As filed with the Securities and Exchange Commission on September 18, 1998
Registration No. [ ]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
CPS AUTO RECEIVABLES TRUSTS
(Issuer of the Securities)
CONSUMER PORTFOLIO SERVICES, INC.
(Originator of the Trust described herein)
(Exact name of registrant as specified in its charter)
California 33-0459135
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
2 Ada, Suite 100
Irvine, California 92618
(714) 753-6800
(Address, including zip code, and
telephone number, including area code,
of registrant's principal executive
offices)
Charles E. Bradley, Jr.
Consumer Portfolio Services, Inc.
2 Ada, Suite 100
Irvine, California 92618
(714) 753-6800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Laura A. DeFelice, Esq.
MAYER, BROWN & PLATT
1675 Broadway
New York, New York 10019
(212) 506-2500
Approximate date of commencement of proposed sale to the public:
From time to time on or after the effective date of this registration
statement, as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
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. [X]
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
Amount of
Title of securities to Amount to be Proposed maximum Proposed maximum registration
be registered registered offering price per certificate* aggregate offering price* fee**
---------------------- ------------ ------------------------------- ------------------------- ------------
<S> <C> <C> <C> <C>
Asset Backed Notes,
Class A $750,000,000 100% $750,000,000 $196,387.79
</TABLE>
* Estimated solely for the purpose of calculating the registration fee.
** The amount of Asset Backed Notes being carried forward from
Registration Statement No. 333-25301 pursuant to Rule 429 is
$180,475,401.40, and the registrant previously paid a filing fee with
respect to such notes of $62,232.90 (calculated at the rate of 1/29 of
1% of the amount of notes being registered, the rate in effect at the
time such Registration Statement was filed).
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.
<PAGE>
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating
to the offering of Series of Asset Backed Notes by various CPS Auto Receivables
Trusts created from time to time by Consumer Portfolio Services, Inc., (ii) a
form of Prospectus Supplement (Form A) relating to future offerings by a CPS
Auto Receivables Trust of a Series of Asset Backed Securities described therein,
and (iii) a form of Prospectus Supplement (Form B) relating to the offering by
CPS Auto Receivables Trust 1998-4 of the particular Series of Asset Backed Notes
described therein. The forms of Prospectus Supplement relate only to the
securities described therein and are forms that may be used, among others, by
Consumer Portfolio Services, Inc. to offer Asset Backed Securities under this
Registration Statement.
<PAGE>
PROSPECTUS
CPS Auto Receivables Trusts
Auto Receivables Backed Notes and Certificates Issuable in Series
CPS Receivables Corp.
Seller
Consumer Portfolio Services
Sponsor and Servicer
This Prospectus describes certain Auto Receivables Backed Notes (the
"Notes") and Auto Receivables Backed Certificates (the "Certificates" and,
together with the Notes, the "Securities") that may be sold from time to time in
one or more series (each a "Series"), in amounts, at prices and on terms to be
determined at the time of sale and to be set forth in a supplement to this
Prospectus (each, a "Prospectus Supplement"). Each Series of Securities may
include one or more classes of Notes and one or more classes of Certificates,
which will be issued by a trust to be formed by the Seller for the purpose of
issuing one or more Series of such Securities (each, a "Trust"). A Trust issuing
Securities as described in this Prospectus and the related Prospectus Supplement
shall be referred to herein as the "Issuer."
Each class of Securities of any Series will evidence beneficial ownership
in a segregated pool of assets (the "Trust Assets") (such Securities,
Certificates) or will represent indebtedness of the Issuer secured by the Trust
Assets (such Securities, Notes), as described herein and in the related
Prospectus Supplement. The Trust Assets may consist of any combination of retail
installment sales contracts between manufacturers, dealers or certain other
originators and retail purchasers including purchasers who are Sub-Prime
Borrowers (as defined herein). See "CPS Automobile Contract Portfolio." The
Trust Assets will be secured by new and used automobiles, light trucks, vans and
minivans financed thereby, and originated by CPS or an Affiliated Originator,
together with all moneys received relating thereto (the "Contracts"). The Trust
Assets will also include a security interest in the underlying new and used
automobiles light trucks, vans and minivans and property relating thereto,
together with the proceeds thereof (the "Financed Vehicles" together with the
Contracts, the "Receivables"). If and to the extent specified in the related
Prospectus Supplement, credit enhancement with respect to the Trust Assets or
any class of Securities may include any one or more of the following: a
financial guaranty insurance policy (a "Policy") issued by an insurer specified
in the related Prospectus Supplement, a reserve account, letters of credit,
credit or liquidity facilities, third party payments or other support, cash
deposits or other arrangements. In addition to or in lieu of the foregoing,
credit enhancement may be provided by means of subordination, cross-support
among the Receivables or over-collateralization. See "Description of the Trust
Documents -- Credit and Cash Flow Enhancement." Except to the extent that a
Prospectus Supplement for a series provides for a pre-funding period, the
Receivables included in the Trust Assets for a Series will have been originated
or acquired by CPS or an Affiliated Originator on or prior to the date of
issuance of the related Securities, as described herein and in the related
Prospectus Supplement. The Receivables included in a Trust will be serviced by a
servicer (the "Servicer") as described in the related Prospectus Supplement.
Each Series of Securities may include one or more classes (each, a
"Class"). A Series may include one or more Classes of Securities entitled to
principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or
no principal distributions. The rights of one or more Classes of Securities of
any Series may be senior or subordinate to the rights of one or more of the
other Classes of Securities. A Series may include two or more Classes of
Securities which may differ as to the timing, order or priority of payment,
interest rate or amount of distributions of principal or interest or both.
Information regarding each Class of Securities of a Series, together with
certain characteristics of the related Receivables, will be set forth in the
related Prospectus Supplement. The rate of payment in respect of principal of
the Securities of any Class will depend on the priority of payment of such Class
and the rate and timing of payments (including prepayments, defaults,
liquidations or repurchases of Receivables) on the related Receivables. A rate
of payment lower or higher than that anticipated may affect the weighted average
life of each Class of Securities in the manner described herein and in the
related Prospectus Supplement. See "Description of the Securities."
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FACTORS SET FORTH UNDER "RISK
FACTORS" BEGINNING ON PAGE 13 HEREIN AND IN THE RELATED PROSPECTUS SUPPLEMENT.
THE NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT
REPRESENT OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR
RESPECTIVE AFFILIATES. THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL
INTERESTS IN THE RELATED TRUST ONLY AND DO NOT REPRESENT INTERESTS IN OR
OBLIGATIONS OF CPS, ANY SELLER, ANY SERVICER OR ANY OF THEIR RESPECTIVE
AFFILIATES. NEITHER THE SECURITIES NOR THE UNDERLYING RECEIVABLES WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY CPS,
ANY SELLER, ANY SERVICER, ANY TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES,
EXCEPT AS SET FORTH IN THE RELATED PROSPECTUS SUPPLEMENT. THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offers of the Securities may be made through one or more different
methods, including offerings through underwriters as more fully described under
"Plan of Distribution" herein and in the related Prospectus Supplement. Prior to
issuance, there will have been no market for the Securities of any Series, and
there can be no assurance that a secondary market for the Securities will
develop, or if it does develop, it will continue.
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of Securities unless accompanied by a Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 18, 1998
<PAGE>
PROSPECTUS SUPPLEMENT
The Prospectus Supplement relating to a Series of Securities to be
offered hereunder, among other things, will set forth with respect to such
Series of Securities: (i) a description of the Class or Classes of such
Securities, (ii) the rate of interest, the "Interest Rate" or other applicable
rate (or the manner of determining such rate) and authorized denominations of
each Class of such Securities; (iii) certain information concerning the
Receivables and insurance polices, cash accounts, letters of credit, financial
guaranty insurance policies, third party guarantees or other forms of credit
enhancement, if any, relating to one or more pools of Receivables or all or part
of the related Securities; (iv) the specified interest, if any, of each Class of
Securities in, and manner and priority of, the distributions from the Trust
Assets; (v) information as to the nature and extent of subordination with
respect to such Series of Securities, if any; (vi) the payment date to
Securityholders; (vii) information regarding the Servicer(s) for the related
Receivables; (viii) the circumstances, if any, under which the Trust Assets may
be subject to early termination; (ix) information regarding tax considerations;
and (x) additional information with respect to the method of distribution of
such Securities.
AVAILABLE INFORMATION
This Prospectus, together with the Prospectus Supplement for each Series
of Securities, contains a summary of the material terms of the applicable
exhibits to the Registration Statement and the documents referred to herein and
therein. Copies of such exhibits are on file at the offices of the Securities
and Exchange Commission (the "Commission") in Washington, D.C., and may be
obtained at rates prescribed by the Commission upon request to the Commission
and may be inspected, without charge, at the Commission's offices.
The Sponsor has also filed with the Commission a Registration Statement
(together with all amendments and exhibits thereto, referred to herein as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at the Commission's regional offices at 500 West Madison, 14th Floor,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of the Registration Statement may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a web site at
http://www.sec.gov containing reports, proxy statements, information statements
and other information regarding registrants, including CPS, that file
electronically with Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Securities offered
hereby and thereby, nor an offer of the Securities to any person in any state or
other jurisdiction in which such offer would be unlawful. The delivery of this
Prospectus at any time does not imply that information herein is correct as of
any time subsequent to its date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by the Sponsor with respect to the
Registration Statement, either on its own behalf or on behalf of a Trust,
relating to any Series of Securities referred to in the accompanying Prospectus
Supplement, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the
date of this Prospectus and prior to the termination of any offering of the
Securities issued by the Issuer, shall be deemed to be incorporated by reference
in this Prospectus and to be a part of this Prospectus from the date of the
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
2
<PAGE>
statement contained herein (or in the accompanying Prospectus Supplement) or in
any other subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
REPORTS TO SECURITYHOLDERS
So long as the Securities of a Series are in book-entry form, monthly and
annual reports concerning the Securities and the Trust will be sent by the
applicable Trustee to Cede & Co., as the nominee of DTC and as registered holder
of the Securities pursuant to the related Indenture. DTC will supply such
reports to Securityholders in accordance with its procedures. To the extent
required by the Securities Exchange Act of 1934, as amended, each Trust will
provide financial information to the Securityholders which has been examined and
reported upon, with an opinion expressed by, an independent public accountant;
to the extent not so required, such financial information will be unaudited.
Each Trust will be formed to own the Receivables, hold and administer the
Pre-Funding Account, if any, to issue the Securities and to acquire the
Subsequent Receivables, if available. No Trust will have any assets or
obligations prior to issuance of the Securities and no Trust will engage in any
activities other than those described herein. Accordingly, no financial
statements with respect to the related Trust will be included in any Prospectus
Supplement.
3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus and by reference to
the information with respect to the Securities of any Series contained in the
related Prospectus Supplement to be prepared and delivered in connection with
the offering of such Securities. Certain capitalized terms used in the summary
are defined elsewhere in the Prospectus on the pages indicated in the "Index of
Terms."
Issuer..............................With respect to any Series of Securities, a
trust (each, a "Trust") to be formed
pursuant to a trust agreement (the "Trust
Agreement" ) between the Seller and the
trustee for such trust. A Trust issuing
Securities pursuant to this Prospectus and
the related Prospectus Supplement shall be
referred to herein as the "Issuer" with
respect to the related Securities.
Seller..............................CPS Receivables Corp. or another
special-purpose subsidiary of CPS (each, a
"Seller"). See "The Seller and CPS."
Sponsor.............................Consumer Portfolio Services, Inc. ("CPS" or
the "Sponsor"). See "CPS's Automobile
Contract Portfolio" and "The Seller and
CPS."
Servicer............................The entity named as Servicer in the related
Prospectus Supplement (the "Servicer"). Each
Prospectus Supplement will specify whether
the Servicer will service the Receivables in
the related Receivables Pool directly or
indirectly through one or more subservicers
(each, a "Subservicer").
