such provisions.

The Company's Articles of Incorporation and Bylaws also impose a mandatory
obligation upon the Company to indemnify any director or officer to the fullest
extent authorized or permitted by law (as now or hereinafter in effect),
including under circumstances in which indemnification would otherwise be at the
discretion of the Company.

The Purchase Agreement to be entered into between the Company and the
Underwriters, the form of which is included as an exhibit to this Registration
Statement, includes the Company's agreement to indemnify the Underwriters
against certain civil liabilities, including liabilities under the Securities
Act of 1933, and to contribute to payments the Underwriters may be required to
make with respect thereto. The Purchase Agreement also includes certain
reciprocal indemnification rights in favor of the Company and its directors,
officers and control persons.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

II-1

Exhibit
No. Description of Exhibit
-------- ----------------------
1.1 Form of Purchase Agreement.*
4.1 Form of Indenture.
4.2 Form of Participating Equity Note (included in Exhibit 4.3 herein).
4.3 Form of First Supplemental Indenture.
5.1 Opinion of Troy & Gould Professional Corporation.*
12.1 Statement re: computation of ratio of earnings to fixed charges.
25.1 Form T-1 Statement of Eligibility of Trustee.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Troy & Gould Professional Corporation (contained in
Exhibit 5.1).(*)
- ---------------
(*) To be filed by amendment.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
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 hereunder, the Registrant
will, unless in the opinion of its counsel the matter has already been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933, as amended, and shall be governed by
the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement (other than as provided
in the proviso and instructions to Item 512(a)of Regulation S-K)(i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the registration statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.

(4) That, for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 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

II-2

securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Irvine, California on February 5, 1997.

CONSUMER PORTFOLIO SERVICES, INC.

By /s/ Charles E. Bradley, Jr.
----------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby appoints Charles E.
Bradley, Jr. and Jeffrey P. Fritz his true and lawful attorneys-in-fact, each
with power to act alone, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date

/s/ Charles E. Bradley, Jr.
- --------------------------- President, Chief Executive February 5, 1997
Charles E. Bradley, Jr. Officer (Principal Executive
Officer) and Director

/s/ Charles E. Bradley, Sr.
- --------------------------- Chairman of the Board February 5, 1997
Charles E. Bradley, Sr.

/s/ Jeffrey P. Fritz
- --------------------------- Senior Vice President and Chief February 5, 1997
Jeffrey P. Fritz Financial Officer (Principal
Financial and Accounting Officer)

/s/ William B. Roberts
- --------------------------- Director February 5, 1997
William B. Roberts

/s/ John G. Poole
- --------------------------- Director February 5, 1997
John G. Poole

- --------------------------- Director
Robert A. Simms

- --------------------------- Director
Thomas L. Chrystie




                                                                      OH&S DRAFT
                                                                        02/05/97









- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------




                         Consumer Portfolio Services, Inc.

                                       Issuer

                                         and

                                Bankers Trust Company

                                      Trustee

                                 --------------------


                                      INDENTURE

                                 --------------------

                             Dated as of February 1, 1997

                                   Debt Securities




- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------




                                 TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                               RECITALS OF THE COMPANY

                                     ARTICLE ONE

               DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 101.  Definitions...................................................  1
Section 102.  Compliance Certificates and Opinions.......................... 12
Section 103.  Form of Documents Delivered to Trustee........................ 13
Section 104.  Acts of holders............................................... 13
Section 105.  Notices, Etc. to Trustee and Company.......................... 15
Section 106.  Notice to Holders of Securities; Waiver....................... 15
Section 107.  Language of Notices........................................... 16
Section 108.  Conflict with Trust Indenture Act............................. 16
Section 109.  Effect of Headings and Table of Contents...................... 16
Section 110.  Successors and Assigns........................................ 16
Section 111.  Separability Clause........................................... 16
Section 112.  Benefits of Indenture......................................... 17
Section 113.  Governing Law................................................. 17
Section 114.  Legal Holidays................................................ 17
Section 115.  No Recourse Against Others.................................... 17


                                     ARTICLE TWO

                                   SECURITIES FORMS

Section 201.   Forms Generally............................................... 17
Section 202.   Form of Trustee's Certificate of
               Authentication................................................ 18
Section 203.   Securities in Global Form..................................... 18


                                    ARTICLE THREE

                                    THE SECURITIES

Section 301.   Amount Unlimited; Issuable in Series.......................... 19
Section 302.   Currency; Denominations....................................... 21
Section 303.   Execution, Authentication, Delivery and
               Dating........................................................ 22
Section 304.   Temporary Securities.......................................... 23
Section 305.   Registration, Transfer and Exchange........................... 23
Section 306.   Mutilated, Destroyed, Lost and Stolen
               Securities.................................................... 26
Section 307.   Payment of Interest and Certain Additional Amounts;
               Rights to Interest and Certain
               Additional Amounts Preserved.................................. 27
Section 308.   Persons Deemed Owners......................................... 28
Section 309.   Cancellation.................................................. 29
Section 310.   Computation of Interest....................................... 29




                                        - i -




                                     ARTICLE FOUR

                              SATISFACTION AND DISCHARGE

Section 401.   Satisfaction and Discharge of Indenture....................... 29
Section 402.   Satisfaction, Discharge and Defeasance of Securities
               of Any Series................................................. 32
Section 403.   Application of Trust Money.................................... 33


                                     ARTICLE FIVE

                                       REMEDIES

Section 501.   Events of Default............................................. 34
Section 502.   Acceleration of Maturity; Rescission and Annulment............ 36
Section 503.   Collection of Indebtedness and Suits for Enforcement
               by Trustee.................................................... 37
Section 504.   Trustee May File Proofs of Claim.............................. 38
Section 505.   Trustee May Enforce Claims without
               Possession of Securities...................................... 39
Section 506.   Application of Money Collected................................ 39
Section 507.   Limitations on Suits.......................................... 40
Section 508.   Unconditional Right of Holder to Receive
               Principal and any Premium, Interest and
               Additional Amounts............................................ 41
Section 509.   Restoration of Rights and Remedies............................ 41
Section 510.   Rights and Remedies Cumulative................................ 41
Section 511.   Delay or Omission not Waiver.................................. 42
Section 512.   Control by Holders of Securities.............................. 42
Section 513.   Waiver of Past Defaults....................................... 43
Section 514.   Waiver of Stay or Extension Laws.............................. 43


                                     ARTICLE SIX

                                     THE TRUSTEE

Section 601.   Certain Duties and Responsibilities........................... 43
Section 602.   Notice of Defaults............................................ 45
Section 603.   Certain Rights of Trustee..................................... 45
Section 604.   Not Responsible for Recitals or Issuance of Securities........ 47
Section 605.   May Hold Securities........................................... 47
Section 606.   Money Held in Trust........................................... 47
Section 607.   Compensation and Indemnity.................................... 47
Section 608.   Corporate Trustee Required; Eligibility....................... 48
Section 609.   Resignation and Removal; Appointment of
               Successor..................................................... 49
Section 610.   Acceptance of Appointment by Successor........................ 50
Section 611.   Merger, Conversion, Consolidation or
               Succession to Business........................................ 52
Section 612.   Appointment of Authenticating Agent........................... 52




                                        - ii -




                                    ARTICLE SEVEN

                  HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY

Section 701.   Company to Furnish Trustee Names and
               Addresses of Holders.......................................... 54
Section 702.   Preservation of Information; Communications
               to Holders.................................................... 54
Section 703.   Reports by Trustee............................................ 55
Section 704.   Reports by Company............................................ 55


                                    ARTICLE EIGHT

                           CONSOLIDATION, MERGER AND SALES

Section 801.   Company May Consolidate, Etc., Only on
               Certain Terms................................................. 56
Section 802.   Successor Person Substituted for Company...................... 57


                                     ARTICLE NINE

                         AMENDMENTS, SUPPLEMENTS AND WAIVERS

Section 901.   Without Consent Holders....................................... 58
Section 902.   With Consent of Holders....................................... 59
Section 903.   Execution of Amendments or Supplemental Indentures............ 60
Section 904.   Effect of Waiver, Amendments and
               Supplemental Indentures....................................... 61
Section 905.   Reference in Securities too Supplemental Indentures........... 61


                                     ARTICLE TEN

                                      COVENANTS

Section 1001.  Payment of Principal and any Premium,
               Interest and Additional Amounts............................... 61
Section 1002.  Maintenance of Office or Agency............................... 61
Section 1003.  Money for Securities Payments to Be Held
               in Trust...................................................... 62
Section 1004.  Additional Amounts............................................ 63
Section 1005.  Corporate Existence........................................... 64
Section 1006.  Maintenance of Properties..................................... 65
Section 1007.  Limitation on Restricted Payments............................. 65
Section 1008.  Limitation on Indebtedness for Money
               Borrowed...................................................... 66
Section 1009.  Limitation on Subordinated Indebtedness....................... 66
Section 1010.  Payment of Taxes and Other Claims............................. 66
Section 1011.  Books and Records............................................. 67
Section 1012.  Statement by Officers as to Default........................... 67
Section 1013.  Waiver of Certain Covenants................................... 67




                                       - iii -




Section 1014.  Limitation on Ranking of Future
               Indebtedness.................................................. 68
Section 1015.  Subsidiaries that Own Finance Receivables..................... 68
Section 1016.  Limitations on Transactions with
               Affiliates.................................................... 68


                                    ARTICLE ELEVEN

                               REDEMPTION OF SECURITIES

Section 1101.  Applicability of Article...................................... 69
Section 1102.  Election to Redeem; Notice to Trustee......................... 69
Section 1103.  Selection by Trustee of Securities to be
               Redeemed...................................................... 69
Section 1104.  Notice of Redemption.......................................... 70
Section 1105.  Deposit of Redemption Price................................... 71
Section 1106.  Securities Payable on Redemption Date......................... 71
Section 1107.  Securities Redeemed in Part................................... 72


                                    ARTICLE TWELVE

                                    SINKING FUNDS

Section 1201.  Applicability of Article...................................... 72
Section 1202.  Satisfaction of Sinking Fund Payments with Securities......... 72
Section 1203.  Redemption of Securities for Sinking Fund..................... 73


                                   ARTICLE THIRTEEN

                          REPAYMENT AT THE OPTION OF HOLDERS

Section 1301.  Applicability of Article...................................... 74
Section 1302.  Repayment Opinion upon Death of Holder........................ 74
Section 1303.  Redemption Upon Special Redemption Event...................... 76
Section 1304.  Deposit of Repayment Price.................................... 77
Section 1305.  Securities Payable on Repayment Date.......................... 77
Section 1306.  Securities Repaid in Part..................................... 78


                                   ARTICLE FOURTEEN

                             SUBORDINATION OF SECURITIES

Section 1401.  Securities Subordinated to Senior
               Indebtedness.................................................. 78
Section 1402.  Subrogation................................................... 82
Section 1403.  Obligations of Company Unconditional.......................... 82
Section 1404.  fectuation of Subordination by Trustee........................ 83
Section 1405.  Knowledge of Trustee.......................................... 83
Section 1406.  Trustee May Hold Senior Indebtedness.......................... 83
Section 1407.  Rights of Holders of Senior Indebtedness




                                        - iv -




               Not Impaired.................................................. 83





                                        - v -



                          Consumer Portfolio Services, Inc.

            Reconciliation and tie between Trust Indenture Act of 1939
                     and Indenture, dated as of February 1, 1997

Trust Indenture
Act Section                                                   Indenture Section
- -----------                                                   -----------------

Section 310 (a) (1)........................................................608
            (a)(2).........................................................608
            (a) (3) ............................................Not Applicable
            (a) (4) ........................................ ...Not Applicable
            (5) (5)........................................................608
            (b)............................................................609
Section 311 ....................................................Not Applicable
Section 312 (a).......................................................701, 701
            (b)............................................................702
            (c)................................................ Not Applicable
Section 313 .......................................................602,703,704
Section 314 (a)............................................................704
            (b).................................................Not Applicable
            (c) (1)........................................................102
            (c) (2)....................................................... 102
            (c) (3).............................................Not Applicable
            (d).................................................Not Applicable
            (e)............................................................102
Section 315 (a)............................................................601
            (b)............................................................602
            (c)............................................................601
            (d)............................................................601
            (e).................................................Not Applicable
Section 316 (a).................................................Not Applicable
            (a) (1) (A)...............................................502, 512
            (a) (1) (B)....................................................513
            (a) (2).............................................Not Applicable
            (b)............................................................508
Section 317 (a) (1)........................................................503
            (a) (2)........................................................504
            (b)...........................................................1003
Section 318...............................................................108

Note: This reconciliation and tie shall not, for any purpose, be deemed to be
part of the Indenture.




                                        - i -




    INDENTURE, dated as of February 1, 1997 (the "Indenture") between Consumer
Portfolio Services, Inc., a corporation duly organized and existing under the
laws of the State of California (hereinafter called the "Company"), having
executive offices located at 2 Ada, Suite 100, Irvine, California 92718 and
Bankers Trust Company, a New York banking corporation duly organized and
existing under the laws of the State of new York (hereinafter called the
"Trustee"), having its Corporate Trust Office located at 4 Albany Street, New
York, New York 10006.


                               RECITALS OF THE COMPANY

    The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
subordinated debentures, notes or other evidences of indebtedness, unlimited as
to principal amount, to bear such rates of interest, to mature at such time or
times, to be issued in one or more series and to have such other provisions as
shall be fixed as hereinafter provided.

    All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.

    This Indenture is subject to the provisions of the Trust Indenture Act and
the rules and regulations of the Securities and Exchange Commission promulgated
thereunder that are required to be part of this Indenture and, to the extent
applicable, shall be governed by such provisions,

    NOW, THEREFORE, THIS INDENTURE WITNESSETH:

    For and in consideration of the premises, the sum of one dollar duly paid
by the Company to the Trustee, the receipt of which is hereby acknowledged and
the purchase of the Securities by the Holders (as defined) thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders from time to time of the Securities as follows:


                                     ARTICLE ONE

               DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

    Section 101.   Definitions.

    Except as otherwise expressly provided in or pursuant to this Indenture or
unless the context otherwise requires, for all purposes of this Indenture:

         (i)       the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;


                                        - 1 -




         (ii)      all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

         (iii)     all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principals in the United States and, except as otherwise herein expressly
provided, the term "generally accepted accounting principals" with respect to
any computation required or permitted hereunder shall mean such accounting
principles as are generally accepted in the United States at the date of such
computation;

         (iv)      the word "herein", "hereof", "hereto" and "hereunder" and
other words of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and

         (v)       the word "or" is always used inclusively (for example, the
phrase "A" or "B" means "A or B or both", not "either A or B but not both").

    Certain terms used, principally in certain Articles hereof are defined in
those Articles.

    "Act", when used with respect to any Holder, has the meaning specified in
Section 104.

    "Additional Amounts" means any additional amounts which are required hereby
or by any Security or by or pursuant to a Board Resolution, under circumstances
specified or other governmental charges imposed on Holders specified therein and
which are owing to such Holders.

    "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.  For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have the meanings correlative to
the foregoing.

    "Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 612 to act on behalf of the Trustee to authenticate Securities of one
or more series.

    "Board of Directors" means the board of directors of the Company or any
committee of that board duly authorized to act generally or in any particular
respect for the Company hereunder.

    "Board Resolution" means a copy of one or more resolutions, certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and


                                          2




to be in full force and effect on the date of such certification, delivered to
the Trustee.

    "Business Day", except as may otherwise be provided in the form of
Securities of any particular series pursuant to the provisions of this
Indenture, with respect to any Place of Payment or other location, means each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a Legal Holiday in
the state where the Trustee's Corporate Trust Office is principally located in
such Place of Payment or other location.

    "Capitalized Lease Obligations" means, as to any Person, the obligations of
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real or personal property which obligations are
required to be classified and accounted for as capital lease obligations on a
balance sheet of such Person under generally accepted accounting principles and,
for purposes of this Indenture, the amount of such obligations at any date shall
be the capitalized amount thereof at such date, determined in accordance with
generally accepted accounting principles.

    "Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Securities Exchange Act of 1934, as amended,
or, if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.

    "Company" means the Person named as the "Company" in the first paragraph of
this Indenture until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person, and any other obligor upon the Securities.

    "Company Request" and "Company Order" mean, respectively, a written request
or order, as the case may be, signed in the name of the Company by the Chairman
of the Board, a Vice Chairman of the Board, the Chief Executive Officer, the
President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary, of the Company, or by another officer of
the Company duly authorized to sign by a Board Resolution, and delivered to the
Trustee.

    "Consolidated Net Income" means the amount of net income (loss) of the
Company and its Subsidiaries determined in accordance with generally accepted
accounting principles; provided, however,  that there shall not be included in
Consolidated Net Income any net income (loss) of any Person acquired or disposed
of in a pooling of interests transaction for any period prior to the acquisition
thereof or subsequent to the disposition thereof.

    "Consolidated Net Worth" means the excess, as determined in accordance with
generally accepted accounting principles, after


                                          3




making appropriate deductions for any minority interest in the net worth of
Subsidiaries, of (i) the assets of the Company and its Subsidiaries over (ii)
the liabilities of the Company and its Subsidiaries; provided, however, that any
write-up in the book value of any assets owned subsequent to the date of this
Indenture, other than as required for and at the time of assets acquired in
connection with the purchase of a Person or business, shall not be taken into
account.

    "Corporation" includes corporations, associations, companies and business
trusts.

    "Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office at the date of original execution of this Indenture is located at 4
Albany Street, New York, New York 10006.

    "Corporate Trust Operations Center" means the office of the Trustee at
which at any particular time Securities shall be presented for transfer or
payment, which office at the date of the original execution of this Indenture is
located at _____, _______________________, _______________________.

    "Defaulted Interest" has the meaning specified in Section 307.

    "Depository" means, with respect to any Security issuable or issued in the
form of one or more global Securities, the Person designated as Depository by
the Company in or pursuant to this  Indenture, which Person must be, to the
extent required by applicable law or regulation, a clearing agency registered
under the Securities Exchange Act of 1934, as amended, and if so provided with
respect to any Security, any successor to such   Person.  If at any time there
is more than one such Person, "Depository" shall mean, with respect to any
Securities, the qualifying entity which has been appointed with respect to such
Securities.

    "Event of Default" has the meaning specified in Section 501.

    "Government Obligations" means direct obligations of the United States of
America, or any Person controlled or supervised by and acting as an agency or
instrumentality of such government, in each case where the payment, or payments
thereunder are unconditionally guaranteed as a full faith and credit obligation
by such government and which are not callable or redeemable at the option of the
issuer or issuers thereof, and shall also include a depository receipt issued by
a bank or trust company as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of or other amount
with respect to any such Government Obligation held by such custodian for the
account of the holder of a, depository receipt, provided that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the


                                          4




holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of or other amount with respect to the Government Obligation evidenced
by such depository receipt.

    "Holder", when used with respect to any Security, means the Person in whose
name such Security is registered in the Security Register.

    "Indebtedness for Money Borrowed" means any of the following obligations of
the Company or any Subsidiary which by its terms matures at or is extendable or
renewable at the sole option of the obligor without requiring the consent of the
obligee to a date more than twelve months after the date of the creation or
incurrence of such obligation: (i) any obligations, contingent or otherwise, for
borrowed money or for the deferred purchase price of property, assets,
securities, or services (including, without limitation, any interest accruing
subsequent to an Event of Default) , (ii) all obligations (including the
Securities) evidenced by bonds, notes, debentures, letters of credit , or other
similar instruments, (iii) all indebtedness created or rising under any
conditional sale or other title retention agreement with respect to property
acquired (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property) except any such obligation that constitutes a trade payable and an
accrued liability arising in the ordinary course of business, if and to the
extent any of the foregoing indebtedness would appear as a liability upon a
balance sheet prepared in accordance with generally accepted accounting
principles, (iv) all Capitalized Lease Obligations, (v) all indebtedness of the
type referred to in Clause (i), (ii), (iii) or (iv) above secured by (or for
which the holder of such indebtedness has an existing right, contingent or
otherwise, to be secured by) any lien upon or in property of the Company
(including, without limitation, accounts and contract rights), even though the
Company has not assumed or become liable for the payment of such indebtedness,
and (vi) any guaranty or endorsement (other than for collection or deposit in
the ordinary course of business) or discount with recourse of, or other
agreement, contingent or otherwise, to purchase, repurchase, or otherwise
acquire, to supply, or advance funds or become liable with respect to, any
indebtedness or any obligation of the type referred to in any of the foregoing
clauses (i) through (v), regardless of whether such obligation would appear on a
balance sheet; provided, however, that Indebtedness for Money Borrowed shall not
include (x) Interest Rate Swap Obligations with respect to any obligations
included in the foregoing clauses (i) through (vi) or any guarantees of any such
Interest Rate Swap Obligations or (y) amounts due under or represented by
asset-backed securities or other interest-bearing certificates issued by trusts
formed by Subsidiaries in connection with the securitization of automobile
installment sale contracts or other receivables.


                                          5




    "Indenture" means this instrument as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and, with respect to any
Security by the terms and provisions of such Security established pursuant to
Section 301 (as such terms and provisions may be amended pursuant to the
applicable provisions hereof).

    "Independent Public Accountants" mean a nationally recognized firm of
accountants that, with respect to the Company and any other obligor under the
Securities, are independent public accountants within the meaning of the
Securities Act of 1933, as amended, and the rules and regulations promulgated by
the Commission thereunder, who may be the independent public accountants
regularly retained by the Company or who may be other independent public
accountants.  Such accountants or firm shall be entitled to rely upon any
Opinion of Counsel as to the interpretation of any legal matters relating to
this Indenture or certificates required to be provided hereunder.

    "Interest" with respect to any original Issue Discount Security which by
its terms bears interest only upon maturity, means interest payable upon,
Maturity and, when used with respect to a Security which provides for the
payment of Additional Amounts pursuant to Section 1004, includes such Additional
Amounts.

    "Interest Payment Date", with respect to any Security, means the Stated
Maturity of an instalment of interest on such Security.

    "Interest Rate Swap Obligations" means the obligation of the Company or any
Subsidiary pursuant to any interest rate swap agreement, interest rate collar
agreement, forward rate agreement, interest rate cap insurance, option or
futures contract or other similar agreement or arrangement, and any renewal or
extension thereof, designed to protect the Company or any of its Subsidiaries
against interest rate risk.

    "Legal Holiday", with respect to any Place of Payment or other location,
means a Saturday, a Sunday or a day on which banking institutions or trust
companies in such Place of Payment or other location are not authorized or
obligated to be open.

    "Maturity", with respect to any Security, means the date on which the
principal of such Security or an installment of principal becomes due and
payable as provided in or pursuant to this Indenture, whether at the Stated
Maturity or by declaration of acceleration, notice of redemption, notice of
option to elect repayment or otherwise, and includes the Redemption Date.

    "Money", with respect to any payment, deposit or other transfer pursuant to
or contemplated by the terms hereof, means United States dollars or other
equivalent unit of legal tender


                                          6




for payment of public or private debts in the United States of America.

    "1995 Indenture" means that Indenture dated as of December 15, 1995 between
the Company and Harris Trust and Savings Bank, as Trustee as such Indenture
exists on the date of execution of this Indenture.

    "Office or Agency", with respect to any Securities, means an office or
agency of the Company maintained or designated in a Place of Payment for such
Securities pursuant to Section 1002 or any other office or agency of the Company
maintained or designated for such Securities pursuant to Section 1002 or, to the
extent designated or required by Section 1002 in lieu of such office or agency,
the Corporate Trust Operations Center of the Trustee.

    "Officer" means the Chairman of the Board, a Vice Chairman of the Board,
the President, any Vice President, the Chief Financial Officer, the Chief
Executive Officer, the Chief Operating Officer, the Treasurer, and the
Secretary, or the Controller of the Company.

    "Officers' Certificate" means a certificate signed by two Officers or by an
Officer and an Assistant Treasurer or an Assistant Secretary of the Company that
complies with the requirements of Section 314(e) )f the Trust Indenture Act.

    "Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company or other counsel who shall be reasonably
acceptable to the Trustee, that complies with the requirements of ion 314(e) of
the Trust Indenture Act.

    "Original Issue Discount Security" means a Security issued pursuant to this
Indenture which provides for declaration of an amount less than the principal
face amount thereof to be due and payable upon acceleration thereof pursuant to
Section 502.

