As filed with the Securities and Exchange Commission on September 13, 1996
Registration No. 333-09343
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CPS AUTO GRANTOR TRUSTS
(Issuer of the Certificates)
CONSUMER PORTFOLIO SERVICES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
California 33-0459135
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2 Ada, Suite 100
Irvine, California 92718
(714) 753-6800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Charles E. Bradley, Jr.
Consumer Portfolio Services, Inc.
2 Ada, Suite 100
Irvine, California 92718
(714) 753-6800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Laura A. DeFelice, Esq.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019
(212) 506-2500
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of this registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |X|
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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Title of securities to Amount to be Proposed maximum Proposed maximum Amount of
be registered registered offering price per certificate* aggregate offering price* registration fee
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<S> <C> <C> <C> <C>
Asset Backed Certificates,
Class A $300,000,000 100% $300,000,000 $103,449**
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Asset Backed Certificates,
Class B $0 100% $0 $0
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</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
** $344.83 of which has previously been paid.
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus Supplement
relating to future offerings by a CPS Auto Grantor Trust of a Series of Asset
Backed Certificates described therein, (ii) a form of Prospectus Supplement
relating to the offering by CPS Auto Grantor Trust 1996 - 2 of the particular
Series of Asset Backed Certificates described therein, and (iii) a form of
Prospectus relating to the offering of Series of Asset Backed Certificates by
various CPS Auto Grantor Trusts created from time to time by Consumer Portfolio
Services, Inc. The form of Prospectus Supplement relate only to the securities
described therein and are forms that may be used, among others, by Consumer
Portfolio Services, Inc. to offer Asset Backed Certificates under this
Registration Statement.
<PAGE>
Filed pursuant to Rule 424(b)(2)
Registration No. [ ]
FORM OF PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED [ ], 199[ ]
$[ ]
CPS Auto Grantor Trust 199[ ]-[ ]
$[ ] [ ]% Asset-Backed Certificates, Class A
$[ ] [ ]% Asset-Backed Certificates, Class B
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
The Asset-Backed Certificates will consist of two classes of certificates, Class
A (the "Class A Certificates") and Class B (the "Class B Certificates" and,
collectively, the "Certificates"), evidencing beneficial ownership interests
in a trust (the "Trust") to be formed pursuant to a Pooling and Servicing
Agreement among CPS Receivables Corp., as Seller (the "Seller"), Consumer
Portfolio Services, Inc., as Servicer (individually, "CPS", and in its
capacity as the Servicer, the "Servicer"), and [ ], as Trustee and
Standby Servicer (the "Trustee" and "Standby Servicer", respectively).
The Class A Certificates will evidence, in the aggregate, beneficial
ownership of an undivided [ ] percent ([ ]%) interest in the Trust
Assets, other than interest received by the Trust in excess of the
Class A Pass-Through Rate of [ ]% per annum, and the Class B
Certificates will evidence, in the aggregate, beneficial ownership
of an undivided [ ] percent ([ ]%) interest in the Trust Assets,
other than interest received by the Trust in excess of the Class
B Pass-Through Rate of [ ]% per annum. The rights of the Class
B Certificateholders to receive distributions with respect to
the Receivables are subordinated to the rights of the
holders of the Class A Certificates [and the Credit Enhancer]
to the extent described herein.
The Underwriters have agreed to purchase from the Seller the Class A
Certificates and the Class B Certificates at [ ]% and [ ]%, respectively, of
the principal amount thereof, subject to the terms and conditions set forth
in the Underwriting Agreement referred to herein under "Underwriting".
The aggregate proceeds to the Seller, before deducting expenses payable by the
Seller estimated at $[ ], will be $[ ] for the Class A Certificates
plus accrued interest at the Class A Pass-Through Rate from [ ], 199[ ]
and $[ ] for the Class B Certificates plus accrued interest at the Class B
Pass-Through Rate from [ ], 199[ ].
The Underwriters propose to offer the Securities
from time to time in negotiated transactions or otherwise, at
prices determined at the time of sale. For further
information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed
underwriting discounts or commissions, see "Underwriting" herein.
The Trust Assets will include a pool of retail installment sale
contracts and all rights thereunder (collectively, the "Receivables"),
certain monies due or received thereunder after [ ], 199[ ], security
interests in the new and used automobiles, light trucks,
vans and minivans securing the Receivables, certain bank accounts and
the proceeds thereof, [Credit Enhancement] with respect to the Class A
Certificates, and the right of CPS to receive certain insurance proceeds
and certain other property, as more fully described herein. The
Receivables will be purchased by the Seller from CPS on or prior to the
date of the issuance of the Certificates.
FOR A DISCUSSION OF CERTAIN FACTORS RELATING TO THE TRANSACTION, SEE "RISK
FACTORS" AT PAGE S-15 HEREIN AND PAGE [ ] IN THE ACCOMPANYING PROSPECTUS.
[Credit Enhancement (the "Credit Enhancement") with respect to the Class A
Certificates will be provided by [Credit Enhancer] on each Distribution Date.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTEREST
IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY AFFILIATE THEREOF.
THE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Certificates are offered hereby by the Underwriters when, as and if
issued by the Seller, delivered to and accepted by the Underwriters
and subject to its right to reject orders in whole or in part. It is
expected that delivery of the
Certificates will be made on or about [ ], 199[ ] only
through The Depository Trust Company.
[Underwriters]
The date of this Prospectus Supplement is [ ], 199[ ].
<PAGE>
(cover continued from previous page)
AVAILABLE INFORMATION
CPS has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Certificates offered pursuant to this Prospectus Supplement. For further
information, reference is made to the Registration Statement which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
Commission's regional office at 500 West Madison, 14th Floor, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of the Registration Statement may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Servicer, on behalf of the Trust, will also file or cause
to be filed with the commission such periodic reports as may be required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration Statement,
either on its own behalf or on behalf of the Trust, relating to the
Certificates, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, after the date of this Prospectus Supplement and prior to
the termination of the offering of the Certificates offered hereby, shall be
deemed to be incorporated by reference in this Prospectus Supplement and to be a
part of this Prospectus Supplement from the date of the filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein, modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Suite 100, Irvine, California
92718, Attention: [ ]. Telephone requests for such copies should be directed to
Consumer Portfolio Services, Inc. at (714) 753-6800.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the
S-2
<PAGE>
Trust only to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC") and registered holder of the Certificates. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles. The Servicer will file with the Commission such periodic
reports as are required under the Exchange Act, and the rules and regulations
thereunder and as are otherwise agreed to by the Commission. Copies of such
periodic reports may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
S-3
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SUMMARY
This Summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Certain capitalized terms used in the Summary are
defined elsewhere in this Prospectus Supplement. An Index of Terms appears at
the end of this Prospectus Supplement.
Trust............................. CPS Auto Grantor Trust 199[ ]-[ ] (the
"Trust") to be formed pursuant to the Pooling
and Servicing Agreement, dated as of [ ],
199[ ] among the Seller, the Servicer and the
Trustee and Standby Servicer (the
"Agreement").
Seller............................ CPS Receivables Corp. (the "Seller"). See
"The Seller and CPS" in this Prospectus
Supplement.
Servicer.......................... Consumer Portfolio Services, Inc. ("CPS" or,
in its capacity as the servicer, the
"Servicer"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS" in this
Prospectus Supplement.
Trustee........................... [name and address].
[Credit Enhancer]................. [Credit Enhancer Information].
Closing Date...................... On or about [ ], 199[ ].
Description of the
Securities Offered................ The Certificates consist of two classes,
entitled [ ]% Asset-Backed Certificates,
Class A (the "Class A Certificates") and [ ]%
Asset- Backed Certificates, Class B (the
"Class B Certificates" and, together with the
Class A Certificates, the "Certificates").
Each Certificate will evidence beneficial
ownership of an undivided interest in the
Trust. The Class A Certificates will
evidence, in the aggregate, beneficial
ownership of an undivided interest in the
Trust Assets equal to the Class A Percentage
of the Trust Assets, but not including any
interest received by the Trust in excess of
the Class A Pass-Through Rate. The Class B
Certificates will evidence, in the aggregate,
beneficial ownership of an undivided interest
in the Trust Assets equal to the Class B
Percentage of the Trust Assets, but not
including any interest received by the Trust
in excess of the Class B Pass-Through Rate.
The "Class A Percentage" as of any date of
determination will be [ ]%. The "Class B
Percentage" as of any date of determination
will be [ ]%.
The Certificates will be offered for purchase
in denominations of $1,000 and in integral
multiples thereof.
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S-4
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Trust Assets...................... The property of the Trust (the "Trust
Assets") will include (i) a pool of retail
installment sale contracts (collectively, the
"Receivables") secured by the new and used
automobiles, light trucks, vans and minivans
financed thereby (the "Financed Vehicles"),
(ii) with respect to Rule of 78's
Receivables, all payments due thereon after
[ ], 199[ ] (the "Cutoff Date"), and, with
respect to Simple Interest Receivables, all
payments received thereunder after the Cutoff
Date, (iii) security interests in the
Financed Vehicles, (iv) certain bank accounts
and the proceeds thereof, (v) the right of
the Seller to receive proceeds from claims
under, or refunds of unearned premiums from,
certain insurance policies and extended
service contracts, (vi) all right, title and
interest of the Seller in and to the Purchase
Agreement (the "Purchase Agreement") between
the Seller and CPS, (vii) [Credit
Enhancement] issued by the [Credit Enhancer]
with respect to the Class A Certificates, and
(viii) certain other property, as more fully
described herein. See "Formation of the
Trust" in this Prospectus Supplement and "The
Trust Assets" in the Prospectus. The
Receivables will be purchased by the Seller
from CPS pursuant to the Purchase Agreement
on or prior to the Closing Date. The
Receivables arise from loans originated by
automobile dealers for assignment to CPS
pursuant to CPS's auto loan programs.
The Receivables................... As of the Cutoff Date, the aggregate
outstanding principal balance of the
Receivables was $90,000,000 (the "Original
Pool Balance"). The Receivables consist of
retail installment sale contracts secured by
new and used automobiles, light trucks, vans
and minivans including, with respect to Rule
of 78's Receivables, the rights to all
payments due with respect to such Receivables
after the Cutoff Date, and, with respect to
Simple Interest Receivables, the rights to
all payments received with respect to such
Receivables after the Cutoff Date. As of the
Cutoff Date, approximately [ ]% of the
aggregate principal balance of the
Receivables represented financing of used
vehicles. The Receivables arise from loans
originated by automobile dealers for
assignment to CPS pursuant to CPS's auto loan
programs. The auto loan programs target
automobile purchasers with marginal credit
ratings who are generally unable to obtain
credit from banks or other low-risk lenders.
See "CPS's Automobile Contract Portfolio
-General" in this Prospectus Supplement and
"Risk Factors-Nature of Obligors" in the
Prospectus. The Receivables have been
selected from the contracts owned by CPS
based on the criteria specified in the
Agreement and described herein.
Each Receivable is a Rule of 78's Receivable
or a Simple Interest Receivable. As of the
Cutoff Date, the weighted average annual
percentage rate (the "APR") of the
Receivables was approximately [ ]%, the
weighted average remaining term to maturity
of the Receivables was approximately [ ]
months and the weighted
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S-5
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average original term to maturity of the
Receivables was approximately [ ] months. As
of the Cutoff Date, no Receivable had a
scheduled maturity later than [ ].
Class A Certificate Balance....... The "Class A Certificate Balance" will equal,
initially, the Class A Percentage of the
Original Pool Balance as of the close of
business on the Cutoff Date, and thereafter
will equal the initial Class A Certificate
Balance reduced by all principal
distributions on the Class A Certificates.
Class A Pass-Through Rate......... Interest will accrue on the Class A
Certificate Balance at a rate of [ ]% per
annum, calculated on the basis of a 360-day
year consisting of twelve 30-day months (the
"Class A Pass-Through Rate").
Class B Certificate Balance....... The "Class B Certificate Balance" will equal,
initially, the Class B Percentage of the
Original Pool Balance as of the close of
business on the Cutoff Date, and thereafter
will equal the initial Class B Certificate
Balance reduced by all principal
distributions on the Class B Certificates.
Class B Pass-Through Rate......... Interest will accrue on the principal balance
of the Class B Certificates outstanding from
time to time at a rate of [ ]% per annum,
calculated on the basis of a 360-day year
consisting of twelve 30-day months (the
"Class B Pass-Through Rate").
Interest.......................... On the 15th of each month (or the next
following Business Day) beginning [ ], 199[ ]
(each, a "Distribution Date"), the Trustee
will, to the extent there are funds available
from the sources described herein,
pass-through and (i) distribute pro rata to
the holders of record of the Class A
Certificates (the "Class A
Certificateholders") as of the related Record
Date thirty (30) days' of interest at the
Class A Pass-Through Rate on the Class A
Certificate Balance as of the close of
business on the last day of the related
Collection Period and (ii) distribute pro
rata to the holders of record of the Class B
Certificates (the "Class B
Certificateholders") as of the related Record
Date thirty (30) days' of interest at the
Class B Pass-Through Rate on the Class B
Certificate Balance as of the close of
business on the last day of the related
Collection Period; provided, however, that on
the first Distribution Date, the
Certificateholders will be entitled to
interest at the Class A Pass-Through Rate or
the Class B Pass-Through Rate, as applicable,
on the initial Class A Certificate Balance or
the initial Class B Certificate Balance, as
applicable, from and including the Closing
Date through and including [ ]. The final
scheduled Distribution Date on the
Certificates will be the [ ] Distribution
Date (the "Final Scheduled Distribution
Date").
Principal......................... On each Distribution Date, the Trustee will,
to the extent that there are funds available
from the sources described herein, distribute
to
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S-6
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(a) the Class A Certificateholders as of the
related Record Date an amount equal to the
Class A Percentage of the Principal
Distributable Amount and (b) the Class B
Certificateholders as of the related Record
Date an amount equal to the Class B
Percentage of the Principal Distributable
Amount. The "Principal Distributable Amount"
for a Distribution Date shall equal the sum
of (a) the principal portion of all Scheduled
Payments received during the preceding
Collection Period on Rule of 78's Receivables
and all payments of principal received on
Simple Interest Receivables during the
preceding Collection Period; (b) the
principal portion of all prepayments in full
(including prepayments in full resulting from
collections with respect to a Receivable
received during the preceding Collection
Period plus any amounts applied from the
Payahead Account with respect to such
Receivable) (without duplication of amounts
included in (a) above and (d) below); (c) the
portion of the Purchase Amount allocable to
principal of each Receivable that was
repurchased by CPS or purchased by the
Servicer as of the last day of the related
Collection Period (without duplication of the
amounts referred to in (a) and (b) above);
(d) the Principal Balance of each Receivable
that first became a Liquidated Receivable
during the preceding Collection Period
(without duplication of the amounts included
in (a) and (b) above); and (e) the aggregate
amount of Cram Down Losses that shall have
occurred during the preceding Collection
Period (without duplication of amounts
included in (a) through (d) above). In
addition, on the Final Scheduled Distribution
Date, to the extent amounts are available
therefor, the principal required to be
distributed to the Class A Certificateholders
will equal the then outstanding Class A
Certificate Balance and the principal
required to be distributed to the Class B
Certificateholders will equal the then
outstanding Class B Certificate Balance.
A "Collection Period" with respect to a
Distribution Date will be the calendar month
preceding the month in which such
Distribution Date occurs; provided however,
that with respect to the first Distribution
Date, the "Collection Period" will be the
period from and excluding the Cutoff Date to
and including [ ], 199[ ].
Priority of Payments.............. On each Distribution Date, the Trustee shall
make the following distributions in the
following order of priority:
[(i) to the Servicer, the Servicing Fee and
all unpaid Servicing Fees; provided, however,
that as long as CPS is the Servicer and
[ ], is the Standby Servicer, the Trustee
will first pay to the Standby Servicer out of
the Servicing Fee otherwise payable to CPS an
amount equal to the Standby Fee;
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S-7
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(ii) in the event the Standby Servicer
becomes the successor Servicer, to the
Standby Servicer, reasonable transition
expenses (up to a maximum of $[ ]) incurred
in acting as successor Servicer;
(iii) to the Trustee, the Trustee Fee (as
defined herein) and other reasonable
expenses;
(iv) to the Collateral Agent, all fees and
expenses payable to the Collateral Agent with
respect to such Distribution Date;
(v) to the Class A Certificateholders, the
Class A Interest Distributable Amount (as
defined herein) and any Class A Interest
Carryover Shortfall (as defined herein);
(vi) to the Class B Certificateholders, the
Class B Interest Distributable Amount
(defined herein) and any Class B Interest
Carryover Shortfall (defined herein);
(vii) to the Class A Certificateholders, the
Class A Principal Distributable Amount
(defined herein) and any Class A Principal
Carryover Shortfall (defined herein);
(viii) to the [Credit Enhancer], any amounts
due to the [Credit Enhancer] under the terms
of the Agreement and under the [Enhancement
Agreement] (defined herein);
(ix) to any successor Servicer, reasonable
transition expenses (up to a maximum of $[ ])
incurred in acting as successor Servicer;
(x) to the Class B Certificateholders, the
Class B Principal Distributable Amount
(defined herein) and any Class B Principal
Carryover Shortfall (defined herein); and
(xi) to the Collateral Agent, for deposit
into the Spread Account, the remaining Total
Distribution Amount, if any. See "The
Certificates -- Distributions on Certificates
- Priority of Distribution Amounts" in this
Prospectus Supplement.]
[Spread Account................... The Seller has agreed to cause the Spread
Account to be established with the Collateral
Agent for the benefit of the [Credit
Enhancer] and the Trustee on behalf of the
Class A Certificateholders. Any portion of
the Total Distribution Amount remaining on
any Distribution Date after payment of all
fees and expenses due on such date to the
Servicer, the Standby Servicer, the Trustee,
the Collateral Agent, the [Credit Enhancer],
any successor Servicer and all principal and
interest payments due to the
Certificateholders on such Distribution Date,
will be deposited in the Spread Account and
held by the Collateral Agent for the benefit
of the Trustee, on behalf of the Class A
Certificateholders, and the [Credit
Enhancer]. The Collateral Agent [will] [will
not] hold for the benefit of the Class B
Certificateholders the amounts
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on deposit in the Spread Account on any
Distribution Date, which (after all payments
required to be made on such date have been
made) are in excess of the requisite amount
determined from time to time in accordance
with certain portfolio performance tests
agreed upon by the [Credit Enhancer] and the
Seller as a condition to the issuance of the
[Credit Enhancement] (such requisite amount,
the "Requisite Amount"). If on any
Distribution Date, the Total Distribution
Amount is insufficient (taking into account
the application of the Total Distribution
Amount to the payment of the Class B Interest
Distributable Amount and any Class B Interest
Carryover Shortfall) to pay all distributions
required to be made on such day pursuant to
priorities (i), (ii), (iii), (iv), (v),
(vii), (viii) and (ix) referred to above in
"Priority of Payments", amounts on deposit in
the Spread Account will be applied to pay the
amounts due on such Distribution Date
pursuant to such priorities (i), (ii), (iii),
(iv), (v), (vii), (viii) and (ix). See "The
Certificates -- Distributions on Certificates
-- The Spread Account" in this Prospectus
Supplement.]
[Other Spread Account Arrangement]
Subordination..................... Distributions of interest on the Class B
Certificates will be subordinated in priority
of payment to interest due on the Class A
Certificates. Distributions of principal on
the Class B Certificates will be subordinated
in priority of payment to interest and
principal due on the Class A Certificates.
Accordingly, the Class A Certificates will
receive the benefit of amounts otherwise due
on the Class B Certificates as credit
enhancement. Funds representing the interest
of the Class B Certificateholders in the
Trust Assets will be applied first to the
payment of any amounts due to the Class A
Certificateholders on account of the Class A
Interest Distributable Amount and any Class A
Interest Carryover Shortfall before any
portion thereof is paid to the Class B
Certificateholders and funds otherwise due to
pay principal of the Class B Certificates
will be applied first to the payment of the
Class A Principal Distributable Amount and
any Class A Principal Carryover Shortfall
before any portion thereof is paid to the
Class B Certificateholders.
Distribution and
Record Dates...................... A "Distribution Date" will be the 15th day of
each month (or if such 15th day is not a
business day, the next following business
day) commencing [ ], 199[ ]. The record date
applicable to each Distribution Date (each, a
"Record Date") will be the 10th day of the
calendar month in which such Distribution
Date occurs.
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Repurchases and
Purchases of
Certain Receivables............... CPS has made certain representations and
warranties relating to the Receivables to the
Seller in the Purchase Agreement, and the
Seller has made such representations and
warranties for the benefit of the Trust and
the [Credit Enhancer] in the Agreement. The
Trustee, as acknowledged assignee of the
repurchase obligations of CPS under the
Purchase Agreement, will be entitled to
require CPS to repurchase any Receivable if
such Receivable is materially adversely
affected by a breach of any representation or
warranty made by CPS with respect to the
Receivable and such breach has not been cured
following discovery by the Seller or CPS or
notice to the Seller and CPS.
The Servicer will be obligated to repurchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the last
day of the penultimate Collection Period
preceding the Final Scheduled Distribution
Date or fails to maintain a perfected
security interest in the Financed Vehicle.
See "Description of the Certificates -
Servicing Procedures" in this Prospectus
Supplement and "Description of the Pooling
and Servicing Agreements-- Servicing
Procedures" in the Prospectus.
The [Credit Enhancement].......... [Describe credit enhancement]
Servicing......................... The Servicer will be responsible for
servicing, managing and making collections on
the Receivables. On or prior to the next
billing period after the Cutoff Date, the
Servicer will notify each Obligor to make
payments with respect to the Receivables
after the Cutoff Date directly to a post
office box in the name of the Trustee for the
benefit of the Certificateholders and the
[Credit Enhancer] (the "Post Office Box"). On
each Business Day, Cash Flex, L.P., as the
lock-box processor (the "Lock-Box
Processor"), will transfer any such payments
received in the Post Office Box to a
segregated lock-box account at Bank of
America (the "Lock-Box Bank"), in the name of
the Trustee for the benefit of the
Certificateholders and the [Credit Enhancer]
(the "Lock-Box Account"). Within two Business
Days of receipt of funds into the Lock-Box
Account, the Servicer is required to direct
the Lock-Box Bank to effect a transfer of
funds from the Lock-Box Account to one or
more accounts established with the Trustee.
See "The Certificates -- Accounts", and "--
Payments on Receivables" in this Prospectus
Supplement.
Standby Servicer.................. [ ].
[If an Event of Default occurs and remains
unremedied, (1) provided no [Enhancement
Default] has occurred and is continuing, then
the [Credit Enhancer] in its sole and
absolute
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discretion, or (2) if an [Enhancement
Default] shall have occurred and be
continuing, then the Trustee or the holders
of Class A Certificates evidencing not less
than 25% of the Class A Certificate Balance,
may terminate the rights and obligations of
the Servicer under the Agreement.] If such
event occurs when CPS is the Servicer, or, if
CPS resigns as Servicer or is terminated as
Servicer by the [Credit Enhancer], [ ] (in
such capacity, the "Standby Servicer"), has
agreed to serve as successor Servicer under
the Agreement pursuant to a Servicing
Assumption Agreement dated as of [ ], 199[ ]
among CPS, the Standby Servicer and the
Trustee (the "Servicing Assumption
Agreement"). The Standby Servicer will
receive a portion of the Servicing Fee (the
"Standby Fee") for agreeing to stand by as
successor Servicer and for performing other
functions. If the Standby Servicer or any
other entity serving at the time as Standby
Servicer becomes the successor Servicer, it
will receive compensation at a Servicing Fee
Rate not to exceed [ ]% per annum. See
"Standby Servicer" in this Prospectus
Supplement.
Servicing Fee..................... The Servicer will be entitled to receive a
Servicing Fee on each Distribution Date equal
to the product of one-twelfth times [ ]% (the
"Servicing Fee Rate") of the Pool Balance as
of the close of business on the last day of
the second preceding Collection Period;
provided, however, that with respect to the
first Distribution Date the Servicer will be
entitled to receive a Servicing Fee equal to
the product of one-twelfth times [ ]% of the
Pool Balance as of the close of business on
the Cutoff Date. As additional servicing
compensation, the Servicer will also be
entitled to certain late fees, prepayment
charges and other administrative fees or
similar charges. For so long as CPS is
Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to
the Standby Servicer.
Optional Purchase................. The Servicer may at its option purchase all
the Receivables as of the last day of any
month on or after which the aggregate
principal balance of the Receivables is equal
to 10% or less of the Original Pool Balance,
at a purchase price equal to the aggregate
principal balance of the Receivables, plus
accrued interest at the respective APRs;
provided that the Servicer's right to
exercise such option will be subject to the
prior approval of the [Credit Enhancer], but
only if, after giving effect thereto, a claim
under the [Credit Enhancement] would occur or
any amount owing to the [Credit Enhancer] or
the holders of the Class A Certificates would
remain unpaid.
Certain Legal Aspects of
the Receivables; Purchase
Obligations....................... In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the Receivables
will be assigned by CPS to the Seller
pursuant to the Purchase Agreement and by the
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Seller to the Trustee pursuant to the
Agreement. Due to the administrative burden
and expense, the certificates of title to the
Financed Vehicles will not be amended or
re-issued to reflect the assignment thereof
to the Trustee. In the absence of such an
amendment, the Trustee may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states. The Seller will be obligated to
purchase any Receivable sold to the Trust as
to which there did not exist on the Closing
Date a perfected security interest in the
name of the Seller in the Financed Vehicle,
and the Servicer will be obligated to
purchase any Receivable sold to the Trust as
to which it failed to maintain a perfected
security interest in the name of CPS in the
Financed Vehicle securing such Receivable
(which perfected security interest has been
assigned to, and is for the benefit of, the
Trustee) if, in either case, such breach
materially and adversely affects the interest
of the Trust, the Trustee or the [Credit
Enhancer] in such Receivable and if such
failure or breach is not cured by the last
day of the second (or, if CPS or the
Servicer, as the case may be, elects, the
first) month following the discovery by or
notice to CPS or the Servicer, as the case
may be, of such breach. To the extent the
security interest of CPS is perfected, the
Trustee will have a prior claim over
subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected
security interests. However, as against liens
for repairs of a Financed Vehicle or for
unpaid storage charges or for taxes unpaid by
an Obligor under a Receivable, or through
fraud, forgery or negligence or error, CPS,
and therefore the Trust could lose its prior
perfected security interest in a Financed
Vehicle. Neither CPS nor the Servicer will
have any obligation to purchase a Receivable
as to which a lien for repairs of a Financed
Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the
priority of the security interest in such
Financed Vehicle after the Closing Date. See
"Risk Factors -- Certain Legal Aspects" in
this Prospectus Supplement.
Book-Entry
Certificates...................... The Certificates initially will be
represented by certificates registered in the
name of Cede & Co. ("Cede") as the nominee of
The Depository Trust Company ("DTC"), and
will only be available in the form of
book-entries on the records of DTC and
participating members thereof. Certificates
representing the Certificates will be issued
in definitive form only under the limited
circumstances described herein. All
references herein to "holders" or
"Certificateholders" shall reflect the rights
of beneficial owners of the Certificates
("Certificate Owners") as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein. See "Risk
Factors" and "The Certificates-- Registration
of Certificates" in this Prospectus
Supplement and "[Description or the
Securities-- Book-Entry Registration]" in the
Prospectus.
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Tax Status........................ In the opinion of special tax counsel to the
Seller, the Trust will be classified for
federal income tax purposes as a grantor
trust and not as an association taxable as a
corporation. Certificateholders must report
their respective allocable shares of income
earned on Trust Assets (other than any
amounts treated as "stripped coupons") and,
subject to certain limitations applicable to
individuals, estates and trusts, may deduct
their respective allocable shares of
reasonable servicing and other expenses. See
"Certain Federal Income Tax Consequences" in
this Prospectus Supplement. Prospective
investors should note that no rulings have
been or will be sought from the Internal
Revenue Service (the "Service") with respect
to any of the federal income tax consequences
discussed herein, and no assurance can be
given that the Service will not take contrary
positions. See "Certain Federal Income Tax
Consequences" in this Prospectus Supplement.
ERISA Considerations.............. As described herein, the Class A Certificates
may be purchased by employee benefit plans
that are subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"). Any benefit plan fiduciary
considering the purchase of Class A
Certificates should, among other things,
consult with its counsel in determining
whether all required conditions have been
satisfied.
The Class B Certificates may not be sold or
transferred to any employee benefit plan
under Section 3(3) of ERISA which is subject
to Title I of ERISA or comparable provisions
of state law, or Section 4975 of the Internal
Revenue Code of 1986, as amended ("Code"), or
any fund, account or other entity deemed to
hold assets of any such plan. Such plans,
funds, accounts or other entities will herein
be referred to collectively as "Employee
Plans".
The foregoing restriction on Employee Plans,
however, for purposes of this offering will
not apply to prevent the initial sale of the
Class B Certificates to an insurance company,
insurance service, or insurance organization
that is qualified to do business in a state
(an "Insurer") and that purchases Class B
Certificates with funds held in one or more
of its general accounts, provided that
certain conditions are met. None of the
Servicer, the Seller, the Trustee, the
[Credit Enhancer], nor any of their
respective affiliates makes any
representations or express any opinion as to
whether an Insurer constitutes an Employee
Plan.
Fiduciaries of Employee Plans are required to
discharge their duties, including, without
limitation, their duty to invest "plan
assets", in accordance with the fiduciary
standards of ERISA. In addition, a fiduciary
may not engage or cause the Employee Plan to
engage in a "prohibited transaction" under
Section 406 of ERISA and Section 4975 of the
Code. If an Insurer is determined to be an
Employee Plan under ERISA or to be a
fiduciary with respect to Employee Plan
assets, the purchase of Class B
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Certificates with "plan assets" would be
subject to these fiduciary requirements.
Insurers contemplating purchasing Class B
Certificates should consult their counsel
before making a purchase. See "ERISA
Considerations" in this Prospectus
Supplement.
Rating of the Certificates........ It is a condition of issuance that the Class
A Certificates be rated [investment grade by
at least one nationally recognized rating
agency.] A security rating is not a
recommendation to buy, sell or hold
securities and may be revised or withdrawn at
any time by the assigning Rating Agency.
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RISK FACTORS
Prospective Certificateholders should consider the following factors, as
well as those matters discussed in "Risk Factors" in the Prospectus, in
connection with the purchase of the Certificates:
Subordination of Class B Certificates
Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to interest due on the Class A Certificates.
Distributions of principal on the Class B Certificates will be subordinated in
priority of payment to interest and principal due on the Class A Certificates.
Accordingly, the Class A Certificates will, if necessary, receive the benefit of
amounts otherwise due on the Class B Certificates as credit enhancement. Funds
representing the interest of the Class B Certificateholders in the Trust Assets
will be applied first to the payment of any amounts due to the Class A
Certificateholders on account of the Class A Interest Distributable Amount and
any Class A Interest Carryover Shortfall before any portion thereof is paid to
the Class B Certificateholders and funds otherwise due to pay principal of the
Class B Certificates will be applied first to the payment of the Class A
Principal Distributable Amount and any Class A Principal Carryover Shortfall
before any portion thereof is paid to the Class B Certificateholders. See "The
Certificates -- Distributions on Certificates" in this Prospectus Supplement.
Nature of Obligors; Servicing
CPS purchases loans originated for assignment to CPS through automobile
dealers. CPS services its dealers through a network of independent marketing
representatives. CPS's customers are generally considered to have marginal
credit and fall into one of two categories: customers with moderate income,
limited assets and other income characteristics which cause difficulty in
borrowing from banks, captive finance companies of automakers or other
traditional sources of auto loan financing; and customers with a derogatory
credit record including a history of irregular employment, previous bankruptcy
filings, repossessions of property, charged-off loans and garnishment of wages.
The payment experience on Receivables of Obligors with marginal credit is likely
to be different than that on receivables of traditional auto financing sources
and is likely to be more sensitive to changes in the economic climate in the
areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If an Event of Default occurs and CPS is removed as Servicer, or, if
CPS resigns or is terminated by the [Credit Enhancer] as Servicer, the Standby
Servicer has agreed to assume the obligations of successor Servicer under the
Agreement. See "The Certificates -- Rights Upon Event of Default" in this
Prospectus Supplement. There can be no assurance, however, that collections with
respect to the Receivables will not be adversely affected by any change in
Servicer. See "Standby Servicer" in this Prospectus Supplement.
The Agreement provides that the rights and obligations of the Servicer
terminate after 90 days unless renewed by the [Credit Enhancer] for successive
90-day periods. The [Credit Enhancer] will agree to grant continuous renewals so
long as (i) no Event of Default under the Agreement has occurred and (ii) no
event of default under the insurance and indemnity agreement among CPS, the
Seller and the [Credit Enhancer] (the "[Enhancement Agreement]") has occurred.
Geographic Concentration
As of the Cutoff Date, [ ]% of the Receivables by Principal Balance
had Obligors residing in the State of California. Economic conditions in the
State of California may affect the delinquency,
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<PAGE>
loan loss and repossession experience of the Trust with respect to the
Receivables. See "The Receivables Pool" in this Prospectus Supplement.
Ratings of the Certificates
It is a condition to the issuance of the Certificates that [they be rated
investment grade by a nationally recognized rating agency]. A rating is not a
recommendation to purchase, hold or sell the Certificates, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The Rating Agencies do not evaluate, and the ratings do not address,
the possibility that Certificateholders may receive a lower than anticipated
yield. There is no assurance that a rating will remain for any given period of
time or that a rating will not be lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the future so warrant. [The ratings
of the Class A Certificates are based primarily on the rating of the [Credit
Enhancer]. Upon an [Enhancement Default] the rating on the Class A Certificates
may be lowered or withdrawn entirely.] In the event that any rating initially
assigned to the Class A Certificates were subsequently lowered or withdrawn for
any reason, including by reason of a downgrading of the [Credit Enhancer], no
person or entity will be obligated to provide any additional credit enhancement
with respect to the Class A Certificates. Any reduction or withdrawal of a
rating may have an adverse effect on the liquidity and market price of the Class
A Certificates.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Trustee on behalf of the
Certificateholders. The Certificates represent interests solely in the Trust and
the Certificates will not be insured or guaranteed by the Seller, the Servicer,
the Trustee or any other person or entity [except as described herein].
Distributions of interest and principal on the Class A Certificates will be
dependent primarily upon collections on the Receivables and amounts paid
pursuant to the [Credit Enhancement]. The Class B Certificateholders will not
receive any distributions of interest or principal with respect to a Monthly
Period until the full amount of interest and principal on the Class A
Certificates relating to such Monthly Period and any related Class A Interest
and Principal Carryover Shortfall has been funded. See "The Certificates --
Distributions on Certificates" in this Prospectus Supplement.
Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although CPS
has calculated and presented herein its net loss experience with respect to its
servicing portfolio, there can be no assurance that the information presented
will reflect actual experience with respect to the Receivables. In addition,
there can be no assurance that the future delinquency or loan loss experience of
the Trust with respect to the Receivables will be better or worse than that set
forth herein with respect to CPS's servicing portfolio. See "CPS's Automobile
Contract Portfolio -- Delinquency and Loss Experience" in this Prospectus
Supplement.
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FORMATION OF THE TRUST
The Seller and CPS will establish the Trust by selling and assigning the
Receivables and the other Trust Assets [(other than the Credit Enhancement)] to
the Trustee in exchange for the Certificates. Prior to such sale and assignment,
the Trust will have no assets or obligations or any operating history. The Trust
will not engage in any business. The Trust will hold the Receivables, issue the
Certificates and distribute payments on the Certificates.
The Servicer will initially service the Receivables pursuant to the
Agreement and will be compensated for acting as the Servicer. See "The
Certificates - Servicing Compensation" in this Prospectus Supplement. The
Trustee will be appointed custodian for the Receivables and the certificates of
title relating to the Financed Vehicles, and the Receivables and such
certificates of title will be delivered to and held in physical custody by the
Trustee. However, the Receivables will not be marked or stamped to indicate that
they have been sold to the Trust, and the certificates of title of the Financed
Vehicles will not be endorsed or otherwise amended to identify the Trust as the
new secured party. In the absence of amendments to the certificates of title,
the Trustee may not have perfected security interests in the Financed Vehicles
securing the Receivables originated in some states. See "Certain Legal Aspects
of the Receivables" in the Prospectus.
The Trust will not acquire any assets other than the Trust Assets, and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Assets, issuing the Certificates and distributing payments on
the Certificates, no historical or pro forma financial statements or ratios of
earnings to fixed charges with respect to the Trust have been included herein.
The Seller also will take such steps as are necessary for the [Credit
Enhancer] to issue the [Credit Enhancement] to the Trustee for the benefit of
the Class A Certificateholders. In the event of an [Enhancement Default], the
Class A Certificateholders must rely on amounts, if any, available in the Spread
Account, the amount otherwise due on the Class B Certificates, the Obligors on
the Receivables, and the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables. In such event, certain factors,
such as the Trustee's not having perfected security interests in some of the
Financed Vehicles, may affect the Trust's ability to realize on the collateral
securing the Receivables and thus may reduce the proceeds to be distributed to
Class A Certificateholders on a current basis. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
THE TRUST ASSETS
Each Certificate will represent a fractional undivided interest in the
Trust, other than interest received by the Trust in excess of the Class A
Pass-Through Rate or the Class B Pass-Through Rate, as applicable. The Trust
Assets include retail installment sale contracts between dealers (the "Dealers")
in new and used automobiles, light trucks, vans and minivans and retail
purchasers (the "Obligors") and, with respect to Rule of 78's Receivables,
certain monies due thereunder after the Cutoff Date, and, with respect to Simple
Interest Receivables, certain monies received thereunder after the Cutoff Date.
The Receivables were originated by the Dealers for assignment to CPS. Pursuant
to agreements between the Dealers and CPS ("Dealer Agreements"), the Receivables
were purchased by CPS and, prior to the Closing Date, evidenced financing made
available by CPS to the Obligors. The Trust Assets also include (i) such amounts
as from time to time may be held in one or more trust accounts established and
maintained by the Trustee pursuant to the Agreement, as described below; see
"The Certificates - Accounts"; (ii) the rights of the Seller under the Purchase
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Agreement; (iii) security interests in the Financed Vehicles; (iv) the rights of
the Seller to receive any proceeds with respect to the Receivables from claims
on physical damage, credit life and credit accident and health insurance
policies covering the Financed Vehicles or the Obligors, as the case may be; (v)
the rights of the Seller to refunds for the costs of extended service contracts
and to refunds of unearned premiums with respect to credit life and credit
accident and health insurance policies covering the Financed Vehicles or
Obligors, as the case may be; and (vi) any and all proceeds of the foregoing.
The Trust Assets also will include the [Credit Enhancement] for the benefit of
the Class A Certificateholders. The Payahead Account will be maintained with the
Trustee for the benefit of the Obligors, but will not be part of the Trust.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial Services,
Inc., a consumer loan servicing company, whose assets consisted primarily of
servicing contracts with respect to loan portfolios owned by third parties. G&A
Financial Services, Inc. has subsequently been dissolved. On September 1, 1991,
CPS was engaged to act as a servicer for loan portfolios aggregating $16.5
million by two companies who had purchased such portfolios from the Resolution
Trust Corp. As of December 31, 1994, CPS had terminated all such third-party
servicing arrangements. On October 1, 1991, CPS began its program of purchasing
Contracts from Dealers and selling them to institutional investors. Through
March 31, 1996, CPS had purchased $450.2 million of Contracts from Dealers and
sold $391.6 million of Contracts to institutional investors. CPS continues to
service all of the Contracts it has purchased, including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 1,200
dealerships located in 32 states of the United States. CPS purchases Contracts
from Dealers at a discount ranging from 0% to 10% of the total amount financed
under the Contracts. In addition, CPS generally charges Dealers an acquisition
fee to defray the direct administrative costs associated with the processing of
Contracts that are ultimately purchased by CPS. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them. Prior
to the issuance of the Certificates, Contracts have been sold to institutional
investors either as bulk sales or as private placements of securities
collateralized by the Contracts. Purchasers of the Contracts receive a pass-
through rate of interest set at the time of the sale, and CPS receives a base
servicing fee for its duties relating to the accounting for and collection of
the Contracts. In addition, CPS is entitled to certain excess servicing fees
that represent collections on the Contracts in excess of those required to pay
principal and interest due to the investor and the base servicing fee to CPS.
Generally, CPS sells the Contracts to such institutional investors at face value
and without recourse except that the representations and warranties made to CPS
by the Dealers are similarly made to the investors by CPS. CPS has some credit
risk with respect to the excess servicing fees it receives in connection
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with the sale of Contracts to investors and its continued servicing function
since the receipt by CPS of such excess servicing fees is dependent upon the
credit performance of the Contracts.
The principal executive offices of CPS are located at 2 Ada, Suite 100,
Irvine, California 92718. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under three programs: the CPS standard
program (the "Standard Program"), the CPS Alpha Program (the "Alpha Program")
and the CPS Delta Program (the "Delta Program"). CPS applies underwriting
standards in purchasing loans on new and used vehicles from Dealers based upon
the particular program under which the loan was submitted for purchase. The
Alpha Program guidelines are designed to accommodate applicants who meet all the
requirements of the Standard Program and exceed such requirements in respect of
job stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. CPS uses
the degree of the applicant's creditworthiness and the collateral value of the
financed vehicle as the basic criteria in determining whether to purchase an
installment sales contract from a Dealer. Each credit application provides
current information regarding the applicant's employment and residence history,
bank account information, debts, credit references, and other factors that bear
on an applicant's creditworthiness. Upon receiving from the Dealer the completed
application of a prospective purchaser and a one-page Dealer summary of the
proposed financing, generally by facsimile copy, CPS obtains a credit report
compiling credit information on the applicant from three credit bureaus. The
credit report summarizes the applicant's credit history and paying habits,
including such information as open accounts, delinquent payments, bankruptcy,
repossessions, lawsuits and judgments. At this point a CPS loan officer will
review the credit application, Dealer summary and credit report and will either
conditionally approve or reject the application. Such conditional approval or
rejection by the loan officer usually occurs within one business day of receipt
of the credit application. The loan officer determines the conditions to his or
her approval of a credit application based on many factors such as the
applicant's residential situation, downpayment, and collateral value with regard
to the loan, employment history, monthly income level, household debt ratio and
the applicant's credit history. Based on the stipulations of the loan officer,
the Dealer and the applicant compile a more complete application package which
is forwarded to CPS and reviewed by a processor for deficiencies. As part of
this review, references are checked, direct calls are made to the applicant and
employment income and residence verification is done. Upon the completion of his
or her review, the processor forwards the application package to an underwriter
for further review. The underwriter will confirm the satisfaction of any
remaining deficiencies in the application package. Finally, before the loan is
funded, the application package is checked for deficiencies again by a loan
review officer. CPS conditionally approves approximately 50% of the credit
applications it receives and ultimately purchases approximately 20% of the
received applications.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, 110% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum downpayment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The downpayment may be made in cash,
and/or with a trade-in car and, if
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available, a proven manufacturer's rebate. The cash and trade-in value must
equal at least 50% of the minimum downpayment required, with the proven
manufacturer's rebate constituting the remainder of the downpayment. CPS
believes that the relatively high downpayment requirement will result in higher
collateral values as a percentage of the amount financed and the selection of
buyers with stronger commitment to the vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
cancelled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Servicing and Collections
CPS's servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of loans owned or
originated by third parties, consist of collecting, accounting for and posting
of all payments received with respect to such Contracts or loans, responding to
borrower inquiries, taking steps to maintain the security interest granted in
the Financed Vehicle or other collateral, investigating delinquencies,
communicating with the borrower, repossessing and liquidating collateral when
necessary, and generally monitoring each Contract or loan and related
collateral. CPS maintains sophisticated data processing and management
information systems to support its Contract and loan servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by a loan portfolio owner for CPS's services, CPS mails to
borrowers monthly billing statements directing them to mail payments on the
Contracts or loans to a lock-box account which is unique for each investor or
portfolio owner. CPS engages an independent lock-box processing agent to
retrieve and process payments received in the lock-box account. This results in
a daily deposit to the investor or portfolio owner's account of the day's
lock-box account receipts and a simultaneous electronic data transfer to CPS of
the borrower payment data for posting to CPS's computerized records. Pursuant to
the various servicing agreements with each investor or portfolio owner, CPS is
required to deliver monthly reports reflecting all transaction activity with
respect to the Contracts or loans.
S-20
<PAGE>
If an account becomes six days past due, CPS's collection staff typically
attempts to contact the borrower with the aid of a high-penetration auto-dialing
computer. A collection officer tries to establish contact with the customer and
obtain a promise by the customer to make the overdue payment within seven days.
If payment is not received by the end of such seven-day period, the customer is
called again through the auto dialer system and the collection officer attempts
to elicit a second promise to make the overdue payment within seven days. If a
second promise to make the overdue payment is not satisfied, the account
automatically is referred to a supervisor for further action. In most cases, if
payment is not received by the tenth day after the due date, a late fee of
approximately 5% of the delinquent payment is imposed. If the customer cannot be
reached by a collection officer, a letter is automatically generated and the
customer's references are contacted. Field agents (who are independent
contractors) often make calls on customers who are unreachable or whose payment
is thirty days or more delinquent. A decision to repossess the vehicle is
generally made after 30 to 45 days of delinquency or three unfulfilled promises
to make the overdue payment. Other than granting such limited extensions as are
described under the heading "The Certificates -- Servicing Procedures", CPS does
not modify or rewrite delinquent Contracts.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Loans were first originated under the Delta Program in August 1994 and
under the Alpha Program in April 1995. CPS has found that the delinquency and
net credit loss and repossession experience with respect to the Delta Program is
comparable to that under its Standard Program. CPS has not yet experienced any
losses under the Alpha Program, but expects that the delinquency and net credit
loss and repossession experience with respect to the Alpha Program will be lower
than that experienced under the Standard Program. There can be no assurance,
however, that the delinquency and net credit loss and repossession experience on
the Receivables will continue to be comparable to CPS's experience shown in the
following tables.
S-21
<PAGE>
<TABLE>
<CAPTION>
Consumer Portfolio Services, Inc.
Delinquency Experience
December 31, 1992 December 31, 1993
----------------------------------------------- ----------------------------------------------
Number of Loans Amount Number of Loans Amount
--------------- ------ --------------- ------
<S> <C> <C> <C> <C>
Portfolio(1) 1,480 22,494,000 4,224 60,725,000
Period of Delinquency(2)
31-60 11 165,000 54 806,000
61-90 3 39,000 11 182,000
91+ 5 70,000 10 167,000
--------------------------------------------------------------------------------------------------
Total Delinquencies 19 274,000 75 1,155,000
Amount in Repossession(3) 15 206,000 44 595,000
--------------------------------------------------------------------------------------------------
Total Delinquencies and 34 480,000 119 1,750,000
Amount in Repossession(4)
==================================================================================================
Delinquencies as a Percent 1.28% 1.22% 1.78% 1.90%
of the Portfolio
Repo Inventory as a Percent 1.01% 0.92% 1.04% 0.98%
of the Portfolio
Total Delinquencies and 2.30% 2.13% 2.82% 2.88%
Amount in Repossession as
a Percent of Portfolio
<CAPTION>
December 31, 1994 December 31, 1995
------------------------------------------------ -------------------------------------------
Number of Loans Amount Number of Loans Amount
--------------- ------ --------------- ------
<S>
Portfolio(1) <C> <C> <C> <C>
14,235 203,879,000 27,113 355,965,000
Period of
Delinquency(2)
31-60
243 3,539,000 909 11,520,000
61-90
68 1,091,000 203 2,654,000
91+
56 876,000 272 3,899,000
--------------------------------------------------------------------------------------------------
Total Delinquencies 367 5,506,000 1,384 18,073,000
Amount in Repossession(3) 271 3,759,000 834 10,151,000
--------------------------------------------------------------------------------------------------
Total Delinquencies and 638 9,265,000 2,218 28,224,000
Amount in Repossession(4)
==================================================================================================
Delinquencies as a Percent 2.58% 2.70% 5.10% 5.08%
of the Portfolio
Repo Inventory as a Percent 1.90% 1.84% 3.08% 2.85%
of the Portfolio
Total Delinquencies and 4.48% 4.54% 8.18% 7.93%
Amount in Repossession as
a Percent of Portfolio
</TABLE>
(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 all Contracts
originated by CPS including sold Contracts CPS continues to service.
(2) CPS considers a Contract delinquent when an obligor fails to make at least
90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually past
due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
S-22
<PAGE>
<TABLE>
<CAPTION>
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31,
1992 1993 1994 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average Amount Outstanding $ 8,446,675 $ 29,440,272 $ 98,916,991 $ 221,926,489
During the Period (1)
Average Number of Loans 805 2,762 9,171 20,809
Outstanding During the Period
Number of Repossessions 39 177 669 2,018
Gross Charge-Offs (2) $ 164,782 $ 954,704 $ 3,166,408 $ 11,658,461
Recoveries (3) $ 9,563 $ 60,963 $ 347,519 $ 1,028,378
Net Losses $ 155,219 $ 893,741 $ 2,818,889 $ 10,630,083
Repossessions as a Percentage of 4.84% 6.41% 7.29% 9.70%
Average Number of Loans
Outstanding
Net Losses as a Percentage of 1.84% 3.04% 2.85% 4.79%
Average Amount Outstanding
</TABLE>
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Contract. The information in the table represents all
Contracts originated by CPS including sold Contracts which CPS continues to
service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and may
pertain to charge offs from prior periods.
S-23
<PAGE>
THE RECEIVABLES POOL
The Receivables Pool existing as of the Cutoff Date consists of Receivables
selected from CPS's Portfolio by several criteria, including the following: each
Receivable was originated, based on the billing address of the Obligors, in the
United States, has an original term of not more than [ ] months, provides for
level monthly payments which fully amortize the amount financed over the
original term (except for the last payment, which may be different from the
level payment for various reasons, including late or early payments during the
term of the Contract), has a remaining maturity of [ ] months or less as of the
Cutoff Date, has an outstanding principal balance of not more than $[ ], is not
more than 30 days past due as of the Cutoff Date and has an APR of not less than
[ ]%. On the Cutoff Date, as of the date of each Obligor's application for the
loan from which the related Receivable arises, each Obligor (i) did not have any
material past due credit obligations or any repossessions or garnishments of
property within one year prior to the date of application, unless such amounts
have been repaid or discharged through bankruptcy, (ii) was not the subject of
any bankruptcy or insolvency proceeding that is not discharged, and (iii) had
not been the subject of more than one bankruptcy proceeding. As of the Cutoff
Date, the latest scheduled maturity of any Receivable is not later than [ ],
200[ ].
As of the Cutoff Date, approximately [ ]% of the aggregate principal
balance of the Receivables Pool, constituting [ ]% of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables Pool
represents financing of new vehicles. Approximately [ ]% of the aggregate
principal balance of the Receivables were originated under the Delta Program and
approximately [ ]% of the aggregate principal balance of the Receivables were
originated under the Alpha Program; the remainder of the Receivables represent
financing under the Standard Program. The composition, geographic distribution,
distribution by APR, and distribution by remaining term of the Receivables as of
the Cutoff Date are set forth in the following tables.
<TABLE>
<CAPTION>
Composition of the Receivables as of the Cutoff Date
Aggregate Number of Average Weighted Weighted
Weighted Average APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
-------------- ------- ------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C>
[ ]% $[ ] [ ] $[ ] [ ] mos. [ ] mos.
</TABLE>
S-24
<PAGE>
Geographic Distribution of the Receivables as of the Cutoff Date
<TABLE>
<CAPTION>
Percent of
Percent of Aggregate Aggregate
Number of Number of Principal Principal
State(1) Receivables Receivables Balance Balance
- -------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C>
All Others(2)
----------- ----------- ----------- ----------
TOTAL 100.00%(3) 100.00%(3)
====== ======
</TABLE>
- -------------------------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the Aggregate Principal Balance as
of the Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
S-25
<PAGE>
Distribution of the Receivables by APR as of the Cutoff Date
<TABLE>
<CAPTION>
Percent of Percent of
APR Number of Number of Aggregate Aggregate
Range Receivables Receivables Principal Balance Principal Balance
- ----- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
15.00% to
15.99%
16.00% to
16.99%
17.00% to
17.99%
18.00% to
18.99%
19.00% to
19.99%
20.00% to
20.99%
21.00% to
21.99%
22.00% to
22.99%
23.00% to
23.99%
24.00% to
24.99%
25.00% to
25.99%
26.00% and ---------------- ---------------- ---------------- ----------------
over
TOTAL 100.00%(1) 100.00%(1)
====== ======
</TABLE>
- -------------
(1) Percentages may not add up to 100% because of rounding.
S-26
<PAGE>
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
<TABLE>
<CAPTION>
Percent of
Remaining Term to Percent Aggregate
Scheduled Number of of Number of Aggregate Principal
Maturity Receivables Receivables Principal Balance Balance
-------- ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C>
16-20 months
21-25 months
26-30 months
31-35 months
36-40 months
41-45 months
46-50 months
51-55 months
56-60 months ------------ ---------- -------------- ----------
TOTAL 100.00%(1) 100.00%(1)
====== ======
</TABLE>
- ---------------
(1) Percentages may not add up to 100% because of rounding.
S-27
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Model Year of Financed Vehicle as of the Cutoff Date
Percent of
Aggregate
Number of Percent of Aggregate Principal
Model Year Receivables Number of Receivables Principal Balance Balance
- ---------- ----------- --------------------- ----------------- -------
<S> <C> <C> <C> <C>
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996 ------------ --------------- --------------- ----------
TOTAL 100.00%(1) 100.00%(1)
====== ======
</TABLE>
- ---------------
(1) Percentages may not add up to 100% because of rounding.