Trustee.............................The Trustee for each Series of Securities
will be specified in the related Prospectus
Supplement. In addition, a Trust may
separately enter into an Indenture and may
issue Notes pursuant to such Indenture; in
any such case, the Trust and the Indenture
will be administered by separate,
independent trustees as required by the
rules and regulations under the Trust
Indenture Act of 1939 and the Investment
Company Act of 1940.
The Securities......................Each Class of Securities of any Series will
either evidence beneficial interests in a
segregated pool of assets (the "Trust
Assets") (such Securities, "Certificates")
or will represent indebtedness of the Trust
secured by the Trust Assets (such
Securities, "Notes"), as described herein
and in the related Prospectus Supplement.
With respect to Securities that represent
debt issued by the Trust, the Trust will
enter into an indenture (each, an
"Indenture") by and between the Trust and
the trustee named in such Indenture (the
"Indenture Trustee" or "Trustee"). Each
Indenture will describe the related pool of
Receivables comprising the Trust Assets and
securing the debt issued by the related
Issuer. The Receivables comprising the Trust
Assets will be serviced by the Servicer
pursuant to a servicing agreement (each, a
"Servicing Agreement") by and between the
Servicer and the related Issuer. In the case
of the Trust Assets of any class of
Securities, the contractual arrangements
relating to the establishment of a Trust, if
any, the servicing of the related
Receivables and the issuance of the related
4
<PAGE>
Securities may be contained in a single
agreement, or in several agreements which
combine certain aspects of the Trust
Agreement, the Servicing Agreement and the
Indenture described above (for example, a
servicing and collateral management
agreement). For purposes of this Prospectus,
the term "Trust Documents" as used with
respect to Trust Assets means, collectively,
and except as otherwise described in the
related Prospectus Supplement, any and all
agreements relating to the establishment of
a Trust, if any, the servicing of the
related Receivables and the issuance of the
related Securities. The term "Trustee" means
any and all persons acting as a trustee
pursuant to a Trust Agreement.
Securities Will Be Non-Recourse. The
Securities will not be obligations, either
recourse or non-recourse, of CPS, any
Seller, the related Servicer or any person
other than the related Issuer. The Notes of
a given Series represent obligations of the
Issuer, and the Certificates of a given
Series represent beneficial interests in the
related Issuer only and do not represent
interests in or obligations of CPS, any
Seller, the related Servicer or any of their
respective affiliates other than the related
Issuer. In the case of Securities that
represent beneficial ownership interest in
the related Issuer, such Securities will
represent the beneficial ownership interests
in such Issuer and the sole source of
payment will be the assets of such Issuer.
In the case of Securities that represent
debt issued by the related Issuer, such
Securities will be secured by assets in the
related Trust Assets. Notwithstanding the
foregoing, and as to be described in the
related Prospectus Supplement, certain types
of credit enhancement, such as a letter of
credit, financial guaranty insurance policy
or reserve fund may constitute a full
recourse obligation of the issuer of such
credit enhancement.
General Payment Terms of Securities. As
provided in the related Trust Documents and
as described in the related Prospectus
Supplement, the holders of the Securities
("Securityholders") will be entitled to
receive payments on their Securities on
specified dates (each, a "Payment Date").
Payment Dates with respect to Securities
will occur monthly, quarterly or
semi-annually, as described in the related
Prospectus Supplement. The related
Prospectus Supplement will describe a date
(the "Record Date") preceding such Payment
Date, as of which the Trustee or its paying
agent will fix the identity of the
Securityholders for the purpose of receiving
payments on the next succeeding Payment
Date. As described in the related Prospectus
Supplement, the Payment Date will be a
specified day of each month, (or, in the
case of quarterly-pay Securities, a
specified day of every third month; and in
the case of semi-annual pay Securities, a
specified day of every sixth month) and the
Record Date will be the close of business as
of a specified day preceding such Payment
Date. Each Indenture and Trust Agreement
will describe a period (each, a "Collection
Period") preceding each Payment Date (for
example, in the case of monthly-pay
Securities, the calendar month preceding the
month in which a Payment Date occurs). As
more fully described in the related
Prospectus Supplement, collections
5
<PAGE>
received on or with respect to the related
Receivables constituting Trust Assets during
a Collection Period will be required to be
remitted by the Servicer to the related
Trustee prior to the related Payment Date
and will be used to fund payments to
Securityholders on such Payment Date. As may
be described in the related Prospectus
Supplement, the related Trust Documents may
provide that all or a portion of the
payments collected on or with respect to the
related Receivables may be applied by the
related Trustee to the acquisition of
additional Receivables during a specified
period (rather than be used to fund payments
of principal to Securityholders during such
period), with the result that the related
Securities will possess an interest-only
period, also commonly referred to as a
revolving period, which will be followed by
an amortization period. Any such interest
only or revolving period may, upon the
occurrence of certain events to be described
in the related Prospectus Supplement,
terminate prior to the end of the specified
period and result in the earlier than
expected amortization of the related
Securities. In addition, and as may be
described in the related Prospectus
Supplement, the related Trust Documents may
provide that all or a portion of such
collected payments may be retained by the
Trustee (and held in certain Eligible
Investments, including Receivables) for a
specified period prior to being used to fund
payments of principal to Securityholders.
Such retention and temporary investment by
the Trustee of such collected payments may
be required by the related Trust Documents
for the purpose of (a) slowing the
amortization rate of the related Securities
relative to the installment payment schedule
of the related Receivables, or (b)
attempting to match the amortization rate of
the related Securities to an amortization
schedule established at the time such
Securities are issued. Any such feature
applicable to any Securities may terminate
upon the occurrence of events to be
described in the related Prospectus
Supplement, resulting in distributions to
the specified Securityholders and an
acceleration of the amortization of such
Securities. As more fully specified in the
related Prospectus Supplement, neither the
Securities nor the underlying Receivables
will be guaranteed or insured by any
governmental agency or instrumentality or
CPS, any Seller, the related Servicer, any
Trustee, or any of their respective
affiliates.
Each Series of Securities will be issued
pursuant to the related Indenture, in the
case of the Notes, and pursuant to the
related Trust Agreement, in the case of the
Certificates. The related Prospectus
Supplement will specify which Class or
Classes of Securities of the related Series
are being offered thereby. Each Class of
Securities will have a stated security
balance (the "Security Balance") and will
accrue interest on such Security Balance at
a specified rate (with respect to each Class
of Securities the "Interest Rate") as set
forth in the related Prospectus Supplement.
Each Class of Securities may have a
different Interest Rate, which may be a
fixed, variable or adjustable Interest Rate,
or any combination of the foregoing. The
related Prospectus
6
<PAGE>
Supplement will specify the Interest Rate,
or the method for determining the applicable
Interest Rate, for each Class of Securities.
A Series of Securities may include two or
more Classes of Securities that differ as to
timing and priority of distributions,
seniority, allocations of losses, Interest
Rate or amount of distributions in respect
of principal or interest. Additionally,
distributions in respect of principal or
interest in respect of any such Class or
Classes may or may not be made upon the
occurrence of specified events or on the
basis of collections from designated
portions of the related Receivables Pool. If
specified in the related Prospectus
Supplement, one or more Classes of
Securities ("Strip Securities") may be
entitled to (i) principal distributions with
disproportionate, nominal or no interest
distributions or (ii) interest distributions
with disproportionate, nominal or no
principal distributions. If specified in the
related Prospectus Supplement a Series may
include one or more Classes of Securities
("Accrual Securities"), as to which certain
accrued interest will not be distributed but
rather will be added to the principal
balance (or nominal balance, in the case of
Accrual Securities which are also Strip
Securities) thereof on each Payment Date or
in the manner described in the related
Prospectus Supplement. If so provided in the
related Prospectus Supplement, a Series may
include one or more other Classes of
Securities (collectively, the "Senior
Securities") that are senior to one or more
other Classes of Securities (collectively,
the "Subordinate Securities") in respect of
certain distributions of principal and
interest and allocations of losses on
Receivables. In addition, certain Classes of
Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or
Subordinate) Securities in respect of such
distributions or losses. See "Description of
the Securities --General Payment Terms of
the Securities."
Securities will be available for purchase in
the minimum denomination specified in the
related Prospectus Supplement and will be
available in book-entry form unless the
related Prospectus Supplement provides only
for Definitive Securities. Securityholders
will only be able to receive Definitive
Securities in the limited circumstances
described herein or in the related
Prospectus Supplement. See "Description of
the Securities -- Definitive Notes".
If the Servicer or any Subservicer exercises
its option to purchase the Receivables of a
Trust (or if not and, if and to the extent
provided in the related Prospectus
Supplement, satisfactory bids for the
purchase of such Receivables are received),
in the manner and on the respective terms
and conditions described under "Description
of the Trust Documents -- Termination," the
Securities will be prepaid as set forth in
the related Prospectus Supplement. In
addition, if the related Prospectus
Supplement provides that the property of a
Trust will include a Pre-Funding Account
that will be used to purchase additional
Receivables after
7
<PAGE>
the applicable Closing Date, one or more
Classes of Securities may be subject to a
partial prepayment of principal at or
immediately following the end of the period
specified in such Prospectus Supplement for
the purchase of such additional Receivables,
in the manner and to the extent specified in
the related Prospectus Supplement.
The Residual Interest...............With respect to each Trust, the "Residual
Interest" at any time represents the rights
to the related Trust Assets in excess of the
Securityholders' interest of all Series then
outstanding that were issued by such Trust.
The Residual Interest in any Trust Assets
will fluctuate as the aggregate Pool Balance
(as hereinafter defined) of such Trust
changes from time to time. A portion of the
Residual Interest in any Trust may be sold
separately in one or more public or private
transactions.
Cross-Collateralization.............As described in the related Trust Documents
and the related Prospectus Supplement, the
source of payment for Securities of each
Series will be the assets of the related
Trust only. However, as may be described in
the related Prospectus Supplement, a Series
or Class of Securities may include the right
to receive moneys from a common pool of
credit enhancement which may be available
for more than one Series of Securities, such
as a master reserve account, master
insurance policy or a master collateral pool
consisting of similar Receivables.
Notwithstanding the foregoing, and as
described in the related Prospectus
Supplement, no payment received on any
Receivable held by any Trust may be applied
to the payment of Securities issued by any
other Trust (except to the limited extent
that certain collections in excess of the
amounts needed to pay the related Securities
may be deposited in a common master reserve
account or an overcollateralization account
that provides credit enhancement for more
than one Series of Securities issued
pursuant to the related Trust Documents).
Trust Assets........................The property of each Trust will include a
pool of simple interest or Rule of 78's
motor vehicle installment sale contracts or
motor vehicle installment loans secured by
new and used automobiles, light trucks, vans
and minivans (the "Receivables"), including
the right to receive payments received or
due on or with respect to such Receivables
on or after the date or dates specified in
the related Prospectus Supplement (each, a
"Cutoff Date"), security interests in the
vehicles financed thereby (the "Financed
Vehicles"), and any proceeds from claims
under certain related insurance policies.
See "The Receivables--The Receivables." On
the date of issuance of a Series of
Securities specified in the related
Prospectus Supplement (the "Closing Date"
for such Series), the applicable Seller will
convey Receivables having the aggregate
principal balance specified in such
Prospectus Supplement as of the Cutoff Date
specified therein to such Trust pursuant to
a sale and servicing agreement (the "Sale
and Servicing Agreement") among the Seller,
the Servicer and the Trustee of such Trust.
The property of each Trust also will include
amounts on deposit in, or certain rights
with respect to, certain trust
8
<PAGE>
accounts, including the related Collection
Account, any Pre-Funding Account and any
other account identified in the applicable
Prospectus Supplement. See "Description of
the Trust Documents--Accounts."