    "Outstanding", when used with respect to any Securities, means, as of the
date of determination, all such Securities theretofore authenticated and
delivered under this Indenture, except:

         (i)       any such Security theretofore canceled by the Trustee or the
Security Registrar or delivered to the Trustee or the Security Registrar for
cancellation;

         (ii)      any such Security or portions thereof for whose payment at
the Maturity thereof Money in the necessary amount has been theretofore
deposited pursuant hereto with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company (if the
Company shall act as its own Paying Agent) for the Holders of such Securities,
provided that, if such Securities are to be redeemed, notice of such redemption
has been duly given pursuant to this


                                          7




Indenture provision therefor satisfactory to the Trustee has been made;

         (iii)     any such Security with respect to which the Company has
effected defeasance pursuant to Section 401 or 402; and

         (iv)      any such Security which has been paid pursuant to Section
306 or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, unless there shall have
been presented to the Trustee proof satisfactory to it that such Security is
held by a bona fide purchaser in whose hands such Security is a valid obligation
of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization direction, notice, consent or waiver hereunder, (i) the principal
amount of an Original Issue Discount Security that may be counted in making such
determination and that shall be deemed to he Outstanding for such purposes shall
be equal to the amount of the principal thereof that pursuant to the terms of
such Original Issue Discount Security would be declared (or shall have been
declared to be) due and payable upon a declaration of acceleration thereof
pursuant to Section 502 at the time of such determination, and (ii) Securities
owned by the Company or any other obligor of the Securities or any Affiliate of
the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making any such determination or relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded.  Securities so owned which
shall have been pledged in good faith may be regarded as outstanding if the
pledgee establishes to the satisfaction of the Trustee (A) the pledgee's right
so to act with respect to such Securities and (B) that the pledgee is not the
Company or any other obligor upon the Securities or any Subsidiary or any
Affiliate of the Company or such other obligor.

    "Paying Agent" means any Person authorized by the Company to pay the
principal of, or any premium or interest on, or any Additional Amounts with
respect to any Security on behalf of the, Company.

    "Person" means any individual, corporation, association, company, business
trust, partnership, joint venture, joint-stock company, trust, estate,
unincorporated organization or government or any agency or political subdivision
thereof.

    "Place of Payment", with respect to any Security, means the place or places
where the principal of, or any premium or interest on, or any Additional Amounts
with respect to such Security is payable as provided in or pursuant to this
Indenture.


                                          8




    "Predecessor Security" of any particular Security means every previous
Security evidencing all, or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for in lieu of a lost,
destroyed, mutilated or stolen Security shall be deemed to evidence the same
debt as the lost, destroyed, mutilated or stolen Security.

    "Redemption Date", with respect to any Security or portion thereof to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.

    "Redemption Date" with respect to any Security or portion thereof to be
redeemed, means the price at which it is to be redeemed as determined by or
pursuant to this Indenture.

    "Regular Record Date" for the interest payable on any Security on any
Interest Payment Date therefor means the date, if any, specified in or pursuant
to this Indenture as the "Regular Record Date".

    "Repayment Date", with respect to any Security or portion thereof to be
repaid pursuant to Article Thirteen, means the date fixed for such repayment by
or pursuant to this Indenture.

    "Repayment Price", with respect to any Security or portion thereof to be
repaid pursuant to Article Thirteen, means the price at which it is to be repaid
pursuant to this Indenture.  In the case of repayment pursuant to Section 1302
or 1303, the Repayment Price shall not include any premium on such Security.

    "Responsible Officer" means any officer of the Trustee in its Corporate
Trust Office and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.

    "Restricted Payment" has the meaning specified in Section 1007.

    "Security or "Securities" means any security or securities, as the case may
be authenticated and delivered under this Indenture; provided, however, that, if
at any time there is more than one Person acting as Trustee under this
Indenture, "Securities", with respect to any such Person, shall mean Securities
authenticated and delivered under this Indenture, exclusive, however, of
Securities of any series as to which such Person is not Trustee.

    "Security Register and "Security Registrar" have the respective meanings
specified in Section 305.

    "Senior Indebtedness" means the principal amount of, premium, if any, and
interest on (i) any Indebtedness for Money


                                          9




Borrowed, whether now outstanding or hereafter created, incurred, assumed or
guaranteed, unless in the instrument creating or evidencing such Indebtedness
for Money Borrowed or pursuant to which such Indebtedness for Money Borrowed is
outstanding it is provided that such Indebtedness for Money Borrowed is
subordinate in right of payment or in rights upon liquidation to any other
Indebtedness for Borrowed Money of the Company and (ii) refundings, renewals,
extensions, modifications, restatements, and increases of any such indebtedness.

    "Significant Subsidiary" means any Subsidiary which accounted for more than
10% of the Company's Consolidated Net Worth or more than 10% of the Company's
consolidated revenue, in each case as of the end of the Company's most recent
fiscal year.

    "Special Record Date" for the payment of any Defaulted Interest on any
Security means a date fixed by the Trustee pursuant to Section 307.

    "Special Redemption Event" means the occurrence of any one or more of the
following (i)(x) the Company shall consolidated with or merge into any other
Person, (y) the Company shall convey, transfer or lease all or substantially all
of its assets to any Person or (z) any Person shall consolidate with or merge
into the Company pursuant to a transaction in which the outstanding common stock
of the Company is reclassified, changed or exchanged; provided that the
following shall be excluded from the operation of this clause (i): a transaction
which is part of a sale, financing or securitization of receivables, entered
into in the ordinary course of business; a transaction between the Company and
one or more of its wholly-owned Subsidiaries; or a transaction of the type
described in clause (i) (x) or (i) (z) above unless immediately after giving
effect to such transaction, a Person or "group" (as such term is used for
purposes of Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended) other than any Person who is a director of the Company or a "related
Person" on the date of this Indenture, is or becomes the "beneficial owner",
directly or indirectly, of more than fifty percent (50%) of the total voting
power in the aggregate normally entitled to vote in the election of directors;
and (ii) any Person or "group" (as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) other than
any Person who is a director of the Company or a "related Person" on the date of
this Indenture, shall purchase or otherwise acquired in one or more transactions
or series of transactions beneficial ownership of fifty percent (50%) or more of
the outstanding common stock of the Company on the date immediately prior to the
last such purchase or other acquisition.  For purposes of this definition,
"related Person" means, in addition to such director, (a) any relative or spouse
of such director, or any relative of such spouse, (b) any trust or estate in
which such Person or any of the Persons specified in clause (a) collectively own
fifty percent (50%) or more of the total beneficial interest or (c) any
corporation or other organization (other than the Company) in which such
director or


                                          10




any of the Persons specified in clause (a) or (b) are the beneficial owners
collectively of fifty percent (50%) or more of the voting power.

    "Stated Maturity", with respect to any Security or any installment of
principal thereof or interest thereon or any Additional Amounts with respect
thereto, means the date established by or pursuant to this Indenture as the
fixed date on which the principal of such Security or such installment of
principal or interest is or such Additional Amounts are due and payable.

    "Subordinated Indebtedness" means Indebtedness for Borrowed Money that is
not Senior Indebtedness.

    "Subsidiary" means any corporation of which at the time of determination
the Company or one or more Subsidiaries owns or controls directly or indirectly
more than 50% of the shares of Voting Stock.

    "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
and any reference herein to the Trust Indenture Act or a particular provision
thereof shall mean such Act or provision, as the case may be, as amended or
replaced from time to time or as supplemented from time to time by rules or
regulations adopted by the Commission under or in furtherance of the purposes of
such Act or provision, as the case may be.

    "Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument, until a successor Trustee shall have become such with respect
to one or more series of Securities pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean each Person who is then a
Trustee hereunder; provided, however, that if at any time there is more than one
such Person, "Trustee" shall mean each such Person and as used with respect to
the Securities of any series shall mean the Trustee with respect to the
Securities of such series.

    "United States", except as otherwise provided herein or in any Security,
means the United States of America (including the states thereof and the
District of Columbia), its territories and possessions and other areas subject
to its jurisdiction.

    "United States Alien", except as otherwise provided in or pursuant to this
Indenture, means any Person who, for United States Federal income tax purposed,
is a foreign corporation, a nonresident alien individual, a non-resident alien
fiduciary of a foreign estate or trust, or a foreign partnership one or more of
the members of which is, for United States Federal Income tax purposes, a
foreign corporation, a non-resident alien individual or a non-resident alien
fiduciary of a foreign estate or trust.

    "Vice President", when used with respect to the Company, means any Senior
or Executive Vice President, whether or not


                                          11




designated by a number or a word or words added before or after the title "Vice
President".

    "Voting Stock" means stock of a corporation of the class or classes having
general voting power under ordinary circumstances to elect at least a majority
of the board of directors, managers, or trustees of such corporation, provided
that, for the purposes hereof, stock which carries only the right to vote
conditionally on the happening of an event shall not be considered Voting Stock
whether or not such event shall have happened.

    "Warehouse Indebtedness" means the warehouse line of credit which the
Company has in place on the date of this Indenture and any replacement or
additional facility under which the Company borrows money against contracts held
for sale, pending their sale in securitization transactions.

    Section 102.   Compliance Certificates and Opinions.

    Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee at the request of the Trustee (a) an Officers' Certificate stating that
all conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and (b) an opinion of Counsel stating
that, in the opinion of such counsel, all such conditions precedent, if any,
have been complied with, except that in the case of any such application or
request as to which the furnishing of such documents or any of them is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.

    Every certificate or Opinion of Counsel with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

         (i)       a statement that each individual signing such certificate or
rendering such Opinion of Counsel has read such condition or covenant and the
definitions herein relating thereto;

         (ii)      a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or Opinions of Counsel are based;

         (iii)     a statement that, in the opinion of each such Person, he has
made such examination or investigation as in necessary to enable him to express
an informed opinion as to whether or not such condition or covenant has been
complied with; and


                                          12




         (iv)      a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with.

    Section 103.   Form of Documents Delivered to Trustee.

    In any case where several matters are required to be certified by, or
covered by an opinion of Counsel, of, any specified Person, it is not necessary
that all such matters be certified by, or covered by the Opinion of Counsel of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an Opinion of Counsel with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.

    Any Officer's Certificate may be based, insofar as it relates to legal
matters, upon a Certificate or opinion of, or representations by, counsel.  Any
such Opinion of Counsel or representation of counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an Officer or Officers of the Company.

    Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instrument under this Indenture or any Security, they may, but need not, be
consolidated and form one instrument.

    Section 104.   Acts of holders.

         (i)  Any request, demand, authorization, direction, notice, consent,
    waiver or other action provided by or pursuant to this Indenture o be given
    or taken by Holders may be embodied in and evidenced by one or more
    instruments of substantially similar tenor signed by such Holders in person
    or by an agent duly appointed in writing.  Except as herein otherwise
    expressly provided, such action shall become effective when such instrument
    or instruments are received by the Trustee and, where it is hereby
    expressly required, to the Company.  Such instrument or instruments (and
    the action embodied therein and evidenced thereby) are herein sometimes
    referred to as the "Act" of the Holders signing such instrument or
    instruments.  Proof of execution of any such instrument or of a writing
    appointing any such agent, or of the holding by any Person of a Security,
    shall be sufficient for any purpose of this Indenture and (subject to
    Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee
    and the Company and any agent of the Trustee or the Company, if made in the
    manner provided in this Section.

         Without limiting the generality of this Section, unless otherwise
    provided in or pursuant to this Indenture, a Holder, including a Depository
    that is a Holder of a global


                                          13




    Security, may make, give or, take, by a proxy, or proxies, duly appointed
    in writing, any, request, demand, authorization, direction, notice consent,
    waiver or other action provided in or pursuant to this Indenture to be
    made, given or taken by Holders, and a Depository that is a Holder of a
    global Security may provide its proxy or proxies to the beneficial owners
    of interests in any such global Security through such Depository's standing
    instructions and customary practices.

         The Trustee shall fix a record date for the purpose of determining the
    Persons who are beneficial owners of interest in any permanent global
    Security held by a Depository entitled under the procedures of such
    Depository to make, give or take, by a proxy or proxies duly appointed in
    writing, any request, demand, authorization, direction, notice, consent,
    waiver or other action provided in or pursuant to this Indenture to be
    made, give or taken by Holders.  If such a record date is fixed, the
    Holders on such record date or their duly appointed proxy or proxies, and
    only such Persons, shall be entitled to make, give or take such request,
    demand, authorization, direction, notice, consent, waiver or other action,
    whether or not such Holders remain Holders after such record date.  Not
    such request, demand, authorization, direction, notice, consent, waiver or
    other action shall be valid or effective if made, given or taken more than
    90 days after such record date.

         (ii)      The fact and date of the execution by any Person of any such
    instrument or writing may be proved in any reasonable manner which the
    Trustee deems sufficient and in accordance with such reasonable unless as
    the Trustee may determine; and the Trustee may in any instance require
    further proof with respect to any of the matters referred to in this
    Section.

         (iii)     The ownership, principal amount and serial numbers of
    Securities held by any Person, and the date of the commencement and the
    date of the termination of holding the same, shall be provided in the
    Security Register.

         (iv)      If the Company shall solicit from the Holders of any
    Securities any request, demand, authorization, direction, notice, consent,
    waiver or other Act, the Company may at its option (but is not obligated
    to), by Board Resolution, fix in advance a record date for the
    determination of Holders of Securities entitled to give such request,
    demand, authorization, direction, notice, consent, waiver or other Act.  If
    such a record date if fixed, such request, demand, authorization,
    direction, notice, consent, waiver or other Act may be given before or
    after such record date, but only the Holders of Securities of record at the
    close of business on such record date shall he deemed to be Holders for the
    purpose of determining whether Holders of the requisite proportion of
    Outstanding Securities have


                                          14




    authorized or agreed or consented to such request, demand, authorization,
    direction, notice, consent, waiver or other Act, and for that purpose the
    Outstanding Securities shall be computed as of such record date; provided
    that no such authorization, agreement or consent by the Holders of
    Securities on such record date shall be deemed effective unless it shall
    become effective pursuant to the provisions of this Indenture not later
    than six months after the record date.

         (v)       Any request, demand, authorization, direction, notice,
    consent, waiver or other Act by the Holder of any Security shall bind every
    future Holder of the same Security and the Holder of every Security issued
    upon the registration of transfer thereof or in exchange therefor or in
    lieu thereof in respect of anything done or suffered to be done by the
    Trustee, any Security Registrar, any Paying Agent or the Company in
    reliance thereon, whether or not notation of such action is made upon such
    Security.

    Section 105.   Notices, Etc. to Trustee and Company.

    Any request, demand, authorization, direction, notice, consent, waiver or
other Act of Holders or other document provided or permitted by this Indenture
to be made upon, given or furnished to, or filed with:

         (i)  the Trustee by any Holder or the Company shall be sufficient for
    every purpose hereunder if made, given, furnished or filed in writing to or
    with the Trustee at its Corporate Trust Office, or

         (ii) the Company by the Trustee or any Holder shall be sufficient for
    every purpose hereunder (unless otherwise herein expressly provided) if in
    writing and mailed, first-class postage prepaid, to the Company addressed
    to the attention of its Chief Financial Officer at the address of its
    principal office specified in the first paragraph of this instrument or at
    any other address previously furnished in writing to the Trustee by the
    Company.

    Section 106.   Notice to Holders of Securities; Waiver.

    Except as otherwise expressly provided in or pursuant to this Indenture or
in the form of Securities of any particular series issued pursuant to the
provisions of this Indenture, where this Indenture provides for notice of
Holders of Securities of any event, such notice shall be sufficiently given to
Holders of Securities if in writing and mailed, first-class postage prepaid, to
each Holder of a Security affected by such event, at his address as it appears
in the Security Register, not later than the latest date (if any), and not
earlier than the earliest date (if any), prescribed for the giving of such
notice.


                                          15




    In any case where notice to Holders of Securities is given by mail, neither
the failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder of a Security shall affect the sufficiency of such notice with
respect to other Holders of Securities.  Any notice which is mailed in the
manner herein provided shall be conclusively presumed to have been duly given or
provided.  In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

    Where this Indenture provides for notice of any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Holders of Securities shall be filed with the Trustee, but
such filing shall not be a condition, precedent to the validity of any action
taken in reliance upon such waiver.

    Section 107.   Language of Notices.

    Any request, demand, authorization, direction, notice, consent, election or
waiver required or permitted under this Indenture shall be in the English
language.

    Section 108.   Conflict with Trust Indenture Act.

    If any provision hereof limits, qualifies or conflicts with any duties
under any required provision of the Trust Indenture Act imposed hereon by
Section 338(d) thereof, such required provision shall control.  If any provision
of this Indenture modifies or excludes any provision of the Trust Indenture Act
that may be so modified or excluded, the latter provision shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.

    Section 109.   Effect of Headings and Table of Contents.

    The Article and Section Headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.

    Section 110.   Successors and Assigns.

    All covenants and agreements in this Indenture by the Company and the
Trustee shall bind their respective successors and assigns, whether so expressed
or not.

    Section 111.   Separability Clause.

    In case any provision in this Indenture or any Security shall be invalid,
illegal or unenforceable, either wholly or partially, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired


                                          16





thereby, and such provisions shall be given effect to the fullest extent
permitted by law.

    Section 112.   Benefits of Indenture.

    Nothing in this Indenture or any Security, express or implied, shall give
to any Person, other than the parties hereto, any Security Registrar, any Paying
Agent, any Authenticating Agent and their respective successors hereunder and
the Holders of Securities, any benefit or any legal or equitable right, remedy
or claim under this Indenture.

    Section 113.   Governing Law.

    This Indenture and the Securities shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
agreements made or instruments entered into and, in each case, performed in said
state.

    Section 114.   Legal Holidays.

    In any case where any Interest Payment Date, Redemption Date, Repayment
Date or Stated Maturity of any Security shall be a Legal Holiday at any Place of
Payment, then (notwithstanding any other provision of this Indenture or any
Security other than a provision in any Security that specifically states that
such provision shall apply in lieu of this Section) payment need not be made at
such Place of Payment on such date, but may be made on the next succeeding day
that is a Business Day at such Place of Payment with the same force and effect
as if made on the Interest Payment Date, Redemption Date, Repayment Date or at
the Stated Maturity, and no interest shall accrue on the amount payable on such
date or at such time for the period from and after such Interest Payment Date,
Redemption Date, Repayment Date or Stated Maturity, as the case may be.

    Section 115.   No Recourse Against Others.

    No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations be the Company under the Securities or this Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation.  Each Holder by accepting a Security waives and releases all such
liability.  The waiver and release are part of the consideration for issuance of
the Securities.


                                     ARTICLE TWO

                                   SECURITIES FORMS

    Section 201.   Forms Generally.


                                          17




    Each Security and global Security issued pursuant to this Indenture shall
be in the form established by or pursuant to a Board Resolution in accordance
with Section 301 or in one or more indentures supplemental hereto shall have
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by or, pursuant to this Indenture or any indenture
supplemental hereto and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be
required to comply with any law or with any rule or regulation of any stock
exchange or as may, consistently herewith, be determined by the officers
executing such Security as evidenced by their execution of such Security.

    Unless otherwise provided in or pursuant to this Indenture, the Securities
shall be issuable in global and registered form without coupons.

    Definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods on a steel engraved border or steel
engraved, borders or may be produced in any other manner, all as determined by
the Officers of the Company executing such Securities, as evidenced by their
execution of such Securities.

    Section 202.   Form of Trustee's Certificate of Authentication.

    Subject to Section 612, the Trustee's certificate of authentication shall
be in substantially the following form:

    "This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.


                                                  ------------------------------
                                                      as Trustee

                                                  By 
                                                     ---------------------------
                                                      Authorized Signatory


    Section 203.   Securities in Global Form.

    If Securities of a series are issuable in global form (i.e., in the name of
the name of the nominee of a Depository for purposes of book-entry transfer),
any such Security may provide that it or any number of such Securities shall
represent the aggregate amount of all Outstanding Securities or such series (or
such lesser amount as is permitted by the terms thereto from time to time
endorsed thereon and may also provide that the aggregate amount of Outstanding
Securities represented thereby may from time to time be increased or reduced to
reflect exchanges.  Any endorsement of any Security in global form to reflect
the amount, or any increase or decrease in the amount, or changes in the rights
of Holders, of Outstanding Securities represented thereby shall be made in such
manner and by such Person or Persons as shall be specified therein


                                          18




or in the Company Order to be delivered pursuant to Section 303 or 304 with
respect thereto.  Subject to the provisions of Section 303 and, if applicable,
Section 304, the Trustee shall deliver and redeliver any Security in permanent
global form in the manner and upon instructions given by the Person or Persons
specified therein or in the applicable Company Order.  If a Company Order
pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any
instructions by the Company with respect to a Security in global form shall be
in writing but need not be accompanied by or contained in an Officers
Certificate and need not be accompanied by an Opinion of Counsel.


                                    ARTICLE THREE

                                    THE SECURITIES

    Section 301.   Amount Unlimited; Issuable in Series.
    The aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is unlimited.  The Securities may be issued in
one or more series.

    With respect to any Securities to be authenticated and delivered hereunder,
there shall be established in or pursuant to a Board Resolution and set forth,
or determined in the manner provided, in an Officers Certificate, or established
in one or more indentures supplemental hereto,

         (1)       the title of such Securities and the series in which such
    Securities shall be included;

         (2)       any limit upon the aggregate principal amount of the
    Securities of such title or the Securities of such series which may be
    authenticated and delivered under this Indenture (except for Securities
    authenticated and delivered upon registration of transfer of, or in
    exchange for, or in lieu of, other Securities of the same series pursuant
    to Section 304, 305, 306, 905 or 1107 or the terms of such Securities);

         (3)       if any of such Securities are to be issuable in global form,
    when any of such Securities are to be issuable in global form and (i)
    whether beneficial owners of interests in any such global Security may
    exchange such interest for Securities of the same series and of like tenor
    and of any authorized form and denomination, and the circumstances under
    which any such exchanges may occur, if other than in the manner specified
    in Section 305, and (ii) the name of the Depository with respect to any
    global Security;

         (4)       the date or dates, or the method or methods, if any, by
    which such date or dates shall be determined, on which the principal of
    such Securities is payable;


                                          19




         (5)       the rate or rates at which such Securities shall bear
    interest, if any, or the method or methods, if any, by which such rate or
    rates are to be determined, the date or dates, if any, from which such
    interest shall accrue or the method or methods, if any, by which such date
    or dates are to be determined, the Interest Payment Dates, if any, on which
    such interest shall be payable and the Regular Record Date, if any, for the
    interest payable on Securities on any Interest Payment Date, whether and
    under what circumstances Additional Amounts on such Securities or any of
    them shall be payable and, if payable, whether the Company has the option
    to redeem the affected Securities rather than pay such Additional Amounts,
    and the basis upon which interest shall be calculated if other than that of
    a 360-day year of twelve 30-day months; and if any of such Securities are
    convertible in whole or in part into common stock of the Company, the terms
    and conditions under which such conversion may occur;

         (6)       if in addition to or other than the City of New York, New
    York, the place or places where the principal of, any premium and interest
    on or any Additional Amounts with respect to such Securities shall be
    payable, any of such Securities may be surrendered for registration of
    transfer, any of such Securities may be surrendered for exchange and
    notices or demands to or upon the Company in respect of such Securities and
    this Indenture may be served;

         (7)       whether any of such Securities are to be redeemable at the
    option of the Company and, if so, the period or periods within which, the
    price or prices at which and the other terms and conditions (in addition to
    those set forth in Article Eleven) upon which such Securities may be
    redeemed, in whole or in part, at the option of the Company;

         (8)       whether the Company is obligated to redeem or purchase any
    of such Securities pursuant to any sinking fund or at the option of any
    Holder thereof and, if so, the period or periods within which, the price or
    prices at which and the other terms and conditions upon which such
    Securities shall be redeemed or purchased (in addition to those set forth
    in Article Twelve), in whole or in part, pursuant to such obligation,
    whether the Company's obligation to redeem or purchase Securities for a
    sinking fund may be satisfied pursuant to Section 1202 and any provisions
    for the remarketing of such Securities so redeemed or purchased;

         (9)       the denominations in which any of such Securities shall be
    issuable if other than denominations of $1,000 and any integral multiple
    thereof;

         (10)      if other than the principal amount thereof, the portion of
    the principal amount of any of such Securities that shall be payable upon
    declaration of acceleration of the Maturity thereof pursuant to Section 502
    or the method by which such portion is to be determined;


                                          20




         (11)      any deletions from, modifications of or additions to the
    Events of Default or covenants of the Company with respect to any of such
    Securities, whether or not such Events of Default or covenants are
    consistent with the Events of Default or covenants set forth herein;

         (12)      the applicability, if any, of Section 402 to any of such
    Securities and any provisions in modification of, in addition to or in lieu
    of any of the provisions of Section 402;

         (13)      whether any of such Securities are to be issuable upon the
    exercise of warrants, as well as the time, manner and place for such
    Securities to be authenticated and delivered;

         (14)      if any of such Securities are to be issuable in global form
    and are to be issuable in definitive form (whether upon original issue or
    upon exchange of a temporary Security) only upon receipt of certain
    certificates or other documents or satisfaction of other Conditions, then
    the form and terms of such certificates, documents or conditions;

         (15)      if there is more than one Trustee, the identity of the
    Trustee and, if not the Trustee, the identity of each Security Registrar,
    Paying Agent or Authenticating Agent with respect to such Securities; and

         (16)      any other terms of such Securities (which terms shall not be
    inconsistent with the terms of this Indenture).