S-28
<PAGE>
<TABLE>
Distribution of Receivables by Original Principal Balance as of the Cutoff Date
<CAPTION>
Percent of
Aggregate Aggregate
Range of Original Number of Percent of Principal Principal
Principal Balances Receivables Number of Receivables Balance Balance
- ------------------ ----------- --------------------- ------- -------
<S> <C> <C> <C> <C>
$0 - 4,999
5,000 - 9,999
10,000 - 14,999
15,000 - 19,999
20,000 - 24,999
25,000 and above ----------- --------------------- --------- ----------
TOTAL 100.00%(1) 100.00%(1)
====== ======
</TABLE>
- ---------------
(1) Percentages may not add up to 100% because of rounding.
S-29
<PAGE>
As of the Cutoff Date, approximately [ ]% of the Receivables in the
Receivables Pool provide for allocation of payments according to the "sum of
periodic balances" or "sum of monthly payments" method, similar to the "Rule of
78's" ("Rule of 78's Receivables") and, approximately [ ]% of the Receivables in
the Receivables Pool in the Trust provide for allocation of payments according
to the "simple interest" method ("Simple Interest Receivables"). A Simple
Interest Receivable provides for the amortization of the amount financed under
the Receivable over a series of fixed level monthly payments. Each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the Receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration) of
a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, rather than receive a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining scheduled payments of interest that would have been due under a Simple
Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Certificateholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
On each Distribution Date, interest on the Receivables will be passed
through to the Certificateholders to the extent of thirty (30) days' interest at
the Class A Pass-Through Rate applied to the Class A Certificate Balance on the
last day of the preceding Collection Period and to the Class B
Certificateholders to the extent of thirty (30) days interest at the Class B
Pass-Through Rate applied to the Class B Certificate Balance on the last day of
the preceding Collection Period; provided, however, that on the first
Distribution Date, Certificateholders will be entitled to interest at the Class
A Pass-Through Rate or the Class B Pass-Through Rate, as applicable, on the
original Class A Certificate Balance or Class B Certificate Balance, as
applicable, from the Closing Date through and including [ ], 199[ ]. In the
event of prepayments on Receivables, Certificateholders will nonetheless be
entitled to receive interest for the full month on the Certificates.
S-30
<PAGE>
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles and servicing decisions. See "Risk Factors - Nature of
Obligors; Servicing" in this Prospectus Supplement. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne entirely by the Certificateholders. See also "The Certificates -
Termination" in this Prospectus Supplement regarding the Servicer's option to
purchase the Receivables when the aggregate principal balance thereof is less
than or equal to 10% of the aggregate principal balance as of the Cutoff Date.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal balance
of the Receivables at the end of the preceding Collection Period, after giving
effect to all payments (other than Payaheads) received from Obligors, all
payments and Purchase Amounts remitted by CPS or the Servicer, as the case may
be, all for such Collection Period, all losses realized on Receivables
liquidated during such Collection Period and any Cram Down Losses with respect
to such Receivables. The Pool Balance is computed by allocating payments to
principal and to interest, with respect to Rule of 78's Receivables, using the
constant yield or actuarial method, and with respect to Simple Interest
Receivables, using the simple interest method. The "Class A Pool Factor" is a
seven-digit decimal which the Servicer will compute each month indicating the
Class A Certificate Balance as a fraction of the initial Class A Certificate
Balance. The "Class B Pool Factor" is a seven-digit decimal which the Servicer
will compute each month indicating the Class B Certificate Balance as a fraction
of the initial Class B Certificate Balance. The Class A Pool Factor and the
Class B Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the
Class A Pool Factor and the Class B Pool Factor will decline to reflect
reductions in the Class A Certificate Balance or Class B Certificate Balance, as
applicable. An individual Certificateholder's share of the Class A Certificate
Balance or Class B Certificate Balance, as applicable, is the product of (i) the
original denomination of the Certificateholder's Certificate and (ii) the Class
A Pool Factor or the Class B Pool Factor, as applicable. The Class A Pool Factor
and the Class B Pool Factor will be made available on or about the eighth
business day of each month.
Pursuant to the Agreement, the Certificateholders will receive monthly
reports concerning the payments received on the Receivables, the Pool Balance,
the Class A Pool Factor, the Class B Pool Factor and various other items of
information. Certificateholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest date
permitted by law. See "The Certificates Statements to Certificateholders".
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Certificates will be applied to the purchase of the Receivables from CPS. CPS
will apply the net proceeds received from the Seller to purchase new Contracts
or to repay debt incurred to purchase the Contracts.
S-31
<PAGE>
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was incorporated
in the State of California in June of 1994. The Seller was organized for the
limited purpose of purchasing automobile installment sale contracts from CPS and
transferring such receivables to third parties and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 2 Ada, Suite 100,
Irvine, California 92718; telephone (714) 753-6800. For further information
regarding the Seller and CPS See "The Seller and CPS" in the Prospectus.
STANDBY SERVICER
If CPS is terminated or resigns as Servicer, [ ] (in such capacity,
the "Standby Servicer") will serve as successor Servicer. The Standby Servicer
will receive a fee on each Distribution Date for agreeing to stand by as
successor Servicer and for performing certain other functions. Such fee will be
payable to the Standby Servicer from the Servicing Fee payable to CPS. If the
Standby Servicer, or any other entity serving at the time as Standby Servicer,
becomes the successor Servicer, it will receive compensation at a Servicing Fee
Rate not to exceed [ ]% per annum.
DESCRIPTION OF THE CERTIFICATES
General
Each of the Class A Certificates and the Class B Certificates initially
will be represented by certificates registered in the name of Cede & Co.
("Cede") as the nominee of The Depository Trust Company ("DTC"), and will only
be available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Certificateholders," and to authorized denominations, when used with respect to
the Certificates, shall reflect the rights of beneficial owners of the
Certificates ("Certificate Owners"), and limitations thereof, as they may be
indirectly exercised through DTC and its participating members, except as
otherwise specified herein. See "--Registration of Certificates" below.
In general, it is intended that the Class A Certificateholders receive, on
each Distribution Date, a distribution equal to the Class A Distributable Amount
and that the Class B Certificateholders receive, on each Distribution Date, a
distribution equal to the Class B Distributable Amount, as applicable. See "-
Distributions on Certificates" below.
Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to interest due on the Class A Certificates.
Distributions of principal of the Class B Certificates will be subordinated in
priority of payment to interest and principal due on the Class A Certificates.
Accordingly, the Class A Certificates will receive, if necessary, the benefit of
amounts otherwise owing to the Class B Certificateholders as credit enhancement.
Funds representing the interest of the Class B Certificateholders in the Trust
Assets will be applied first to the payment of any amounts due to the Class A
Certificateholders on account of the Class A Interest Distributable Amount and
any Class A Interest Carryover Shortfall before any portion thereof is paid to
the Class B Certificateholders and funds otherwise due to pay principal of the
Class B Certificates will be applied first to the payment of the Class A
Principal Distributable Amount and any Class A Principal Carryover Shortfall
before any portion thereof is paid to the Class B Certificateholders.
Registration of Certificates
S-32
<PAGE>
Each of the Class A Certificates and the Class B Certificates will
initially be registered in the name of Cede & Co. ("Cede"), the nominee of DTC.
DTC is a limited-purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended. DTC accepts securities for deposit from its
participating organizations ("Participants") and facilitates the clearance and
settlement of securities transactions between Participants in such securities
through electronic book-entry changes in accounts of Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. See "Description of the Securities
- -- Book-Entry Registration" in the Prospectus.
Sale and Assignment of Receivables
On or prior to the Closing Date, CPS will sell and assign pursuant to the
Purchase Agreement to the Seller, without recourse except as provided in the
Purchase Agreement, its entire interest in the Receivables, together with its
security interests in the Financed Vehicles. At the time of issuance of the
Certificates, the Seller will sell and assign to the Trust, without recourse
except as provided in the Agreement, its entire interest in the Receivables,
together with its security interest in the Financed Vehicles. Each Receivable
will be identified in a schedule appearing as an exhibit to the Agreement. The
Trustee will concurrently with such sale and assignment, execute, authenticate,
and deliver the Certificates to the Seller in exchange for the Receivables. The
Seller will sell the Certificates to the Underwriters. See "Underwriting" in
this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the Seller,
among other things, that (i) the information provided with respect to the
Receivables is correct in all material respects; (ii) at the date of issuance of
the Certificates, physical damage insurance covering each Financed Vehicle is in
effect in accordance with CPS's normal requirements; (iii) at the date of
issuance of the Certificates, the Receivables are free and clear of all security
interests, liens, charges, and encumbrances and no offsets, defenses, or
counterclaims against Dealers have been asserted or threatened; (iv) at the date
of issuance of the Certificates, each of the Receivables is or will be secured
by a first-priority perfected security interest in the Financed Vehicle in favor
of CPS; and (v) each Receivable, at the time it was originated, complied and, at
the date of issuance of the Certificates, complies in all material respects with
applicable federal and state laws, including, without limitation, consumer
credit, truth in lending, equal credit opportunity and disclosure laws. As of
the last day of the second (or, if CPS elects, the first) month following the
discovery by or notice to the Seller and CPS of a breach of any representation
or warranty that materially and adversely affects a Receivable, unless the
breach is cured, CPS will purchase such Receivable from the Trust for the
Purchase Amount. The "Purchase Amount" equals the unpaid principal balance owed
by the Obligor plus interest thereon at the respective APR to the last day of
the month of repurchase. The repurchase obligation will constitute the sole
remedy available to the Certificateholders, the [Credit Enhancer] or the Trustee
for any such uncured breach.
On or prior to the Closing Date, the Contracts will be delivered to the
Trustee as custodian, and the Trustee thereafter will maintain physical
possession of the Receivables except as may be necessary for the servicing
thereof by the Servicer. The Receivables will not be stamped to show the
ownership thereof by the Trust. However, CPS's accounting records and computer
systems will reflect the sale and assignment of the Receivables to the Seller,
and Uniform Commercial Code ("UCC") financing statements reflecting such sales
and assignments will be filed. See "Formation of the Trust" in this Prospectus
Supplement and "Certain Legal Aspects of the Receivables" in the Prospectus.
S-33
<PAGE>
Accounts
A segregated lock-box account will be established and maintained with Bank
of America in the name of the Trustee for the benefit of the Certificateholders
and the [Credit Enhancer], into which all payments made by Obligors on or with
respect to the Receivables must be deposited by the Lock-Box Processor (the
"Lock-Box Account"). See "-- Payments on Receivables" below. The Trustee will
also establish and maintain initially with itself one or more accounts, in the
name of the Trustee on behalf of the Certificateholders and the [Credit
Enhancer], into which all amounts previously deposited in the Lock-Box Account
will be transferred within two Business Days of the receipt of funds therein
(the "Collection Account"). Upon receipt, the Servicer will deposit all amounts
received by it in respect of the Receivables in the Lock-Box Account or the
Collection Account. The Trustee will also establish and maintain initially with
itself one or more accounts, in the name of the Trustee on behalf of the
Certificateholders and the [Credit Enhancer], from which all distributions with
respect to the Certificates and payments to the [Credit Enhancer] will be made
(the "Certificate Account"). In addition, the Trustee will establish and
maintain initially with itself one or more accounts, in the name of the Trustee
on behalf of the Obligors, in which early payments with respect to Rule of 78's
Receivables by or on behalf of the Obligors which do not constitute current
scheduled payments, late fees or full repayments will be deposited until such
time as the payment falls due or until such funds are applied to shortfalls in
the scheduled payments with respect to Rule of 78's Receivables (the "Payahead
Account"). Until such time as payments are transferred from the Payahead Account
to the Certificate Account, they will not constitute collected interest or
collected principal, and will not be available for distribution to the
Certificateholders. The Collection Account, Certificate Account and Payahead
Account will be maintained with the Trustee so long as the Trustee's deposits
have a rating acceptable to the [Credit Enhancer] and the Rating Agencies. If
the deposits of the Trustee or its corporate parent no longer have such
acceptable rating, the Trustee shall cause such Accounts to be moved to a bank
acceptable to the [Credit Enhancer]. In addition, the Trustee may transfer the
Payahead Account at any time to any depository bank or trust company which is
acceptable to the [Credit Enhancer].
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Distribution Date, equal to the product of one-twelfth of the Servicing Fee Rate
and the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Distribution Date, the Servicing Fee will equal the product of one-twelfth of
the Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the
"Servicing Fee"). So long as CPS is Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to the Standby Servicer for agreeing
to stand by as successor Servicer and for performing certain other functions. If
the Standby Servicer, or any other entity serving at the time as Standby
Servicer, becomes the successor Servicer, it will receive compensation at a
Servicing Fee Rate not to exceed [ ]% per annum. See "Standby Servicer" in this
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges and other
administrative fees or similar charges allowed by applicable law with respect to
the Receivables, and will be entitled to reimbursement from the Trust for
certain liabilities. Payments by or on behalf of Obligors will be allocated to
scheduled payments, late fees and other charges and principal and interest in
accordance with the Servicer's normal practices and procedures. The Servicing
Fee will be paid out of collections from the Receivables, prior to distributions
to Certificateholders.
The Servicing Fee and additional servicing compensation will compensate the
Servicer for performing the functions of a third party servicer of automotive
receivables as an agent for their beneficial owner, including collecting and
posting all payments, responding to inquiries of Obligors on the
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Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Trustee and the [Credit
Enhancer] with respect to distributions and generating federal income tax
information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions on Certificates
No later than [ ] a.m., [ ] time, on each Determination Date, the Servicer
will inform the Trustee of the amount of aggregate collections on the
Receivables, and the aggregate Purchase Amount of Receivables to be repurchased
by CPS or to be purchased by the Servicer, in each case, with respect to the
related Collection Period.
On or before each Distribution Date, the Trustee will cause to be
transferred from the Payahead Account to the Certificate Account the amounts
then on deposit in the Payahead Account that constitute scheduled payments due
during the related Collection Period or that may be applied to full prepayments
on the Rule of 78's Receivables.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Interest Distributable Amount, the Class B
Interest Distributable Amount, the Class A Principal Distributable Amount, the
Class B Principal Distributable Amount, the Class A Distributable Amount and the
Class B Distributable Amount.
The "Determination Date" applicable to any Distribution Date will be the
earlier of (i) the seventh business day of the month of such Distribution Date
and (ii) the fifth business day preceding such Distribution Date.
Determination of Total Distribution Amount. The "Total Distribution Amount"
for a Distribution Date (being the funds available for distribution to the
Certificateholders with respect to such Distribution Date in accordance with the
priorities described below) will be the sum of the following amounts with
respect to the preceding Collection Period: (i) all collections on Receivables
(including amounts withdrawn from the Payahead Account but excluding amounts
deposited into the Payahead Account); (ii) all proceeds received during the
Collection Period with respect to Receivables that became Liquidated Receivables
during the Collection Period in accordance with the Servicer's customary
servicing procedures, net of the reasonable expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be remitted
to the Obligor on such Liquidated Receivable ("Liquidation Proceeds") in
accordance with the Servicer's customary servicing procedures; (iii) proceeds
from Recoveries with respect to Liquidated Receivables; and (iv) the Purchase
Amount of each Receivable that was repurchased by CPS or purchased by the
Servicer as of the last day of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been liquidated by
the Servicer through the sale of the Financed Vehicle, or (ii) for which the
related Financed Vehicle has been repossessed and 90 days have elapsed since the
date of such repossession, or (iii) as to which an Obligor has failed to make
more than 90% of a scheduled payment of more than ten dollars for 120 or more
days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as of
the close of business on the last day of Collection Period, required to prepay
in full such Receivable under the terms thereof including interest to the end of
the month of purchase.
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"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Payments received on or prior to such
day allocable to principal using the actuarial or constant yield method; (ii) in
the case of a Simple Interest Receivable, that portion of all Scheduled Payments
actually received on or prior to such day allocable to principal using the
Simple Interest Method; (iii) any payment of the Purchase Amount with respect to
the Receivable allocable to principal; (iv) any Cram Down Loss in respect of
such Receivable; and (v) any prepayment in full or any partial prepayment
applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Payment" means, for any Collection Period for any Receivable,
the amount indicated in such Receivable as required to be paid by the Obligor in
such Collection Period (without giving effect to deferments of payments granted
to Obligors by the Servicer pursuant to the Agreement or any rescheduling of
payments in any insolvency or similar proceedings).
Calculation of Distribution Amounts. The Class A Certificateholders will be
entitled to receive, to the extent funds are available therefor, the "Class A
Distributable Amount" with respect to each Distribution Date. The "Class A
Distributable Amount" with respect to a Distribution Date will be an amount
equal to the sum of:
(i) the "Class A Principal Distributable Amount", consisting of the
Class A Percentage of the following:
(a) the principal portion of all Scheduled Payments received
during the preceding Collection Period on Rule of 78's Receivables and
all payments of principal received on Simple Interest Receivables
during such Collection Period (including amounts withdrawn from the
Payahead Account but excluding amounts deposited into the Payahead
Account);
(b) the principal portion of all prepayments in full received
during the preceding Collection Period, including amounts withdrawn
from the Payahead Account with respect to such Distribution Date but
excluding amounts deposited in the Payahead Account (except to the
extent included in clauses (a) or (d));
(c) the principal balance of each Receivable that was repurchased
by CPS or purchased by the Servicer in each case as of the last day of
the preceding Collection Period and at the option of the [Credit
Enhancer], the Principal Balance of each Receivable that was required
to be but was not so purchased or repurchased (except to the extent
included in (a) and (b) above);
(d) the principal balance of each Liquidated Receivable which
became such during the preceding Collection Period (except to the
extent included in (a) and (b) above); and
(e) the aggregate amount of Cram Down Losses that occurred during
the preceding Collection Period (a "Cram Down Loss" means with respect
to a Receivable, if a court of appropriate jurisdiction in an
insolvency proceeding has issued an order reducing the amount owed on
a Receivable or otherwise modifying or restructuring the Scheduled
Payments to be made on a Receivable, an amount equal to such reduction
in Principal Balance of such Receivable or the net present value
(using as the discount rate the lower of
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the contract rate or the rate of interest specified by the court in
such order) of the Scheduled Payments as so modified; a Cram Down Loss
shall be deemed to have occurred on the date of issuance of such
order)(the amounts set forth in (a) through (e), the "Principal
Distributable Amount"); plus
(ii) the "Class A Interest Distributable Amount", consisting of thirty
(30) days' interest at the Class A Pass-Through Rate on the Class A
Certificate Balance as of the close of business on the last day of the
related Collection Period; provided, however, that on the first
Distribution Date, the Class A Interest Distributable Amount will include
interest from and including the Closing Date through and including [ ],
199[ ].
The Class B Certificateholders will be entitled to receive, to the extent
funds are available therefor, the "Class B Distributable Amount" with respect to
each Distribution Date. The "Class B Distributable Amount" with respect to a
Distribution Date will be an amount equal to the sum of:
(i) the "Class B Principal Distributable Amount", consisting of the
Class B Percentage of the Principal Distributable Amount; plus
(ii) the "Class B Interest Distributable Amount", consisting of thirty
(30) days' interest at the Class B Pass-Through Rate on the Class B
Certificate Balance as of the close of business on the last day of the
related Collection Period; provided, however, that on the first
Distribution Date, the Class B Interest Distributable Amount will include
interest from and including the Closing Date through and including [ ],
199[ ].
On the Final Scheduled Distribution Date, the Class A Principal
Distributable Amount and the Class B Principal Distributable Amount will equal
the then outstanding Class A Certificate Balance and Class B Certificate
Balance, respectively.
Priority of Distribution Amounts. On each Determination Date, the Servicer
will calculate the amount to be distributed to the Certificateholders.
On each Distribution Date, the Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
[(i) to the Servicer, from the Total Distribution Amount, the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
provided, however, that as long as CPS is the Servicer and [ ], is the
Standby Servicer, the Trustee will first pay to the Standby Servicer out of
the Servicing Fee otherwise payable to CPS an amount equal to the Standby
Fee;
(ii) in the event the Standby Servicer becomes the successor Servicer,
to the Standby Servicer, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clause (i)
above), to the extent not previously paid by the predecessor Servicer
pursuant to the Agreement, reasonable transition expenses (up to a maximum
of $[ ]) incurred in acting as successor Servicer;
(iii) to the Trustee, from the Total Distribution Amount (as such
Total Distribution Amount has been reduced by payments pursuant to clauses
(i) and (ii) above), the fees and expenses payable to the Trustee for its
services pursuant to the Agreement (the "Trustee Fee") and reasonable
out-of-pocket expenses of the Trustee, (including counsel fees and
expenses) and all unpaid Trustee Fees and all unpaid reasonable
out-of-pocket expenses (including counsel fees and expenses) from prior
Collection Periods; provided, however, that unless an Event of Default
shall have occurred and be continuing, expenses payable to the Trustee
pursuant to this clause (iii) and
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expenses payable to the collateral agent pursuant to clause (iv) below,
shall be limited to $[ ] per annum;
(iv) to the Collateral Agent, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (iii) above), all fees and expenses payable to the
collateral agent with respect to such Distribution Date;
(v) to the Class A Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class A Interest
Distributable Amount and any Class A Interest Carryover Shortfall as of the
close of the preceding Distribution Date;
(vi) to the Class B Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above) the Class B Interest
Distributable Amount and any Class B Interest Carryover Shortfall as of the
close of the preceding Distribution Date;
(vii) to the Class A Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (vi) above), the Class A Principal
Distributable Amount and any Class A Principal Carryover Shortfall as of
the close of the preceding Distribution Date with respect to each
Distribution Date;
(viii) to the [Credit Enhancer], from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments made
pursuant to clauses (i) through (vii) above), any amounts due to the
[Credit Enhancer] under the terms of the Agreement and under the
[Enhancement Agreement];
(ix) to any successor Servicer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (viii) above) and any amount deposited into the
Collection Account pursuant to the Agreement, to the extent not paid
pursuant to clause (ii) above, reasonable transition expenses (up to a
maximum of $[ ]) incurred in acting as successor Servicer;
(x) to the Class B Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (ix) above) the Class B Principal
Distributable Amount and any Class B Principal Carryover Shortfall as of
the close of the preceding Distribution Date; and
(xi) to the Collateral Agent, for deposit in to the Spread Account,
the remaining Total Distribution Amount, if any.]
The right of the Class B Certificateholders to receive distributions of
interest pursuant to clause (vi) above will be subordinated to the prior payment
in full of all amounts payable pursuant to clauses (i) through (v). The right of
the Class B Certificateholders to receive distributions of principal pursuant to
clause (x) above will be subordinated to the prior payment in full of all
amounts payable pursuant to clauses (i) through (ix).
For purposes hereof, the following terms shall have the following meanings:
"Class A Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Interest Distributable Amount for
such Distribution Date, plus any outstanding Class A Interest Carryover
Shortfall from the preceding Distribution Date, plus interest on such
outstanding Class A
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Interest Carryover Shortfall, to the extent permitted by law, at the Class A
Pass-Through Rate from such preceding Distribution Date through the current
Distribution Date, over the amount of interest that the holders of the Class A
Certificates actually received on such current Distribution Date.
"Class A Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Principal Distributable Amount plus
any outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class A
Certificates actually received on such current Distribution Date.
"Class B Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Interest Distributable Amount for
such Distribution Date, plus any outstanding Class B Interest Carryover
Shortfall from the preceding Distribution Date, plus interest on such
outstanding Class B Interest Carryover Shortfall, to the extent permitted by
law, at the Class B Pass-Through Rate from such preceding Distribution Date
through the current Distribution Date, over the amount of interest that the
holders of the Class B Certificates actually received on such current
Distribution Date.
"Class B Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Principal Distributable Amount plus
any outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class B
Certificates actually received on such current Distribution Date.
On the third business day prior to a Distribution Date, the Trustee will
determine, based on a certificate from the Servicer, whether there are amounts
sufficient, after payment of amounts as set forth in the priorities of
distribution in the Agreement, to distribute the Class A Distributable Amount.
[The Spread Account. The Seller has agreed to cause to be established with
[ ] (in such capacity, the "Collateral Agent") an account (the "Spread Account")
for the benefit of the [Credit Enhancer] and the Trustee on behalf of the Class
A Certificateholders. The Collateral Agent [will] [will not] hold the Requisite
Amount for the benefit of the Class B Certificateholders. Any portion of the
Total Distribution Amount remaining on any Distribution Date after payment of
all fees and expenses due on such date to the Servicer, the Standby Servicer,
the Trustee and the Collateral Agent and all principal and interest payments due
to the Certificateholders on such Distribution Date, will be deposited in the
Spread Account and held by the Collateral Agent for the benefit of the [Credit
Enhancer] and the Trustee on behalf of the Class A Certificateholders. If on any
Distribution Date, the Total Distribution Amount is insufficient (taking into
account the application of the Total Distribution Amount to the payment of the
Class B Interest Distributable Amount and any Class B Interest Carryover
Shortfall) to pay all distributions required to be made on such day pursuant to
priorities (i), (ii), (iii), (iv), (v), (vii), (viii) and (ix) under " --
Priority of Distribution Amounts", then amounts on deposit in the Spread Account
will be applied to pay the amounts due on such Distribution Date pursuant to
such priorities (i), (ii), (iii), (iv), (v), (vii), (viii) and (ix).]
Statements to Certificateholders
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder of record as of the close of business on the
applicable Record Date and each rating agency that is currently rating the
Certificates a statement (prepared by the Servicer) setting forth the following
information with respect to the preceding Collection Period, to the extent
applicable:
[(i) the amount of the distribution allocable to principal of the
Class A Certificates and the Class B Certificates, respectively;
(ii) the amount of the distribution allocable to interest on the Class
A Certificates and the Class B Certificates, respectively;
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(iii) the Pool Balance, the Class A Pool Factor and the Class B Pool
Factor as of the close of business on the last day of the preceding
Collection Period;
(iv) the aggregate Class A Certificate Balance as of the close of
business on the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under (i) above;
(v) the aggregate Class B Certificate Balance as of the close of
business on the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under (i) above;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period and the Class A Percentage and the Class B
Percentage of the Servicing Fee (inclusive of the Standby Fee), the amount
of any unpaid Servicing Fees and the change in such amount from that of the
prior Distribution Date;
(vii) the amount of the Class A Interest Carryover Shortfall, if
applicable, and Class A Principal Carryover Shortfall, if applicable, on
such Distribution Date and the change in such amounts from those on the
prior Distribution Date;
(viii) the amount of the Class B Interest Carryover Shortfall, if
applicable, and Class B Principal Carryover Shortfall, if applicable, on
such Distribution Date and the change in such amounts from those on the
prior Distribution Date;
(ix) the amount paid to the Class A Certificateholders under the
[Credit Enhancement] for such Distribution Date;
(x) the amount distributable to the [Credit Enhancer] on such
Distribution Date;
(xi) the aggregate amount in the Payahead Account and the Spread
Account and the change in such amount from the previous Distribution Date;
(xii) the number of Receivables and the aggregate gross amount
scheduled to be paid thereon, including unearned finance and other charges,
for which the related Obligors are delinquent in making scheduled payments
between 31 and 59 days and 60 days or more; and
(xiii) the number and the aggregate Purchase Amount of Receivables
repurchased by CPS or purchased by the Servicer.]
Each amount set forth pursuant to subclauses (i), (ii), (vi), (vii) and
(viii) above shall be expressed in the aggregate and as a dollar amount per
$1,000 of original principal balance of a Certificate.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Trustee will
mail to each person who at any time during such calendar year shall have been a
Certificateholder and received any payment on such holder's Certificates, a
statement (prepared by the Servicer) containing the sum of the amounts described
in (i), (ii) and (vi) above for the purposes of such Certificateholder's
preparation of federal income tax returns. See "The Certificates -- Statements
to Certificateholders" in this Prospectus Supplement. See "Certain Federal
Income Tax Consequences" in this Prospectus Supplement.
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Evidence as to Compliance
The Agreement will provide that a firm of independent certified public
accountants will furnish to the Trustee and the [Credit Enhancer] on or before
July 31 of each year, beginning [ ], 199[ ], a report as to compliance by the
Servicer during the preceding twelve months ended March 31 with certain
standards relating to the servicing of the Receivables (or in the case of the
first such certificate, the period from the Closing Date to [ ], 199[ ]).
The Agreement will also provide for delivery to the Trustee and the [Credit
Enhancer], on or before July 31 of each year, commencing [ ], 199[ ] of a
certificate signed by an officer of the Servicer stating that the Servicer has
fulfilled its obligations under the Agreement throughout the preceding twelve
months ended March 31 or, if there has been a default in the fulfillment of any
such obligation, describing each such default (or in the case of the first such
certificate, the period from the Cutoff Date to [ ], 199[ ]). The Servicer has
agreed to give the Trustee and the [Credit Enhancer] notice of any Events of
Default under the Agreement.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Trustee.
Certain Matters Regarding the Servicer
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder except upon determination that its
performance of such duties is no longer permissible under applicable law and
with the consent of the [Credit Enhancer]. No such resignation will become
effective until a successor servicer has assumed the servicing obligations and
duties under the Agreement. In the event CPS resigns as Servicer or is
terminated as Servicer, the Standby Servicer has agreed pursuant to the
Servicing Assumption Agreement to assume the servicing obligations and duties
under the Agreement.
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents will be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. In addition,
the Agreement will provide that the Servicer is under no obligation to appear
in, prosecute, or defend any legal action that is not incidental to its
servicing responsibilities under the Agreement and that, in its opinion, may
cause it to incur any expense or liability.
Under the circumstances specified in the Agreement any entity into which
the Servicer may be merged or consolidated, or any entity resulting from any
merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer which corporation or other entity in
each of the foregoing cases assumes the obligations of the Servicer, will be the
successor of the Servicer under the Agreement.
The Servicer is retained for an initial term commencing on the Closing Date
and ending on [ ], 199[ ], which term may be extended in ninety day increments
by the [Credit Enhancer]. In the absence of an Event of Default under the
Agreement, the [Credit Enhancer] has agreed to extend such term. See "The
Certificates -- Certain Matters Regarding the Servicer" in the Prospectus.
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Events of Default
"Events of Default" under the Agreement will consist of (i) any failure by
the Servicer to deliver to the Trustee for distribution to the
Certificateholders any required payment, which failure continues unremedied for
two Business Days, or any failure to deliver to the Trustee the annual
accountants report, the annual statement as to compliance or the statement to
the Certificateholders, in each case, within [ ] days of the date it is due and
which shall comply with the requirements therefor; (ii) any failure by the
Servicer or the Seller, as the case may be, duly to observe or perform in any
material respect any other covenant or agreement in the Agreement which
continues unremedied for [ ] days after the giving of written notice of such
failure (1) to the Servicer or the Seller, as the case may be, by the [Credit
Enhancer] or by the Trustee, or (2) to the Servicer or the Seller, as the case
may be, and to the Trustee and the [Credit Enhancer] by the holders of Class A
Certificates evidencing not less than [ ] of the Class A Certificate Balance or,
after the Class A Certificates have been paid in full and all outstanding
amounts due to the [Credit Enhancer] have been paid in full, by the holders of
Class B Certificates evidencing not less than [ ] of the Class B Certificate
Balance; (iii) certain events of insolvency, readjustment of debt, marshalling
of assets and liabilities, or similar proceedings with respect to the Servicer
or the Seller, or, so long as CPS is Servicer, of any of its affiliates, and
certain actions by the Servicer, the Seller or, so long as CPS is Servicer, of
any of its affiliates, indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations; or (iv) the
occurrence of an Event of Default under the [Enhancement Agreement].
Rights Upon Event of Default
As long as an Event of Default under the Agreement remains unremedied, (x)
provided no [Enhancement Default] shall have occurred and be continuing, the
[Credit Enhancer] in its sole and absolute discretion or (y) if an [Enhancement
Default] shall have occurred and be continuing, then the Trustee or the holders
of Class A Certificates evidencing not less than [ ] of the Class A Certificate
Balance or (z) if the Class A Certificates have been paid in full and either (i)
all outstanding amounts due to the [Credit Enhancer] have been paid in full or
(ii) an [Enhancement Default] shall have occurred and be continuing, then either
the Trustee or the holders of Class B Certificates evidencing not less than [ ]
of the Class B Certificate Balance, may terminate all the rights and obligations
of the Servicer under the Agreement, whereupon the Standby Servicer, or such
other successor Servicer as shall be or have been appointed by the [Credit
Enhancer] (or, if an [Enhancement Default] shall have occurred and be
continuing, by the Trustee or the Class A or Class B Certificateholders, as
described above) will succeed to all the responsibilities, duties and
liabilities of the Servicer under such Agreement; provided, however, that such
successor Servicer shall have no liability with respect to any obligation which
was required to be performed by the predecessor Servicer prior to the date such
successor Servicer becomes the Servicer or the claim of a third party (including
a Certificateholder) based on any alleged action or inaction of the predecessor
Servicer as Servicer.
["[Enhancement Default]" shall mean any one of the following events shall
have occurred and be continuing: (i) the [Credit Enhancer] fails to make a
payment required under the [Credit Enhancement] in accordance with its terms;
(ii) the [Credit Enhancer] (A) files any petition or commences any case or
proceeding under any provision or chapter of the United States Bankruptcy Code
or any other similar federal or state law relating to insolvency, bankruptcy,
rehabilitation, liquidation or reorganization, (B) makes a general assignment
for the benefit of its creditors, or (C) has an order for relief entered against
it under the United States Bankruptcy Code or any other similar federal or state
law relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization which is final and nonappealable; or (iii) a court of competent
jurisdiction or other competent court or regulatory authority enters a final and
nonappealable order, judgment or decree (A) appointing a custodian, trustee,
agent or receiver for the [Credit Enhancer] or for all or any material portion
of its property or (B) authorizing the taking of possession by a custodian,
S-42
<PAGE>
trustee, agent or receiver of the [Credit Enhancer] (or the taking of possession
of all or any material portion of the property of the [Credit Enhancer]).]
Waiver Of Past Defaults
With respect to the Trust, subject to the approval of [the Credit
Enhancer], the holders of Certificates evidencing at least a majority of the
voting rights of such then outstanding Certificates may, on behalf of all
Certificateholders of the related Certificates, waive any default by the
Servicer in the performance of its obligations under the Pooling and Servicing
Agreement and its consequences, except a default in making any required deposits
to or payments from any of the Trust Accounts in accordance with the Pooling and
Servicing Agreement. No such waiver shall impair the Certificateholders' rights
with respect to subsequent defaults.
Termination
The obligations of the Servicer, the Seller and the Trustee pursuant to the
Agreement will terminate upon (i) the maturity or other liquidation of the last
Receivable and the disposition of any amounts received upon liquidation of any
remaining Receivables and (ii) the payment to Certificateholders of all amounts
required to be paid to them pursuant to the Agreement and the expiration of any
preference period related thereto.
In order to avoid excessive administrative expense, the Servicer, or its
successor, is permitted at its option to purchase from the Trust [(with the
consent of the [Credit Enhancer] if such purchase would result in a claim under
the [Credit Enhancement] or any amount owing to the [Credit Enhancer] or on the
Certificates would remain unpaid)], as of the last day of any month as of which
the then outstanding Pool Balance is equal to 10% or less of the original Pool
Balance, all remaining Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of such last day. Exercise of such right will effect
early retirement of the Certificates. The Trustee will give written notice of
termination to each Certificateholder of record. The final distribution to any
Certificateholder will be made only upon surrender and cancellation of such
holder's Certificate at the office or agency of the Trustee specified in the
notice of termination. Any funds remaining with the Trustee, after the Trustee
has taken certain measures to locate a Certificateholder and such measures have
failed, will be distributed to The American Red Cross.
[THE CREDIT ENHANCEMENT]
[Description of the [Credit Enhancement]].
[CREDIT ENHANCER]
[Description of Credit Enhancer]
ERISA CONSIDERATIONS
[Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan subject to ERISA and an individual
retirement account (collectively, "Benefit Plans") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the plan. ERISA also
imposes certain duties and certain prohibitions on persons who are fiduciaries
of plans subject to ERISA. Generally, any person who exercises any authority or
control
S-43
<PAGE>
with respect to the management or disposition of the assets of a plan subject to
ERISA is considered to be a fiduciary of such plan. A violation of these
"prohibited transaction" rules may generate excise tax and other liabilities
under ERISA and the Code.
Pursuant to a regulation issued by the Department of Labor concerning the
definition of what constitutes the "plan assets" of a Benefit Plan, the assets
and properties of certain entities in which a Benefit Plan makes an equity
investment could be deemed to be assets of the Benefit Plan in certain
circumstances. Accordingly, if a Benefit Plan purchases a Certificate, the Trust
could be deemed to hold plan assets. If the assets of the Trust were deemed to
constitute plan assets of a Benefit Plan, the Benefit Plan's investment in the
Certificates might be deemed to constitute delegation under ERISA of the duty to
manage plan assets by the fiduciaries making the decision on behalf of the
Benefit Plan to make the investment, and transactions involving the Trust and
the Trust Assets might be viewed as transactions with the Benefit Plan for the
purpose of ERISA's fiduciary and prohibited transaction rules.
[The Department of Labor has granted [underwriter] an
administrative exemption (Prohibited Transaction Exemption [ ], 59 Fed. Reg.
65,400 (1994)) (the "Exemption") from certain of the prohibited transaction
rules of ERISA with respect to the initial purchase, the purchase in the
secondary market and the holding and the subsequent resale by Benefit Plans of
certificates in certain trusts with respect to which [underwriter] is the sole
underwriter or placement agent or the managing or co-managing underwriter or
placement agent in an underwriting syndicate or selling group and that consist
of certain receivables, loans and other obligations that meet the conditions and
requirements of the Exemption. The obligations covered by the Exemption include
retail installment sale contracts such as the Receivables. The Exemption would
apply to the acquisition, holding and resale of the Class A Certificates by a
Benefit Plan only if specific conditions (certain of which are described below)
are met. It is not clear whether the Exemption applies to participant directed
plans as described in Section 404(c) of ERISA or plans that are subject to
Section 4975 of the Code but that are not subject to Title I of ERISA, such as
certain Keogh plans and certain individual retirement accounts.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by a Benefit Plan of the Class A Certificates are the following:
(1) The acquisition of the Class A Certificates by a Benefit Plan is
on terms (including the price for the Class A Certificates) that are
at least as favorable to the Benefit Plan as they would be in an
arm's-length transaction with an unrelated party;
(2) The rights and interests evidenced by the Class A Certificates
acquired by the Benefit Plan are not subordinated to the rights and
interests evidenced by other certificates of the Trust;
(3) The Class A Certificates acquired by the Benefit Plan have a
rating at the time of such acquisition that is in one of the three
highest generic rating categories from Standard & Poor's Corporation,
Moody's Investors Service, Inc., Duff & Phelps Inc. or Fitch
Investors Service, Inc.;
(4) The sum of all payments made to the Underwriters in connection
with the distribution of the Class A Certificates represents not more
than reasonable compensation for placement of the Class A
Certificates. The sum of all payments made to and retained by the
Seller pursuant to the sale of the Receivables to the Trust
represents not more than the fair market value of such Receivables.
The sum of all payments made to and retained by the Servicer
represents not more than reasonable compensation for the Servicer's
services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith;
(5) The Trustee is not an "affiliate" (as defined in the Exemption)
of the Seller, the Underwriters, the Servicer, the [Credit Enhancer]
or any "obligor" (as defined in the Exemption)
S-44
<PAGE>
with respect to Receivables included in the Trust constituting more
than 5% of the aggregate unamortized principal balance of the assets
in the Trust (including the Trustee, the "Restricted Group");
(6) The Benefit Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D
under the Securities Act; and
(7) The Trust satisfies the following requirements:
(a) the corpus of the Trust consists solely of assets of
the type which have been included in other investment
pools,
(b) certificates in such other investment pools have been
rated in one of the three highest generic rating categories
of Standard & Poor's Corporation, Moody's Investors
Service, Inc., Duff & Phelps Inc. or Fitch Investors
Service, Inc. for at least one year prior to the Benefit
Plan's acquisition of Class A Certificates, and
(c) certificates evidencing interests in such other
investment pools have been purchased by investors other
than Benefit Plans for at least one year prior to any
Benefit Plan's acquisition of Class A Certificates.
The Exemption does not provide an exemption from ERISA Sections
406(a)(1)(E), 406(a)(2) or 407 for the purchase or holding of Class A
Certificates to any person who has discretionary authority or renders investment
advice to Benefit Plans sponsored by any member of the Restricted Group or any
affiliate of such person.]
Exemptive relief from the self-dealing/conflict of interest prohibited
transaction rules of ERISA is available to an obligor acting as a fiduciary with
respect to the investment of a Benefit Plan's assets in the Class A Certificates
(or such person's affiliate) only if, among other requirements (i) such
fiduciary (or its affiliate) is an obligor with respect to 5% percent or less of
the fair market value of the Trust Assets, (ii) a Benefit Plan's investment in
Class A Certificates does not exceed 25% of all of the Class A Certificates
outstanding at the time of the acquisition, (iii) immediately after the
acquisition, no more than 25% of the assets of the Benefit Plan are invested in
certificates representing an interest in trusts (including the Trust) containing
assets sold or serviced by the same entity, and (iv) in the case of the
acquisition of the Class A Certificates in connection with their initial
issuance, at least 50% of the Class A Certificates are acquired by persons
independent of the Restricted Group and at least 50% of the aggregate interest
in the Trust is acquired by persons independent of the Restricted Group.
The Exemption also applies to transactions in connection with the
servicing, management and operation of the Trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding pooling and servicing agreement and
(b) the pooling and servicing agreement is provided to, or described in all
material respects in the prospectus or private placement memorandum provided to,
investing Benefit Plans before their purchase of certificates issued by the
Trust. The Agreement is a pooling and servicing agreement as defined in the
Exemption. All transactions relating to the servicing, management, and
operations of the Trust will be carried out in accordance with the Agreement.
See "The Certificates" in this Prospectus Supplement.
Any Benefit Plan fiduciary considering the purchase of Class A Certificates
should consult with its counsel with respect to the applicability of the
Exemption and other issues and determine on its own whether all conditions have
been satisfied and whether the Certificates are an appropriate investment for a
Benefit Plan under ERISA and the Code. By its purchase of a Class A Certificate,
each Benefit Plan
S-45
<PAGE>
purchaser shall be deemed to represent and warrant that it is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D under the Securities Act,
in accordance with condition (6) above.
The Class B Certificates may not be sold or transferred to a Benefit Plan,
a trustee of any Benefit Plan, or an entity, account or other pooled investment
fund the underlying assets of which include or are deemed to include a Benefit
Plan's assets by reason of a Benefit Plan's investment in the entity, account or
other pooled investment fund.
Generally, for purposes of ERISA, an insurance company, insurance service,
or insurance organization qualified to do business in a state (referred to
herein as an "Insurer") is not a Benefit Plan; therefore, the foregoing
restriction for sale or transfer to a Benefit Plan generally would not be
applicable to an Insurer. However, under John Hancock Mutual Life Insurance Co.
v. Harris Bank and Trust, 114 S.Ct. 517 (1993), certain assets held in an
Insurer's general account may be treated as Benefit Plan assets and thus the use
of such "plan assets" to purchase the Class B Certificates may be subject to the
fiduciary requirements of ERISA.
The Seller and the Servicer do not intend to preclude Insurers that are
otherwise qualified investors from purchasing the Class B Certificates;
therefore, for purposes of this offering, the restriction for sale or transfer
to a Benefit Plan will not be applied to prevent the transfer of Class B
Certificates to an Insurer if such Insurer purchases such Class B Certificates
with funds held in one or more of its general accounts, provided that the
Insurer confirms that Section III of Prohibited Transaction Class Exemption
95-60 (the "Class Exemption") applies to the Insurer's acquisition and holding
of such Class B Certificates. Neither the Servicer, the Seller, the Trustee, the
[Credit Enhancer], any Underwriter nor any of their respective affiliates makes
any representation or expresses any opinion as to whether an Insurer constitutes
a Benefit Plan or will be treated as managing Benefit Plan assets.]
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, CPS and the Seller have agreed to cause the Trust to sell to
[Underwriters] (the "Underwriters") and each Underwriter has agreed to purchase
the principal amount of Class A Certificates and Class B Certificates set forth
opposite its name below.
Underwriters Class A Certificates Class B Certificates
------------ Principal Amount Principal Amount
---------------- ----------------
[Underwriter] $ [ ] $ [ ]
[Underwriter] [ ] [ ]
------------ ------------
Total $ [ ] $
============ ============
CPS and the Seller have been advised by the Underwriters that they propose
to offer Class A Certificates and Class B Certificates from time to time for
sale in negotiated transactions or otherwise, at prices determined at the time
of sale. The Underwriters may effect such transactions by selling each of the
Class A Certificates and Class B Certificates to or through dealers and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters and any purchasers of Class A
Certificates or Class B Certificates for whom they may act as agents. The
Underwriters and any dealers that participate with the Underwriters in the
distribution of each of the Class A Certificates and Class B Certificates may be
deemed to be underwriters, and any discounts or commissions received by them and
any profit on the resale of Class A Certificates or
S-46
<PAGE>
Class B Certificates by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended.
Each of the Class A Certificates and Class B Certificates are a new issue
of securities with no established trading market. The Underwriters have advised
CPS and the Seller that they intend to act as market makers for each of the
Class A Certificates and Class B Certificates. However, the Underwriters are not
obligated to do so and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of any trading market for
the Class A Certificates or Class B Certificates.
CPS and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Seller, the Servicer and the Underwriters by Mayer, Brown & Platt, New York,
New York. Certain legal matters related to the [Credit Enhancement] will be
passed upon for the [Credit Enhancer] by [ ].
S-47
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Page
----
Actuarial Receivables ................................................. 30
Agreement ............................................................. 4
Alpha Program ......................................................... 19
APR ................................................................... 5
Certificate Account ................................................... 34
Certificates .......................................................... 1, 4
Class A Certificate Balance ........................................... 6
Class A Certificateholders ............................................ 6
Class A Certificates .................................................. 1, 4
Class A Distributable Amount .......................................... 36
Class A Interest Carryover Shortfall .................................. 38
Class A Interest Distributable Amount ................................. 37
Class A Pass-Through Rate ............................................. 6
Class A Percentage .................................................... 4
Class A Pool Factor ................................................... 31
Class A Principal Carryover Shortfall ................................. 39
Class A Principal Distributable Amount ................................ 36
Class B Certificate Balance ........................................... 6
Class B Certificateholders ............................................ 6
Class B Certificates .................................................. 1, 4
Class B Interest Carryover Shortfall .................................. 39
Class B Interest Distributable Amount ................................. 37
Class B Pass-Through Rate ............................................. 6
Class B Percentage .................................................... 4
Class B Pool Factor ................................................... 31
Class B Principal Distributable Amount ................................ 37
Class Exemption ....................................................... 46
Code .................................................................. 13
Collateral Agent ...................................................... 39
Collection Account .................................................... 34
Contracts ............................................................. 18
CPS ................................................................... 1, 4
Cram Down Loss ........................................................ 36
Credit Enhancement .................................................... 1
Cutoff Date ........................................................... 5
Dealer Agreements ..................................................... 17
Dealers ............................................................... 17
Determination Date .................................................... 35
disqualified persons .................................................. 43
Distribution Date ..................................................... 6, 9
Employee Plans ........................................................ 13
ERISA ................................................................. 13, 43
Events of Default ..................................................... 42
Exemption ............................................................. 44
Final Scheduled Distribution Date ..................................... 6
Financed Vehicles ..................................................... 5
Insurer ............................................................... 13, 46
S-48
<PAGE>
Page
----
Liquidated Receivable ..................................... 35
Liquidation Proceeds ...................................... 35
Lock-Box Account .......................................... 10, 34
Lock-Box Bank ............................................. 10
Lock-Box Processor ........................................ 10
Obligors .................................................. 17
Original Pool Balance ..................................... 5
parties in interest ....................................... 43
Payahead Account .......................................... 34
plan assets ............................................... 13, 14, 44, 46
Pool Balance .............................................. 31
Post Office Box ........................................... 10
prepayments ............................................... 31
Principal Balance ......................................... 36
Principal Distributable Amount ............................ 7, 37
prohibited transaction .................................... 13, 44
Purchase Agreement ........................................ 5
Purchase Amount ........................................... 33, 35
rebate .................................................... 30
Receivables ............................................... 1, 5
Record Date ............................................... 9
Recoveries ................................................ 36
refund .................................................... 30
Requisite Amount .......................................... 9
Restricted Group .......................................... 45
Rule of 78's Receivables .................................. 30
Rule of 78's .............................................. 30
Scheduled Payment ......................................... 36
Securities Act ............................................ 2
Seller .................................................... 1, 4
Servicer .................................................. 1, 4
Servicing Assumption Agreement ............................ 11
Servicing Fee Rate ........................................ 11
Servicing Fee ............................................. 34
Simple Interest Receivables ............................... 30
simple interest ........................................... 30
Spread Account ............................................ 39
Standard Program .......................................... 19
Standby Fee ............................................... 11
Standby Servicer .......................................... 1, 11, 15, 32, 34
Sub-Prime Borrowers ....................................... 18
sum of monthly payments ................................... 30
sum of periodic balances .................................. 30
Total Distribution Amount ................................. 35
Trust Assets .............................................. 5
Trust ..................................................... 1, 4
Trustee Fee ............................................... 37
Trustee ................................................... 1
UCC ....................................................... 33
S-49
<PAGE>
FORM OF PROSPECTUS SUPPLEMENT TO PROSPECTUS
Dated September 13, 1996
Subject to Completion,
September 13, 1996
$[___________]
CPS Auto Grantor Trust 1996-2
[ ]% Asset-Backed Certificates, Class A
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
The Asset-Backed Certificates will consist of two classes of certificates, Class
A (the "Class A Certificates" or the "Securities") and
Class B (the "Class B Certificates" and, collectively with the Class A
Certificates, the "Certificates"), evidencing beneficial ownership interests
in a trust (the "Trust") to be formed pursuant to a Pooling and Servicing
Agreement among CPS Receivables Corp., as Seller (the "Seller"), Consumer
Portfolio Services, Inc., as Servicer (individually, "CPS", and in its
capacity as the Servicer, the "Servicer"), and Norwest Bank Minnesota,
National Association, as Trustee and Standby Servicer (the "Trustee" and
"Standby Servicer", respectively). The Class A Certificates will
evidence, in the aggregate, beneficial ownership of an undivided
[____] percent ([__]%) interest in the Trust Assets (as defined
herein), other than interest received by the Trust in excess of
the Class A Pass-Through Rate of [ ]% per annum, and the
Class B Certificates will evidence, in the aggregate, beneficial
ownership of an undivided [____] percent ([_]%) interest in the
Trust Assets, other than interest received by the Trust in excess of the
Class B Pass-Through Rate of [ ]% per annum. Only the Class A
Certificates are being offered hereby.
The Underwriters have agreed to purchase from the Seller the Class A
Certificates at [ ]% of the principal amount thereof, subject to the terms and
conditions set forth in the Underwriting Agreement referred to herein under
"Underwriting". The aggregate proceeds to the Seller, before deducting expenses
payable by the Seller estimated at $348,449, will be $[ ] for the Class A
Certificates.
The Underwriters propose to offer the Certificates from time to time in
negotiated transactions or otherwise, at prices determined at the time of sale.
For further information with respect to the plan of distribution and any
discounts, commissions or profits that may be deemed underwriting discounts or
commissions, see "Underwriting" herein.
The Trust Assets will include a pool of retail installment sale contracts
and all rights thereunder (collectively, the "Receivables"), certain monies due
or received thereunder after September __, 1996, security interests in the new
and used automobiles, light trucks, vans and minivans securing the Receivables,
certain bank accounts and the proceeds thereof, the Policy (as defined herein)
with respect to the Class A Certificates, and the right of CPS to receive
certain insurance proceeds and certain other property, as more fully described
herein. The Receivables will be purchased by the Seller from CPS on or prior to
the date of the issuance of the Certificates.
For a discussion of certain factors relating to the transaction, see "Risk
Factors" at page S-16 herein and page 12 in the accompanying Prospectus.
Full and complete payment of the Class A Guaranteed Distribution Amount (as
defined herein) on each Distribution Date (as defined herein) is unconditionally
and irrevocably guaranteed pursuant to a financial guaranty insurance policy
(the "Policy") to be issued by:
[FSA LOGO]
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER
OR ANY AFFILIATE THEREOF.
THE CLASS A CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Class A Certificates are offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them, and subject to the
right of the Underwriters to reject any order in whole or in part. It
is expected that delivery of the Class A Certificates will be made
in book-entry form only through the facilities of
The Depository Trust Company on or about September __, 1996.
Alex. Brown & Sons Incorporated Black Diamond Securities, LLC
The date of this Prospectus Supplement is [__________], 1996.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus supplement and the accompanying prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
<PAGE>
(cover continued from previous page)
AVAILABLE INFORMATION
CPS has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
Class A Certificates offered pursuant to this Prospectus Supplement. For further
information, reference is made to the Registration Statement which may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549; and at the
Commission's regional office at 500 West Madison, 14th Floor, Chicago, Illinois
60661 and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies
of the Registration Statement may be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Servicer, on behalf of the Trust, will also file or cause
to be filed with the commission such periodic reports as may be required under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations of the Commission thereunder.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration Statement,
either on its own behalf or on behalf of the Trust, relating to the Class A
Certificates, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act, after the date of this Prospectus Supplement and prior to
the termination of the offering of the Class A Certificates offered hereby,
shall be deemed to be incorporated by reference in this Prospectus Supplement
and to be a part of this Prospectus Supplement from the date of the filing of
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus Supplement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein, modifies or
replaces such statement. Any such statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
In addition to the documents described above and in the accompanying
Prospectus under "Incorporation of Certain Documents by Reference", the
financial statements of Financial Security Assurance Inc. and its
subsidiaries included in, or as exhibits to, the following documents, which have
been filed with the Commission by Financial Security Assurance Holdings Ltd.