If the related Prospectus Supplement
provides that the property of a Trust will
include moneys, in any case not to exceed
34% of the Trust's Assets or 25% of the
Certificate Balance, if any, initially
deposited into an account (a "Pre-Funding
Account"), such moneys will be used to
purchase additional Receivables after the
Closing Date, the Seller will be obligated
pursuant to the Sale and Servicing Agreement
to sell additional Receivables (the
"Subsequent Receivables") to the related
Trust, subject only to the availability
thereof, having an aggregate principal
balance approximately equal to the amount
deposited to the Pre-Funding Account on the
Closing Date (the "Pre-Funded Amount"), and
the Trust will be obligated to purchase such
Subsequent Receivables (subject to the
satisfaction of certain conditions set forth
in the related Trust Documents) from time to
time during the period (the "Funding
Period"), not to exceed 6 months, specified
in such Prospectus Supplement for the
purchase of such Subsequent Receivables. Any
Subsequent Receivables conveyed to a Trust
will have been acquired by the Seller,
directly or indirectly, from CPS or a
subsidiary of CPS (such subsidiary, an
"Affiliated Originator") and will meet all
of the credit, underwriting and other
criteria set forth herein and in the related
Prospectus Supplement. Any funds on deposit
in the Pre-Funding Account and not yet
invested in Subsequent Receivables will be
invested in Permitted Investments. See "Risk
Factors--Varying Characteristics of
Subsequent Receivables," "The Receivables,"
and "Description of the Trust
Documents--Sale and Assignment of
Receivables" herein and "The Receivables
Pool" in the related Prospectus Supplement.
As used in this Prospectus, the term
Receivables will include the Receivables
transferred to a Trust on the related
Closing Date (such Receivables, the "Initial
Receivables") as well as any Subsequent
Receivables transferred to such Trust during
the related Funding Period, if any.
Amounts on deposit in any Pre-Funding
Account during the related Funding Period
will be invested by the Trustee (as directed
by the Servicer) in Eligible Investments,
and any resultant investment income, less
any related investment expenses ("Investment
Income"), will be added, on the Payment Date
immediately following the date on which such
Investment Income is paid to the Trust, to
interest collections on the Receivables for
the related Collection Period and
distributed in the manner specified in the
related Prospectus Supplement. Any funds
remaining in a Pre-Funding Account at the
end of the related Funding Period will be
distributed as a prepayment or early
distribution of principal to holders of one
or more classes of the Securities of the
related Series of Securities, in the amounts
and in accordance with the payment
priorities specified in the related
Prospectus Supplement.
9
<PAGE>
Such distribution may affect the yield
realized by Securityholders and
Securityholders may not be able to reinvest
those funds in investments realizing
comparable returns. See "Risk
Factors--Distribution of Pre-Funded
Amount--Effect on Yield and Maturity."
Registration of Securities..........Securities may be represented by global
securities registered in the name of Cede &
Co. ("Cede"), as nominee of The Depository
Trust Company ("DTC"), or another nominee of
DTC. In such case, Securityholders will not
be entitled to receive definitive securities
representing such Securityholders'
interests. See "Description of the
Securities--Book-Entry Registration" herein.
Credit and Cash Flow
Enhancement......................If and to the extent specified in the
related Prospectus Supplement, credit
enhancement with respect to the Trust Assets
or any Class of Securities may include any
one or more of the following: subordination
of one or more other classes of Securities
of the same Series, reserve funds, spread
accounts, surety bonds, insurance policies,
letters of credit, credit or liquidity
facilities, cash collateral accounts,
over-collateralization, guaranteed
investment contracts, swaps or other
interest rate protection agreements,
repurchase obligations, other agreements
with respect to third party payments or
other support, cash deposits, or other
arrangements. To the extent specified in the
related Prospectus Supplement, a form of
credit enhancement with respect to a Trust
or a Class or Classes of Securities may be
subject to certain limitations and
exclusions from coverage thereunder.
Repurchase Obligations and the
Receivables Acquisition
Agreement........................As more fully described in the related
Prospectus Supplement, CPS will be obligated
to acquire from the related Trust Assets any
Receivable which was transferred pursuant to
a Sale and Servicing Agreement or Purchase
Agreement or pledged pursuant to an
Indenture if the interest of the
Securityholders therein is materially
adversely affected by a breach of any
representation or warranty made by CPS with
respect to such Receivable, which breach has
not been cured. In addition, if so specified
in the related Prospectus Supplement, CPS
may from time to time reacquire certain
Receivables of the Trust Assets, subject to
specified conditions set forth in the
related Trust Documents.
Servicer's Compensation.............The Servicer shall be entitled to receive a
fee for servicing the Trust Assets equal to
a specified percentage of the value of such
Trust Assets, as set forth in the related
Prospectus Supplement. See "Description of
the Trust Documents -- Servicing
Compensation" herein and in the related
Prospectus Supplement.
Optional Termination................The Servicer, CPS, or, if specified in the
related Prospectus Supplement, certain other
entities may, at their respective options,
effect early retirement of a Series of
Securities under the circumstances and in
the manner set forth herein under
10
<PAGE>
"Description of The Trust
Documents--Termination" and in the related
Prospectus Supplement.
Mandatory Termination...............The Trustee, the Servicer or certain other
entities specified in the related Prospectus
Supplement may be required to effect early
retirement of all or any portion of a Series
of Securities by soliciting competitive bids
for the purchase of the Trust Assets or
otherwise, under the circumstances and in
the manner specified in "Description of The
Trust Documents--Termination" and in the
related Prospectus Supplement.
Tax Considerations..................Upon the issuance of each series of
Securities, unless the related Prospectus
Supplement does not so provide, Federal Tax
Counsel to the applicable Trust will deliver
an opinion to the effect that, for Federal
income tax purposes: (i) either (x) the
Notes of such series will be characterized
as debt or (y) the Notes of such series
should be characterized as debt (but if not
characterized as debt, the Notes of such
series will be characterized as interests in
a partnership) and (ii) such Trust will not
be characterized as an association (or
publicly traded partnership) taxable as a
corporation. Each Noteholder, by the
acceptance of a Note of a given series, will
agree to treat such Note as indebtedness,
and each Certificateholder, by the
acceptance of a Certificate of a given
series, will agree to treat the related
Trust as a partnership in which such
Certificateholder is a partner, for Federal
income tax purposes. Alternative
characterizations of such Trust and such
Certificates are possible, but would not
result in materially adverse tax
consequences to Certificateholders. See
"Certain Federal Income Tax Consequences"
for additional information concerning the
application of Federal income tax laws to
the Notes and Certificates of a series and
to the applicable Trust.
ERISA Considerations................The Prospectus Supplement for each Series of
Securities will summarize, subject to the
limitations discussed therein,
considerations under the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), relevant to the purchase of such
Securities by employee benefit plans and
individual retirement accounts. See "ERISA
Considerations" in the related Prospectus
Supplement.
Ratings.............................Each Class of Securities offered pursuant to
this Prospectus and the related Prospectus
Supplement will be rated in one of the four
highest rating categories by one or more
"national statistical rating organizations",
as defined in the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and
commonly referred to as "Rating Agencies."
Such ratings will address, in the opinion of
such Rating Agencies, the likelihood that
the Issuer will be able to make timely
payment of all amounts due on the related
Securities in accordance with the terms
thereof. Such ratings will neither address
any prepayment or yield considerations
applicable to any Securities nor constitute
a recommendation to buy, sell or hold any
Securities. The ratings expected to be
received with respect to any Securities will
be set forth in the related Prospectus
Supplement.
11
<PAGE>
RISK FACTORS
Prospective Securityholders should consider, among other things, the
following factors in connection with the purchase of the Securities:
Sub-Prime Obligors. The Obligors on the Receivables to be conveyed to a
Trust will include "sub-prime" borrowers who have limited or adverse credit
histories, low income or past credit problems and, therefore, are unable to
obtain financing from traditional sources of consumer credit. The average
interest rate charged by CPS to such "sub-prime" borrowers is generally higher
than that charged to more creditworthy customers. The payment experience on
receivables of obligors with this credit profile is likely to be different from
that on receivables of traditional auto financing sources in that default rates
are likely to be higher. In addition, the payment experience on such receivables
is likely to be more sensitive to changes in the economic climate in the areas
in which such obligors reside. As a result of the credit profile of the obligors
and the APRs of such receivables, the historical credit loss and delinquency
rates on such receivables are generally higher than those experienced by banks
and the captive finance companies of the automobile manufacturers.
Effect of Social, Economic and Other Factors on Losses. The ability of the
Obligors to make payments on the Receivables, as well as the prepayment
experience thereon, will be affected by a variety of social and economic
factors. Economic factors include interest rates, unemployment levels, the rate
of inflation and consumer perceptions of economic conditions generally. However,
the Seller is unable to determine and has no basis to predict whether or to what
extent economic or social factors will affect the Receivables.
Risk of Replacing CPS as Servicer. Servicing receivables of sub-prime
obligors is more difficult than servicing receivables of prime obligors.
Officers and employees of CPS have many years of experience in this type of
servicing. If CPS were to cease acting as Servicer, delays in processing
payments on the Receivables and information in respect thereof could occur and
result in delays in payments to the Securityholders.
Risk of CPS's Inability to Repurchase Receivables. In certain
circumstances, CPS will be required to acquire Receivables from the related
Trust with respect to which such representations and warranties have been
breached. In the event that CPS is incapable of complying with its repurchase
obligations and no other party is obligated to perform or satisfy such
obligations, Securityholders of the applicable Trust may be subject to delays in
receiving payments and suffer loss of their investment in the Securities.
The related Prospectus Supplement will set forth certain information
regarding CPS. In addition, CPS is subject to the information requirements of
the Exchange Act and, in accordance therewith, files reports and other
information with the Commission. For further information regarding CPS reference
is made to such reports and other information which are available as described
under "Available Information."
Effect of Prepayments on Yield and Maturity. All of the Receivables are
prepayable at any time. The rate of prepayments on the Receivables may be
influenced by a variety of economic, social and other factors, including the
fact that an Obligor generally may not sell or transfer the Financed Vehicle
securing a receivable without the consent of CPS. (For this purpose the term
"prepayments" includes prepayments in full, certain partial prepayments related
to refunds of extended service contract costs and unearned insurance premiums,
liquidations due to default, as well as receipts of proceeds from physical
damage, credit life and credit accident and health insurance policies and
certain other Receivables repurchased for administrative reasons.) The rate of
prepayment on the Receivables may also be influenced by the structure of the
loan, the nature of the Obligors and the Financed Vehicles and servicing
decisions as discussed above. In addition, under certain circumstances, CPS is
obligated to repurchase Receivables as a result of breaches of representations
and warranties, and under certain circumstances the Servicer is obligated to
purchase Receivables pursuant to the Sale and Servicing Agreement as a result of
breaches of certain covenants. Subject to certain conditions, the Servicer also
has the right to purchase the Receivables when the aggregate principal balance
thereof is 10% or less of the aggregate principal balance thereof on the Cutoff
Date. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables will be borne entirely by the Securityholders.
12
<PAGE>
The rate of prepayments of Receivables cannot be predicted and is
influenced by a wide variety of economic, social, and other factors, including
prevailing interest rates, the availability of alternate financing and local and
regional economic conditions. Therefore, no assurance can be given as to the
level of prepayments that a Trust will experience.
Securityholders should consider, in the case of Securities purchased at a
discount, the risk that a slower than anticipated rate of prepayments on the
Receivables could result in an actual yield that is less than the anticipated
yield and, in the case of any Securities purchased at a premium, the risk that a
faster than anticipated rate of prepayments on the Receivables could result in
an actual yield that is less than the anticipated yield.