    All Securities of any one series shall be substantially identical except as
to denomination and the rate or rates of interest, if any, and Stated Maturity,
the date from which interest, if any, shall accrue and except as may otherwise
be provided by the Company in or pursuant to the Board Resolution and set forth,
or determined in the manner provided, in the Officers' Certificate or in any
indenture or indentures supplemental hereto pertaining to such series of
Securities.  All Securities of any one series need not be issued at the same
time and, unless otherwise so provided by the Company, a Series may be reopened
for issuances of additional Securities of such series or to establish additional
terms of such series of Securities.

    If any of the terms of the Securities of any series shall be established by
action taken by or pursuant to a Board Resolution at or prior to the delivery of
the Officers' Certificate setting forth the terms of such series, a copy of an
appropriate record of such action shall be certified by, the Secretary or an
Assistant Secretary of the Company and shall be delivered to the Trustee.

    Section 302.   Currency; Denominations.

         The principal of, any premium and interest on and any Additional
Amounts with respect to the Securities shall be payable


                                          21




in Money. Unless otherwise provided in or pursuant to this Indenture, Securities
shall be issuable in registered form without coupons in denominations of $1,000
and any integral multiple thereof.

    Section 303.   Execution, Authentication, Delivery and Dating.

    Securities shall be executed on behalf of the Company by one Officer and
attested by its Secretary or one of its Assistant  Secretaries.  The signature
of any of these officers on the Securities may be manual or facsimile.

    Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.

    At any time and from time to time after the execution and delivery of this
Indenture the Company may deliver Securities, executed by the Company, to the
Trustee for authentication and, provided that the Board Resolution and Officers,
Certificate or supplemental indenture or indentures with respect to such
Securities referred to in Section 301 and a Company Order for the authentication
and delivery of such Securities have been delivered to the Trustee, the Trustee
in accordance with the Company Order and subject to the provisions hereof and of
such Securities shall authenticate and deliver such Securities.

    The Trustee shall not be required to authenticate or to cause an
Authenticating Agent to authenticate any Securities if the issue of such
Securities pursuant to this Indenture will affect the Trustee's own rights,
duties or immunities under the Securities and this Indenture or otherwise in a
manner which is not reasonably acceptable to the Trustee or if the Trustee,
being advised by counsel, reasonably determines that such action may not
lawfully be taken.

    If the Company shall establish pursuant to Section 301 that the Securities
of a series are to be issued in whole or in part in the form of one or more
global Securities, the Company shall execute and the Trustee shall, in
accordance with this Section and the Company Order with respect to such series,
authenticate and deliver one or more global Securities in permanent form that
(i) shall represent and shall be denominated in an amount equal to the aggregate
principal amount of the Outstanding Securities of such series to be represented
by, such global Security or Securities, (ii) shall be registered in the name of
the Depository for such global Security or Securities or the nominee of such
Depository, (iii) shall be delivered by the Trustee to such Depository or
pursuant to such Depository's instruction and (iv) shall bear a legend
substantially to the following effect:  "Unless and until it is exchanged in
whole or iii part for Securities in certificated




                                          22




form, this Security may not be transferred except as a whole by the Depository
to a nominee of the Depository or by a nominee of the Depository to the
Depository, or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository  or a nominee of such successor
Depository" or to such other effect as the Depository and the Trustee may agree.

    Each Security shall be dated the date of its authentication.

    No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for in Section
202 or 612 executed by or on behalf of the Trustee by the manual signature of
one of its authorized signatories or by an Authenticating Agent.  Such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.

    Section 304.   Temporary Securities.

    Pending the preparation of definitive Securities, the Company may execute
and deliver to the Trustee and, upon Company Order, the Trustee shall
authenticate and deliver, in the manner provided in Section 303, temporary
Securities in lieu thereof which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized, denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, in registered form and with such appropriate insertions, omissions,
substitutions and other variations as the Officers of the Company executing such
Securities may determine, as conclusively evidenced by their execution of such
Securities.  Such temporary Securities may be in global form.

    Except in the case of temporary Securities in global form, which shall be
exchanged in accordance with the provisions thereof, if temporary Securities are
issued, the Company shall cause definitive Securities to be prepared without
unreasonable delay.  After the preparation of definitive Securities of the same
series and containing terms and provisions that are identical to those of any
temporary Securities, such temporary Securities shall be exchangeable for such
definitive Securities upon surrender of such temporary Securities at an office
or Agency for such Securities, without charge to any Holder thereof.  Upon
surrender for cancellation of any one or more temporary Securities, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a like principal amount of definitive Securities of authorized
denominations of the same series and containing identical terms and provisions.
Unless otherwise provided in or pursuant to this Indenture with respect to a
temporary global Security, until so exchanged the temporary Securities of any
series shall in all  respects be entitled to the same benefits under this
Indenture as definitive Securities of such series.

    Section 305.   Registration, Transfer and Exchange.


                                          23




    With respect to the Securities of each series, the Company shall cause to
be kept a register (each such register being herein sometimes referred to as the
"Security Register") at an Office or Agency maintained for such series pursuant
to Section 1002 in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of the Securities of
such series and of transfers of the Securities of such series.  The Trustee is
hereby initially appointed as "Security Registrar" for each series of
Securities.  In the event that the Trustee shall cease to be Security Registrar
with respect to any series of Securities, it shall have the right to examine the
Security Register for such series at all reasonable times.

    Upon surrender for registration of transfer of any Security of any series
at any Office or  Agency for such series, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities of the same series denominated as
authorized in or pursuant to this Indenture, of a like aggregate principal
amount bearing a number not contemporaneously outstanding and containing
identical terms and provisions.

    At the option of the Holder, Securities of any series (except a global
Security representing all or a portion of such series) may be exchanged for
other Securities of the same series containing identical terms and provisions,
in any authorized denominations, and of a like aggregate principal amount, upon
surrender of the Securities to be exchanged a any Office or Agency for such
series.  Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.

    Whenever any Securities are surrendered for exchange as contemplated by the
immediately preceding two paragraphs, the Company shall execute, and the Trustee
shall authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive.

    Notwithstanding the forgoing, except as otherwise provided in or pursuant
to this Indenture any global Security shall be exchangeable for definitive
Securities only if (i) the Depository is at any time unwilling, unable or
ineligible to continue as Depository and a successor depository is not appointed
by the Company within 60 days of the date the Company is so informed in writing,
(ii) the Company executes and delivers to the Trustee a Company Order to the
effect that such global Security shall be so exchangeable, or (iii) an event of
Default has occurred and continuing with respect to the Securities of the same
series.  the beneficial owners of interests in a global Security are entitled to
exchange such interests for definitive Securities of such series and of like
tenor and principal amount of any authorized form and denomination as specified
as contemplated by Section 304, then without unnecessary delay but in any event
not later than the earliest date on which such interests may be so exchanged,
the


                                          24




Company shall deliver to the Trustee definitive Securities in such form and
denominations as are required by or pursuant to this Indenture, and of the same
series, containing identical terms and in aggregate principal amount equal to
the principal amount of, such global Security, executed by the Company.  On or
after the earliest date on which such interests may be so exchanged, such global
Security shall be surrendered from time to time by the Depositary, and in
accordance with instructions given to the Trustee and the Depository (which
instructions shall be in writing but need not be container in or accompanied by
an officers, Certificate or be accompanied by an Opinion of Counsel), as shall
be specified in the Company Order with respect thereto to the Trustee, as the
Company's agent for such purpose, to be exchanged; provided, however, that no
such exchanges may occur during a period beginning at the opening of business 15
days before any such selection of Securities for redemption of the same series
and containing identical terms to be redeemed and ending on the relevant
Redemption Date.  Promptly following any such exchange in part, such global
Security shall be returned by the Trustee to such Depository in accordance with
the instructions of the Company referred to above. If a Security is issued in
exchange for  any portion of a global Security after the close of business at
the Office or Agency for such Security where such exchange occurs on or after
(i) any Regular Record Date for such Security and before the opening of business
at such Office or Agency on the next Interest Payment Date, or (ii) any Special
Record Date for such Security and before the opening of business at such Office
or Agency on the related proposed date for payment of interest or Defaulted
Interest, as the case may be, interest shall not be payable on such Interest
Payment Date or proposed date for payment, as the case may be, in respect of
such Security, but shall be payable on such Interest Payment Date or proposed
date for payment, as the case may be, only to the Person to whom interest in
respect of such portion of such global Security shall be payable in accordance
with the provisions of this Indenture.

    All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company evidencing the same
debt and entitling the Holders thereof to the same benefits under this Indenture
as the Securities surrendered upon such registration of transfer or exchange.

    Every Security presented or surrendered for registration of transfer or for
exchange or redemption shall (if so required by the Company or the Security
Registrar for such Security) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar for such Security duly executed by the Holder thereof or his attorney
duly authorized in writing.

    No service charge shall be made for any registration of  transfer or
exchange, or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than


                                          25




exchanges pursuant to Section 304, 905 or 1107 not involving any transfer.

    Except as otherwise provided in or pursuant to this Indenture, the Company
shall not be required (i) to issue, register the transfer of or exchange any
Securities during a period beginning at the opening of business 15 days before
the day of the selection for redemption of Securities of like tenor and the same
series under Section 1103 and ending at the close of business on the day of the
mailing of the relevant notice of redemption, or (ii) to register the transfer
of or exchange and Security so selected for redemption in whole or in part,
except in the case of any Security to be redeemed in part, the portion thereof
not to be redeemed, or (iii) to issue, register the transfer of or exchange any
Security which, in accordance with its terms, as been surrendered for repayment
at the option of the Holder, except the portion, if any, of such Security not to
be so repaid.

    Section 306.   Mutilated, Destroyed, Lost and Stolen Securities.

    If any mutilated Security is surrendered to the Trustee, subject to the
provisions of this Section, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of these same
series containing identical terms and of like principal amount and bearing a
number not contemporaneously outstanding.

    If there be delivered to the Company and to the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security, and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and, upon the Company's request the Trustee
shall authenticate and deliver, in exchange for or in lieu of any such
destroyed, lost or stolen Security, a new Security of the same series containing
identical terms and of like principal amount and bearing a number not
contemporaneously outstanding.

    Notwithstanding the forgoing provisions of this Section, in case any
mutilated, destroyed, lost or stolen Security has become or is about to become
due and payable, the Company in its discretion may, instead of issuing a new
Security, pay such Security.

    Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.

    Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall


                                          26




constitute an additional original contractual obligation of the Company, whether
or not the destroyed, lost or stolen Security shall be at any time enforceable
by anyone, and shall be entitled to all the benefits of this Indenture equally
and proportionately with any and all other Securities of such series duly issued
hereunder.

    The provisions of this Section, as amended or supplemented pursuant to this
Indenture with respect to particular Securities or generally, shall be exclusive
and shall preclude (to the extent lawful) all other rights and remedies with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities.

    Section 307.   Payment of Interest and Certain Additional Amounts; Rights
                   to Interest and Certain Additional Amounts Preserved.

    Unless otherwise provided in or pursuant to this Indenture, any interest on
and any Additional Amounts with respect to any Security which shall be payable
and are punctually paid or duly provided for on any Interest Payment Date shall
be paid to the Person in whose name such Security (or one or more Predecessor
Securities) is registered as of the close of business on the Regular Record Date
for such interest.

    Unless otherwise provided in or pursuant to this Indenture, any interest on
and any Additional Amounts with respect to any Security which shall be payable,
but shall not be punctually paid or duly provided for, on any Interest Payment
Date for such Security (herein called "Defaulted Interest") shall forthwith
cease to be payable to the Holder thereof on the relevant Regular Record Date by
virtue of having been such Holder; and such Defaulted Interest may be paid by
the Company, at its election in each case, as provided in Clause (1) or (2)
below:

         (1)  The Company may elect to make payment of any Defaulted Interest
to the Person in whose name such Security (or a Predecessor Security thereof)
shall be registered at the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in the following
manner.  The Company shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on such Security and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of Money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit on or prior to the date of the proposed payment,
such Money when so deposited to be held in trust for the benefit of the Person
entitled to such Defaulted Interest as in this Clause provided.  Thereupon, the
Trustee shall fix a Special Record Date for the payment of such Defaulted
interest which shall be not more than 15 days and not less than 10 days prior to
the date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment.  The Trustee shall


                                          27




promptly notify the Company of such Special Record Date and, in the name and at
the expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to the Holder of such Security (or a Predecessor
Security thereof) at his address as it appears in the Security Register not less
than 10 days prior to such Special Record Date.  Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having been
mailed as aforesaid, such Defaulted Interest shall be paid to the Person in
whose name such Security (or a Predecessor Security thereof) shall be registered
at the close of business on such Special Record Date and shall no longer be
payable pursuant to the following Clause (2).

         (2)  The, Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which such Security may be listed, and upon such notice as may be
required by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this Clause, such payment shall be deemed
practicable by the Trustee.

    At the option of the Company, interest on Securities that bear interest may
be paid (i) by mailing a check to the address of the person entitled thereto as
such address shall appear in the Security Register, or (ii) by wire transfer to
an account maintained by the Person entitled thereto as specified in the
Security Register.

    Subject to the foregoing provisions of this Section and Section 305, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.

    Section 308.   Persons Deemed Owners.

    Prior to due presentment of a Security for registration of transfer or
exchange, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered in the Security
Register as the owner of such Security for the purpose of receiving payment of
principal of, any premium and (subject to Sections 305 and 307) interest on and
any Additional Amounts with respect to such Security and for all other purposes
whatsoever, whether or not any payment with respect to such Security shall be
overdue, and neither the Company, nor the Trustee or any agent of the Company or
the Trustee shall be affected by notice to the contrary.

    No holder of any beneficial interest in any global Security held on its
behalf by a Depository, shall have any rights under this Indenture with respect
to such global Security, and such Depository may be treated by the Company, the
Trustee, and any agent of the Company or the Trustee as the owner of such global
Security for all purposes whatsoever.  None of the Company, the


                                          28




Trustee, any Paying Agent or the Security Registrar will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests of a global Security or for
maintaining, Supervising or reviewing any records relating to such beneficial
ownership interests.

    Section 309.   Cancellation.

    All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee,
and any such Securities, as well as Securities surrendered directly to the
Trustee for any such purpose, shall be canceled promptly by the Trustee.  The
Company may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee for
cancellation any Securities previously authenticated hereunder which the Company
has not issued and sold, and all Securities so delivered shall be canceled
promptly by the Trustee.  Any Securities previously authenticated and delivered
by the Company to the Trustee hereunder which the Company has not issued or sold
shall not be counted against any limits on the aggregate amount of such
Securities to be issued and sold.  No Securities shall be authenticate in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by or pursuant to this Indenture.  All canceled
Securities held by the Trustee shall be destroyed by the Trustee, and the
Trustee shall deliver to the Company a certificate of disposition with respect
thereto.

    Section 310.   Computation of Interest.

    Except as otherwise provided in or pursuant to this Indenture, interest on
the Securities shall be computed on the basis of a 360-day year of twelve 30-day
months.  Unless the terms of a particular series of Securities provides
otherwise, interest shall be payable through and excluding any Interest Payment
Date and interest shall be payable through and including any Redemption Date or
Repayment Date.


                                     ARTICLE FOUR

                              SATISFACTION AND DISCHARGE

    Section 401.   Satisfaction and Discharge of Indenture.

    Upon the direction of the Company by a Company Order, this Indenture shall
cease to be of further effect and the Trustee, on receipt of such Company Order
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture, when


                                          29





    (1)  either

         (A)  all Securities theretofore authenticated and delivered (other
    than (i) Securities which have been destroyed, lost or stolen and which
    have been replaced or paid as provided in Section 306 and (ii) Securities
    for whose payment Money has theretofore been deposited in trust with the
    Trustee or segregated and held in trust by the Company and thereafter
    repaid to the Company or discharged from such trust, as provided in Section
    1003) have been delivered to the Trustee for cancellation; or

    (B)  all Securities not theretofore delivered to the Trustee for
cancellation

         (i)       have become due and payable, or

         (ii)      will become due and payable at their Stated Maturity within
    one year, or

         (iii)     if redeemable at the option of the Company, are to be called
    for redemption within one year under arrangements satisfactory to the
    Trustee for the giving of notice of redemption by the Trustee in the name
    of the Company, and the Company, in the case of (i), (ii) or (iii) above,
    has irrevocably deposited or caused to be deposited with the Trustee, as
    trust funds and/or obligations in trust for such purpose, Money and/or
    Government Obligations which through the payment of interest and principal
    in respect thereof in accordance with their terms, without consideration of
    any reinvestment thereof, and will provide not later than the opening of
    business on the due dates of any payment of principal and any premium,
    interest and Additional Amounts with respect thereto, or a combination
    thereof, Money in an amount sufficient to pay and discharge the entire
    indebtedness on such Securities not theretofore delivered to the Trustee
    for cancellation, including the principal of, any premium and interest on,
    and any Additional Amounts with respect to such Securities, to the date of
    such deposit (in the case of Securities which have become due and payable)
    or to the Maturity thereof, as the case may be;

    (2)  the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and

    (3)  the Company has delivered to the Trustee a certificate of Independent
Public Accountants certifying as to the sufficiency of the amounts deposited
pursuant to subclause (B) of Clause (1) of this Section for payment of the
principal and any premium, interest and Additional Amounts with respect thereto
on the dates such payments are due, and an Officers' Certificate and an opinion
of Counsel, each stating that all conditions precedent herein providing for or
relating to the satisfaction and discharge of this Indenture have been complied
with.


                                          30




    In the event there are Securities of two or more series hereunder, the
Trustee shall be required to execute an instrument acknowledging satisfaction
and discharge of this Indenture only if requested to do so with respect to
Securities of all series as to which it is Trustee and if the other conditions
thereto are met.

         (A)  with respect to all Outstanding Securities of such series, the
    Company has irrevocably deposited or caused to be deposited with the
    Trustee, as trust funds and/or obligations in trust for such purpose, Money
    and/or Government Obligations which through the payment of interest and
    principal in respect thereof in accordance with their terms, without
    consideration of any reinvestment thereof, will provide not later than the
    opening of business on the due dates of any payment of principal and any
    premium, interest and Additional Amounts with respect thereto, or a
    combination thereof, Money in an amount sufficient to pay and discharge the
    entire indebtedness on all Outstanding Securities of such series not
    theretofore delivered to the Trustee for cancellation, including the
    principal of, any premium and interest on, and any Additional Amounts with
    respect to such Securities to the date of such deposit (in the case of
    Securities which have become due and payable) or to the Maturity thereof,
    as the case may be, as contemplated by the penultimate paragraph of this
    Section; or

         (B)  the Company has properly fulfilled such other means of
    satisfaction and discharge as is provided in or pursuant to this Indenture
    for the Securities of such series; and

In the event there are two or more Trustees hereunder, then the effectiveness of
any such instrument shall be conditioned upon receipt of each such instrument
from all Trustees hereunder.

    Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Trustee to any Authenticating Agent under Section 612 and, if Money and/or
Government Obligations shall have been deposited with the Trustee pursuant to
subclause (B) of Clause (1) of this Section, the obligations of the Trustee
under Section 403 and the last paragraph of Section 1003 shall survive.

    In the event that, subsequent to the date a discharge is effected pursuant
to this Section, Additional Amounts in excess of those established as of the
date such discharge is effected become payable in respect of any Securities, in
order to preserve the benefits of the discharge established hereunder, the
Company shall deposit or cause to be deposited in accordance with provisions of
this Section, within ten business days prior to the earlier to occur of (i) one
year after the existence of such excess Additional Amounts is established and
(ii) the date the first payment in respect of any portion of such excess
Additional Amounts becomes due, such additional funds as are necessary to
satisfy the provisions of this Section as if a discharge were being effected as
of the date of such subsequent deposit.  For purposes of this


                                          31




paragraph, the existence of excess Additional Amounts shall be deemed to have
been established as of the date the governmental authority imposing the tax,
assessment or other governmental charge resulting in the Additional Amounts
first publishes the legislation, regulation or other enactment adopting such
tax, assessment or other governmental charge.  Failure to comply with the
requirements of this paragraph shall result in the termination of the benefits
of the discharge established by this Section.

    Section 402.   Satisfaction, Discharge and Defeasance of Securities of Any
                   Series.

    If provision is made in or pursuant to this Indenture for defeasance of
Securities of any series pursuant to this Section, the Company shall be deemed
to have paid and discharged the entire indebtedness on all the Outstanding
Securities of such series and the Trustee shall execute proper instruments
acknowledging satisfaction and discharge of such indebtedness, when

    (1)  no Event of Default has occurred and is continuing, or would occur
upon the giving of notice or the lapse of time, or both, at the time such
satisfaction and discharge is being effected and either

    (2)  the Company has paid or caused to be paid all other sums payable
hereunder with respect to the Outstanding Securities of such series; and

    (3)  the Company has delivered to the Trustee a certificate signed by
Independent Public Accountants certifying as to the sufficiency of the amounts
deposited pursuant to subsection (1) (A) of this Section for payment of the
principal of, any premium and interest on and any Additional Amounts with
respect to such Securities on the dates such payments are due, an Officers'
Certificate stating that no Event of Default or event which with notice or lapse
of time or both would become an Event of Default with respect to such Securities
shall have occurred and an Officer's Certificate and an Opinion of Counsel
stating that all conditions precedent herein provided for relating to the
satisfaction and discharge of the entire indebtedness on all Outstanding
Securities of any such series shall have been complied with; and

    (4)  the Company has delivered to the Trustee an opinion of independent
counsel or a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the Holders of the Securities of such series will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and termination and will be subject to federal income tax on the
same amounts, in the same manner and at the same time as would have been the
case if such deposit and termination had not occurred.

    Any deposits with the Trustee referred to in subsection (1) (A) of this
Section shall be irrevocable and shall be made under the terms of an escrow
trust agreement in form and substance


                                          32




reasonably satisfactory to the Trustee.  If any Outstanding Securities of such
series are to be redeemed prior to their Stated Maturity, whether pursuant to
any optional redemption provisions or in accordance with any mandatory sinking
fund requirement or otherwise, the Company shall make such arrangements as are
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name of the Company.

    Upon the satisfaction of the conditions set forth in this Section with
respect to all the Outstanding Securities of any series, the terms and
conditions of such series (including the terms and conditions with respect
thereto set forth in this Indenture, other than the provisions of Sections 305,
306, and 1002 and other than the right of Holders of Securities of such series
to receive, from the trust fund described in this Section, payment of the
principal of, any premium Or interest on, or any Additional Amounts with respect
to such Securities when such payments shall be due) and the rights, powers,
duties and immunities of the Trustee hereunder shall no longer be binding upon,
or applicable to, the Company; provided that the Company shall not be discharged
from any payment obligations in respect to Securities of such series which are
deemed not to be Outstanding under clause (iii) of the definition of Outstanding
if such obligations continue to be valid obligations of the Company under
applicable law.

    In the event that, subsequent to the date a defeasance is effected pursuant
to this Section with respect to Securities of any series, Additional Amounts in
excess of those established as of the date such defeasance is effected become
payable in respect of such Securities, in order to preserve the benefits of the
defeasance established hereunder with respect to such series, the Company shall
deposit or cause to be deposited in accordance with the provisions of this
Section, within ten business days prior to the earlier to occur of (i) one year
after the existence of such excess Additional Amounts is established and (ii)
the date the first payment in respect of any portion of such excess Additional
Amounts becomes due, such additional funds as are necessary to satisfy the
provisions of this Section as if a defeasance were being effected as of the date
of such subsequent deposit.  For purposes of this paragraph, the existence of
excess Additional Amounts shall be deemed to have been established as of the
date the governmental  authority imposing the tax, assessment or other
governmental charge resulting in the Additional Amounts first publishes the
legislation, regulation or other enactment adopting such tax, assessment or
other governmental charge.  Failure to comply with the requirements of this
paragraph shall result in the termination of the benefits of the defeasance
established by this Section with respect to the Securities of such series.

    Section 403.   Application of Trust Money.

    Subject to the provisions of the last paragraph of Section 1003, all Money
and Government Obligations deposited with the Trustee pursuant to Section 401 or
402 and all Money received by the Trustee in respect of Government Obligations
deposited with the


                                          33




Trustee pursuant to Section 401 or 402 shall be held in trust and applied by it,
in accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal and any premium, interest and Additional
Amounts for whose payment such Money has or Government Obligations have been
deposited with or received by the Trustee; but such Money and Government
Obligations need not be segregated from other funds of the Trustee except to the
extent required by law.


                                     ARTICLE FIVE

                                       REMEDIES


    Section 501.   Events of Default.