("Holdings"), are hereby incorporated by reference in this Prospectus
Supplement:
(a) Annual Report on Form 10-K for the period ended December 31, 1995,
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1996, and
(c) Quarterly Report on Form 10-Q for the period ended June 30, 1996.
All financial statements of Financial Security included in documents filed
by Holdings pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Securities shall be deemed to be incorporated
by reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing such documents.
S-2
<PAGE>
The Seller on behalf of the Trust hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the Trust's
annual report pursuant to Section 13(a) or 15(d) of the Exchange Act and each
filing of the financial statements of Financial Security included in or as an
exhibit to the annual report of Holdings filed pursuant to Section 13(a) or
15(d) of the Exchange Act that is incorporated by reference in the Registration
Statement shall be deemed to be a new registration statement relating to the
Securities offered hereby, and the offering of such Securities at that time
shall be deemed to be the initial bona fide offering thereof.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Suite 100, Irvine, California
92718, Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-3
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
Unless and until Definitive Certificates are issued, periodic reports
containing information concerning the Receivables will be prepared by the
Servicer and sent on behalf of the Trust only to Cede & Co. ("Cede"), as nominee
of The Depository Trust Company ("DTC") and registered holder of the
Certificates. Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles. The Servicer will file
with the Commission such periodic reports as are required under the Exchange
Act, and the rules and regulations thereunder and as are otherwise agreed to by
the Commission. Copies of such periodic reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
S-4
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Certain capitalized terms used herein are defined
elsewhere in this Prospectus Supplement on the pages indicated in the "Index of
Terms" or, to the extent not defined herein, have the meaning assigned to such
terms in the Prospectus.
Trust............................. CPS Auto Grantor Trust 1996-2 (the "Trust")
to be formed pursuant to the Pooling and
Servicing Agreement, dated as of [September
__], 1996 among the Seller, the Servicer and
the Trustee and Standby Servicer (the
"Agreement").
Seller............................ CPS Receivables Corp. (the "Seller"). See
"The Seller and CPS" in this Prospectus
Supplement.
Servicer.......................... Consumer Portfolio Services, Inc. ("CPS" or,
in its capacity as the servicer, the
"Servicer"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS" in this
Prospectus Supplement.
Trustee........................... Norwest Bank Minnesota, National Association,
a national banking association, located at
Sixth Street and Marquette Avenue,
Minneapolis, Minnesota.
Certificate Insurer............... Financial Security Assurance Inc., a
financial guaranty insurance company
incorporated under the laws of the State of
New York (the "Certificate Insurer"). See
"The Certificate Insurer" in this Prospectus
Supplement.
Closing Date...................... On or about [September __], 1996.
Description of the
Securities Offered................ The Certificates consist of two classes,
entitled [ ]% Asset-Backed Certificates,
Class A (the "Class A Certificates") and [ ]%
Asset-Backed Certificates, Class B (the
"Class B Certificates" and, together with the
Class A Certificates, the "Certificates").
The Class B Certificates are not being
offered hereby and the information herein
with respect thereto is provided only to
permit a better understanding of the Class A
Certificates. Each Certificate will evidence
beneficial ownership of an undivided interest
in the Trust. The Class A Certificates will
evidence, in the aggregate, beneficial
ownership of an undivided interest in the
Trust Assets equal to the Class A Percentage
of the Trust Assets, but not including any
interest received by the Trust in excess of
the Class A Pass-Through Rate. The Class B
Certificates will evidence, in the aggregate,
beneficial ownership of an undivided interest
in the Trust Assets equal to the Class B
Percentage of the
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Trust Assets, but not including any interest
received by the Trust in excess of the Class
B Pass-Through Rate.
The "Class A Percentage" as of any date of
determination will be [ ]%. The "Class B
Percentage" as of any date of determination
will be [ ]%.
The rights of the Class B Certificates to
receive distributions will be subordinated to
the rights of the Class A Certificates and
the Certificate Insurer to the extent
described herein.
The Certificates will be offered for purchase
in denominations of $1,000 and in integral
multiples thereof.
Trust Assets...................... The property of the Trust (the "Trust
Assets") will include (i) a pool of retail
installment sale contracts (collectively, the
"Receivables") secured by the new and used
automobiles, light trucks, vans and minivans
financed thereby (the "Financed Vehicles"),
(ii) with respect to Rule of 78's
Receivables, all payments due thereon after
[September __], 1996 (the "Cutoff Date"),
and, with respect to Simple Interest
Receivables, all payments received thereunder
after the Cutoff Date, (iii) security
interests in the Financed Vehicles, (iv)
certain bank accounts and the proceeds
thereof, (v) the right of the Seller to
receive proceeds from claims under, or
refunds of unearned premiums from, certain
insurance policies and extended service
contracts, (vi) all right, title and interest
of the Seller in and to the Purchase
Agreement (the "Purchase Agreement") between
the Seller and CPS, (vii) the benefits of a
financial guaranty insurance policy (the
"Policy") issued by the Certificate Insurer
with respect to the Class A Certificates
only, and (viii) certain other property, as
more fully described herein. See "Formation
of the Trust" in this Prospectus Supplement
and "The Trust Assets" in the Prospectus. The
Receivables will be purchased by the Seller
from CPS pursuant to the Purchase Agreement
on or prior to the Closing Date. The
Receivables arise from loans originated by
automobile dealers for assignment to CPS
pursuant to CPS's auto loan programs.
For purposes of this Prospectus Supplement,
information regarding the Trust Assets is
provided as of the close of business on
September 6, 1996 (the "Preliminary Cutoff
Date"). During the period beginning after the
Preliminary Cutoff Date and ending on or
before the close of business on the Cutoff
Date, CPS expects to purchase additional
Receivables, which will be transferred to the
Seller and included in the Trust and included
in determining the Original Pool Balance.
The additional Receivables to be purchased by
CPS between the Preliminary Cutoff Date and
the Cutoff Date will be selected by CPS based
on substantially the same criteria as was
used to select
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the Receivables as of the Preliminary Cutoff
Date; however, the actual composition and
characteristics of the Receivables as of the
Cutoff Date may differ from the composition
and characteristics of the Receivables as of
the Preliminary Cutoff Date. Accordingly, the
information provided in this Prospectus
Supplement regarding the composition and
characteristics of the pool of Receivables in
the Trust is subject to change to reflect the
actual composition and characteristics of the
Receivables as of the Cutoff Date.
The Receivables................... As of the Preliminary Cutoff Date, the
aggregate outstanding principal balance of
the Receivables was $73,494,607.62. CPS
expects that the aggregate outstanding
Principal Balance of the Receivables will be
approximately $[ ] as of the Cutoff Date (the
"Original Pool Balance"); however, the exact
amount of the Original Pool Balance will not
be determined until the Cutoff Date. The
Receivables consist of retail installment
sale contracts secured by new and used
automobiles, light trucks, vans and minivans
including, with respect to Rule of 78's
Receivables, the rights to all payments due
with respect to such Receivables after the
Cutoff Date, and, with respect to Simple
Interest Receivables, the rights to all
payments received with respect to such
Receivables after the Cutoff Date. As of the
Preliminary Cutoff Date, approximately 85.24%
of the aggregate principal balance of the
Receivables represented financing of used
vehicles. The Receivables arise from loans
originated by automobile dealers for
assignment to CPS pursuant to CPS's auto loan
programs. The auto loan programs target
automobile purchasers with marginal credit
ratings who are generally unable to obtain
credit from banks or other low-risk lenders.
See "CPS's Automobile Contract Portfolio --
General" in this Prospectus Supplement and
"Risk Factors -- Nature of Obligors" in the
Prospectus. The Receivables have been
selected from the contracts owned by CPS
based on the criteria specified in the
Agreement and described herein.
Each Receivable is a Rule of 78's Receivable
or a Simple Interest Receivable. As of the
Preliminary Cutoff Date, the weighted average
annual percentage rate (the "APR") of the
Receivables was approximately 20.69%, the
weighted average remaining term to maturity
of the Receivables was approximately 54.45
months and the weighted average original term
to maturity of the Receivables was
approximately 55.59 months. As of the
Preliminary Cutoff Date, no Receivable had a
scheduled maturity later than October 4,
2001. See "The Receivables Pool" in this
Prospectus Supplement.
Class A Certificate Balance....... The "Class A Certificate Balance" will equal,
initially, the Class A Percentage of the
Original Pool Balance as of the close of
business on the Cutoff Date, and thereafter
will equal the initial Class A Certificate
Balance reduced by all principal
distributions on the Class A Certificates.
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Class A Pass-Through Rate......... Interest will accrue on the Class A
Certificate Balance at a rate of [ ]% per
annum, calculated on the basis of a 360-day
year consisting of twelve 30-day months (the
"Class A Pass-Through Rate").
Class B Certificate Balance....... The "Class B Certificate Balance" will equal,
initially, the Class B Percentage of the
Original Pool Balance as of the close of
business on the Cutoff Date, and thereafter
will equal the initial Class B Certificate
Balance reduced by all principal
distributions on the Class B Certificates.
Class B Pass-Through Rate......... Interest will accrue on the Class B
Certificate Balance at a rate of [ ]% per
annum, calculated on the basis of a 360-day
year consisting of twelve 30-day months (the
"Class B Pass-Through Rate").
Interest.......................... On the 15th of each month (or the next
following Business Day) beginning October
15, 1996 (each, a "Distribution Date"), the
Trustee will, to the extent there are funds
available from the sources described herein,
pass-through and (i) distribute pro rata to
the holders of record of the Class A
Certificates (the "Class A
Certificateholders") as of the related Record
Date thirty (30) days' of interest at the
Class A Pass-Through Rate on the Class A
Certificate Balance as of the close of
business on the last day of the related
Collection Period and (ii) distribute pro
rata to the holders of record of the Class B
Certificates (the "Class B
Certificateholders") as of the related Record
Date thirty (30) days' of interest at the
Class B Pass-Through Rate on the Class B
Certificate Balance as of the close of
business on the last day of the related
Collection Period; provided, however, that on
the first Distribution Date, the
Certificateholders will be entitled to
interest at the Class A Pass-Through Rate or
the Class B Pass-Through Rate, as applicable,
on the initial Class A Certificate Balance or
the initial Class B Certificate Balance, as
applicable, from and including the Closing
Date through and including October 14,
1996. The final scheduled Distribution Date
on the Certificates will be the [ ]
Distribution Date (the "Final Scheduled
Distribution Date").
Principal......................... On each Distribution Date, the Trustee will,
to the extent that there are funds available
from the sources described herein, distribute
to (a) the Class A Certificateholders as of
the related Record Date an amount equal to
the Class A Percentage of the Principal
Distributable Amount and (b) the Class B
Certificateholders as of the related Record
Date an amount equal to the Class B
Percentage of the Principal Distributable
Amount. The "Principal Distributable Amount"
for a Distribution Date shall equal the sum
of (a) the principal portion of all Scheduled
Payments received during the preceding
Collection Period on Rule of 78's Receivables
and all payments of principal received on
Simple Interest
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Receivables during the preceding Collection
Period; (b) the principal portion of all
prepayments in full (including prepayments in
full resulting from collections with respect
to a Receivable received during the preceding
Collection Period plus any amounts applied
from the Payahead Account with respect to
such Receivable) (without duplication of
amounts included in (a) above and (d) below);
(c) the portion of the Purchase Amount
allocable to principal of each Receivable
that was repurchased by CPS or purchased by
the Servicer as of the last day of the
related Collection Period (without
duplication of the amounts referred to in (a)
and (b) above); (d) the Principal Balance of
each Receivable that first became a
Liquidated Receivable during the preceding
Collection Period (without duplication of the
amounts included in (a) and (b) above); and
(e) the aggregate amount of Cram Down Losses
that shall have occurred during the preceding
Collection Period (without duplication of
amounts included in (a) through (d) above).
In addition, on the Final Scheduled
Distribution Date, to the extent amounts are
available therefor, the principal required to
be distributed to the Class A
Certificateholders will equal the then
outstanding Class A Certificate Balance and
the principal required to be distributed to
the Class B Certificateholders will equal the
then outstanding Class B Certificate Balance.
A "Collection Period" with respect to a
Distribution Date will be the calendar month
preceding the month in which such
Distribution Date occurs; provided however,
that with respect to the first Distribution
Date, the "Collection Period" will be the
period from and excluding the Cutoff Date to
and including [September 30], 1996.
Priority of Payments.............. On each Distribution Date, the Trustee shall
make the following distributions in the
following order of priority:
(i) to the Servicer, the Servicing Fee and
all unpaid Servicing Fees from prior
Collection Periods; provided, however, that
as long as CPS is the Servicer and Norwest
Bank Minnesota, National Association, is the
Standby Servicer, the Trustee will first pay
to the Standby Servicer out of the Servicing
Fee otherwise payable to CPS an amount equal
to the Standby Fee;
(ii) in the event the Standby Servicer or any
other party becomes the successor Servicer,
to the Standby Servicer or such other
successor Servicer, reasonable transition
expenses (up to a maximum of $50,000)
incurred in acting as successor Servicer;
(iii) to the Trustee, the Trustee Fee (as
defined herein) and reasonable out-of-pocket
expenses and all unpaid Trustee Fees and
unpaid reasonable out-of-pocket expenses from
prior Collection Periods;
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S-9
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(iv) to the Collateral Agent, all fees and
expenses payable to the Collateral Agent with
respect to such Distribution Date;
(v) to the Class A Certificateholders, the
Class A Interest Distributable Amount (as
defined herein) and any Class A Interest
Carryover Shortfall (as defined herein);
(vi) to the Class B Certificateholders, the
Class B Interest Distributable Amount
(defined herein) and any Class B Interest
Carryover Shortfall (defined herein);
(vii) to the Class A Certificateholders, the
Class A Principal Distributable Amount
(defined herein) and any Class A Principal
Carryover Shortfall (defined herein);
(viii) to the Certificate Insurer, any
amounts due to the Certificate Insurer under
the terms of the Agreement and under the
Insurance Agreement (defined herein);
(ix) to the Class B Certificateholders, the
Class B Principal Distributable Amount
(defined herein) and any Class B Principal
Carryover Shortfall (defined herein); and
(x) to the Collateral Agent, for deposit
into the Spread Account, the remaining Total
Distribution Amount, if any. See "Description
of the Certificates -- Distributions on
Certificates -- Priority of Distribution
Amounts" in this Prospectus Supplement.
Spread Account.................... As part of the consideration for the issuance
of the Policy, the Seller has agreed to cause
the Spread Account to be established with the
Collateral Agent for the benefit of the
Certificate Insurer and the Trustee on behalf
of the Class A Certificateholders. Any
portion of the Total Distribution Amount
remaining on any Distribution Date after
payment of all fees and expenses due on such
date to the Servicer, the Standby Servicer,
the Trustee, the Collateral Agent, the
Certificate Insurer, any successor Servicer
and all principal and interest payments due
to the Certificateholders on such
Distribution Date, will be deposited in the
Spread Account and held by the Collateral
Agent for the benefit of the Trustee, on
behalf of the Class A Certificateholders, and
the Certificate Insurer. Amounts on deposit
in the Spread Account on any Distribution
Date which (after all payments required to be
made on such date have been made) are in
excess of the requisite amount determined
from time to time in accordance with certain
portfolio performance tests agreed upon by
the Certificate Insurer and the Seller as a
condition to the issuance of the Policy (such
requisite
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S-10
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amount, the "Requisite Amount") will not be
held by the Collateral Agent for the benefit
of the Class B Certificateholders but will be
available to make payments due and payable to
the Class B Certificateholders as described
in the following paragraph. If on any
Distribution Date, the Total Distribution
Amount is insufficient (taking into account
the application of the Total Distribution
Amount to the payment of the Class B Interest
Distributable Amount and any Class B Interest
Carryover Shortfall) to pay all distributions
required to be made on such day pursuant to
priorities (i), (ii), (iii), (iv), (v), (vii)
and (viii) referred to above in "Priority of
Payments", amounts on deposit in the Spread
Account will be applied to pay the amounts
due on such Distribution Date pursuant to
such priorities (i), (ii), (iii), (iv), (v),
(vii) and (viii). See "Description of the
Certificates -- Distributions on Certificates
-- The Spread Account" in this Prospectus
Supplement.
Amounts on deposit in the Spread Account on
any Distribution Date, which (after all
payments required to be made on such date
have been made) are in excess of the
Requisite Amount will be released to the
Seller on such Distribution Date; provided,
however, that if, prior to such Distribution
Date, the Servicer has notified the Trustee
that the Total Distribution Amount is
insufficient to make the payments required to
be made on such Distribution Date to the
Class B Certificateholders, including any
Class B Interest Carryover Shortfall and any
Class B Principal Carryover Shortfall (such
deficiency, a "Class B Deficiency Amount"),
then the Trustee will direct the Collateral
Agent to remit to the Trustee, from such
funds being otherwise released to the Seller
on such Distribution Date, an amount equal to
such Class B Deficiency Amount for
application to pay the amounts due to the
Class B Certificateholders on such
Distribution Date. Because the Requisite
Amount or the existence of the Spread Account
may be modified or terminated by the
Certificate Insurer prior to the occurrence
and continuation of an Insurer Default with
the consent of CPS, the Seller and the
Collateral Agent (but without the consent of
the Certificateholders), Class A
Certificateholders or Class B
Certificateholders should not rely on amounts
in the Spread Account for payments of
principal of, or interest on, either the
Class A Certificates or the Class B
Certificates; provided, however, that the
Certificate Insurer will agree that it will
not reduce the Requisite Amount or modify or
terminate the Master Spread Account Agreement
such that the Class A Certificates, without
the benefit of the Policy, would be rated
less than "BBB" by Standard & Poor's or
"Baa2" by Moody's. See "Description of the
Certificates -- Distributions on Certificates
-- The Spread Account" in this Prospectus
Supplement.
Subordination..................... Distributions of interest on the Class B
Certificates will be subordinated in priority
of payment to interest due on the Class A
Certificates. Distributions of principal on
the Class B Certificates
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will be subordinated in priority of payment
to interest and principal due on the Class A
Certificates. Accordingly, the Class A
Certificates will receive the benefit of
amounts otherwise due on the Class B
Certificates as credit enhancement. Funds
representing the interest of the Class B
Certificateholders in the Trust Assets will
be applied first to the payment of any
amounts due to the Class A Certificateholders
on account of the Class A Interest
Distributable Amount and any Class A Interest
Carryover Shortfall before any portion
thereof is paid to the Class B
Certificateholders and funds otherwise due to
pay principal of the Class B Certificates
will be applied first to the payment of the
Class A Principal Distributable Amount and
any Class A Principal Carryover Shortfall
before any portion thereof is paid to the
Class B Certificateholders.
Distribution and
Record Dates...................... A "Distribution Date" will be the 15th day of
each month (or if such 15th day is not a
business day, the next following business
day) commencing [October 15], 1996. The
record date applicable to each Distribution
Date (each, a "Record Date") will be the 10th
day of the calendar month in which such
Distribution Date occurs.
Repurchases and
Purchases of
Certain Receivables............... CPS has made certain representations and
warranties relating to the Receivables to the
Seller in the Purchase Agreement, and the
Seller has made such representations and
warranties for the benefit of the Trust and
the Certificate Insurer in the Agreement. The
Trustee, as acknowledged assignee of the
repurchase obligations of CPS under the
Purchase Agreement, will be entitled to
require CPS to repurchase any Receivable if
such Receivable is materially adversely
affected by a breach of any representation or
warranty made by CPS with respect to the
Receivable and such breach has not been cured
as of the last day of the second (or, if CPS
elects, the first) month following discovery
thereof by the Seller or CPS or notice to the
Seller or CPS. See "Description of the
Pooling and Servicing Agreements -- Sale and
Assignment of Receivables" in the Prospectus.
The Servicer will be obligated to repurchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the last
day of the penultimate Collection Period
preceding the Final Scheduled Distribution
Date or fails to maintain a perfected
security interest in the Financed Vehicle.
See "Description of the Certificates --
Servicing Procedures" in this Prospectus
Supplement and "Description of the Pooling
and Servicing Agreements -- Servicing
Procedures" in the Prospectus.
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The Policy........................ On the Closing Date, the Certificate Insurer
will issue the Policy to the Trustee for the
benefit of the Class A Certificateholders
(the "Policy"). Pursuant to the Policy, the
Certificate Insurer will unconditionally and
irrevocably guarantee to the Class A
Certificateholders payment of the Class A
Interest Distributable Amount and the Class A
Principal Distributable Amount (collectively,
the "Class A Guaranteed Distribution Amount")
on each Distribution Date. The Class B
Certificates do not have the benefit of the
Policy.
Servicing......................... The Servicer will be responsible for
servicing, managing and making collections on
the Receivables. On or prior to the next
billing period after the Cutoff Date, the
Servicer will notify each Obligor to make
payments with respect to the Receivables
after the Cutoff Date directly to a post
office box in the name of the Trustee for the
benefit of the Certificateholders and the
Certificate Insurer (the "Post Office Box").
On each Business Day, Cash Flex, L.P., as the
lock-box processor (the "Lock-Box
Processor"), will transfer any such payments
received in the Post Office Box to a
segregated lock-box account at Bank of
America (the "Lock-Box Bank"), in the name of
the Trustee for the benefit of the
Certificateholders and the Certificate
Insurer (the "Lock-Box Account"). Within two
Business Days of receipt of funds into the
Lock-Box Account, the Servicer is required to
direct the Lock-Box Bank to effect a transfer
of funds from the Lock-Box Account to one or
more accounts established with the Trustee.
See "Description of the Certificates --
Accounts" in this Prospectus Supplement, and
"Description of the Pooling and Servicing
Agreements -- Payments on Receivables" in the
Prospectus.
Standby Servicer.................. Norwest Bank Minnesota, National Association,
a national banking association, located at
Sixth Street and Marquette Avenue,
Minneapolis, Minnesota.
If an Event of Default occurs and remains
unremedied, (1) provided no Insurer Default
has occurred and is continuing, then the
Certificate Insurer in its sole and absolute
discretion, or (2) if an Insurer Default
shall have occurred and be continuing, then
the Trustee or the holders of Class A
Certificates evidencing not less than 25% of
the Class A Certificate Balance, may
terminate the rights and obligations of the
Servicer under the Agreement. If such event
occurs when CPS is the Servicer, or, if CPS
resigns as Servicer or is terminated as
Servicer by the Certificate Insurer, Norwest
Bank Minnesota, National Association (in such
capacity, the "Standby Servicer"), has agreed
to serve as successor Servicer under the
Agreement pursuant to a Servicing Assumption
Agreement dated as of [September __], 1996
among CPS, the Standby Servicer and the
Trustee (the "Servicing Assumption
Agreement"). The Standby Servicer will
receive a portion of the Servicing Fee (the
"Standby Fee") for agreeing to
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stand by as successor Servicer and for
performing other functions. If the Standby
Servicer or any other entity serving at the
time as Standby Servicer becomes the
successor Servicer, it will receive
compensation at a Servicing Fee Rate not to
exceed 2.12% per annum. See "Standby
Servicer" in this Prospectus Supplement.
Servicing Fee..................... The Servicer will be entitled to receive a
Servicing Fee on each Distribution Date equal
to the product of one-twelfth times 2.12%
(the "Servicing Fee Rate") of the Pool
Balance as of the close of business on the
last day of the second preceding Collection
Period; provided, however, that with respect
to the first Distribution Date the Servicer
will be entitled to receive a Servicing Fee
equal to the product of one-twelfth times
2.12% of the Pool Balance as of the close of
business on the Cutoff Date. As additional
servicing compensation, the Servicer will
also be entitled to certain late fees,
prepayment charges and other administrative
fees or similar charges. For so long as CPS
is Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to
the Standby Servicer.
Optional Purchase................. The Servicer may at its option purchase all
the Receivables as of the last day of any
Collection Period on or after which the
aggregate principal balance of the
Receivables is equal to 10% or less of the
Original Pool Balance, at a purchase price
equal to the aggregate principal balance of
the Receivables, plus accrued interest at the
respective APRs; provided that the Servicer's
right to exercise such option will be subject
to the prior approval of the Certificate
Insurer, but only if, after giving effect
thereto, a claim on the Policy would occur or
any amount owing to the Certificate Insurer
or the holders of the Class A Certificates
would remain unpaid.
Certain Legal Aspects of
the Receivables; Purchase
Obligations....................... In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the Receivables
will be assigned by CPS to the Seller
pursuant to the Purchase Agreement and by the
Seller to the Trustee pursuant to the
Agreement. Due to the administrative burden
and expense, the certificates of title to the
Financed Vehicles will not be amended or
re-issued to reflect the assignment thereof
to the Trustee. In the absence of such an
amendment, the Trustee may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states. The Seller will be obligated to
purchase any Receivable sold to the Trust as
to which there did not exist on the Closing
Date a perfected security interest in the
name of CPS in the Financed Vehicle, and the
Servicer will be obligated to purchase any
Receivable sold to the Trust as to which it
failed to maintain a perfected security
interest in the name of CPS in the Financed
Vehicle securing such Receivable (which
perfected security interest
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has been assigned to, and is for the benefit
of, the Trustee) if, in either case, such
breach materially and adversely affects the
interest of the Trust, the Trustee or the
Certificate Insurer in such Receivable and if
such failure or breach is not cured by the
last day of the second (or, if CPS or the
Servicer, as the case may be, elects, the
first) month following the discovery by or
notice to CPS or the Servicer, as the case
may be, of such breach. To the extent the
security interest of CPS is perfected, the
Trustee will have a prior claim over
subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected
security interests. However, as against liens
for repairs of a Financed Vehicle or for
unpaid storage charges or for taxes unpaid by
an Obligor under a Receivable, or through
fraud, forgery or negligence or error, CPS,
and therefore the Trust could lose its prior
perfected security interest in a Financed
Vehicle. Neither CPS nor the Servicer will
have any obligation to purchase a Receivable
as to which a lien for repairs of a Financed
Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the
priority of the security interest in such
Financed Vehicle after the Closing Date. See
"Risk Factors -- Certain Legal Aspects" in
the Prospectus.
Book-Entry
Certificates...................... The Class A Certificates initially will be
represented by one or more certificates
registered in the name of Cede & Co. ("Cede")
as the nominee of The Depository Trust
Company ("DTC"), and will only be available
in the form of book-entries on the records of
DTC and participating members thereof. Class
A Certificates representing the Certificates
will be issued in definitive form only under
the limited circumstances described herein.
All references herein to "holders" of the
Class A Certificates or "Class A
Certificateholders" shall reflect the rights
of beneficial owners of the Class A
Certificates ("Class A Certificate Owners")
as they may indirectly exercise such rights
through DTC and participating members
thereof, except as otherwise specified
herein. See "Description of the Certificates
-- Registration of Certificates" in this
Prospectus Supplement and "Certain
Information Regarding the Certificates --
Book-Entry Registration" and "-- Definitive
Certificates" in the Prospectus.
Tax Status........................ In the opinion of special tax counsel to the
Seller, the Trust will be classified for
federal income tax purposes as a grantor
trust and not as an association taxable as a
corporation. Class A Certificateholders must
report their respective allocable shares of
income earned on Trust Assets and, subject to
certain limitations applicable to
individuals, estates and trusts, may deduct
their respective allocable shares of
reasonable servicing and other expenses.
Prospective investors should note that no
rulings have been or will be sought from the
Internal Revenue Service (the "Service") with
respect to any of the federal income tax
consequences discussed herein, and no
assurance can be given that
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<PAGE>
- --------------------------------------------------------------------------------
the Service will not take contrary positions.
See "Certain Federal Income Tax Consequences"
in the Prospectus.
ERISA Considerations.............. As described herein, the Class A Certificates
may be purchased by employee benefit plans
that are subject to the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"). Any benefit plan fiduciary
considering the purchase of Class A
Certificates should, among other things,
consult with its counsel in determining
whether all required conditions have been
satisfied. See "ERISA Considerations" in this
Prospectus Supplement.
Rating of the Certificates........ It is a condition of issuance of the Class A
Certificates that the Class A Certificates be
rated "Aaa" by Moody's Investors Service,
Inc. ("Moody's") and "AAA" by Standard &
Poor's Rating Group ("Standard & Poor's" and
together with Moody's, the "Rating
Agencies"), on the basis of the issuance of
the Policy by the Certificate Insurer, and
that the Class B Certificates be rated at
least "BB" or the equivalent by a nationally
recognized rating agency. A security rating
is not a recommendation to buy, sell or hold
securities and may be revised or withdrawn at
any time by the assigning Rating Agency. See
"Risk Factors -- Ratings of the Certificates"
in this Prospectus Supplement.
- --------------------------------------------------------------------------------
S-16
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus Supplement and the
Prospectus, the following factors, as well as those matters discussed in "Risk
Factors" in the Prospectus, should be considered carefully in evaluating an
investment in the Class A Certificates.
Nature of Obligors; Servicing. CPS purchases loans originated for
assignment to CPS through automobile dealers. CPS services its dealers through a
network of independent marketing representatives. CPS's customers are generally
considered to have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income characteristics
which cause difficulty in borrowing from banks, captive finance companies of
automakers or other traditional sources of auto loan financing; and customers
with a derogatory credit record including a history of irregular employment,
previous bankruptcy filings, repossessions of property, charged-off loans and
garnishment of wages. The payment experience on Receivables of Obligors with
marginal credit is likely to be different than that on receivables of
traditional auto financing sources and is likely to be more sensitive to changes
in the economic climate in the areas in which such Obligors reside.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If an Event of Default occurs and CPS is removed as Servicer, or, if
CPS resigns or is terminated by the Certificate Insurer as Servicer, the Standby
Servicer has agreed to assume the obligations of successor Servicer under the
Agreement. See "Description of the Certificates -- Rights Upon Event of Default"
in this Prospectus Supplement. There can be no assurance, however, that
collections with respect to the Receivables will not be adversely affected by
any change in Servicer. See "Standby Servicer" in this Prospectus Supplement.
The Agreement provides that the rights and obligations of the Servicer
terminate after 90 days unless renewed by the Certificate Insurer for successive
90-day periods. The Certificate Insurer will agree to grant continuous renewals
so long as (i) no Event of Default under the Agreement has occurred and (ii) no
event of default under the insurance and indemnity agreement among CPS, the
Seller and the Certificate Insurer (the "Insurance Agreement") has occurred.
Geographic Concentration. As of the Preliminary Cutoff Date, 29.17% of the
Receivables by Principal Balance had Obligors residing in the State of
California. Economic conditions in the State of California may affect
S-17
<PAGE>
the delinquency, loan loss and repossession experience of the Trust with respect
to the Receivables. See "The Receivables Pool" in this Prospectus Supplement.
Ratings of the Certificates. It is a condition to the issuance of the
Certificates that the Class A Certificates be rated "Aaa" by Moody's and "AAA"
by Standard & Poor's on the basis of the issuance of the Policy by the
Certificate Insurer and the Class B Certificates be rated at least "BB" or the
equivalent by a nationally recognized rating agency. A rating is not a
recommendation to purchase, hold or sell the Class A Certificates, inasmuch as
such rating does not comment as to market price or suitability for a particular
investor. The Rating Agencies do not evaluate, and the ratings do not address,
the possibility that Certificateholders may receive a lower than anticipated
yield. There is no assurance that a rating will remain for any given period of
time or that a rating will not be lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the future so warrant. The ratings of
the Class A Certificates are based primarily on the rating of the Certificate
Insurer. Upon an Insurer Default the rating on the Class A Certificates may be
lowered or withdrawn entirely. In the event that any rating initially assigned
to the Class A Certificates were subsequently lowered or withdrawn for any
reason, including by reason of a downgrading of the Certificate Insurer's
claims-paying ability, no person or entity will be obligated to provide any
additional credit enhancement with respect to the Class A Certificates. Any
reduction or withdrawal of a rating may have an adverse effect on the liquidity
and market price of the Class A Certificates.
Limited Assets. The Trust does not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the Receivables and
amounts on deposit in certain accounts held by the Trustee on behalf of the
Certificateholders. The Certificates represent interests solely in the Trust and
the Certificates will not be insured or guaranteed by the Seller, the Servicer,
the Trustee or any other person or entity except for the guaranty provided with
respect to the Class A Certificates by the Certificate Insurer pursuant to the
Policy, as described herein. The Seller will take such steps as are necessary
for the Certificate Insurer to issue the Policy to the Trustee for the benefit
of the Class A Certificateholders. Under the Policy, the Certificate Insurer
will unconditionally and irrevocably guarantee to the Class A Certificateholders
full and complete payment of the Class A Guaranteed Distribution Amount on each
Distribution Date. In the event of an Insurer Default, the Class A
Certificateholders must rely on the collections on the Receivables, and the
proceeds from the repossession and sale of Financed Vehicles which secure
defaulted Receivables. In such event, certain factors, such as the Trustee not
having perfected security interests in the Financed Vehicles, may affect the
Trust's ability to realize on the collateral securing the Receivables and thus
may reduce the proceeds to be distributed to Certificateholders on a current
basis.
Distributions of interest and principal on the Class A Certificates will be
dependent primarily upon collections on the Receivables and amounts paid
pursuant to the Policy. See "Description of the Certificates -- Distributions on
Certificates" in this Prospectus Supplement.
Delinquency and Loan Loss Experience. CPS began purchasing Contracts from
Dealers in October 1991. Although CPS has calculated and presented herein its
net loss experience with respect to its servicing portfolio, there can be no
assurance that the information presented will reflect actual experience with
respect to the Receivables. In addition, there can be no assurance that the
future delinquency or loan loss experience of the Trust with respect to the
Receivables will be better or worse than that set forth herein with respect to
CPS's
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<PAGE>
servicing portfolio. See "CPS's Automobile Contract Portfolio -- Delinquency and
Loss Experience" in this Prospectus Supplement.
FORMATION OF THE TRUST
The Seller will establish the Trust by selling and assigning the
Receivables and the other Trust Assets (other than the Policy) to the Trustee in
exchange for the Certificates. Prior to such sale and assignment, the Trust will
have no assets or obligations or any operating history. The Trust will not
engage in any business. The Trust will hold the Receivables, issue the
Certificates and distribute payments on the Certificates.
The Servicer will initially service the Receivables pursuant to the
Agreement and will be compensated for acting as the Servicer. See "Description
of the Certificates -- Servicing Compensation" in this Prospectus Supplement.
The Trustee will be appointed custodian for the Receivables and the certificates
of title relating to the Financed Vehicles, and the Receivables and such
certificates of title will be delivered to and held in physical custody by the
Trustee. However, the Receivables will not be marked or stamped to indicate that
they have been sold to the Trust, and the certificates of title of the Financed
Vehicles will not be endorsed or otherwise amended to identify the Trust as the
new secured party. In the absence of amendments to the certificates of title,
the Trustee may not have perfected security interests in the Financed Vehicles
securing the Receivables originated in some states. See "Certain Legal Aspects
of the Receivables" in the Prospectus.
The Trust will not acquire any assets other than the Trust Assets, and it
is not anticipated that the Trust will have any need for additional capital
resources. Because the Trust will have no operating history upon its
establishment and will not engage in any business other than acquiring and
holding the Trust Assets, issuing the Certificates and distributing payments on
the Certificates, no historical or pro forma financial statements or ratios of
earnings to fixed charges with respect to the Trust have been included herein.
The Seller also will take such steps as are necessary for the Certificate
Insurer to issue the Policy to the Trustee for the benefit of the Class A
Certificateholders. Under the Policy, the Certificate Insurer will
unconditionally and irrevocably guarantee to the Class A Certificateholders full
and complete payment of the Class A Guaranteed Distribution Amount on each
Distribution Date. In the event of an Insurer Default, the Class A
Certificateholders must rely on amounts, if any, available in the Spread
Account, the amount otherwise due on the Class B Certificates, the Obligors on
the Receivables, and the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables. In such event, certain factors,
such as the Trustee's not having perfected security interests in some of the
Financed Vehicles, may affect the Trust's ability to realize on the collateral
securing the Receivables and thus may reduce the proceeds to be distributed to
Class A Certificateholders on a current basis. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
THE TRUST ASSETS
Each Certificate will represent a fractional undivided interest in the
Trust, other than interest received by the Trust in excess of the Class A
Pass-Through Rate or the Class B Pass-Through Rate, as applicable. The Trust
Assets include retail installment sale contracts between dealers (the "Dealers")
in new and used automobiles, light trucks, vans and minivans and retail
purchasers (the "Obligors") and, with respect to Rule of 78's Receivables,
certain monies due thereunder after the Cutoff Date, and, with respect to Simple
Interest Receivables, certain monies received thereunder
S-19
<PAGE>
after the Cutoff Date. The Receivables were originated by the Dealers for
assignment to CPS. Pursuant to agreements between the Dealers and CPS ("Dealer
Agreements"), the Receivables were purchased by CPS and, prior to the Closing
Date, evidenced financing made available by CPS to the Obligors. The Trust
Assets also include (i) such amounts as from time to time may be held in one or
more trust accounts established and maintained by the Trustee pursuant to the
Agreement, as described below; see "Description of the Certificates -- Accounts"
in this Prospectus Supplement; (ii) the rights of the Seller under the Purchase
Agreement; (iii) security interests in the Financed Vehicles; (iv) the rights of
the Seller to receive any proceeds with respect to the Receivables from claims
on physical damage, credit life and credit accident and health insurance
policies covering the Financed Vehicles or the Obligors, as the case may be; (v)
the rights of the Seller to refunds for the costs of extended service contracts
and to refunds of unearned premiums with respect to credit life and credit
accident and health insurance policies covering the Financed Vehicles or
Obligors, as the case may be; and (vi) any and all proceeds of the foregoing.
The Trust Assets also will include the Policy for the benefit of the Class A
Certificateholders. The Payahead Account will be maintained with the Trustee for
the benefit of the Obligors, but will not be part of the Trust.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On May 31, 1991, CPS acquired 100% of the stock of G&A Financial Services,
Inc., a consumer loan servicing company, whose assets consisted primarily of
servicing contracts with respect to loan portfolios owned by third parties. G&A
Financial Services, Inc. has subsequently been dissolved. On September 1, 1991,
CPS was engaged to act as a servicer for loan portfolios aggregating $16.5
million by two companies who had purchased such portfolios from the Resolution
Trust Corp. As of December 31, 1994, CPS had terminated all such third-party
servicing arrangements. On October 1, 1991, CPS began its program of purchasing
Contracts from Dealers and selling them to institutional investors. Through June
30, 1996, CPS had purchased $538.2 million of Contracts from Dealers and sold
$528.0 million of Contracts to institutional investors. CPS continues to service
all of the Contracts it has purchased, including those it has re-sold.
CPS has relationships and is party to Dealer Agreements with over 1,779
dealerships located in 34 states of the United States. CPS purchases Contracts
from Dealers at a discount ranging from 0% to 8% of the total amount financed
under the Contracts. In addition, CPS generally charges Dealers an acquisition
fee to defray the direct administrative costs associated with the processing of
Contracts that are ultimately purchased by CPS. A Dealer Agreement does not
obligate a Dealer to submit Contracts for purchase by CPS, nor does it obligate
CPS to purchase Contracts offered by the Dealers.
CPS purchases Contracts from Dealers with the intent to resell them. CPS
also purchases Contracts from third parties that have been originated by others.
Prior to the issuance of the Certificates, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of the
Contracts receive a pass- through rate of interest set at the time of the sale,
and CPS receives a base servicing fee for its
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<PAGE>
duties relating to the accounting for and collection of the Contracts. In
addition, CPS is entitled to certain excess servicing fees that represent
collections on the Contracts in excess of those required to pay principal and
interest due to the investor and the base servicing fee to CPS. Generally, CPS
sells the Contracts to such institutional investors at face value and without
recourse except that the representations and warranties made to CPS by the
Dealers are similarly made to the investors by CPS. CPS has some credit risk
with respect to the excess servicing fees it receives in connection with the
sale of Contracts to investors and its continued servicing function since the
receipt by CPS of such excess servicing fees is dependent upon the credit
performance of the Contracts.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
Underwriting
CPS markets its services to Dealers under three programs: the CPS standard
program (the "Standard Program"), the CPS Alpha Program (the "Alpha Program")
and the CPS Delta Program (the "Delta Program"). CPS applies underwriting
standards in purchasing loans on new and used vehicles from Dealers based upon
the particular program under which the loan was submitted for purchase. The
Alpha Program guidelines are designed to accommodate applicants who meet all the
requirements of the Standard Program and exceed such requirements in respect of
job stability, residence stability, income level or the nature of the credit
history. The Delta Program guidelines are designed to accommodate applicants who
may not meet all of the requirements of the Standard Program but who are deemed
by CPS to be generally as creditworthy as Standard Program applicants. CPS uses
the degree of the applicant's creditworthiness and the collateral value of the
financed vehicle as the basic criteria in determining whether to purchase an
installment sales contract from a Dealer. Each credit application provides
current information regarding the applicant's employment and residence history,
bank account information, debts, credit references, and other factors that bear
on an applicant's creditworthiness. Upon receiving from the Dealer the completed
application of a prospective purchaser and a one-page Dealer summary of the
proposed financing, generally by facsimile copy, CPS obtains a credit report
compiling credit information on the applicant from three credit bureaus. The
credit report summarizes the applicant's credit history and paying habits,
including such information as open accounts, delinquent payments, bankruptcy,
repossessions, lawsuits and judgments. At this point a CPS loan officer will
review the credit application, Dealer summary and credit report and will either
conditionally approve or reject the application. Such conditional approval or
rejection by the loan officer usually occurs within one business day of receipt
of the credit application. The loan officer determines the conditions to his or
her approval of a credit application based on many factors such as the
applicant's residential situation, downpayment, and collateral value with regard
to the loan, employment history, monthly income level, household debt ratio and
the applicant's credit history. Based on the stipulations of the loan officer,
the Dealer and the applicant compile a more complete application package which
is forwarded to CPS and reviewed by a processor for deficiencies. As part of
this review, references are checked, direct calls are made to the applicant and
employment income and residence verification is done. Upon the completion of his
or her review, the processor forwards the application package to an underwriter
for further review. The underwriter will confirm the satisfaction of any
remaining deficiencies in the application package. Finally, before the loan is
funded, the application package is checked for deficiencies again by a loan
review officer. CPS conditionally approves approximately 50% of the credit
applications it receives and ultimately purchases approximately 20% of the
received applications.
CPS has purchased portfolios of Contracts in bulk from other companies that
had previously purchased the Contracts from Dealers. From July 1, 1994 to July
31, 1995, CPS made four such bulk purchases aggregating approximately $22.9
million. In considering bulk purchases, CPS carefully evaluates the credit
profile and payment history of each portfolio and negotiates the purchase price
accordingly. The credit profiles of the Contracts in each of the portfolios
purchased are consistent with those in the underwriting standards used by the
Company in its normal course of business. Bulk purchases were made at a purchase
price approximately equal to a 7.0% discount from the aggregate principal
balance of the Contracts. The Company has not purchased any portfolios of
Contracts in bulk since July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
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<PAGE>
that will be financed on any vehicle generally will not exceed $25,000. The
maximum term of the Contract depends primarily on the age of the vehicle and its
mileage. Vehicles having in excess of 80,000 miles will not be financed.
The minimum downpayment required on the purchase of a vehicle is generally
10% to 15% of the purchase price. The downpayment may be made in cash, and/or
with a trade-in car and, if available, a proven manufacturer's rebate. The cash
and trade-in value must equal at least 50% of the minimum downpayment required,
with the proven manufacturer's rebate constituting the remainder of the
downpayment. CPS believes that the relatively high downpayment requirement will
result in higher collateral values as a percentage of the amount financed and
the selection of buyers with stronger commitment to the vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS' computerized system for ongoing monitoring.
As loss payee, CPS receives all correspondence relevant to renewals or
cancellations on the policy. Information from all such correspondence is updated
to the computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
cancelled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Servicing and Collections
CPS' servicing activities, both with respect to portfolios of Contracts
sold by it to investors and with respect to portfolios of other receivables
owned or originated by third parties, consist of collecting, accounting for and
posting of all payments received with respect to such Contracts or other
receivables, responding to borrower inquiries, taking steps to maintain the
security interest granted in the Financed Vehicle or other collateral,
investigating delinquencies, communicating with the borrower, repossessing and
liquidating collateral when necessary, and generally monitoring each Contract or
other receivable and related collateral. CPS maintains sophisticated data
processing and management information systems to support its Contract and other
receivable servicing activities.
Upon the sale of a portfolio of Contracts to an investor, or upon the
engagement of CPS by another receivable portfolio owner for CPS' services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a
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<PAGE>
daily deposit to the investor or portfolio owner's account of the day's lock-box
account receipts and a simultaneous electronic data transfer to CPS of the
borrower payment data for posting to CPS' computerized records. Pursuant to the
various servicing agreements with each investor or portfolio owner, CPS is
required to deliver monthly reports reflecting all transaction activity with
respect to the Contracts or other receivables.
If an account becomes six days past due, CPS's collection staff typically
attempts to contact the borrower with the aid of a high-penetration auto-dialing
computer. A collection officer tries to establish contact with the customer and
obtain a promise by the customer to make the overdue payment within seven days.
If payment is not received by the end of such seven-day period, the customer is
called again through the auto dialer system and the collection officer attempts
to elicit a second promise to make the overdue payment within seven days. If a
second promise to make the overdue payment is not satisfied, the account
automatically is referred to a supervisor for further action. In most cases, if
payment is not received by the tenth day after the due date, a late fee of
approximately 5% of the delinquent payment is imposed. If the customer cannot be
reached by a collection officer, a letter is automatically generated and the
customer's references are contacted. Field agents (who are independent
contractors) often make calls on customers who are unreachable or whose payment
is thirty days or more delinquent. A decision to repossess the vehicle is
generally made after 30 to 90 days of delinquency or three unfulfilled promises
to make the overdue payment. Other than granting such limited extensions as are
described under the heading "Description of the Pooling and Servicing Agreements
- -- Servicing Procedures" in the Prospectus. CPS does not modify or rewrite
delinquent Contracts.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994
and under the Alpha Program in April 1995. CPS has found that the delinquency
and net credit loss and repossession experience with respect to the Delta
Program is somewhat greater than under its Standard Program. CPS has found that
the delinquency and net credit loss and repossession experience with respect to
the Alpha Program is somewhat lower than that experienced under the Standard
Program. There can be no assurance, however, that the delinquency and net credit
loss and repossession experience on the Receivables will continue to be
comparable to CPS' experience shown in the following tables.
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<PAGE>
<TABLE>
Consumer Portfolio Services, Inc.
Delinquency Experience
<CAPTION>
December 31, 1993 December 31, 1994
---------------------------------------------- -----------------------------------------
Number of Loans Amount Number of Loans Amount
--------------- ------ --------------- ------
<S> <C> <C> <C> <C>
Portfolio(1) 4,224 $60,725,000 14,235 $203,879,000
Period of Delinquency(2)
31-60 54 806,000 243 3,539,000
61-90 11 182,000 68 1,091,000
91+ 10 167,000 56 876,000
---------------------------------------------- -----------------------------------------------
Total Delinquencies 75 1,155,000 367 5,506,000
Amount in Repossession(3) 44 595,000 271 3,759,000
---------------------------------------------- -----------------------------------------------
Total Delinquencies and 119 $ 1,750,000 638 $ 9,265,000
Amount in Repossession(4)
============================================== ===============================================
Delinquencies as a Percent 1.78% 1.90% 2.58% 2.70%
of the Portfolio
Repo Inventory as a Percent 1.04% 0.98% 1.90% 1.84%
of the Portfolio
Total Delinquencies and 2.82% 2.88% 4.48% 4.54%
Amount in Repossession as
a Percent of Portfolio
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1995 June 30, 1996
------------------------- ------------------------- -------------------------
Number Number Number
of Loans Amount of Loans Amount of Loans Amount
-------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Portfolio(1) 27,113 $355,965,000 20,396 $274,215,000 36,290 $468,633,000
Period of
Delinquency(2)
31-60 909 11,520,000 367 4,899,000 1,401 17,218,000
61-90 203 2,654,000 75 1,011,000 413 5,109,000
91+ 272 3,899,000 95 1,365,000 325 4,266,000
------------ ------------ ------------ ------------ ------------ ------------
Total Delinquencies 1,384 18,073,000 542 7,275,000 2,139 26,593,000
Amount in
Repossession(3) 834 10,151,000 410 5,146,000 842 9,506,000
------------ ------------ ------------ ------------ ------------ ------------
Total Delinquencies
and Amount in
Repossession(4) 2,218 $ 28,224,000 947 $ 12,421,000 2,981 $ 36,099,000
============ ============ ============ ============ ============ ============
Delinquencies as a
Percent of the
Portfolio 5.10% 5.08% 2.63% 2.65% 5.89% 5.67%
Repo Inventory as a
Percent of the
Portfolio 3.08% 2.85% 2.01% 1.88% 2.32% 2.03%
------------ ------------ ------------ ------------ ------------ ------------
Total Delinquencies
and Amount in
Repossession as a
Percent of Portfolio 8.18% 7.93% 4.64% 4.53% 8.21% 7.70%
============ ============ ============ ============ ============ ============
</TABLE>
(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 all Contracts
originated by CPS including sold Contracts CPS continues to service.
(2) CPS considers a Contract delinquent when an obligor fails to make at least
90% of a contractually due payment by the due date. The period of
delinquency is based on the number of days payments are contractually past
due.
(3) Amount in Repossession represents Financed Vehicles which have been
repossessed but not yet liquidated.
(4) Amounts shown do not include Contracts which are less than 31 days
delinquent.
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<PAGE>
<TABLE>
Consumer Portfolio Services, Inc.
Net Credit Loss/Repossession Experience
<CAPTION>
Year Ended Year Ended Year Ended Six Months Ended Six Months Ended
December 31, 1993 December 31, 1994 December 31, 1995 June 30, 1995 June 30, 1995
----------------- ----------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Average Amount Outstanding $ 29,440,272 $ 98,916,991 $221,926,489 $192,445,769 $335,831,271
During the Period (1)
Average Number of Loans 2,762 9,171 20,809 17,976 31,460
Outstanding During the Period
Number of Repossessions 177 669 2,018 774 1,165
Gross Charge-Offs (2) $ 954,704 $ 3,166,408 $ 11,658,461 $ 4,904,458 $ 9,764,349
Recoveries (3) $ 60,963 $ 347,519 $ 1,028,378 $ 314,951 $ 1,181,496
Net Losses $ 893,741 $ 2,818,889 $ 10,630,083 $ 4,589,507 $ 8,582,853
Repossessions as a Percentage of 6.41% 7.29% 9.70% 8.61% 7.41%
Average Number of Loans
Outstanding
Net Losses as a Percentage of 3.04% 2.85% 4.79% 4.77% 5.11%
Average Amount Outstanding
</TABLE>
(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Contract. The information in the table represents all
Contracts originated by CPS including sold Contracts which CPS continues to
service.
(2) Amount charged off includes the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle,
excluding accrued and unpaid interest.
(3) Recoveries are reflected in the period in which they are realized and may
pertain to charge offs from prior periods.
S-25
<PAGE>
THE RECEIVABLES POOL
The Receivables Pool existing as of the Preliminary Cutoff Date consists of
Receivables selected from CPS's Portfolio by several criteria, including the
following: each Receivable was originated, based on the billing address of the
Obligors, in the United States, has an original term of not more than 60
months, provides for level monthly payments which fully amortize the amount
financed over the original term (except for the last payment, which may be
different from the level payment for various reasons, including late or early
payments during the term of the Contract), has a remaining maturity of 60
months or less as of the Preliminary Cutoff Date, has an outstanding principal
balance of not more than $25,000 as of the Preliminary Cutoff Date, is not more
than 30 days past due as of the Preliminary Cutoff Date and has an APR of not
less than 15.00%. As of the date of each Obligor's application for the loan from
which the related Receivable arises, each Obligor (i) did not have any material
past due credit obligations or any repossessions or garnishments of property
within one year prior to the date of application, unless such amounts have been
repaid or discharged through bankruptcy, (ii) was not the subject of any
bankruptcy or insolvency proceeding that is not discharged, and (iii) had not
been the subject of more than one bankruptcy proceeding. As of the Preliminary
Cutoff Date, the latest scheduled maturity of any Receivable is not later than
October 4, 2001. CPS intends to purchase additional Receivables between the
Preliminary Cutoff Date and the Cutoff Date, which Receivables will be
transferred to the Seller and included in the Trust. Such additional Receivables
will be selected by CPS based on substantially the same criteria as was used to
select the Receivables included in the Trust as of the Preliminary Cutoff Date;
however, the actual composition and characteristics of the Receivables as of the
Cutoff Date may differ from the composition and characteristics of the
Receivables as of the Preliminary Cutoff Date. Accordingly, the information
provided in this Prospectus Supplement regarding the composition and
characteristics of the pool of Receivables in the Trust is subject to change to
reflect the actual composition and characteristics of the Receivables as of the
Cutoff Date.
As of the Preliminary Cutoff Date, approximately 85.24% of the aggregate
principal balance of the Receivables Pool, constituting 88.34% of the number of
Contracts, represents financing of used vehicles; the remainder of the
Receivables Pool represents financing of new vehicles. Approximately 11.00% of
the aggregate principal balance of the Receivables were originated under the
Delta Program and approximately 52.35% of the aggregate principal balance of the
Receivables were originated under the Alpha Program and approximately 36.27% of
the aggregate principal balance of the Receivables represent financing under the
Standard Program. Approximately 0.37% of the aggregate principal balance of the
Receivables were originated by third parties and originated by CPS in the
ordinary course of its business. The composition, geographic distribution,
distribution by APR, and distribution by remaining term of the Receivables as of
the Preliminary Cutoff Date are set forth in the following tables.
<TABLE>
Composition of the Receivables as of the Preliminary Cutoff Date
<CAPTION>
Weighted Average Aggregate Number of Average Weighted Weighted
APR Principal Receivables Principal Average Average
of Receivables Balance in Pool Balance Remaining Term Original Term
-------------- ------- ------- ------- -------------- -------------
<S> <C> <C> <C> <C> <C>
20.69% $73,494,607.62 5,824 $12,619.27 54.45 mos. 55.59 mos.