Distribution of Pre-Funded Amount -- Effect on Yield and Maturity. If so
provided in the related Prospectus Supplement, on the Closing Date the Seller
will deposit the Pre-Funded Amount specified in such Prospectus Supplement into
the Pre-Funding Account. The Pre-Funded Amount will be used to purchase
Subsequent Receivables from the Seller (which, in turn, will acquire such
Subsequent Receivables from CPS or an Affiliated Originator specified in the
related Prospectus Supplement) from time to time during the related Funding
Period. During the related Funding Period and until such amounts are applied by
the Trustee to purchase Subsequent Receivables, amounts on deposit in the
Pre-Funding Account will be invested by the Trustee (as instructed by the
Servicer) in Eligible Investments, and any investment income with respect
thereto (net of any related investment expenses) will be added to amounts
received on or in respect of the Receivables during the related Collection
Period and allocated to interest and will be distributed on the Payment Date
pursuant to the payment priorities specified in the related Prospectus
Supplement.
To the extent that the entire Pre-Funded Amount has not been applied to
the purchase of Subsequent Receivables by the end of the related Funding Period,
any amounts remaining in the Pre-Funding Account will be distributed as a
prepayment of principal to Securityholders on the Payment Date at or immediately
following the end of the Funding Period, in the amounts and pursuant to the
priorities set forth in the related Prospectus Supplement. Any such prepayment
of principal could have the effect of shortening the weighted average life of
the Securities of the related Series. In addition, holders of the related
Securities will bear the risk that they may be unable to reinvest any such
principal prepayment at yields at least equal to the yield on such Securities.
Varying Characteristics of Subsequent Receivables. If so provided in the
related Prospectus Supplement, the Seller will be obligated pursuant to the
Trust Documents to sell Subsequent Receivables to the Trust, and the Trust will
be obligated to purchase such Subsequent Receivables, subject only to the
satisfaction of certain conditions set forth in the Trust Documents and
described in the related Prospectus Supplement. If the principal amount of the
eligible Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the related Series of Securities may receive a
prepayment or early distribution of principal at the end of the Funding Period
as described above under "Pre-Funding Accounts."
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Purchase Agreement; (ii) the Seller shall not have selected such
Subsequent Receivables in a manner that is adverse to the interests of holders
of the related Securities; (iii) as of the respective Cutoff Dates for such
Subsequent Receivables, all of the Receivables in the Trust, including the
Subsequent Receivables to be conveyed to the Trust as of such date, must satisfy
the parameters described under "The Receivables Pools" herein and "The
Receivables Pool" in the related Prospectus Supplement; and (iv) the Seller must
execute and deliver to such Trust a written assignment conveying such Subsequent
Receivables to such Trust. In addition, as and to the extent specified in the
related Prospectus Supplement, the conveyance of Subsequent Receivables to a
Trust is subject to the satisfaction of the condition precedent, among others,
that the Seller deliver certain legal opinions to the related Trustee with
respect to the validity of the conveyance of the Subsequent Receivables
13
<PAGE>
to the Trust. If any such conditions precedent are not met with respect to any
Subsequent Receivables, CPS or the Seller, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables. Therefore,
the characteristics of the entire Receivables Pool included in any Trust may
vary significantly as Subsequent Receivables are conveyed to such Trust from
time to time during the Funding Period or Revolving Period. See "The
Receivables" herein.
Certain Legal Aspects -- Lack of Perfected Security Interests in Financed
Vehicles. The transfer of the Receivables by the applicable Seller to the
Trustee pursuant to the related Sale and Servicing Agreement, perfection of the
security interests in the Receivables and the enforcement of rights to realize
on the Financed Vehicles as collateral for the Receivables are subject to a
number of federal and state laws, including the UCC as in effect in various
states. To the extent specified in a Prospectus Supplement, no action will be
taken to perfect the rights of the Trustee in proceeds of any VSI insurance
policies covering individual Financed Vehicles or Obligors. Therefore, the
rights of a third party with an interest in such proceeds could prevail against
the rights of the Trust prior to the time such proceeds are deposited by the
Servicer into a Trust Account (as hereinafter defined). See "Certain Legal
Aspects of the Receivables."
In connection with each sale of Receivables, security interests in the
Financed Vehicles securing the Receivables will be assigned by CPS and each
Affiliated Originator to the Seller. Due to the administrative burden and
expense of retitling each of the Financed Vehicles in the appropriate state, the
certificates of title to the Financed Vehicles will not be amended or reissued
to reflect the assignment to the Trust. In the absence of such an amendment or
reissuance, the Trust may not have a perfected security interest in the Financed
Vehicles securing the Receivables in some states. By virtue of the assignment of
the applicable Purchase Agreement to the related Trust, CPS will be obligated to
repurchase any Receivable sold to the Trust by CPS or an Affiliated Originator
as to which there did not exist on the Closing Date a perfected security
interest in the name of CPS or the relevant Affiliated Originator in the
Financed Vehicle, and the Servicer will be obligated to purchase any Receivable
sold to the Trust as to which it failed to maintain a perfected security
interest in the name of CPS or the relevant Affiliated Originator in the
Financed Vehicle securing such Receivable if, in either case, such breach
materially and adversely affects such Receivable and if such failure or breach
is not cured prior to the expiration of the applicable cure period. To the
extent the security interest of CPS or the Affiliated Originator is perfected,
the Trust will have a prior claim over subsequent purchasers of such Financed
Vehicle and holders of subsequently perfected security interests. However, as
against liens for repairs of a Financed Vehicle or for taxes unpaid by an
Obligor under a Receivable, or through fraud, forgery, negligence or error, CPS
or the Affiliated Originator, and therefore the Trust, could lose the priority
of its security interest or its security interest in a Financed Vehicle. Neither
CPS nor the Servicer will have any obligation to purchase a Receivable as to
which a lien for repairs of a Financed Vehicle or for taxes unpaid by an Obligor
under a Receivable result in losing the priority of the security interest in
such Financed Vehicle after the Closing Date. See "Certain Legal Aspects of the
Receivables -- Security Interests in the Financed Vehicles."
Consumer Protection Laws. Federal and state consumer protection laws
impose requirements on creditors in connection with extensions of credit and
collections of retail installment loans, and certain of these laws make an
assignee of such a loan (such as a Trust) liable to the obligor thereon for any
violation by the lender. To the extent specified herein and in the related
Prospectus Supplement, CPS will be obligated to repurchase any Receivable that
fails to comply with such legal requirements from the Seller and the Seller
shall be obligated to repurchase such Receivable from the Trust, and the Seller
and the Servicer will undertake to enforce such obligation on behalf of the
Trust. See "Certain Legal Aspects of the Receivables--Consumer Protection Laws."
Non-Consolidation. Each Seller has taken or will take steps in structuring
the transactions contemplated hereby that are intended to ensure that the
voluntary or involuntary application for relief by CPS under the
14
<PAGE>
United States Bankruptcy Code or similar state laws ("Insolvency Laws") will not
result in consolidation of the assets and liabilities of the Seller with those
of CPS. These steps include the creation of each Seller as a separate,
limited-purpose subsidiary pursuant to articles of incorporation containing
certain limitations (including restrictions on the nature of the Seller's
business and a restriction on the Seller's ability to commence a voluntary case
or proceeding under any Insolvency Law without the prior unanimous affirmative
vote of all of its directors). However, there can be no assurance that the
activities of a Seller would not result in a court concluding that the assets
and liabilities of such Seller should be consolidated with those of CPS in a
proceeding under any Insolvency Law. If a court were to reach such a conclusion,
then delays in distributions on the related Securities could occur or reductions
in the amounts of such distributions could result. See "The Seller and CPS."
True Sale. CPS will warrant to the Seller in each Purchase Agreement that
the sale of the Receivables by it or an Affiliated Originator to the Seller is a
valid sale of such Receivables to such Seller. In addition, CPS, each Affiliated
Originator and each Seller will treat the transactions described herein as a
sale of the Receivables to the Seller, and each Seller has taken and will take
all actions that are required to perfect the Seller's ownership interest in the
Receivables. Notwithstanding the foregoing, if CPS or an Affiliated Originator
were to become a debtor in a bankruptcy case and a creditor or
trustee-in-bankruptcy of CPS (or such Affiliated Originator) or CPS (or such
Affiliated Originator) itself were to take the position that the sale of
Receivables to the Seller should be recharacterized as a pledge of such
Receivables to secure a borrowing of such Seller, then delays in payments of
collections of Receivables to the Seller could occur or, should the court rule
in favor of any such trustee, debtor or creditor, reductions in the amount of
such payments could result. If the transfer of Receivables to the Seller is
recharacterized as a pledge or a tax or government lien on the property of CPS
or an Affiliated Originator arising before the transfer of a Receivable to the
Seller may have priority over the Seller's interest in such Receivable. If the
transactions contemplated herein are treated as a sale, the Receivables would
not be part of the bankruptcy estate of CPS or the Affiliated Originator, as
applicable, and would not be available to creditors of CPS or the Affiliated
Originator, as applicable.
The U.S. Court of Appeals for the Tenth Circuit issued its opinion in
Octagon Gas Systems, Inc. v. Rimmer (In re Meridian Reserve, Inc.) (decided May
27, 1993) in which it concluded (noting that its position is in contrast to that
taken by another court) that accounts receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables are likely to be viewed as "chattel paper", as defined
under the Uniform Commercial Code, rather than as accounts, the rationale behind
the Octagon holding is equally applicable to chattel paper. The circumstances
under which the Octagon ruling would apply are not fully known, and the extent
to which the Octagon decision will be followed in other courts or outside of the
Tenth Circuit is not certain. If the holding in the Octagon case were applied in
a bankruptcy of CPS or an Affiliated Originator, however, even if the transfers
of Receivables to the Seller and to the Trust were treated as sales, the
Receivables would be part of the bankruptcy estate and would be subject to
claims of certain creditors and delays and reductions in payments to the
Securityholders could result. CPS will warrant in the Purchase Agreement that
the sale of the Receivables to the Seller (including Receivables sold by an
Affiliated Originator) is a valid sale of the Receivables to the Seller, and the
Seller will warrant in the Sale and Servicing Agreement that the sale of the
Receivables to the Trust is a valid sale of the Receivables to the Trust.
Risk of Changes in Delinquency Levels. There can be no assurance that the
historical levels of delinquencies and losses experienced by CPS on its
respective loan and vehicle portfolio will be indicative of the performance of
the Contracts included in the Trust or that such levels will continue in the
future. Delinquencies and losses could increase significantly for various
reasons, including changes in the federal income tax laws, changes in the local,
regional or national economies or due to other events. For a discussion and
analysis see "CPS's Automobile Contract Portfolio--Delinquency and Loss
Experience."
Subordination; Limited Assets. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on one Class of
Notes of a Series may be subordinated in priority of payment to interest and
principal due on other Classes of Notes of a related Series. Moreover, each
Trust will not have,
15
<PAGE>
nor is it permitted or expected to have, any significant assets or sources of
funds other than the related Receivables and, to the extent provided in the
related Prospectus Supplement, the related reserve account, spread account, and
any other Credit Enhancement. The Securities represent beneficial interests in
the related Trust only and will not represent a recourse obligation to other
assets of CPS or the Seller. No Securities of any Series will be insured or
guaranteed by CPS, the Seller, the Servicer, or the applicable Trustee.
Consequently, holders of the Securities of any Series must rely for repayment
primarily upon payments on the Receivables and, if and to the extent available,
any Credit Enhancement, all as specified in the related Prospectus Supplement.
Limited Liquidity. There can be no assurance that a secondary market for
the Securities of any Series or Class will develop or, if it does develop, that
it will provide Securityholders with liquidity of investment or that it will
continue for the life of such Securities. The Prospectus Supplement for any
Series of Securities may indicate that an underwriter specified therein intends
to establish and maintain a secondary market in such Securities; however, no
underwriter will be obligated to do so. The Securities will not be listed on any
securities exchange.