         "Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or be effected by Operation
of law pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):

         (1)  default in the payment of any interest on or any Additional
    Amounts payable in respect of any Security of such series when such
    interest becomes or such Additional Amounts become due and payable, and
    continuance of such default for a period of 10 days; or

         (2)  default in the payment of the principal of and any premium on any
    Security of such series when it becomes due and payable at its Maturity,
    upon redemption or upon repayment and continuance of such default for a
    period of 5 days; or

         (3)  default in this deposit of any sinking fund payment, when and as
    due by the terms of a Security of such series and continuance of such
    default for a period of 5 days; or

         (4)  default in the performance, or breach, of any covenant or
    warranty of the Company in this Indenture or the Securities (other than a
    covenant or warranty a default in the performance or the breach of which is
    elsewhere in this Section specifically dealt with or which has been
    expressly included in this Indenture solely for the benefit of a series of
    Securities other than such series), and continuance of such default or
    breach for a period of 30 days after there has been given, by registered or
    certified mail, to the Company by the Trustee or to the Company and the
    Trustee by the Holders of at least 25% in principal amount of the
    Outstanding Securities of such series a written notice specifying such
    default or breach and requiring it to be remedied and stating that such
    notice is a "Notice of Default" hereunder; or

                                          34





         (5)  default in the payment at stated maturity of an obligation for
    Indebtedness for Money Borrowed of the Company or a Subsidiary in principal
    amount due at stated maturity in excess of $1,000,000, and such default
    shall continue, without being cured, waived or consented to and without
    such indebtedness being discharged, for a period of 30 days beyond any
    applicable period of grace; or

         (6)  an event of default as defined in any mortgage, indenture or
    instrument under which there may be issued, or by which there may be
    secured or evidenced, any Indebtedness for Money Borrowed of the Company or
    any Subsidiary (including a default under this Indenture with respect to
    Securities of any series other than such series), whether such Indebtedness
    for Money Borrowed now exists or shall hereafter be created, shall happen
    and shall result in such Indebtedness for money Borrowed in principal
    amount in excess of $1,000,000 becoming or being declared due aid payable
    prior to the date on which it  would otherwise become due and payable, and
    such acceleration shall not be rescinded or annulled, or such indebtedness
    shall not have been discharged, within a period of 30 days after there
    shall have been given, by registered or certified mail, to the Company by
    the Trustee or to the Company and the Trustee by the Holders of at least
    25% in principal amount of the Outstanding Securities of such series, a
    written notice specifying such event of default and requiring the Company
    to cause such acceleration to be rescinded or annulled or to cause such
    Indebtedness for Money Borrowed to be discharged and stating that such
    notice is a "Notice of Default" hereunder; or

         (7)  the entry by a court or agency or supervisory authority having
    competent jurisdiction of:

              (A)  a decree or order for relief in respect of the Company or
         any Significant Subsidiary in an Involuntary proceeding under any
         Applicable bankruptcy, insolvency, reorganization or other similar law
         and such decree or order shall remain unstayed and in effect for a
         period of 60 consecutive days; or

              (B)  a decree or order adjudging the Company or any Significant
         Subsidiary to be insolvent, or approving a petition seeking
         reorganization, arrangement, adjustment or composition off the Company
         or any Significant Subsidiary and such decree or order shall remain
         unstayed and in effect for a period of 60 consecutive days; or

              (C)  a decree or order appointing any other Person to act as a
         custodian, receiver, liquidator, assignee, trustee or other similar
         official of the Company or any Significant Subsidiary or of any
         substantial part of the property of the Company or any Significant
         Subsidiary, as the case may be, or ordering the winding up or
         liquidation of the affairs of the Company or any


                                          35




         Significant Subsidiary and such decree or order shall remain unstayed
         and in effect for a period of 60 consecutive days; or

         (8)  the commencement by the Company or any Significant Subsidiary of
    a voluntary proceeding under any applicable bankruptcy, insolvency,
    reorganization or other similar law or of a voluntary proceeding seeking to
    be adjudicated insolvent or the consent by the Company or any Significant
    Subsidiary to the entry of a decree or order for relief in an involuntary
    proceeding under any applicable bankruptcy, insolvency, reorganization or
    other similar law or to the commencement of any insolvency proceedings
    against it, or the filing by the Company or any Significant Subsidiary of a
    petition or answer or consent seeking reorganization or relief under any
    applicable law, or the consent by the Company or any Significant Subsidiary
    or the filing of such petition or to the appointment of or taking
    possession by a custodian, receiver, liquidator, assignee, trustee or
    similar official of the Company or any Significant Subsidiary or any
    substantial part of the property of the Company or any Significant
    Subsidiary or the making by the Company or any Significant Subsidiary of an
    assignment for the benefit of creditors, or the taking of corporate action
    by the Company or any Significant Subsidiary in furtherance of any such
    action; or

         (9)  a final judgment, judicial decree or order for the payment of
    money in excess of $5,000,000 shall be rendered against the Company or any
    Significant Subsidiary and such judgment, decree or order shall continue
    unsatisfied for a period of 30 days without a stay of execution; or

         (10) any other Event of Default provided in or pursuant to this
    Indenture with respect to Securities of such series.

    Section 502.   Acceleration of Maturity; Rescission and Annulment.

    If an Event of Default with respect to Securities of any series at the time
Outstanding occurs and is continuing, then the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Securities of such series
may declare the principal of all the Securities of such series, or such lesser
amount as may be provided for in the Securities of such series, and the interest
accrued thereon and Additional Amounts payable in respect thereof, if any, to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by the Holders), and upon any such declaration such amount
shall become immediately due and payable.

    At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the Money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of not less than a majority in principal amount of
the Outstanding


                                          36




Securities of such series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences, on behalf
of all Holders, if

         (1)  the Company has paid or deposited with the Trustee a sum of Money
    sufficient to pay

              (A)  all overdue installments of any interest on and Additional
         Amounts with respect to all Securities of such series,

              (B)  the principal of and any premium on any Securities of such
         series which have become due otherwise than by such declaration of
         acceleration and interest thereon and any Additional Amounts with
         respect thereto at the rate or rates borne by or provided for in such
         Securities,

              (C)  to the extent that payment of such interest or Additional
         Amounts is lawful, interest upon overdue installments of any interest
         and Additional Amounts at the rate or rates borne by or provided for
         in such Securities, and

              (D)  all sums paid or advanced by the Trustee hereunder and the
         reasonable compensation, expenses, disbursements and advances of the
         Trustee, its agents and counsel; and

    (2)  all Events of Default with respect to Securities of such series, other
than the non-payment of the principal of, any premium and interest or, and any
Additional Amounts with respect to Securities of such series which shall have
become due solely by such declaration of acceleration shall have been cured or
waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

    Section 503.   Collection of Indebtedness and Suits for Enforcement by
                   Trustee.

         The Company covenants that if

    (1)  default is made in the payment of any installment of interest on or
any Additional Amounts with respect to any series of Security when such interest
or Additional Amounts shall have become due and payable and such default
continues for a period of 30 days, or

    (2)  default is made in the payment of the principal of or any premium on
any series of Security at its Maturity and such default continues for a period
of 5 days,


                                          37




the Company shall, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such series of Securities, the whole amount of Money
then due and payable with respect to such series of Securities, with interest
upon the overdue principal, any premium and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installments of interest
and Additional Amounts at the rate or rates borne by or provided for in such
series of Securities, and, in addition thereto, such further amount of Money as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.

    If the Company fails to pay the Money it is required to pay the Trustee
pursuant to the preceding paragraph forthwith upon the  demand of the Trustee,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the Money so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
Money adjudged or decreed to  be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.

    If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or such Securities or in aid of the
exercise of any power granted herein or therein, or to enforce any other proper
remedy.

    Section 504.   Trustee May File Proofs of Claim.

    In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or such other obligor their creditors,
the Trustee (irrespective of whether the principal of the Securities shall then
be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of any overdue principal, premium, interest or Additional
Amounts) shall be entitled and empowered, by intervention in such proceeding or
otherwise,

         (1)  to file and prove a claim for the whole amount, or such lesser
    amount as may be provided for in the Securities of such series, of the
    principal and any premium, interest and Additional Amounts owing and unpaid
    in respect of the Securities and to file such other papers or documents as
    may be necessary or advisable in order to have the claims of the Trustee
    (including any claim for the reasonable compensation,


                                          38




    expenses, disbursements and advances of the Trustee, its agents or counsel)
    and of the Holders of Securities allowed in such judicial proceeding, and

         (2)  to collect and receive any Monies or other property payable or
    deliverable on any such claims and to distribute the same; and any
    custodian, receiver, assignee, trustee, liquidator, sequestrator or other
    similar official in any such judicial proceeding is hereby authorized by
    each Holder of Securities to make such payments to the Trustee and, in the
    event that the Trustee shall consent to the making of such payments
    directly to the Holders of Securities, to pay to the Trustee any amount due
    to it for the reasonable compensation, expenses, disbursements and advances
    of the Trustee, its agents and counsel and any other amounts due the
    Trustee under Section 607.

    Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder of a Security in any such proceeding;
provided, however, that the Trustee may, on behalf of the Holders of Securities,
vote for the election of a trustee in bankruptcy or similar official and may be
a member of any creditors' committee.

    Section 505.   Trustee May Enforce Claims without Possession of Securities.

    All rights of action and claims under this Indenture or any of
the Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name as trustee of an express trust, and any recovery or
judgment, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
shall be for the ratable benefit of each and every Holder of a Security in
respect of which such judgment has been recovered.

    Section 506.   Application of Money Collected.

    Any Money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such Money on account of principal, or any
premium, interest or Additional Amounts, upon presentation of the Securities,
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:

         FIRST:    To the payment of costs and expenses of collection,
    including all sums paid or advanced by the Trustee hereunder and the
    reasonable compensation, expenses and disbursements of the Trustee, its
    agents and counsel and all


                                          39




    other amounts due the Trustee and any predecessor Trustee under Section
    607;

         SECOND:   In the case the principal of the Securities shall not have
    become due and payable, to the payment of the amounts then due and unpaid
    upon the Securities for interest and Additional Amounts in respect of which
    or for the benefit of which such Money has been collected, in the order of
    the Maturity of the installments of such interest and Additional Amounts,
    with interest, to the extent that such interest is lawful and has been
    collected by the Trustee, upon overdue installments of interest and
    Additional Amounts at the rate or rates borne by or provided for in the
    Securities (or, in the case of Original Issue Discount Securities, at the
    yield to Stated Maturity), such payments to be made ratably, without
    preference or priority of any kind, according to the aggregate amounts due
    and payable on such Securities for interest and Additional Amounts,
    respectively;

         THIRD:    In the case the principal of the Securities shall have
    become due and payable, to the payment of the amounts then due and unpaid
    upon the Securities for principal and any premium, interest and Additional
    Amounts in respect of which or for the benefit of which such Money has been
    collected, with interest, to the extent that such interest is lawful and
    has been collected by the Trustee, upon overdue installments of interest
    and Additional amounts at the rate or rates borne by or provided for in the
    Securities (or, in the case of Original Issue Discount Securities, at the
    yield to Stated Maturity), such payments to be made ratably,
    without preference or priority of any kind, according to the aggregate
    amounts due and payable in such Securities for principal and any premium,
    interest and Additional Amounts, respectively; and

         FOURTH:   The balance, if any, to the Company.

    Section 507.   Limitations on Suits.

    No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder
unless

         (1)  such Holder has previously given written notice to the Trustee of
    a continuing Event of Default with respect to the Securities of such
    series;

         (2)  the Holders of not less than 25% in principal amount of the
    Outstanding Securities of such series shall have made written request to
    the Trustee to institute proceedings in respect of such Event of Default in
    its own name as Trustee hereunder;


                                          40




         (3)  such Holder or Holder have offered to the Trustee indemnity
    satisfactory to the Trustee against the costs, expenses and liabilities to
    be incurred in compliance with such request (including reasonable fees of
    counsel) ;

         (4)  the Trustee for 60 days after its receipt of such notice, request
    and offer of indemnity has failed to institute any such proceeding; and

         (5)  no direction inconsistent with such written request has been
    given to the Trustee during such 60-day period by the Holders of a majority
    in principal amount of the Outstanding Securities of such series;

it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture or any Security to affect, disturb or prejudice the rights of
any other such Holders or Holders of Securities of any other series, or to
obtain or to seek to obtain priority or preference over any other Holders or to
enforce any right under this Indenture, except in the manner herein provided and
for the equal and ratable benefit of all such Holders.

    Section 508.   Unconditional Right of Holder to Receive Principal and any
                   Premium, Interest and Additional Amounts.

    Notwithstanding any other Provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of, any premium and (subject to Sections 305 and 307)
interest on, and any Additional Amounts with respect to such Security on the
respective Stated Maturity or Maturities therefor specified in such Security
(or, in the case of redemption, on the Redemption Date or, in the case of
repayment at the option of such Holder if provided in or pursuant to this
Indenture, or the Repayment Date such repayment is due) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.

    Section 509.   Restoration of Rights and Remedies.

    If the Trustee or any Holder of a Security has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case the Company, the
Trustee and each such Holder shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Trustee and each such
Holder shall not continue as though no such proceeding had been instituted.

    Section 510.   Rights and Remedies Cumulative.


                                          41




    Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
each and every Holder of a Security is intended to be exclusive of any other
right or remedy, and every right and remedy, to the extent permitted by law,
shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise.  The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.

    Section 511.   Delay or Omission not Waiver.

         No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein.  Every right and remedy given by, this Article or by
law to the Trustee or to any Holder of a Security may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or by such Holder,
as the case may be.

    Section 512.   Control by Holders of Securities.

    The Holders of a majority in principal amount of the Outstanding Securities
of any series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee with respect to the Securities of
such series, provided that

         (1)  such direction shall not be in conflict with any rule of law or
    with this Indenture or with the Securities of any series,

         (2)  the Trustee may take any other action deemed proper by the
    Trustee which is not inconsistent with such direction, and

         (3)  that (subject to he provisions of Section 601) the Trustee shall
    have the right to decline to follow any such direction if the Trustee,
    being advised by counsel, shall determine that the action or proceeding so
    directed may not lawfully be taken, or if the Trustee in good faith shall
    determine that the action or proceedings so directed might involve the
    Trustee in personal liability or if the Trustee in good faith shall so
    determine that the actions or forbearance specified in or pursuant to such
    direction shall be unduly prejudicial to the interest of Holders not
    joining in the giving of said direction, it being understood that (subject
    to Section 601) the Trustee shall have no duty to ascertain whether or not
    such actions or forbearance are unduly prejudicial to such Holders.



                                          42




    Section 513.   Waiver of Past Defaults.

    The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series on behalf of the Holders of all the
Securities of such series may waive any past default hereunder with respect to
such series and its consequences, except a default

         (1)  in the payment of the principal of, any premium or interest on,
    or any Additional Amounts with respect to any Security of such series, or

         (2)  in respect of a covenant or provision hereof which under Article
    Nine cannot be modified or amended without the consent of the Holder of
    each Outstanding Security of such series affected.

    Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.

    Section 514.   Waiver of Stay or Extension Laws.

    The Company covenants that (to the extent that it may lawfully do so) it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company expressly waives (to the extent
that it may lawfully do so) all benefit or advantage of any such law and
covenants that it will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.


                                     ARTICLE SIX

                                     THE TRUSTEE

    Section 601.   Certain Duties and Responsibilities.

         (a)  Except during the continuance of an Event of Default,

              (1)  the Trustee undertakes to perform such duties, and only such
         duties, as are specifically set forth in this Indenture, and no
         implied covenants or obligations shall be read into this Indenture
         against the Trustee; and


                                          43




              (2)  in the absence of bad faith on its part, the Trustee may
         conclusively rely, as to the truth of the statements and the
         correctness of the opinions expressed therein, upon certificates or
         opinions furnished to the Trustee and conforming to the requirements
         of this Indenture; but in the case of any such certificates or
         opinions which by any provision hereof are specifically required to be
         furnished to the Trustee, the Trustee shall be under a duty to examine
         the same to determine whether or not they conform to the requirements
         of this Indenture.

    (b)  In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
his own affairs.

    (c)  No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that

         (1)  this Subsection shall not be construed to limit the effect of
    Subsection (a) of this Section;

         (2)  the Trustee shall not be liable for any error of judgment made in
    good faith by a Responsible Officer, unless it shall be proved that the
    Trustee was negligent in ascertaining the pertinent facts;

         (3)  the Trustee shall not be liable with respect to any action taken
    or omitted to be taken by it in good faith in accordance with the direction
    of the Holders of a majority in principal amount of the Outstanding
    Securities of any series, relating to the time, method and place of
    conducting any proceeding for any remedy available to the Trustee, or
    exercising any trust or power conferred upon the Trustee, under this
    Indenture with respect to the Securities of such series, provided such
    direction shall not be in conflict with any rule of law or with this
    Indenture; and

         (4)  no provision of this Indenture shall require the Trustee to
    expend or risk its own funds or otherwise incur any financial liability in
    the performance of any of its duties hereunder, or in the exercise of any
    of its rights or powers, if it shall have reasonable grounds for believing
    that repayment of such funds or adequate indemnity against such risk or
    liability is not reasonably assured to it.

    (d)  Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.


                                          44




    Section 602.   Notice of Defaults.

         Within 90 days after the occurrence of any default hereunder with
respect to the Securities of any series, the Trustee shall transmit, in the
manner and to the extent provided in Section 313(c) of the Trust Indenture Act,
notice of such default hereunder known to the Trustee, unless such default shall
have been cured or waived; provided, however, that in the case of any default of
the character specified in Section 501 (4) with respect to Securities of such
series, no such notice to Holders shall be given until at least 30 days after
the occurrence thereof.  Except in the case of a default in the payment to
principal of or interest on any Security, and the failure to make payment when
required by Section 1303, the Trustee may withhold the notice to the Holders if
and so long as a committee of its Responsible Officers determines in good faith
that withholding the notice is in the interest of the Holders.  For the purpose
of this Section, the term "default" means any event which is, or after notice or
lapse of time or both would become, an Event of Default, with respect to
Securities of such series.

    Section 603.   Certain Rights of Trustee.

    Subject to Sections 3.5(a) through 315(d) of the Trust Indenture Act and to
Section 601 of this Indenture:

         (1)  Trustee may rely and shall be protected in acting or refraining
    from acting upon any resolution, certificate, statement, instrument,
    opinion, report, notice, request, direction, consent, order, bond,
    debenture, note, coupon or other paper or document reasonably believed by
    it to be genuine and to have been signed or presented by the proper party
    or parties;

         (2)  any request or direction of the Company mentioned herein shall be
    sufficiently evidenced by a Company Request or a Company Order (in each
    case, other than delivery of any Security to the Trustee or authentication
    and delivery pursuant to Section 303, which shall be sufficiently evidenced
    as provided therein) and any resolution of the Board of Directors may be
    sufficiently evidenced by a Board Resolution;

         (3)  whenever in the administration of this Indenture the Trustee
    shall deem it desirable that a matter be proved or established prior to
    taking, suffering or omitting any action hereunder, the Trustee (unless
    other evidence shall be herein specifically prescribed) may, in the absence
    of bad faith on its part, rely upon an Officers' Certificate;

         (4)  before the Trustee acts or refrains from acting, the Trustee may
    consult with counsel and the written advice of such counsel or any Opinion
    of Counsel shall be full and complete authorization and protection in
    respect of any action taken, suffered or omitted by it hereunder in good
    faith and in reliance thereon;


                                          45




         (5)  the Trustee shall be under no obligation to exercise any of the
    rights or powers vested in it by or pursuant to this Indenture at the
    request or direction of any of the Holders of Securities of any series
    pursuant to this Indenture, unless such Holders shall have offered to the
    Trustee reasonable security or indemnity against the costs, expenses and
    liabilities which might be incurred by it, including reasonable fees of
    counsel, in complying with such request or direction;

         (6)  the Trustee shall not be bound to make any investigation into the
    facts or matters stated in any resolution, certificate, statement,
    instrument, opinion, report, notice, request, direction, consent, order,
    bond, debenture, coupon or other piper or document, but the Trustee, in its
    discretion, may make such further inquiry or investigation into such facts
    or matters as it may see fit, and, if the Trustee shall determine to make
    such further inquiry or investigation, it shall be entitled to examine,
    during business hours and upon reasonable notice, the books, records and
    premises of the Company, personally or by agent or attorney;

         (7)  the Trustee may execute any of the trusts or powers hereunder or
    perform any, duties hereunder either directly or by or through agents or
    attorneys and the Trustee shall not be responsible for any misconduct or
    negligence on the part of any agent or attorney (other than the misconduct
    or negligence of an agent or attorney who is an employee of the Trustee)
    appointed with due care by it hereunder;

         (8)  the Trustee shall not be liable for any action taken or omitted
    by it in good faith and with due care and believed by it to be authorized
    or within the discretion, rights or powers conferred upon it by this
    Indenture;

         (9)  the Trustee shall not be required to give any bond or surety in
    respect of the performance of its powers and duties hereunder;

         (10) the permissive rights of the Trustee to do things enumerated in
    this Indenture shall not be construed as a duty and the Trustee shall not
    be answerable for other than its negligence or willful misconduct; and

         (11) except for (i) a default under Sections 501 (1) , (2) or (3)
    hereof, or (ii) any other event of which the Trustee has "actual knowledge"
    and which event, with the giving of notice or the passage of time or both,
    would constitute an Event of Default under this Indenture, the Trustee
    shall not be deemed to have notice of any default or event unless
    specifically notified in writing of such event by the Company or the
    Holders of not less than 25% in aggregate principal amount of the
    Securities Outstanding; as used herein, the term "actual knowledge" means
    the actual fact or


                                          46




    statement of knowing, without any duty to make any investigation with
    regard thereto.

    Section 604.   Not Responsible for Recitals or Issuance of Securities.

    The recitals contained herein and in the Securities, except the Trustee's
    certificate of authentication, shall be taken as the statements of the
    Company and neither the Trustee nor any Authenticating Agent assumes any
    responsibility for their correctness. The Trustee makes no representations
    as to the validity or sufficiency of this Indenture or of the Securities,
    except that the Trustee represents that it is duly authorized to execute
    and deliver this Indenture, authenticate the Securities and perform its
    obligations hereunder and that the statements made by it in a Statement of
    Eligibility and Qualification on Form T-1 supplied to the Company are true
    and accurate, subject to the qualifications set forth therein.  Neither the
    Trustee nor any Authenticating Agent shall be accountable for the use or
    application by the Company of the Securities or the proceeds thereof.

    Section 605.   May Hold Securities.

    The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other Person that may be an agent of the Trustee or the
Company, in is individual or any other capacity, may become the owner or
Pledge,e of Securities and, subject to Sections 310(b) and 311 of the Trust
Indenture Act, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other Person.

    Section 606.   Money Held in Trust.

    Except as provided in Section 403 and Section 1003, Money held by the
Trustee in trust hereunder need not be segregated from other funds except to the
extent required by law and shall be held uninvested.  The Trustee shall be under
no liability for interest on any Money received by it hereunder except as
otherwise agreed with the Company.

    Section 607.   Compensation and Indemnity.

         The Company agrees:

         (1)  to pay to the Trustee from time to time, and the Trustee shall be
    entitled to, reasonable compensation for all services rendered by the
    Trustee hereunder (which compensation shall not be limited by any provision
    of law in regard to the compensation of a trustee of an express trust);

         (2)  except as otherwise expressly provided herein, to reimburse the
    Trustee upon its request for all reasonable expenses, disbursements and
    advances incurred or made by the


                                          47




    Trustee in accordance with any provision of this Indenture (including the
    reasonable compensation and the expenses and disbursements of its agent and
    counsel), except any such expense, disbursement or advance as may be
    attributable to the Trustee's negligence or willful misconduct; and

         (3)  to indemnify the Trustee and its agents for, and to hold them
    harmless against, any loss, liability or expense  incurred without willful
    misconduct or negligence on their part, arising out of or in connection
    with the acceptance or administration of the trust or trusts hereunder,
    including the costs and expenses of defending themselves against any claim
    or liability in connection with the exercise or performance of any of their
    powers or duties hereunder.  The Trustee shall notify the Company promptly
    of any claim asserted against it for which it may seek indemnity.  The
    Company shall defend the claim and the Trustee shall provide reasonable
    cooperation in the defense.  The Trustee may have separate counsel and the
    Company shall pay the reasonable fees and expenses of such counsel;
    PROVIDED that the company will not be required to pay such fees and
    expenses if it assumes the Trustee's defense and there is no conflict of
    interest between the Company and the Trustee in connection with such
    defense.  The Company need not pay for any settlement made without its
    written consent.  The Company need not reimburse any expense or indemnify
    against any loss or liability incurred by the Trustee through the Trustee's
    own willful misconduct or negligence.

    As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities of any
series upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of, and premium or
interest on or any Additional Amounts with respect to Securities.  "Trustee" for
the purposes of this Section includes any predecessor Trustee, but misconduct,
negligence or bad faith of any Trustee shall not be attributed to any other
Trustee.

    Section 608.   Corporate Trustee Required; Eligibility.