</TABLE>
S-26
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Preliminary Cutoff Date
Percent of
Percent of Aggregate Aggregate
Number of Number of Principal Principal
State(1) Receivables Receivables Balance Balance
- -------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C>
Alabama 216 3.71% $2,578,269.03 3.51%
California 1,583 27.18 21,440,228.33 29.17
Delaware 70 1.20 834,552.01 1.14
Florida 527 9.05 7,175,446.49 9.76
Hawaii 118 2.03 1,299,792.41 1.77
Iowa 78 1.34 825,977.42 1.12
Illinois 276 4.74 3,218,429.82 4.38
Louisiana 167 2.87 2,171,470.05 2.95
Maryland 209 3.59 2,577,527.82 3.51
Michigan 164 2.82 2,131,924.65 2.90
New Jersey 103 1.77 1,149,402.08 1.56
Nevada 215 3.69 2,800,057.45 3.81
New York 236 4.05 2,644,375.51 3.60
Ohio 295 5.07 3,182,902.64 4.33
Pennsylvania 537 9.22 6,755,025.80 9.19
Tennessee 276 4.74 3,311,561.64 4.51
Texas 400 6.87 5,083,610.35 6.92
All Others(2) 354 6.08 4,314,054.12 5.87
----- ------ ------------- ------
TOTAL 5,824 100.00%(3) $73,494,607.62 100.00%(3)
===== ====== ============= ======
</TABLE>
- -------------------------
(1) Based on billing address of Obligor.
(2) No other state represents a percent of the Aggregate Principal Balance as
of the Preliminary Cutoff Date in excess of one percent.
(3) Percentages may not add up to 100% because of rounding.
S-27
<PAGE>
<TABLE>
Distribution of the Receivables by APR as of the Preliminary Cutoff Date
<CAPTION>
Percent of Percent of
APR Number of Number of Aggregate Aggregate
Range Receivables Receivables Principal Balance Principal Balance
- ----- ----------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C>
15.00% to 16.99% 5 0.09% $ 82,936.57 0.11%
17.00% to 17.99% 207 3.55 3,171,813.29 4.32
18.00% to 18.99% 771 13.24 10,963,466.56 14.92
19.00% to 19.99% 76 1.30 979,705.61 1.33
20.00% to 20.99% 1,730 29.70 23,547,051.10 32.04
21.00% to 21.99% 1,842 31.63 21,835,279.67 29.71
22.00% to 22.99% 239 4.10 2,778,131.44 3.78
23.00% to 23.99% 592 10.16 6,396,783.41 8.70
24.00% to 24.99% 146 2.51 1,492,008.23 2.03
25.00% to 25.99% 212 3.64 2,212,972.96 3.01
26.00% and over 4 0.07 34,458.78 0.05
----- ------ -------------- ------
TOTAL 5,824 100.00%(1) $73,494,607.62 100.00%(1)
===== ====== ============= ======
</TABLE>
- -------------
(1) Percentages may not add up to 100% because of rounding.
S-28
<PAGE>
<TABLE>
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Preliminary Cutoff Date
<CAPTION>
Remaining Percent of
Term to Percent Aggregate
Scheduled Number of of Number of Aggregate Principal
Maturity Receivables Receivables Principal Balance Balance
- -------- ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C>
16-20 months 2 0.03% $7,852.35 0.01%
21-25 months 4 0.07 16,814.39 0.02
26-30 months 12 0.21 75,670.39 0.10
31-35 months 334 5.73 2,638,135.69 3.59
36-40 months 255 4.38 2,227,402.00 3.03
41-45 months 232 3.98 2,386,775.21 3.25
46-50 months 862 14.80 9,082,053.07 12.36
51-55 months 914 15.69 11,466,723.29 15.60
56-60 months 3,209 55.10 45,593,181.23 62.04
----- ------ ------------- ------
TOTAL 5,824 100.00%(1) $73,494,607.62 100.00%(1)
===== ====== ============== ======
</TABLE>
- ---------------
(1) Percentages may not add up to 100% because of rounding.
S-29
<PAGE>
<TABLE>
Distribution of Receivables by Model Year of Financed Vehicle as of the Preliminary Cutoff Date
<CAPTION>
Percent of
Percent of Aggregate
Number of Number of Aggregate Principal
Model Year Receivables Receivables Principal Balance Balance
- ---------- ----------- ----------- ----------------- -------
<S> <C> <C> <C> <C>
1988 41 0.70% $ 260,207.85 0.35%
1989 100 1.72 726,889.20 0.99
1990 211 3.62 1,822,928.14 2.48
1991 415 7.13 3,911,371.07 5.32
1992 637 10.94 6,934,314.34 9.44
1993 1,049 18.01 12,308,947.40 16.75
1994 1,310 22.49 17,051,395.51 23.20
1995 1,331 22.85 18,698,423.82 25.44
1996 710 12.19 11,425,665.99 15.55
1997 20 0.34 354,464.30 0.48
----- ------ -------------- ------
TOTAL 5,824 100.00%(1) $73,494,607.62 100.00%(1)
===== ====== ============== ======
</TABLE>
- ---------------
(1) Percentages may not add up to 100% because of rounding.
S-30
<PAGE>
<TABLE>
Distribution of Receivables by Original Principal Balance as of the Preliminary Cutoff Date
<CAPTION>
Percent of
Percent of Aggregate Aggregate
Range of Original Number of Number of Principal Principal
Principal Balances Receivables Receivables Balance Balance
- ------------------ ----------- ----------- ------- -------
<S> <C> <C> <C> <C>
$0 - 4,999 40 0.69% $ 173,422.94 0.24%
5,000 - 9,999 1,370 23.52 11,255,023.11 15.31
10,000 - 14,999 2,976 51.10 36,684,783.34 49.91
15,000 - 19,999 1,179 20.24 19,763,628.76 26.89
20,000 - 25,000 259 4.45 5,617,749.47 7.64
----- ------ -------------- ------
TOTAL 5,824 100.00%(1) $73,494,607.62 100.00%(1)
===== ====== ============== ======
</TABLE>
- ---------------
(1) Percentages may not add up to 100% because of rounding.
S-31
<PAGE>
As of the Preliminary Cutoff Date, approximately 45.11% of the Receivables
in the Receivables Pool provide for allocation of payments according to the "sum
of periodic balances" or "sum of monthly payments" method, similar to the "Rule
of 78's" ("Rule of 78's Receivables") and, approximately 54.89% of the
Receivables in the Receivables Pool in the Trust provide for allocation of
payments according to the "simple interest" method ("Simple Interest
Receivables"). A Simple Interest Receivable provides for the amortization of the
amount financed under the Receivable over a series of fixed level monthly
payments. Each monthly payment consists of an installment of interest which is
calculated on the basis of the outstanding principal balance of the Receivable
multiplied by the stated APR and further multiplied by the period elapsed (as a
fraction of a calendar year) since the preceding payment of interest was made.
As payments are received under a Simple Interest Receivable, the amount received
is applied first to interest accrued to the date of payment and the balance is
applied to reduce the unpaid principal balance. Accordingly, if an Obligor pays
a fixed monthly installment before its scheduled due date, the portion of the
payment allocable to interest for the period since the preceding payment was
made will be less than it would have been had the payment been made as
scheduled, and the portion of the payment applied to reduce the unpaid principal
balance will be correspondingly greater. Conversely, if an Obligor pays a fixed
monthly installment after its scheduled due date, the portion of the payment
allocable to interest for the period since the preceding payment was made will
be greater than it would have been had the payment been made as scheduled, and
the portion of the payment applied to reduce the unpaid principal balance will
be correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
In the event of the prepayment in full (voluntarily or by acceleration) of
a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, rather than receive a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining scheduled payments of interest that would have been due under a Simple
Interest Receivable for which all payments were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Certificateholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
On each Distribution Date, interest on the Receivables will be passed
through to the Certificateholders to the extent of thirty (30) days' interest at
the Class A Pass-Through Rate applied to the Class A Certificate Balance on the
last day of the preceding Collection Period and to the Class B
Certificateholders to the extent of thirty (30) days interest at the Class B
Pass-Through Rate applied to the Class B Certificate Balance on the last day of
the preceding Collection Period; provided, however, that on the first
Distribution Date, Certificateholders will be entitled to interest at the Class
A Pass-Through Rate or the Class B Pass-Through Rate, as applicable, on the
original Class A Certificate Balance or Class B Certificate Balance, as
applicable, from the Closing Date through and including October 14, 1996. In
the event of prepayments on Receivables, Certificateholders will nonetheless be
entitled to receive interest for the full month on the Certificates.
S-32
<PAGE>
All of the Receivables are prepayable at any time. (For this purpose
"prepayments" include prepayments in full, liquidations due to default, as well
as receipts of proceeds from physical damage, credit life and credit accident
and health insurance policies and certain other Receivables repurchased for
administrative reasons.) The rate of prepayments on the Receivables may be
influenced by a variety of economic, social, and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a Receivable without the consent of CPS. In addition, the rate of
prepayments on the Receivables may be affected by the nature of the Obligors and
the Financed Vehicles and servicing decisions. See "Risk Factors -- Nature of
Obligors; Servicing" in this Prospectus Supplement. Any reinvestment risks
resulting from a faster or slower incidence of prepayment of Receivables will be
borne entirely by the Certificateholders. See also "Description of the
Certificates -- Termination" in this Prospectus Supplement regarding the
Servicer's option to purchase the Receivables when the aggregate principal
balance thereof is less than or equal to 10% of the aggregate principal balance
as of the Cutoff Date.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal balance
of the Receivables at the end of the preceding Collection Period, after giving
effect to all payments (other than Payaheads) received from Obligors, all
payments and Purchase Amounts remitted by CPS or the Servicer, as the case may
be, all for such Collection Period, all losses realized on Receivables
liquidated during such Collection Period and any Cram Down Losses with respect
to such Receivables. The Pool Balance is computed by allocating payments to
principal and to interest, with respect to Rule of 78's Receivables, using the
constant yield or actuarial method, and with respect to Simple Interest
Receivables, using the simple interest method. The "Class A Pool Factor" is a
seven-digit decimal which the Servicer will compute each month indicating the
Class A Certificate Balance as a fraction of the initial Class A Certificate
Balance. The "Class B Pool Factor" is a seven-digit decimal which the Servicer
will compute each month indicating the Class B Certificate Balance as a fraction
of the initial Class B Certificate Balance. The Class A Pool Factor and the
Class B Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the
Class A Pool Factor and the Class B Pool Factor will decline to reflect
reductions in the Class A Certificate Balance or Class B Certificate Balance, as
applicable. An individual Certificateholder's share of the Class A Certificate
Balance or Class B Certificate Balance, as applicable, is the product of (i) the
original denomination of the Certificateholder's Certificate and (ii) the Class
A Pool Factor or the Class B Pool Factor, as applicable. The Class A Pool Factor
and the Class B Pool Factor will be made available on or about the eighth
business day of each month.
Pursuant to the Agreement, the Certificateholders will receive monthly
reports concerning the payments received on the Receivables, the Pool Balance,
the Class A Pool Factor, the Class B Pool Factor and various other items of
information. Certificateholders of record during any calendar year will be
furnished information for tax reporting purposes not later than the latest date
permitted by law. See "Description of the Certificates -- Statements to
Certificateholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Certificates will be applied to the purchase of the Receivables from CPS. CPS
will apply the net proceeds received from the Seller to purchase new Contracts
or to repay debt incurred to purchase the Contracts.
S-33
<PAGE>
THE SELLER AND CPS
The Seller is a wholly-owned subsidiary of CPS. The Seller was incorporated
in the State of California in June of 1994. The Seller was organized for the
limited purpose of purchasing automobile installment sale contracts from CPS and
transferring such receivables to third parties and any activities incidental to
and necessary or convenient for the accomplishment of such purposes. The
principal executive offices of the Seller are located at 2 Ada, Suite 100,
Irvine, California 92718; telephone (714) 753-6800. For further information
regarding the Seller and CPS See "The Seller and CPS" in the Prospectus.
STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Distribution
Date for agreeing to stand by as successor Servicer and for performing certain
other functions. Such fee will be payable to the Standby Servicer from the
Servicing Fee payable to CPS. If the Standby Servicer, or any other entity
serving at the time as Standby Servicer, becomes the successor Servicer, it will
receive compensation at a Servicing Fee Rate not to exceed 2.12% per annum.
DESCRIPTION OF THE CERTIFICATES
General
The Class A Certificates initially will be represented by certificates
registered in the name of Cede & Co. ("Cede") as the nominee of The Depository
Trust Company ("DTC"), and will only be available in the form of book-entries on
the records of DTC and participating members thereof in denominations of $1,000.
All references to "holders" or "Class A Certificateholders," and to authorized
denominations, when used with respect to the Class A Certificates, shall reflect
the rights of beneficial owners of the Class A Certificates ("Class A
Certificate Owners"), and limitations thereof, as they may be indirectly
exercised through DTC and its participating members, except as otherwise
specified herein. See "--Registration of Certificates" below.
In general, it is intended that the Class A Certificateholders receive, on
each Distribution Date, a distribution equal to the Class A Distributable Amount
and that the Class B Certificateholders receive, on each Distribution Date, a
distribution equal to the Class B Distributable Amount, as applicable. See "--
Distributions on Certificates" below.
Distributions of interest on the Class B Certificates will be subordinated
in priority of payment to interest due on the Class A Certificates.
Distributions of principal of the Class B Certificates will be subordinated in
priority of payment to interest and principal due on the Class A Certificates.
Accordingly, the Class A Certificates will receive, if necessary, the benefit of
amounts otherwise owing to the Class B Certificateholders as credit enhancement.
Funds representing the interest of the Class B Certificateholders in the Trust
Assets will be applied first to the payment of any amounts due to the Class A
Certificateholders on account of the Class A Interest Distributable Amount and
any Class A Interest Carryover Shortfall before any portion thereof is paid to
the Class B Certificateholders and funds otherwise due to pay principal of the
Class B Certificates will be applied first to the payment of the Class A
Principal Distributable Amount and any Class A Principal Carryover Shortfall
before any portion thereof is paid to the Class B Certificateholders.
S-34
<PAGE>
Registration of Certificates
The Class A Certificates will initially be registered in the name of Cede &
Co. ("Cede"), the nominee of DTC. DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC accepts securities for deposit from its participating organizations
("Participants") and facilitates the clearance and settlement of securities
transactions between Participants in such securities through electronic
book-entry changes in accounts of Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks and trust companies and clearing corporations and may include
certain other organizations. Indirect access to the DTC system is also available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly. See "Certain Information Regarding the Certificates -- Book-Entry
Registration" in the Prospectus.
Sale and Assignment of Receivables
On or prior to the Closing Date, CPS will sell and assign to the Seller,
without recourse, except as provided in the Purchase Agreement, its entire
interest in the Receivables, together with its security interests in the
Financed Vehicles, pursuant to the Purchase Agreement and CPS will sell and
assign to the Trust, without recourse. At the time of issuance of the
Certificates, the Seller will sell and assign to the Trust, without recourse
except as provided in the Agreement, its entire interest in the Receivables,
together with its security interests in the Financed Vehicles. Each Receivable
will be identified in a schedule appearing as an exhibit to the Agreement. The
Trustee will, concurrently with such sale and assignment, execute, authenticate,
and deliver the Certificates to the Seller in exchange for the Receivables. The
Seller will sell the Certificates to the Underwriters. See "Underwriting" in
this Prospectus Supplement.
In the Purchase Agreement, CPS will represent and warrant to the Seller,
among other things, that (i) the information provided with respect to the
Receivables is correct in all material respects; (ii) at the dates of
origination of the Receivables, physical damage insurance covering each Financed
Vehicle was in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the Certificates, the Receivables are free and clear of all
security interests, liens, charges, and encumbrances and no offsets, defenses,
or counterclaims against Dealers have been asserted or threatened; (iv) at the
date of issuance of the Certificates, each of the Receivables is or will be
secured by a first-priority perfected security interest in the Financed Vehicle
in favor of CPS; and (v) each Receivable, at the time it was originated,
complied and, at the date of issuance of the Certificates, complies in all
material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second (or, if CPS elects, the first)
month following the discovery by or notice to the Seller and CPS of a breach of
any representation or warranty that materially and adversely affects a
Receivable, unless the breach is cured, CPS will purchase such Receivable from
the Trust for the Purchase Amount. The "Purchase Amount" equals the unpaid
principal balance owed by the Obligor plus interest thereon at the respective
APR to the last day of the month of repurchase. The repurchase obligation will
constitute the sole remedy available to the Certificateholders, the Certificate
Insurer or the Trustee for any such uncured breach.
On or prior to the Closing Date, the Contracts will be delivered to the
Trustee as custodian, and the Trustee thereafter will maintain physical
possession of the Receivables except as may be necessary for the servicing
thereof by the Servicer. The Receivables will not be stamped to show the
ownership thereof by the Trust. However, CPS's accounting records and computer
systems will reflect the sale and assignment of the Receivables to the Seller,
and Uniform Commercial Code ("UCC") financing statements
S-35
<PAGE>
reflecting such sales and assignments will be filed. See "Formation of the
Trust" in this Prospectus Supplement and "Certain Legal Aspects of the
Receivables" in the Prospectus.
Accounts
A segregated lock-box account will be established and maintained with Bank
of America in the name of the Trustee for the benefit of the Certificateholders
and the Certificate Insurer, into which all payments made by Obligors on or with
respect to the Receivables must be deposited by the Lock-Box Processor (the
"Lock-Box Account"). See "Description of the Pooling and Servicing Agreements --
Payments on Receivables" in the Prospectus. The Trustee will also establish and
maintain initially with itself one or more accounts, in the name of the Trustee
on behalf of the Certificateholders and the Certificate Insurer, into which all
amounts previously deposited in the Lock-Box Account will be transferred within
two Business Days of the receipt of funds therein (the "Collection Account").
Upon receipt, the Servicer will deposit all amounts received by it in respect of
the Receivables in the Lock-Box Account or the Collection Account. The Trustee
will also establish and maintain initially with itself one or more accounts, in
the name of the Trustee on behalf of the Certificateholders and the Certificate
Insurer, from which all distributions with respect to the Certificates and
payments to the Certificate Insurer will be made (the "Certificate Account"). In
addition, the Trustee will establish and maintain initially with itself one or
more accounts, in the name of the Trustee on behalf of the Obligors, in which
early payments with respect to Rule of 78's Receivables by or on behalf of the
Obligors which do not constitute current scheduled payments, late fees or full
repayments will be deposited until such time as the payment falls due or until
such funds are applied to shortfalls in the scheduled payments with respect to
Rule of 78's Receivables (the "Payahead Account"). Until such time as payments
are transferred from the Payahead Account to the Certificate Account, they will
not constitute collected interest or collected principal, and will not be
available for distribution to the Certificateholders. The Collection Account,
Certificate Account and Payahead Account will be maintained with the Trustee so
long as the Trustee's deposits have a rating acceptable to the Certificate
Insurer and the Rating Agencies. If the deposits of the Trustee or its corporate
parent no longer have such acceptable rating, the Trustee shall cause such
Accounts to be moved to a bank acceptable to the Certificate Insurer. In
addition, the Trustee may transfer the Payahead Account at any time to any
depository bank or trust company which is acceptable to the Certificate Insurer.
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Distribution Date, equal to the product of one-twelfth of the Servicing Fee Rate
and the Pool Balance as of the close of business on the last day of the second
preceding Collection Period; provided, however, that with respect to the first
Distribution Date, the Servicing Fee will equal the product of one-twelfth of
the Servicing Fee Rate and the Pool Balance as of the Cutoff Date (the
"Servicing Fee"). So long as CPS is Servicer, a portion of the Servicing Fee,
equal to the Standby Fee, will be payable to the Standby Servicer for agreeing
to stand by as successor Servicer and for performing certain other functions. If
the Standby Servicer, or any other entity serving at the time as Standby
Servicer, becomes the successor Servicer, it will receive compensation at a
Servicing Fee Rate not to exceed 2.12% per annum. See "Standby Servicer" in this
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges and other
administrative fees or similar charges allowed by applicable law with respect to
the Receivables, and will be entitled to reimbursement from the Trust for
certain liabilities. Payments by or on behalf of Obligors will be allocated to
scheduled payments, late fees and other charges and principal and interest in
accordance with the Servicer's normal practices and procedures. The Servicing
Fee will be paid out of collections from the Receivables, prior to distributions
to Certificateholders.
S-36
<PAGE>
The Servicing Fee and additional servicing compensation will compensate the
Servicer for performing the functions of a third party servicer of automotive
receivables as an agent for their beneficial owner, including collecting and
posting all payments, responding to inquiries of Obligors on the Receivables,
investigating delinquencies, sending payment coupons to Obligors, reporting tax
information to Obligors, paying costs of disposition of defaults and policing
the collateral. The Servicing Fee also will compensate the Servicer for
administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Trustee and the Certificate
Insurer with respect to distributions and generating federal income tax
information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions on Certificates
No later than 10:00 a.m., Minneapolis time, on each Determination Date, the
Servicer will inform the Trustee of the amount of aggregate collections on the
Receivables, and the aggregate Purchase Amount of Receivables to be repurchased
by CPS or to be purchased by the Servicer, in each case, with respect to the
related Collection Period. The Servicer will advance any interest shortfall with
respect to Simple Interest Receivables (a "Simple Interest Advance") due to
early payments of the Scheduled Payment on any Determination Date that the
Servicer determines that such shortfall cannot be covered in full by amounts
on deposit in the Spread Account.
On or before each Distribution Date, the Trustee will cause to be
transferred from the Payahead Account to the Certificate Account the amounts
then on deposit in the Payahead Account that constitute scheduled payments due
during the related Collection Period or that may be applied to full prepayments
on the Rule of 78's Receivables.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Interest Distributable Amount, the Class B
Interest Distributable Amount, the Class A Principal Distributable Amount, the
Class B Principal Distributable Amount, the Class A Distributable Amount and the
Class B Distributable Amount.
The "Determination Date" applicable to any Distribution Date will be the
earlier of (i) the seventh business day of the month of such Distribution Date
and (ii) the fifth business day preceding such Distribution Date.
Determination of Total Distribution Amount. The "Total Distribution Amount"
for a Distribution Date (being the funds available for distribution to the
Certificateholders with respect to such Distribution Date in accordance with the
priorities described below) will be the sum of the following amounts with
respect to the preceding Collection Period: (i) all collections on Receivables
(including amounts withdrawn from the Payahead Account but excluding amounts
deposited into the Payahead Account); (ii) all proceeds received during the
Collection Period with respect to Receivables that became Liquidated Receivables
during the Collection Period in accordance with the Servicer's customary
servicing procedures, net of the reasonable expenses incurred by the Servicer in
connection with such liquidation and any amounts required by law to be remitted
to the Obligor on such Liquidated Receivable ("Liquidation Proceeds") in
accordance with the Servicer's customary servicing procedures; (iii) proceeds
from Recoveries with respect to Liquidated Receivables; and (iv) the Purchase
Amount of each Receivable that was repurchased by CPS or purchased by the
Servicer as of the last day of the related Collection Period.
"Liquidated Receivable" means a Receivable (i) which has been liquidated by
the Servicer through the sale of the Financed Vehicle, or (ii) for which the
related Financed Vehicle has been repossessed and 90 days have elapsed since the
date of such repossession, or (iii) as to which an Obligor has failed to make
more than 90% of a scheduled payment of more than ten dollars for 120 or more
days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
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"Purchase Amount" means, with respect to a Receivable, the amount, as of
the close of business on the last day of Collection Period, required to prepay
in full such Receivable under the terms thereof including interest to the end of
the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Payments received on or prior to such
day allocable to principal using the actuarial or constant yield method; (ii) in
the case of a Simple Interest Receivable, that portion of all Scheduled Payments
actually received on or prior to such day allocable to principal using the
Simple Interest Method; (iii) any payment of the Purchase Amount with respect to
the Receivable allocable to principal; (iv) any Cram Down Loss in respect of
such Receivable; and (v) any prepayment in full or any partial prepayment
applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Payment" means, for any Collection Period for any Receivable,
the amount indicated in such Receivable as required to be paid by the Obligor in
such Collection Period (without giving effect to deferments of payments granted
to Obligors by the Servicer pursuant to the Agreement or any rescheduling of
payments in any insolvency or similar proceedings).
Calculation of Distribution Amounts. The Class A Certificateholders
will be entitled to receive, to the extent funds are available therefor, the
"Class A Distributable Amount" with respect to each Distribution Date. The
"Class A Distributable Amount" with respect to a Distribution Date will be an
amount equal to the sum of:
(i) the "Class A Principal Distributable Amount", consisting of the
Class A Percentage of the following:
(a) the principal portion of all Scheduled Payments received
during the preceding Collection Period on Rule of 78's Receivables and
all payments of principal received on Simple Interest Receivables
during such Collection Period (including amounts withdrawn from the
Payahead Account but excluding amounts deposited into the Payahead
Account);
(b) the principal portion of all prepayments in full received
during the preceding Collection Period, including amounts withdrawn
from the Payahead Account with respect to such Distribution Date but
excluding amounts deposited in the Payahead Account (except to the
extent included in clauses (a) or (d));
(c) the principal balance of each Receivable that was repurchased
by CPS or purchased by the Servicer in each case as of the last day of
the preceding Collection Period and at the option of the Certificate
Insurer, the Principal Balance of each Receivable that was required to
be but was not so purchased or repurchased (except to the extent
included in (a) and (b) above);
(d) the principal balance of each Liquidated Receivable which
became such during the preceding Collection Period (except to the
extent included in (a) and (b) above); and
(e) the aggregate amount of Cram Down Losses that occurred during
the preceding Collection Period (a "Cram Down Loss" means with respect
to a Receivable, if
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a court of appropriate jurisdiction in an insolvency proceeding has
issued an order reducing the amount owed on a Receivable or otherwise
modifying or restructuring the Scheduled Payments to be made on a
Receivable, an amount equal to such reduction in Principal Balance of
such Receivable or the net present value (using as the discount rate
the lower of the contract rate or the rate of interest specified by
the court in such order) of the Scheduled Payments as so modified; a
Cram Down Loss shall be deemed to have occurred on the date of
issuance of such order) (the amounts set forth in (a) through (e), the
"Principal Distributable Amount"); plus;
(ii) the "Class A Interest Distributable Amount", consisting of thirty
(30) days' interest at the Class A Pass-Through Rate on the Class A
Certificate Balance as of the close of business on the last day of the
related Collection Period; provided, however, that on the first
Distribution Date, the Class A Interest Distributable Amount will include
interest from and including the Closing Date through and including
[October 14], 1996.
The Class B Certificateholders will be entitled to receive, to the extent
funds are available therefor, the "Class B Distributable Amount" with respect to
each Distribution Date. The "Class B Distributable Amount" with respect to a
Distribution Date will be an amount equal to the sum of:
(i) the "Class B Principal Distributable Amount", consisting of the
Class B Percentage of the Principal Distributable Amount (excluding certain
amounts deposited by the Certificate Insurer at its option); plus
(ii) the "Class B Interest Distributable Amount", consisting of thirty
(30) days' interest at the Class B Pass-Through Rate on the Class B
Certificate Balance as of the close of business on the last day of the
related Collection Period; provided, however, that on the first
Distribution Date, the Class B Interest Distributable Amount will include
interest from and including the Closing Date through and including
[October 14], 1996.
On the Final Scheduled Distribution Date, the Class A Principal
Distributable Amount and the Class B Principal Distributable Amount will equal
the then outstanding Class A Certificate Balance and Class B Certificate
Balance, respectively.
In addition to the foregoing, the Certificate Insurer may with respect to
any Distribution Date exercise its option to make a Certificate Insurer Optional
Deposit, to be distributed in accordance with the direction of the Certificate
Insurer.
"Certificate Insurer Optional Deposit" means, with respect to a
Distribution Date, an amount delivered by the Certificate Insurer, at its sole
option, to the Trustee for deposit into the Collection Account for any of the
following purposes: (i) to provide funds in respect of the payment of fees or
expenses of any provider of services to the Trust with respect to such
Distribution Date; (ii) to distribute as a component of the Class A Principal
Distributable Amount to the extent that the Class A Certificate Balance as of
the Determination Date preceding such Distribution Date exceeds the Class A
Percentage of the Pool Balance as of such Determination Date; or (iii) to
include such amount as part of the Total Distribution Amount for such
Distribution Date to the extent that without such amount a draw would be
required to be made on the Policy.
Priority of Distribution Amounts. On each Determination Date, the Servicer
will calculate the amount to be distributed to the Certificateholders.
On each Distribution Date, the Trustee (based on the Servicer's
determination made on the related Determination Date) shall make the following
distributions in the following order of priority:
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(i) to the Servicer, from the Total Distribution Amount, the Servicing
Fee and all unpaid Servicing Fees from prior Collection Periods; provided,
however, that as long as CPS is the Servicer and Norwest Bank Minnesota,
National Association, is the Standby Servicer, the Trustee will first pay
to the Standby Servicer out of the Servicing Fee otherwise payable to CPS
an amount equal to the Standby Fee;
(ii) in the event the Standby Servicer or any other party becomes the
successor Servicer, to the Standby Servicer or such other successor
Servicer, from the Total Distribution Amount (as such Total Distribution
Amount has been reduced by payments pursuant to clause (i) above), to the
extent not previously paid by the predecessor Servicer pursuant to the
Agreement, reasonable transition expenses (up to a maximum of $50,000)
incurred in acting as successor Servicer;
(iii) to the Trustee, from the Total Distribution Amount (as such
Total Distribution Amount has been reduced by payments pursuant to clauses
(i) and (ii) above), the fees payable to the Trustee for its services
pursuant to the Agreement (the "Trustee Fee") and reasonable out-of-pocket
expenses of the Trustee, (including counsel fees and expenses) and all
unpaid Trustee Fees and all unpaid reasonable out-of-pocket expenses
(including counsel fees and expenses) from prior Collection Periods;
provided, however, that unless an Event of Default shall have occurred and
be continuing, expenses payable to the Trustee pursuant to this clause
(iii) and expenses payable to the collateral agent pursuant to clause (iv)
below, shall be limited to $50,000 per annum;
(iv) to the Collateral Agent, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (iii) above), all fees and expenses payable to the
Collateral Agent with respect to such Distribution Date;
(v) to the Class A Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above) the Class A Interest
Distributable Amount and any Class A Interest Carryover Shortfall as of the
close of the preceding Distribution Date;
(vi) to the Class B Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (v) above) the Class B Interest
Distributable Amount and any Class B Interest Carryover Shortfall as of the
close of the preceding Distribution Date;
(vii) to the Class A Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (vi) above), the Class A Principal
Distributable Amount and any Class A Principal Carryover Shortfall as of
the close of the preceding Distribution Date with respect to each
Distribution Date;
(viii) to the Certificate Insurer, from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments made
pursuant to clauses (i) through (vii) above), any amounts due to the
Certificate Insurer under the terms of the Agreement and under the
Insurance Agreement;
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(ix) to the Class B Certificateholders, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (viii) above) the Class B Principal
Distributable Amount and any Class B Principal Carryover Shortfall as of
the close of the preceding Distribution Date; and
(x) to the Collateral Agent, for deposit in to the Spread Account,
the remaining Total Distribution Amount, if any.
The right of the Class B Certificateholders to receive distributions of
interest pursuant to clause (vi) above will be subordinated to the prior payment
in full of all amounts payable pursuant to clauses (i) through (v). The right of
the Class B Certificateholders to receive distributions of principal pursuant to
clause (ix) above will be subordinated to the prior payment in full of all
amounts payable pursuant to clauses (i) through (viii).
For purposes hereof, the following terms shall have the following meanings:
"Class A Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Interest Distributable Amount for
such Distribution Date, plus any outstanding Class A Interest Carryover
Shortfall from the preceding Distribution Date, plus interest on such
outstanding Class A Interest Carryover Shortfall, to the extent permitted by
law, at the Class A Pass-Through Rate from such preceding Distribution Date
through the current Distribution Date, over the amount of interest that the
holders of the Class A Certificates actually received on such current
Distribution Date.
"Class A Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class A Principal Distributable Amount plus
any outstanding Class A Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class A
Certificates actually received on such current Distribution Date.
"Class B Interest Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Interest Distributable Amount for
such Distribution Date, plus any outstanding Class B Interest Carryover
Shortfall from the preceding Distribution Date, plus interest on such
outstanding Class B Interest Carryover Shortfall, to the extent permitted by
law, at the Class B Pass-Through Rate from such preceding Distribution Date
through the current Distribution Date, over the amount of interest that the
holders of the Class B Certificates actually received on such current
Distribution Date.
"Class B Principal Carryover Shortfall" means, as of the close of any
Distribution Date, the excess of the Class B Principal Distributable Amount plus
any outstanding Class B Principal Carryover Shortfall from the preceding
Distribution Date over the amount of principal that the holders of the Class B
Certificates actually received on such current Distribution Date.
On the third business day prior to a Distribution Date, the Trustee will
determine, based on a certificate from the Servicer, whether there are amounts
sufficient, after payment of amounts as set forth in the priorities of
distribution in the Agreement, to distribute the Class A Distributable Amount.
Pursuant to the Policy, the Certificate Insurer will unconditionally and
irrevocably guarantee to the Class A Certificateholders payment of the Class A
Guaranteed Distribution Amount. See "The Policy" in this Prospectus Supplement.
The Spread Account. As part of the consideration for the issuance of the
Policy, the Seller has agreed to cause to be established with Norwest Bank
Minnesota, National Association (in such capacity, the "Collateral Agent") an
account (the "Spread Account") for the benefit of the Certificate Insurer and
the Trustee on behalf of the Class A Certificateholders. The Collateral Agent
will not hold the Requisite Amount for the benefit of the Class B
Certificateholders. Any portion of the Total Distribution Amount
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remaining on any Distribution Date after payment of all fees and expenses due on
such date to the Servicer, the Standby Servicer, the Trustee and the Collateral
Agent and all principal and interest payments due to the Certificateholders on
such Distribution Date, will be deposited in the Spread Account and held by the
Collateral Agent for the benefit of the Certificate Insurer and the Trustee on
behalf of the Class A Certificateholders. If on any Distribution Date, the Total
Distribution Amount is insufficient (taking into account the application of the
Total Distribution Amount to the payment of the Class B Interest Distributable
Amount and any Class B Interest Carryover Shortfall) to pay all distributions
required to be made on such day pursuant to priorities (i), (ii), (iii), (iv),
(v), (vii) and (viii) under " -- Priority of Distribution Amounts", then amounts
on deposit in the Spread Account will be applied to pay the amounts due on such
Distribution Date pursuant to such priorities (i), (ii), (iii), (iv), (v),
(vii) and (viii).
Amounts on deposit in the Spread Account on any Distribution Date which
(after all payments required to be made on such Distribution Date have been
made) are in excess of the Requisite Amount will be released to the Seller on
such Distribution Date; provided, however, that if, prior to such Distribution
Date, the Servicer has notified the Trustee that there exists a Class B
Deficiency Amount, then the Trustee, will direct the Collateral Agent to remit
to the Trustee from such funds being released on such Distribution Date, an
amount equal to such Class B Deficiency Amount for application to pay the
amounts due to the Class B Certificateholders on such Distribution Date.
So long as an Insurer Default shall not have occurred and be continuing,
the Certificate Insurer will be entitled to exercise in its sole discretion all
rights under the Master Spread Account Agreement with respect to the Spread
Account and any amounts on deposit therein and will have no liability to the
Trustee or the Certificateholders for the exercise of such rights. The
Certificate Insurer (so long as an Insurer Default shall not have occurred and
be continuing) may, with the written consent of CPS, the Seller and the
Collateral Agent but without the consent of the Trustee or any
Certificateholder, reduce the Requisite Amount or modify any term of the Master
Spread Account Agreement (including terminating the Master Spread Account
Agreement and releasing all funds on deposit in the Spread Account); provided,
however, that the Certificate Insurer will agree that it will not reduce the
Requisite Amount or modify or terminate the Master Spread Account Agreement such
that the Class A Certificates, without the benefit of the Policy, would be rated
less than "BBB" by Standard & Poor's or "Baa2" by Moody's. Because the Requisite
Amount or the existence of the Spread Account may be modified or terminated by
the Certificate Insurer as described above, there is no assurance that funds
will be available in the Spread Account to pay principal of or interest on the
Certificates in the event that collections on the Receivables and other amounts
available under the Pooling and Servicing Agreement are insufficient to make any
distribution of principal of or interest on the Certificates on any Distribution
Date.
Statements to Certificateholders
On each Distribution Date, the Trustee will include with each distribution
to each Certificateholder of record as of the close of business on the
applicable Record Date and each rating agency that is currently rating the
Certificates a statement (prepared by the Servicer) setting forth the following
information with respect to the preceding Collection Period, to the extent
applicable:
(i) the amount of the distribution allocable to principal of the Class
A Certificates and the Class B Certificates, respectively;
(ii) the amount of the distribution allocable to interest on the Class
A Certificates and the Class B Certificates, respectively;
(iii) the Pool Balance, the Class A Pool Factor and the Class B Pool
Factor as of the close of business on the last day of the preceding
Collection Period;
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(iv) the aggregate Class A Certificate Balance as of the close of
business on the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under (i) above;
(v) the aggregate Class B Certificate Balance as of the close of
business on the last day of the preceding Collection Period, after giving
effect to payments allocated to principal reported under (i) above;
(vi) the amount of the Servicing Fee paid to the Servicer with respect
to the related Collection Period and the Class A Percentage and the Class B
Percentage of the Servicing Fee (inclusive of the Standby Fee), the amount
of any unpaid Servicing Fees and the change in such amount from that of the
prior Distribution Date;
(vii) the amount of the Class A Interest Carryover Shortfall, if
applicable, and Class A Principal Carryover Shortfall, if applicable, on
such Distribution Date and the change in such amounts from those on the
prior Distribution Date;
(viii) the amount of the Class B Interest Carryover Shortfall, if
applicable, and Class B Principal Carryover Shortfall, if applicable, on
such Distribution Date and the change in such amounts from those on the
prior Distribution Date;
(ix) the amount paid to the Class A Certificateholders under the
Policy for such Distribution Date;
(x) the amount distributable to the Certificate Insurer on such
Distribution Date;
(xi) the aggregate amount in the Payahead Account and the Spread
Account and the change in such amount from the previous Distribution Date;
(xii) the number of Receivables and the aggregate gross amount
scheduled to be paid thereon, including unearned finance and other charges,
for which the related Obligors are delinquent in making scheduled payments
between 31 and 59 days and 60 days or more; and
(xiii) the number and the aggregate Purchase Amount of Receivables
repurchased by CPS or purchased by the Servicer.
Each amount set forth pursuant to subclauses (i), (ii), (vi), (vii) and
(viii) above shall be expressed in the aggregate and as a dollar amount per
$1,000 of original principal balance of a Certificate.
Within the prescribed period of time for tax reporting purposes after the
end of each calendar year during the term of the Agreement, the Trustee will
mail to each person who at any time during such calendar year shall have been a
Certificateholder and received any payment on such holder's Certificates, a
statement (prepared by the Servicer) containing the sum of the amounts described
in (i), (ii) and (vi) above for the purposes of such Certificateholder's
preparation of federal income tax returns. See "Description of the Certificates
- -- Statements to Certificateholders" in this Prospectus Supplement. See "Certain
Federal Income Tax Consequences" in this Prospectus Supplement.
Evidence as to Compliance
The Agreement will provide that a firm of independent certified public
accountants will furnish to the Trustee and the Certificate Insurer on or before
July 31 of each year, beginning July 31, 1997, a report as to compliance by the
Servicer during the preceding twelve months ended March 31 with certain
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standards relating to the servicing of the Receivables (or in the case of the
first such certificate, the period from the Closing Date to March 31, 1997).
The Agreement will also provide for delivery to the Trustee and the
Certificate Insurer, on or before July 31 of each year, commencing July 31, 1997
of a certificate signed by an officer of the Servicer stating that the Servicer
has fulfilled its obligations under the Agreement throughout the preceding
twelve months ended March 31 or, if there has been a default in the fulfillment
of any such obligation, describing each such default (or in the case of the
first such certificate, the period from the Cutoff Date to March 31, 1997). The
Servicer has agreed to give the Trustee and the Certificate Insurer notice of
any Events of Default under the Agreement.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the Trustee.
Certain Matters Regarding the Servicer
The Agreement will provide that the Servicer may not resign from its
obligations and duties as Servicer thereunder except upon determination that its
performance of such duties is no longer permissible under applicable law and
with the consent of the Certificate Insurer. No such resignation will become
effective until a successor servicer has assumed the servicing obligations and
duties under the Agreement. In the event CPS resigns as Servicer or is
terminated as Servicer, the Standby Servicer has agreed pursuant to the
Servicing Assumption Agreement to assume the servicing obligations and duties
under the Agreement.
The Agreement will further provide that neither the Servicer nor any of its
directors, officers, employees, and agents will be under any liability to the
Trust or the Certificateholders for taking any action or for refraining from
taking any action pursuant to the Agreement, or for errors in judgment;
provided, however, that neither the Servicer nor any such person will be
protected against any liability that would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties or by
reason of reckless disregard of obligations and duties thereunder. In addition,
the Agreement will provide that the Servicer is under no obligation to appear
in, prosecute, or defend any legal action that is not incidental to its
servicing responsibilities under the Agreement and that, in its opinion, may
cause it to incur any expense or liability.
Under the circumstances specified in the Agreement any entity into which
the Servicer may be merged or consolidated, or any entity resulting from any
merger or consolidation to which the Servicer is a party, or any entity
succeeding to the business of the Servicer which corporation or other entity in
each of the foregoing cases assumes the obligations of the Servicer, will be the
successor of the Servicer under the Agreement.
The Servicer is retained for an initial term commencing on the Closing Date
and ending on December 31, 1996, which term may be extended in ninety day
increments by the Certificate Insurer. In the absence of an Event of Default
under the Agreement, the Certificate Insurer has agreed to extend such term. See
"Description of the Certificates -- Certain Matters Regarding the Servicer" in
the Prospectus.
Events of Default
"Events of Default" under the Agreement will consist of (i) any failure by
the Servicer to deliver to the Trustee for distribution to the
Certificateholders any required payment, which failure continues unremedied for
two Business Days, or any failure to deliver to the Trustee the annual
accountants report, the annual statement as to compliance or the statement to
the Certificateholders, in each case, within five days of the date it is due;
(ii) any failure by the Servicer or the Seller, as the case may be, duly to
observe
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or perform in any material respect any other covenant or agreement in the
Agreement which continues unremedied for 30 days after the giving of written
notice of such failure (1) to the Servicer or the Seller, as the case may be, by
the Certificate Insurer or by the Trustee, or (2) to the Servicer or the Seller,
as the case may be, and to the Trustee and the Certificate Insurer by the
holders of Class A Certificates evidencing not less than 25% of the Class A
Certificate Balance or, after the Class A Certificates have been paid in full
and all outstanding amounts due to the Certificate Insurer have been paid in
full, by the holders of Class B Certificates evidencing not less than 25% of the
Class B Certificate Balance; (iii) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings with respect
to the Servicer or the Seller, or, so long as CPS is Servicer, of any of its
affiliates, and certain actions by the Servicer, the Seller or, so long as CPS
is Servicer, of any of its affiliates, indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations; or (iv)
the occurrence of an Event of Default under the Insurance Agreement.
Rights Upon Event of Default
As long as an Event of Default under the Agreement remains unremedied, (x)
provided no Insurer Default shall have occurred and be continuing, the
Certificate Insurer in its sole and absolute discretion or (y) if an Insurer
Default shall have occurred and be continuing, then the Trustee or the holders
of Class A Certificates evidencing not less than 25% of the Class A Certificate
Balance or (z) if the Class A Certificates have been paid in full and either (i)
all outstanding amounts due to the Certificate Insurer have been paid in full or
(ii) an Insurer Default shall have occurred and be continuing, then either the
Trustee or the holders of Class B Certificates evidencing not less than 25% of
the Class B Certificate Balance, may terminate all the rights and obligations of
the Servicer under the Agreement, whereupon the Standby Servicer, or such other
successor Servicer as shall be or have been appointed by the Certificate Insurer
(or, if an Insurer Default shall have occurred and be continuing, by the Trustee
or the Class A or Class B Certificateholders, as described above) will succeed
to all the responsibilities, duties and liabilities of the Servicer under such
Agreement; provided, however, that such successor Servicer shall have no
liability with respect to any obligation which was required to be performed by
the predecessor Servicer prior to the date such successor Servicer becomes the
Servicer or the claim of a third party (including a Certificateholder) based on
any alleged action or inaction of the predecessor Servicer as Servicer.
"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing: (i) the Certificate Insurer fails to make a payment
required under the Policy in accordance with its terms; (ii) the Certificate
Insurer (A) files any petition or commences any case or proceeding under any
provision or chapter of the United States Bankruptcy Code or any other similar
federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, (B) makes a general assignment for the benefit of
its creditors, or (C) has an order for relief entered against it under the
United States Bankruptcy Code or any other similar federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which
is final and nonappealable; or (iii) a court of competent jurisdiction, the New
York Department of Insurance or other competent regulatory authority enters a
final and nonappealable order, judgment or decree (A) appointing a custodian,
trustee, agent or receiver for the Certificate Insurer or for all or any
material portion of its property or (B) authorizing the taking of possession by
a custodian, trustee, agent or receiver of the Certificate Insurer (or the
taking of possession of all or any material portion of the property of the
Certificate Insurer).
Waiver Of Past Defaults
With respect to the Trust, subject to the approval of the Certificate
Insurer, the holders of Certificates evidencing at least a majority of the
voting rights of such then outstanding Certificates may, on behalf of all
Certificateholders of the related Certificates, waive any default by the
Servicer in the performance of its obligations under the Pooling and Servicing
Agreement and its consequences, except a default in making any required deposits
to or payments from any of the Trust Accounts in accordance with
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the Pooling and Servicing Agreement. No such waiver shall impair the
Certificateholders' rights with respect to subsequent defaults.
Termination
The obligations of the Servicer, the Seller and the Trustee pursuant to the
Agreement will terminate upon (i) the maturity or other liquidation of the last
Receivable and the disposition of any amounts received upon liquidation of any
remaining Receivables and (ii) the payment to Certificateholders of all amounts
required to be paid to them pursuant to the Agreement and the expiration of any
preference period related thereto.
In order to avoid excessive administrative expense, the Servicer, or its
successor, is permitted at its option to purchase from the Trust (with the
consent of the Certificate Insurer if such purchase would result in a claim
under the Policy or any amount owing to the Certificate Insurer or on the
Certificates would remain unpaid), as of the last day of any month as of which
the then outstanding Pool Balance is equal to 10% or less of the original Pool
Balance, all remaining Receivables at a price equal to the aggregate of the
Purchase Amounts thereof as of such last day. Exercise of such right will effect
early retirement of the Certificates. The Trustee will give written notice of
termination to each Certificateholder of record. The final distribution to any
Certificateholder will be made only upon surrender and cancellation of such
holder's Certificate at the office or agency of the Trustee specified in the
notice of termination. Any funds remaining with the Trustee, after the Trustee
has taken certain measures to locate a Certificateholder and such measures have
failed, will be distributed to The American Red Cross.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Class A Certificates, the
Certificate Insurer will deliver the Policy to the Trustee for the benefit of
each Class A Certificateholder. Under the Policy, the Certificate Insurer
unconditionally and irrevocably guarantees to the Trustee for the benefit of
each Class A Certificateholder the full and complete payment of (i) the Class A
Guaranteed Distribution Amount with respect to the Class A Certificates; and
(ii) any Class A Guaranteed Distribution Amount which subsequently is avoided in
whole or in part as a preference payment under applicable law.
"Class A Guaranteed Distribution Amount" means, with respect to each
Distribution Date, the distribution to be made to the Class A Certificateholders
in an amount equal to the Class A Interest Distributable Amount and the Class A
Principal Distributable Amount due and payable on such Distribution Date, in
each case in accordance with the original terms of the Class A Certificates when
issued and without regard to any amendment or modification of the Certificates
or the Agreement which has not been consented to by the Certificate Insurer. The
Class A Guaranteed Distribution Amount shall not include, nor shall coverage be
provided under the Policy in respect of, any taxes, withholding or other charge
imposed with respect to any Class A Certificateholder by any governmental
authority.
Payment of claims on the Policy made in respect of the Class A Guaranteed
Distribution Amount will be made by the Certificate Insurer following Receipt by
the Certificate Insurer of the appropriate notice for payment on the later to
occur of (a) 12:00 noon, New York City time, on the third Business Day following
Receipt of such notice for payment, and (b) 12:00 noon, New York City time, on
the Distribution Date on which such payment was due on the Class A Certificates.
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If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Certificate Insurer shall cause such payment to be made on the
later of the date when due to be paid pursuant to the Order referred to below or
the first to occur of (a) the fourth Business Day following Receipt by the
Certificate Insurer from the Trustee of (i) a certified copy of the order (the
"Order") of the court or other governmental body which exercised jurisdiction to
the effect that the Class A Certificateholder is required to return the amount
of any Class A Guaranteed Distribution Amount distributed with respect to the
Class A Certificates during the term of the Policy because such distributions
were avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Class A Certificateholder that the Order has been entered and
is not subject to any stay, and (iii) an assignment duly executed and delivered
by the Class A Certificateholder, in such form as is reasonably required by the
Certificate Insurer and provided to the Class A Certificateholder by the
Certificate Insurer, irrevocably assigning to the Certificate Insurer all rights
and claims of the Class A Certificateholder relating to or arising under the
Class A Certificates against the debtor which made such preference payment or
otherwise with respect to such preference payment, or (b) the date of Receipt by
the Certificate Insurer from the Trustee of the items referred to in clauses
(i), (ii) and (iii) above if, at least four Business Days prior to such date of
Receipt, the Certificate Insurer shall have received written notice from the
Trustee that such items were to be delivered on such date and such date was
specified in such notice. Such payment shall be disbursed to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order
and not to the Trustee or any Class A Certificateholder directly (unless a Class
A Certificateholder has previously paid such amount to the receiver,
conservator, debtor-in-possession or trustee in bankruptcy named in the Order,
in which such payment shall be disbursed to the Trustee for distribution to such
Class A Certificateholder upon proof of such payment reasonably satisfactory to
the Certificate Insurer). In connection with the foregoing, the Certificate
Insurer shall have the rights provided pursuant to the Agreement.
The terms "Receipt" and "Received" with respect to the Policy, shall mean
actual delivery to the Certificate Insurer and to its fiscal agent, if any,
prior to 12:00 noon, New York City time, on a Business Day; delivery either on a
day that is not a Business Day or after 12:00 noon, New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice or
certificate given under the Policy by the Trustee is not in proper form or is
not properly completed, executed or delivered, it shall be deemed not to have
been Received, and the Certificate Insurer or its fiscal agent shall promptly so
advise the Trustee and the Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a Saturday or
Sunday or (ii) a day on which banking institutions in the City of New York, New
York or Minneapolis, Minnesota, or any other location of any successor Trustee
or successor Collateral Agent are authorized or obligated by law or executive
order to be closed.
The Certificate Insurer's obligations under the Policy in respect of the
Class A Guaranteed Distribution Amount shall be discharged to the extent funds
are transferred to the Trustee as provided in the Policy whether or not such
funds are properly applied by the Trustee.
The Certificate Insurer shall be subrogated to the rights of each Class A
Certificateholder to receive payments of principal and interest to the extent of
any payment by the Certificate Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Certificate Insurer ranking not less than pari passu with
other unsecured and unsubordinated indebtedness of the Certificate Insurer for
borrowed money. Claims against the Certificate Insurer under the Policy and
claims against the Certificate Insurer under each other financial guaranty
insurance policy issued thereby constitute pari passu claims against the general
assets of the Certificate Insurer. The terms of the Policy cannot be modified or
altered by any other agreement or instrument, or by the merger, consolidation or
dissolution of the Trust. The Policy may not be canceled or revoked prior to
distribution in full of all
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<PAGE>
Class A Guaranteed Distribution Amounts with respect to the Class A
Certificates. The Policy is not covered by the Property/Casualty Insurance
Security Fund specified in Article 76 of the New York Insurance Law. The Policy
is governed by the laws of the State of New York.
THE CERTIFICATE INSURER
General
Financial Security Assurance Inc. (for purposes of this Section, "Financial
Security") is a monoline insurance company incorporated in 1984 under the laws
of the State of New York. Financial Security is licensed directly or through its
subsidiaries to engage in financial guaranty insurance business in all 50
states, the District of Columbia and Puerto Rico.
Financial Security and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those securities
- -- in consideration for the payment of a premium to the insurer. Financial
Security and its subsidiaries principally insure asset-backed, collateralized
and municipal securities. Asset-backed securities are generally supported by
residential mortgage loans, consumer or trade receivables, securities or other
assets having an ascertainable cash flow or market value. Collateralized
securities include public utility first mortgage bonds and sale/leaseback
obligation bonds. Municipal securities consist largely of general obligation
bonds, special revenue bonds and other special obligations of state and local
governments. Financial Security insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy Financial Security's underwriting criteria.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U S West Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder of Holdings is obligated to pay any debt of Financial Security or
any claim under any insurance policy issued by Financial Security or to make any
additional contribution to the capital of Financial Security.
The principal executive offices of Financial Security are located at 350
Park Avenue, New York, New York 10022, and its telephone number at that location
is (212) 826-0100.
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial guaranty
insurance written or reinsured from third parties by Financial Security or any
of its domestic operating insurance company subsidiaries are reinsured among
such companies on an agreed-upon percentage substantially proportional to their
respective capital, surplus and reserves, subject to applicable statutory risk
limitations. In addition, Financial Security reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other reinsurers under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by Financial
Security as a risk management device and to comply with certain
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statutory and rating agency requirements; it does not alter or limit Financial
Security's obligations under any financial guaranty insurance policy.