Priority of Interest in Receivables. In connection with the issuance of
any Series of Securities, CPS will originate Receivables. The Seller will
warrant in a Sale and Servicing Agreement that the transfer of the Contracts to
such Trust is either a valid assignment, transfer and conveyance of the
Receivables to the Trust or the Trustee on behalf of the Securityholders has a
valid security interest in such Receivables. As will be described in the related
Prospectus Supplement, the related Trust Documents will provide that the Trustee
will be required to maintain possession of such original copies of all
Receivables that constitute chattel paper; provided that the Servicer may take
possession of such original copies as necessary for the enforcement of any
Receivables. If the Servicer, the Trustee or other third party, while in
possession of any Receivable, sells or pledges and delivers such Receivable to
another party, in violation of the Sale and Servicing Agreement, there is a risk
that such other party could acquire an interest in such Receivable having a
priority over the Trust's interest. Furthermore, if the Servicer or a third
party, while in possession of any Receivable, is rendered insolvent, such an
event of insolvency may result in competing claims to ownership or security
interests in such Receivable. Such an attempt, even if unsuccessful, could
result in delays in payments on the Securities. If successful, such attempt
could result in losses to the Securityholders or an acceleration of the
repayment of the Securities. CPS will be obligated to repurchase any Receivable
if there is a breach of CPS's representations and warranties that materially and
adversely affects the interests of the Trust in such Receivable and such breach
has not been cured.
Limitations on the Amount of Recoveries. Unless specific limitations are
described on the related Prospectus Supplement with respect to specific
Receivables, all Receivables will provide that the obligations of the Obligors
thereunder are absolute and unconditional, regardless of any defense, set-off or
abatement which the Obligor may have against CPS or any other person or entity
whatsoever. CPS will warrant that no claims or defenses have been asserted or
threatened with respect to the Receivables and that all requirements of
applicable law with respect to the Receivables have been satisfied.
In the event that CPS or the Trustee must rely on repossession and
disposition of Financed Vehicles to recover scheduled payments due on Defaulted
Receivables (as defined in the related Sale and Servicing Agreement), the Issuer
may not realize the full amount due on a Receivable (or may not realize the full
amount on a timely basis). Other factors that may affect the ability of the
Issuer to realize the full amount due on a Receivable include whether amendments
to certificates of title relating to the Financed Vehicles had been filed,
depreciation, obsolescence, damage or loss of any financed Vehicle, and the
application of Federal and state bankruptcy and insolvency laws. As a result,
the Securityholders may be subject to delays in receiving payments and suffer
loss of their investment in the Securities.
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.
16
<PAGE>
In addition, although each Receivable generally gives CPS the right to
force place insurance coverage in the event the required physical damage
insurance on a Vehicle is not maintained by an Obligor, neither CPS nor the
Servicer is obligated to place such coverage. In the event insurance coverage is
not maintained by Obligors and coverage is not force placed, then insurance
recoveries may be limited in the event of losses or casualties to Financed
Vehicles included in the Trust Assets, as a result of which Securityholders
could suffer a loss on their investment.
Security Rating. The rating of Securities credit enhanced by a letter of
credit, financial guaranty insurance policy, reserve fund, credit or liquidity
facilities, cash deposits or other forms of credit enhancement (collectively
"Credit Enhancement") will depend primarily on the creditworthiness of the
issuer of such external Credit Enhancement device (a "Credit Enhancer"). Any
reduction in the rating assigned to the claims-paying ability of the related
Credit Enhancer to honor its obligations pursuant to any such Credit Enhancement
below the rating initially given to the Securities would likely result in a
reduction in the rating of the Securities.
Limitations Due to Book-Entry Registration. Issuance of the Securities in
book-entry form may reduce the liquidity of such Securities in the secondary
trading market since investors may be unwilling to purchase Securities for which
they cannot obtain definitive physical securities representing such
Securityholders' interests, except in certain circumstances described in the
related Prospectus Supplement.
Since transactions in Securities will, in most cases, be effected only
through DTC, direct or indirect participants in DTC's book-entry system ("Direct
Participants" or "Indirect Participants") or certain banks, the ability of a
Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect to such
Securities, may be limited due to lack of a physical security representing the
Securities.
Securityholders may experience some delay in their receipt of
distributions of interest on and principal of the Securities since distributions
may be required to be forwarded by the Trustee to DTC and, in such case, DTC
will be required to credit such distributions to the accounts of its
Participants which thereafter will be required to credit them to the accounts of
the applicable Class of Securityholders either directly or indirectly through
Indirect Participants. See "Description of the Securities -- Book-Entry
Registration."
Limitations on Interest Payments and Foreclosures. Generally, under the
terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended (the
"Relief Act"), or similar state legislation, an Obligor who enters military
service after the origination of the related Receivable (including an Obligor
who is a member of the National Guard or is in reserve status at the time of the
origination of the Receivable and is later called to active duty) may not be
charged interest (including fees and charges) above an annual rate of 6% during
the period of such Obligor's active duty status, unless a court orders otherwise
upon application of the lender. It is possible that such action could have an
effect, for an indeterminate period of time, on the ability of the Servicer to
collect full amounts of interest on certain of the Receivables. In addition, the
Relief Act imposes limitations that would impair the ability of the Servicer to
foreclose on an affected Receivable during the Obligor's period of active duty
status. Thus, in the event that such a Receivable goes into default, there may
be delays and losses occasioned by the inability of the Servicer to realize upon
the Financed Vehicle in a timely fashion.
THE ISSUERS
With respect to each Series of Securities, the Seller will establish a
separate Trust that will issue such Securities pursuant to the related Trust
Documents. For purposes of this Prospectus and the related Prospectus
Supplement, the related Trust, if a Trust issues the related Securities, shall
be referred to as the "Issuer" with respect to such Securities.
Upon the issuance of the Securities of a given Series, the proceeds from
such issuance will be used by CPS to repay indebtedness incurred to originate
Receivables. The Servicer will service the related Receivables pursuant to a
sale and servicing agreement (the "Sale and Servicing Agreement"), and will be
compensated
17
<PAGE>
for acting as the Servicer. To facilitate servicing and to minimize
administrative burden and expense, the Servicer may be appointed custodian for
the related Receivables by each Trustee and CPS, as may be set forth in the
related Prospectus Supplement.
If the protection provided to the Securityholders of a given class by the
subordination of another Class of Securities of such Series and by the
availability of the funds in the reserve account, if any, or any other Credit
Enhancement for such Series is insufficient, the Trust must rely solely on the
payments from the Obligors on the related Contracts, and the proceeds from the
sale of Financed Vehicles which secure the Defaulted Contracts. In such event,
certain factors may affect such Trust's ability to realize on the collateral
securing such Contracts, and thus may reduce the proceeds to be distributed to
the Securityholders of such Series.
THE TRUST ASSETS
To the extent specified in the Prospectus Supplement for a Trust, the
Trust Assets of a Trust will include a pool (a "Receivables Pool") of retail
installment sale contracts between dealers (the "Dealers") in new and used
automobiles, light trucks, vans and minivans and retail purchasers (the
"Obligors") (including Sub-Prime Borrowers) and, with respect to Rule of 78's
Receivables, certain moneys due thereunder after the applicable Cutoff Date and,
with respect to Simple Interest Receivables, certain moneys received thereunder
after the applicable Cutoff Date. Pursuant to agreements between the Dealers and
CPS ("Dealer Agreements"), the Receivables will be purchased by CPS. As further
described in the related Prospectus Supplement, the Trust Assets of a Trust will
also include (i) such amounts as from time to time may be held in one or more
trust accounts established and maintained by the Trustee pursuant to the Trust
Agreement or Indenture; (ii) the rights of the Seller under the Sale and
Servicing Agreement; (iii) security interests in the Financed Vehicles; (iv) the
rights of the Seller to receive any proceeds with respect to the Receivables
from claims on physical damage, credit life and credit accident and health
insurance policies covering the Financed Vehicles or the Obligors, as the case
may be; (v) the rights of the Seller to refunds for the costs of extended
service contracts and to refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies covering the Financed
Vehicles or Obligors, as the case may be; and (vi) any and all proceeds of the
foregoing. If so specified in the related Prospectus Supplement, the Trust
Assets also will include the Credit Enhancement provided for the benefit of
Securityholders of such Trust.
If so provided in the related Prospectus Supplement, the property of a
Trust may also include a Pre-Funded Amount, which the Seller will deposit to the
Pre-Funding Account on the Closing Date and which will be used by the Trust to
purchase Subsequent Receivables from the Seller during the related Funding
Period (not to exceed 6 months). Any Subsequent Receivables so conveyed to a
Trust will also be assets of such Trust. The Pre-Funded Amount will not exceed
34% of the Trust Assets nor 25% of the Certificate Balance, if any.
If the protection provided to Securityholders, if any, by any such Credit
Enhancement is insufficient, such Securityholders will have to look to payments
by or on behalf of Obligors on the related Receivables and the proceeds from the
repossession and sale of Financed Vehicles that secure defaulted Receivables for
distributions of principal and interest on the Securities. In such event,
certain factors, such as the applicable Trust's not having perfected security
interests in all of the Financed Vehicles, may limit the ability of a Trust to
realize on the collateral securing the related Receivables, or may limit the
amount realized to less than the amount due under the related Receivables.
Securityholders may thus be subject to delays in payment on, or may incur losses
on their investment in, such Securities as a result of defaults or delinquencies
by Obligors and depreciation in the value of the related Financed Vehicles. See
"Description of the Trust Documents--Credit and Cash Flow Enhancement" and
"Certain Legal Aspects of the Receivables."
The Receivables comprising the Trust Assets will, as specifically
described in the related Prospectus Supplement, be either (i) originated by CPS
or an Affiliated Originator, (ii) originated by various
18
<PAGE>
manufacturers (or their captive finance companies) and acquired by CPS or an
Affiliated Originator, (iii) originated by various Dealers and acquired by CPS
or an Affiliated Originator or (iv) acquired by CPS or an Affiliated Originator
from other originators or owners of Receivables. Such Receivables will generally
have been originated or acquired by CPS or an Affiliated Originator in
accordance with CPS's specified underwriting criteria. The underwriting criteria
applicable to the Receivables included in any Trust will be described in all
material respects in the related Prospectus Supplement.
The Receivables included in the Trust Assets will be selected from those
Receivables held by CPS or an Affiliated Originator based on the criteria
specified in the applicable Purchase Agreement or Affiliate Purchase Agreement
and described herein or in the related Prospectus Supplement.
ACQUISITION OF RECEIVABLES BY THE SELLER
On or prior to each Closing Date, CPS will, and an Affiliated Originator
may, sell and assign to the Seller, without recourse, except as provided in the
related Purchase Agreement, its entire interest in the applicable Receivables,
together with its security interests in the Financed Vehicles, pursuant to a
purchase agreement between CPS and the Seller (a "Purchase Agreement") or
pursuant to a purchase agreement between an Affiliated Originator and the Seller
(an "Affiliate Purchase Agreement").
In each Purchase Agreement, CPS will represent and warrant to the Seller,
among other things, that (i) the information provided with respect to the
applicable Receivables is correct in all material respects; (ii) at the date of
issuance of the Securities, physical damage insurance covering each Financed
Vehicle is in effect in accordance with CPS's normal requirements; (iii) at the
date of issuance of the applicable Securities, the related Receivables are free
and clear of all security interests, liens, charges, and encumbrances and no
offsets, defenses, or counterclaims against Dealers have been asserted or
threatened; (iv) at the date of issuance of the Securities, each of the
Receivables is or will be secured by a first-priority perfected security
interest in the Financed Vehicle in favor of CPS or the applicable Affiliated
Originator; and (v) each Receivable, at the time it was originated, complied
and, at the date of issuance of the Securities, complies in all material
respects with applicable federal and state laws, including, without limitation,
consumer credit, truth in lending, equal credit opportunity and disclosure laws.