    There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America, any
state thereof or the District of Columbia, authorized under such laws to
exercise corporate trust powers, or any other person permitted by the Trust
Indenture Act to act as trustee under an indenture qualified under the Trust
Indenture Act and that has a combined capital and surplus (computed in
accordance with Section 31O(a) (2) of the Trust Indenture Act) of at least
$50,000,000.  If at any time the Trustee shall cease to be eligible in
accordance with, the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article.



                                          48




    Section 609.   Resignation and Removal; Appointment of Successor.

    (a)  No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee pursuant to Section 610.

    (b)  The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company.  If the
instrument of acceptance by a successor Trustee required by Section 610 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to such
series.

    (c)  The Trustee may be removed at any time with respect to the Securities
of any series by act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and the Company.

    (d)  If at any time:

         (1)  the Trustee shall fail to comply with the obligations imposed
    upon it under Section 310(b) of the Trust Indenture Act with respect to
    Securities of any series after written request therefor by the Company or
    any Holder of a Security of such series who has been a bona fide Holder of
    a Security of such series for at least six months, or

         (2)  the Trustee shall become incapable of acting or shall be adjudged
    a bankrupt or insolvent or a receiver of the Trustee or of its property
    shall be appointed or any public officer shall take charge or control of
    the Trustee or of its property or affairs for the purpose of
    rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company, by or pursuant to a Board Resolution,
may remove the Trustee with respect to all Securities or the Securities of such
series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder
of a Security who has been a bona fide Holder of a Security of such series for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Trustee with
respect to all Securities of such series and the appointment of a successor
Trustee or Trustees.

    (e)  If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by or pursuant to a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with respect
to the Securities of that or those series (it being understood that any such
successor trustee may be appointed with respect to the


                                          49




Securities of one or more or all of such series and that at any time there shall
be only one Trustee with respect to the Securities of any particular series) and
shall comply with the applicable requirements of Section 610.  If, within one
year after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Securities of any series shall
be appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of Section
610, become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company.  If
no successor Trustee with respect to the Securities of any series shall have
been so appointed by the Company or the Holders of Securities and accepted
appointment in the manner required by Section 610, any Holder of a Security who
has been a bona fide Holder of a Security of such series for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the appointment of a successor Trustee with
respect to the Securities of such series.

    Section 610.   Acceptance of Appointment by Successor.

         (a)  Upon the appointment hereunder of any successor Trustee with
respect to all Securities, such successor Trustee so appointed shall execute,
acknowledge and deliver to the Company and the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties hereunder of the retiring Trustee; but, on the request
of the Company or such successor Trustee, such retiring Trustee, upon payment of
its charges, shall execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trustee of the retiring Trustee
and, subject to Section 1003, shall duly assign, transfer and deliver to such
successor Trustee all property and Money held by such retiring Trustee
hereunder, subject nevertheless to its claim, if any, provided for in Section
607.  A successor Trustee shall give notice of its succession to each Holder by
mailing written notice of such event by first-class mail, postage prepaid, to
the Holders of Securities, if any, of such series as their names and addresses
appear in the Security Register.  Each notice shall include the name of the
successor Trustee with respect to the Securities of such series and the address
of its Corporate Trust Office.

    (b)  Upon the appointment hereunder of any successor Trustee with respect
to the Securities of one or more (but not all series, the Company, the retiring
Trustee and such successor Trustee shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such appointment
and which (1) shall contain such provisions as shall be necessary or desirable
to transfer and confirm to, and to vest in, such successor Trustee all

                                          50



the rights, powers, trusts and duties of the retiring Trustee with respect to
the Securities of that or those series to which the appointment of such
successor, Trustee relates, (2) if the retiring Trustee is not retiring with
respect to all Securities, shall contain such provisions as shall be deemed
necessary or desirable to confirm that all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
as to which the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee, and (3) shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust, that each such Trustee
shall be trustee of a trust or trusts hereunder separate and apart from any
trust or trusts hereunder administered by any other such Trustee and that no
Trustee shall be responsible for any notice given to, or received by, or any act
or failure to act on the part of any other Trustee hereunder, and, upon the
execution and delivery of such supplemental indenture, the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein, such retiring Trustee shall have no further responsibility for the
exercise of rights and powers or for the performance of the duties and
obligations vested in the Trustee under this Indenture with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates other than as hereinafter expressly set forth, and such
successor Trustee, without any further act, deed or conveyance, shall become
vested with all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series to which the appointment
of such successor Trustee relates; but, on request of the company or such
successor Trustee, such retiring Trustee, upon payment of its charges with
respect to the Securities of that or those series to which the appointment of
such successor relates and subject to Section 1003, shall duly assign, transfer
and deliver to such successor Trustee, to the extent contemplated by such
supplemental indenture, the property and Money held by such retiring Trustee
hereunder with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates.

    (c)  Upon request of any Person appointed hereunder as a successor Trustee,
the Company shall execute any and all  instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts referred to in paragraph (a) or (b) of this Section, as the case may be.

    (d)  No Person shall accept its appointment hereunder as a successor
Trustee unless at the time of such acceptance such successor Person shall be
qualified and eligible under this Article.


                                          51




    Section 611.   Merger, Conversion, Consolidation or Succession to Business.

    Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or, any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto provided such corporation shall be otherwise qualified
and eligible under this Article Six.  In case any Securities shall have been
authenticated but not delivered by the Trustee then in office, any successor by
merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.

    Section 612.   Appointment of Authenticating Agent.

    The Trustee may appoint one or more Authenticating Agents acceptable to the
Company with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of that or
those series issued upon original issue, exchange registration of transfer,
partial redemption or pursuant to Section 306, and Securities so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
Wherever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent.

    Each Authenticating Agent shall be acceptable to the Company and, except as
provided in or pursuant to this Indenture, shall at  all times be a corporation
that would be permitted by the Trust Indenture Act to act as trustee under an
indenture qualified under the Trust Indenture Act, is Authorized under
applicable law and by its charter to act as an Authenticating Agent and has a
combined capital and surplus (computed in accordance with Section 310(a)(2) of
the Trust Indenture Act) of at least $50,000,000.  If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect specified in this Section.

    Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust


                                          52




business of an Authentication Agent, shall be the successor of such
Authenticating Agent hereunder, provided such corporation shall be otherwise
eligible under this Section, without the execution or filing of any paper or any
further act on the part of the Trustee or the Authenticating Agent.

    An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and the Company.  The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and the Company.  Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities, if any, of the series with respect to which such Authenticating
Agent shall serve, as their names and addresses appear in the Security Register.
Any successor Authenticating Agent, upon acceptance of its appointment
hereunder, shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as an
Authenticating Agent.  No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section.

    The Company agrees to pay each Authenticating Agent from time to time
reasonable compensation for its services under this Section.  If the Trustee
makes such payments, it shall be entitled to be reimbursed for such payments,
subject to the provisions of Section 607.

    The provisions of Section 308, 604 and 605 shall be applicable to each
Authenticating Agent.

    If an Authenticating Agent is appointed with respect to one or more series
of Securities pursuant to this Section, the Securities of such series may have
endorsed thereon, in addition to or in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in the following form

    "This is one of the Securities of the series designated herein referred to
    in the within-mentioned Indenture.


                                                  ------------------------------
                                                      As Authenticating Agent


                                                  By ---------------------------
                                                        Authorized Signatory"


                                          53




    If all of the Securities of any series may not be originally issued at one
time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested in writing which writing need not be
accompanied by or contained in an Officers' Certificate by the Company), shall
appoint in accordance with this Section an Authenticating Agent having an office
in a Place of Payment designated by the Company with respect to such series of
Securities.


                                    ARTICLE SEVEN

                  HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY

    Section 701.   Company to Furnish Trustee Names and Addresses of Holders.

    In accordance with Section 312(a) of the Trust Indenture Act, the Company
shall furnish or cause to be furnished to the Trustee

         (1)  semi-annually with respect to Securities of each series on
    January 15 and July 15 of each year or upon such other dates as are set
    forth in or pursuant to the Board Resolution or indenture supplemental
    hereto authorizing such series, a list, in each, case in such form as the
    Trustee may reasonably require, of the names and addresses of Holders as of
    the applicable date, and

         (2)  at such other times as the Trustee may request in writing, within
    30 days after the receipt by the Company of any such request, a list of
    similar form and content as of a date not more than 15 days prior to the
    time such list is furnished,

provided, however, that so long as the Trustee is the Security Registrar no such
list shall be required to be furnished for Securities for which the Trustee acts
as Security Registrar.

    Section 702.   Preservation of Information; Communications to Holders.

    The Trustee shall comply with the obligations imposed upon it pursuant to
Section 312 of the Trust Indenture Act.

    Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company, the Trustee, any Paying
Agent or any Security Registrar shall be held accountable by reason of the
disclosure of any such information as to the name and addresses of the Holders
of Securities in accordance with Section 312 of the Trust Indenture Act,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by


                                          54




reason of mailing any material pursuant to a request made under Section 312(b)
of the Trust Indenture Act.

    Section 703.   Reports by Trustee.

    (a)  Within 60 days after May 15 of each year commencing with the first May
15 following the first issuance of Securities pursuant to Section 301, if
required by Section 313(a) of the Trust Indenture Act, the Trustee shall
transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report
dated as of such May 15 with respect any of the events specified in said Section
313(a) which may have occurred since the later of the immediately Preceding May
15 and the date off this Indenture.

    (b)  The Trustee shall Transmit the reports required by Section 313(a) of
the Trust Indenture Act at the times specified therein.

    (c)  Reports pursuant to this Section, shall be transmitted in the manner
and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture
At.

    Section 704.   Reports by Company.

    The Company, pursuant to Section 314(a) of the Trust Indenture Act, shall:

         (1)  file with the Trustee, within 15 days after the Company is
    required to file the same with the Commission, copies of the annual reports
    and of the information, documents and other reports (or copies of such
    portions of any of the foregoing as the Commission may from time to time by
    rules and regulations prescribe) which the Company may be required to file
    with the Commission pursuant to Section 13 or Section 15(d) of the
    Securities Exchange Act of 1934, as amended; or, if the Company is not
    required to file information, documents or reports pursuant to either of
    said Sections, then it shall file with the Trustee and the Commission, in
    accordance with rules and regulations prescribed from time to time by the
    Commission, such of the supplementary and periodic information, documents
    and reports which may be required pursuant to Section 13 of the Securities
    Exchange Act of 1934, as amended, in respect of a security listed and
    registered on a national securities exchange as may be prescribed from time
    to time in such rules and regulations; provided that notwithstanding the
    requirements of such rules and regulations, so long as any Security is
    Outstanding the Company shall file with the Trustee at a minimum (A) within
    105 days after the end of each fiscal year, copies of a balance sheet and
    statements of income and retained earnings of the Company as of the end of
    and for such fiscal year, audited by independent public accountants, and
    (B) within 60 days after the end of each Quarterly fiscal period, except
    for the last quarterly fiscal period in each fiscal year, a


                                          55




    summary statement (which need not be audited) of income and retained
    earnings of the Company for such period;

         (2)  file with the Trustee and the Commission, in accordance with
    rules and regulations prescribed from time to time by the Commission, such
    additional information, documents and reports with respect compliance by
    the Company, as the case may be, with the conditions and covenants of this
    Indenture as may be required from time to time by such rules and
    regulations;

         (3)  transmit to the Holders of Securities within 30 days after the
    filing thereof with the Trustee, in the manner and to the extent provided
    in Section 313(c) of the Trust Indenture Act, such summaries of any
    information, documents and reports required to be filed by the Company
    pursuant to paragraphs (1) and (2) of his Section as may be required by
    rules and regulations prescribed from time to time by the Commission;
    provided that notwithstanding the requirements of such rules and
    regulations, so long as any Security is  Outstanding the Company shall
    transmit to the Holders of Securities, within 30 day after the filing
    thereof with the Trustee, in the manner an to the extent provided in
    Section 313 (c) of the Trust Indenture Act, the information, documents and
    other reports required to be filed by the Company pursuant to paragraph (1)
    of this Section; provided, further that in lieu of any Annual Report on
    Form 10-K, the Company may transmit an annual report containing financial
    statements and an undertaking to transmit such Form 10-K to any Holder upon
    request; provided further that the Company shall not be required to
    transmit to the Holders any Quarterly Report on Form 10-Q or summary in
    lieu thereof unless the Company adopts a policy of regularly distributing
    summary quarterly reports to holders of its equity securities and others,
    in which event, the Company shall distribute such summary quarterly reports
    to the Holders of the Securities; and

         (4)  furnish to the Trustee the Officers Certificates and notices
    required by Section 1012.


                                    ARTICLE EIGHT

                           CONSOLIDATION, MERGER AND SALES

    Section 801.   Company May Consolidate, Etc., Only on Certain Terms.

    Nothing contained in this Indenture or in any of the Securities shall
prevent any consolidation or merger of the Company with or into any other Person
or Persons (whether or not affiliated with the Company) or successive
consolidations or mergers in which the Company or its successor or successors
shall be a party or parties, or shall prevent any conveyance, transfer or lease
of the property of the Company as an entirety or substantially as an


                                          56




entirety, to any other Person (whether or not affiliated with the Company);
provided, however, that

         (1)  except in connection with a sale, financing or securitization of
    receivables or transfer made in the ordinary course of business, if the
    Company shall consolidate with or merge into another Person or convey,
    transfer or lease its properties and assets substantially as an entirety to
    any Person (other than a wholly owned Subsidiary), the entity formed by
    such consolidation or into which the Company is merged or the Person which
    acquires by conveyance or transfer, or which leases, the properties and
    assets of the Company substantially as an entirety shall be a Person
    organized and existing under the laws of the United States of America, any
    state thereof or the District of Columbia and shall expressly  assume, by
    an indenture (or indentures, if at such time there is more than one
    Trustee) supplemental hereto, executed by the successor Person and
    delivered to the Trustee, in form satisfactory to the Trustee, the due and
    punctual payment of the principal of, and premium and interest on and any
    Additional Amounts with respect to all the Securities and the performance
    of every other covenant of this Indenture on the part of the Company to be
    performed or observed;

         (2)  immediately after giving effect to such transaction, no event
    which, after notice or lapse of time, or both, would become an Event of
    Default shall have occurred and be continuing; and

         (3)  either the Company or the successor Person shall have delivered
    to the Trustee an Officers' Certificate and an Opinion of Counsel, stating
    that such consolidation, merger, conveyance, transfer or lease and such
    supplemental indenture comply with this Article and that all conditions
    precedent herein provided for relating to such transaction have been
    complied with.

    Section 802.   Successor Person Substituted for Company.

    Upon any consolidation or merger or any conveyance, transfer or lease of
the properties and assets of the Company substantially as an entirety to any
Person in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which, such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein;
and thereafter, except in the case of a lease to another Person, the predecessor
Person shall be released from all obligations and covenants under this Indenture
and the Securities.


                                          57





                                     ARTICLE NINE

                         AMENDMENTS, SUPPLEMENTS AND WAIVERS

    Section 901.   Without Consent Holders.

    Without the consent of any Holder of Securities, the Company (when
authorized by or pursuant to a Board Resolution) and the Trustee, at any time
and from time to time, may amend this Indenture or enter into one or more
indentures supplemental hereto, without notice to any Holder, which shall
conform with the requirements of the Trust Indenture Act as then in effect and
be in form satisfactory to the Trustee, for any of the following purposes

         (1)  to evidence the succession of another Person to the Company, and
    the assumption by any such successor of the covenants of the Company herein
    and in the Securities; or

         (2)  to add to the covenants of the Company for the benefit of the
    Holders of all or any series of Securities (as shall be specified in such
    amendment or supplemental indenture or indentures) or to surrender any
    right or power herein conferred upon the Company; or

         (3)  to add to or change any of the provisions of this Indenture to
    change or eliminate any restrictions on the payment of principal of, any
    premium or interest on or any Additional Amounts with respect to Securities
    or to permit or facilitate the issuance of Securities in uncertificated
    form, provided any such action shall not adversely affect the interests of
    the Holders of Securities of any series in any material respect; or

         (4)  to establish the form or terms of Securities of any series as
    permitted by Sections 201 and 301; or

         (5)  to evidence and provide for the acceptance of appointment
    hereunder by a successor Trustee with respect to the Securities of one or
    more series and to add to or change any of the provisions of this Indenture
    as shall be necessary to provide for or facilitate the administration of
    the trusts hereunder by more than one Trustee, pursuant to the requirements
    of Section 610(b); or

         (6)  to cure any ambiguity or to correct or supplement any provision
    herein which may be defective or inconsistent with any other provision
    herein, or to make any other provisions with respect to matters or
    questions arising under this Indenture which shall not adversely affect the
    interests of the Holders of Securities of any series in any material
    respect; or

         (7)  to add any additional Events of Default with respect to all or
    any series of Securities (as shall be specified in such amendment or
    supplemental indenture); or


                                          58




         (8)  to supplement any of the provisions of this Indenture to such
    extent as shall be necessary to permit or facilitate the defeasance and
    discharge of any series of Securities pursuant to Article Four; provided
    that any such action shall not adversely affect the interests of any Holder
    of a Security of such series or any other Security in any material respect;
    or

         (9)  to amend or supplement any provision contained herein or in any
    amendment or supplemental indenture, provided that no such amendment or
    supplement shall adversely affect the interests of the Holders of any
    Securities, if any, then Outstanding in any material respect; or

         (10) to effect, or maintain the qualifications of this Indenture under
    the Trust Indenture Act.

    Section 902.   With Consent of Holders.

    With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such waiver,
amendment or supplemental indenture, by Act of said Holders delivered to the
Company and the Trustee, the Company (when authorized by or pursuant to a Board
Resolution), and the Trustee may amend this Indenture or enter into one or more
indentures supplemental hereto (which shall conform with the requirements of the
Trust Indenture Act as then in effect) or waive compliance by the Company with
any provision of this Indenture, in each case without notice to any other
Holder; provided, however, that no such waiver, amendment or supplemental
indenture, without the consent of the Holder of each Outstanding Security
affected thereby, shall

         (1)  change the Stated Maturity of the principal of, or any premium or
    installment of interest on or any Additional Amounts with respect to, any
    Security, or reduce the principal amount thereof or the rate of interest
    thereon or any Additional Amounts with respect thereto, or any premium
    payable upon the redemption thereof or otherwise, or change the obligation
    of the Company to pay Additional Amounts pursuant to Section 1004 (except
    as contemplated by Section 801(1) and permitted by Section 901(1)), or
    reduce the amount of the principal of an Original Issue Discount Security
    that would be due and payable upon a declaration of acceleration of the
    Maturity thereof pursuant to Section 502 or the amount thereof provable in
    bankruptcy pursuant to Section 504, or adversely affect the right of
    repayment at the option of any Holder as contemplated by Article Thirteen,
    or adversely affect the conversion rights of a Holder of Securities which
    may be converted in whole or in part into common stock, or change the Place
    of Payment, currency in which the principal of, any premium or interest on,
    or any Additional Amounts with respect to any Security is payable, or
    impair the right to institute suit for the enforcement of any such payment
    on or after the Stated Maturity thereof (or, in the case of


                                          59




    redemption, on or after the Redemption Date or, in the case of repayment at
    the option of the Holder, on or after the date for repayment), or

         (2)  reduce the Percentage in principal amount of the outstanding
    Securities of any series, the consent of whose Holders is required for any
    such amendment or supplemental indenture, or the consent of whose Holders
    is required for any waiver (of compliance with certain provisions of this
    Indenture or certain defaults hereunder and their consequences) provided
    for in this Indenture, or

         (3)  modify any of the provisions of this Section, or Section 513 or
    1013, except to increase any such percentage or to provide that certain
    other provisions of this Indenture cannot be modified or waived without the
    consent of the Holder of each Outstanding Security affected thereby.

    A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which shall have been included expressly and solely
for the benefit of one or more particular series of Securities, or which
modifies the rights of the Holders of Securities of such series with respect to
such covenant or other provision , shall be deemed not to affect the rights
under this Indenture of the Holders of Securities of any other series.

    It shall not be necessary for any Act of Holders of Securities under this
Section to approve the particular form of any proposed amendment, supplemental
indenture or waiver, but it shall be sufficient if such Act shall approve the
substance thereof.

    The Company may, but shall not be obligated to, offer to any Holder who
consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's or Holders consent to such amendment, supplement
or waiver.

    Section 903.   Execution of Amendments or Supplemental Indentures.

    The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article Nine if the amendment, supplement or waiver does not
adversely affect the rights, duties or immunities of the Trustee. As a condition
to executing, or accepting the additional trusts created by, any waiver,
amendment or supplemental indenture permitted by this Article or the
modifications thereby of the trust created by this Indenture, the Trustee shall
be entitled to receive, and (subject to Section 315 of the Trust Indenture Act)
shall be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such waiver, amendment or supplemental indenture is authorized or
permitted by this Indenture.  The Trustee may, but shall not be obligated to,
enter into any such waiver, amendment or supplemental indenture which affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise.


                                          60




    Section 904.   Effect of Waiver, Amendments and Supplemental Indentures.

    Upon the execution of any waiver, amendment or supplemental indenture under
this Article, this Indenture shall be modified in accordance therewith, and such
waiver, amendment or supplemental indenture shall form a part of this Indenture
for all purposes; and every Holder of a Security theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.

    Section 905.   Reference in Securities too Supplemental Indentures.

    Securities of any series authenticated and delivered after the execution of
any supplemental Indenture pursuant to this Article may (if directed by the
Company, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture.  If the Company shall so determine,
new Securities of any series so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.


                                     ARTICLE TEN

                                      COVENANTS

         Section 1001.  Payment of Principal and any Premium, Interest and
                        Additional Amounts.

    The Company covenants and agrees for the benefit of the Holders of the
Securities of each series that it will duly and punctually pay the principal of,
any premium and interest on and any Additional Amounts with respect to the
Securities of such series in accordance with the terms thereof and this
Indenture.

    An installment of principal or interest shall be considered paid on the
date due if the Trustee or Paying Agent (other than the Company) holds on such
date Money designated for and sufficient to pay such installment.

    Section 1002.  Maintenance of Office or Agency.

    The Company shall maintain in each Place of Payment for any series of
Securities an Office or Agency where Securities of such series may be presented
or surrendered for payment, where Securities of such series may be surrendered
for registration of transfer or exchange and where notices and demands to or
upon the Company in respect of the Securities of such series relating thereto
and this Indenture may be served.  The Company will give prompt written notice
to tie Trustee of the location, and any change in the location, of such Office
or Agency.  If at any time the Company shall fail to maintain any such required
Office or Agency or shall fail to furnish the Trustee with the address


                                          61




thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.

    The Company may also from time to time designate one or more other Offices
or Agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an Office or Agency
in each Place of Payment for Securities of any series for such purposes.  The
Company shall give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other Office or
Agency.  Unless otherwise provided in or pursuant to this Indenture (including,
without limitation, Section 307), the Company hereby initially designates the
Place of Payment for each series the City of New York, New York and initially
appoints the Corporate Trust Operations Center of the Trustee as the Office or
Agency for such purpose.  Pursuant to Section 301(6) of this Indenture, the
Company may subsequently appoint a place or places in addition to or other than
the City of Chicago, Illinois where such Securities may be payable.

    Section 1003.  Money for Securities Payments to Be Held in Trust.

    If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it shall, on or before each due date of the
principal of, any premium or interest on or Additional Amounts with resect to
any of the Securities of such series, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum of Money sufficient to pay the
principal or any premium, interest or Additional Amounts so becoming due until
such sums shall be paid to such Persons or otherwise disposed of as herein
provided, and shall promptly notify the Trustee of its action or failure so to
act.

    Whenever the Company shall have one or more Paying Agents for any series of
Securities, it shall, on or prior to each due date of the principal of, any
premium or interest on or any Additional Amounts with respect to any securities
of such series, deposit with any Paying Agent a sum of Money sufficient to pay
the principal or any premium, interest or Additional Amounts so becoming due,
such sum to be held in trust for the benefit of the Persons entitled thereto,
and (unless such Paying Agent is the Trustee) the Company will promptly notify
the Trustee of its action or failure so to act.

    The Company shall cause each Paying Agent for any series of Securities
other than the Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent shall


                                          62




         (1)  hold all sums held by it for the payment of the principal of, any
    premium or interest on or any Additional Amounts with respect to Securities
    of such series in trust for the benefit of the Persons entitled thereto
    until such sums shall be paid to such Persons or otherwise disposed of as
    provided in or pursuant to this indenture;

         (2)  give the Trustee notice of any default by the Company (or any
    other obligor upon the Securities of such series) in the making of any
    payment of principal, any premium or interest on or any Additional Amounts
    with respect to the Securities of such series; and

         (3)  at any time during the continuance of any such default, upon the
    written request of the Trustee, forthwith pay to the Trustee all sums so
    held in trust by such Paying Agent.

    The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this indenture or for any other purpose, pay, or by Company
Order direct any paying Agent to pay, to the Trustee all sums held in trust by
the Company or such paying Agent, such sums to be held by the trustee upon the
same terms as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such Money.