Rating of Claims-Paying Ability
Financial Security's claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, a
division of McGraw-Hill, Inc., Nippon Investors Service Inc. and Standard &
Poor's (Australia) Pty. Ltd. Such ratings reflect only the views of the
respective rating agencies, are not recommendations to buy, sell or hold
securities and are subject to revision or withdrawal at any time by such rating
agencies. See "Risk Factors -- Ratings of the Certificates" in this Prospectus
Supplement.
Capitalization
The following table sets forth the capitalization of Financial Security and
its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of June 30, 1996 (in thousands):
June 30, 1996
-------------
(unaudited)
Deferred Premium Revenue (net
of prepaid reinsurance premiums) $351,180
----------
Shareholder's Equity:
Common Stock 15,000
Additional Paid-In Capital 681,470
Unrealized Loss on Investments
(net of deferred income taxes) (5,685)
Accumulated Earnings 94,287
----------
Total Shareholder's Equity 785,072
----------
Total Deferred Premium Revenue and Shareholder's
Equity $1,136,252
==========
For further information concerning Financial Security, see the Consolidated
Financial Statements of Financial Security and Subsidiaries, and the notes
thereto, incorporated by reference herein. Copies of the statutory quarterly and
annual statements filed with the State of New York Insurance Department by
Financial Security are available upon request to the State of New York Insurance
Department.
Insurance Regulation
Financial Security is licensed and subject to regulation as a financial
guaranty insurance corporation under the laws of the State of New York, its
state of domicile. In addition, Financial Security and its insurance
subsidiaries are subject to regulation by insurance laws of the various other
jurisdictions in which they are licensed to do business. As a financial guaranty
insurance corporation licensed to do business in the State of New York,
Financial Security is subject to Article 69 of the New York Insurance Law which,
among other things, limits the business of each insurer to financial guaranty
insurance and related lines, requires that each such insurer maintain a minimum
surplus to policyholders, establishes contingency, loss and unearned premium
reserve requirements for each such insurer, and limits the size of individual
transactions ("single risks") and the volume of transactions ("aggregate risks")
that may be underwritten by each such insurer. Other provisions of the New York
Insurance Law, applicable to non-life insurance companies such as Financial
Security, regulate, among other things, permitted investments, payment of
dividends, transactions with affiliates, mergers, consolidations, acquisitions
or sales of assets and incurrence of liability for borrowings.
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The Policy is not covered by the Property/Casualty Insurance Security Fund
specified in Article 76 of the New York Insurance Law.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension, profit
sharing or other employee benefit plan subject to ERISA and an individual
retirement account (collectively, "Benefit Plans") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to the plan. ERISA also
imposes certain duties and certain prohibitions on persons who are fiduciaries
of plans subject to ERISA. Generally, any person who exercises any authority or
control with respect to the management or disposition of the assets of a plan
subject to ERISA is considered to be a fiduciary of such plan. A violation of
these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and the Code.
Pursuant to a regulation issued by the Department of Labor concerning the
definition of what constitutes the "plan assets" of a Benefit Plan, the assets
and properties of certain entities in which a Benefit Plan makes an equity
investment could be deemed to be assets of the Benefit Plan in certain
circumstances. Accordingly, if a Benefit Plan purchases a Certificate, the Trust
could be deemed to hold plan assets. If the assets of the Trust were deemed to
constitute plan assets of a Benefit Plan, the Benefit Plan's investment in the
Certificates might be deemed to constitute delegation under ERISA of the duty to
manage plan assets by the fiduciaries making the decision on behalf of the
Benefit Plan to make the investment, and transactions involving the Trust and
the Trust Assets might be viewed as transactions with the Benefit Plan for the
purpose of ERISA's fiduciary and prohibited transaction rules.
The Department of Labor has granted Alex. Brown & Sons Incorporated an
administrative exemption (Prohibited Transaction Exemption 95-84, 59 Fed. Reg.
65,400 (1994)) (the "Exemption") from certain of the prohibited transaction
rules of ERISA with respect to the initial purchase, the purchase in the
secondary market and the holding and the subsequent resale by Benefit Plans of
certificates in certain trusts with respect to which Alex. Brown & Sons
Incorporated is the sole underwriter or placement agent or the managing or
co-managing underwriter or placement agent in an underwriting syndicate or
selling group and that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption. The
obligations covered by the Exemption include retail installment sale contracts
such as the Receivables. The Exemption would apply to the acquisition, holding
and resale of the Class A Certificates by a Benefit Plan only if specific
conditions (certain of which are described below) are met. It is not clear
whether the Exemption applies to participant directed plans as described in
Section 404(c) of ERISA or plans that are subject to Section 4975 of the Code
but that are not subject to Title I of ERISA, such as certain Keogh plans and
certain individual retirement accounts.
Among the conditions which must be satisfied for the Exemption to apply to
the acquisition by a Benefit Plan of the Class A Certificates are the following:
(1) The acquisition of the Class A Certificates by a Benefit Plan is on
terms (including the price for the Class A Certificates) that are at least
as favorable to the Benefit Plan as they would be in an arm's-length
transaction with an unrelated party;
(2) The rights and interests evidenced by the Class A Certificates acquired
by the Benefit Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
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(3) The Class A Certificates acquired by the Benefit Plan have a rating at
the time of such acquisition that is in one of the three highest generic
rating categories from Standard & Poor's Corporation, Moody's Investors
Service, Inc., Duff & Phelps Inc. or Fitch Investors Service, Inc.;
(4) The sum of all payments made to the Underwriters in connection with the
distribution of the Class A Certificates represents not more than
reasonable compensation for placement of the Class A Certificates. The sum
of all payments made to and retained by the Seller pursuant to the sale of
the Receivables to the Trust represents not more than the fair market value
of such Receivables. The sum of all payments made to and retained by the
Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith;
(5) The Trustee is not an "affiliate" (as defined in the Exemption) of the
Seller, the Underwriters, the Servicer, the Certificate Insurer or any
"obligor" (as defined in the Exemption) with respect to Receivables
included in the Trust constituting more than 5% of the aggregate
unamortized principal balance of the assets in the Trust (including the
Trustee, the "Restricted Group");
(6) The Benefit Plan investing in the Class A Certificates is an
"accredited investor" as defined in Rule 501(a)(1) of Regulation D under
the Securities Act; and
(7) The Trust satisfies the following requirements:
(a) the corpus of the Trust consists solely of assets of the type
which have been included in other investment pools,
(b) certificates in such other investment pools have been rated in one
of the three highest generic rating categories of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Duff & Phelps Inc. or
Fitch Investors Service, Inc. for at least one year prior to the
Benefit Plan's acquisition of Class A Certificates, and
(c) certificates evidencing interests in such other investment pools
have been purchased by investors other than Benefit Plans for at least
one year prior to any Benefit Plan's acquisition of Class A
Certificates.
The Exemption does not provide an exemption from ERISA Sections
406(a)(1)(E), 406(a)(2) or 407 for the purchase or holding of Class A
Certificates to any person who has discretionary authority or renders investment
advice to Benefit Plans sponsored by any member of the Restricted Group or any
affiliate of such person.
Exemptive relief from the self-dealing/conflict of interest prohibited
transaction rules of ERISA is available to an obligor acting as a fiduciary with
respect to the investment of a Benefit Plan's assets in the Class A Certificates
(or such person's affiliate) only if, among other requirements (i) such
fiduciary (or its affiliate) is an obligor with respect to 5% percent or less of
the fair market value of the Trust Assets, (ii) a Benefit Plan's investment in
Class A Certificates does not exceed 25% of all of the Class A Certificates
outstanding at the time of the acquisition, (iii) immediately after the
acquisition, no more than 25% of the assets of the Benefit Plan are invested in
certificates representing an interest in trusts (including the Trust) containing
assets sold or serviced by the same entity, and (iv) in the case of the
acquisition of the Class A Certificates in connection with their initial
issuance, at least 50% of the Class A Certificates are acquired by persons
independent of the Restricted Group and at least 50% of the aggregate interest
in the Trust is acquired by persons independent of the Restricted Group.
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The Exemption also applies to transactions in connection with the
servicing, management and operation of the Trust, provided that, in addition to
the general requirements described above, (a) such transactions are carried out
in accordance with the terms of a binding pooling and servicing agreement and
(b) the pooling and servicing agreement is provided to, or described in all
material respects in the prospectus or private placement memorandum provided to,
investing Benefit Plans before their purchase of certificates issued by the
Trust. The Agreement is a pooling and servicing agreement as defined in the
Exemption. All transactions relating to the servicing, management, and
operations of the Trust will be carried out in accordance with the Agreement.
See "Description of the Certificates" in this Prospectus Supplement.
Any Benefit Plan fiduciary considering the purchase of Class A Certificates
should consult with its counsel with respect to the applicability of the
Exemption and other issues and determine on its own whether all conditions have
been satisfied and whether the Certificates are an appropriate investment for a
Benefit Plan under ERISA and the Code. By its purchase of a Class A Certificate,
each Benefit Plan purchaser shall be deemed to represent and warrant that it is
an "accredited investor" as defined in Rule 501(a)(1) of Regulation D under the
Securities Act, in accordance with condition (6) above.
The Class B Certificates may not be sold or transferred to a Benefit Plan,
a trustee of any Benefit Plan, or an entity, account or other pooled investment
fund the underlying assets of which include or are deemed to include a Benefit
Plan's assets by reason of a Benefit Plan's investment in the entity, account or
other pooled investment fund.
Generally, for purposes of ERISA, an insurance company, insurance service,
or insurance organization qualified to do business in a state (referred to
herein as an "Insurer") is not a Benefit Plan; therefore, the foregoing
restriction for sale or transfer to a Benefit Plan generally would not be
applicable to an Insurer. However, under John Hancock Mutual Life Insurance Co.
v. Harris Bank and Trust, 114 S.Ct. 517 (1993), certain assets held in an
Insurer's general account may be treated as Benefit Plan assets and thus the use
of such "plan assets" to purchase the Class B Certificates may be subject to the
fiduciary requirements of ERISA.
The Seller and the Servicer do not intend to preclude Insurers that are
otherwise qualified investors from purchasing the Class B Certificates;
therefore, for purposes of this offering, the restriction for sale or transfer
to a Benefit Plan will not be applied to prevent the transfer of Class B
Certificates to an Insurer if such Insurer purchases such Class B Certificates
with funds held in one or more of its general accounts, provided that the
Insurer confirms that Section III of Prohibited Transaction Class Exemption
95-60 (the "Class Exemption") applies to the Insurer's acquisition and holding
of such Class B Certificates. Neither the Servicer, the Seller, the Trustee, the
Certificate Insurer, any Underwriter nor any of their respective affiliates
makes any representation or expresses any opinion as to whether an Insurer
constitutes a Benefit Plan or will be treated as managing Benefit Plan assets.
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Alex.
Brown & Sons Incorporated and Black Diamond Securities, LLC (the "Underwriters")
have severally agreed to purchase from the Trust, and CPS and the Seller have
agreed to cause the Trust to sell to the Underwriters, the following respective
principal amounts of Class A Certificates:
Underwriters Class A Certificates
------------ Principal Amount
----------------
Alex. Brown & Sons Incorporated $ [ ]
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Black Diamond Securities, LLC [ ]
------------
Total $ [ ]
============
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters will purchase all the Class A Certificates offered hereby if any of
such Class A Certificates are purchased.
CPS and the Seller have been advised by the Underwriters that the
Underwriters propose to offer Class A Certificates from time to time for sale in
negotiated transactions or otherwise, at prices determined at the time of sale.
The Underwriters may effect such transactions by selling the Class A
Certificates to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the
Underwriters and any purchasers of Class A Certificates for whom they may act as
agents. The Underwriters and any dealers that participate with the Underwriters
in the distribution of the Class A Certificates may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of Class A Certificates by them may be deemed to be underwriting
discounts or commissions, under the Securities Act of 1933, as amended.
Alex. Brown & Sons Incorporated and Black Diamond Securities, LLC have
entered into a written arrangement pursuant to which Alex. Brown & Sons
Incorporated and Black Diamond Securities, LLC will cooperate with each other in
providing underwriting and investment banking services to CPS and the Seller
with respect to the Certificates. Pursuant to these arrangements, the existence
of which has been disclosed to CPS and the Seller, Black Diamond Securities, LLC
will be entitled to receive a structuring and referral fee equal to a portion of
the aggregate net underwriting compensation, if any, in connection with the
underwriting of the Class A Certificates.
CPS and the Seller have agreed to indemnify the Underwriters against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in respect
thereof.
The Class A Certificates are a new issue of securities with no established
trading market. CPS and the Seller have been advised by the Underwriters that
the Underwriters plan to make a market in the Class A Certificates as permitted
by applicable laws and regulations. However, the Underwriters are not obligated
to make such a market and may discontinue any market making at any time without
notice. No assurance can be given as to the liquidity of any trading market for
the Class A Certificates.
LEGAL OPINIONS
Certain legal matters relating to the Certificates will be passed upon for
the Seller, the Servicer and the Underwriters by Mayer, Brown & Platt, New York,
New York. Certain legal matters related to the Policy will be passed upon for
the Certificate Insurer by Bruce E. Stern, Esq., General Counsel of the
Certificate Insurer.
EXPERTS
The consolidated balance sheets of the Certificate Insurer and Subsidiaries
as of December 31, 1995 and 1994 and the related consolidated statements of
income, changes in shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1995, incorporated by reference, have
been incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and the pages on which the definitions of such terms may be found
herein.
Page
----
Actuarial Receivables.........................................................32
Agreement .....................................................................5
Alpha Program ................................................................20
APR ...........................................................................7
Benefit Plans ................................................................50
Business Day .................................................................47
Cede ..............................................................4, 15, 34, 35
Certificate Account ..........................................................36
Certificate Insurer ...........................................................5
Certificate Insurer Optional Deposit..........................................39
Certificates ...............................................................1, 5
CGC ..........................................................................48
CGIC .........................................................................48
Class A Certificate Balance....................................................7
Class A Certificate Owners................................................15, 34
Class A Certificateholders.................................................8, 15
Class A Certificates .......................................................1, 5
Class A Distributable Amount..................................................38
Class A Guaranteed Distribution Amount....................................13, 46
Class A Interest Carryover Shortfall..........................................41
Class A Interest Distributable Amount.........................................39
Class A Pass-Through Rate......................................................8
Class A Percentage ............................................................6
Class A Pool Factor ..........................................................33
Class A Principal Carryover Shortfall.........................................41
Class A Principal Distributable Amount........................................38
Class B Certificate Balance....................................................8
Class B Certificateholders.....................................................8
Class B Certificates .......................................................1, 5
Class B Deficiency Amount.....................................................11
Class B Distributable Amount..................................................39
Class B Interest Carryover Shortfall..........................................41
Class B Interest Distributable Amount.........................................39
Class B Pass-Through Rate......................................................8
Class B Percentage ............................................................6
Class B Pool Factor ..........................................................33
Class B Principal Carryover Shortfall.........................................41
Class B Principal Distributable Amount........................................39
Class Exemption ..............................................................52
Collateral Agent .............................................................41
Collection Account ...........................................................36
Collection Period .............................................................9
Commission ....................................................................2
Contracts ....................................................................20
CPS ........................................................................1, 5
Cram Down Loss ...............................................................38
Cutoff Date ...................................................................6
Dealer Agreements ............................................................20
<PAGE>
Page
----
Dealers ......................................................................19
Delta Program ................................................................21
Determination Date ...........................................................37
Distribution Date .........................................................8, 12
DTC ...................................................................4, 15, 34
ERISA Considerations .........................................................16
ERISA ....................................................................16, 50
Events of Default ............................................................44
Exchange Act ..................................................................2
Exemption ....................................................................50
Final Scheduled Distribution Date..............................................8
Financed Vehicles .............................................................6
Financial Security ...........................................................48
Formation of the Trust.....................................................6, 36
Holdings ..................................................................2, 48
Insurance Agreement ..........................................................17
Insurer Default ..............................................................45
Insurer ......................................................................52
Liquidated Receivable.........................................................37
Liquidation Proceeds .........................................................37
Lock-Box Account .........................................................13, 36
Lock-Box Bank ................................................................13
Lock-Box Processor ...........................................................13
Moody's ......................................................................16
Obligors .....................................................................19
Order ........................................................................47
Original Pool Balance..........................................................7
Participants .................................................................35
Payahead Account .............................................................36
Policy .................................................................1, 6, 13
Pool Balance .................................................................33
Post Office Box ..............................................................13
Preliminary Cutoff Date........................................................6
Principal Balance ............................................................38
Principal Distributable Amount.............................................8, 39
Priority of Payments .........................................................11
Purchase Agreement ............................................................6
Purchase Amount ..........................................................35, 38
Rating Agencies ..............................................................16
Receipt ......................................................................47
Receivables ................................................................1, 6
Received .....................................................................47
Record Date ..................................................................12
Recoveries ...................................................................38
Registration Statement.........................................................2
Requisite Amount .............................................................11
Restricted Group .............................................................51
Rule of 78's Receivables......................................................32
Rule of 78's .................................................................32
Scheduled Payment ............................................................38
Securities Act ................................................................2
Securities ....................................................................1
Seller .....................................................................1, 5
-ii-
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Page
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Service ......................................................................15
Servicer ...................................................................1, 5
Servicing Assumption Agreement................................................13
Servicing Fee Rate ...........................................................14
Servicing Fee ................................................................36
Simple Interest Advance ......................................................37
Simple Interest Receivables...................................................32
Spread Account ...............................................................41
Standard & Poor's ............................................................16
Standard Program .............................................................21
Standby Fee ..................................................................13
Standby Servicer ..........................................1, 13, 14, 17, 34, 36
Sub-Prime Borrowers ..........................................................20
Total Distribution Amount.....................................................37
Trust Assets ..................................................................6
Trust ......................................................................1, 5
Trustee Fee ..................................................................40
Trustee .......................................................................1
UCC ..........................................................................35
Underwriters .................................................................52
Underwriting ..............................................................1, 35
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TABLE OF CONTENTS
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Page
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SUMMARY..................................................................... 5
RISK FACTORS................................................................ 17
FORMATION OF THE TRUST...................................................... 19
THE TRUST ASSETS............................................................ 19
CPS'S AUTOMOBILE CONTRACT PORTFOLIO......................................... 20
THE RECEIVABLES POOL........................................................ 26
YIELD CONSIDERATIONS........................................................ 32
POOL FACTORS AND OTHER INFORMATION.......................................... 33
USE OF PROCEEDS............................................................. 33
THE SELLER AND CPS.......................................................... 34
STANDBY SERVICER............................................................ 34
DESCRIPTION OF THE CERTIFICATES............................................. 34
THE POLICY.................................................................. 46
THE CERTIFICATE INSURER..................................................... 48
ERISA CONSIDERATIONS........................................................ 50
UNDERWRITING................................................................ 52
LEGAL OPINIONS.............................................................. 53
EXPERTS..................................................................... 53
INDEX OF TERMS.............................................................. i
<PAGE>
PROSPECTUS
CPS Auto Grantor Trusts
Auto Receivables Backed Certificates Issuable in Series
CPS Receivables Corp.
Seller
Consumer Portfolio Services, Inc.
Sponsor and Servicer
This Prospectus describes certain Auto Receivables Backed Certificates (the
"Certificates") that may be sold from time to time in one or more series (each,
a "Series"), in amounts, at prices and on terms to be determined at the time of
sale and to be set forth in a supplement to this Prospectus (each, a "Prospectus
Supplement"). Each Series of Certificates may include one or more classes of
Certificates, which will be issued by a trust to be formed by the Seller for the
purpose of issuing one or more Series of such Certificates (each, a "Trust").
Each class of Certificates of any Series will evidence beneficial ownership
in a segregated pool of assets (the "Trust Assets"), as described herein and in
the related Prospectus Supplement. The Trust Assets may consist of any
combination of retail installment sales contracts between manufacturers, dealers
or certain other originators and retail purchasers secured by new and used
automobiles, light trucks, vans and minivans financed thereby, or participation
interests therein, together with all monies received relating thereto (the
"Contracts"). The Trust Assets may also include a security interest in the
underlying new and used automobiles, light trucks, vans and minivans and
property relating thereto, together with the proceeds thereof (the "Financed
Vehicles" and, together with the Contracts, the "Receivables"). If and to the
extent specified in the related Prospectus Supplement, credit enhancement with
respect to the Trust Assets or any class of Certificates may include any one or
more of the following: a financial guaranty insurance policy (a "Policy") issued
by an insurer specified in the related Prospectus Supplement, a reserve account,
a spread account, letters of credit, credit or liquidity facilities, third party
payments or other support, cash deposits or other arrangements. In addition to
or in lieu of the foregoing, credit enhancement may be provided by means of
subordination, cross-support among the Receivables or over-collateralization.
See "Description of the Pooling and Servicing Agreements--Credit and Cash Flow
Enhancement". Except to the extent the Prospectus Supplement for a Series
provides for a pre-funding period, the Receivables in the Trust Assets for a
Series will have been originated or acquired by CPS on or prior to the date of
issuance of the related Certificates, as described herein and in the related
Prospectus Supplement. The Receivables included in a Trust will be serviced by a
servicer (the "Servicer") described in the related Prospectus Supplement.
Each Series of Certificates may include one or more classes (each, a
"class"). The rights of one or more classes of Certificates of any Series may be
senior or subordinate to the rights of one or more of the other classes of
Certificates. A Series may include two or more classes of Certificates which may
differ as to the timing, order or priority of payment, pass-through rate or
amount of distributions of principal or interest or both. Information regarding
each class of Certificates of a Series, together with certain characteristics of
the related Receivables, will be set forth in the related Prospectus Supplement.
The rate of payment in respect of principal of the Certificates of any class
will depend on the priority of payment of such class and the rate and timing of
payments (including prepayments, defaults, liquidations or repurchases of
Receivables) on the related Receivables. A rate of payment lower or higher than
that anticipated may affect the weighted average life of each class of
Certificates in the manner described herein and in the related Prospectus
Supplement. See "Description of the Certificates".
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 12 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL INTERESTS IN THE RELATED
TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF CPS, ANY SELLER,
ANY SERVICER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR
THE UNDERLYING RECEIVABLES WILL BE GUARANTEED OR INSURED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY OR BY CPS, ANY SELLER, ANY SERVICER, ANY TRUSTEE OR
ANY OF THEIR RESPECTIVE AFFILIATES, EXCEPT AS SET FORTH IN THE RELATED
PROSPECTUS SUPPLEMENT. THESE CERTIFICATES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Certificates may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Methods of Distribution" herein and in the related Prospectus Supplement. Prior
to issuance, there will have been no market for the Certificates of any Series,
and there can be no assurance that a secondary market for the Certificates will
develop, or if it does develop, that it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Certificates unless accompanied by a Prospectus
Supplement.
The date of this Prospectus is September 13, 1996.
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Certificates to be
offered hereunder, among other things, will set forth with respect to such
Series of Certificates: (i) a description of the class or classes of such
Certificates, (ii) the "Pass-Through Rate" or other applicable rate (or the
manner of determining such rate) and authorized denominations of each class of
such Certificates; (iii) certain information concerning the Receivables and
insurance polices, cash accounts, letters of credit, financial guaranty
insurance policies, third party guarantees or other forms of credit enhancement,
if any, relating to one or more pools of Receivables or all or part of the
related Certificates; (iv) the specified interest, if any, of each class of
Certificates in, and manner and priority of, the distributions from the Trust
Assets; (v) information as to the nature and extent of subordination with
respect to such Series of Certificates, if any; (vi) the payment date to
Certificateholders; (vii) information regarding the Servicer(s) for the related
Receivables; (viii) the circumstances, if any, under which the Trust may be
subject to early termination; (ix) information regarding tax considerations; and
(x) additional information with respect to the method of distribution of such
Certificates.
AVAILABLE INFORMATION
The Sponsor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (together with all amendments and
exhibits thereto, referred to herein as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Certificates offered pursuant to this Prospectus. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Certificates
offered hereby and thereby, nor an offer of the Certificates to any person in
any state or other jurisdiction in which such offer would be unlawful. The
delivery of this Prospectus at any time does not imply that information herein
is correct as of any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Sponsor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any Series of Certificates referred to in the accompanying
Prospectus Supplement, with the Commission pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), after the date of this Prospectus and prior to the termination of any
offering of the Certificates issued by the Trust, shall be deemed to be
incorporated by reference in this Prospectus and to be a part of this Prospectus
from the date of the filing of such documents. Any statement contained herein or
in a document
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<PAGE>
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein (or in the accompanying Prospectus Supplement) or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
REPORTS TO CERTIFICATEHOLDERS
So long as the Certificates of a Series are in book-entry form, monthly and
annual reports concerning the Certificates and the related Trust will be sent by
the Trustee to Cede & Co., as the nominee of DTC and as registered holder of
such Certificates pursuant to the related Pooling and Servicing Agreement. DTC
will supply such reports to Certificateholders in accordance with its
procedures. To the extent required by the Securities Exchange Act of 1934, as
amended, the Trust will provide financial information to the Certificateholders
which has been examined and reported upon, with an opinion expressed by, an
independent public accountant; to the extent not so required, such financial
information will be unaudited. Each Trust will be formed to own the Receivables
related to the Certificates to be issued by such Trust, to issue the related
Certificates and to acquire Subsequent Receivables, if available. No Trust will
have any assets or obligations prior to issuance of the Certificates or will
engage in any activities other than those described herein. Accordingly, no
financial statements with respect to the related Trust will be included in any
Prospectus Supplement.
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SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Certificates of any Series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Certificates. Certain capitalized terms used in the summary
are defined elsewhere in this Prospectus on the pages indicated in the "Index of
Terms".
Issuer....................... With respect to any Series of Certificates, a
Trust formed pursuant to a pooling and servicing
agreement (a "Pooling and Servicing Agreement")
among the Seller, the Servicer and the Trustee
for such Trust.
Seller....................... CPS Receivables Corp. or another special-purpose
subsidiary of CPS (each, a "Seller"). See "The
Seller and CPS".
Sponsor...................... Consumer Portfolio Services, Inc. ("CPS" or the
"Sponsor"). See "CPS's Automobile Contract
Portfolio" and "The Seller and CPS".
Servicer..................... The entity named as Servicer in the related
Prospectus Supplement (the "Servicer"). Each
Prospectus Supplement will specify whether the
Servicer will service the Receivables in the
related Receivables Pool directly or indirectly
through one or more subservicers (each, a
"Subservicer").
Trustee...................... The Trustee (the "Trustee") for each Series of
Certificates will be specified in the related
Prospectus Supplement.
The Certificates............. Each Series of Certificates will be issued
pursuant to the related Pooling and Servicing
Agreement. The related Prospectus Supplement will
specify which class or classes of Certificates of
the related Series are being offered thereby.
Each class of Certificates will have a stated
certificate balance (the "Certificate Balance")
and will accrue interest on such Certificate
Balance at a specified rate (with respect to each
class of Certificates the "Pass- Through Rate")
as set forth in the related Prospectus
Supplement. Each class of Certificates may have a
different Pass-Through Rate, which may be a
fixed,
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variable or adjustable Pass-Through Rate, or any
combination of the foregoing. The related
Prospectus Supplement will specify the
Pass-Through Rate, or the method for determining
the applicable Pass-Through Rate, for each class
of Certificates.
A Series of Certificates may include two or more
classes of Certificates that differ as to timing
and priority of distributions, seniority,
allocations of losses, Pass-Through Rate or
amount of distributions in respect of principal
or interest. Additionally, distributions in
respect of principal or interest in respect of
any such class or classes may or may not be made
upon the occurrence of specified events or on the
basis of collections from designated portions of
the related Receivables Pool. If specified in the
related Prospectus Supplement, one or more
classes of Certificates ("Strip Certificates")
may be entitled to (i) principal distributions
with disproportionate, nominal or no interest
distributions or (ii) interest distributions with
disproportionate, nominal or no principal
distributions. See "Description of the
Certificates--Distributions of Principal and
Interest".
Certificates will be available for purchase in
the minimum denomination specified in the related
Prospectus Supplement and will be available in
book- entry form unless otherwise specified in
the related Prospectus Supplement.
Certificateholders will be able to receive
Definitive Certificates only in the limited
circumstances described herein or in the related
Prospectus Supplement. See "Certain Information
Regarding the Certificates--Definitive
Certificates".
If the Servicer or any Subservicer exercises its
option to purchase the Receivables of a Trust (or
if not and, if and to the extent provided in the
related Prospectus Supplement, satisfactory bids
for the purchase of such Receivables are
received), in the manner and on the respective
terms and conditions described under "Description
of the Pooling and Servicing
Agreements--Termination", the Certificates will
be prepaid as set forth in the related Prospectus
Supplement. In addition, if the related
Prospectus Supplement provides that the property
of a Trust will
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<PAGE>
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include a Pre-Funding Account that will be used
to purchase additional Receivables after the
applicable Closing Date, one or more classes of
Certificates may be subject to a partial
prepayment of principal at or immediately
following the end of the period specified in such
Prospectus Supplement for the purchase of such
additional Receivables, in the manner and to the
extent specified in the related Prospectus
Supplement.
The Trust Assets............. The property of each Trust will include a pool of
simple interest or precomputed interest motor
vehicle installment sale contracts or motor
vehicle installment loans secured by new and used
automobiles, light trucks, vans and minivans (the
"Receivables"), including the right to receive
payments received or due on or with respect to
such Receivables on or after the date or dates
specified in the related Prospectus Supplement
(each, a "Cutoff Date"), security interests in
the vehicles financed thereby (the "Financed
Vehicles"), and any proceeds from claims under
certain related insurance policies. On the date
of issuance of a Series of Certificates specified
in the related Prospectus Supplement (the
"Closing Date" for such Series), the applicable
Seller will convey Receivables having the
aggregate principal balance specified in such
Prospectus Supplement as of the Cutoff Date
specified therein to such Trust pursuant to a
Pooling and Servicing Agreement among the Seller,
the Servicer and the Trustee of such Trust. The
property of each Trust also will include amounts
on deposit in, or certain rights with respect to,
certain trust accounts, including the related
Collection Account, any Pre-Funding Account and
any other account identified in the applicable
Prospectus Supplement. See "Description of the
Pooling and Servicing Agreements--Accounts".
If the related Prospectus Supplement provides
that the property of a Trust will include monies
initially deposited into an account (a
"Pre-Funding Account") to purchase additional
Receivables after the Closing Date, the Seller
will be obligated pursuant to the Pooling and
Servicing Agreement to sell additional
Receivables (the "Subsequent Receivables") to the
related Trust, subject only to the availability
thereof,
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<PAGE>
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having an aggregate principal balance
approximately equal to the amount deposited to
the Pre-Funding Account on the Closing Date (the
"Pre-Funded Amount"), and the Trust will be
obligated to purchase such Subsequent Receivables
(subject to the satisfaction of certain
conditions set forth in such Pooling and
Servicing Agreement) from time to time during the
period (the "Funding Period") specified in such
Prospectus Supplement for the purchase of such
Subsequent Receivables. Any Subsequent
Receivables conveyed to a Trust will have been
acquired by the Seller, directly or indirectly,
from CPS and will meet all of the credit and
other criteria set forth set forth herein and in
the related Prospectus Supplement. See "Risk
Factors--Sales of Subsequent Receivables", "The
Receivables", and "Description of the Pooling and
Servicing Agreements--Sale and Assignment of
Receivables" herein and "The Receivables Pool" in
the related Prospectus Supplement.
As used in this Prospectus, the term Receivables
will include the Receivables transferred to a
Trust on the related Closing Date (such
Receivables, the "Initial Receivables") as well
as any Subsequent Receivables transferred to such
Trust during the related Funding Period, if any.
Amounts on deposit in any Pre-Funding Account
during the related Funding Period will be
invested by the Trustee (as directed by the
Servicer) in Eligible Investments, and any
resultant investment income, less any related
investment expenses ("Investment Income"), will
be added, on the Distribution Date immediately
following the date on which such Investment
Income is paid to the Trust, to interest
collections on the Receivables for the related
Collection Period and distributed in the manner
specified in the related Prospectus Supplement.
Any funds remaining in a Pre-Funding Account at
the end of the related Funding Period will be
distributed as a prepayment or early distribution
of principal to holders of one or more classes of
the Certificates of the related Series of
Certificates, in the amounts and in accordance
with the payment priorities specified in the
related Prospectus Supplement. In no event will a
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<PAGE>
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Funding Period continue for more than 90 days
after the related Closing Date. See "Risk
Factors--Pre-Funding Accounts", "--Sales of
Subsequent Receivables" and "Description of the
Pooling and Servicing Agreements--Accounts--
Pre-Funding Accounts".
Credit and Cash Flow
Enhancement................ If and to the extent specified in the related
Prospectus Supplement, credit enhancement with
respect to a Trust or any class or classes of
Certificates may include any one or more of the
following: subordination of one or more other
classes of Certificates of the same Series,
reserve funds, spread accounts, surety bonds,
insurance policies, letters of credit, credit or
liquidity facilities, cash collateral accounts,
over-collateralization, guaranteed investment
contracts, swaps or other interest rate
protection agreements, repurchase obligations,
other agreements with respect to third party
payments or other support, cash deposits, or
other arrangements. To the extent specified in
the related Prospectus Supplement, a form of
credit enhancement with respect to a Trust or a
class or classes of Certificates may be subject
to certain limitations and exclusions from
coverage thereunder.
Pooling and Servicing
Agreements................. The applicable Seller will transfer the related
Receivables to a Trust pursuant to a Pooling and
Servicing Agreement. The Servicer will agree with
each Trust to be responsible for servicing,
managing, maintaining custody of and making
collections on the Receivables, either directly
or indirectly through one or more Subservicers.
If so provided in the related Prospectus
Supplement, the Servicer will advance scheduled
payments under each Rule of 78s Receivable or
Actuarial Receivable that are not timely made (a
"Precomputed Advance") to the extent that the
Servicer, in its sole discretion, expects to
recoup such Precomputed Advance from subsequent
payments on or with respect to such Receivable or
from other Precomputed Receivables. If so
provided in the related Prospectus Supplement,
with
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<PAGE>
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respect to Simple Interest Receivables, the
Servicer will advance any interest shortfall (a
"Simple Interest Advance"). As used herein,
"Advance" means any Precomputed Advance or Simple
Interest Advance. The Servicer will be entitled
to reimbursement of Advances from subsequent
payments on or with respect to the Receivables to
the extent described in the related Prospectus
Supplement.
Unless otherwise specified in the related
Prospectus Supplement, the Servicer will receive
a fee for servicing the Receivables of each Trust
equal to the percentage specified in the related
Prospectus Supplement of the aggregate
outstanding principal balance of the related
Receivables Pool, plus certain late fees,
prepayment charges and other administrative fees
or similar charges. Fees payable to any
Subservicer as compensation for performing
certain servicing functions with respect to all
or a portion of the Receivables in a Receivables
Pool will be the responsibility of the Servicer
and will not be an additional expense of the
Trust. See "Description of the Pooling and
Servicing Agreements--Servicing Compensation"
herein.
No Investment Companies...... None of CPS, any Seller or any Trust will
register as an "investment company" under the
Investment Company Act of 1940, as amended (the
"Investment Company Act").
Cross-Collateralization...... As described in the related Pooling and Servicing
Agreement and the related Prospectus Supplement,
the source of payment for Certificates of each
Series will be the assets of the related Trust
Assets only. However, as may be described in the
related Prospectus Supplement, a Series or class
of Certificates may include the right to receive
moneys from a common pool of Credit Enhancement
which may be available for more than one Series
of Certificates, such as a master reserve
account, master spread account, master insurance
policy or a master collateral pool consisting of
similar Receivables. Notwithstanding the
foregoing, and as described in the related
Prospectus Supplement, no payment received on any
Receivable held by any Trust may be applied
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<PAGE>
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to the payment of Certificates issued by any
other Trust (except to the limited extent that
certain collections in excess of the amounts
needed to pay the related Certificates may be
deposited in a common master reserve account,
common master spread account or
over-collateralization account that provides
credit enhancement for more than one Series of
Certificates issued pursuant to the related
Pooling and Servicing Agreement).
Registration of
Certificates ............... Certificates may be represented by global
securities registered in the name of Cede & Co.
("Cede"), as nominee of The Depository Trust
Company ("DTC"), or another nominee. In such
case, Certificateholders will not be entitled to
receive definitive securities representing such
Certificateholders' interests, except in certain
circumstances described in the related Prospectus
Supplement. See "Description of the
Certificates--Book-Entry Registration" herein.
Optional Termination......... The Servicer, CPS, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options, effect
early retirement of a Series of Certificates
under the circumstances and in the manner set
forth herein under "Description of The Pooling
and Servicing Agreements--Termination" and in the
related Prospectus Supplement.
Mandatory Termination........ The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a Series of
Certificates by soliciting competitive bids for
the purchase of the Trust Assets or otherwise,
under other circumstances and in the manner
specified in "Description of The Pooling and
Servicing Agreement--Termination" herein and in
the related Prospectus Supplement.
Tax Considerations........... Certificates of each Series offered hereby will,
for federal income tax purposes, constitute
interests in a Trust treated as a grantor trust
and not as an association taxable as a
corporation under applicable provisions of the
Code. Investors are advised to consult their tax
advisors and to review "Certain
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<PAGE>
Federal Income Tax Consequences", which
summarizes, subject to the limitations stated
therein, federal income tax considerations
relevant to the purchase, ownership and
disposition of Certificates. The Prospectus
Supplement for a Series may describe additional
federal income tax considerations relevant to the
purchase, ownership and disposition of the
related Certificates.
ERISA Considerations......... The Prospectus Supplement for each Series of
Certificates will summarize, subject to the
limitations discussed therein, considerations
under the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), relevant to the
purchase of such Certificates by employee benefit
plans and individual retirement accounts. See
"ERISA Considerations" in the related Prospectus
Supplement.
Ratings...................... Each class of Certificates offered pursuant to
this Prospectus and the related Prospectus
Supplement will, unless otherwise specified in
the related Prospectus Supplement, be rated in
one of the four highest rating categories by one
or more "national statistical rating
organizations", as defined in the Exchange Act,
and commonly referred to as "Rating Agencies".
Such ratings will address, in the opinion of such
Rating Agencies, the likelihood that the Trust
will be able to make timely payment of all
amounts due on the related Certificates in
accordance with the terms thereof. Such ratings
will neither address any prepayment or yield
considerations applicable to any Certificates nor
constitute a recommendation to buy, sell or hold
any Certificates. The ratings expected to be
received with respect to any Certificates will be
set forth in the related Prospectus Supplement.
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<PAGE>
RISK FACTORS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of Certificates:
Limited Liquidity. There can be no assurance that a secondary market for
the Certificates of any Series or class will develop or, if it does develop,
that it will provide Certificateholders with liquidity of investment or that it
will continue for the life of such Certificates. The Prospectus Supplement for
any Series of Certificates may indicate that an underwriter specified therein
intends to establish and maintain a secondary market in such Certificates;
however, no underwriter will be obligated to do so. The Certificates will not be
listed on any securities exchange.
Pre-Funding Accounts. If so provided in the related Prospectus Supplement,
on the Closing Date the Seller will deposit the Pre-Funded Amount specified in
such Prospectus Supplement into the Pre-Funding Account. In no event will the
Pre-Funded Amount exceed 25% of the initial aggregate principal amount of the
Certificates of the related Series. The Pre-Funded Amount will be used to
purchase Subsequent Receivables from the Seller (which, in turn, will acquire
such Subsequent Receivables from CPS or Originators specified in the related
Prospectus Supplement) from time to time during the related Funding Period.
During the related Funding Period and until such amounts are applied by the
Trustee to purchase Subsequent Receivables, amounts on deposit in the Pre-
Funding Account will be invested by the Trustee (as instructed by the Servicer)
in Eligible Investments, and any investment income with respect thereto (net of
any related investment expenses) will be added to amounts received on or in
respect of the Receivables during the related Collection Period and allocated to
interest and will be distributed on the Distribution Date pursuant to the
payment priorities specified in the related Prospectus Supplement. No Funding
Period will end more than 90 days after the related Closing Date.
To the extent that the entire Pre-Funded Amount has not been applied to the
purchase of Subsequent Receivables by the end of the related Funding Period, any
amounts remaining in the Pre- Funding Account will be distributed as a
prepayment of principal to Certificateholders on the Distribution Date at or
immediately following the end of the Funding Period, in the amounts and pursuant
to the priorities set forth in the related Prospectus Supplement. Any such
prepayment of principal could have the effect of shortening the weighted average
life of the Certificates of the related Series. In addition, holders of the
related Certificates will bear the risk that they may be unable to reinvest any
such principal prepayment at yields at least equal to the yield on such
Certificates.
Sales of Subsequent Receivables. If so provided in the related Prospectus
Supplement, the Seller will be obligated pursuant to the Pooling and Servicing
Agreement to sell Subsequent Receivables to the Trust, and the Trust will be
obligated to purchase such Subsequent Receivables, subject only to the
satisfaction of certain conditions set forth in the Pooling and Servicing
Agreement and described in the related Prospectus Supplement. If the principal
amount of the eligible Subsequent Receivables acquired by the Seller from CPS
during a Funding Period is less than the Pre- Funded Amount, the Seller may have
insufficient Subsequent Receivables to transfer to a Trust and holders of one or
more classes of the related Series of Certificates may receive a prepayment or
early distribution of principal at the end of the Funding Period as described
above under "Pre-Funding Accounts".
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Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Pooling and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Certificates; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pools"
herein and "The Receivables Pool" in the related Prospectus Supplement; and (iv)
the Seller must execute and deliver to such Trust a written assignment conveying
such Subsequent Receivables to such Trust. In addition, as and to the extent
specified in the related Prospectus Supplement, the conveyance of Subsequent
Receivables to a Trust is subject to the satisfaction of the condition
subsequent, among others, which must be satisfied within the applicable time
period specified in the related Prospectus Supplement, that the Seller deliver
certain legal opinions to the related Trustee with respect to the validity of
the conveyance of the Subsequent Receivables to the Trust. If any such
conditions precedent or conditions subsequent are not met with respect to any
Subsequent Receivables within the time period specified in the related
Prospectus Supplement, CPS or the Seller, as specified in the related Prospectus
Supplement, will be required to repurchase such Subsequent Receivables from the
related Trust, at a purchase price equal to the related Repurchase Amounts
therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables. Therefore,
the characteristics of the entire Receivables Pool included in any Trust may
vary significantly as Subsequent Receivables are conveyed to such Trust from
time to time during the Funding Period or Revolving Period. See "The
Receivables" herein.
Certain Legal Aspects--Consumer Protection Laws. Federal and state consumer
protection laws impose requirements on creditors in connection with extensions
of credit and collections of retail installment loans, and certain of these laws
make an assignee of such a loan (such as a Trust) liable to the obligor thereon
for any violation by the lender. To the extent specified herein and in the
related Prospectus Supplement, CPS will be obligated to repurchase any
Receivable that fails to comply with such legal requirements from the Seller and
the Seller from the Trust, and the Seller and the Servicer will undertake to
enforce such obligation on behalf of the Trust. See "Certain Legal Aspects of
the Receivables--Consumer Protection Laws".
Nature of Obligors. The Obligors on the Receivables to be conveyed to a
Trust will include "sub-prime" borrowers who have limited or adverse credit
histories, low income or past credit problems and, therefore, are unable to
obtain financing from traditional sources of consumer credit. The average
interest rate charged by CPS to such "sub-prime" borrowers is generally higher
than that charged to more creditworthy customers. The payment experience on
receivables of obligors with this credit profile is likely to be different from
that on receivables of traditional auto financing sources in that default rates
are likely to be higher. In addition, the payment experience on such receivables
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the obligors
and the APRs of such receivables, the historical credit loss and delinquency
rates on such receivables are generally higher than those experienced by banks
and the captive finance companies of the automobile manufacturers.
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Social, Economic and Other Factors. The ability of the Obligors to make
payments on the Receivables, as well as the prepayment experience thereon, will
be affected by a variety of social and economic factors. Economic factors
include interest rates, unemployment levels, the rate of inflation and consumer
perceptions of economic conditions generally. However, the Seller is unable to
determine and has no basis to predict whether or to what extent economic or
social factors will affect the Receivables.
Ownership of Receivables. In connection with the issuance of any Series of
Certificates, CPS will originate Receivables. CPS will warrant in a Pooling and
Servicing Agreement that the transfer of the Contracts to such Trust is either a
valid assignment, transfer and conveyance of the Receivables to the Trust or the
Trustee on behalf of the Certificateholders has a valid security interest in
such Receivables. As will be described in the related Prospectus Supplement, the
related Pooling and Servicing Agreement will provide that the Trustee will be
required to maintain possession of the original copies of all Receivables that
constitute chattel paper; provided that the Servicer may take possession of such
original copies as necessary for the enforcement of any Receivable. If the
Servicer, the Trustee or other third party, while in possession of any
Receivable, sells or pledges and delivers such Receivable to another party, in
violation of the Receivables Purchase Agreement or the Pooling and Servicing
Agreement, there is a risk that such other party could acquire an interest in
such Receivable having a priority over the Trust's interest. Furthermore, if the
Servicer or a third party, while in possession of any Receivable, is rendered
insolvent, such event of insolvency may result in competing claims to ownership
or security interests in such Receivable. Such an attempt, even if unsuccessful,
could result in delays in payments on the Certificates. If successful, such
attempt could result in losses to the Certificateholders or an acceleration of
the repayment of the Certificates. CPS will be obligated to repurchase any
Receivable if there is a breach of CPS's representations and warranties that
materially and adversely affects the interests of the Trust in such Receivable
and such breach has not been cured.
Certain Legal Aspects. The transfer of the Receivables by the applicable
Seller to the Trustee pursuant to the related Pooling and Servicing Agreement,
the perfection of the security interests in the Receivables and the enforcement
of rights to realize on the Financed Vehicles as collateral for the Receivables
are subject to a number of federal and state laws, including the UCC as in
effect in various states. As specified in each Prospectus Supplement, no action
will be taken to perfect the rights of the Trustee in proceeds of any VSI
insurance policy (as hereinafter defined) insurance policies covering individual
Financed Vehicles or Obligors. Therefore, the rights of a third party with an
interest in such proceeds could prevail against the rights of the Trust prior to
the time such proceeds are deposited by the Servicer into a Trust Account (as
hereinafter defined). See "Certain Legal Aspects of the Receivables".
In connection with each sale of Receivables, security interests in the
Financed Vehicles securing the Receivables will be assigned by CPS to the
Seller. Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles will not be amended or reissued to reflect the
assignment to the Trust. In the absence of such an amendment or reissuance, the
Trust may not have a perfected security interest in the Financed Vehicles
securing the Receivables in some states. By virtue of the assignment of the
applicable Purchase Agreement to the related Trust, CPS will be obligated to
repurchase any Receivable sold to the Trust as to which there did not exist on
the Closing Date a perfected security interest in the name of CPS in the
Financed Vehicle, and the Servicer will be obligated to purchase any Receivable
sold to the Trust as to which it failed to maintain a perfected
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security interest in the name of CPS in the Financed Vehicle securing such
Receivable if, in either case, such breach materially and adversely affects such
Receivable and if such failure or breach is not cured prior to the expiration of
the applicable cure period. To the extent the security interest of CPS is
perfected, the Trust will have a prior claim over subsequent purchasers of such
Financed Vehicle and holders of subsequently perfected security interests.
However, as against liens for repairs of a Financed Vehicle or for taxes unpaid
by an Obligor under a Receivable, or through fraud, forgery, negligence or
error, CPS, and therefore the Trust, could lose the priority of its security
interest or its security interest in a Financed Vehicle. Neither CPS nor the
Servicer will have any obligation to purchase a Receivable as to which a lien
for repairs of a Financed Vehicle or for taxes unpaid by an Obligor under a
Receivable result in losing the priority of the security interest in such
Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables--Security Interest in Vehicles". Federal and state consumer
protection laws impose requirements upon creditors in connection with extensions
of credit and collections of retail installment loans and certain of these laws
make an assignee of such a loan liable to the obligor thereon for any violation
by the lender. Pursuant to the applicable Purchase Agreement, CPS will be
obligated to repurchase any Receivable materially and adversely affected by the
failure to comply with such requirements. See "Certain Legal Aspects of the
Receivables".
Each Seller has taken or will take steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by CPS under the United States Bankruptcy
Code or similar state laws ("Insolvency Laws") will not result in consolidation
of the assets and liabilities of the Seller with those of CPS. These steps
include the creation of each Seller as a separate, limited-purpose subsidiary
pursuant to articles of incorporation containing certain limitations (including
restrictions on the nature of the Seller's business and a restriction on the
Seller's ability to commence a voluntary case or proceeding under any Insolvency
Law without the prior unanimous affirmative vote of all of its directors).
However, there can be no assurance that the activities of a Seller would not
result in a court concluding that the assets and liabilities of such Seller
should be consolidated with those of CPS in a proceeding under any Insolvency
Law. If a court were to reach such a conclusion, then delays in distributions on
the related Certificates could occur or reductions in the amounts of such
distributions could result. See "The Seller and CPS".
CPS will warrant to the Seller in each Purchase Agreement that the sale of
the Receivables by it to the Seller is a valid sale of such Receivables to such
Seller. In addition, CPS and each Seller will treat the transactions described
herein as a sale of the Receivables to the Seller, and each Seller has taken and
will take all actions that are required to perfect the Seller's ownership
interest in the Receivables. Notwithstanding the foregoing, if CPS were to
become a debtor in a bankruptcy case and a creditor or trustee-in-bankruptcy of
CPS or CPS itself were to take the position that the sale of Receivables to the
Seller should be recharacterized as a pledge of such Receivables to secure a
borrowing of such Seller, then delays in payments of collections of Receivables
to the Seller could occur or, should the court rule in favor of any such
trustee, debtor or creditor, reductions in the amount of such payments could
result. If the transfer of Receivables to the Seller is recharacterized as a
pledge, a tax or government lien on the property of CPS arising before the
transfer of a Receivable to the Seller may have priority over the Seller's
interest in such Receivable. If the transactions contemplated herein are treated
as a sale, the Receivables would not be part of CPS's bankruptcy estate and
would not be available to CPS's creditors.
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The U.S. Court of Appeals for the Tenth Circuit issued its opinion in
Octagon Gas Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May
27, 1993) in which it concluded (noting that its position is in contrast to that
taken by another court) that accounts receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables are likely to be viewed as "chattel paper", as defined
under the Uniform Commercial Code, rather than as accounts, the rationale behind
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the Octagon ruling would apply are not fully known, and the extent
to which the Octagon decision will be followed in other courts or outside of the
Tenth Circuit is not certain. If the holding in the Octagon case were applied in
a CPS bankruptcy, however, even if the transfers of Receivables to the Seller
and to the Trust were treated as sales, the Receivables would be part of CPS's
bankruptcy estate and would be subject to claims of certain creditors and delays
and reductions in payments to the Certificateholders could result. CPS will
warrant in the Purchase Agreement that the sale of the Receivables to the Seller
is a valid sale of the Receivables to the Seller, and the Seller will warrant in
the Pooling and Servicing Agreement that the sale of the Receivables to the
Trust is a valid sale of the Receivables to the Trust.
Restrictions on Recoveries. Unless specific limitations are described on
the related Prospectus Supplement with respect to specific Receivables, all
Receivables will provide that the obligations of the Obligors thereunder are
absolute and unconditional, regardless of any defense, set-off or abatement
which the Obligor may have against CPS or any other person or entity whatsoever.
CPS will warrant that no claims or defenses have been asserted or threatened
with respect to the Receivables and that all requirements of applicable law with
respect to the Receivables have been satisfied.
In the event that CPS or the Trustee must rely on repossession and
disposition of Financed Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Pooling and Servicing Agreement), the
Trust may not realize the full amount due on a Receivable (or may not realize
the full amount on a timely basis). Other factors that may affect the ability of
the Trust to realize the full amount due on a Receivable include whether
amendments to certificates of title relating to the Financed Vehicles had been
filed, depreciation, obsolescence, damage or loss of any financed Vehicle, and
the application of Federal and state bankruptcy and insolvency laws. As a
result, the Certificateholders may be subject to delays in receiving payments
and suffer loss of their investment in the Certificates.
Insurance on Financed Vehicles. Each Receivable generally requires the
Obligor to maintain insurance covering physical damage to the financed Vehicle
in an amount not less than the unpaid principal balance of such Receivable
pursuant to which CPS is named as a loss payee. Since the Obligors select their
own insurers to provide the requisite coverage, the specific terms and
conditions of their policies vary.
In addition, although each Receivable generally gives CPS the right to
force place insurance coverage in the event the required physical damage
insurance on a Vehicle is not maintained by an Obligor, neither CPS nor the
Servicer is obligated to place such coverage. In the event insurance coverage is
not maintained by Obligors and coverage is not force placed, then insurance
recoveries may be limited in the event of losses or casualties to Financed
Vehicles included in the Trust Assets, as a result of which Certificateholders
could suffer a loss on their investment.
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Delinquencies. There can be no assurance that the historical levels of
delinquencies and losses experienced by CPS on its respective loan and vehicle
portfolio will be indicative of the performance of the Contracts included in the
Trust or that such levels will continue in the future. Delinquencies and losses
could increase significantly for various reasons, including changes in the
federal income tax laws, changes in the local, regional or national economies or
due to other events.
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one class of
Certificates of a Series may be subordinated in priority of payment to interest
and principal due on other classes of Certificates of a related Series.
Moreover, each Trust will not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the related Receivables and,
to the extent provided in the related Prospectus Supplement, the related reserve
account, spread account, and any other Credit Enhancement. The Certificates
represent beneficial interests in the related Trust only and will not represent
a recourse obligation to other assets of CPS or the Seller. No Certificates of
any Series will be insured or guaranteed by CPS, the Seller, the Servicer, or
the applicable Trustee. Consequently, holders of the Certificates of any Series
must rely for repayment primarily upon payments on the Receivables and, if and
to the extent available, any Credit Enhancement, all as specified in the related
Prospectus Supplement.