As of the last day of the second (or, if CPS elects, the first) month following
the discovery by or notice to the Seller and CPS of a breach of any
representation or warranty that materially and adversely affects a Receivable,
unless the breach is cured, CPS will purchase such Receivable from the Trust for
the Purchase Amount. The "Purchase Amount" equals the unpaid principal balance
owed by the Obligor plus interest thereon at the respective APR to the last day
of the month of repurchase. The repurchase obligation will constitute the sole
remedy available to the Securityholders, the Credit Enhancer (if any) or the
Trustee for any such uncured breach.
THE RECEIVABLES
Receivables Pools
Information with respect to the Receivables in the related Receivables
Pool will be set forth in the related Prospectus Supplement, including, to the
extent appropriate, the composition of such Receivables and the distribution of
such Receivables by geographic concentration, payment frequency and current
principal balance as of the applicable Cutoff Date.
If so provided in the related Prospectus Supplement, the Seller will be
obligated pursuant to the Sale and Servicing Agreement to sell Subsequent
Receivables to the Trust, and the Trust will be obligated to purchase such
Subsequent Receivables, subject only to the satisfaction of certain conditions
set forth in the Sale and Servicing Agreement. If the principal amount of the
eligible Subsequent Receivables acquired by the Seller from CPS or an Affiliated
Originator during a Funding Period is less than the Pre-Funded Amount, the
Seller may have insufficient Subsequent Receivables to transfer to a Trust and
holders of one or more Classes of the
19
<PAGE>
related Series of Securities may receive a prepayment or early distribution of
principal at the end of the Funding Period as described above under "Risk
Factors--Pre-Funding Accounts."
Any conveyance of Subsequent Receivables to a Trust is subject to the
satisfaction, on or before the related transfer date (each, a "Subsequent
Transfer Date"), of the following conditions precedent, among others: (i) each
such Subsequent Receivable must satisfy the eligibility criteria specified in
the related Sale and Servicing Agreement; (ii) the Seller shall not have
selected such Subsequent Receivables in a manner that is adverse to the
interests of holders of the related Securities; (iii) as of the respective
Cutoff Dates for such Subsequent Receivables, all of the Receivables in the
Trust, including the Subsequent Receivables to be conveyed to the Trust as of
such date, must satisfy the parameters described under "The Receivables Pool" in
the related Prospectus Supplement; and (iv) the Seller must execute and deliver
to such Trust a written assignment conveying such Subsequent Receivables to such
Trust. In addition, as and to the extent specified in the related Prospectus
Supplement, the conveyance of Subsequent Receivables to a Trust is subject to
the satisfaction of the condition subsequent, among others, which must be
satisfied within the applicable time period specified in the related Prospectus
Supplement, that the Seller deliver certain legal opinions to the related
Trustee with respect to the validity of the conveyance of the Subsequent
Receivables to the Trust. If any such conditions precedent are not met with
respect to any Subsequent Receivables within the time period specified in the
related Prospectus Supplement, CPS or the Seller, as specified in the related
Prospectus Supplement, will be required to repurchase such Subsequent
Receivables from the related Trust, at a purchase price equal to the related
Purchase Amounts therefor.
Except as described herein and in the related Prospectus Supplement, there
will be no other required characteristics of Subsequent Receivables. Therefore,
the characteristics of the entire Receivables Pool included in any Trust may
vary from those described in the related Prospectus Supplement as Subsequent
Receivables are conveyed to such Trust from time to time during the Funding
Period or Revolving Period; provided that the Trust will not acquire any
Subsequent Receivable on a Subsequent Transfer Date if the addition of such
Subsequent Receivable (giving consideration to all other Subsequent Receivables
acquired by the Trust on or prior to such Subsequent Transfer Date) would result
in any characteristic of the related Receivables Pool varying by more than 5%
from the description of such characteristic in the related Prospectus Supplement
. The Sponsor will file each Subsequent Transfer Agreement with the Commission
on Form 8-K.
The Receivables
As specified in the related Prospectus Supplement, the Receivables may
consist of any combination of Rule of 78's Receivables, Actuarial Receivables or
Simple Interest Receivables. Generally, "Rule of 78's Receivables" provide for
fixed level monthly payments which will amortize the full amount of the
Receivable over its term. The Rule of 78's Receivables provide for allocation of
payments according to the "sum of periodic balances" method (also referred to as
the "sum of monthly payments" method) (the "Rule of 78's"). Each Rule of 78's
Receivable provides for the payment by the Obligor of a specified total amount
of payments, payable in monthly installments on the related due date, which
total represents the principal amount financed and finance charges in an amount
calculated on the basis of a stated annual percentage rate ("APR") for the term
of such Receivable. The rate at which such amount of finance charges is earned
and, correspondingly, the amount of each fixed monthly payment allocated to
reduction of the outstanding principal balance of the related Receivable are
calculated in accordance with the Rule of 78's. Under the Rule of 78's, the
amount of interest earned in any period is equal to the total finance charge due
under the contract multiplied by a fraction the numerator of which is the
remaining number of periods of the contract and the denominator of which is the
sum of the digits for the term of the contract. For example, on a 36 month
contract in its 17th month, the numerator would be nineteen and the denominator
would be 666 (1+2+3+4....+36=666). Under the Rule of 78's, the portion of each
payment allocable to interest is higher during the early months of the term of a
Receivable and lower during later months than that under a constant yield method
for allocating payments between interest and principal. Notwithstanding the
foregoing, as specified in the related Prospectus Supplement, all payments
received by the Servicer on or in respect of the Rule of 78's Receivables may be
allocated on an actuarial or simple interest basis.
20
<PAGE>
Generally, "Actuarial Receivables" provide for monthly payments with a
final fixed value payment which is greater than the scheduled monthly payments.
An Actuarial Receivable provides for amortization of the amount financed over a
series of fixed level payment monthly installments, but also requires a final
fixed value payment due after payment of such monthly installments which may be
satisfied by (i) payment in full in cash of such amount, (ii) transfer of the
Financed Vehicle to CPS, provided certain conditions are satisfied or (iii)
refinancing the fixed value payment in accordance with certain conditions.
"Simple Interest Receivables" provide for the amortization of the amount
financed under the Receivable over a series of fixed level monthly payments.
However, unlike the monthly payment under Rule of 78's Receivables, each monthly
payment consists of an installment of interest which is calculated on the basis
of the outstanding principal balance of the receivable multiplied by the stated
APR and further multiplied by the period elapsed (as a fraction of a calendar
year) since the preceding payment of interest was made. As payments are received
under a Simple Interest Receivable, the amount received is applied first to
interest accrued to the date of payment and the balance is applied to reduce the
unpaid principal balance. Accordingly, if an Obligor pays a fixed monthly
installment before its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be less
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly greater. Conversely, if an Obligor pays a fixed monthly
installment after its scheduled due date, the portion of the payment allocable
to interest for the period since the preceding payment was made will be greater
than it would have been had the payment been made as scheduled, and the portion
of the payment applied to reduce the unpaid principal balance will be
correspondingly less. In either case, the Obligor pays a fixed monthly
installment until the final scheduled payment date, at which time the amount of
the final installment is increased or decreased as necessary to repay the then
outstanding principal balance.
If an Obligor elects to prepay a Rule of 78's Receivable in full, it is
entitled to a rebate of the portion of the outstanding balance then due and
payable attributable to unearned finance charges. If a Simple Interest
Receivable is prepaid, rather than receive a rebate, the Obligor is required to
pay interest only to the date of prepayment. The amount of a rebate under a Rule
of 78's Receivable calculated in accordance with the Rule of 78's will always be
less than had such rebate been calculated on an actuarial basis and generally
will be less than the remaining scheduled payments of interest that would be due
under a Simple Interest Receivable for which all payments were made on schedule.
Distributions to Securityholders may not be affected by Rule of 78's rebates
under the Rule of 78's Receivable because, as specified in the related
Prospectus Supplement, such distributions may be determined using the actuarial
or simple interest method.
Delinquencies, Repossessions and Net Losses
Certain information relating to CPS's delinquency, repossession and net
loss experience with respect to Receivables it has originated or acquired will
be set forth in each Prospectus Supplement. This information may include, among
other things, the experience with respect to all Receivables in CPS's portfolio
during certain specified periods. There can be no assurance that the
delinquency, repossession and net loss experience with respect to any Trust will
be comparable to CPS's prior experience.
Maturity and Prepayment Considerations
As more fully described in the related Prospectus Supplement, if a
Receivable permits prepayment, such payment, together with accelerated payments
resulting from defaults, will shorten the weighted average life of the related
pool of Receivables and the weighted average life of the related Securities. The
rate of prepayments on the Receivables may be influenced by a variety of
economic, financial and other factors. In addition, under certain circumstances,
CPS will be obligated to acquire Receivables from the related Trust pursuant to
the applicable Purchase Agreement as a result of breaches of representations and
warranties. Any reinvestment risks resulting from a faster or slower
amortization of the related Securities which results from prepayments will be
borne entirely by the related Securityholders.
21
<PAGE>
The related Prospectus Supplement will set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to a particular pool of Receivables and the related Series of
Securities, together with a description of any applicable prepayment penalties.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
CPS and certain of its subsidiaries (each such subsidiary, an "Affiliated
Originator") purchase Contracts from Dealers or independent finance companies
("IFC's") with the intent to resell them. CPS and Affiliated Originators may
also purchase Contracts from third parties that have been originated by others.
Prior to the issuances of the Securities, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of Contracts
receive a pass-through rate of interest set at the time of the sale, and CPS
receives a base servicing fee for its duties relating to the accounting for and
collection of the Contracts. In addition, CPS is entitled to certain excess
servicing fees that represent collection on the Contracts in excess of those
required to pay principal and interest due to the investor at face value and
without recourse except that the representations and warranties made to CPS by
the Dealers are similarly made to the investors by CPS. CPS has some credit risk
with respect to the excess servicing fees it receives in connection with the
sale of contracts to investors and its continued servicing function since the
receipt by CPS of such excess servicing fees is dependent upon the credit
performance of the Contracts. Additional information with respect to CPS's
automobile contract portfolio, including information regarding CPS's
underwriting criteria and servicing and collection procedures, will be set forth
in each Prospectus Supplement.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92618. CPS's telephone number is (714) 753-6800.
For further information about CPS see "CPS's Automobile Contract
Portfolio" in the Prospectus Supplement.
POOL FACTORS
The "Pool Factor" for each Class of Securities will be a seven-digit
decimal, which the Servicer will compute prior to each distribution with respect
to such Class of Securities, indicating the remaining outstanding principal
balance of such Class of Securities as of the applicable Payment Date, as a
fraction of the initial outstanding principal balance of such Class of
Securities. Each Pool Factor will be initially 1.0000000, and thereafter will
decline to reflect reductions in the outstanding principal balance of the
applicable Class of Securities. A Securityholder's portion of the aggregate
outstanding principal balance of the related Class of Securities is the product
of (i) the original aggregate purchase price of such Securityholder's Securities
and (ii) the applicable Pool Factor.
As more specifically described in the related Prospectus Supplement with
respect to each Series of Securities, the related Securityholders of record will
receive reports on or about each Payment Date concerning the payments received
on the Receivables, the Pool Balance (as such term is defined in the related
Prospectus Supplement, the "Pool Balance"), each Pool Factor and various other
items of information. In addition,
22
<PAGE>
Securityholders of record during any calendar year will be furnished information
for tax reporting purposes not later than the latest date permitted by law.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a Series will be applied by the
applicable Trust to the purchase of the Receivables from the applicable Seller
and to make the deposit of the Pre-Funded Amount, if any, to the Pre-Funding
Account. CPS will use the portion of such proceeds paid to it for general
corporate purposes.
THE SELLER AND CPS
Each Seller will be a wholly-owned subsidiary of CPS. CPS Receivables Corp.
was incorporated in the State of California in June of 1994. CPS Receivables
Corp. was, and each other Seller will be, organized for the limited purpose of
purchasing automobile installment sale contracts from CPS and transferring such
receivables to third parties and any activities incidental to and necessary or
convenient for the accomplishment of such purposes. The principal executive
offices of CPS Receivables Corp. are located at 2 Ada, Suite 100, Irvine,
California 92718; telephone (714) 753-6800.