    Except as otherwise provided herein or pursuant hereto, any Money deposited
with the Trustee or any Paying Agent, or then held by the Company, in trust for
the payment of the principal of, any premium or interest on or any Additional
Amounts with respect to any Security of any series and remaining unclaimed for
three years after such principal or any such premium or interest or any such
Additional Amounts shall have become due and payable shall be paid to the
Company on Company Request, or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
Money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, shall at the expense of the Company cause
to be mailed to the Holder of such Security notice that such Money remains
unclaimed and that, after a date specified therein, which shall not be less than
30 days from the date of such mailing, any unclaimed balance of such Money then
remaining will be repaid to the Company or (if then held by the Company) shall
be discharge from such trust.

    Section 1004.  Additional Amounts.

    If any Securities of a series provide for the payment of Additional
Amounts, the Company agrees to pay to the Holder of any, such Security
Additional Amounts as provided therein.  Whenever in


                                          63




this Indenture there is mentioned, in any context, the payment of the principal
of or any premium or interest on, or in respect of, any Security of any series
or the net proceeds received on the sale or exchange of any Security of any
series, such mention shall be deemed to include mention of the payment of
Additional Amounts provided by the terms of such series established hereby or
pursuant hereto to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof pursuant to such terms, and express
mention of the payment of Additional Amounts (if applicable) in any provision
hereof shall not be construed as excluding Additional Amounts in those
provisions hereof where such express mention is not made.

    Except as otherwise provided in or pursuant to this Indenture, if the
Securities of a series provide for the payment of Additional Amounts, at least
10 days prior to the first Interest Payment Date with respect to such series of
Securities (or if the Securities of such series shall not bear interest prior to
Maturity, the first day on which a payment of principal is made), and at least
10 days prior to each date of payment, of principal or interest if there has
been any change with respect to the matters set forth in the below-mentioned
Officers' Certificate, the Company shall furnish to the Trustee and the
principal Paying Agent or Paying Agents, if other than the Trustee, an Officers'
Certificate instructing the Trustee and such Paying Agent or Paying Agents
whether such payment of principal of or interest on the Securities of such
series shall be made to Holders of Securities of such series who are United
States Aliens without withholding for or an account of any tax, assessment or
other governmental charge described in the Securities of such series. If any
such withholding shall be required, then such Officers' Certificate shall
specify by country the amount, if any, required to be withheld on such payments
to such Holders of Securities, and the Company agrees to pay to the Trustee or
such Paying Agent the Additional Amounts required by the terms of such
Securities.  The Company covenants to indemnify the Trustee and any Paying Agent
for, and to hold them harmless against, any loss, liability or expense
reasonably incurred without negligence or bad faith on their part arising out of
or in connection with actions taken or omitted by any of them in reliance on any
Officers, Certificate furnished pursuant to this Section.

    Section 1005.  Corporate Existence.

    Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and its
Subsidiaries, and shall comply with all material statutes, rules, regulations
and orders of and restrictions imposed by governmental and administrative
authorities and agencies applicable to the Company and its Subsidiaries;
provided, however, that the foregoing shall not obligate the Company to preserve
any such right or franchise if the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its


                                          64




Subsidiaries and that the loss thereof is not disadvantageous in any material
respect to the Holders.

    Section 1006.  Maintenance of Properties.

The Company will:

    (1)  cause its properties and the properties of its Significant
Subsidiaries used or useful in the conduct of the business of the Company and
its Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary facilities and equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the foregoing
shall not prevent the Company or a Subsidiary from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business and not
disadvantageous in any material respect to the Holders; and

    (2)  take all appropriate steps to preserve, protect and maintain the
trademarks, trade names, copyrights, licenses and permits used in the conduct of
the business of the Company and its Subsidiaries; provided, however, that the
foregoing shall not prevent the Company or a Subsidiary from selling, abandoning
or otherwise disposing of any such trademark, trade name, copyright, license or
permit if such sale, abandonment or disposition is, in the judgment of the
Company, desirable in the conduct of its business and not disadvantageous in any
material respect to any Holder.

    Section 1007.  Limitation on Restricted Payments.

    The Company shall not (i) declare or pay any dividend, either in cash or
property, on any shares of its capital stock (except dividends or other
distributions payable solely in shares of capital stock of the Company, or
warrants, options, or other rights solely to acquire solely capital stock of the
Company) or (ii) purchase, redeem or retire any shares of its capital stock or
any warrants, rights or options to purchase or acquire any shares of its capital
stock (except from employees in connection with the termination of their
employment) or (iii) make any other payment or distribution, either directly or
indirectly through any Subsidiary, in respect of its capital stock (such
dividends, purchases, redemptions, retirements, payments and distributions being
herein collectively called "Restricted Payments,) if, after giving effect
thereto,

         (1)  an Event of Default would have occurred; or

         (2)(A) the sum of (i) such Restricted Payment plus the aggregate
    amount of all Restricted Payments made during the period after [September
    30, 1996] would exceed (B) the sum of


                                          65




    (i) $7,500,000 plus (ii) 50% of Consolidated Net Income for the period
    commencing [September 30, 1996] and ending on the date of payment of such
    Restricted Payment, treated as one accounting period plus (iii) 100% of the
    cumulative cash and non-cash proceeds received by the Company from
    contributions to capital or the issuance or sale after [September 30, 1996]
    of capital stock of the Company or of any warrants, rights or other options
    to purchase or acquire its capital stock.

Notwithstanding the foregoing, the Company may make a previously declared
Restricted Payment if at the date of the declaration, such Restricted Payment
would have been permitted under this Section.  For purposes of this Section, the
amount of any Restricted Payment payable in property shall be deemed to be the
fair market value of such property as determine by the Board of Directors of the
Company.

    Section 1008.  Limitation on Indebtedness for Money Borrowed.

    The Company will not, nor will it permit any Subsidiary to, create, incur,
assume, guarantee or be liable with respect to any Indebtedness for Money
Borrowed (other than Subordinated Indebtedness if, immediately after giving
effect to any such creation, incurrence, assumption or guarantee (including the
retirement of any existing indebtedness from the proceeds of such additional
Indebtedness for Money Borrowed), the aggregate amount of Indebtedness for Money
Borrowed outstanding would exceed six (6) times the sum of the Company's
Consolidated Net Worth plus Subordinated Indebtedness.  For purposes of the
limitation on additional indebtedness set forth in this Section 1008,
Indebtedness for Borrowed Money shall not include the "Warehouse Indebtedness,"
and in calculating the Consolidated Net Worth for purposes of this Section 1008,
Warehouse Indebtedness shall not be included as a liability.

    Section 1009.  Limitation on Subordinated Indebtedness.

    The Company will not, nor will it permit any Subsidiary to, create, incur,
assume, guarantee or be liable with respect to any Subordinated Indebtedness if
immediately after giving effect to any such creation, incurrence, assumption or
guarantee (including the retirement of any existing indebtedness from the
proceeds of such Subordinated Indebtedness), the aggregate amount of
Subordinated Indebtedness outstanding would exceed the Company's Consolidated
Net Worth.

    Section 1010.  Payment of Taxes and Other Claims.

    The Company will pay or discharge or cause to be paid or discharged, before
the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (ii)
all material lawful claims for labor materials and supplies which, if unpaid,
might by law become a lien upon the property of the Company


                                          66




or any Subsidiary; provided, however, that the Company shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings.

    Section 1011.  Books and Records.

    The Company shall, and shall cause each Subsidiary to, at all times keep
proper books of record and account in which proper entries shall be made in
accordance with generally accepted accounting principles and, to the extent
applicable, regulatory accounting principles.

    Section 1012.  Statement by Officers as to Default.

    (a)  The Company shall deliver to the Trustee, within 120 days after the
end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate, stating whether or not to the best knowledge of the
Company's President or Chief Financial Officer thereof the Company is in default
in the performance and observance of any of the terms, provisions and conditions
of this Indenture, setting forth the arithmetical computations required to show
compliance with the provisions of Sections 1007 and 1008 during the previous
fiscal year, and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.

    (b)  The Company shall deliver to the Trustee, within 30 days after the end
of each fiscal quarter of the Company ending after the date hereof, an Officers'
Certificate, if and only if, to the best knowledge of the signers thereof the
Company is in default in the performance and observance of any of the terms,
provisions and conditions of this Indenture, specifying all such defaults and
the nature and status thereof.

    (c)  The Company shall, so long as any of the Securities are outstanding
deliver to the Trustee, within five days after the occurrence thereof, written
notice of any event which after notice or lapse of time or both would become an
Event of Default pursuant to Clause (4) of Section 501.

    Section 1013.  Waiver of Certain Covenants.

    The Company may omit in any particular instance to comply with any term,
provision or condition set forth in Sections 1005 through 1010, 1014 and 1015
with respect to the Securities of any series if before the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities of such series, by Act of such Holders, either shall
waive such compliance in such instance or generally shall have waived compliance
with such term, provision or condition, but no such waiver shall extend to or
affect such term, provision, or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the


                                          67




Trustee in respect of any such term, provision or condition shall remain in full
force and effect.

    Section 1014.  Limitation on Ranking of Future Indebtedness.

    The Company will not, directly or indirectly, incur, create, assume or
guarantee any Indebtedness for Money Borrowed which is not Senior Indebtedness
(other then Subordinated Indebtedness that is pari passu or subordinate in right
of payment to the Securities).

    Section 1015.  Subsidiaries that Own Finance Receivables.

    The Company will not organize and own directly or indirectly the voting
Stock of any Person that directly or indirectly owns or holds finance
receivables (with an aggregate principal amount excess of $1,000,000) originated
by the Company or any Subsidiary unless (i) the net income and net worth of such
Person is accounted for as a consolidated subsidiary, of the Company in
accordance with the generally accepted accounting principles, (ii) the Company
owns directly or indirectly at least 80% of the outstanding Voting Stock of such
Person and (iii) the Company owns directly or indirectly stock or equity
interests in such Person having a value equal to at least 80% of the total value
of the stock or equity interests in such Person.  For purposes of clause (iii),
"stock" or "equity interests" shall not include preferred stock or any similar
equity interest which (A) is not entitled to vote except as required by law, (B)
is limited and preferred as to dividends or distributions and does not
participate in the economic growth of the Person to any significant extent, (C)
has, to the extent provided for, redemption rights and liquidation rights which
do not exceed the issue price of such stock or equity interests (except for a
reasonable redemption or liquidation premium), and (D) is not convertible into
another class of stock or equity interest.

    Section 1016.  Limitations on Transactions with Affiliates.

    The Company shall not, and shall not permit any of its Subsidiaries to,
enter into permit to exist any transaction (or series of related transactions),
including, without limitation, any loan, advance, guarantee or capital
contribution to, or for the benefit of, or any sale, purchase, lease, exchange
or other disposition of any property or the rendering of any service, or any
other direct or indirect payment, transfer or other disposition (a
"Transaction"), involving payments, with any Affiliate of the Company, on terms
and conditions less favorable to the Company or such Subsidiary, as the case May
be, than would be available at such time in a comparable Transaction in arm's
length dealings with an unrelated Person as determined by the Board of
Directors, such approval to be evidenced by a Board Resolution.

    The provisions of the immediately preceding paragraph will not apply to:


                                          68




         (i)   Restricted Payments otherwise permitted pursuant to this
    Indenture, or

         (ii)  fees and compensation (including amounts paid pursuant to
    employee benefit plans) paid to, and indemnity provided on behalf of,
    officers, directors, employees or consultants of the Company or any
    Subsidiary, as determined by the Board of Directors or the senior
    management thereof in the exercise of their reasonable business judgment;
    or

         (iii) payments for goods and services purchased in the ordinary course
    of business on an arm's-length basis; or

         (iv)  Transactions which do not exceed $200,000; or

         (v)   Transactions between or among any of the Company and its wholly
    owned subsidiaries.


                                    ARTICLE ELEVEN

                               REDEMPTION OF SECURITIES

    Section 1101.  Applicability of Article.

Redemption of Securities of any series at the option of the Company as permitted
or required by the terms of such Securities shall be made in accordance with the
terms of such Securities and (except as otherwise provided herein or pursuant
hereto) this Article.

    Section 1102.  Election to Redeem; Notice to Trustee.

    The election of the Company to redeem any Securities shall be evidenced by
or pursuant to a Board Resolution.  In case of any redemption at the election of
the Company of the Securities of any series with the same issue date, interest
rate, Stated Maturity and other terms, the Company shall, at least 45 days prior
to the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities of such series to be redeemed.

    Section 1103.  Selection by Trustee of Securities to be Redeemed.

    If less than all the Securities of any series with the same issue date,
interest rate, Stated Maturity and other terms are to be redeemed, the
particular Securities to be redeemed shall be selected not less than 30 days
prior to the Redemption Date by the Trustee from the Outstanding Securities of
such series not previously called for redemption, in compliance with the
requirements of the principal national securities exchange, if any, on which the
Securities are listed, or, if the Securities are not listed by lot or in such
other method as the Trustee


                                          69




shall deem fair and appropriate and which may provide for the selection for
redemption of portions of the principal amount of Securities of such series;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount of a Security of such series not redeemed to less than the
minimum denomination for a Security of such series established herein or
pursuant hereto.

    The Trustee shall promptly notify the Security Registrar (if other than
itself) and the Company in writing of the Securities selected for redemption
and, in the case of any Securities selected for partial redemption, the
principal amount thereof to be redeemed.

    For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal of such Securities which has been or is to be redeemed.

    Section 1104.  Notice of Redemption.

    Notice of redemption shall be given in the manner provided in Section 106,
not less than 30 nor more than 60 days prior to the Redemption Date, unless a
shorter period is specified in the Securities to be redeemed, to the Holders of
Securities to be redeemed.  Failure to give notice by mailing in the manner
herein provided to the Holder of any Securities designated for redemption as a
whole or in part, or any defect in the notice to any such Holder, shall not
affect the validity of the proceedings for the redemption of any other
Securities or portion thereof.

    Any notice that is mailed to the Holder of any Securities in the manner
herein provided shall be conclusively presumed to have been duly given, whether
or not such Holder receives the notice.

    All notices of redemption shall state:

         (1)  the Redemption Date,

         (2)  the Redemption Price,

         (3)  if less than all Outstanding Securities of any series are to be
    redeemed, the identification (and, in the case of partial redemption, the
    principal amount) of the particular Security or Securities to be redeemed,

         (4)  in case any Security is to be redeemed in part only, that on and
    after the Redemption Date, upon surrender of such Security, the Holder of
    such Security will receive, without charge, a new Security or Securities of
    authorized denominations for the principal amount thereof remaining
    unredeemed,


                                          70




         (5)  that, on the Redemption Date, the Redemption Price shall become
    due and payable upon each such Security or portion thereof to be redeemed
    and if applicable, that interest thereon shall cease to accrue on and after
    said date,

         (6)  the place or places where such Securities must be surrendered for
payment of the Redemption Price and any accrued interest and Additional Amounts 
pertaining thereto,

         (7)  that the redemption is for a sinking fund, if such is the case,
    and

         (8)  the CUSIP number of such Securities, if any (or any other numbers
    used by a Depository to identify such Securities).

    Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name of the Company.

    Section 1105.  Deposit of Redemption Price.

    On or prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
Money sufficient to pay the Redemption Price of, and (except if the Redemption
Date shall be an Interest Payment Date) any accrued interest on and Additional
Amounts with respect to, all the Securities or portions thereof which are to be
redeemed on that date.

    Section 1106.  Securities Payable on Redemption Date.

    Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption a Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest.  Upon surrender of any
such Security for redemption in accordance with said notice, such Security shall
be paid by the Company at the Redemption Price, together with any accrued
interest and Additional Amounts to the Redemption Date; provided, however, that
installments of interest on Securities whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the Regular Record Dates therefor according to their terms and the provisions of
Section 307.

    If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any


                                          71




premium, until paid, shall bear interest from the Redemption Date at the rate
prescribed therefor in the Security.

    Section 1107.  Securities Redeemed in Part.

    Any Security which is to be redeemed only in part shall be surrendered at
any Office or Agency for such Security (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), and the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
a new Security or Securities of the same series, containing identical terms and
provisions, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered. If a Security in global form is
so surrendered, the Company shall execute, and the Trustee shall authenticate
and deliver to the Depository for such Security in global form as shall be
specified in the Company Order with respect thereto to the Trustee, without
service charge, a new Securities in global form in a denomination equal to and
in exchange for the unredeemed portion of the principal of the Security in
global form so surrendered.


                                    ARTICLE TWELVE

                                    SINKING FUNDS

    Section 1201.  Applicability of Article.

    The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series, except as otherwise permitted or
required by any form of Security of such series issued pursuant to this
Indenture.

    The minimum amount of any sinking fund payment provided for by the terms of
Securities of any series is herein referred to as a "mandatory sinking fund
payment", and any payment in excess of such minimum amount provided for by the
terms of Securities of such series is herein referred to as an "optional sinking
fund payment". If provided for by the term of Securities of any series, the cash
amount of any sinking fund payment may be subject to reduction as provided in
Section 1202.  Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series.

    Section 1202.  Satisfaction of Sinking Fund Payments with Securities.

    The Company may, in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of any series


                                          72





to be made pursuant to the terms of such Securities (1) deliver Outstanding
Securities of such series (other than any of such Securities previously called
for redemption or any of such Securities in respect of which cash shall have
been released to the Company) and (2) apply as a credit Securities of such
series which have been redeemed either at the election of the Company pursuant
to the terms of such series of Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities or through the terms of Article Thirteen, provided that such series
of Securities have not been previously so credited.  Such Securities shall be
received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
If as a result of the delivery or credit of Securities of any series in lieu of
cash payments pursuant to this Section 1202, the principal amount of Securities
of such series to be redeemed in order to exhaust the aforesaid cash payment
shall be less than $100,000, the Trustee need not call Securities of such series
for redemption, except upon Company Request, and such cash payment shall be held
by the Trustee or a Paying Agent and applied to the next succeeding sinking fund
payment, provided, however, that the Trustee or such Paying Agent shall at the
request of the Company from time to time pay over and deliver to the Company any
cash payment so being held by the Trustee or such Paying Agent upon delivery by
the Company to the Trustee of Securities of that series purchased by the Company
having an unpaid principal amount equal to the cash payment requested to be
released to the Company.

    Section 1203.  Redemption of Securities for Sinking Fund.

    Not less than 45 days prior to each sinking fund payment date for any
series of Securities, the Company shall deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing mandatory sinking fund
payment for that series pursuant to the terms of that series, the portion
thereof, if any, which is to be satisfied by payment of cash and the portion
thereof, if any, which is to be satisfied by delivering and crediting of
Securities of that series pursuant to Section 1202, and the optional amount, if
any, to be added in cash to the next ensuing mandatory sinking fund payment, and
will also deliver to the Trustee any Securities to be so credited and not
theretofore delivered.  If such Officers' Certificate shall specify an optional
amount to be added in cash to the next ensuing mandatory sinking fund payment,
the Company shall thereupon be obligated to pay the amount therein specified.
Not less than 30 days before each such sinking fund payment date the Trustee
shall select the Securities to be redeemed upon such sinking fund payment date
in the manner specified in Section 1103 and cause notice of the redemption
thereof to be given in the name of and at the expense of the Company in the
manner provided in Section 1104.  Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Sections 1106 and 1107.


                                          73





                                   ARTICLE THIRTEEN

                          REPAYMENT AT THE OPTION OF HOLDERS

    Section 1301.  Applicability of Article.

    Securities of any series which are repayable at the option of the Holders
thereof before their Stated Maturity shall be repaid in accordance with the
terms of the Securities of such series and (except as otherwise provided herein
or pursuant hereto) this Article.  The repayment of any principal amount of
Securities pursuant to such option of the Holder to require repayment of
Securities before their Stated Maturity, for purposes of Section 309, shall not
operate as a payment, redemption or satisfaction of the indebtedness represented
by such Securities unless and until the Company, at its option, shall deliver or
surrender the same to the Trustee with a directive that such Securities be
canceled.  Notwithstanding anything to the contrary contained in this Section
1301, in connection with and repayment of Securities, the Company may arrange
for the purchase of any Securities by an agreement with one or more investment
bankers or other purchasers to purchase such Securities by paying to the Holders
of such Securities on or before the close of business on the Repayment Date an
amount not less than the Repayment Price payable by the Company on repayment of
such Securities, and the obligation of the Company to pay the Repayment Price of
such Securities shall be satisfied and discharged to the extent such payment is
so paid by such purchasers.

    Section 1302.  Repayment Opinion upon Death of Holder.

    (a)  If provided for by the terms of any Securities of any series, then
upon the death of any Holder of Securities of such series, and upon the further
receipt by the Company or the Trustee of a written request for repayment and
satisfaction of the conditions set forth in subsection (b) below, the Company
shall be required to pay, in accordance with the terms of this Article, the
Repayment Price (excluding any premium) of, and (except if the Repayment Date
shall be an Interest Payment Date) any accrued interest on and Additional
Amounts with respect to, all or such portion (which portion shall be an integral
multiple of $1,000 in excess of the minimum authorized denomination of the
applicable series of Securities) of the Security or Securities held by the
deceased Holder at the date of his death as requested, provided that the Company
shall not be required to make repayment payments aggregating more than $250,COO
in principal amount (plus accrued interest and Additional Amounts) in any fiscal
year on a Security or Securities held by any one deceased Holder or aggregating
more than such principal amount as shall be specified by the terms of the
Securities of such series (plus accrued interest and Additional Amounts) in any
fiscal year on Securities held by any number of deceased Holders (the "Maximum
Annual Repayment Amount"). Subject to subsection (b)


                                          74




below, repayment of such Securities shall be made in the order in which requests
therefor are received (subject to the Maximum Annual Repayment Amount) within 60
days following receipt by the Company or the Trustee of the following:

         (1)  a written receipt for repayment of the Security or Securities
    signed by a duly authorized representative of the Holder, which request
    shall set forth the name of the deceased Holder, the date of death of the
    deceased Holder, and the principal amount of the Security or Securities to
    be repaid; and

         (2)  the certificates representing the Security or Securities to be
    repaid, and

         (3)  evidence satisfactory to the Company and the Trustee of the death
    of such deceased Holder and the authority of the representative to such
    extent as may be required by the Trustee and the Company

    Securities not repaid in any fiscal year because the maximum Annual
Repayment Amount has already been met may be held by the Trustee at the request
of the authorized representative of the deceased Holder and repaid in subsequent
years in the order in which such Securities are received.

    (b)  A Security or Securities held by the deceased Holder shall not be
entitled to repayment pursuant to this Section 1302 unless all of the following
conditions are met:

         (1)  the Securities to be repaid shall have been registered on the
    Security Register in the name of the deceased Holder since the issue date
    of such series of Securities or for a period of at least six months prior
    to the date of the deceased Holder's death, whichever is less; and

         (2)  the Company or the Trustee shall have received a written request
    for repayment within one year after the date of the deceased Holder' death
    or, in the case of requests for a subsequent repayment of a Security or
    Securities held by such deceased Holder, within one year after any such
    preceding request; and

         (3)  the Company shall not, after giving effect to such repayment,have
    made repayment payments aggregating more than the Maximum Annual Repayment
    Amount within the then current fiscal year; and

         (4)  the Company shall not be subject to any law, regulation,
    agreement or administrative directive preventing such repayment.

    (c)  Authorized representatives of a Holder shall include the following
executors, administrators or other legal


                                          75




representatives of an estate; trustees of a trust; joint owners of Securities
owned in joint tenancy or, tenancy by the entirety; custodians; conservators;
guardians; attorneys-in-fact; and other Persons generally recognized as having
legal authority to act on behalf of another.

    (d)  For purposes of his Section, the death of a Person owning a Security
or Securities in joint tenancy or tenancy by the entirety with another or others
shall be deemed the death of the Holder of the Security or Securities, and the
entire principal amount of the Security or Securities so held shall be subject
to repayment, plus accrued interest thereon to the Repayment Date and Additional
Amounts with respect thereto, in accordance with the provisions of this Article
for purpose of this Section, the death of a Person owing a Security or
Securities by tenancy common shall be deemed the death of a Holder of Security
or securities only with respect to the deceased Holder's interest in the
Security or Securities so held by tenancy in common; except that in the event a
Security or Securities are held by husband and wife as tenants in common, the
death of either shall be deemed the death of the Holder of the Security or
Securities, and the entire principal amount of the Security or Securities so
held shall be subject to repayment in accordance with the provisions of this
Article.  A Person who, during such Person's lifetime, was entitled to
substantially all of the beneficial interests of ownership of Securities shall,
upon such Person's death, be deemed the Holder thereof for purposes of this
Section, regardless of the registered holder, if such beneficial interest can be
established to the satisfaction of the Trustee.  Such beneficial interest shall
be deemed to exist in typical cases of nominee ownership, ownership under the
Uniform Transfers (or Gifts) to Minors Act, community property or other joint
ownership arrangements between a husband and wife, and trust arrangements where
one Person has substantially all of the beneficial ownership interests in
Securities during such Person's lifetime.  Beneficial interests shall include
the power to sell, transfer or otherwise dispose of Securities and the right to
receive the proceeds therefrom, as well as principal thereof, interest thereon
and Additional Amounts with respect thereto.