Book-Entry Registration. Issuance of the Certificates in book-entry form
may reduce the liquidity of such Certificates in the secondary trading market
since investors may be unwilling to purchase Certificates for which they cannot
obtain definitive physical securities representing such Certificateholders'
interests, except in certain circumstances described in the related Prospectus
Supplement.
Since transactions in Certificates will, in most cases, be effected only
through DTC, direct or indirect participants in DTC's book-entry system ("Direct
Participants" or "Indirect Participants") or certain banks, the ability of a
Certificateholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Certificates, may be limited due to lack of a physical security representing the
Certificates.
Certificateholders may experience some delay in their receipt of
distributions of interest on and principal of the Certificates since
distributions may be required to be forwarded by the Trustee to DTC and, in such
case, DTC will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable class of Certificateholders either directly or indirectly through
Indirect Participants. See "Certain Information Regarding the
Certificates--Book-Entry Registration".
Security Rating. The rating of Certificates credit enhanced by a letter of
credit, financial guaranty insurance policy, reserve fund, credit or liquidity
facilities, cash deposits or other forms of credit enhancement (collectively
"Credit Enhancement") will depend primarily on the creditworthiness of the
issuer of such external Credit Enhancement device (a "Credit Enhancer"). Any
reduction in the rating assigned to the claims-paying ability of the related
Credit Enhancer to honor its obligations pursuant to any such Credit Enhancement
below the rating initially given to the Certificates would likely result in a
reduction in the rating of the Certificates.
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Maturity and Prepayment Considerations. All of the Receivables are
prepayable at any time. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a receivable without the consent of CPS. (For this purpose the term
"prepayments" includes prepayments in full, certain partial prepayments related
to refunds of extended service contract costs and unearned insurance premiums,
liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and credit accident and health insurance policies and
certain other Receivables repurchased for administrative reasons.) The rate of
prepayment on the Receivables may also be influenced by the structure of the
loan, the nature of the Obligors and the Financed Vehicles and servicing
decisions as discussed above. In addition, under certain circumstances, CPS is
obligated to repurchase Receivables as a result of breaches of representations
and warranties, and under certain circumstances the Servicer is obligated to
purchase Receivables pursuant to the Pooling and Servicing Agreement as a result
of breaches of certain covenants. Subject to certain conditions, the Servicer
also has the right to purchase the Receivables when the aggregate principal
balance thereof is 10% or less of the aggregate principal balance thereof on the
Cutoff Date. Any reinvestment risks resulting from a faster or slower incidence
of prepayment of Receivables will be borne entirely by the Certificateholders.
The rate of prepayments of Receivables cannot be predicted and is
influenced by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternate financing and local and
regional economic conditions. Therefore, no assurance can be given as to the
level of prepayments that a Trust will experience.
Certificateholders should consider, in the case of Certificates purchased
at a discount, the risk that a slower than anticipated rate of prepayments on
the Receivables could result in an actual yield that is less than the
anticipated yield and, in the case of any Certificates purchased at a premium,
the risk that a faster than anticipated rate of prepayments on the Receivables
could result in an actual yield that is less than the anticipated yield.
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of the
origination of the Receivable and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Obligor's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Receivables. In addition, the
Relief Act imposes limitations that would impair the ability of the Servicer to
foreclose on an affected Receivable during the Obligor's period of active duty
status. Thus, in the event that such a Receivable goes into default, there may
be delays and losses occasioned by the inability of the Servicer to realize upon
the Financed Vehicle in a timely fashion.
Financial Condition of CPS. CPS is generally not obligated to make any
payments in respect of the Certificates or the Receivables of a specific Trust.
If CPS were to cease acting as Servicer, delays in processing payments on the
Receivables and information in respect thereof could occur and result in delays
in payments to the Certificateholders.
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In certain circumstances, CPS will be required to acquire Receivables from
the related Trust with respect to which such representations and warranties have
been breached. In the event that CPS is incapable of complying with its
repurchase obligations and no other party is obligated to perform or satisfy
such obligations, Certificateholders of the applicable Trust may be subject to
delays in receiving payments and suffer loss of their investment in the
Certificates.
The related Prospectus Supplement will set forth certain information
regarding CPS. In addition, CPS is subject to the information requirements of
the Exchange Act and, in accordance therewith, file reports and other
information with the Commission. For further information regarding CPS reference
is made to such reports and other information which are available as described
under "Available Information".
FORMATION OF THE TRUST
With respect to each Series of Certificates, the Seller will establish a
separate Trust pursuant to a Pooling and Servicing Agreement for the
transactions described herein and in the related Prospectus Supplement. The
Seller will establish each Trust by selling and assigning the Trust Assets, as
described below, to the applicable Trustee in exchange for Certificates issued
by such Trust. Prior to such sale and assignment, the Trust will have no assets
or obligations or any operating history. The Trust will not engage in any
business. The Trust will hold the Receivables, issue the Certificates and
distribute payments on the Certificates.
The Servicer will initially service the Receivables comprising the Trust
Assets pursuant to the related Pooling and Servicing Agreement and will be
compensated for acting as the Servicer. See "Description of the Pooling and
Servicing Agreements--Servicing Compensation". The Trustee will be appointed
custodian for the Receivables and the certificates of title relating to the
Financed Vehicles, and the Receivables and such certificates of title will be
delivered to and held in physical custody by the Trustee. However, the
Receivables will not be marked or stamped to indicate that they have been sold
to the Trust, and the certificates of title of the Financed Vehicles will not be
endorsed or otherwise amended to identify the Trustee as the new secured party.
See "Certain Legal Aspects of the Receivables".
No Trust will acquire any assets other than the Trust Assets, and it is not
anticipated that any Trust will have any need for additional capital resources.
Because a Trust will have no operating history upon its establishment and will
not engage in any business other than acquiring and holding the Trust Assets,
issuing the Certificates and distributing payments on the Certificates, no
historical or pro forma financial statements or ratios of earnings to fixed
charges with respect to any Trust have been included herein.
THE TRUST ASSETS
Each Certificate issued by a Trust will represent a fractional undivided
interest in such Trust, other than interest received by the Trust in excess of
the applicable Pass-Through Rate for such Certificate, as specified in the
applicable Prospectus Supplement. To the extent specified in the Prospectus
Supplement for a Trust, the Trust Assets of a Trust will include a pool (a
"Receivables Pool") of retail installment sale contracts between dealers (the
"Dealers") in new and used automobiles, light trucks, vans and minivans and
retail purchasers (the "Obligors") and, with respect
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to Rule of 78's Receivables, certain monies due thereunder after the applicable
Cutoff Date, and, with respect to Simple Interest Receivables, certain monies
received thereunder after the applicable Cutoff Date. Pursuant to agreements
between the Dealers and CPS ("Dealer Agreements"), the Receivables will be
purchased by CPS. As further described in the related Prospectus Supplement, the
Trust Assets of a Trust will also include (i) such amounts as from time to time
may be held in one or more trust accounts established and maintained by the
Trustee pursuant to the Agreement; (ii) the rights of the Seller under the
Purchase Agreement; (iii) security interests in the Financed Vehicles; (iv) the
rights of the Seller to receive any proceeds with respect to the Receivables
from claims on physical damage, credit life and credit accident and health
insurance policies covering the Financed Vehicles or the Obligors, as the case
may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. If so specified in the related Prospectus Supplement, the Trust
Assets also will include the Credit Enhancement provided for the benefit of
Certificateholders of such Trust. Any Payahead Account will be maintained with
the applicable Trustee for the benefit of the Obligors, but will not be part of
the Trust.
If so provided in the related Prospectus Supplement, the property of a
Trust may also include a Pre-Funded Amount, which the Seller will deposit to the
Pre-Funding Account on the Closing Date and which will be used by the Trust to
purchase Subsequent Receivables from the Seller during the related Funding
Period. Any Subsequent Receivables so conveyed to a Trust will also be assets of
such Trust.
If the protection provided to Certificateholders, if any, by any such
Credit Enhancement is insufficient, such Certificateholders will have to look to
payments by or on behalf of Obligors on the related Receivables and the proceeds
from the repossession and sale of Financed Vehicles that secure defaulted
Receivables for distributions of principal and interest on the Certificates. In
such event, certain factors, such as the applicable Trust's not having perfected
security interests in all of the Financed Vehicles, may limit the ability of a
Trust to realize on the collateral securing the related Receivables, or may
limit the amount realized to less than the amount due under the related
Receivables. Certificateholders may thus be subject to delays in payment on, or
may incur losses on their investment in, such Certificates as a result of
defaults or delinquencies by Obligors and depreciation in the value of the
related Financed Vehicles. See "Description of the Pooling and Servicing
Agreements--Credit and Cash Flow Enhancement" and "Certain Legal Aspects of the
Receivables".
The Receivables comprising the Trust Assets will, as specifically described
in the related Prospectus Supplement, be either (i) originated by CPS, (ii)
originated by various manufacturers (or their captive finance companies) and
acquired by CPS, (iii) originated by various Dealers and acquired by CPS or (iv)
acquired by CPS from other originators or owners of Receivables. Such
Receivables will generally have been originated by CPS or acquired by CPS in
accordance with CPS's specified underwriting criteria. The underwriting criteria
applicable to the Receivables included in any Trust will be described in all
material respects in the related Prospectus Supplement.
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The Receivables included in the Trust Assets will be selected from those
Receivables held by CPS based on the criteria specified in the applicable
Pooling and Servicing Agreement and described herein or in the related
Prospectus Supplement.
ACQUISITION OF RECEIVABLES BY THE SELLER
On or prior to each Closing Date, CPS will sell and assign to the Seller,
without recourse, except as provided in the Purchase Agreement, its entire
interest in the applicable Receivables, together with its security interests in
the Financed Vehicles, pursuant to a purchase agreement between CPS and the
Seller (the "Purchase Agreement").
In each Purchase Agreement, CPS will represent and warrant to the Seller,
among other things, that (i) the information provided with respect to the
applicable Receivables is correct in all material respects; (ii) at the date of
issuance of the Certificates, physical damage insurance covering each Financed
Vehicle is in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the applicable Certificates, the related Receivables are
free and clear of all security interests, liens, charges, and encumbrances and
no offsets, defenses, or counterclaims against Dealers have been asserted or
threatened; (iv) at the date of issuance of the Certificates, each of the
Receivables is or will be secured by a first-priority perfected security
interest in the Financed Vehicle in favor of CPS; and (v) each Receivable, at
the time it was originated, complied and, at the date of issuance of the
Certificates, complies in all material respects with applicable federal and
state laws, including, without limitation, consumer credit, truth in lending,
equal credit opportunity and disclosure laws. As of the last day of the second
(or, if CPS elects, the first) month following the discovery by or notice to the
Seller and CPS of a breach of any representation or warranty that materially and
adversely affects a Receivable, unless the breach is cured, CPS will purchase
such Receivable from the Trust for the Purchase Amount. The "Purchase Amount"
equals the unpaid principal balance owed by the Obligor plus interest thereon at
the respective APR to the last day of the month of repurchase. The repurchase
obligation will constitute the sole remedy available to the Certificateholders,
the Credit Enhancer (if any) or the Trustee for any such uncured breach.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Receivables Pool
will be set forth in the related Prospectus Supplement, including, to the extent
appropriate, the composition of such Receivables and the distribution of such
Receivables by geographic concentration, payment frequency and current principal
balance as of the applicable Cutoff Date.
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Pooling and Servicing Agreement to sell Subsequent
Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Pooling and Servicing Agreement and described in the related
Prospectus Supplement. If the principal amount of the eligible Subsequent
Receivables acquired by the Seller from the CPS during a Funding Period is less
than the Pre-Funded Amount, the Seller may have insufficient Subsequent
Receivables to transfer to a Trust and holders of one or more classes of the
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related Series of Certificates may receive a prepayment or early distribution of
principal at the end of the Funding Period as described above under "Risk
Factors--Pre-Funding Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Pooling and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Certificates; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pool" in
the related Prospectus Supplement; and (iv) the Seller must execute and deliver
to such Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition subsequent, among others, which must be
satisfied within the applicable time period specified in the related Prospectus
Supplement, that the Seller deliver certain legal opinions to the related
Trustee with respect to the validity of the conveyance of the Subsequent
Receivables to the Trust. If any such conditions precedent or conditions
subsequent are not met with respect to any Subsequent Receivables within the
time period specified in the related Prospectus Supplement, CPS or the Seller,
as specified in the related Prospectus Supplement, will be required to
repurchase such Subsequent Receivables from the related Trust, at a purchase
price equal to the related Repurchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables. Therefore,
the characteristics of the entire Receivables Pool included in any Trust may
vary significantly as Subsequent Receivables are conveyed to such Trust from
time to time during the Funding Period or Revolving Period.
The Receivables
As specified in the related Prospectus Supplement, the Receivables may
consist of any combination of Rule of 78s Receivables, Actuarial Receivables or
Simple Interest Receivables. Generally, "Rule of 78s Receivables" provide for
fixed level monthly payments which will amortize the full amount of the
Receivable over its term. The Rule of 78s Receivables provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method (the "Rule of 78s"). Each Rule of 78s Receivable provides for
the payment by the Obligor of a specified total amount of payments, payable in
monthly installments on the related due date, which total represents the
principal amount financed and finance charges in an amount calculated on the
basis of a stated annual percentage rate ("APR") for the term of such
Receivable. The rate at which such amount of finance charges is earned and,
correspondingly, the amount of each fixed monthly payment allocated to reduction
of the outstanding principal balance of the related Receivable are calculated in
accordance with the Rule of 78s. Under the Rule of 78s, the portion of each
payment allocable to interest is higher during the early months of the term of a
Receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the Servicer on or in respect of the Rule of 78s Receivables may be
allocated on an actuarial or simple interest basis.
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Generally, "Actuarial Receivables" provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
An Actuarial Receivable provides for amortization of the amount financed over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
Financed Vehicle to CPS, provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions.
"Simple Interest Receivables" provide for the amortization of the amount
financed under the Receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78s Receivables, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78s Receivable in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the Obligor is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78s Receivable calculated in accordance with the Rule of 78s will always be
less than had such rebate been calculated on an actuarial basis and generally
will be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Receivable for which all payments were made on schedule.
Distributions to Certificateholders may not be affected by Rule of 78s rebates
under the Rule of 78s Receivable because, as specified in the related Prospectus
Supplement, such distributions may be determined using the actuarial or simple
interest method.
Delinquencies, Repossessions, And Net Losses
Certain information relating to CPS's delinquency, repossession and net
loss experience with respect to Receivables it has originated or acquired will
be set forth in each Prospectus Supplement. This information may include, among
other things, the experience with respect to all Receivables in CPS's portfolio
during certain specified periods. There can be no assurance that the
delinquency, repossession and net loss experience with respect to any Trust will
be comparable to CPS's prior experience.
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Maturity And Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Receivable permits prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Certificates.
The rate of prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
CPS will be obligated to acquire Receivables from the related Trust pursuant to
the applicable Pooling and Servicing Agreement or Purchase Agreement as a result
of breaches of representations and warranties. Any reinvestment risks resulting
from a faster or slower amortization of the related Certificates which results
from prepayments will be borne entirely by the related Certificateholders.
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related Series of
Certificates, together with a description of any applicable prepayment
penalties.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
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CPS purchases Contracts from Dealers with the intent to resell them. CPS
also purchases Contracts from third parties that have been originated by others.
Prior to the issuances of the Certificates, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of Contracts
receive a pass-through rate of interest set at the time of the sale, and CPS
receives a base servicing fee for its duties relating to the accounting for and
collection of the Contracts. In addition, CPS is entitled to certain excess
servicing fees that represent collection on the Contracts in excess of those
required to pay principal and interest due to the investor at face value and
without recourse except that the representations and warranties made to CPS by
the Dealers are similarly made to the investors by CPS. CPS has some credit risk
with respect to the excess servicing fees it receives in connection with the
sale of contracts to investors and its continued servicing function since the
receipt by CPS of such excess servicing fees is dependent upon the credit
performance of the Contracts. Additional information with respect to CPS's
automobile contract portfolio, including information regarding CPS's
underwriting criteria and servicing and collection procedures, will be set forth
in each Prospectus Supplement.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
For further information about CPS see "CPS's Automobile Contract Portfolio"
in the Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each class of Certificates will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such class of Certificates, indicating the remaining outstanding principal
balance of such class of Certificates as of the applicable Distribution Date, as
a fraction of the initial outstanding principal balance of such class of
Certificates. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable class of Certificates. A Certificateholder's portion of the aggregate
outstanding principal balance of the related class of Certificates is the
product of (i) the original aggregate purchase price of such Certificateholder's
Certificates and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement with
respect to each Series of Certificates, the related Certificateholders of record
will receive reports on or about each Distribution Date concerning the payments
received on the Receivables, the Pool Balance (as such term is defined in the
related Prospectus Supplement, the "Pool Balance"), each Pool Factor and various
other items of information. In addition, Certificateholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Certificates of a Series will be applied by the
applicable Trust to the purchase of the Receivables from the applicable Seller
and to make the deposit of the Pre-Funded Amount, if any, to the Pre-Funding
Account. The Seller will use the portion of such proceeds paid to it for general
corporate purposes.
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THE SELLER AND CPS
Each Seller will be a wholly-owned subsidiary of CPS. CPS Receivables Corp.
was incorporated in the State of California in June of 1994. CPS Receivables
Corp. was, and each other Seller will be, organized for the limited purpose of
purchasing automobile installment sale contracts from CPS and transferring such
receivables to third parties and any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
offices of CPS Receivables Corp. are located at 2 Ada, Suite 100, Irvine,
California 92618; telephone (714) 753-6800.
The Seller has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
petition for relief by CPS under any Insolvency Law will result in consolidation
of the assets and liabilities of the Seller or the Trust with those of CPS.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to articles of incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a restriction
on the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the Seller
would not result in a court concluding that the assets and liabilities of the
Seller should be consolidated with those of CPS in a proceeding under any
Insolvency Law.
The Seller has received the advice of counsel to the effect that, subject
to certain facts, assumptions and qualifications, in a properly presented case
under current law, in the event that CPS becomes a debtor in a case under the
Bankruptcy Code, a United States Bankruptcy Court would not order the
substantive consolidation of the assets and liabilities of the Seller with those
of CPS. Among other things, it is assumed by counsel that the Seller will follow
certain procedures in the conduct of its affairs, including maintaining records
and books of account separate from those of CPS, refraining from commingling its
assets with those of CPS and refraining from holding itself out as having agreed
to pay, or being liable for, the debts of CPS. The Seller intends to follow and
has represented to such counsel that it will follow these and other procedures
related to maintaining its separate corporate identity. However, in the event
that the Seller did not follow these procedures, and in certain other
circumstances, there can be no assurance that a court would not conclude that
the assets and liabilities of the Seller should be consolidated with those of
CPS. If a court were to reach such a conclusion, or a filing were made to
litigate any of the foregoing issues, delays in distributions on the
Certificates (and possible reductions in the amount of such distributions) could
occur. See "Risk Factors--Certain Legal Aspects".
CPS was incorporated in the State of California on March 8, 1991. On
October 22, 1992, CPS completed a public offering of 1,300,000 shares
(approximately 31% of the shares then outstanding) of its common stock at an
initial price of $5.00 per share. Prior to that time, 100% of the common stock
of CPS was owned by CPS Holdings, Inc., a holding company the majority of the
shares of which are owned by Charles E. Bradley, Sr. On March 6, 1995, CPS
completed a second public offering of 1,000,000 shares (approximately 18.5% of
the shares then outstanding) of its common stock at $14.75 per share. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing Contracts originated by Dealers located primarily in California,
Florida, Pennsylvania, Texas, Illinois and Nevada. CPS specializes in Contracts
with Sub-Prime Borrowers who generally would not be expected to qualify for
traditional financing such as that
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provided by commercial banks or automobile manufacturers' captive finance
companies. Sub-Prime Borrowers generally have limited credit history, lower than
average income or past credit problems. CPS also provides accounting and
collection services to third party owners of automobile loan portfolios that
were not originated by CPS. CPS's executive offices are located at 2 Ada, Suite
100, Irvine, California 92618; telephone (714) 753-6800.
DESCRIPTION OF THE CERTIFICATES
General
Each Trust will, if so provided in the related Prospectus Supplement, issue
one or more classes of Certificates pursuant to a Pooling and Servicing
Agreement. A form of Pooling and Servicing Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the related
Certificates and Pooling and Servicing Agreement.
Unless otherwise specified in the related Prospectus Supplement and except
for the Certificates, if any, of a Series purchased by CPS, each class of
Certificates will initially be represented by one or more certificates
registered in the name of the Seller. Certificates will be available for
purchase in the minimum denominations specified in the related Prospectus
Supplement and, unless otherwise specified in the related Prospectus Supplement,
in book-entry form only. The Seller has been informed by DTC that DTC's nominee
will be Cede, unless another nominee is specified in the related Prospectus
Supplement. Accordingly, such nominee is expected to be the holder of record of
the Certificates of any Series that are not purchased by CPS. Unless and until
Definitive Certificates are issued under the limited circumstances described
herein or in the related Prospectus Supplement, no Certificateholder (other than
CPS) will be entitled to receive a physical certificate representing a
Certificate. All references herein and in the related Prospectus Supplement to
actions by Certificateholders refer to actions taken by DTC upon instructions
from the Participants, and all references herein and in the related Prospectus
Supplement to distributions, notices, reports and statements to
Certificateholders refer to distributions, notices, reports and statements to
DTC or its nominee, as the case may be, as the registered holder of the
Certificates, for distribution to Certificateholders in accordance with DTC's
procedures with respect thereto. See "Certain Information Regarding the
Certificates--Book-Entry Registration" and "--Definitive Certificates". Any
Certificate of a Series owned by CPS will be entitled to equal and proportionate
benefits under the applicable Pooling and Servicing Agreement, except that such
Certificates will be deemed not to be outstanding for the purpose of determining
whether the requisite percentage of Certificateholders has given any request,
demand, authorization, direction, notice, or consent or taken any other action
under the related Pooling and Servicing Agreement.
Distributions of Principal and Interest
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest on each class of Certificates of a Series will
be described in the related Prospectus Supplement. Distributions of interest on
such Certificates will be made on the dates specified in the related Prospectus
Supplement (the "Distribution Date") and, if so specified in the related
Prospectus Supplement, will
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be made prior to distributions with respect to principal of such Certificates.
To the extent provided in the related Prospectus Supplement, a Series of
Certificates may include one or more classes of Strip Certificates entitled to
(i) principal distributions with disproportionate, nominal or no interest
distributions or (ii) interest distributions with disproportionate, nominal or
no principal distributions. Each class of Certificates may have a different
Pass-Through Rate, which may be a fixed, variable or adjustable Pass-Through
Rate (and which may be zero for certain classes of Strip Certificates) or any
combination of the foregoing. The related Prospectus Supplement will specify the
Pass-Through Rate for each class of Certificates of a Series or the method for
determining such Pass-Through Rate.
In the case of a Series of Certificates that includes two or more classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such class
shall be as set forth in the related Prospectus Supplement. Distributions in
respect of interest on and principal of any class of Certificates will be made
on a pro rata basis among all holders of Certificates of such class.
CERTAIN INFORMATION REGARDING THE CERTIFICATES
Fixed Rate Certificates
Each class of Certificates (other than certain classes of Strip
Certificates) may bear interest at a fixed rate per annum ("Fixed Rate
Certificates") or at a variable or adjustable rate per annum ("Floating Rate
Certificates"), as more fully described below and in the applicable Prospectus
Supplement. Each class of Fixed Rate Certificates will bear interest at the
applicable per annum Pass- Through Rate specified in the applicable Prospectus
Supplement. Unless otherwise set forth in the applicable Prospectus Supplement,
interest on each class of Fixed Rate Certificates will be computed on the basis
of a 360-day year of twelve 30-day months.
Floating Rate Certificates
Each class of Floating Rate Certificates will bear interest for each
applicable Interest Reset Period (as such term is defined in the related
Prospectus Supplement with respect to a class of Floating Rate Certificates, the
"Interest Reset Period") at a rate per annum determined by reference to an
interest rate basis (the "Base Rate"), plus or minus the Spread, if any, or
multiplied by the Spread Multiplier, if any, in each case as specified in the
related Prospectus Supplement. The "Spread" is the number of basis points (one
basis point equals one one-hundredth of a percentage point) that may be
specified in the applicable Prospectus Supplement as being applicable to such
class, and the "Spread Multiplier" is the percentage that may be specified in
the applicable Prospectus Supplement as being applicable to such class.
The applicable Prospectus Supplement will designate one of the following
Base Rates as applicable to a given Floating Rate Certificate: (i) LIBOR (a
"LIBOR Certificate"), (ii) the Commercial Paper Rate (a "Commercial Paper Rate
Certificate"), (iii) the Treasury Rate (a "Treasury Rate Certificate"), (iv) the
Federal Funds Rate (a "Federal Funds Rate Certificate"), (v) the CD Rate (a "CD
Rate Certificate") or (vi) such other Base Rate as is set forth in such
Prospectus Supplement. The "Index Maturity" for any class of Floating Rate
Certificates is the period of maturity of the instrument or obligation from
which the Base Rate is calculated. "H.15(519)" means the publication
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entitled "Statistical Release H.15(519), Selected Interest Rates", or any
successor publication, published by the Board of Governors of the Federal
Reserve System. "Composite Quotations" means the daily statistical release
entitled "Composite 3:30 p.m. Quotations for U.S. Government Securities"
published by the Federal Reserve Bank of New York. "Interest Reset Date" will be
the first day of the applicable Interest Reset Period, or such other day as may
be specified in the related Prospectus Supplement with respect to a class of
Floating Rate Certificates.
As specified in the applicable Prospectus Supplement, Floating Rate
Certificates of a given class may also have either or both of the following (in
each case expressed as a rate per annum): (i) a maximum limitation, or ceiling,
on the rate at which interest may accrue during any interest period and (ii) a
minimum limitation, or floor, on the rate at which interest may accrue during
any interest period. In addition to any maximum interest rate that may be
applicable to any class of Floating Rate Certificates, the interest rate
applicable to any class of Floating Rate Certificates will in no event be higher
than the maximum rate permitted by applicable law, as the same may be modified
by United States law of general application.
Each Trust with respect to which a class of Floating Rate Certificates will
be issued will appoint, and enter into agreements with, a calculation agent
(each, a "Calculation Agent") to calculate interest rates on each such class of
Floating Rate Certificates issued with respect thereto. The applicable
Prospectus Supplement will set forth the identity of the Calculation Agent for
each such class of Floating Rate Certificates of a given Series, which may be
either the related Trustee or Indenture Trustee with respect to such Series. All
determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Certificates of a given class. All percentages resulting from any
calculation of the rate of interest on a Floating Rate Certificate will be
rounded, if necessary, to the nearest 1/100,000 of 1% (.0000001), with five
one-millionths of a percentage point rounded upward.
CD Rate Certificates. Each CD Rate Certificate will bear interest for each
Interest Reset Period at the interest rate calculated with reference to the CD
Rate and the Spread or Spread Multiplier, if any, specified in such Security and
in the applicable Prospectus Supplement.
The "CD Rate" for each Interest Reset Period shall be the rate as of the
second business day prior to the Interest Reset Date for such Interest Reset
Period (a "CD Rate Determination Date") for negotiable certificates of deposit
having the Index Maturity designated in the applicable Prospectus Supplement as
published in H.15(519) under the heading "Cds (Secondary Market)". In the event
that such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such CD Rate Determination
Date, then the "CD Rate" for such Interest Reset Period will be the rate on such
CD Rate Determination Date for negotiable certificates of deposit of the Index
Maturity designated in the applicable Prospectus Supplement as published in
Composite Quotations under the heading "Certificates of Deposit". If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published in either H.15(519) or Composite Quotations, then the CD Rate for such
Interest Reset Period will be calculated by the Calculation Agent for such CD
Rate Certificate and will be the arithmetic mean of the secondary market offered
rates as of 10:00 a.m., New York City time, on such CD Rate Determination Date,
of three leading nonbank dealers in negotiable U.S. dollar certificates of
deposit in The City of New York selected by the Calculation Agent for such CD
Rate Certificate for negotiable certificates of deposit of major United States
money center banks of the highest credit standing (in the market for negotiable
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certificates of deposit) with a remaining maturity closest to the Index Maturity
designated in the related Prospectus Supplement in a denomination of $5,000,000;
provided, however, that if the dealers selected as aforesaid by such Calculation
Agent are not quoting offered rates as mentioned in this sentence, the CD Rate
for such Interest Reset Period will be the same as the CD Rate for the
immediately preceding Interest Reset Period.
The "Calculation Date" pertaining to any CD Rate Determination Date shall
be the first to occur of (a) the tenth calendar day after such CD Rate
Determination Date or, if such day is not a business day, the next succeeding
business day or (b) the second business day preceding the date any payment is
required to be made for any period following the applicable Interest Reset Date.
Commercial Paper Rate Certificates. Each Commercial Paper Rate Certificate
will bear interest for each Interest Reset Period at the interest rate
calculated with reference to the Commercial Paper Rate and the Spread or Spread
Multiplier, if any, specified in such Security and in the applicable Prospectus
Supplement.
The "Commercial Paper Rate" for each Interest Reset Period will be
determined by the Calculation Agent for such Commercial Paper Rate Certificate
as of the second business day prior to the Interest Reset Date for such Interest
Reset Period (a "Commercial Paper Rate Determination Date") and shall be the
Money Market Yield (as defined below) on such Commercial Paper Rate
Determination Date for the rate for commercial paper having the Index Maturity
specified in the applicable Prospectus Supplement, as such rate shall be
published in H.15(519) under the heading "Commercial Paper". In the event that
such rate is not published prior to 3:00 p.m., New York City time, on the
Calculation Date (as defined below) pertaining to such Commercial Paper Rate
Determination Date, then the "Commercial Paper Rate" for such Interest Reset
Period shall be the Money Market Yield on such Commercial Paper Rate
Determination Date for the rate for commercial paper of the specified Index
Maturity as published in Composite Quotations under the heading "Commercial
Paper". If by 3:00 p.m., New York City time, on such Calculation Date such rate
is not yet published in either H.15(519) or Composite Quotations, then the
"Commercial Paper Rate" for such Interest Reset Period shall be the Money Market
Yield of the arithmetic mean of the offered rates, as of 11:00 a.m., New York
City time, on such Commercial Paper Rate Determination Date of three leading
dealers of commercial paper in The City of New York selected by the Calculation
Agent for such Commercial Paper Rate Certificate for commercial paper of the
specified Index Maturity placed for an industrial issuer whose bonds are rated
"AA" or the equivalent by a nationally recognized rating agency; provided,
however, that if the dealers selected as aforesaid by such Calculation Agent are
not quoting offered rates as mentioned in this sentence, the "Commercial Paper
Rate" for such Interest Reset Period will be the same as the Commercial Paper
Rate for the immediately preceding Interest Reset Period.
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
D x 360
Money Market Yield = ----------------- x 100
360 - (D x M)
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where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days in the specified Index Maturity.
The "Calculation Date" pertaining to any Commercial Paper Rate
Determination Date shall be the first to occur of (a) the tenth calendar day
after such Commercial Paper Rate Determination Date or, if such day is not a
business day, the next succeeding business day or (b) the second business day
preceding the date any payment is required to be made for any period following
the applicable Interest Reset Date.
Federal Funds Rate Certificates. Each Federal Funds Rate Certificate will
bear interest for each Interest Reset Period at the interest rate calculated
with reference to the Federal Funds Rate and the Spread or Spread Multiplier, if
any, specified in such Security and in the applicable Prospectus Supplement.
The "Federal Funds Rate" for each Interest Reset Period shall be the
effective rate on the Interest Reset Date for such Interest Reset Period (a
"Federal Funds Rate Determination Date") for Federal Funds as published in H.
15(519) under the heading "Federal Funds (Effective)". In the event that such
rate is not published prior to 3:00 p.m., New York City time, on the Calculation
Date (as defined below) pertaining to such Federal Funds Rate Determination
Date, the "Federal Funds Rate" for such Interest Reset Period shall be the rate
on such Federal Funds Rate Determination Date as published in Composite
Quotations under the heading "Federal Funds/Effective Rate". If by 3:00 p.m.,
New York City time, on such Calculation Date such rate is not yet published in
either H. 15(519) or Composite Quotations, then the "Federal Funds Rate" for
such Interest Reset Period shall be the rate on such Federal Funds Rate
Determination Date made publicly available by the Federal Reserve Bank of New
York which is equivalent to the rate which appears in H.15(519) under the
heading "Federal Funds (Effective)"; provided, however, that if such rate is not
made publicly available by the Federal Reserve Bank of New York by 3:00 p.m.,
New York City time, on such Calculation Date, the "Federal Funds Rate" for such
Interest Reset Period will be the same as the Federal Funds Rate in effect for
the immediately preceding Interest Reset Period. In the case of a Federal Funds
Rate Certificate that resets daily, the interest rate on such Security for the
period from and including a Monday to but excluding the succeeding Monday will
be reset by the Calculation Agent for such Certificate on such second Monday
(or, if not a business day, on the next succeeding business day) to a rate equal
to the average of the Federal Funds Rates in effect with respect to each such
day in such week.
The "Calculation Date" pertaining to any Federal Funds Rate Determination
Date shall be the next succeeding business day.
LIBOR Certificates. Each LIBOR Certificate will bear interest for each
Interest Reset Period at the interest rate calculated with reference to LIBOR
and the Spread or Spread Multiplier, if any, specified in such Certificate and
in the applicable Prospectus Supplement.
With respect to LIBOR indexed to the offered rates for U.S. dollar
deposits, "LIBOR" for each Interest Reset Period will be determined by the
Calculation Agent for any LIBOR Certificate as follows:
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(i) On the second London Banking Day prior to the Interest Reset Date
for such Interest Reset Period (a "LIBOR Determination Date"), the
Calculation Agent for such LIBOR Certificate will determine the arithmetic
mean of the offered rates for deposits in U.S. dollars for the period of
the Index Maturity specified in the applicable Prospectus Supplement,
commencing on such Interest Reset Date, which appear on the Reuters Screen
LIBO Page at approximately 11:00 a.m., London time, on such LIBOR
Determination Date. For purposes of calculating LIBOR, "London Banking Day"
means any business day on which dealings in deposits in United States
dollars are transacted in the London interbank market and "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters
Monitor Money Rates Service (or such other page as may replace the LIBO
page on that service for the purpose of displaying London interbank offered
rates of major banks). If at least two such offered rates appear on the
Reuters Screen LIBO Page, "LIBOR" for such Interest Reset Period will be
the arithmetic mean of such offered rates as determined by the Calculation
Agent for such LIBOR Certificate.
(ii) If fewer than two offered rates appear on the Reuters Screen LIBO
Page on such LIBOR Determination Date, the Calculation Agent for such LIBOR
Certificate will request the principal London offices of each of four major
banks in the London interbank market selected by such Calculation Agent to
provide such Calculation Agent with its offered quotations for deposits in
U.S. dollars for the period of the specified Index Maturity, commencing on
such Interest Reset Date, to prime banks in the London interbank market at
approximately 11:00 a.m., London time, on such LIBOR Determination Date and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time. If
at least two such quotations are provided, "LIBOR" for such Interest Reset
Period will be the arithmetic mean of such quotations. If fewer than two
such quotations are provided, "LIBOR" for such Interest Reset Period will
be the arithmetic mean of rates quoted by three major banks in The City of
New York selected by the Calculation Agent for such LIBOR Certificate at
approximately 11:00 a.m., New York City time, on such LIBOR Determination
Date for loans in U.S. dollars to leading European banks, for the period of
the specified Index Maturity, commencing on such Interest Reset Date, and
in a principal amount equal to an amount of not less than $1,000,000 that
is representative of a single transaction in such market at such time;
provided, however, that if the banks selected as aforesaid by such
Calculation Agent are not quoting rates as mentioned in this sentence,
"LIBOR" for such Interest Reset Period will be the same as LIBOR for the
immediately preceding Interest Reset Period.
Treasury Rate Certificates. Each Treasury Rate Certificate will bear
interest for each Interest Reset Period at the interest rate calculated with
reference to the Treasury Rate and the Spread or Spread Multiplier, if any,
specified in such Security and in the applicable Prospectus Supplement.
The "Treasury Rate" for each Interest Period will be the rate for the
auction held on the Treasury Rate Determination Date (as defined below) for such
Interest Reset Period of direct obligations of the United States ("Treasury
bills") having the Index Maturity specified in the applicable Prospectus
Supplement, as such rate shall be published in H.15(519) under the heading "U.S.
Government Securities-Treasury bills-auction average (investment)" or, in the
event that such rate is not published prior to 3:00 p.m., New York City time, on
the Calculation Date (as defined below) pertaining to such Treasury Rate
Determination Date, the auction average rate (expressed as a
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bond equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) on such Treasury Rate Determination Date as otherwise
announced by the United States Department of the Treasury. In the event that the
results of the auction of Treasury bills having the specified Index Maturity are
not published or reported as provided above by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held on such Treasury Rate
Determination Date, then the "Treasury Rate" for such Interest Reset Period
shall be calculated by the Calculation Agent for such Treasury Rate Certificate
and shall be the yield to maturity (expressed as a bond equivalent on the basis
of a year of 365 or 366 days, as applicable, and applied on a daily basis) of
the arithmetic mean of the secondary market bid rates, as of approximately 3:30
p.m., New York City time, on such Treasury Rate Determination Date, of three
leading primary United States government securities dealers selected by such
Calculation Agent for the issue of Treasury bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if the dealers
selected as aforesaid by such Calculation Agent are not quoting bid rates as
mentioned in this sentence, then the "Treasury Rate" for such Interest Reset
Period will be the same as the Treasury Rate for the immediately preceding
Interest Reset Period.
The "Treasury Rate Determination Date" for each Interest Reset Period will
be the day of the week in which the Interest Reset Date for such Interest Reset
Period falls on which Treasury bills would normally be auctioned. Treasury bills
are normally sold at auction on Monday of each week, unless that day is a legal
holiday, in which case the auction is normally held on the following Tuesday,
except that such auction may be held on the preceding Friday. If, as the result
of a legal holiday, an auction is so held on the preceding Friday, such Friday
will be the Treasury Rate Determination Date pertaining to the Interest Reset
Period commencing in the next succeeding week. If an auction date shall fall on
any day that would otherwise be an Interest Reset Date for a Treasury Rate
Certificate, then such Interest Reset Date shall instead be the business day
immediately following such auction date.
The "Calculation Date" pertaining to any Treasury Rate Determination Date
shall be the first to occur of (a) the tenth calendar day after such Treasury
Rate Determination Date or, if such a day is not a business day, the next
succeeding business day or (b) the second business day preceding the date any
payment is required to be made for any period following the applicable Interest
Reset Date.
Book-Entry Registration
As may be described in the related Prospectus Supplement,
Certificateholders of a given Series may hold their Certificates through DTC (in
the United States) or CEDEL or Euroclear (in Europe) if they are participants of
such systems, or indirectly through organizations that are participants in such
systems.
Cede, as nominee for DTC, will hold the global Certificates in respect of a
given Series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
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DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
the ordinary way in accordance with their applicable rules and operating
procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depository; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depository to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Certificateholders of a given Series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Certificates of such Series may do so only
through Participants and Indirect Participants. In addition, Certificateholders
of a given Series will receive all distributions of principal and interest
through the Participants who in turn will receive them from DTC. Under a
book-entry format, Certificateholders of a given Series may experience some
delay in their receipt of payments, since such payments will be forwarded by the
applicable Trustee to Cede, as nominee for DTC. DTC will forward such payments
to its Participants, which thereafter will forward them to Indirect Participants
or such Certificateholders. It is anticipated that the only "Certificateholder"
in respect of any Series will be Cede, as nominee of DTC. Certificateholders of
a given Series will not be recognized as Certificateholders of such Series,
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and such Certificateholders will be permitted to exercise the rights of
Certificateholders of such Series only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Certificates of a given Series among Participants on whose behalf it acts with
respect to such Certificates and to receive and transmit distributions of
principal of, and interest on, such Certificates. Participants and Indirect
Participants with which the Certificateholders of a given Series have accounts
with respect to such Certificates similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of their respective
Certificateholders of such Series. Accordingly, although such Certificateholders
will not possess Certificates, the Rules provide a mechanism by which
Participants will receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Certificateholder of a given Series to pledge Certificates of such Series to
persons or entities that do not participate in the DTC system, or to otherwise
act with respect to such Certificates, may be limited due to the lack of a
physical certificate for such Certificates.
DTC will advise the Trustee in respect of each Series that it will take any
action permitted to be taken by a Certificateholder of the related Series only
at the direction of one or more Participants to whose accounts with DTC the
Certificates of such Series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for
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cross-market transfers with DTC described above. Euroclear is operated by Morgan
Guaranty Trust Company of New York, Brussels, Belgium office, under contract
with Euroclear Clearance System, S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the "Euroclear Operator" (as
defined below), and all Euroclear securities clearance accounts and Euroclear
cash accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policy for the Euroclear System on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriters. Indirect access to the Euroclear System is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a Series will not have
any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Certificates held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Certificates
Unless otherwise stated in the related Prospectus Supplement, the
Certificates of a Series will be issued in fully registered, certificated form
("Definitive Certificates") to Certificateholders or their nominees, rather than
to DTC or its nominee, only if (i) the Trustee in respect of the related Series
advises in writing that DTC is no longer willing or able to discharge properly
its responsibilities as depository with respect to such Certificates and such
Trustee is unable to locate a qualified successor, (ii) such Trustee, at its
option, elects to terminate the book-entry-system through DTC or (iii) after the
occurrence of a default by the Servicer under the related Pooling and Servicing
Agreement, Certificateholders representing at least a majority of the
outstanding principal amount of such Certificates advise the applicable Trustee
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in such Certificateholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Certificateholders through Participants of the
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availability of Definitive Certificates. Upon surrender by DTC of the definitive
certificates representing such Certificates and receipt of instructions for
re-registration, the applicable Trustee will reissue such Certificates as
Definitive Certificates to such Certificateholders.
Distributions of principal of, and interest on, such Definitive
Certificates will thereafter be made by the applicable Trustee in accordance
with the procedures set forth in the related Pooling and Servicing Agreement
directly to holders of Definitive Certificates in whose names the Definitive
Certificates were registered at the close of business on the applicable Record
Date specified for such Certificates in the related Prospectus Supplement. Such
distributions will be made by check mailed to the address of such holder as it
appears on the register maintained by the applicable Trustee. The final payment
on any such Security, however, will be made only upon presentation and surrender
of such Security at the office or agency specified in the notice of final
distribution to the applicable Certificateholders.
Definitive Certificates in respect of a given Series of Certificates will
be transferable and exchangeable at the offices of the applicable Trustee or of
a certificate registrar named in a notice delivered to holders of such
Definitive Certificates. No service charge will be imposed for any registration
of transfer or exchange, but the applicable Trustee may require payment of a sum
sufficient to cover any tax or other governmental charge imposed in connection
therewith.
Reports To Certificateholders
With respect to each Series of Certificates, on or prior to each
Distribution Date for such Series, the Servicer or the related Trustee will
forward or cause to be forwarded to each holder of record of such class of
Certificates a statement or statements with respect to the related Trust Assets
setting forth the information specified in the related Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year, the applicable Trustee will
provide to the Certificateholders a statement containing information required by
applicable tax laws, for the purpose of the Certificateholders' preparation of
federal income tax returns.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS
The following summary describes certain terms of each Pooling and Servicing
Agreement pursuant to which a Trust will be created and the related Certificates
in respect of such Trust will be issued. For purposes of this Prospectus, the
term "Pooling and Servicing Agreement" as used with respect to a Trust means,
collectively, and except as otherwise specified, any and all agreements relating
to the establishment of the related Trust, the servicing of the related
Receivables and the issuance of the related Certificates. Forms of the Pooling
and Servicing Agreement have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part. The summary does not purport to
be complete. It is qualified in its entirety by reference to the provisions of
the Pooling and Servicing Agreements.
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Sale and Assignment of Receivables
On or prior to the closing date specified with respect to any given Series
of Certificates (the "Closing Date"), CPS will sell and assign to a Seller,
without recourse, except as otherwise provided in the applicable Purchase
Agreement, its entire interest in the Receivables to be included in such Trust,
together with its security interests in the related Financed Vehicles. At the
time of issuance of the Certificates, such Seller will sell and assign to the
Trust, without recourse, except as provided in the applicable Pooling and
Servicing Agreement, its entire interest in such Receivables, together with its
security interests in the related Financed Vehicles. Each Receivable will be
identified in a schedule appearing as an exhibit to the applicable Pooling and
Servicing Agreement. The Trustee will concurrently with such sale and
assignment, execute, authenticate, and deliver the Certificates to the
applicable Seller in exchange for the Receivables.
In each Purchase Agreement, CPS will represent and warrant to the
applicable Seller, among other things with respect to the Receivables being sold
and assigned therein, that (i) the information provided with respect to the
Receivables is correct in all material respects: (ii) at the date of origination
of each Receivable, physical damage insurance covering the related Financed
Vehicle is in effect in accordance with CPS's normal requirements; (iii) at the
applicable Cutoff Date, the Receivables are free and clear of all security
interests, liens, charges, and encumbrances and no offsets, defenses, or
counterclaims against Dealers have been asserted or threatened; (iv) at the
applicable Cutoff Date, each of the Receivables is or will be secured by a
first-priority perfected security interest in the Financed Vehicle in favor of
CPS; and (v) each Receivable, at the time it was originated, complied in all
material respects with applicable federal and state laws, including, without
limitation, consumer credit, truth in lending, equal credit opportunity and
disclosure laws. As of the last day of the second (or, if CPS elects, the first)
month following the discovery by or notice to the applicable Seller and CPS of a
breach of any representation or warranty that materially and adversely affects a
Receivable, unless the breach is cured, CPS will purchase such Receivable from
the applicable Seller who will purchase from the applicable Trust for the
Purchase Amount. The repurchase obligation will constitute the sole remedy
available to the Certificateholders, the Credit Enhancer (if any), a Seller or a
Trustee for any such uncured breach.
On or prior to a Closing Date, the Contracts will be delivered to the
applicable Trustee as custodian, and such Trustee thereafter will maintain
physical possession of the Receivables except as may be necessary for the
servicing thereof by CPS. The Receivables will not be stamped to show the
ownership thereof by the applicable Trust. However, CPS's accounting records and
computer systems will reflect the sale and assignment of the Receivables to the
applicable Seller, and Uniform Commercial Code ("UCC") financing statements
reflecting such sales and assignments will be filed. See "Formation of the
Trust" in the related Prospectus Supplement and "Certain Legal Aspects of the
Receivables" herein.
Pre-Funding Accounts
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Pooling and Servicing Agreement to sell Subsequent
Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Pooling and Servicing Agreement and described in the related
Prospectus Supplement. If the principal amount of the eligible Subsequent
Receivables acquired by the Seller
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from the CPS during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more classes of the related Series of Certificates may receive
a prepayment or early distribution of principal at the end of the Funding
Period. See "Risk Factors--Pre-Funding Accounts".
Amounts on deposit in a Pre-Funding Account during the Funding Period will
be invested by the Trustee in Eligible Investments and any Investment Income
thereon received during a Collection Period will be included in the interest
distribution amount on the following Distribution Date for the related Series.
See "--Accounts".
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Pooling and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Certificates; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pools"
herein and "The Receivables Pool" in the related Prospectus Supplement; and (iv)
the Seller must execute and deliver to such Trust a written assignment conveying
such Subsequent Receivables to such Trust. In addition, as and to the extent
specified in the related Prospectus Supplement, the conveyance of Subsequent
Receivables to a Trust is subject to the satisfaction of the condition
subsequent, among others, which must be satisfied within the applicable time
period specified in the related Prospectus Supplement, that the Seller deliver
certain legal opinions to the related Trustee with respect to the validity of
the conveyance of the Subsequent Receivables to the Trust. If any such
conditions precedent or conditions subsequent are not met with respect to any
Subsequent Receivables within the time period specified in the related
Prospectus Supplement, CPS or the Seller, as specified in the related Prospectus
Supplement, will be required to repurchase such Subsequent Receivables from the
related Trust, at a purchase price equal to the related Repurchase Amounts
therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables. Therefore,
the characteristics of the entire Receivables Pool included in any Trust may
vary significantly as Subsequent Receivables are conveyed to such Trust from
time to time during the Funding Period or Revolving Period.
Accounts
With respect to each Series of Certificates issued by a Trust, the Servicer
will establish and maintain with the applicable Trustee one or more accounts, in
the name of such Trustee on behalf of the related Certificateholders, into which
all payments made on or with respect to the related Receivables will be
deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Certificateholders, into which amounts released from the
Collection Account and the reserve account or other Credit Enhancement, if any,
for distribution to such Certificateholders will be deposited and from which
distributions to such Certificateholders will be made (the "Distribution
Account").
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Payahead Account. If so provided in the related Prospectus Supplement, the
Servicer will establish for each Series of Securities an additional account (the
"Payahead Account"), in the name of the related Trustee, into which, to the
extent required in the related Pooling and Servicing Agreement, early payments
made by or on behalf of Obligors on Actuarial Receivables or Rule of 78s
Receivables will be deposited until such time as such payments become due. Until
such time as payments are transferred from the Payahead Account to the
Collection Account, they will not constitute collected interest or collected
principal and will not be available for distribution to Certificateholders.
Pre-Funding Account. If so provided in the related Prospectus Supplement,
the Servicer will establish and maintain a Pre-Funding Account, in the name of
the related Trustee on behalf of the related Certificateholders, into which the
Seller will deposit the Pre-Funded Amount on the related Closing Date. The
Pre-Funded Amount will not exceed 25% of the initial aggregate principal amount
of the Certificates of the related Series. The Pre-Funded Amount will be used by
the related Trustee to purchase Subsequent Receivables from the Seller from time
to time during the Funding Period. The amounts on deposit in the Pre-Funding
Account during the Funding Period will be invested by the Trustee in Eligible
Investments. Any Investment Income received on the Eligible Investments during a
Collection Period will be included in the interest distribution amount on the
following Distribution Date. The Funding Period, if any, for a Trust will begin
on the related Closing Date and will end on the date specified in the related
Prospectus Supplement, which in no event will be later than the date that is 90
days after the related Closing Date. Any amounts remaining in the Pre- Funding
Account at the end of the Funding Period will be distributed to the related
Certificateholders in the manner and priority specified in the related
Prospectus Supplement, as a prepayment of principal of the related Certificates.
Other Accounts. Any other accounts to be established with respect to a
Trust, including any reserve account, will be described in the related
Prospectus Supplement.
Investments. For any Series of Certificates, funds in the Collection
Account, the Distribution Account, any reserve account and other accounts
identified as such in the related Prospectus Supplement (collectively, the
"Trust Accounts") shall be invested as provided in the related Pooling and
Servicing Agreement in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Certificates. Subject to certain conditions,
Eligible Investments may include securities issued by CPS, the Servicer or their
respective affiliates or other trusts created by CPS or its affiliates. Except
as described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Distribution Date. However, subject to
certain conditions, funds in the reserve account may be invested in securities
that will not mature prior to the date of the next distribution and will not be
sold to meet any shortfalls. Thus, the amount of cash in any reserve account at
any time may be less than the balance of such reserve account. If the amount
required to be withdrawn from any reserve account to cover shortfalls in
collections on the related Receivables exceeds the amount of cash in such
reserve account, a temporary shortfall in the amounts distributed to the related
Certificateholders could result, which could, in turn, increase the average life
of the Certificates of such Series. Except as otherwise specified in the related
Prospectus Supplement, investment earnings on funds deposited in the applicable
Trust Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Distribution Date and shall be treated as collections of interest on the related
Receivables.
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Eligible Deposit Accounts. The Trust Accounts will be maintained as
Eligible Deposit Accounts. "Eligible Deposit Account" means either (a) a
segregated account with an Eligible Institution or (b) a segregated trust
account with the corporate trust department of a depository institution
organized under the laws of the United States of America or any one of the
states thereof or the District of Columbia (or any domestic branch of a foreign
bank), having corporate trust powers and acting as trustee for funds deposited
in such account, so long as any of the securities of such depository institution
has a credit rating from each Rating Agency in one of its generic rating
categories which signifies investment grade. "Eligible Institution" means, with
respect to a Trust, (a) the corporate trust department of the related Trustee,
or (b) a depository institution organized under the laws of the United States of
America or any one of the states thereof or the District of Columbia (or any
domestic branch of a foreign bank), which (i) (A) has either (w) a long-term
unsecured debt rating acceptable to the Rating Agencies or (x) a short-term
unsecured debt rating or certificate of deposit rating acceptable to the Rating
Agencies or (B) the parent corporation of which has either (y) a long-term
unsecured debt rating acceptable to the Rating Agencies or (z) a short-term
unsecured debt rating or certificate of deposit rating acceptable to the Rating
Agencies and (ii) whose deposits are insured by the FDIC.
The Servicer
The Servicer under each Pooling and Servicing Agreement will be named in
the related Prospectus Supplement. The entity serving as Servicer may be CPS or
an affiliate of CPS and may have other business relationships with CPS or CPS's
affiliates. The Servicer with respect to each Series will service the
Receivables contained in the Trust for such Series. Any Servicer may delegate
its servicing responsibilities to one or more subservicers, but will not be
relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding its
authority to enter into, and its ability to perform its obligations under, the
related Pooling and Servicing Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Certificateholders will constitute a default by the
Servicer under the related Pooling and Servicing Agreement.