The Seller has taken steps in structuring the transaction contemplated
hereby that are intended to make it unlikely that the voluntary or involuntary
petition for relief by CPS under any Insolvency Law will result in consolidation
of the assets and liabilities of the Seller or the Trust with those of CPS.
These steps include the creation of the Seller as a separate, limited-purpose
subsidiary pursuant to articles of incorporation containing certain limitations
(including restrictions on the nature of the Seller's business and a restriction
on the Seller's ability to commence a voluntary case or proceeding under any
Insolvency Law without the prior unanimous affirmative vote of all of its
directors). However, there can be no assurance that the activities of the Seller
would not result in a court concluding that the assets and liabilities of the
Seller should be consolidated with those of CPS in a proceeding under any
Insolvency Law.
The Seller has received the advice of Mayer, Brown & Platt to the effect
that, subject to certain facts, assumptions and qualifications, in a properly
presented case under current law, in the event that CPS becomes a debtor in a
case under the Bankruptcy Code, a United States Bankruptcy Court would not order
the substantive consolidation of the assets and liabilities of the Seller with
those of CPS. Among other things, it is assumed by Mayer, Brown & Platt that the
Seller will follow certain procedures in the conduct of its affairs, including
maintaining records and books of account separate from those of CPS, refraining
from commingling its assets with those of CPS and refraining from holding itself
out as having agreed to pay, or being liable for, the debts of CPS. The Seller
intends to follow and has represented to such counsel that it will follow these
and other procedures related to maintaining its separate corporate identity.
However, in the event that the Seller did not follow these procedures, and in
certain other circumstances, there can be no assurance that a court would not
conclude that the assets and liabilities of the Seller should be consolidated
with those of CPS. If a court were to reach such a conclusion, or a filing were
made to litigate any of the foregoing issues, delays in distributions on the
Securities (and possible reductions in the amount of such distributions) could
occur.
See "Risk Factors -- Non-Consolidation."
CPS was incorporated in the State of California on March 8, 1991. On
October 22, 1992, CPS completed a public offering of 1,300,000 shares
(approximately 31% of the shares then outstanding) of its common stock at an
initial price of $5.00 per share. Prior to that time, 100% of the common stock
of CPS was owned by CPS Holdings, Inc., a holding company the majority of the
shares of which are owned by Charles E. Bradley, Sr. On March 6, 1995, CPS
completed a second public offering of 1,000,000 shares (approximately 18.5% of
the shares then outstanding) of its common stock at $14.75 per share. CPS and
its subsidiaries engage primarily in the business of purchasing, selling and
servicing Contracts originated by Dealers located primarily in California,
Florida, Pennsylvania, Texas, Illinois and Nevada. CPS specializes in Contracts
with Sub-Prime
23
<PAGE>
Borrowers who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems. CPS also provides
accounting and collection services to third party owners of automobile loan
portfolios that were not originated by CPS. CPS's executive offices are located
at 2 Ada, Irvine, California 92718; telephone (714) 753-6800.
THE TRUSTEE
The Trustee for each Series of Securities will be specified in the related
Prospectus Supplement. The Trustee's liability in connection with the issuance
and sale of the related Securities is limited solely to the express obligations
of such Trustee set forth in the related Trust Documents.
With respect to each Series of Securities, the procedures for the
resignation or removal of the Trustee and the appointment of a successor Trustee
shall be specified in the related Prospectus Supplement.
DESCRIPTION OF THE SECURITIES
General
The Securities will be issued in series (each a "Series"). Each Series of
Securities (or, in certain instances, two or more Series of Securities) will be
issued pursuant to a Trust Agreement and, if Notes are issued, an Indenture. The
following summaries (together with additional summaries under "The Description
of the Trust Documents" below) describe all material terms and provisions
relating to the Securities common to each Trust Agreement and Indenture. The
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, all of the provisions of the Trust Documents for
the related Securities and the related Prospectus Supplement.
All of the Securities offered pursuant to this Prospectus and the related
Prospectus Supplement will be rated in one of the four highest rating categories
by one or more Rating Agencies.
The Securities may either represent beneficial ownership interests in the
related Receivables held by the related Trust or debt secured by certain assets
of the related Trust.
Each Series or Class of Securities offered pursuant to this Prospectus may
have a different Interest Rate, which may be a fixed or adjustable interest
rate. The related Prospectus Supplement will specify the Interest Rate for each
Series or Class of Securities described therein, or the initial interest rate
and the method for determining subsequent changes to the Interest Rate.
A Series may include one or more Classes of Strip Securities entitled (i)
to principal distributions, with disproportionate, nominal or no interest
distributions, or (ii) to interest distributions, with disproportionate, nominal
or no principal distributions. In addition, a Series of Securities may include
two or more Classes of Securities that differ as to timing, sequential order,
priority of payment, Interest Rate or amount of distribution of principal or
interest or both, or as to which distributions of principal or interest or both
on any Class may be made upon the occurrence of specified events, in accordance
with a schedule or formula, or on the basis of collections from designated
portions of the related pool of Receivables. Any such Series may include one or
more Classes of Accrual Securities, as to which certain accrued interest will
not be distributed but rather will be added to the principal balance (or nominal
balance, in the case of Accrual Securities which are also Strip Securities)
thereof on each Payment Date, as hereinafter defined, or in the manner described
in the related Prospectus Supplement.
If so provided in the related Prospectus Supplement, a Series may include
one or more other Classes of Senior Securities that are senior to one or more
other Classes of Subordinate Securities in respect of certain distributions of
principal and interest and allocations of losses on Receivables.
24
<PAGE>
In addition, certain Classes of Senior (or Subordinate) Securities may be
senior to other Classes of Senior (or Subordinate) Securities in respect of such
distributions or losses.
General Payment Terms of Securities
As provided in the related Trust Documents and as described in the related
Prospectus Supplement, Securityholders will be entitled to receive payments on
their Securities on the specified Payment Dates. Payment Dates with respect to
the Securities will occur monthly, quarterly or semi-annually, as described in
the related Prospectus Supplement.
The related Prospectus Supplement will describe the Record Date preceding
such Payment Date, as of which the Trustee or its paying agent will fix the
identity of the Securityholders for the purpose of receiving payments on the
next succeeding Payment Date. As more fully described in the related Prospectus
Supplement, the Payment Date will be a specified day of each month (or, in the
case of quarterly-pay Securities, a specified day of every third month; and in
the case of semi-annual pay Securities, a specified day of every sixth month)
and the Record Date will be the close of business as of a specified day
preceding such Payment Date.
Each Trust Agreement and Indenture will describe a Collection Period
preceding each Payment Date (for example, in the case of monthly-pay Securities,
the calendar month preceding the month in which a Payment Date occurs). As more
fully provided in the related Prospectus Supplement, collections received on or
with respect to the related Receivables held by a Trust during a Collection
Period will be required to be remitted by the Servicer to the related Trustee
prior to the related Payment Date and will be used to fund payments to
Securityholders on such Payment Date. As may be described in the related
Prospectus Supplement, the related Trust Documents may provide that all or a
portion of the payments collected on or with respect to the related Receivables
may be applied by the related Trustee to the acquisition of additional
Receivables during a specified period (rather than be used to fund payments of
principal to Securityholders during such period) with the result that the
related Securities will possess an interest-only period, also commonly referred
to as a revolving period, which will be followed by an amortization period. Any
such interest only or revolving period may, upon the occurrence of certain
events to be described in the related Prospectus Supplement, terminate prior to
the end of the specified period and result in the earlier than expected
amortization of the related Securities.
In addition, and as may be described in the related Prospectus Supplement,
the related Trust Documents may provide that all or a portion of such collected
payments may be retained by the Trustee (and held in certain Eligible
Investments, including Receivables) for a specified period prior to being used
to fund payments of principal to Securityholders. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Securities. Subject to certain conditions,
Eligible Investments may include securities issued by CPS, the Servicer or their
respective affiliates or other trusts created by CPS or its affiliates. See
"Description of the Trust Documents -- Accounts."
Such retention and temporary investment by the Trustee of such collected
payments may be required by the related Trust Documents for the purposes of (a)
slowing the amortization rate of the related Securities relative to the
installment payment schedule of the related Receivables, or (b) attempting to
match the amortization rate of the related Securities to an amortization
schedule established at the time such Securities are issued. Any such feature
applicable to any Securities may terminate upon the occurrence of events to be
described in the related Prospectus Supplement, resulting in distributions to
the specified Securityholders and an acceleration of the amortization of such
Securities.
Neither the Securities nor the underlying Receivables will be guaranteed
or insured by any governmental agency or instrumentality or CPS, any Seller, the
Servicer, any Trustee or any of their respective affiliates unless specifically
set forth in the related Prospectus Supplement.
As may be described in the related Prospectus Supplement, Securities of
each Series will either evidence specified beneficial ownership interests in the
Trust Assets or represent debt secured by the related Trust Assets. To the
extent that any Trust Assets include certificates of interest in Receivables,
the related Prospectus Supplement will describe the material terms and
conditions of such certificates.
25
<PAGE>
Book-Entry Registration
As specified in the related Prospectus Supplement, Securityholders of a
given Series may hold their Securities through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations that are participants in such systems.
Cede, as nominee for DTC, will hold the global Securities in respect of a
given Series. CEDEL and Euroclear will hold omnibus positions on behalf of the
CEDEL Participants (as defined below) and the Euroclear Participants (as defined
below) (collectively, the "Participants"), respectively, through customers'
securities accounts in CEDEL's and Euroclear's names on the books of their
respective depositaries (collectively, the "Depositaries") which in turn will
hold such positions in customers' securities accounts in the Depositaries' names
on the books of DTC.
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions between Participants through electronic book-entries,
thereby eliminating the need for physical movement of notes or certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations. Indirect access to the DTC system also is available to
others such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between DTC Participants will occur in accordance with DTC
rules. Transfers between CEDEL Participants and Euroclear Participants will
occur in the ordinary way in accordance with their applicable rules and
operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities in CEDEL or
Euroclear as a result of a transaction with a DTC Participant will be made
during the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant CEDEL
Participant or Euroclear Participant on such business day. Cash received in
CEDEL or Euroclear as a result of sales of securities by or through a CEDEL
Participant or a Euroclear Participant to a DTC Participant will be received
with value on the DTC settlement date but will be available in the relevant
CEDEL or Euroclear cash account only as of the business day following settlement
in DTC.
The Securityholders of a given Series that are not Participants or
Indirect Participants but desire to purchase, sell or otherwise transfer
ownership of, or other interests in, Securities of such Series may do so only
through Participants and Indirect Participants. In addition, Securityholders of
a given Series will receive all distributions of principal and interest through
the Participants who in turn will receive them from DTC. Under a book-entry
format, Securityholders of a given Series may experience some delay in their
receipt of payments, since such payments will be forwarded by the applicable
Trustee to Cede, as nominee for DTC. DTC will forward such payments to its
Participants, which thereafter will forward them to Indirect Participants or
such Securityholders. Unless the related Prospectus Supplement provides for
Definitive Securities it is
26
<PAGE>
anticipated that the only "Securityholder" in respect of any Series will be
Cede, as nominee of DTC, or another nominee of DTC. Securityholders of a given
Series will not be recognized as Securityholders of such Series, and such
Securityholders will be permitted to exercise the rights of Securityholders of
such Series only indirectly through DTC and its Participants.