    (e)  If Securities of a Series are issuable in global form (i.e., in the
name of the nominee of a Depository for purposes of book-entry transfer) and
such Securities authorize repayment upon the death of a Holder, the Company or
the Trustee may adopt appropriate procedures to allow beneficial owners of
Securities to obtain payment in accordance with the requirements of the
Depository in the event of a request for repayment of the Securities pursuant to
this section.

    Section 1303.  Redemption Upon Special Redemption Event.

    In the event that there shall occur a Special Redemption Event with respect
to the Company, then each Holder shall have the right, at the Holder's option,
to require the Company to


                                          76




redeem such Holder's Securities, in whole or in part (provided the principal
amount of such part is $1,000 or any integral multiple thereof) on the Repayment
Date that is seventy-five (75) days after the occurrence of the Special
Redemption Event at a redemption price in cash equal to 101% of the principal
amount thereof or portion thereof plus accrued but unpaid interest to the date
of redemption.

    Forty (40) days after the occurrence of a Special Redemption Event the
Company promptly, but in any event within three (3) Business Days after
expiration of such 40-day period, shall give notice to the Trustee, who shall
promptly, but in any event within five (5) days of receipt of notice from the
Company, notify all Holders, of the occurrence of such Special Redemption Event,
of the date before which a Holder must notify the Trustee of such Holder's
intention to exercise the redemption option (which date shall be not more than
three (3) Business Days prior to the Repayment Date) and of the procedure which
such Holder must follow to exercise such right.  To exercise the redemption, the
Holder must deliver to the Trustee on or before the close of business on the
Repayment Date: (i) written notice of such Holder's redemption election pursuant
to this Section 1303, in form satisfactory to the Trustee, signed by the
registered Holder(s) or his duly authorized representative and (ii) the Security
or Securities to be redeemed, free and clear of any liens or encumbrances of any
kind.

    In the case of any securities which are presented for redemption in part
only, upon such redemption the Company shall execute and the Trustee shall
authenticate and deliver to or on the order of the Holder of such Securities,
without service charge, a new Security or Securities, of any authorized
denomination or denominations as requested by such Holder, in aggregate
principal amount equal to the unredeemed portion of the principal of the
Securities so presented.

    Section 1304.  Deposit of Repayment Price.

    Within 30 days after the receipt by the Company or the Trustee of any
request for repayment of a Security or Securities or any portion thereof duly
made pursuant to Section 1302 or 1303, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
Money sufficient to pay the Repayment Price of, and (except if the Repayment
Date shall be an Interest Payment Date) any accrued interest on any Additional
Amounts with respect to, all the Securities or portions thereof which are to be
repaid on that date.

    Section 1305.  Securities Payable on Repayment Date.

    A written request having been made as aforesaid, the Security or Securities
so to be repaid shall, on the Repayment Date, become due and payable at the
Repayment Price, and from and


                                          77




after such date (unless the Company shall default in the payment of the
Repayment Price and accrued interest) such Securities shall cease to bear
interest.  Upon surrender of any such Security for repayment in accordance with
said request, such Security shall be paid by the Company at the Repayment Price,
together with any accrued interest and Additional Amounts to the Repayment Date;
provided, however, that installments of interest on Securities whose Stated
Maturity is on or prior to the Repayment Date shall be payable to  the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the Regular Record Dates therefor according to their
terms and the provisions of Section 307.

    If any Security to be repaid shall not be so paid upon surrender thereof
for repayment the principal and any premium, until paid, shall bear interest
from the Repayment Date at the rate prescribed therefor in the Security.

    Section 1306.  Securities Repaid in Part.

    Any Security which is to be repaid only in part shall be surrendered at any
Office or Agency for such Security (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), and the Company shall execute and
the Trustee shall authenticate and deliver to the Holder of such Security,
without service charge, a new Security or Securities of the same series,
containing identical terms and provisions, of any authorized denomination as
requested by such Holder in aggregate principal amount equal to and in exchange
for the unpaid portion of the principal of the Security so surrendered.  If a
Security in global form is so surrendered, the Company shall execute, and the
Trustee shall authenticate and deliver to the Depository for such Security in
global form as shall be specified in the Company Order with respect thereto to
the Trustee, without service charge, a new Security in global form in a
denomination equal to and in exchange for the unpaid portion of the principal of
the Security in global form in surrendered.


                                   ARTICLE FOURTEEN

                             SUBORDINATION OF SECURITIES

    Section 1401.  Securities Subordinated to Senior Indebtedness.

    (a)  The Company covenants and agrees, and each Holder of Securities, by
his acceptance thereof, likewise covenants and agrees, and for purposes of
Section 508 consents, that the indebtedness represented by the Securities and
the payment of the principal of and interest on and Additional Amounts with
respect


                                          78




to each and all of the Securities is hereby expressly subordinated, to the
extent and in the manner, hereinafter set forth, in right of payment to the
prior payment in full of all Senior Indebtedness and that all Securities issued
hereunder shall rank pari passu with debt securities issued pursuant to the 1995
Indenture.

    (b)  The Trustee, the Company and the Holders of Securities hereby agree
that, until all Senior Indebtedness has been paid in full, the Holders of
Securities shall be permitted to retain only the following payments of principal
and interest paid by the Company in respect of Securities (all such payments
being referred to herein as "Permitted Payments"), and all such payments that
are not Permitted Payments will be turned over by the Trustee or the Holders of
Securities to the holder or holders of Senior indebtedness or any agent thereof
or (a "Senior Agent") for the benefit of the holder or holders of Senior
Indebtedness

         (1)  principal payment of the Securities, whether (A) at the Stated
    Maturity, (B) at the Company's option as provided in Article Eleven
    provided that the holder or holders of Senior Indebtedness or any Senior
    Agent has received written notice from the Company or the Trustee not later
    than 45 days prior to a Redemption Late, (C) pursuant to the operation of
    the sinking fund provisions of Article Twelve, or (D) as a result of the
    occurrence of a Special Redemption Event as provided in Section 1303
    provided that the holder or holders of Senior Indebtedness or any Senior
    Agent has received written notice from the Company or the Trustee of the
    Special Redemption Event not later than 40 days after the occurrence of the
    Special Redemption Event; provided that all such principal payments are
    subject to the restrictions set forth in Section 1401(c) hereof;

         (2)  payments of interest in respect of the Securities so long as no
    default has occurred and is then continuing with respect to the payment of
    principal of or interest on the Senior Indebtedness; for such purposes, any
    such default which has been cured by payment or which has been waived,
    shall not be continuing; and

         (3)  principal payment of the Securities as a result of death of one
    or more Holders as provided in Section 1302 prior to the date on which any
    of the Senior Indebtedness is accelerated or the date on which any holder
    or holders of not less than 51% in principal amount of the outstanding
    Senior Indebtedness or any Senior Agent exercises any judicial or
    non-judicial remedy with respect to any collateral securing such Senior
    Indebtedness.

    (c)  From and after the receipt by the Trustee of a written notice (the
"Default Notice") from the holder or holders of not less than 51% in principal
amount of the outstanding Senior Indebtedness or any Senior Agent specifying
that any default in the payment of any obligation on any Senior Indebtedness
when


                                          79




due, whether at the stated maturity of any such payment or by declaration of
acceleration, call for redemption, mandatory repurchase, payment or prepayment
or otherwise (a "Senior Payment Default") has occurred, the Company may not make
any principal payments described in Section 1401(b)(1) to the Holders of
Securities and neither the Trustee nor the Holders of not less than 25% in
principal amount of the Outstanding Securities of any series may accelerate the
Maturity of such series as provided in Section 502, until the first to occur of
the following:

         (1)  such Senior Payment Default is cured, or

         (2)  such Senior Payment Default is waived by the holders of such
    Senior Indebtedness or the senior Agent, or
         (3)  the expiration of 180 days after the date the Default Notice is
    received by the Trustee, if the maturity of such Senior Indebtedness has
    not been accelerated at such time or the holder or holder's of not less
    than 51% in principal amount of the outstanding Senior Indebtedness or any
    Senior Agent has not exerciser any judicial or non-judicial remedy with
    respect to any collateral securing such Senior Indebtedness at such time,
    and the provisions of this Article Fourteen otherwise permit the payment at
    such time.

Upon payment in full of the Senior Indebtedness, payment of principal may be
made to the Holders of Securities.

    (d)  Upon a payment or distribution to creditors of the Company in a
liquidation, dissolution, or winding up of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property or an assignment for the benefit of Creditors or any
marshalling of the Company's assets and liabilities,

         (1)  the holders of the Senior Indebtedness shall be entitled to
    receive payment of the full amount of the Senior Indebtedness before the
    Holders of any of the Securities are entitled to receive any payment on
    account of the principal of, interest or premium on or Additional Amounts
    with respect to the indebtedness evidenced by the Securities; and

         (2)  any payment by, or distribution of assets of, the Company of any
    kind or character, whether in cash, property or securities (other than
    securities of the Company as reorganized or readjusted or securities of the
    Company or any other corporation provided for by a plan of reorganization
    or readjustment the payment of which is subordinate, at least to the extent
    provided in his Section 1401 with respect to the Securities, to the payment
    of all Senior indebtedness, provided that the right of the holders of
    Senior Indebtedness are not impaired by such reorganization or
    readjustment), to which the Holders of any of the Securities or the Trustee
    would be entitled except for the provisions of this Section 1401 shall be
    paid or delivered by the Person making such


                                          80




    payment or distribution, whether a trustee in bankruptcy, a receiver or
    liquidating trustee or otherwise, directly to the holder or holders of
    Senior Indebtedness or any Senior Agent, ratably according to the aggregate
    amounts remaining unpaid on account of the Senior Indebtedness held or
    represented by each, to the extent necessary to make payment in full of all
    Senior Indebtedness remaining unpaid after giving effect to any concurrent
    payment or distribution to the holders of such Senior Indebtedness, before
    any payment or distribution is made to the Holders of the indebtedness
    evidenced by the Securities or to the Trustee under this indenture; and

         (3)  in the event, notwithstanding the foregoing, any payment by, or
    distribution of assets of, the Company of any kind or character, whether in
    cash, property or securities (other than securities of the Company as
    reorganized or readjusted or securities of the Company or any other
    corporation provided for by a plan of reorganization or readjustment the
    payment of which is subordinate, at least to the extent provided in this
    Section 1401 with respect to the Securities, to the payment of all Senior
    Indebtedness, provided that the rights of the holders of Senior
    Indebtedness are not impaired by such reorganization or readjustment),
    shall be received by the Trustee or the Holders of any of the Securities
    before all Senior Indebtedness is paid in full, such payment or
    distribution shall be paid over to the holder or holders of such Senior
    Indebtedness or any Senior Agent, ratably as aforesaid, for application to
    the payment of all Senior Indebtedness remaining unpaid until all such
    Senior Indebtedness shall have been paid in full, after giving effect to
    any concurrent payment or distribution to the holders of such Senior
    Indebtedness.

    (e)  The Holders and the Trustee acknowledge that the holders of Senior
Indebtedness and the Holders of Securities, respectively, are entitled to
exercise certain rights and powers with respect to the Company from time to
time, whether before or after an occurrence of an Event of Default, and the
exercise of any such right or power by one creditor may preclude the exercise of
a similar right or power by one or more other creditors (any such right or power
being herein called an "Exclusive Power").  To the extent that any holder or
holders of Senior Indebtedness or any Senior Agent actually exercises any
Exclusive Power, then the Trustee and the Holders of Securities agree to refrain
from exercising any substantially similar Exclusive Power to the extent
necessary to permit the holders of Senior Indebtedness to benefit from their
actions.

    (f)  No amendment, modification, extension, replacement, restatement or
substitution of the Senior Indebtedness, or of any agreement or note now or
hereafter in effect pertaining to such Senior Indebtedness, shall nullify,
impair, limit, alter or modify the provisions of Article Fourteen of this
Indenture.


                                          81




    (g)  For purposes of this Section 1401, Senior Indebtedness shall include
all fees, expenses and costs incurred by or on behalf of the holder or holders
of the Senior Indebtedness or the Senior Agent in connection with the Senior
Indebtedness.

    (h)  Notices to holders of Senior Indebtedness shall be made to each holder
of Senior Indebtedness or, if holders of Senior Indebtedness have appointed a
Senior Agent, then to such Senior Agent, and shall be made in the manner
specified in the document evidencing such holder's Senior Indebtedness if such a
manner is so specified therein.

    Section 1402.  Subrogation.

    Subject to the payment in full of all Senior Indebtedness, the Holders of
the Securities shall be subrogated to the rights of the holders of such Senior
Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to such Senior Indebtedness until all
amounts owing on the Securities shall be paid in full, and, as between the
Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, no such payment or distribution made to the holders
of Senior Indebtedness by virtue of this Article which otherwise would have been
made to the Holders of the Securities shall be deemed to be a payment by the
Company on account of the Senior Indebtedness, it being understood that the
provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Holders of the Securities, on the one hand,
and the holders of Senior Indebtedness, on the other hand.

    Section 1403.  Obligations of Company Unconditional.

    Nothing contained in this Article or elsewhere in this Indenture or in the
Securities is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Indebtedness, and the Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of and
interest on and Additional Amounts with respect to the Securities as and when
the same shall become due and parable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders of the Securities
and creditors of the Company other than the holders of Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any
Security from exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this Article
of the holders of senior Indebtedness in respect of cash, property or securities
of the Company received upon the exercise of any such remedy.

    Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee and the Holders of the Securities shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which any such


                                          82




dissolution, winding up, liquidation or reorganization proceeding affecting the
affairs of the Company is pending or upon a certificate of the trustee in
bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee
or agent or other person making any payment or distribution, delivered to the
Trustee or to the Holders of the Securities, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
the Senior Indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount paid or distributed thereon and all other
facts pertinent thereto or to this Article.

    Section 1404.  Effectuation of Subordination by Trustee.

    Each Holder of Securities, by his acceptance thereof, authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes.

    Section 1405.  Knowledge of Trustee.

    Notwithstanding the provision of this Article or any other provisions of
this Indenture, the Trustee shall not be deemed to owe any fiduciary duty to the
Holders of Senior Indebtedness and shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment of moneys
to or by the Trustee, or the taking of any other action by the Trustee, unless
and until the Trustee shall have received written notice thereof from the
Company, any Holder of Securities, any Paying Agent of the Company or the holder
or representative of any class of Senior Indebtedness.

    Section 1406.  Trustee May Hold Senior Indebtedness.

    The Trustee shall be entitled to all the rights set forth in this Article
with respect to any Senior Indebtedness at the time held by it, to the same
extent as any other holder of Senior Indebtedness, and nothing in this Indenture
shall deprive the Trustee of any of its right as such holder.

    Section 1407.  Rights of Holders of Senior Indebtedness Not  Impaired.

    No right of any present or future holder of any Senior Indebtedness to
enforce the subordination provisions herein shall at any time or in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any non-compliance  by the Company with the terms, provisions and
covenants of this Indenture, regardless of any knowledge thereof any such holder
may have or be otherwise charged with.

    This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but


                                          83




all such counterparts shall together constitute but one and the same instrument.


                                          84




    IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed, all
as of the day and year first above written.

[SEAL]                       CONSUMER PORTFOLIO SERVICES, INC.


Attest:


By:---------------------     By:------------------------------
   Name:                        Name:
   Title:                       Title:



[SEAL]                       BANKERS TRUST COMPANY,
                                  as Trustee

Attest:



By:---------------------     By:------------------------------
   Name:                        Name:
   Title:                       Title:



                                                                     EXHIBIT 4.3

                                                                      OH&S DRAFT
                                                                        02/05/97
                             FIRST SUPPLEMENTAL INDENTURE




     FIRST SUPPLEMENTAL INDENTURE dated as of February 1, 1997 ("First
Supplemental Indenture") to the Indenture dated as of February 1, 1997 (the
"Indenture") between Consumer Portfolio Services, Inc., a corporation organized
and existing under the laws of the State of California (herein called the
"Company"), and Bankers Trust Company, a New York banking corporation (herein
called the "Trustee"), having its Corporate Trust Office located at 4 Albany
Street, New York, New York 10006.

     WHEREAS, the Company has heretofore executed and delivered to the Trustee
the Indenture;

     WHEREAS, the Company desires in and by this First Supplemental Indenture to
create a first series of Securities to be issued under such Indenture, to
designate or otherwise distinguish such series, to specify the particulars
necessary to describe and define the same, and to specify such other provisions
and agreements in respect thereof as are in the Indenture provided or permitted;
and

     WHEREAS, all acts and things necessary to make this First Supplemental
Indenture, when duly executed and delivered, a valid, binding and legal
instrument in accordance with its terms and for the purposes herein expressed,
have been done and performed; and the execution and delivery of this First
Supplemental Indenture have been in all respects duly authorized;

     NOW, THEREFORE, in consideration of the premises, the sum of one dollar
duly paid by the Trustee to the Company at or before the execution and delivery
of this First Supplemental Indenture, and for other good and valuable
consideration, the receipt thereof is hereby acknowledged, the Company covenants
and agrees to and with the Trustee for the equal and proportionate benefit and
security of the holders of the securities as hereinafter set forth:




                                          1





                                      ARTICLE I

                             SUBORDINATED NOTES DUE 2004

     Section 1.1. There is hereby created a first series of Securities to be
issued under, and secured by the Indenture and to be designated as the
"Participating Equity Notes-SM-1/" (herein called the "Notes") due April __,
2004.

     Section 1.2. The aggregate principal amount of the Notes which may be
authenticated for original issue shall not exceed [$40,250,000].

     Section 1.3. The Notes will be represented by one or more global securities
which shall bear a legend to the extent required by Section 303 of the Indenture
and shall be deposited with The Depository Trust Company ("DTC") which is
designated as the Depository under the Indenture.

     Section 1.4. The maturity of the Notes shall be April 15, 2004 unless
redeemed earlier (i) at the option of the Company, or (ii) upon the occurrence
of a Special Redemption Event (as defined in the Indenture).

     Section 1.5. The Notes shall bear interest at the rate of ___% per annum
and shall be payable on the first day of each month commencing ___________ 1,
1997 (each an "Interest Payment Date").

Interest will be payable on each Interest Payment Date to the person who is the
Holder as of the close of business on the Regular Record Date.  The Regular
Record Date for the Notes shall be the seventh day of the month (whether or not
a Business Day) immediately preceding an Interest Payment Date.  Interest will
accrue, at the applicable interest rate as set forth above, from and including
each Interest Payment Date (or, in the case of the first Interest Payment Date
from the date of issuance) to but excluding the next Interest Payment Date. In
the event an Interest Payment Date falls on a day other than a Business Day,
interest will be paid on the next succeeding Business Day and no interest on
such payment shall accrue for the period from and after such Interest Payment
Date to such next succeeding Business Day.  The amount of interest payable on
each Interest Payment Date will be computed on the basis of a 360-day year
consisting of twelve 30-day months.

     Section 1.6. The Notes may not be redeemed at the option of the Company
prior to April __, 2000.  Thereafter, the Notes may be redeemed at the option of
the Company, in whole but not in part, at any time at a redemption price of 100%
of the principal


- --------------------
1    Participating Equity Notes is a service mark of Piper Jaffray Inc.



                                          2




amount of the Notes redeemed plus accrued and unpaid interest thereon through
and including the Redemption Date.

     Section 1.7. Upon the occurrence of a Special Redemption Event, each Holder
shall have the right, at such Holder's option, to require the Company to redeem
all of such Holder's Notes in whole but not in part at a redemption price equal
to 100% of the principal amount of such Notes plus accrued and unpaid interest,
if any, through and including the date of repayment, in accordance with the
terms of Section 1303 of the Indenture.  To the extent the terms of this Section
1.7 conflict with the terms of Section 1303 of the Indenture, this Section 1.7
shall control.  Notice of any such redemption shall be given as provided in
Section 1104 of the Indenture.

     Section 1.8.  The provisions of Section 1302 of the Indenture relating to
the repayment option upon the death of a Holder shall NOT apply to the Notes.

     Section 1.9.  Subject to and upon compliance with the terms of this Section
1.9 and the following Sections 1.10 through 1.16, the Holder of any Note may (i)
upon the Stated Maturity of the principal of the Notes on April __, 2004, (ii)
upon the redemption of the Notes at the option of the Company or (iii) upon the
redemption of such Holder's Notes at the option of such Holder following the
occurrence of a Special Redemption Event, elect to convert up to 25% of the
principal amount of each Note held by such Holder into Common Stock at the
Conversion Price determined as hereinafter provided.  As used in this First
Supplement Indenture, "Common Stock" shall mean the common stock of the Company.

     Section 1.10.  In order to exercise the conversion privilege, a Holder
shall surrender such Holder's Note to the Trustee, as conversion agent for the
Company at any time during usual business hours at the  Corporate Trust Office
accompanied by written notice that the Holder elects to convert 25% of the
principal amount of such Notes and stating the name or names (with address) in
which the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued.  All Notes surrendered for
conversion shall be accompanied by proper assignments thereof to the Company or
be blank.  To be effective, any notice that a Holder is exercising its right to
convert 25% of its Notes to Common Stock, must be received by the Trustee not
later than the close of business on the second Business Day preceding the
Effective Date.  The Trustee shall promptly notify the Company of all notices of
conversion and, as promptly as practicable after the receipt of notice from the
Trustee, the Company shall issue and deliver to the Holder, or on the written
order of the Holder, a certificate or certificates for the number of full shares
of Common Stock issuable on such conversion in accordance with the provision of
Section 1.10 and cash, as provided in Section 1.11, in respect of any fraction
of a share of Common Stock otherwise issuable upon such conversion.  Such
conversion shall be deemed to have been



                                          3




effected at the close of business on the Effective Date, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby on such
date; provided, however, that any such surrender on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for such shares
are to be issued as the record holder or holders thereof for all purposes at the
close of business on the next succeeding day on which such stock transfer books
are open, and 25% of the Note surrendered shall not be deemed to have been
converted until such time for all purposes, but such conversion shall be at the
Conversion Price in effect at the close of business on the Effective Date.
Anything contained in this Section 1.10 to the contrary notwithstanding, the
Company shall not be obligated to effect the transfer of any conversion shares
upon conversion of any portion of any Notes or cause any conversion shares upon
conversion of 25% of any Notes to be registered in any name or names other than
the name of the holder of the Notes, converted or to be converted (or such
Holder's nominee or nominees) unless such Holder delivers to the Company an
opinion of counsel reasonably satisfactory to the Company to the effect that
such transfer is in compliance with applicable securities laws.

     The term Effective Date as used in this Section 1.10 means (i) if the
conversion occurs on the Maturity Date of the Note, the Maturity Date, (ii) if
the conversion occurs as a result of the redemption of the Notes at the option
of the Company, the Redemption Date, and (iii) if the conversion occurs because
of the occurrence of a Special Redemption Event and the Holder's election to
require redemption of such Holder's Notes, the Repayment Date.

     Upon the partial conversion of a Note, the remaining principal amount of
such Note shall, upon surrender of the Note to the Trustee, be paid to the
Holder.

     Section 1.11.  The Company shall not be required to issue fractions of a
share or scrip representing fractional shares of Common Stock upon conversion of
25% of a Note.  If any fraction of a share of Common Stock would, except for the
provisions of this Section be issuable on the conversion of any Notes, the
Company shall pay a cash adjustment in respect of such fraction, equal to the
value of such fraction based on the then Conversion Price.

     Section 1.12.  The Conversion Price of Common Stock upon conversion of 25%
of any Note shall be as provided in this Section.

          (i)  The price at which shares of Common Stock shall be delivered upon
               conversion (the "Conversion Price")



                                          4




               shall initially be $__________ per share of Common Stock.

          (ii) The Conversion Price in effect or to be in effect at any time
shall be subject to adjustment from time to time as provided in the following
provisions of this Section 1.12.