A Pooling and Servicing Agreement may contain provisions providing for a
standby servicer ("Standby Servicer") to serve as successor servicer in the
event the Servicer is terminated or resigns as Servicer pursuant to the terms of
such Pooling and Servicing Agreement. A Standby Servicer will receive a fee on
each Distribution Date for agreeing to stand by as successor Servicer and for
performing certain other functions. If the Standby Servicer becomes the Servicer
under a Pooling and Servicing Agreement, it will receive compensation as a
Servicer in an amount set forth in such Pooling and Servicing Agreement.
Servicing Procedures
Each Pooling and Servicing Agreement will provide that the Servicer will
follow its then- employed standards, or such more exacting standards as the
Servicer employs in the future, in servicing the Receivables that are part of
the Trust. Each Pooling and Servicing Agreement will provide that the Servicer
will make reasonable efforts to collect all payments due with respect to the
Receivables that are part of the Trust and, in a manner consistent with such
Pooling and Servicing
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Agreement, will continue such collection procedures as it follows with respect
to automotive retail installment sale contracts it services for itself and
others. Consistent with its normal procedures, the Servicer may, in its sole
discretion, arrange with the Obligor on a Receivable to extend the payment
schedule; provided, however, that the Servicer may be limited as to the number
of times an extension may be granted and as to the timing of such extensions. No
such arrangement will, for purposes of a Pooling and Servicing Agreement, modify
the original due dates or the amount of the scheduled payments, or extend the
final payment date on any Receivable beyond the last day of the penultimate
Collection Period before the Final Scheduled Distribution Date under such
Pooling and Servicing Agreement. If the Servicer grants an extension with
respect to a Receivable other than in accordance with the aforementioned
limitations, the Servicer will be required to purchase the Receivable. Following
any such purchase of a Receivable by the Servicer, such Receivable will be
released from the Trust and conveyed to the Servicer. The Servicer may sell the
Vehicle securing the respective defaulted Receivable, if any, at a public or
private sale, or take any other action permitted by applicable law. See "Certain
Legal Aspects of the Receivables".
The material aspects of any particular Servicer's collections and other
relevant procedures will be set forth in the related Prospectus Supplement.
Payments On Receivables
With respect to each Series of Certificates, unless otherwise specified in
the related Prospectus Supplement, the Servicer will notify each Obligor that
payments made by such Obligor after the Cutoff Date with respect to a Receivable
must be mailed directly to the Post Office Box set forth in the Pooling and
Servicing Agreement relating to such Receivable. On each Business Day, the Lock-
Box Processor set forth in the Pooling and Servicing Agreement relating to such
Receivable will transfer any such payments received in the applicable post
office box in the name of the applicable Trustee for the benefit of the
Certificateholders and the related Credit Enhancer (if any) (the "Post Office
Box") to the applicable segregated lock-box account in the name of the
applicable Trustee for the benefit of the Certificateholders and the related
Credit Enhancer (if any) (the "Lock-Box Account"). Any payments received by the
Servicer from an Obligor or from a source other than an Obligor must be
deposited in the applicable Lock-Box Account or the applicable Collection
Account upon receipt. The Servicer will, following the receipt of funds in such
Lock-Box Account, direct the Lock-Box Bank to transfer such funds to the
applicable Collection Account. Prior to the applicable Distribution Date, the
applicable Trustee, on the basis of instructions provided by the Servicer, will
transfer funds held in such Collection Account to the applicable Payahead
Account if such payments constitute Payaheads or to the applicable Certificate
Account for distribution to the Certificateholders of the related Series.
Collections on a Rule of 78's Receivable made during a Collection Period
will be applied first, to the scheduled payment on such Rule of 78's Receivable,
and second, to any late fees accrued with respect to such Rule of 78's
Receivable. If the collections remaining after application to the scheduled
payment and late fees, if any, are insufficient to prepay the Rule of 78's
Receivable in full, such collections will be transferred to and kept in the
Payahead Account, until such later Collection Period as the collections may be
transferred to the Collection Account and applied either to the scheduled
payment or to prepay such Rule of 78's Receivable in full.
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Servicing Compensation
As may be described in the related Prospectus Supplement with respect to
any Series of Certificates issued by a Trust, the Servicer will be entitled to
receive a servicing fee on each Distribution Date (the "Servicing Fee"), equal
to the product of one-twelfth of the specified percentage per annum and the Pool
Balance (each as set forth in the related Prospectus Supplement) as of the close
of business on the last day of the second preceding Collection Period; provided,
however, that with respect to the first Distribution Date, the Servicing Fee
will equal the product of one-twelfth of the Servicing Fee Rate and the original
Pool Balance. So long as CPS is Servicer, a portion of the Servicing Fee will be
payable to the Standby Servicer, if any (as set forth in the related Prospectus
Supplement), for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer, or any other entity serving at
the time as Standby Servicer, becomes the successor Servicer, it will receive
compensation for acting in such capacity. See "Standby Servicer" in the related
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges, including, in the
case of a Rule 78's Receivable that is part of the Trust and that is prepaid in
full, to the extent not required by law to be remitted to the related Obligor,
the difference between the principal balance of such Receivable computed on an
actuarial basis plus accrued interest to the date of prepayment and the
principal balance of such Receivable computed according to the Rule of 78's, and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables that are part of the Trust, and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to scheduled payments, late fees and other charges
and principal and interest in accordance with the Servicer's normal practices
and procedures. The Servicing Fee will be paid out of collections from the
Receivables, prior to distributions to Certificateholders of the related Series.
The Servicing Fee and additional servicing compensation will compensate the
Servicer for performing the functions of a third party servicer of automotive
receivables as an agent for their beneficial owner, including collecting and
posting all payments, responding to inquiries of Obligors on the Receivables
that are part of the Trust, investigating delinquencies, sending payment coupons
to Obligors, reporting tax information to Obligors, paying costs of disposition
of defaults and policing the collateral. The Servicing Fee also will compensate
the Servicer for administering the Receivables that are part of the Trust,
including accounting for collections and furnishing monthly and annual
statements as required with respect to a Series of Certificates regarding
distributions and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Receivables that are part of the Trust.
Certain Matters Regarding the Servicer
Each Pooling and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and under certain other circumstances. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the applicable Pooling and Servicing Agreement. In
the event CPS resigns as Servicer or is terminated as Servicer, the Standby
Servicer, if any, will agree to assume the servicing obligations and duties
under the Pooling and Servicing Agreement.
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Each Pooling and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Certificateholders of the related Series for
taking any action or for refraining from taking any action pursuant to such
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that neither the Servicer nor any such person will be protected against any
liability that would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties or by reason of reckless
disregard of obligations and duties thereunder. In addition, each Pooling and
Servicing Agreement will provide that the Servicer is under no obligation to
appear in, prosecute, or defend any legal action that is not incidental to its
servicing responsibilities under the applicable Pooling and Servicing Agreement
and that, in its opinion, may cause it to incur any expense or liability.
Under the circumstance specified in each Pooling and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor to the Servicer under the applicable Pooling and Servicing
Agreement.
Distributions on Certificates
With respect to each Series of Certificates, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each class
of such Certificates entitled thereto will be made by the applicable Trustee to
the holders of Certificates (the "Certificateholders") of such Series. The
timing, calculation, allocation, order, source, priorities of and requirements
for all distributions to each class of Certificateholders of such Series will be
set forth in the related Prospectus Supplement.
With respect to each Series of Certificates, on each Distribution Date
collections on the related Receivables will be withdrawn from the Collection
Account for distribution to Certificateholders to the extent provided in the
related Prospectus Supplement. Credit Enhancement may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement.
Credit And Cash Flow Enhancement
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each class of Certificates of a
given Series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, Credit Enhancement may
be in the form of a Policy, subordination of one or more classes of
Certificates, reserve accounts, spread accounts, over-collateralization, letters
of credit, credit or liquidity facilities, third party payments or other
support, surety bonds, guaranteed cash deposits or such other arrangements as
may be described in the related Prospectus Supplement or any combination of two
or more of the foregoing. If specified in the applicable Prospectus Supplement,
Credit Enhancement for a class of Certificates may cover one or more other
classes of Certificates of the same Series, and Credit Enhancement for a Series
of Certificates may cover one or more other Series of Certificates.
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The presence of Credit Enhancement for the benefit of any class or Series
of Certificates is intended to enhance the likelihood of receipt by the
Certificateholders or such class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Certificateholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the Credit Enhancement for a class or Series of Certificates will
not provide protection against all risks of loss and will not guarantee
repayment of the entire principal balance and interest thereon. If losses occur
which exceed the amount covered by any Credit Enhancement or which are not
covered by any Credit Enhancement, Certificateholders of any class or Series
will bear their allocable share of deficiencies, as described in the related
Prospectus Supplement. In addition, if a form of Credit Enhancement covers more
than one Series of Certificates, Certificateholders of any such Series will be
subject to the risk that such Credit Enhancement will be exhausted by the claims
of Certificateholders of other Series.
Statements To Trustees
Prior to each Distribution Date with respect to each Series of
Certificates, the Servicer will provide to the applicable Trustee and Credit
Enhancer as of the close of business on the last day of the preceding related
Collection Period a statement setting forth substantially the same information
as is required to be provided in the periodic reports provided to
Certificateholders of such Series described under "Description of the
Certificates--Statements to Certificateholders" in the Prospectus Supplement.
Evidence As To Compliance
Each Pooling and Servicing Agreement will provide that a firm of
independent public accountants will furnish to the related Trustee and Credit
Enhancer, annually, a statement as to compliance by the Servicer during the
preceding twelve months (or, in the case of the first such certificate, the
period from the applicable Closing Date) with certain standards relating to the
servicing of the Receivables.
Each Pooling and Servicing Agreement will also provide for delivery to the
related Trustee and Credit Enhancer of a certificate signed by an officer of the
Servicer stating that the Servicer has fulfilled its obligations under such
Pooling and Servicing Agreement in all material respects throughout the
preceding 12 months (or, in the case of the first such certificate, the period
from the applicable Closing Date) or, if there has been a default in the
fulfillment of any such obligation in any material respect, describing each such
default. The Servicer also will agree to give each Trustee and Credit Enhancer
notice of certain Events of Default (as defined in the related Prospectus
Supplement) under the related Pooling and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Certificateholders by a request in writing addressed to the applicable Trustee.
Amendment
Unless otherwise provided in the related Prospectus Supplement, each of the
Pooling and Servicing Agreements may be amended by the parties thereto, without
the consent of the related Certificateholders, for the purpose of adding any
provisions to or changing in any manner or
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eliminating any of the provisions of such Pooling and Servicing Agreements or of
modifying in any manner the rights of such Certificateholders; provided that
such action will not, in the opinion of counsel satisfactory to the applicable
Trustee, materially and adversely affect the interests of any such
Certificateholder and subject to the approval of any Credit Enhancer. As may be
described in the related Prospectus Supplement, the Pooling and Servicing
Agreements may also be amended by CPS, the Servicer, and the applicable Trustee
with the consent of the holders of Certificates evidencing at least a majority
of the voting rights of such then outstanding Certificates for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Pooling and Servicing Agreements or of modifying in any
manner the rights of such Certificateholders; provided, however, that no such
amendment may (i) increase or reduce in any manner the amount or priority of, or
accelerate or delay the timing of, collections of payments on the related
Receivables or distributions that are required to be made for the benefit of
such Certificateholders without the consent of each Certificateholder affected
thereby or (ii) reduce the aforesaid percentage of the Certificates of such
Series which are required to consent to any such amendment without the consent
of the Certificateholders of such Series.
List of Certificateholders
Upon written request of the Servicer, the Trustee of the applicable Trust
will provide to the Servicer within 15 days after receipt of such request a list
of the names and addresses of all Certificateholders of record, with respect to
the Series of Certificates issued by such Trust, as of the most recent Record
Date. Upon compliance by such Certificateholders with certain provisions of the
applicable Pooling and Servicing Agreement, the Trustee will afford such
Certificateholders access during business hours to the current list of
Certificateholders for purposes of communicating with other Certificateholders
with respect to their rights under such Pooling and Servicing Agreement.
Termination
With respect to each Trust, the obligations of the Servicer, CPS, the
Seller and the applicable Trustee pursuant to the related Pooling and Servicing
Agreement will terminate upon such date as is specified in the related
Prospectus Supplement. As more fully described in the related Prospectus
Supplement, in order to avoid excessive administrative expense, the Servicer, or
its successor, will be permitted, at its option to purchase from the related
Trust, as of the last day of any month as of which the then outstanding Pool
Balance of the related Receivables Pool is less than a specified percentage (set
forth in the related Prospectus Supplement) of the original Pool Balance of such
Receivables Pool, all such remaining Receivables at a price equal to the
aggregate of the Purchase Amounts thereof as of such last day. Exercise of such
right will effect early retirement of the related Certificates. The Trustee will
give written notice of termination to each such Certificateholder of record. The
final distribution to any Certificateholder will be made only upon surrender and
cancellation of such holder's Certificate at the office or agency of the Trustee
specified in the notice of termination. Any funds remaining with the Trustee,
after the Trustee has taken certain measures to locate a Certificateholder and
such measures have failed, will be distributed to The American Red Cross.
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The Trustee
The Trustee for each Trust will be specified in the related Prospectus
Supplement. The Trustee's liability in connection with the issuance and sale of
the related Certificates is limited solely to the express obligations of such
Trustee set forth in the related Pooling and Servicing Agreement and Sale and
Servicing Agreement or the related Pooling and Servicing Agreement, as
applicable. A Trustee may resign at any time (subject to the conditions
specified in the applicable Pooling and Servicing Agreement), in which event the
Servicer will be obligated to appoint a successor trustee. The Servicer may also
remove the Trustee if such Trustee ceases to be eligible to continue as Trustee
under the related Pooling and Servicing Agreement or if the Trustee becomes
insolvent. In such circumstances, the Servicer will be obligated to appoint a
successor trustee. Any resignation or removal of a Trustee and appointment of a
successor trustee will not become effective until acceptance of the appointment
by the successor trustee.
The principal offices of each Trustee will be specified in the applicable
Prospectus Supplement.
The Trustee under a Pooling and Servicing Agreement, in its individual
capacity or otherwise, may hold Certificates in its own name or as pledgee. For
the purpose of meeting the legal requirements of certain jurisdictions, the
Servicer and a Trustee acting jointly (or in some instances, the Trustee acting
alone) shall have the power to appoint co-trustees or separate trustees of all
or any part of the related Trust. In the event of such appointment, all rights,
powers, duties and obligations conferred or imposed upon the Trustee by the
related Pooling and Servicing Agreement shall be conferred or imposed upon the
Trustee and such separate trustee or co-trustee jointly, or, in any jurisdiction
in which the Trustee shall be incompetent or unqualified to perform certain
acts, singly upon such separate trustee or co-trustee who shall exercise and
perform such rights, powers, duties, and obligations solely at the direction of
the Trustee.
A Trustee may resign at any time, in which event the Servicer will be
obligated to appoint a successor trustee in accordance with the terms set forth
in the applicable Pooling and Servicing Agreement. The Servicer may also remove
a Trustee if the Trustee ceases to be eligible to continue as such under the
related Pooling and Servicing Agreement, becomes legally unable to act, or
becomes insolvent. In such circumstances,the Servicer will be obligated to
appoint a successor trustee with the consent of any parties necessary to appoint
a successor trustee. Any resignation or removal of the Trustee and appointment
of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
Each Pooling and Servicing Agreement will provide that the applicable
Trustee will be entitled to indemnification by the Servicer for and will be held
harmless against, any loss, liability, fee, disbursement, or expense incurred by
such Trustee not resulting from such Trustee's own willful misfeasance, bad
faith, or negligence (other than by reason of breach of any of its
representations or warranties set forth in the Pooling and Servicing Agreement).
Each Pooling and Servicing Agreement will further provide that the Servicer will
indemnify the applicable Trustee for certain taxes that may be asserted in
connection with the transaction.
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Duties of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of a Pooling and Servicing Agreement, the Certificate relating thereto (other
than the authentication of such Certificates), or any Receivables in the related
Trust or related documents, and is not accountable for the use or application by
any Seller or Servicer of any funds paid to a Seller or Servicer in respect of
such Certificates or such Receivables, or the investment of any monies received
by the Servicer before such monies are deposited into the applicable Collection
Account. The Trustee will not independently verify the Receivables that are a
part of the related Trust. If no Event of Default (as defined in the applicable
Prospectus Supplement) has occurred, the Trustee is required to perform only
those duties specifically required of it under the applicable Pooling and
Servicing Agreement. Generally, those duties are limited to the receipt of the
various certificates, reports or other instruments required to be furnished to
the Trustee under such Pooling and Servicing Agreement, in which case it is only
required to examine them to determine whether they conform to the requirements
of the Pooling and Servicing Agreement. The Trustee shall not be charged with
knowledge of a failure by the Servicer to perform its duties under the Pooling
and Servicing Agreement which failure constitutes an Event of Default (as
defined in the applicable Prospectus Supplement) unless the Trustee obtains
actual knowledge of such failure as specified in the Pooling and Servicing
Agreement.
The Trustee will be under no obligation to exercise any of the rights or
powers vested in it by a Pooling and Servicing Agreement or to make any
investigation of matters arising thereunder or to institute, conduct, or defend
any litigation thereunder or in relation thereto at the request, order or
direction of any of the related Certificateholders, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses, and liabilities that may be incurred therein or
thereby. No Certificateholder will have any right under a Pooling and Servicing
Agreement to institute any proceeding with respect to such Pooling and Servicing
Agreement, unless certain conditions have been met (as set forth in the
applicable Pooling and Servicing Agreement).
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
Security Interest in Vehicles
In states in which retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles, light trucks, vans and
minivans by dealers to obligors, the contracts also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the financed
automobiles, light trucks, vans and minivans is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In all
states in which the Receivables have been originated, a security interest in
automobiles, light trucks, vans and minivans is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured party's
lien on the vehicles' certificate of title (in addition, in Louisiana, a copy of
the installment sale contract must be filed with the appropriate governmental
recording office).
Unless otherwise specified in the related Prospectus Supplement, each
Contract will name the applicable Originator as obligee or assignee and as the
secured party. Unless otherwise specified in the related Prospectus Supplement,
such Originator will have represented and warranted that it has
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taken all actions necessary under the laws of the state in which the Financed
Vehicle is located to perfect CPS's security interest in the Financed Vehicle,
including, where applicable, having a notation of its lien recorded on such
vehicle's certificate of title. Unless otherwise specified in the related
Prospectus Supplement, the Obligors on the Contracts will not be notified of the
sale from CPS, directly or indirectly, to the Seller, or the sale from the
Seller to the Trust, and no action will be taken to record the transfer of the
security interest from CPS, directly or indirectly, to the Seller or from the
Seller to the Trust by amendment of the certificates of title for the Financed
Vehicles or otherwise.
CPS will transfer and assign its security interest in the related Financed
Vehicles directly or indirectly to the Seller, and the Seller will transfer and
assign its security interest in such Financed Vehicles to the related Trust
pursuant to a Pooling and Servicing Agreement. However, because of the
administrative burden and expense, neither CPS nor the Seller will amend the
certificates of title of such Financed Vehicles to identify the related Trust as
the new secured party.
In most states, an assignment such as that under each Pooling and Servicing
Agreement is an effective conveyance of a security interest without amendment of
any lien noted on a vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. However, by not identifying
such Trust as the secured party on the certificate of title, the security
interest of such Trust in the vehicle could be defeated through fraud or
negligence.
Under the laws of most states, the perfected security interest in a vehicle
will continued for four months after the vehicle is moved to a state other than
the state in which it is initially registered and thereafter until the owner
thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation of a lien on the certificate of title but not
possession by the secured party, the secured party will receive notice of
surrender if the security interest is noted on the certificate of title. Thus,
the secured party will have the opportunity to reperfect its security interest
in the vehicle in the state of relocation. In states that do not require a
certificate of title for registration of a motor vehicle, re-registration could
defeat perfection. Unless otherwise specified in the related Prospectus
Supplement, under each Pooling and Servicing Agreement, the Servicer will be
obligated to take appropriate steps, at the Servicer's expense, to maintain
perfection of security interests in the Financed Vehicles and will be obligated
to purchase the related Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Code also grants priority to certain federal
tax liens over the lien of a secured party. The laws of certain states and
federal law permit the confiscation of vehicles by government authorities under
certain circumstances if used in unlawful activities, which may result in the
loss of a secured party's perfected security interest in the confiscated
vehicle.
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Repossession
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sale contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. Among the
UCC remedies, the secured party has the right to perform self-help repossession
unless such act would constitute a breach of the peace. Unless otherwise
specified in the related Prospectus Supplement, self-help is the most likely
method to be used by the Servicer and is accomplished simply by retaking
possession of the financed vehicle. In the event of default by the obligor, some
jurisdictions require that the obligor be notified of the default and be given a
time period within which he may cure the default prior to repossession.
Generally, the right of reinstatement may be exercised on a limited number of
occasions in any one-year period. In cases where the obligor objects or raises a
defense to repossession, or if otherwise required by applicable state law, a
court order must be obtained from the appropriate state court, and the vehicle
must then be repossessed in accordance with that order.
Notice of Sale; Redemption Rights
The UCC and other state laws require the secured party to provide the
obligor with reasonable notice of the date, time and place of any public sale
and/or the date after which any private sale of the collateral may be held. The
obligor has the right to redeem the collateral prior to actual sale by paying
the secured party the unpaid principal balance of the obligation plus reasonable
expenses for repossessing, holding and preparing the collateral for disposition
and arranging for its sale, plus, in some jurisdictions, reasonable attorneys'
fees, or, in some states, by payment of delinquent installments or the unpaid
balance.
Deficiency Judgments and Excess Proceeds
The proceeds of resale of the vehicles generally will be applied first to
the expenses of resale and repossession and then to the satisfaction of the
indebtedness. While some states impose prohibitions or limitations on deficiency
judgments if the net proceeds from resale do not cover the full amount of the
indebtedness, a deficiency judgment can be sought in those states that do not
prohibit or limit such judgments. However, the deficiency judgment would be a
personal judgment against the obligor for the shortfall, and a defaulting
obligor can be expected to have very little capital or sources of income
available following repossession. Therefore, in many cases, it may not be useful
to seek a deficiency judgment or, if one is obtained, it may be settled at a
significant discount.
Occasionally, after resale of a vehicle and payment of all expenses and all
indebtedness, there is a surplus of funds. In that case, the UCC requires the
creditor to remit the surplus to any holder of a lien with respect to the
vehicle or if no such lienholder exits or there are remaining funds, the UCC
requires the creditor to remit the surplus to the former owner of the vehicle.
Consumer Protection Laws
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon lenders and servicers involved in consumer
finance, including requirements regarding the adequate disclosure of loan terms
(including finance charges and deemed finance charges), and limitations on loan
terms (including the permitted finance charge or deemed
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finance charge), collection practices and creditor remedies. The application of
these laws to particular circumstances is not always certain and some courts and
regulatory authorities have shown a willingness to adopt novel interpretations
of such laws. These laws include the Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, the Fair Debt Collection Procedures Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B and Z, the
Solders' and Sailors' Civil Relief Act of 1940, state adoptions of the National
Consumer Act and the Uniform Consumer Credit Code, and state motor vehicle
retail installment sales act, retail installment sales acts and other similar
laws. Also, state laws impose finance charge ceilings and other restrictions on
consumer transactions and require contract disclosures in addition to those
required under federal law. These requirements impose specific statutory
liabilities upon creditors who fail to comply with their provisions. In some
cases, this liability could affect an assignee's ability to enforce consumer
finance contracts such as the Receivables.
Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if any,
that a purchaser pays as part of the purchase price for a vehicle solely because
the purchaser is buying on credit rather than for cash (a "cash sale
differential"). If a dealer charges such a differential, applicable finance
charge ceilings could be exceeded.
To so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting an assignee of a seller of goods in a consumer credit transaction
(and certain related creditors) to all claims and defenses that the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or defense would constitute a breach of CPS's warranties
under the related Purchase Agreement and would create an obligation of CPS to
repurchase the Receivable unless the breach is cured. See "Description of the
Pooling and Servicing Agreements--Sale and Assignment of Receivables".
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
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Under most state vehicle dealer licensing laws, sellers of automobiles,
light trucks, vans and minivans are required to be licensed to sell vehicles at
retail sale. In addition, with respect to used vehicles, the Federal Trade
Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor vehicle title laws of most states require that all sellers of used
vehicles furnish a written statement signed by the seller certifying the
accuracy of the odometer reading. If a seller is not properly licensed or if
either a Buyer's Guide or Odometer Disclosure Statement was not provided to the
purchaser of a Financed Vehicle, the Obligor may be able to assert a defense
against the seller of the Financed Vehicle. If an Obligor on a Receivable were
successful in asserting any such claim or defense, the Servicer would pursue on
behalf of the related Trust any reasonable remedies against the seller or the
manufacturer of the vehicle, subject to certain limitations as to the expense of
any such action to be specified in the related Pooling and Servicing Agreements.
Under each Purchase Agreement, CPS will have represented and warranted that
each Receivable complies with all requirements of law in all material respects.
Accordingly, if an Obligor has a claim against a Trust for violation of any law
and such claim materially and adversely affects such Trust's interest in a
Receivable, such violation would constitute a breach of the warranties of CPS
and would create an obligation of CPS to repurchase the Receivable unless the
breach is cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossession a vehicle and, as part of the rehabilitation plan,
may reduce the amount of the secured indebtedness to the market value of the
vehicle at the time of bankruptcy (as determined by the court), leaving the
creditor as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
General
The following discussion represents the opinion of Mayer, Brown & Platt,
special tax counsel to the Issuer, as to the material federal income tax
consequences of the purchase, ownership and disposition of the Certificates.
This discussion, however, does not address every aspect of the federal income
tax laws that may be relevant to holders of Certificates in light of their
personal investment circumstances or to certain types of Certificateholders
subject to special treatment under the federal income tax laws (for example,
banks and life insurance companies). Accordingly, investors should consult their
own tax advisors regarding federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the
Certificates in their own particular circumstances. The discussion is generally
limited to those persons who are the initial holders of the Certificates and to
investors who will
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hold Certificates as capital assets. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), its
legislative history, the Treasury regulations thereunder, and published rulings
and court decisions in effect as of the date hereof, all of which are subject to
change, possibly retroactively. No ruling on any of the issues discussed below
has been or will be sought from the Service and no assurance can be given that
the Service will not take contrary positions.
Tax Characterization of the Trust
Mayer, Brown & Platt, special tax counsel to the Seller, will opine that
the Trust relating to a Series of Certificates will be classified as a grantor
trust and not as an association taxable as a corporation for federal income tax
purposes. Accordingly, subject to the discussion below, each Certificateholder
of the related Series will be treated as the owner of a pro rata undivided
interest in the Receivables that are in the Trust and other related Trust Assets
and the ordinary income derived therefrom.
Income of Certificateholders
Each Certificateholder of a Series will be considered to own either (i) an
undivided interest in each of the Receivables that are part of the related Trust
and any other related Trust Assets or (ii) an undivided interest in a single
debt obligation held by the related Trust having, in the case of Class A
Certificates, a principal amount equal to the Class A Percentage (as set forth
in the related Prospectus Supplement) multiplied by the total stated principal
amount of the Receivables and an interest rate equal to the Class A Pass-Through
Rate (as set forth in the related Prospectus Supplement) or, in the case of
Class B Certificates, a principal amount equal to the Class B Percentage (as set
forth in the related Prospectus Supplement) multiplied by the total stated
principal amount of the Receivables that are in the related Trust and an
interest rate equal to the Class B Pass-Through Rate (as set forth in the
related Prospectus Supplement). In general (subject to the rules described below
relating to stripped bonds and original issue discount, and assuming
Certificateholders are considered to own an interest in the related Receivables
and other Trust Assets) a Certificateholder will be required to include
applicable Trust interest income as ordinary income in accordance with its usual
method of accounting.
If Certificateholders are considered to own undivided interests in the
related Receivables and other Trust Assets, a Certificateholder will be
considered to have incurred Trust expenses and, accordingly, will be entitled to
deduct, consistent with its method of accounting, its pro rata share of
reasonable servicing fees and other expenses paid or incurred by the applicable
Trust as provided in Sections 162 or 212 of the Code. In general, a
Certificateholder who is an individual, estate or trust will be allowed
deductions for such expenses only to the extent that the sum of those expenses
and the holder's other miscellaneous itemized deductions exceeds 2% of such
holder's adjusted gross income. Moreover, a Certificateholder that is not a
corporation cannot deduct such expenses for purposes of the alternative minimum
tax (if applicable). The Servicer will not report to Certificateholders the
amount of income or deductions attributable to interest earned on collections
and certain other amounts (which are includible in gross income, but deduction
of which are subject to the foregoing limitations) and, accordingly, such a
Certificateholder will not have sufficient information from the report to
accurately reflect the Certificateholder's net taxable income.
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The Servicer will report to Certificateholders on the assumption that they
are considered to own an interest in the related Receivables and other Trust
Assets, and the remainder of this discussion assumes such treatment.
Stripped Bond Rules
Because the Receivables will represent stripped bonds, they will be subject
to the original issue discount ("OID") rules of the Code. Under Treasury
Regulations issued under Section 1286 of the Code (the "Section 1286
Regulations"), it appears that the portion of the interest on each stripped
Receivable payable to the related Certificateholders may be treated as
"qualified stated interest". As a result, the amount of OID on a Receivable (or
Receivables) will equal the amount, if any, by which the Certificateholder's
purchase price allocable to the holder's interest in such Receivable is less
than the undivided portion of the remaining principal balance of the Receivable
(or Receivables) allocable to the interest acquired by the Certificateholder.
OID on the Receivables held by the Trust will be calculated on an aggregate
basis and without the use of a prepayment assumption. Although there is no clear
authority, regulations issued under the OID provisions of the Code suggest that
all payments on the stripped Receivables allocable to the Class A Certificates
may be aggregated in determining whether the stripped Receivables will be
treated as having OID. In addition, it is not clear whether use of a prepayment
assumption is required in computing OID. If the Internal Revenue Service were to
require that OID be computed on a Receivable-by-Receivable basis, or that a
prepayment assumption be used, the character and timing of a Certificateholder's
income could be adversely affected. Because, under the stripped bond rules, each
sale of a Certificate results in a recalculation of OID, a Certificateholder
technically will not be subject to the market discount provisions of the Code
with respect to stripped Receivables.
The tax treatment of a Receivable (or Receivables in the aggregate) will
depend upon whether the amount of OID on the Receivable or Receivables is less
than a statutorily defined de minimis amount. In general, under the Section 1273
of the Code and the Section 1286 Regulations, the amount of OID on a Receivable
will be de minimis if it is less than 1/4 of one percent for each full year of
weighted average maturity remaining after the purchase date until the maturity
of the Receivable (although it is not clear whether expected prepayments are
taken into account). If the amount of OID is de minimis under this rule, a
Receivable (or Receivables) would not be treated as having OID. The actual
amount of discount on a Receivable would be includible in income as principal
payments are received on the Receivable, in the proportion that each principal
payment bears to the total principal amount of the Receivables.
If the OID on a Receivable (or Receivables) is not treated as being de
minimis, a Certificateholder will be required to include in income any OID as it
accrues on a daily basis, regardless of when cash payments are received, using a
method reflecting a constant yield to maturity on the Receivable (or
Receivables). Accrued OID would increase a Certificateholder's tax basis in the
Certificate (and the applicable Receivables). Distributions of principal and
other items attributable to accrued OID would reduce a Certificateholder's tax
basis. Application of the OID rules, particularly if a prepayment assumption is
required and the Receivables are not aggregated, would be complex and could
significantly affect the timing of inclusion of income on a Certificate.
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The Trustee intends to account for OID, if any, reportable by holders of
Certificates by reference to the price paid for a Certificate by an initial
purchaser, although the amount of OID will differ for subsequent purchasers.
Such subsequent purchasers should consult their tax advisers regarding the
proper calculation of OID on the interest in Receivables represented by a
Certificate.
Premium
In the event of a purchase of a Receivable (or Receivables) at a premium
(i.e., the portion of the Certificateholder's purchase price allocable to the
holder's undivided interest in the Receivable or Receivables exceeds the portion
of the remaining principal balance allocable to the Certificateholder), such
premium will be amortizable by the Certificateholder as an offset to interest
income (with a corresponding reduction in the Certificateholder's basis) under a
constant yield method over the term of the Receivable (or Receivables) if an
election under Section 171 of the Code is made or was previously in effect. Any
such election will also apply to debt instruments held by the Certificateholder
during the year in which the election is made and all debt instruments acquired
thereafter.
Rule of 78's Receivables
The annual statement regularly furnished to Certificateholders for U.S.
federal income tax purposes will include information based on the actuarial
method of accounting for interest and principal on the Receivables.
Certificateholders should generally be permitted to account for interest on the
Receivables using the actuarial method. However, some of the Receivables provide
that, upon a prepayment in full, the amount payable by the obligor will be
determined under the Rule of 78's. Prospective investors should consult their
tax advisors as to whether they may be required or permitted to use the Rule of
78's method to account for interest on the Rule of 78's Receivables. A
Certificateholder will be furnished information for U.S. federal income tax
purposes enabling the holder to report interest on the Receivables under the
Rule of 78's method of accounting only upon written request to the Trustee, and
payment of the actual costs of producing the information.
If a Rule of 78's Receivable is prepaid, any amount received by the Trust
upon prepayment in excess of the account balance using the actuarial method
would constitute income to a Certificateholder who had reported income with
respect to such Rule of 78's Receivable on the actuarial method, and an amount
equal to such excess will be paid to the Servicer and be deductible only to the
extent described above.
Subordination of Class B Certificate Owners
If the Class B Certificateholders receive distributions of less than their
share of the Trust's receipts of principal and interest (the "Shortfall Amount")
because of the subordination of the Class B Certificates, holders of Class B
Certificates would probably be treated for U.S. federal income tax purposes as
if they had received as distributions their full share of such receipts, paid
over to the Class A Certificateholders an amount equal to such Shortfall Amount,
and retained the right to reimbursement of such amounts to the extent of future
collections. Under this analysis, Class B Certificateholders would be required
to accrue as current income any interest of the Trust that was a component of
the Shortfall Amount, even though such amount was in fact paid to the Class A
Certificateholders; although not entirely clear, it appears that a loss would
only be allowed to the
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Class B Certificateholders when their right to receive reimbursement of such
Shortfall Amount became worthless (i.e., when it becomes clear that amount will
not be available from any source to reimburse such loss); and reimbursement of
such Shortfall Amount prior to such a claim of worthless would not be taxable
income to the Class B Certificateholders because such amount was previously
included in income. Those results should not significantly affect the inclusion
of income for Class B Certificateholders on the accrual method of accounting,
but could accelerate inclusion of income to Class B Certificateholders on the
cash method of accounting by, in effect, placing them on the accrual method.
Moreover, the character and timing of loss deductions is unclear. Class B
Certificateholders should consult their own tax advisors as to the treatment of
Shortfall Amounts.
Sale of a Certificate
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificateholder's
adjusted basis in the Receivables and any other assets held by the Trust. A
Certificateholder's adjusted basis will equal the Certificateholder's cost for
the Certificate, increased by any discount previously included in income, and
decreased by any deduction previously allowed for accrued premium and by the
amount of principal payments previously received on the Receivables. Any gain or
loss not attributable to accrued interest will be capital gain or loss if the
Certificate was held as a capital asset.
Foreign Certificateholders
Interest attributable to Receivables which is payable to a foreign
Certificateholder that is not engaged in a trade or business in the United
States will generally not be subject to the 30% U.S. withholding tax, provided
that such Certificateholder fulfills certain certification requirements. Under
such certification requirements, the Certificateholder must certify, under
penalties of perjury, that it is not a "United States person" and that it is the
beneficial owner of the Certificate, and must provide its name and address. For
this purpose, "United States person" means a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust the income of which is includible in gross income for United
States Federal income tax purposes, regardless of its source.
Backup Withholding
Payments made on the Certificates and proceeds from the sale of
Certificates will not be subject to "backup" withholding of 31% unless the
Certificateholder fails to comply with certain reporting procedures and is not
an exempt recipient under applicable provisions of the Code.
The Prospectus Supplement for each Series of Certificates will summarize,
subject to the limitations stated therein, any other material federal income tax
considerations relevant to the purchase, ownership and disposition of such
Certificates.
ERISA CONSIDERATIONS
The Prospectus Supplement for each Series of Certificates will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Certificates by employee benefit plans and
individual retirement accounts.
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METHODS OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus Supplement
will be offered in Series through one or more of the methods described below.
The Prospectus Supplement prepared for each Series will describe the method of
offering being utilized for that Series and will state the public offering or
purchase price of such Series and the net proceeds to CPS from such sale.
CPS intends that Certificates will be offered through the following methods
from time to time and that offerings may be made concurrently through more than
one of these methods or that an offering of a particular Series of Certificates
may be made through a combination of two or more of these methods. Such methods
are as follows:
1. By negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
2. By placements by CPS with institutional investors through dealers;
3. By direct placements by CPS with institutional investors; and
4. By competitive bid.
In addition, if specified in the related Prospectus Supplement, a Series of
Certificates may be offered in whole or in part in exchange for the Receivables
(and other assets, if applicable) that would comprise the Trust Assets in
respect of such Certificates.
If underwriters are used in a sale of any Certificates (other than in
connection with an underwriting on a best efforts basis), such Certificates will
be acquired by the underwriters for their own account and may be resold from
time to time in one or more transactions, including negotiated transactions, at
fixed public offering prices or at varying prices to be determined at the time
of sale or at the time of commitment therefor. The Certificates will be set
forth on the cover of the Prospectus Supplement relating to such Series and the
members of the underwriting syndicate, if any, will be named in such Prospectus
Supplement.
In connection with the sale of the Certificates, underwriters may receive
compensation from CPS or from purchasers of the Certificates in the form of
discounts, concessions or commissions. Underwriters and dealers participating in
the distribution of the Certificates may be deemed to be underwriters in
connection with such Certificates, and any discounts or commissions received by
them from CPS and any profit on the resale of Certificates by them may be deemed
to be underwriting discounts and commissions under the Securities Act. The
Prospectus Supplement will describe any such compensation paid by CPS.
It is anticipated that the underwriting agreement pertaining to the sale of
any Series of Certificates will provide that the obligations of the underwriters
will be subject to certain conditions precedent, that the underwriters, jointly
or severally (as specified in the applicable underwriting agreement), will be
obligated to purchase all such Certificates if any are purchased (other than in
connection with an underwriting on a best efforts basis) and that CPS will
indemnify the several underwriters and, in certain limited circumstances, the
underwriters will indemnify CPS against
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certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any Series offered by placements
through dealers will contain information regarding the nature of such offering
and any agreements to be entered into between CPS and purchasers of Certificates
of such Series.
Purchasers of Certificates, including dealers, may, depending on the facts
and circumstances of such purchases, be deemed to be "underwriters" within the
meaning of the Securities Act in connection with reoffers and sales by them of
Certificates. Holders of Certificates should consult with their legal advisors
in this regard prior to any such reoffer or sale.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Certificates of any
Series, including certain federal and state income tax consequences with respect
thereto, will be passed upon by Mayer, Brown & Platt, New York, New York.
FINANCIAL INFORMATION
Certain specified Trust Assets will secure each Series of Certificates, no
Trust will engage in any business activities or have any assets or obligations
prior to the issuance of the related Series of Certificates. Accordingly, no
financial statements with respect to any Trust Assets will be included in this
Prospectus or in the related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the related
Credit Enhancer, if any.
ADDITIONAL INFORMATION
This Prospectus, together with the Prospectus Supplement for each Series of
Certificates, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission in Washington, D.C., and may be obtained at rates
prescribed by the Commission upon request to the Commission and may be
inspected, without charge, at the Commission's offices.
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PROSPECTUS
TABLE OF CONTENTS
Page
PROSPECTUS SUPPLEMENT ..................................................... 2
AVAILABLE INFORMATION ..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ........................... 2
REPORTS TO CERTIFICATEHOLDERS ............................................. 3
SUMMARY OF TERMS .......................................................... 4
RISK FACTORS .............................................................. 12
FORMATION OF THE TRUST .................................................... 19
THE TRUST ASSETS .......................................................... 19
ACQUISITION OF RECEIVABLES BY THE SELLER .................................. 21
THE RECEIVABLES ........................................................... 21
CPS'S AUTOMOBILE CONTRACT PORTFOLIO ....................................... 24
POOL FACTORS .............................................................. 25
USE OF PROCEEDS ........................................................... 25
THE SELLER AND CPS ........................................................ 26
DESCRIPTION OF THE CERTIFICATES ........................................... 27
CERTAIN INFORMATION REGARDING THE CERTIFICATES ............................ 28
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENTS ....................... 37
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES .................................. 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES ................................... 52
ERISA CONSIDERATIONS ...................................................... 56
METHODS OF DISTRIBUTION ................................................... 57
LEGAL OPINIONS ............................................................ 58
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FINANCIAL INFORMATION...................................................... 58
ADDITIONAL INFORMATION..................................................... 58
UNTIL (90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CERTIFICATES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
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DEFINED TERMS
Actuarial Receivables ............................................. 23
Advance ........................................................... 9
APR ............................................................... 22
Available Information ............................................. 19
Base Rate ......................................................... 28
Buyer's Guide ..................................................... 52
Calculation Agent ................................................. 29
Calculation Date .................................................. 30, 31, 33
CD Rate ........................................................... 29
CD Rate Certificate ............................................... 28
CD Rate Determination Date ........................................ 29
Cede .............................................................. 10
CEDEL Participants ................................................ 35
Certificate Balance ............................................... 4
Certificateholder ................................................. 34
Certificateholders ................................................ 44
Certificates ...................................................... 1
Certificates of Deposit ........................................... 29
class ............................................................. 1
Closing Date ...................................................... 6, 38
Collection Account ................................................ 39
Commercial Paper .................................................. 30
Commercial Paper Rate ............................................. 30
Commercial Paper Rate Certificate ................................. 28
Commercial Paper Rate Determination Date .......................... 30
Commission ........................................................ 2
Composite Quotations .............................................. 29
Composite 3:30 p.m. Quotations for U.S. Government Securities ..... 29
Contracts ......................................................... 1, 24
Cooperative ....................................................... 36
CPS ............................................................... 4
CPS's Automobile Contract Portfolio ............................... 4
Credit Enhancement ................................................ 17
Credit Enhancer ................................................... 17
Cutoff Date ....................................................... 6
Dealers ........................................................... 19
Definitive Certificates ........................................... 36
Depositaries ...................................................... 33
Direct Participants ............................................... 17
Distribution Account .............................................. 39
Distribution Date ................................................. 27
DTC ............................................................... 10
Eligible Deposit Account .......................................... 41
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Eligible Institution .............................................. 41
Eligible Investments .............................................. 40
ERISA ............................................................. 11
Euroclear Operator ................................................ 36
Euroclear Participants ............................................ 35
Exchange Act ...................................................... 2
Federal Funds (Effective) ......................................... 31
Federal Funds/Effective Rate ...................................... 31
Federal Funds Rate Certificate .................................... 28
Federal Funds Rate Determination Date ............................. 31
Federal Funds Rate ................................................ 31
Financed Vehicles ................................................. 1, 6
Fixed Rate Certificates ........................................... 28
Floating Rate Certificates ........................................ 28
FTC Rule .......................................................... 51
Funding Period .................................................... 7
H.15(519) ......................................................... 28
Index Maturity .................................................... 28
Indirect Participants ............................................. 17, 34
Initial Receivables ............................................... 7
Insolvency Laws ................................................... 15
Interest Reset Date ............................................... 29
Interest Reset Period ............................................. 28
Investment Company Act ............................................ 9
Investment Earnings ............................................... 40
Investment Income ................................................. 7
LIBO .............................................................. 32
LIBOR ............................................................. 31, 32
LIBOR Certificate ................................................. 28
LIBOR Determination Date .......................................... 32
Lock-Box Account .................................................. 42
London Banking Day ................................................ 32
Money Market Yield ................................................ 30
Obligors .......................................................... 19
Participants ...................................................... 33
Pass-Through Rate ................................................. 2, 4
Payahead Account .................................................. 40
Policy ............................................................ 1
Pool Balance ...................................................... 25
Pool Factor ....................................................... 25
Pooling and Servicing Agreement ................................... 4, 37
Post-Office Box ................................................... 42
Precomputed Advance ............................................... 8
Pre-Funded Amount ................................................. 7
Pre-Funding Account ............................................... 6
Prospectus Supplement ............................................. 1
Purchase Agreement ................................................ 21
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Rating Agencies ................................................... 11
Receivables ....................................................... 1, 6
Receivables Pool .................................................. 19
Registration Statement ............................................ 2
Relief Act ........................................................ 18
Reuters Screen LIBO Page .......................................... 32
Rule of 78s ....................................................... 22
Rule of 78s Receivables ........................................... 22
Rules ............................................................. 35
Securities Act .................................................... 2, 3
Seller ............................................................ 4
Series ............................................................ 1
Servicer .......................................................... 1, 4
Servicing Fee ..................................................... 43
Simple Interest Advance ........................................... 9
Simple Interest Receivables ....................................... 23
Sponsor ........................................................... 4
Spread ............................................................ 28
Spread Multiplier ................................................. 28
Standby Servicer .................................................. 41, 43
Strip Certificates ................................................ 5
Sub-Prime Borrowers ............................................... 24
Subsequent Receivables ............................................ 6
Subsequent Transfer Date .......................................... 13, 22, 39
Subservicer ....................................................... 4
Terms and Conditions .............................................. 36
Treasury Rate ..................................................... 32, 33
Treasury Rate Certificate ......................................... 28
Treasury Rate Determination Date .................................. 33
Trust ............................................................. 1
Trust Accounts .................................................... 40
Trust Assets ...................................................... 1
Trustee ........................................................... 4
-63-
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
Registration Fee.................................................... $103,449
Printing and Engraving.............................................. 40,000
Legal Fees and Expenses............................................. 125,000
Accountants' Fees and Expenses...................................... 20,000
Rating Agency Fees.................................................. 50,000
Miscellaneous Fees.................................................. 10,000
Total............................................................... $348,449
Item 15. Indemnification of Directors and Officers
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such person's status as an
agent of Consumer Portfolio Services, Inc., if that person acted in good faith
and in a manner reasonably believed to be in the best interests of Consumer
Portfolio Services, Inc. and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful.
Article IV of the Articles of Incorporation and Section 2 of Article VI of
the Amended and Restated ByLaws of Consumer Portfolio Services, Inc. provides
that all officers and directors of the corporation shall be indemnified by the
corporation from and against all expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such person's
status as an agent of Consumer Portfolio Services, Inc., if that person acted in
good faith and in a manner reasonably believed to be in the best interests of
Consumer Portfolio Services, Inc. and, in the case of a criminal proceeding, had
no reasonable cause to believe the conduct of that person was unlawful.
The form of the Underwriting Agreement, to be filed as an exhibit to this
Registration Statement, will provide that Consumer Portfolio Services, Inc. will
indemnify and reimburse the underwriter(s) and each controlling person of the
underwriter with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement will provide that the underwriter(s) will similarly
indemnify and reimburse Consumer Portfolio Services, Inc. with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
Insurance. As permitted under the laws which govern the organization of the
registrant, the registrant's Amended and Restated By-Laws permit the board of
directors to purchase and maintain insurance on behalf of the registrant's
agents, including its officers and directors, against any liability asserted
against them in such capacity or arising out of such agents' status as such,
whether or not the registrant would have the power to indemnify them against
such liability under applicable law.
II-1
<PAGE>
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 --Form of Underwriting Agreement.
4.1 --Form of Pooling and Servicing Agreement, including the form of
Certificates and certain other related agreements as Exhibits thereto.*
5.1 --Opinion of Mayer, Brown & Platt with respect to legality.
8.1 --Opinion of Mayer, Brown & Platt with respect to tax matters.
10.1 --Form of Purchase Agreement.*
23.1 --Consent of Mayer, Brown & Platt (included in its opinions filed as
Exhibit 5.1 and Exhibit 8.1).
24.1 --Powers of Attorney.*
(b) Financial Statements
All financial statements, schedules and historical financial
information have been omitted as they are not applicable.
- --------
* Previously filed.
II-2
<PAGE>
Item 17. Undertakings
A. Undertaking pursuant to Rule 415
The undersigned registrant hereby undertakes as follows:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(3) to include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change of such information in the Registration
Statement; provided, however, that paragraphs (1) and (2) do not apply
if the information required to be included in the post-effective
amendment is contained in periodic reports filed by the Issuer
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. Undertaking pursuant to Rule 415
(a) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
C. Undertaking in respect of indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the provisions
described under Item 15 above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
II-3
<PAGE>
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in such Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement Amendment No. 1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
capacities indicated.
CONSUMER PORTFOLIO SERVICES, INC.
as originator of the Trust (Registrant)
By /s/ Charles E. Bradley, Jr.
-------------------------------------
Name: Charles E. Bradley, Jr.
Title: President
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement Amendment No. 1 has been signed on September __, 1996 by
the following persons in the capacities indicated.
Signatures
----------
Title
-----
----------------------------------------
Charles E. Bradley, Sr.
Director
/s/ Charles E. Bradley, Jr.
----------------------------------------
Charles E. Bradley, Jr.
President and Director
*
----------------------------------------
William B. Roberts
Director
----------------------------------------
John G. Poole
Director
*
----------------------------------------
Thomas L. Chrystie
Director
*
----------------------------------------
Robert A. Simms
Director
/s/ Jeffrey P. Fritz
----------------------------------------
Jeffrey P. Fritz
Chief Financial Officer and Secretary
*By: /s/ Jeffrey P. Fritz
----------------------------------------
Jeffrey P. Fritz
as attorney-in-fact
II-6
<PAGE>
EXHIBIT INDEX
1.1 --Form of Underwriting Agreement.
4.1 --Form of Pooling and Servicing Agreement, including the form
of Certificates and certain other related agreements as
Exhibits thereto.*
5.1 --Opinion of Mayer, Brown & Platt with respect to legality.
8.1 --Opinion of Mayer, Brown & Platt with respect to tax matters.
10.1 --Form of Receivables Purchase Agreement.*
23.1 --Consent of Mayer, Brown & Platt (included in its opinions filed as
Exhibit 5.1 and Exhibit 8.1).
24.1 --Powers of Attorney.*
- --------
* Previously filed.
II-7
EXHIBIT 1.1
<PAGE>
Exhibit 1.1
CPS AUTO GRANTOR TRUST 1996-2
$[___________], [___]% Class A Pass-Through Certificates
UNDERWRITING AGREEMENT
[September __], 1996
Alex. Brown & Sons Incorporated
135 East Baltimore Street
MS 8-8-3
Baltimore, Maryland 21202
Black Diamond Securities, LLC
230 Park Avenue, Suite 635
New York, New York 10169
Ladies and Gentlemen:
CPS Receivables Corp., a California corporation (the "Company") and
wholly-owned subsidiary of Consumer Portfolio Services, Inc., a California
corporation ("CPS"), proposes to issue and sell to you in your capacities as the
Underwriters (the "Underwriters"), $[ ] aggregate principal amount of CPS Auto
Grantor Trust 1996-2 [ ]% Asset-Backed Certificates, Class A (the
"Certificates"). The Certificates will be issued by CPS Auto Grantor Trust
1996-2 (the "Trust") pursuant to the Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") dated as of [September __], 1996 among the
Company, CPS, as servicer (in such capacity, the "Servicer") and Norwest Bank
Minnesota, National Association, as trustee (the "Trustee"). Pursuant to the
Pooling and Servicing Agreement, the Trust will also issue $[ ] aggregate
principal amount of CPS Auto Grantor Trust 1996-2 [ ]% Asset-Backed
Certificates, Class B (the "Class B Certificates") which are not being offered
pursuant to the Registration Statement (as defined below) and are not the
subject of this Agreement. The Class A Certificates will evidence, in the
aggregate, beneficial ownership of an undivided [95]% interest in the Trust
(other than interest received by the Trust in excess of the Class A Pass-Through
Rate). The Class B Certificates will evidence, in the aggregate, beneficial
ownership of an undivided [5]% interest in the Trust (other than interest
received by the Trust in excess of the Class B Pass- Through Rate). The assets
of the Trust will include, among other things, a pool of retail installment sale
contracts and all rights and obligations thereunder (collectively, the
<PAGE>
"Receivables"), with respect to Rule of 78's Receivables, all payments due
thereunder after September [__], 1996 (the "Cutoff Date"), with respect to
Simple Interest Receivables, all payments received thereunder after the Cutoff
Date, security interests in the new and used automobiles, light trucks, vans and
minivans securing the Receivables, certain bank accounts and the proceeds
thereof, the Policy (for the benefit of the Class A Certificateholders only) and
the right of CPS to receive certain insurance proceeds and certain other
property, all as more specifically described in the Pooling and Servicing
Agreement.
The Class A Certificates will be issued in an aggregate principal amount of
$[__________] which is equal to [95]% of the aggregate principal balance of the
Receivables as of the Cutoff Date. The Class A Certificates will bear interest
at an annual rate equal to [__]% (the "Class A Pass-Through Rate") in accordance
with the provisions of the Pooling and Servicing Agreement. The Class B
Certificates will be issued in an aggregate principal amount of $[_________]
which is equal to [5]% of the aggregate principal balance of the Receivables as
of the Cutoff Date. The Class B Certificates will bear interest at an annual
rate equal to [__]% (the "Class B Pass-Through Rate") in accordance with the
provisions of the Pooling and Servicing Agreement.
To the extent not otherwise defined herein, capitalized terms used herein
shall have the meanings assigned to such terms in the Pooling and Servicing
Agreement.
As the Underwriters, each of you have advised the Company that (a) you are
authorized to enter into this Agreement and (b) each of you is willing, acting
severally and not jointly, to purchase the aggregate principal amount of the
Certificates set forth opposite your respective names in Schedule I hereto.
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company, with respect to the Company, and CPS, with respect to CPS, and
both the Company and CPS in all other instances, each represents and warrants
to, and agrees with each Underwriter, as of the date hereof and as of the
Issuance, that:
(a) CPS has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 333-09343),
including a Base Prospectus, for registration of the offering and sale of the
Certificates under the Securities Act of 1933, as amended (the "1933 Act"), and
the
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<PAGE>
rules and regulations (the "1933 Act Regulations") of the Commission thereunder
which conforms with the requirements of the 1933 Act and the 1933 Act
Regulations. CPS has complied with the conditions for the use of a Registration
Statement on Form S-3. CPS may have filed with the Commission one or more
amendments to such Registration Statement, and may have used a Preliminary Final
Prospectus, each of which has been previously furnished to each of the
Underwriters. The offering of the Certificates is a Delayed Offering and,
although the Base Prospectus may not include all the information with respect to
the Certificates and the offering thereof required by the 1933 Act and the 1933
Act Regulations to be included in the Final Prospectus, the Base Prospectus
includes all such information required by the 1933 Act and the 1933 Act
Regulations to be included therein as of the Effective Date. The Company will
hereafter file with the Commission pursuant to Rules 415 and 424(b), a final
supplement to the Base Prospectus relating to the Certificates and the offering
thereof. As filed, such final supplement shall include all required information
with respect to the Certificates and, except to the extent the Underwriters
shall agree in writing to any modification thereof, shall be in all substantive
respects in the form furnished to each of the Underwriters prior to the
Execution Time or, to the extent not completed at the Execution Time, shall be
in such form with only such specific additional information and other changes
(beyond that contained in the Base Prospectus and any Preliminary Final
Prospectus) as the Company has advised each of the Underwriters, prior to the
Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did or will, and when
the Final Prospectus is first filed (if required) in accordance with Rule 424(b)
and on the Closing Date (as defined below), the Final Prospectus (as
supplemented and amended as of the Closing Date) will, comply in all material
respects with the applicable requirements of the 1933 Act, the 1933 Act
Regulations, the Securities Exchange Act of 1934, as amended (the "1934 Act"),
and the rules and regulations thereunder (the "1934 Act Regulations"); on the
Effective Date, the Registration Statement did not or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date, the Final Prospectus, if not filed
pursuant to Rule 424(b), did not or will not, and on the date of any filing
pursuant to Rule 424(b) and on the Closing Date, the Final Prospectus (as
supplemented and amended in the case of the Closing Date) will not, include any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein not misleading; provided, however, that
each of CPS and the Company makes no representations or warranties as to the
information contained in or omitted from the Registration
-4-
<PAGE>
Statement or the Final Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter specifically for inclusion in the
Registration Statement or the Final Prospectus (or any supplement or amendment
thereto) or the information regarding the Certificate Insurer set forth under
the heading "THE SECURITY INSURER" in or incorporated by reference in the
Preliminary Final Prospectus and the Final Prospectus.
(c) The terms which follow, when used in this Agreement, shall have the
meanings indicated.
"Base Prospectus" shall mean the prospectus referred to in Section
1(a) hereof contained in the Registration Statement at the Effective Date.
"Delayed Offering" shall mean the offering of the Certificates
pursuant to Rule 415 which does not commence promptly after the effective
date of the Registration Statement, with the result that only information
required pursuant to Rule 415 need be included in such Registration
Statement at the effective date thereof with respect to the Certificates.
"Effective Date" shall mean each date that the Registration Statement
and any post-effective amendment(s) thereto became or become effective and
each date after the date hereof on which a document incorporated by
reference in the Registration Statement is filed by the Company.
"Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto.
"Final Prospectus" shall mean the prospectus supplement relating to
the Certificates that is first filed pursuant to Rule 424(b) under the 1933
Act after the Execution Time, together with the Base Prospectus.
"Preliminary Final Prospectus" shall mean any preliminary prospectus
supplement to the Base Prospectus which describes the Certificates and the
offering thereof and is used prior to filing of the Final Prospectus.
"Prospectus" shall mean, collectively, the Base Prospectus, any
Preliminary Final Prospectus and the Final Prospectus.
"Registration Statement" shall mean (i) the Registration Statement
referred to in Section 1(a) hereof, including all documents incorporated
therein by reference,
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<PAGE>
exhibits, financial statements and notes thereto and related schedules and
other statistical and financial data and information included therein, as
amended at the Execution Time (or, if not effective at the Execution Time,
in the form in which it shall become effective); (ii) in the event any
post-effective amendment thereto becomes effective prior to the Closing
Date, such Registration Statement as so amended; and (iii) in the event any
Rule 462(b) Registration Statement becomes effective prior to the Closing
Date, such Registration Statement as so modified by the Rule 462(b)
Registration Statement, from and after the effectiveness thereof. Such term
shall include any Rule 430A Information deemed to be included therein at
the Effective Date as provided by Rule 430A.
"Rule "415", "Rule 424", "Rule "430A" and "Regulation S-K" refer to
such rules or regulation under the 1933 Act.
"Rule 430A Information" means information with respect to the
Certificates and the offering thereof permitted to be omitted from the
Registration Statement when it becomes effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" means a Registration Statement
filed pursuant to Rule 462(b) under the 1933 Act relating to the offering
covered by the Registration Statement (File No. 333-09343).
Any reference herein to the Registration Statement, the Base Prospectus,
any Preliminary Final Prospectus or the Final Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein pursuant to
Item 12 of Form S-3 which were filed under the 1934 Act on or before the
Effective Date of the Registration Statement or the issue date of the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the
case may be; and any reference herein to the terms "amend", "amendment" or
"supplement" with respect to the Registration Statement, the Base Prospectus,
any Preliminary Final Prospectus or the Final Prospectus shall be deemed to
refer to and include the filing of any document under the 1934 Act after the
Effective Date of the Registration Statement or the issue date of the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the
case may be, deemed to be incorporated therein by reference.
(d) Each of the Company and CPS is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
duly qualified to transact business as a foreign corporation in each
jurisdiction in which it is required to be so qualified and in which the failure
to so
-6-
<PAGE>
qualify, taken in the aggregate, would have a material adverse effect on it.
(e) Since the respective dates as of which information is given in the
Registration Statement and the Final Prospectus, there has not been any material
adverse change, or any development which could reasonably be expected to result
in a material adverse change, in or affecting the financial position,
shareholders' equity or results of operations of the Company or CPS or the
Company's or CPS's ability to perform its obligations under this Agreement or
the Pooling and Servicing Agreement or any of the other Basic Documents (as
defined below), other than as set forth or incorporated by reference in the
Registration Statement or as set forth in the Final Prospectus.
(f) Except for the registration of the Certificates under the 1933 Act and
such consents, approvals, authorizations, registrations or qualifications as may
be required under the 1934 Act and applicable State securities or Blue Sky laws
in connection with the purchase and distribution of the Certificates by the
Underwriters or the filing requirements of Rule 430A or Rule 424(b) under the
1933 Act, no consent, approval, authorization or order of or declaration or
filing with any governmental authority is required for the issuance or sale of
the Certificates or the consummation of the other transactions contemplated by
this Agreement or the Pooling and Servicing Agreement or any of the other Basic
Documents, except such as have been duly made or obtained or as will be duly
made or obtained on or before the Closing Date.
(g) The Commission has not issued an order preventing or suspending the use
of any Prospectus relating to the proposed offering of the Certificates, nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Final Prospectus together with any amendments or supplements thereto
will contain, all statements which are required to be stated therein by, and
will conform to, the requirements of the 1933 Act and the 1933 Act Regulations.
(h) The documents (other than the financial statements of the Certificate
Insurer, as to which no representation is made by CPS or the Company) which are
incorporated by reference in the Registration Statement and the Final Prospectus
or from which information is so incorporated by reference, as of the dates they
were filed with the Commission, complied in all material respects with the
requirements of the 1933 Act, the 1933 Act Regulations, the 1934 Act and the
1934 Act Regulations, as applicable, and any documents so filed and incorporated
by reference subsequent to the Effective Date shall, when they are filed with
the Commission, conform in all material respects with the requirements of the
1934 Act and the 1934 Act Regulations.
-7-
<PAGE>
(i) Each of the Company and CPS confirms as of the date hereof that it is
in compliance with all provisions of Section 1 of Laws of Florida, Chapter
92-198, An Act Relating to Disclosure of doing Business with Cuba, and each of
the Company and CPS further agrees that if it commences engaging in business
with the government of Cuba or with any person or affiliate located in Cuba
after the date the Registration Statement becomes or has become effective with
the Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information included in the
Final Prospectus, if any, concerning either the Company's or CPS's business with
Cuba or with any person or affiliate located in Cuba changes in any material
way, each of the Company and CPS, as the case may be, will provide the
Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(j) All representations and warranties of the Company and CPS contained in
each of the Basic Documents, including this Agreement, will be true and correct
in all material respects as of the Closing Date and are hereby incorporated by
reference as if each such representation and warranty were specifically made
herein.
(k) Each of the Company and CPS has full power and authority (corporate and
other) to enter into and perform its obligations under this Agreement, the
Pooling and Servicing Agreement, the Purchase Agreement, the Insurance
Agreement, the Indemnification Agreement, the Spread Account Agreement, the
Lock-Box Agreement and the Servicing Assumption Agreement (collectively, the
"Basic Documents"), and to consummate the transactions contemplated hereby and
thereby.
(l) On or before the Closing Date, the direction by the Company to the
Trustee to authenticate the Certificates will have been duly authorized by the
Company, the Certificates will have been duly executed and delivered by the
Company and, when authenticated by the Trustee in accordance with the Pooling
and Servicing Agreement and delivered and paid for pursuant to this Agreement,
will be duly issued and entitled to the benefits and security afforded by the
Pooling and Servicing Agreement, subject as to the enforcement of remedies (x)
to applicable bankruptcy insolvency, reorganization, moratorium, and other
similar laws affecting creditors' rights generally and (y) to general principles
of equity (regardless of whether the enforcement of such remedies is considered
in a proceeding in equity or at law).
(m) This Agreement and each Basic Document to which the Company or CPS is a
party has been duly authorized, executed and delivered by each of the Company
and CPS and constitutes a valid and binding agreement of each of the Company and
CPS, enforceable
-8-
<PAGE>
against the Company and CPS in accordance with its terms, subject as to the
enforcement of remedies (x) to applicable bankruptcy, insolvency,
reorganization, moratorium, and other similar laws affecting creditors' rights
generally, (y) to general principles of equity (regardless of whether the
enforcement of such remedies is considered in a proceeding in equity or at law)
and (z) with respect to rights of indemnity under this Agreement, to limitations
of public policy under applicable securities laws.
(n) Neither the Company nor CPS is in breach or violation of its Articles
of Incorporation or By-Laws or in default in the performance or observance of
any credit or security agreement or other agreement or instrument to which it is
a party or by which it or its properties may be bound, or in violation of any
applicable law, statute, regulation, order or ordinance of any governmental body
having jurisdiction over it, which breach or violation would have a material
adverse effect on the ability of the Company or CPS to perform its obligations
under any of the Basic Documents or the Certificates.
(o) The issuance and delivery of the Certificates, the consummation of any
other of the transactions contemplated herein or in the Pooling and Servicing
Agreement or in any of the other Basic Documents or the fulfillment of the terms
of this Agreement or the Pooling and Servicing Agreement or any of the other
Basic Documents, subject to the registration of the Certificates under the 1933
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the 1934 Act and applicable State
securities or Blue Sky laws in connection with the purchase and distribution of
the Certificates by the Underwriters or the filing requirements of Rule 430A or
Rule 424(b) under the 1933 Act, do not and will not conflict with or violate any
term or provision of the Articles of Incorporation or By-Laws of the Company or
CPS, any statute, order or regulation applicable to the Company or CPS of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over the Company or CPS and do not and will not conflict with,
result in a breach or violation or the acceleration of or constitute a default
under or result in the creation or imposition of any lien, charge or encumbrance
upon any of the property or assets of the Company or CPS (other than in favor of
the Trustee or as otherwise permitted under the Pooling and Servicing Agreement)
pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or CPS is a party or by
which the Company or CPS may be bound or to which any of the property or assets
of the Company or CPS may be subject except for conflicts, violations, breaches,
accelerations and defaults which would not, individually or in the aggregate, be
materially adverse to the Company or CPS or materially adverse to the
-9-
<PAGE>
transactions contemplated by this Agreement or the Basic Documents.
(p) Any taxes, fees and other governmental charges due on or prior to the
Closing Date (including, without limitation, sales taxes) in connection with the
execution, delivery and issuance of this Agreement, the Pooling and Servicing
Agreement, the other Basic Documents and the Certificates have been or will have
been paid at or prior to the Closing Date.
(q) The Receivables are chattel paper as defined in the Uniform Commercial
Code as in effect in the State of California.
(r) Under generally accepted accounting principles, CPS will report its
transfer of the Receivables to the Company pursuant to the Purchase Agreement as
a sale of the Receivables and the Company will report its transfer of the
Receivables to the Trustee pursuant to the Pooling and Servicing Agreement as a
sale of the Receivables. Each of CPS and the Company has been advised by KPMG
Peat Marwick, Certified Public Accountants, that the transfers pursuant to the
Purchase Agreement will be so classified under generally accepted accounting
principles in accordance with Statement No. 77 of the Financial Accounting
Standards Board (December 1983) and, on and after January 1, 1997, with
Statement No. 125 of the Financial Accounting Standards Board (June 1996).
(s) Pursuant to the Purchase Agreement, CPS is transferring to the Company
ownership of the Receivables, the security interests in the Financed Vehicles
securing the Receivables, certain other property related to the Receivables and
the proceeds of each of the foregoing (collectively, the "Trust Assets"), and,
immediately prior to the transfer thereof to the Trust, the Company will be the
sole owner of all right, title and interest in, and has good and marketable
title to, the Receivables and the other Trust Assets. The assignment of the
Receivables and the other Trust Assets, including all the proceeds thereof, to
the Trust pursuant to the Pooling and Servicing Agreement, vests in the Trust
all interests which are purported to be conveyed thereby, free and clear of any
liens, security interests or encumbrances.
(t) Immediately prior to the transfer of the Receivables to the Trust, the
Company's interest in the Receivables and the proceeds thereof shall have been
perfected, UCC-1 financing statements (the "Financing Statements") shall have
been filed in the office of the Secretary of State of the State of California
and there shall be no unreleased statements affecting the Receivables filed in
such office other than the Financing Statements. If a court concludes that the
transfer of the Receivables from the Company to the Trust is a sale, then the
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interest of the Trust in the Receivables, the other Trust Assets and the
proceeds thereof, will be perfected by virtue of the Financing Statements having
been filed in the office of the Secretary of State of the State of California.
If a court concludes that such transfer is not a sale, the Pooling and Servicing
Agreement and the transactions contemplated thereby constitute a grant by the
Company to the Trust of a valid security interest in the Receivables, the other
Trust Assets and the proceeds thereof, which security interest will be perfected
by virtue of the Financing Statements having been filed in the office of the
Secretary of State of the State of California. No filing or other action, other
than the filing of the Financing Statements in the office of the Secretary of
State of the State of California referred to above and the execution and
delivery of the Pooling and Servicing Agreement, is necessary to perfect the
interest or the security interest of the Trust in the Receivables and the
proceeds thereof against third parties.
(u) The Pooling and Servicing Agreement is not required to be qualified
under the Trust Indenture Act.
(v) None of the Company, CPS or the Trust is required to be registered as
an "investment company" under the Investment Company Act.
2. PURCHASE, SALE AND DELIVERY OF THE CERTIFICATES.
Subject to the terms and conditions and in reliance upon the
representations, warranties and covenants herein set forth, the Company agrees
to sell to each Underwriter, and each Underwriter agrees, severally and not
jointly, to purchase from the Company the initial principal amount of the
Certificates set forth opposite such Underwriter's name in Schedule I hereto, at
the purchase price set forth opposite such Underwriter's name in Schedule I,
which purchase price is equal to [__]% of such initial principal amount plus
accrued interest at the Class A Pass-Through Rate calculated from and including
[_________], 1996, to but excluding the Closing Date.
The Company will deliver against payment of the purchase price the
Certificates in the form of one or more permanent global Certificates in
definitive form (the "Global Certificates") deposited with the Trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name of
Cede & Co., as nominee for DTC. Interests in any Global Certificates will be
held only in book-entry form through DTC except in the limited circumstances
described in the Final Prospectus. Payment for the Certificates will be made by
the Underwriters by wire transfer of same day funds to an account previously
designated to the Underwriters by the Company at the offices of Mayer, Brown &
Platt, 1675 Broadway, New York, New
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York 10019, at 9:30 a.m. (New York time) on [September ], 1996, or at such other
time as is mutually agreed (such time being herein referred to as the "Closing
Date") against delivery of the Global Certificates representing all of the
Certificates. The Global Certificates will be made available for checking at the
above office of Mayer, Brown & Platt at least 24 hours prior to the Closing
Date.
As used herein, "business day" means a day on which the New York Stock
Exchange is open for trading and on which banks in New York, California and
Minnesota are open for business and are not permitted by law or executive order
to be closed.
3. OFFERING BY THE UNDERWRITERS.
The Company is advised by the Underwriters that they propose to make a
public offering of the Certificates, as set forth in the Final Prospectus, from
time to time as and when the Underwriters deem advisable after the Registration
Statement becomes effective.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement, if not effective at the Execution Time, and any amendment thereto, to
become effective as soon as reasonably practicable thereafter or, if the
procedure in Rule 430A is followed, prepare and timely file with the Commission
under Rule 424(b) a Final Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance upon Rule
430A. Prior to the termination of the offering of the Certificates, the Company
will not file any amendment of the Registration Statement or amendments or
supplement (including the Final Prospectus or any Preliminary Final Prospectus)
to the Base Prospectus or any Rule 462(b) Registration Statement unless the
Company has furnished to each of the Underwriters a copy for its review prior to
filing and will not file any such proposed amendment or supplement to which any
of the Underwriters reasonably objects and which is not in compliance with the
1933 Act Regulations. The Company will promptly advise the Underwriters (i) when
the Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective; (ii) when the Final Prospectus,
and any supplement thereto, shall have been filed with the Commission pursuant
to Rule 424(b); (iii) when, prior to termination of the offering of the
Certificates, any amendment to the Registration Statement shall have been filed
or become effective; (iv) of any request by the Commission for any
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amendment of the Registration Statement or supplement to the Final Prospectus or
for any other additional information; (v) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the
institution of any proceeding for that purpose and (vi) of the receipt by the
Company of any notification with respect to the suspension of the qualification
of the Certificates for sale in any jurisdiction or the initiation of any
proceeding for such purpose. The Company will use its best efforts to prevent
the issuance of any such stop order or the suspension of any such qualification
and, if issued or suspended, to obtain as soon as possible the withdrawal
thereof.
(b) Prior to the filing thereof with the Commission, the Company will
submit to each of the Underwriters, for its approval after reasonable notice
thereof, such approval not to be unreasonably withheld or delayed, a copy of any
post-effective amendment to the Registration Statement, any Rule 462(b)
Registration Statement proposed to be filed or a copy of any document proposed
to be filed under the 1934 Act before the termination of the offering of the
Certificates by the Underwriters if such document would be deemed to be
incorporated by reference into the Registration Statement or Final Prospectus.
(c) The Company will deliver to, or upon the order of, the Underwriters,
from time to time, as many copies of any Preliminary Final Prospectus as the
Underwriters may reasonably request. The Company will deliver to, or upon the
order of, the Underwriters during the period when delivery of a Final Prospectus
is required under the 1933 Act, as many copies of the Final Prospectus, or as
thereafter amended or supplemented, as the Underwriters may reasonably request.
The Company will deliver to the Underwriters at or before the Closing Date, two
signed copies of the Registration Statement and all amendments thereto including
all exhibits filed therewith, and will deliver to the Underwriters such number
of copies of the Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), including documents
filed under the 1934 Act and deemed to be incorporated by reference therein, and
of all amendments thereto, as the Underwriters may from time to time reasonably
request.
(d) The Company will, and will cause the Trust to, comply with the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, so as
to permit the completion of the distribution of the Certificates as contemplated
in this Agreement and the Final Prospectus. If during the period in which a
prospectus is required by law to be delivered by an Underwriter or dealer in
connection with the sale of any Class A Certificates, any event shall occur as a
result of which, in the judgment of the Company or in the reasonable opinion of
the
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<PAGE>
Underwriters, it becomes necessary to amend or supplement the Final Prospectus
in order to make the statements therein, in the light of the circumstances
existing at the time the Final Prospectus is delivered to a purchaser, not
misleading, or, if it is necessary at any time to amend or supplement the Final
Prospectus to comply with any law or to file under the 1934 Act any document
which would be deemed to be incorporated by reference in the Registration
Statement to comply with the 1933 Act or the 1934 Act, the Company will promptly
notify each of the Underwriters and will promptly either (i) prepare and file,
or cause to be prepared and filed, with the Commission an appropriate amendment
to the Registration Statement or supplement to the Final Prospectus or (ii)
prepare and file, or cause to be prepared and filed, with the Commission (at the
expense of the Company) an appropriate filing under the 1934 Act which shall be
incorporated by reference in the Final Prospectus so that the Final Prospectus
as so amended or supplemented will not, in the light of the circumstances when
it is so delivered, be misleading, or so that the Final Prospectus will comply
with applicable law.
(e) The Company will cooperate with the Underwriters in endeavoring to
qualify the Certificates for sale under the laws of such jurisdictions as the
Underwriters may designate and will maintain such qualifications in effect so
long as required for the distribution of the Certificates, except that the
Company will not be obligated to qualify the Certificates in any jurisdiction in
which such qualification would require the Company to qualify to do business as
a foreign corporation, file a general or unlimited consent to service of process
or subject itself to taxation in any such jurisdiction to which it is not
subject and will arrange for the determination of the legality of the
Certificates for purchase by institutional investors. The Company will, from
time to time, prepare and file such statements, reports, and other documents as
are or may be required to continue such qualifications in effect for so long a
period as the Underwriters may reasonably request for distribution of the
Certificates.
(f) The Company shall not invest, or otherwise use the proceeds received by
the Company from its sale of the Certificates in such a manner as would require
the Company, CPS or the Trust to register as an investment company under the
1940 Act.
(g) Until the retirement of the Certificates, or until such time as the
Underwriters shall cease to maintain a secondary market in the Certificates,
whichever occurs first, the Company will deliver to each Underwriter the annual
statements of compliance and the annual independent certified public
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accountant's reports furnished to the Trustee pursuant to the Pooling and
Servicing Agreement, as soon as such statements and reports are furnished to the
Trustee.
(h) The Company or CPS shall, from the date hereof through and including
the Closing Date, furnish, or cause to be furnished, or make available, or cause
to be made available, to each Underwriter or its counsel such additional
documents and information regarding each of them and their respective affairs as
each Underwriter may from time to time reasonably request and which the Company
or CPS possess or can acquire without unreasonable effort or expense, including
any and all documentation requested in connection with such Underwriter's due
diligence efforts regarding information in the Registration Statement and the
Final Prospectus and in order to evidence the accuracy or completeness of any of
the conditions contained in this Agreement; and all actions taken by the Company
or CPS to authorize the sale of the Certificates shall be reasonably
satisfactory in form and substance to each Underwriter.
(i) The Company will cause the Trust to make generally available to Class A
Certificateholders as soon as practicable, but no later than sixteen months
after the Effective Date, an earnings statement of the Trust covering a period
of at least twelve consecutive months beginning after such Effective Date and
satisfying the provisions of Section 11(a) of the Act (including Rule 158
promulgated thereunder).
(j) So long as any of the Class A Certificates are outstanding, the Company
will furnish to the Underwriters copies of all reports or other communications
(financial or otherwise) furnished or made available to Class A
Certificateholders, and deliver to the Underwriters during such period, (i) as
soon as they are available, copies of any reports and financial statements filed
by or on behalf of the Trust or the Company with the Commission pursuant to the
Securities Exchange Act of 1934, as amended, and (ii) such additional
information concerning the business and financial condition of the Company as
the Underwriter may from time to time reasonably request.
(k) On or before the Closing Date, the Company and CPS shall cause the
respective computer records of the Company and CPS relating to the Receivables
to be marked to show the Trustee's absolute ownership of the Receivables, and
from and after the Closing Date neither the Company nor CPS shall take any
action inconsistent with the Trustee's ownership of such Receivables, other than
as expressly permitted by the Pooling and Servicing Agreement.
(l) To the extent, if any, that the ratings provided with respect to the
Certificates by either of the Rating Agencies is
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conditional upon the furnishing of documents or the taking of any other actions
by the Company or CPS, CPS shall, or shall cause the Company to, furnish such
documents and take any such other actions.
(m) On the Closing Date, the Company and CPS shall cause the Certificate
Insurer to issue the Policy to the Trustee for the benefit of the holders of the
Certificates in form and substance satisfactory to each Underwriter.
5. [RESERVED]
6. COSTS AND EXPENSES.
The Company will pay upon receipt of a written request therefor all costs,
expenses and fees incident to the performance of the obligations of the Company
under this Agreement and reimburse the Underwriters for all reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Certificates or in contemplation of performing the Underwriters'
obligations hereunder and including, without limiting the generality of the
foregoing, the following: (i) accounting fees of the Company; (ii) the fees and
disbursements of counsel for the Company; (iii) the cost of printing and
delivering to, or as requested by, the Underwriters copies of the Registration
Statement, Preliminary Final Prospectuses, the Final Prospectus, this Agreement,
the listing application in respect of the Certificates, the Blue Sky Survey, if
any, and any supplements or amendments thereto; (iv) the filing fees of the
Commission; (v) any fees charged by the Rating Agencies for rating the
Certificates; and (vi) the fees and expenses of the Trustee, including the fees
and disbursements of counsel for the Trustee, in connection with the
Certificates, the Pooling and Servicing Agreement and the other Basic Documents
to which the Trustee is a party and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Certificates under State securities or Blue Sky laws. If
this Agreement shall not be consummated because the conditions in Section 7
hereof are not satisfied, or because this Agreement is terminated by each of the
Underwriters pursuant to Section 12 hereof (other than on the basis of a default
by the Underwriters pursuant to Section 10 hereof), or by reason of any failure,
refusal or inability on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on its part to be performed, unless such failure to satisfy said
condition or to comply with said terms be due to the default or omission of any
Underwriter, then the Company shall reimburse the Underwriters for reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel,
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reasonably incurred in connection with investigating, marketing and proposing to
market the Certificates or in contemplation of performing their obligations
hereunder upon receipt of a written request therefor; but the Company shall not
in any event be liable to any of the Underwriters for damages on account of loss
of anticipated profits from the sale by them of the Certificates. Except to the
extent expressly set forth in this Section 6, the Underwriters shall each be
responsible for their own costs and expenses, including the fees and expenses of
their counsel.
7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase and pay for the
Certificates on the Closing Date are subject to the accuracy in all material
respects as of the Closing Date of the representations and warranties of the
Company contained herein, to the performance by the Company of its covenants and
obligations hereunder and to the following additional conditions precedent:
(a) If the Registration Statement has not become effective prior to the
Execution Time, unless the Underwriters agree in writing to a later time, the
Registration Statement will become effective not later than (i) 5:30 p.m. New
York City time on the date of determination of the public offering price of the
Certificates, if such determination occurred at or prior to 3:00 p.m. New York
City time on such date or (ii) 12:00 noon New York City time on the business day
following the day on which the public offering price of the Certificates was
determined, if such determination occurred after 3:00 p.m. New York City time on
such date; if filing of the Final Prospectus, or any supplement thereto, is
required pursuant to Rule 424(b), the Final Prospectus, and any such supplement,
shall have been filed within the applicable time period prescribed for such
filing by Rule 424(b), and any request of the Commission for additional
information (to be included in the Registration Statement or otherwise) shall
have been disclosed to the Underwriters and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the knowledge of the
Company, shall be contemplated by the Commission and no injunction, restraining
order, or order of any nature by a Federal or state court of competent
jurisdiction shall have been issued as of the Closing Date which would prevent
the issuance of the Certificates.
(b) On or prior to the date of this Agreement and on or prior to the
Closing Date, each Underwriter shall have received a letter or letters, dated as
of [September __], 1996, and as of the Closing Date, respectively, of KPMG Peat
Marwick, Certified
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Public Accountants, substantially in the form of the drafts to which each of the
Underwriters has previously agreed and otherwise in form and substance
satisfactory to each Underwriter and its counsel.
(c) Subsequent to the execution and delivery of this Agreement, there shall
not have occurred (i) any change, or any development involving a prospective
change, in or affecting particularly the business or properties of the Company,
CPS or any Affiliate of the Company or CPS which, in the judgment of each
Underwriter, materially impairs the investment quality of the Certificates or
the ability of CPS to act as Servicer or (ii) any downgrading in the rating of
any debt securities or preferred stock of the Company, CPS or any Affiliate
thereof by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Securities Act), or any public
announcement that any such organization has under surveillance or review its
rating of any debt securities or preferred stock of the Company, CPS or any
Affiliate thereof (other than an announcement with positive implications of a
possible upgrading, and no implication of a possible downgrading of such
rating); (iii) any suspension or limitation of trading in securities generally
on the New York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of the Company or
CPS or any Affiliate of the Company or CPS on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by Federal, New
York or California authorities; or (v) any outbreak or escalation of major
hostilities in which the United States is involved, any declaration of war by
Congress or any other substantial national or international calamity, emergency
or change in financial markets if, in the judgment of each Underwriter, the
effect of any such outbreak, escalation, declaration, calamity, emergency or
change makes it impractical or inadvisable to proceed with completion of the
private placement of the Certificates.
(d) The Company and CPS shall have furnished each Underwriter with such
number of conformed copies of such opinions, certificates, letters and documents
as it may reasonably request.
(e) On the Closing Date, each of the Basic Documents and the Certificates
shall have been duly authorized, executed and delivered by the parties thereto,
shall be in full force and effect and no default shall exist thereunder, and the
Trustee shall have received a fully executed copy thereof or, with respect to
the Certificates, a conformed copy thereof. The Basic Documents and the
Certificates shall be substantially in the forms heretofore provided to each
Underwriter.
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(f) Each Underwriter shall have received a certificate of the Trustee, as
to the due authorization, execution and delivery of the Pooling and Servicing
Agreement by the Trustee.
(g) Each Underwriter shall have received evidence satisfactory to such
Underwriter that the Certificates have been rated "Aaa" by Moody's and "AAA" by
Standard & Poor's.
(h) Each Underwriter shall have received from Mayer, Brown & Platt, special
counsel for CPS and the Company, opinions dated the Closing Date, addressed to
such Underwriter, in a form satisfactory to such Underwriter.
(i) Each Underwriter shall have received from Mayer, Brown & Platt, special
Federal tax counsel for the Company, an opinion dated the Closing Date,
addressed to such Underwriter, with respect to the status of the Trust for
federal income tax purposes.
(j) Each Underwriter shall have received from Mayer, Brown & Platt, an
opinion dated the Closing Date, addressed to such Underwriter, with respect to
the validity of the Certificates and such other related matters as such
Underwriter shall require and the Company or CPS shall have furnished or caused
to be furnished to such counsel such documents as they may reasonably request
for the purpose of enabling them to pass upon such matters.
(k) Each Underwriter shall have received from counsel to the Trustee, the
Standby Servicer and the Collateral Agent (which counsel shall be reasonably
acceptable to such Underwriter), an opinion addressed to such Underwriter dated
the Closing Date, in form and substance satisfactory to such Underwriter and its
counsel, Mayer, Brown & Platt.
(l) Each Underwriter shall have received from counsel to the Certificate
Insurer, which counsel shall be reasonably acceptable to such Underwriter, an
opinion addressed to such Underwriter, dated the Closing Date, in form and
substance satisfactory to such Underwriter and its counsel, Mayer, Brown &
Platt.
(m) At the Closing Date, each Underwriter shall have received any and all
opinions of counsel to the Company and CPS supplied to the Rating Agencies and
the Certificate Insurer relating to, among other things, the interest of the
Trustee in the Receivables and the other Trust Assets and the proceeds thereof
and certain monies due or to become due with respect thereto, certain bankruptcy
issues and certain matters with respect to the Certificates. Any such opinions
shall be addressed to each Underwriter or shall indicate that such Underwriter
may rely on such opinions as though they were
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addressed to such Underwriter, and shall be dated the Closing Date.
(n) At the Closing Date, the Company and CPS shall have furnished to each
Underwriter a certificate, dated the Closing Date, of the President or any Vice
President of the Company or CPS, as the case may be, in which each such officer
shall state that: (i) the representations and warranties of the Company or CPS,
as applicable, in this Agreement are true and correct on and as of the Closing
Date; (ii) the Company or CPS, as applicable, has complied with all agreements
and satisfied all conditions on its part required to be performed or satisfied
hereunder and under each of the other Basic Documents at or prior to the Closing
Date; (iii) the representations and warranties of the Company or CPS, as
applicable, in each of the Basic Documents are true and correct as of the dates
specified therein; (iv) the Registration Statement has become effective under
the 1933 Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been taken
or are, to his or her knowledge, contemplated by the Commission; (v) he or she
has carefully examined the Registration Statement and the Final Prospectus and,
in his or her opinion, as of the Effective Date of the Registration Statement,
the statements contained in the Registration Statement were true and correct,
and as of the Closing Date the Registration Statement and the Final Prospectus
do not contain any untrue statement of a material fact or omit to state a
material fact with respect to the Company or CPS necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and since the Effective Date of the Registration Statement, no
event has occurred with respect to the Company or CPS which should have been set
forth in a supplement to or an amendment of the Final Prospectus which has not
been so set forth in such supplement or amendment; and (vi) subsequent to the
respective dates as of which conformation is given in the Registration Statement
and the Final Prospectus, there has been no material adverse change, or any
development with respect to the Company or CPS which could reasonably be
expected to result in a material adverse change, in or affecting particularly
the business or properties of the Trust, the Company or CPS except as
contemplated by the Final Prospectus or as described in such certificate.
(o) Each Underwriter shall have received evidence satisfactory to such
Underwriter that the Certificate Insurer shall have issued the Policy to the
Trustee for the benefit of the Certificateholders in form and substance
satisfactory to such Underwriter.
(p) Each Underwriter shall have received evidence satisfactory to it that,
on or before the Closing Date, the
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Financing Statements have been filed in the office of the Secretary of State of
California reflecting the assignment of the interest of CPS in the Receivables
and the other Trust Assets and the proceeds thereof to the Company, and the
transfer of the interest of the Company in the Receivables and the other Trust
Assets and the proceeds thereof to the Trustee.
(q) All proceedings in connection with the transactions contemplated by
this Agreement, the Pooling and Servicing Agreement and each of the other Basic
Documents and all documents incident hereto or thereto shall be satisfactory in
form and substance to each Underwriter.
(r) The Company shall have furnished to the Underwriters such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the
Underwriters may reasonably have requested.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Underwriters and to Mayer, Brown &
Platt, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Underwriters by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date. In such event, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 6 and 9 hereof).
8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Certificates required to be delivered as and when specified in this Agreement
are subject to the condition that, at the Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
9. INDEMNIFICATION.
(a) The Company and CPS, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its directors, officers, employees and agents and
each person, if any, who controls any Underwriter within the meaning of the 1933
Act or the 1934 Act, against any losses, claims, damages or liabilities
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to which such Underwriter or any such other person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Base Prospectus, any Preliminary
Final Prospectus, the Final Prospectus or any amendment or supplement thereto
(other than information contained therein under the heading "the Certificate
Insurer" and information incorporated by reference therein), or (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse each
Underwriter and each such person within 30 days of presentation for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Certificates, whether or not such Underwriter or such person is
a party to any action or proceeding, upon receipt of a written request therefor;
provided, however, that neither the Company nor CPS will be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, the Base Prospectus, any
Preliminary Final Prospectus, the Final Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to the Company or CPS, as the case may be, by, through or on behalf of
the Underwriters specifically for use in the preparation thereof. This indemnity
agreement will be in addition to any liability which the Company or CPS may
otherwise have. The indemnity agreement of the Company and CPS in this Agreement
is subject to the condition that, insofar as it relates to any untrue statement,
alleged untrue statement, omission or alleged omission made in the Registration
Statement, the Base Prospectus, any Preliminary Final Prospectus or in the Final
Prospectus, or any amendment or supplement thereto, such indemnity agreement
shall not inure to the benefit of any Underwriter if such Underwriter failed to
send or give a copy of the Final Prospectus (as amended or supplemented, if the
Company or CPS, as the case may be, shall have furnished any amendment or
supplement thereto to such Underwriter, which corrected such untrue statement or
omission that is the basis of the loss, liability, claim, damage or expense for
which indemnification is sought) to the person asserting any such loss,
liability, claim, damage or expense at such time as the Final Prospectus, as so
amended or supplemented, was required under the 1933 Act to be delivered to such
person.
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(b) Each Underwriter, severally and not jointly, will indemnify and hold
harmless each of the Company and CPS, each of their directors, officers,
employees and agents and each person, if any, who controls the Company within
the meaning of the 1933 Act or the 1934 Act, to the same extent as the foregoing
indemnity from each of the Company and CPS to any Underwriter, its directors,
officers, employees and agents and each person who controls any such
Underwriter, but only with respect to untrue statements or omissions or alleged
untrue statements or omissions made in the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus, the Final Prospectus, or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company or CPS, as the case may be, by, through or
on behalf of such Underwriter specifically for use in the preparation of the
Registration Statement, the Base Prospectus, any Preliminary Final Prospectus,
the Final Prospectus or any amendment or supplement thereto. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) In case any proceeding (including any governmental investigation) shall
be instituted involving any person in respect of which indemnity may be sought
pursuant to this Section 9, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing. The failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 9(a) or (b), except and only to the extent such omission
so to notify shall have materially prejudiced the indemnifying party under
Section 9(a) or (b). In case any such proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
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<PAGE>
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by the underwriters in the case of parties indemnified
pursuant to Section 9(a) and by the Company in the case of parties indemnified
pursuant to Section 9(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. In addition, the
indemnifying party will not, without the prior written consent of the
indemnified party (which consent shall not be unreasonably withheld or delayed),
settle or compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding of which indemnification may be sought
hereunder (whether or not any indemnified party is an actual or potential party
to such claim, action or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 9 is unavailable to
or insufficient to hold harmless an indemnified party under Section 9(a) or (b)
above in respect of any losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company and CPS on the one hand and the
Underwriters on the other from the offering of the Certificates. If, however,
the allocation provided by the immediately preceding sentence is not permitted
by applicable law then each indemnifying party shall contribute to such amount
paid or payable by such indemnified party in such proportion as is appropriate
to reflect not only such relative benefits but also the relative fault of the
Company or CPS on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
-24-
<PAGE>
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters (in each case as set
forth in the table on the cover page of the Final Prospectus). As between the
Underwriters, the relative benefits received by Alex. Brown & Sons Incorporated,
on the one hand, and Black Diamond Securities, LLC, on the other, shall be
deemed to be in the same proportion as the respective portions of the total
underwriting discounts and commissions received by each of them. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one hand or the Underwriters on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, CPS and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 9(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 9(d). The amount paid
or payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 9(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim, subject to the limitations set forth
above. Notwithstanding the provisions of this Section 9(d), (i) no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Certificates purchased by such
Underwriter and (ii) no person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this Section 9(d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) In any proceeding relating to the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus, the Final Prospectus, or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 9 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon him or it by any other contributing
party and consents to the service of such process and agrees that any other
contributing party may join him
-25-
<PAGE>
or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of each of the Company and CPS set forth in this
Agreement shall remain operative and in full force and effect, regardless of (i)
any investigation made by or on behalf of any Underwriter, the Company or CPS,
their respective directors, officers, employees or agents or any persons
controlling any Underwriter or the Company, (ii) acceptance of any Certificates
and payment thereof or hereunder, and (iii) any termination of this Agreement. A
successor to any Underwriter, the Company or CPS, their respective directors,
officers, employees or agents, or any person controlling any Underwriter, the
Company or CPS, shall be entitled to the benefits of the indemnity, contribution
and reimbursement agreements contained in this Section 9.
10. DEFAULT BY THE UNDERWRITERS.
If on the Closing Date, Black Diamond Securities, LLC shall fail to
purchase and pay for all or any portion of the Certificates which such
Underwriter has agreed to purchase and pay for on such date (otherwise than by
reason of any default on the part of the Company or CPS), then Alex Brown & Sons
Incorporated shall use reasonable efforts to procure within 36 hours thereafter
one or more additional Underwriters to purchase from the Company such amounts as
may be agreed upon and upon the terms set forth herein, the Certificates which
the defaulting Underwriter failed to purchase. If during such 36 hours the
non-defaulting Underwriter shall not have procured one or more additional
Underwriters to purchase the Certificates agreed to be purchased by the
defaulting Underwriter, then (a) if the aggregate amount of Certificates with
respect to which such default shall occur does not exceed 10% of the
Certificates covered hereby, the non-defaulting Underwriter shall be obligated
to purchase the Certificates which such defaulting Underwriter failed to
purchase, or (b) if the aggregate number of shares of Certificates with respect
to which such default shall occur exceeds 10% of the Certificates covered
hereby, the Company or the non-defaulting Underwriter will have the right, by
written notice given within the next 36-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriter or of the Company except to the extent provided in
Section 9 hereof. In the event of a default by Black Diamond Securities, LLC, as
set forth in
-26-
<PAGE>
this Section 10, the Closing Date may be postponed for such period, not
exceeding seven days, as the non-defaulting Underwriter may determine in order
that the required changes in the Registration Statement or in the Final
Prospectus or in any other documents or arrangements may be effected. For
purposes of this Agreement, the term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 10
shall not relieve Black Diamond Securities, LLC from liability in respect of any
default of such Underwriter under this Agreement.
11. NOTICES.
All communications hereunder shall be in writing and, except as otherwise
provided herein, will be mailed, delivered, telecopied or telegraphed and
confirmed as follows:
if to the Underwriters, to each of the following addresses:
Alex. Brown & Sons Incorporated
135 East Baltimore Street
MS 8-8-3
Baltimore, Maryland 21202
Attention: General Counsel
Fax: (410) 783-3028
and
Black Diamond Securities, L.L.C.
230 Park Avenue
New York, New York 10169
Attention: Jeffrey W. Kramer
Fax: (212) 953-6063;
if to the Company, at the following address:
CPS Receivables Corp.
2 Ada
Irvine, California 92718
Attention: Charles Bradley, Jr.
Facsimile No.: (714) 753-6805;
or, if sent to CPS at the following address:
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92718
Attention: Charles Bradley, Jr.
Facsimile No.: (714) 753-6805
-27-
<PAGE>
12. TERMINATION.
This Agreement may be terminated by the Underwriters by notice by each of
the Underwriters to the Company as follows:
(a) at any time prior to the Closing Date, if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Final Prospectus, any material adverse change or
any development involving a prospective material adverse change in the business,
properties, results of operations, financial condition or business prospects of
the Company and the Significant Subsidiary taken as a whole, whether or not
arising in the ordinary course of business, (ii) any outbreak or escalation of
hostilities or declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, escalation, declaration, emergency, calamity,
crisis or change on the financial markets of the United States would, in each of
the Underwriters' reasonable judgment, make it impracticable to market the
Certificates or to enforce contracts for the sale of the Certificates, (iii) any
suspension of trading in securities generally on the New York Stock Exchange or
the American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such Exchange,
(iv) the enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which in
each of the Underwriters' reasonable opinion materially and adversely affects or
may materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) any downgrading or the giving of notice of any intended or
potential downgrading in the rating of the Company's debt securities by any
"nationally recognized statistical rating organization" (as defined for purposes
of Rule 436(g) under the 1934 Act) ; (vii) the suspension of trading of the
Common Stock by the Commission on the New York Stock Exchange or (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in each of the Underwriters' reasonable opinion
has a material adverse effect on the securities markets in the United States; or
(b) as provided in Sections 7 and 10 of this Agreement.
13. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, CPS and the Company and their respective successors, executors,
administrators, heirs and assigns, and the respective affiliates, officers,
directors, employees, agents and
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<PAGE>
controlling persons referred to herein, and no other person will have any right
or obligation hereunder. No purchaser of any of the Certificates from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
14. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in the Registration Statement, the Base Prospectus, any Preliminary
Final Prospectus or the Final Prospectus, or any amendments or supplements
thereto, consists of the information set forth in the last paragraph on the
front cover page concerning the terms of the offering by the Underwriters
(insofar as such information relates to the Underwriters), legends required by
Item 502(d) of Regulation S-K under the 1933 Act and the information under the
caption "Methods of Distribution" in the Registration Statement and under the
caption "Underwriting" in the Final Prospectus.
15. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements contained in
this Agreement and the representations, warranties and covenants in this
Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or the Company, their respective directors, officers, employees or
agents or any controlling person of any Underwriter or the Company indemnified
herein and (c) delivery of and payment for the Certificates under this
Agreement.
Each Underwriter agrees that, prior to the date which is one year and one
day after the payment in full of all securities issued by the Company or by a
trust for which the Company was the depositor, which securities were rated by
any nationally recognized statistical rating organization, it will not institute
against, or join any other person in instituting against, the Company any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings
or other proceedings under any Federal or state bankruptcy or similar law.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York without regard to the conflict of laws provisions
thereof. With respect to any claim arising out of this Agreement (i) each party
irrevocably submits to the exclusive jurisdiction of the courts of the State
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<PAGE>
of New York and the United States District Court for the Southern District of
New York, and (ii) each party irrevocably waives (1) any objection which it may
have at any time to the laying of venue of any suit, action or proceeding
arising out of or relating hereto brought in any such court, (2) any claim that
any such suit, action or proceeding brought in any such court has been brought
in any inconvenient forum and (3) the right to object, with respect to such
claim, suit, action or proceeding brought in any such court, that such court
does not have jurisdiction over such party. To the extent permitted by
applicable law, each Underwriter, the Company and CPS irrevocably waive all
right of trial by jury in any action, proceeding or counterclaim arising out of
or in connection with this Agreement or any matter arising hereunder.
This Agreement supersedes all prior agreements and understandings relating
to the subject matter hereof.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
The headings in this Agreement are for purposes of reference only and shall
not limit or otherwise affect the meaning hereof.
Any provision of this Agreement which is prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non-authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction.
[Rest of page intentionally left blank.]
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<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
CPS RECEIVABLES CORP.
By:
---------------------------------------
Name:
Title:
CONSUMER PORTFOLIO SERVICES, INC.
By:
---------------------------------------
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written:
ALEX. BROWN & SONS INCORPORATED
By:
- -----------------------------------------
Name:
Title:
BLACK DIAMOND SECURITIES, LLC
By:
- -----------------------------------------
Name:
Title:
-31-
<PAGE>
SCHEDULE I
Schedule of Underwriters
<TABLE>
<CAPTION>
Initial
Principal Amount
of the Class A
Certificates to
Underwriter be Purchased Purchase Price
----------- ------------ --------------
<S> <C> <C>
Alex. Brown & Sons $[ ] $[ ]
Incorporated
Black Diamond Securities, [ ] [ ]
LLC
---------- -------
Total $[ ] $[ ]
========== =======
</TABLE>
-32-
EXHIBIT 5.1
<PAGE>
Exhibit 5.1
September __, 1996
Consumer Portfolio Services, Inc.
2 Ada (Suite 100)
Irvine, CA 92718
CPS Receivables Corp.
2 Ada (Suite 100)
Irvine, CA 92718
Re: Consumer Portfolio Services, Inc.
Registration Statement on Form S-3 (No. 333-09343)
We have acted as special counsel to CPS Receivables Corp., a California
corporation (the "Seller"), and Consumer Portfolio Services, Inc., a California
corporation ("CPS"), in connection with the above-referenced Registration
Statement (together with the exhibits and any amendments thereto, the
"Registration Statement"), filed by CPS with the Securities and Exchange
Commission in connection with the registration of the Asset Backed Certificates
(the "Certificates") to be sold from time to time in one or more series in
amounts to be determined at the time of sale and to be set forth in one or more
supplements (each a "Prospectus Supplement") to the Prospectus (the
"Prospectus") included in the Registration Statement.
As described in the Registration Statement, the Certificates of each series
will be issued by a trust (the "Trust") to be formed by the Seller pursuant to a
Pooling and Servicing Agreement (the "Pooling and Servicing Agreement") by and
among the Seller, as seller, CPS, as servicer, and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee") and standby servicer. The
Certificates issued by the Trust will include one or more classes of
certificates.
We are generally familiar with the proceedings required to be taken in
connection with the proposed authorization, issuance and sale of the
Certificates, and in order to express the opinion hereinafter stated, we have
examined copies of the Registration Statement, including the form of Pooling and
Servicing Agreement included as an exhibit to the Registration Statement. We
have examined such other documents and such matters of law, and we
<PAGE>
CPS Receivables Corp.
September __, 1996
Page 3
have satisfied ourselves as to such matters of fact, as we have considered
relevant for purposes of this opinion.
On the basis of the foregoing, it is our opinion that the Certificates,
when, as and if (i) the Registration Statement becomes effective pursuant to the
provisions of the Securities Act of 1933, as amended, (ii) the amount, price,
interest rate and other principal terms of such Certificates have been duly
approved by the Board of Directors of the Seller, (iii) the Pooling and
Servicing Agreement relating thereto has been duly completed, executed and
delivered by the parties thereto substantially in the form we have examined,
duly reflecting the terms established as described above, and (iv) such
Certificates have been duly issued by the applicable Trust and authenticated by
the applicable Trustee all in accordance with the terms and conditions of the
Pooling and Servicing Agreement and sold by the Seller in the manner described
in the Registration Statement, such Certificates will have been duly authorized
by all necessary action of the Trustee on behalf of the Trust and will have been
legally issued, fully paid and non-assessable and will be enforceable in
accordance with their terms and entitled to the benefits of the Pooling and
Servicing Agreement except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally (including, without limitation, the determination
pursuant to 12 USC ss. 1821(e) of any liability for the disaffirmance or
repudiation of any contract) or the relief of debtors, as may be in effect from
time to time, or by general principles of equity.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of securities or
"Blue Sky" laws of the various states to the offer of sale of the Securities.
We wish to advise you that we are members of the bar of the State of New
York and the opinions expressed herein are limited to the laws of the State of
New York and the federal laws of the United States.
<PAGE>
CPS Receivables Corp.
September __, 1996
Page 4
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, and to the reference to our firm in the Prospectus under
the caption "Legal Opinions".
Sincerely,
EXHIBIT 8.1
<PAGE>
Exhibit 8.1
September __,1996
Consumer Portfolio Services, Inc.
2 Ada (Suite 100)
Irvine, CA 92718
CPS Receivables Corp.
2 Ada (Suite 100)
Irvine, CA 92718
Re: Consumer Portfolio Services, Inc.
Registration Statement on Form S-3 (No. 333-09343)
Ladies and Gentlemen:
We have acted as special counsel to CPS Receivables Corp., a California
corporation (the "Seller"), and Consumer Portfolio Services, Inc., a California
corporation ("CPS"), in connection with the above-referenced Registration
Statement (together with the exhibits and any amendments thereto, the
"Registration Statement") filed by the Servicer with the Securities and Exchange
Commission in connetion with the registration by the Servicer of Asset Backed
Certificates (the "Certificates") to be sold from time to time in one or more
series in amounts to be determined at the time of sale and to be set forth in
one or more Supplements (each, a "Prospectus Supplement") to the Prospectus (the
"Prospectus") included in the Registration Statement.
In connection with our engagement, we have examined and relied upon (i) the
Prospectus, (ii) the Pooling and Servicing Agreement filed as an exhibit to the
Registration Statement, and (iii) such other documents as we have deemed
necessary. In addition, we have examined and considered executed originals or
counterparts, or certified or other copies identified to our satisfaction as
being true copies of such certificates, instruments, documents and other
corporate records of the Seller and such matters of fact and law as we have
deemed necessary for the purposes of the opinion expressed below. Capitalized
terms
<PAGE>
The Parties Listed on
Schedule I attached hereto
September __, 1996
Page 3
used and not otherwise defined herein have the meanings given to them in the
Pooling and Servicing Agreement.
In our examination we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified or photostatic
copies, and the authenticity of the originals of such latter documents. As to
any facts material to the opinions expressed herein which were not independently
established or verified, we have relied upon statements and representations of
officers and representatives of the Seller, CPS, and others.
In rendering our opinion, we have also considered and relied upon the
Internal Revenue Code of 1986, as amended, administrative rulings, judicial
decisions, regulations, and such other authorities, all in effect on the date
this opinion letter is delivered, as we have deemed appropriate. The statutory
provisions, regulations, interpretations and other authorities upon which our
opinion is based are subject to change, and such changes could apply
retroactively. In addition, there can be no assurance that positions contrary to
those stated in our opinion will not be taken by the Internal Revenue Service
("IRS"). No tax rulings will be sought from the IRS with respect to any of the
matters discussed herein.
We express no opinion as to the laws of any jurisdiction other than the
federal laws of the United States of America to the extent specifically referred
to herein.
Based on and subject to the foregoing and assuming that the Pooling and
Servicing Agreement is executed and delivered in substantially the form we have
examined, we hereby confirm that the statements described to be our legal
opinions in the Prospectus under the heading "Certain Federal Income Tax
Consequences" constitute our opinions as to the material federal income tax
consequences discussed therein. There can be no assurance, however, that the tax
conclusions presented therein will not be successfully challenged by the IRS, or
significantly altered by new legislation, changes in IRS positions or judicial
decisions, any of which challenges or alterations may be applied retroactively
with respect to completed transactions.
<PAGE>
The Parties Listed on
Schedule I attached hereto
September __, 1996
Page 4
Except for the opinion expressed above, we express no opinion as to any
other tax consequences of the transaction to any party under federal, state,
local, or foreign laws.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name under the headings "Summary --
Tax Status" and "Certain Federal Income Tax Consequences" in the Prospectus.
Very truly yours,