     The Conversion Price shall be subject to adjustment from time to time as
follows:

     A.   In case the Company shall at any time or from time to time after the
date of execution of this First Supplemental Indenture (I) distribute dividends
(and other distributions) payable in Common Stock on any class of capital stock
of the Company, (II) issue to all holders of Common Stock rights, options or
warrants entitling them to subscribe for or purchase Common Stock (or securities
convertible into Common Stock) at less than the then-current market price (as
determined in accordance with the terms of this First Supplemental Indenture)
unless holders of Notes are entitles to receive the same upon conversion, (III)
subdivide, combine and reclassify Common Stock or (IV) distribute to all holders
of Common Stock evidences of indebtedness of the Company or assets (including
securities, but excluding not only those rights, options, warrants but also
dividends and distributions referred to above, dividends and distributions paid
in cash out of the retained earnings of the Company), then and thereafter
successively upon each such issue, sale, dividend or other distribution, the
Conversion Price for each share of Common Stock in effect immediately prior to
such issue, sale, dividend or other distribution shall forthwith be reduced to a
price (calculated to the nearest full cent) equal to the quotient obtained by
dividing (i) an amount equal to the sum of (a) the total number of shares of
Common Stock outstanding immediately prior to such issue, sale, dividend or
other distribution multiplied by such Conversion Price in effect immediately
prior to such issue, sale, dividend or other distribution, plus (b) in the case
of such an issue or sale, the consideration, if any, received by the Company
upon such issue or sale, or minus (c) in the case of such a dividend or other
distribution, the amount of such dividend or other distribution, by (ii) the
total number of shares of Common Stock outstanding immediately after such issue,
sale, dividend or other distribution.

     The Company shall not be required to make any adjustment of the Conversion
Price if the amount of such adjustment shall be less than $0.25 per share, but
in such case any adjustment that would otherwise be required then to be made
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment, which, together with any adjustment so carried
forward, shall amount to not less than $0.25 per share.

     For the purposes of any adjustment as provided in this subsection A, the
following provisions shall also be applicable:



                                          5




          (i)  In case of the issue of additional shares of Common Stock for
               cash, the consideration received by the Company therefor shall be
               deemed to be the cash proceeds received by the Company for such
               shares, without deduction therefrom of any expenses incurred or
               any underwriting commissions or concessions paid or allowed by
               the Company in connection therewith.

          (ii) In case at any time the Company shall grant any rights to
               subscribe for or to purchase, or any options for the purchase of,
               Common Stock or any stock or other securities convertible into or
               exchangeable for Common Stock (such convertible or exchangeable
               stock or securities being herein called "Convertible
               Securities"), whether or not such rights or options or the rights
               to convert or exchange any such Convertible Securities are
               immediately exercisable, and the price per share for which Common
               Stock is issuable upon the exercise of such rights or options or
               upon conversion or exchange of such Convertible Securities,
               (determined by dividing (a) the total amount, if any, received or
               receivable by the Company as consideration for the granting of
               such rights or options, plus the minimum aggregate amount of
               additional consideration payable to the Company upon the exercise
               of such rights or options, plus, in the case of any such rights
               or options which relate to such Convertible Securities, the
               minimum aggregate amount of additional consideration, if any,
               payable upon the issue or sale of such Convertible Securities and
               upon the conversion or exchange thereof, by (b) the total maximum
               numbers of shares of Common Stock issuable upon the exercise of
               such rights or options or upon the conversion or exchange of all
               such Convertible Securities issuable upon the exercise of such
               rights or options) shall be less than the Conversion Price in
               effect immediately prior to the time of the granting of such
               rights or options, then the total maximum number of shares of
               Common Stock issuable upon the exercise of such rights or options
               or upon conversion or exchange of the total maximum amount of
               such Convertible Securities issuable upon the exercise of such
               rights or options shall (as of the date of granting of such
               rights or options) be deemed to be outstanding and to have been
               issued for such price per share.  No further adjustments of the
               Conversion Price shall be made upon the actual issue of such
               Common Stock or of such Convertible Securities upon exercise of
               such rights or options or upon the actual issue of such Common
               Stock upon



                                          6




               conversion or exchange of such Convertible Securities.

        (iii)  In case at any time the Company shall declare a dividend or make
               any other distribution upon any stock of the Company payable in
               Common Stock or Convertible Securities, any Common Stock or
               Convertible Securities, as the case may be, issuable in payment
               of such dividend or distribution shall be deemed to have been
               issued or sold without consideration.

          (iv) In case any shares of Common Stock or Convertible Securities or
               any rights or options to purchase any such Common Stock or
               Convertible Securities shall be issued or sold, in whole or in
               part, for a consideration other than cash, the amount of the
               consideration other than cash received by the Company shall be
               deemed to be the fair value of such consideration as determined
               by the Board of Directors of the Company.

          (v)  In the event of the consolidation of the Company with or the
               merger of the Company into any other corporation or of the sale
               of the properties and assets of the Company as, or substantially
               as, an entirety for stock or other securities of any corporation,
               or the merger of any other corporation into the Company as a
               result of which the holders of shares of Common Stock of the
               Company shall be deemed to have become the holders of, or shall
               become entitled to, stock or other securities of any corporation
               other than the Company, the Company shall be deemed to have
               issued a number of shares of its Common Stock for such stock or
               securities computed on the basis of the exchange ratio actually
               applied in the transaction and for a consideration equal to the
               fair market value on the date of such transaction of such stock
               or securities of the other corporation.  If such determination
               shall cause an adjustment in the Conversion Price, the
               determination of the number of shares of Common Stock issuable
               upon the conversion of any portion of a Note immediately prior to
               such consolidation, merger or sale for the purposes of subsection
               (iii) above shall be made after giving effect to such adjustment
               of the Conversion Price.

          (vi) In case of the payment or making of a dividend or other
               distribution on Common Stock in property (other than in shares of
               Common Stock and securities convertible into or exchangeable for
               shares of Common Stock, but including all other securities) such
               dividend or other distribution



                                          7




               shall be deemed to have been paid or made at the close of
               business at the record date fixed for the determination of
               stockholders entitled to receive such dividend or other
               distribution and the amount of such dividend or other
               distribution shall be the amount of cash and, if in property
               other than cash, shall be deemed to be the value of such property
               as determined in good faith by the Board of Directors of the
               Company at the time of the declaration of such dividend or other
               distribution.

        (vii)  The number of shares of Common Stock outstanding at any given
               time shall not include shares owned or held by or for the account
               of the Company, and the disposition of any such shares shall be
               considered an issue of sale of Common Stock.

     B.  Anything to the contrary notwithstanding, the Company shall not be
required to make any adjustment of the Conversion Price as a result of the
happening of any of the following:

          (i)  The issuance of the Notes;

          (ii) The issuance of shares of Common Stock upon the conversion of any
               portion of the Notes;

         (iii) The issuance of not more than ___________ shares of Common Stock
               upon the exercise of options granted under the Company's
               employees' qualified stock option plan;

          (iv) The issue of non-qualified stock options (and the issuance of
               shares upon the exercise thereof) by the Company to its officers
               and employees for not exceeding an aggregate of ____ shares of
               Common Stock;

          (v)  Such additional shares as may be issuable upon the exercise of
               such options by reason of stock dividends, stock splits, and
               other changes in the capitalization of the Company; and

          (vi) [(ANY OTHER EXCLUDED EVENTS OF DILUTION)].

     C.   In case at any time the Company shall subdivide its outstanding shares
of Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the Company shall
be combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.


                                          8




     D.   If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock (or any
other securities of the Company then issuable upon the conversion of the Notes)
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock (or such other securities) then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the Holders of the Notes shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this First Supplemental Indenture, Notes and
in lieu of the shares of the Common Stock (or other securities) of the Company
immediately theretofore purchasable and receivable upon the exercise of the
conversion rights hereunder, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of shares of
such Common Stock (or such other securities) immediately theretofore purchasable
and receivable upon the exercise of the conversion rights hereunder, had such
reorganization, reclassification, consolidation, merger or sale not taken place,
and in any such case appropriate provision shall be made with respect to the
conversion rights hereunder to the end that the provisions hereof (including
without limitation provisions for adjustments of the conversion price and of the
number of shares purchasable upon the conversion of the Notes) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon any conversion hereunder
(including an immediate adjustment, by reason of such consolidation, merger or
sale, of the conversion price, to the value for the Common Stock reflected by
the terms of such consolidation, merger or sale if the value so reflected is
less than the conversion price in effect immediately prior to such
consolidation, merger or sale).  The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume,
by written instrument executed and mailed to the Holders of the Notes at the
addresses appearing on the books of the Trustee, the obligation to deliver to
such Holders such shares of stock, securities or assets, as, in accordance with
the foregoing provisions, such Holders may be entitled to purchase.  The
successor corporation shall be deemed substituted for the Company for all
purposes of this Section and the Notes.

     The provisions of paragraph D above governing the substitution of another
corporation for the Company shall similarly apply to successive instances in
which the corporation then deemed to be the Company hereunder shall either sell
all or substantially all of its properties and assets to any other corporation,
shall consolidate with or merge into any other corporation or shall be the
surviving corporation of the merger into it of any other corporation as a result
of which the holders


                                          9




of any of its stock or other securities shall be deemed to have become the
holders of, or shall become entitled to, the stock or other securities of any
corporation other than the corporation at the time deemed to be the Company
hereunder.

     Section 1.13.  The Company will, within 90 days after the end of each of
its fiscal years, and not less than ___ days prior to the Stated Maturity of the
Notes, and not less than ___ days prior to any Redemption Date or Repayment Date
mail to the Holders of the Notes at the address shown on the books of the
Trustee a certificate of the independent public accountants for the Company
specifying the Conversion Price in effect as of the end of such fiscal year or
as of the date of such notice, if different.

     Section 1.14.  The issue of certificates on conversions of Notes shall be
made without charge to the converting Noteholder for any tax in respect of the
issue thereof.  The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issue and delivery of
stock in any name other than that of the Holder of any Note converted, and the
Company shall not be required to issue or deliver any certificate in respect of
such stock unless and until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.

     Section 1.15.  The Company shall at all times reserve and keep available
out of its authorized but unissued stock, for the purpose of effecting the
conversion of the Notes, such number of its duly authorized shares of Common
Stock as shall from time to time be sufficient to effect the conversion of 25%
of the Notes.  If any shares of Common Stock, reserved or to be reserved, for
such purposes, required registration with or approval of any governmental
authority under any Federal or state law before such shares may be validly
issued to the holder, the Company covenants that it will in good faith and as
expeditiously as possibly endeavor to secure such registration or approval, as
the case may be.

     The Company will not take any action which would cause the conversion price
to be below the then par value, if any, per share of the Common Stock, or in the
case of no-par stock, below the amount for which such shares may be issued as
fully paid and nonassessable.

     The Company covenants that all shares of Common Stock which may be issued
upon conversion of the Notes will upon issue be fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof.

     Section 1.16.  Prior to the conversion of any Note, the holder of such Note
shall not be entitled to any rights of a stockholder of the Company, including
without limitation the

                                          10




right to vote, to receive dividends or other distributions or to exercise any
pre-emptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.

     Section 1.17.  The provisions of Article Twelve of the Indenture shall not
apply to the Notes.

     [Section 1.18. The provisions of Section 402 of the Indenture shall be
applicable to the Notes.]

     Section 1.19.  The Notes shall have such other terms and provisions, to the
extent not inconsistent with the foregoing, as are set forth in the Indenture
and the form of Note attached as EXHIBIT A hereto.


                                      ARTICLE II

                                    MISCELLANEOUS

     Section 2.1.  Unless otherwise defined herein, all capitalized terms used
in this First Supplemental Indenture have the respective meanings set forth in
the Indenture.  This First Supplemental Indenture may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original, and all of such counterparts shall together constitute one and the
same instrument.  Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect.

     Section 2.2.  Each of the Company and the Trustee makes and reaffirms as of
the date of execution of this First Supplemental Indenture all of its respective
covenants and agreements set forth in the Indenture.

     Section 2.3.  All covenants and agreements in this First Supplemental
Indenture by the Company or the Trustee shall bind its respective successors and
assigns, whether so expressed or not.

     Section 2.4. In case any provision in this First Supplemental Indenture
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions or of the Indenture shall not in any
way be affected or impaired thereby.

     Section 2.5.  Nothing in this First Supplemental Indenture, expressed or
implied, shall give to any person, other than the parties hereto and their
successors under the Indenture and the Holders of the Securities, any benefit or
any legal or equitable right, remedy or claim under the Indenture.

                                          11




     Section 2.6.  If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act of 1939, as amended, that is required under
such Act to be a part of and govern this First Supplemental Indenture, such
required provision shall control.  If any provision hereof modifies or excludes
any provision of such Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this First Supplemental Indenture as so
modified or shall be excluded, as the case may be.

     Section 2.7.  This First Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of conflicts of laws.

     Section 2.8.  All provisions of this First Supplemental Indenture shall be
deemed to be incorporated in, and made a part of, the Indenture; and the
Indenture, as amended and supplemented by this First Supplemental Indenture,
shall be read, taken and construed as one and the same Instrument.


                                          12




     IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed, all as of the day and year first above written.


[SEAL]                                         CONSUMER PORTFOLIO SERVICES, INC.


Attest:

By:                                                By:
   --------------------------                         --------------------------
   Name:                                              Name:
   Title:                                             Title:



[SEAL]                                            
                                                   ----------------------------
                                                         as Trustee

Attest:


By:                                                By:
   --------------------------                         --------------------------
   Name:                                              Name:
   Title:                                             Title:


                                          13




                                                                       EXHIBIT A


UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
CERTIFICATED FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR ANOTHER NOMINEE OR THE DEPOSITORY OR BY THE DEPOSITORY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITORY.

                                    [Face of Note]

                          CONSUMER PORTFOLIO SERVICES, INC.

                          PARTICIPATING EQUITY NOTE DUE 2004



$_____________________                                      CUSIP No. _________



     Consumer Portfolio Services, Inc., a California corporation (herein called
the "Company"), for value received, hereby promises to pay to
____________________, or registered assigns, the principal sum of
____________________ Dollars on April __, 2004, and to pay interest thereon at
the rate of _____% per annum from __________ __, 1997 until, but excluding April
__, 2004.

Interest will be payable on the first day of each month, commencing __________
1, 1997 (each an "Interest Payment Date").  The initial interest payment will
represent interest from the date of original issuance to and including
__________ __, 1997.  The amount of interest payable on each Interest Payment
Date will be computed on the basis of a 360-day year consisting of twelve 30-day
months.

     The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, except as provided in the Indenture hereinafter
referred to, be paid to the Person in whose name this Note (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the seventh day, whether or not a
Business Day, of the month preceding the respective Interest Payment Date;
provided, however, that interest payable at Maturity will be payable to the
Person to whom the principal hereof shall be payable.  Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date and either may be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such defaulted interest to
be fixed by the Trustee, notice whereof shall be given to the Holders not less
than ten days prior to such Special Record Date, or may be paid at any time in
any other lawful manner, all as more fully provided in the Indenture.  Payment
of


                                          14




the principal of and interest on this Note will be made at the office or agency
of the Company maintained for that purpose in ___________, ___________, or in
such other office or agency as may be established by the Company pursuant to the
Indenture (initially the principal corporate trust office of the Trustee in New
York, New York, (the "Corporate Trust Office")) , in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; provided, however, that payment of interest
on any Interest Payment Date other than at Maturity may be made at the option of
the Company by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register. Payments of principal and
interest at Maturity will be made against presentation of this Note at the
Corporate Trust Office (or such other office as may be established pursuant to
the Indenture), by check.

     Reference is hereby made to the further provisions of this Note set forth
on the reverse side hereof, which further provisions shall for all purposes have
the same effect as though fully set forth at this place.

     Unless the Certificate of Authentication hereon has been executed by the
Trustee under the Indenture by the manual signature of one of its authorized
officers, this Note shall not be entitled to any benefit under the Indenture or
be valid or obligatory for any purpose.


                                          15




     IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name by the manual or facsimile signature of an officer of the Company, and its
corporate seal, or a facsimile thereof, to be impressed or imprinted hereon,
attested by the manual or facsimile signature of its Secretary or one of its
Assistant Secretaries.


Date 
     ------------- --  ----


                                               CONSUMER PORTFOLIO SERVICES, INC.


[Corporate Seal]
                                        By:       
                                                  ------------------------------
                                                  Name:
                                                  Title:

ATTEST:




- ---------------------------
Secretary

TRUSTEE'S CERTIFICATE OF AUTHENTICATION:
This is one of the Securities of the series
designated herein, issued under the Indenture
described herein.


                         , as Trustee
- -------------------------

By:  
     -----------------------------
          Authorized Officer


                                          16




                                  (Reverse of Note)

                          CONSUMER PORTFOLIO SERVICES, INC.

                          PARTICIPATING EQUITY NOTE DUE 2004



     This Note is one of a duly authorized series of securities (herein called
the "Notes") of Consumer Portfolio Services, Inc. (the "Company" issued under an
Indenture dated as of February 1, 1997, as supplemented by the First
Supplemental Indenture and together such documents are herein referred to as the
"Indenture", between the Company and Bankers Trust Company, as Trustee (herein
called the "Trustee," which term includes any successor Trustee under the
Indenture), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights thereunder of the
Company, the Trustee and the Holders of the Notes, and the terms upon which the
Notes are, and are to be, authenticated and delivered.  This Note is one of a
series of Notes of the Company designated as its Participating Equity Notes due
April __, 2004 limited in aggregate principal amount to $__________ (herein
called the "Notes").

     The indebtedness of the Company evidenced by the Notes, including the
principal thereof and interest thereon (including post-default interest), (a) is
expressly subordinated, to the extent and in the manner set forth in the
Indenture, in right of payment to the prior payment, in full of all of the
Company's obligations to holders of Senior Indebtedness and, in certain events,
the Trustee's fees and (b) is unsecured by any collateral, including the assets
of the Company or any of its Subsidiaries or Affiliates.  Each Holder of Notes,
by acceptance thereof, (x) agrees to and shall be bound by such provisions of
the Indenture and all other provisions of the Indenture; (y) authorizes and
directs the Trustee to take such action on his behalf as may be necessary or
appropriate to effectuate the subordination of the securities as provided in the
Indenture; and (z) appoints the Trustee his attorney-in-fact for any and all
such purposes.

     The Notes may not be redeemed at the option of the Company prior to April
__, 2000.  On or after April __, 2000, the Notes may be redeemed, at the option
of the Company, in whole, but not in part, at any time at a redemption price of
100% of the principal amount thereof, without premium, plus interest thereon
accrued through and including the Redemption Date.

     Notice of the redemption shall be given to the Holders of Notes to be
redeemed by mailing a notice of such redemption not less than 30 nor more than
60 days prior to the Redemption Date at their addresses as they shall appear on
the Security Register, all as provided in the Indenture.

     The Holder of this Note may elect to convert 25% of the principal amount of
this Note to Common Stock of the Company upon


                                          17




the earliest of (i) the __________ __, 2004 Stated Maturity of this Note, (ii)
the Redemption Date of this Note if the Company exercises its optional
redemption rights with respect to the Notes and (iii) the Repayment Date of this
Note if the Holder hereof elects to cause the Company to purchase this Note as a
result of the occurrence of a Special Redemption Event.  If the Holder of this
Note elects to convert 25% of this Note into Common Stock, the Conversion Price
shall be determined as provided in the Indenture and such conversion shall be
subject to the terms and conditions set forth in the Indenture.

     Except as may be provided in the Indenture, if an Event of Default with
respect to the Notes shall occur and be continuing, the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Notes may declare
the principal of all the Notes due and payable in the manner and with the effect
provided in the Indenture.  The Indenture provides that such declaration and its
consequences may, in certain events, be annulled by the Holders of a majority in
principal amount of the outstanding Notes.

     The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in aggregate principal amount of the
Securities at the time Outstanding affected thereby.  The Indenture also
contains provisions permitting the Holders of specified percentages in aggregate
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences.  Any such consent or waiver by the
Holder of this Note shall he conclusive and binding upon such Holder and upon
all future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange therefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Note.

     No reference herein to the Indenture and no provisions of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, places and rate, and in the coin or currency, herein prescribed.

     As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Note may be registered on the Security Register of
the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company to be maintained for that purpose in New York,
New York or at such other office or agency as may be established by the Company
for such purpose pursuant to the Indenture (initially the Corporate Trust
Office), duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar (initially the
Trustee) and duly


                                          18




executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.

     The Notes are issuable only in registered form, without coupons, in
denominations of $1, 000 or any amount in excess thereof which is an integral
multiple of $1,000.  As provided in the Indenture, and subject to certain
limitations therein set forth, the Notes are exchangeable for a like aggregate
principal amount of Notes in authorized denominations, as requested by the
Holder surrendering the same.

     If this Note is duly called for redemption and funds for payment duly
provided, this Note shall cease to bear interest after such Redemption Date.

     In the event of any Special Redemption Event (as defined below), the Holder
of this Note will have the right, at such Holder's option and subject to the
terms and conditions of the Indenture, to require the Company to repay the
principal of this Note on the date that is seventy-five (75) days after the
occurrence of the Special Redemption Event plus accrued interest to and
including the date of redemption.

     "Special Redemption Event" means the occurrence of one or more to the
following: (i) (x) the Company shall consolidate with or merge into any other
Person, (y) the Company shall convey, transfer or lease all or substantially all
of its assets to any Person or (z) any Person shall consolidate with or merge
into the Company pursuant to a transaction in which the outstanding common stock
of the Company is reclassified, changed or exchanged; provided that the
following shall be excluded from the operation of this clause (i) a transaction
which is part of a sale, financing or securitization of receivables, entered
into in the ordinary course of business; a transaction between the Company and
one or more of its wholly-owned Subsidiaries; or a transaction of the type
described in clause (i) (x) or (i) (z) above unless immediately after giving
effect to such transaction, any Person or "group" (as such term is used for
purposes of Section 13(d) and 14(d) of the Securities Exchange Act-of 1934 as
amended) other than any Person who is a director of the Company or a "related
Person" on the date of the Indenture, is or becomes the "beneficial owner",
directly or indirectly, of more than fifty percent (50%) of the total voting
power in the aggregate normally entitled to vote in the election of directors;
or (ii) any Person or "group" (as such term is used for purposes of Section
13(d) or 14(d) of the Securities Exchange Act of 1934, as amended) other than
any Person who is a director of the Company or a "related Person" on the date of
the Indenture, shall purchase or otherwise acquire in one or more transactions
or series of transactions beneficial ownership of fifty percent (50%) or more of
the voting power of the Company on the date immediately prior to the last such
purchase or other acquisition.  For purposes of this definition, "related
Person" means, in addition to such director, (a) any relative or spouse of such
director, or any relative of


                                          19




such spouse, (b) any trust or estate in which such Person or any of the Persons
specified in clause (a) collectively own fifty percent (50%) or more of the
total beneficial interest or (c) any corporation or other organization (other
than the Company) in which such director or any of the Persons specified in
clause (a) are the beneficial owners collectively of fifty percent (50%) or more
of the voting power.

     Interest installments whose Stated Maturity is on the Redemption Date or
Repayment Date for any Notes will be payable to the Holders of such Notes, or
one or more Predecessor Securities, of record at the close of business on the
Regular Record Date referred to on the face hereof, all as provided in the
Indenture.

     Prior to due presentment of this Note for registration of transfer or
exchange, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee, nor any such agent shall be affected by notice to the contrary.

     No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

     Each holder of this Note covenants and agrees by his acceptance hereof to
comply with and be bound by the foregoing provisions and the provisions of the
Indenture.

     All terms used in this Note which are defined in the Indenture shall have
the meanings assigned to them in the Indenture.


                                          20



                        Consumer Portfolio Services, Inc.
                    Statement Regarding Computation of Ratios
                                    Exhibit 12



                                                           Nine Month
                                                           Transition
                                  Nine Months Ended       Period Ended
                                    September 30,          December 31,                    Year Ended March 31,
                              -------------------------   -------------  -------------------------------------------------------
                                 1996          1995            1995          1995          1994          1993         1992
                                 ----          ----            ----          ----          ----          ----         ----
                                                                                              
Income (loss) before taxes    $17,069,842   $11,627,642    $12,657,308   $11,146,562   $(1,288,043)  $(1,502,272)  $(2,526,473)

Interest component of 
 rent expense                     237,504        97,711         99,861       115,710       118,358       148,361       114,466

Interest (1)                    4,309,859     2,835,237      2,724,403     3,407,598       446,402        25,609        46,943
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------
Income (loss) before 
 taxes and fixed charges       21,617,205    14,560,590     15,481,572    14,669,870      (723,283)   (1,328,302)   (2,365,064)
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------

Fixed charges:

Interest component of 
 rent expense                     237,504        97,711         99,861       115,710       118,358       148,361       114,466

Interest                        4,309,859     2,835,237      2,724,403     3,407,598       446,402        25,609        46,943
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------

Fixed charges                   4,547,363     2,932,948      2,824,264     3,523,308       564,760       173,970       161,409
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------

Ratio of income (loss) to
 fixed charges                        4.8           5.0            5.5           4.2          (1.3)         (7.6)        (14.7)
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------

Coverage deficiency                  --            --             --            --      (1,288,043)   (1,502,272)   (2,526,473)
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------
                              -----------   -----------    -----------   -----------   -----------   -----------   -----------



(1)  Includes amortization of financing costs and discount on subordinated debt.



                                                                    EXHIBIT 23.1






                           CONSENT OF INDEPENDENT AUDITORS



The Board of Directors
Consumer Portfolio Services, Inc.


We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.


                                  KPMG PEAT MARWICK LLP



Orange County, California
February 6, 1997