Under the rules, regulations and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers of
Securities of a given Series among Participants on whose behalf it acts with
respect to such Securities and to receive and transmit distributions of
principal of, and interest on, such Securities. Participants and Indirect
Participants with which the Securityholders of a given Series have accounts with
respect to such Securities similarly are required to make book-entry transfers
and receive and transmit such payments on behalf of their respective
Securityholders of such Series. Accordingly, although such Securityholders will
not possess Securities, the Rules provide a mechanism by which Participants will
receive payments and will be able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a
Securityholder of a given Series to pledge Securities of such Series to persons
or entities that do not participate in the DTC system, or to otherwise act with
respect to such Securities, may be limited due to the lack of a physical
certificate for such Securities.
DTC will advise the Trustee in respect of each Series that it will take
any action permitted to be taken by a Securityholder of the related Series only
at the direction of one or more Participants to whose accounts with DTC the
Securities of such Series are credited. DTC may take conflicting actions with
respect to other undivided interests to the extent that such actions are taken
on behalf of Participants whose holdings include such undivided interests.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of the
Euroclear System ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 28 currencies, including United
States dollars. The Euroclear System includes various other services, including
securities lending and borrowing and interfaces with domestic markets in several
countries generally similar to the arrangements for cross-market transfers with
DTC described above. Euroclear is operated by Morgan Guaranty Trust Company of
New York, Brussels, Belgium office, under contract with Euroclear Clearance
System, S.C., a Belgian cooperative corporation (the "Cooperative"). All
operations are conducted by the "Euroclear Operator" (as defined below), and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The 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.
27
<PAGE>
The "Euroclear Operator" is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within the Euroclear System, withdrawal of
securities and cash from the Euroclear System, and receipts of payments with
respect to securities in the Euroclear System. All securities in the Euroclear
System are held on a fungible basis without attribution of specific certificates
to specific securities clearance accounts. The Euroclear Operator acts under the
Terms and Conditions only on behalf of Euroclear Participants and has no record
of relationship with persons holding through Euroclear Participants.
Except as required by law, the Trustee in respect of a Series will not
have any liability for any aspect of the records relating to or payments made or
account of beneficial ownership interests of the related Securities held by
Cede, as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Definitive Notes
Except to the extent that the related Prospectus Supplement provides for
book-entry Securities, the Securities will be issued in fully registered,
certificated form ("Definitive Securities") to the Securityholders of a given
Series or their nominees, rather than to DTC or its nominee, only if (i) the
Trustee in respect of the related Series advises in writing that DTC is no
longer willing or able to discharge properly its responsibilities as depository
with respect to such Securities and such Trustee is unable to locate a qualified
successor, (ii) such Trustee, at its option, elects to terminate the
book-entry-system through DTC or (iii) after the occurrence of an "Event of
Default" under the related Indenture or a default by the Servicer under the
related Trust Documents, Securityholders representing at least a majority of the
outstanding principal amount of such Securities advise the applicable Trustee
through DTC in writing that the continuation of a book-entry system through DTC
(or a successor thereto) is no longer in such Securityholders' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all such
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
such Securities and receipt of instructions for re-registration, the applicable
Trustee will reissue such Securities as Definitive Securities to such
Securityholders.
Distributions of principal of, and interest on, such Securities will
thereafter be made by the applicable Trustee in accordance with the procedures
set forth in the related Indenture or Trust Agreement directly to holders of
Definitive Securities in whose names the Definitive Securities were registered
at the close of business on the applicable Record Date specified for such
Securities in the related Prospectus Supplement. Such distributions will be made
by check mailed to the address of such holder as it appears on the register
maintained by the applicable Trustee. The final payment on any such Security,
however, will be made only upon presentation and surrender of such Security at
the office or agency specified in the notice of final distribution to the
applicable Securityholders.
Definitive Securities in respect of a given Series of Securities will be
transferable and exchangeable at the offices of the applicable Trustee or of a
certificate registrar named in a notice delivered to holders of such Definitive
Securities. No service charge will be imposed for any registration of transfer
or exchange, but the applicable Trustee may require payment of a sum sufficient
to cover any tax or other governmental charge imposed in connection therewith.
28
<PAGE>
Reports to Securityholders
With respect to each Series of Securities, on or prior to each Payment
Date for such Series, the Servicer or the related Trustee will forward or cause
to be forwarded to each holder of record of such class of Securities a statement
or statements with respect to the related Trust Assets setting forth the
information specified in the related Prospectus Supplement.
In addition, within the prescribed period of time for tax reporting
purposes after the end of each calendar year, the applicable Trustee will
provide to the Securityholders a statement containing information required by
applicable tax laws, for the purpose of the Securityholders' preparation of
federal income tax returns.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Trust Documents
pursuant to which a Trust will be created and the related Securities in respect
of such Trust will be issued. For purposes of this Prospectus, the term "Trust
Documents" as used with respect to a Trust means, collectively, and except as
otherwise specified, any and all agreements relating to the establishment of the
related Trust, the servicing of the related Receivables and the issuance of the
related Securities, including without limitation the Indenture, (i.e. pursuant
to which any Notes shall be issued). A form of the Trust Agreement has been
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. This summary does not purport to be complete. It is qualified in its
entirety by reference to the provisions of the Trust Documents.
Sale and Assignment of Receivables
On or prior to the closing date specified with respect to any given Series
of securities ( the "Closing Date"), CPS or an Affiliated Originator will sell
and assign to a Seller, without recourse, except as otherwise provided in the
applicable Purchase Agreement or Affiliate Purchase Agreement, its entire
interest in the Receivables to be included in such Trust, together with its
security interests in the Financed Vehicles. At the time of issuance of the
Securities, such Seller will either transfer such Receivables to a Trust
pursuant to a Sale and Servicing Agreement. The obligations of the Seller and
the Servicer under the related Sale and Servicing Agreement include those
specified below and in the related Prospectus Supplement.
As more fully described in the related Prospectus Supplement, CPS will be
obligated to acquire from the related Trust its interest in any Receivable
transferred to a Trust or pledged to a Trustee on behalf of Securityholders if
the interest of the Securityholders therein is materially adversely affected by
a breach of any representation or warranty made by CPS with respect to such
Receivable, which breach has not been cured following the discovery by or notice
to CPS of the breach. In addition, if so specified in the related Prospectus
Supplement, CPS may from time to time reacquire certain Receivables or
substitute other Receivables for such Receivable subject to specified conditions
set forth in the related Purchase Agreement.
Accounts
With respect to each Series of Securities issued by a Trust, the Servicer
will establish and maintain with the applicable Trustee one or more accounts, in
the name of such Trustee on behalf of the related Securityholders, into which
all payments made on or with respect to the related Receivables will be
deposited (the "Collection Account"). The Servicer will also establish and
maintain with such Trustee separate accounts, in the name of such Trustee on
behalf of such Securityholders, in which amounts released from the Collection
Account and the reserve account or other Credit Enhancement, if any, for
distribution to such Securityholders will be deposited and from which
distributions to such Securityholders will be made (the "Distribution Account").
If the related Prospectus Supplement so provides, the Pre-Funding Account
will be maintained with the Indenture Trustee and is intended solely to hold
funds to be applied by the Indenture Trustee during the Funding Period to pay to
the Seller the purchase price for Subsequent Receivables and any Permitted
Investments purchased with funds not yet invested in Subsequent Receivables.
Monies on deposit in the Pre-Funding Account will not be available to cover
losses on or in respect of the Receivables and any Permitted Investments
purchased with funds not yet invested in Subsequent Receivables. On the Closing
Date,
29
<PAGE>
the Pre-Funding Account will be funded with the initial Pre-Funded Amount from
the sale proceeds of the Securities.
If the related Prospectus Supplement so provides the Seller will establish
and maintain an account (the "Interest Reserve Account") in the name of the
Indenture Trustee on behalf of the Noteholders and Certificateholders. On the
Closing Date, the Seller will deposit an amount equal to the Requisite Reserve
Amount (as described below) as of the Closing Date in the Interest Reserve
Account. On certain Payment Dates to be specified in the related Prospectus
Supplement, funds on deposit in the Interest Reserve Account which are in excess
of the Requisite Reserve Amount for such Payment Date will be withdrawn from the
Interest Reserve Account and deposited in the Distribution Account for
distribution.
Any other accounts to be established with respect to a Trust, including
any other reserve account, yield supplement account or negative arbitrage
account, will be described in the related Prospectus Supplement.
For any Series of Securities, funds in the Collection Account, the
Distribution Account, any Pre-Funding Account, any reserve account and other
accounts identified as such in the related Prospectus Supplement (collectively,
the "Trust Accounts") shall be invested as provided in the related Trust
Agreement or Indenture in Eligible Investments. "Eligible Investments" are
generally limited to investments acceptable to the Rating Agencies as being
consistent with the rating of such Securities. Subject to certain conditions,
Eligible Investments may include securities issued by CPS, the Servicer or their
respective affiliates or other trusts created by CPS or its affiliates. Except
as described below or in the related Prospectus Supplement, Eligible Investments
are limited to obligations or securities that mature not later than the business
day immediately preceding the related Payment Date. However, subject to certain
conditions, funds in the reserve account may be invested in securities that will
not mature prior to the date of the next distribution and will not be sold to
meet any shortfalls. Thus, the amount of cash in any reserve account at any time
may be less than the balance of such reserve account. If the amount required to
be withdrawn from any reserve account to cover shortfalls in collections on the
related Receivables exceeds the amount of cash in such reserve account a
temporary shortfall in the amounts distributed to the related Securityholders
could result, which could, in turn, increase the average life of the Securities
of such Series. Except as otherwise specified in the related Prospectus
Supplement, investment earnings on funds deposited in the applicable Trust
Accounts, net of losses and investment expenses (collectively, "Investment
Earnings"), shall be deposited in the applicable Collection Account on each
Payment Date and shall be treated as collections of interest on the related
Receivables.
The Trust Accounts will be maintained as Eligible Deposit Accounts.
"Eligible Deposit Account" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States of America or any one of the states thereof or the District of Columbia
(or any domestic branch of a foreign bank), having corporate trust powers and
acting as trustee for funds deposited in such account, so long as any of the
securities of such depository institution has a credit rating from each Rating
Agency in one of its generic rating categories which signifies investment grade.
"Eligible Institution" means, with respect to a Trust, (a) the corporate trust
department of the related Indenture Trustee or the related Trustee, as
applicable, or (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), which (i) (A) has either
(w) a long-term unsecured debt rating acceptable to the Rating Agencies or (x) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (B) the parent corporation of which has either (y) a
long-term unsecured debt rating acceptable to the Rating Agencies or (z) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies and (ii) whose deposits are insured by the FDIC.
The Servicer
The Servicer under each Sale and Servicing Agreement will be named in the
related Prospectus Supplement. The entity serving as Servicer may be CPS or an
affiliate of CPS and may have other business relationships with CPS or CPS's
affiliates. The Servicer with respect to each Series will service the
30
<PAGE>
Receivables contained in the Trust for such Series. Any Servicer may delegate
its servicing responsibilities to one or more subservicers, but will not be
relieved of its liabilities with respect thereto.
The Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Sale and Servicing Agreement. An uncured breach of such a
representation or warranty that in any respect materially and adversely affects
the interests of the Securityholders will constitute a default by the Servicer
under the related Sale and Servicing Agreement.
A Sale and Servicing Agreement may contain provisions providing for a
standby servicer ("Standby Servicer") to serve as successor servicer in the
event the Servicer is terminated or resigns as Servicer pursuant to the terms of
such Sale and Servicing Agreement. A Standby Servicer will receive a fee on each
Payment Date for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer becomes the Servicer under a
Sale and Servicing Agreement, it will receive compensation as a Servicer in an
amount set forth in such Sale and Servicing Agreement.
Servicing Procedures
Each Sale and Servicing Agreement will provide that the Servicer will
follow its then-employed standards, or such more exacting standards as the
Servicer employs in the future, in servicing the Receivables that are part of
the Trust. Each Sale and Servicing Agreement will provide that the Servicer will
make reasonable efforts to collect all payments due with respect to the
Receivables that are part of the Trust and, in a manner consistent with such
Sale and Servicing Agreement, will continue such collection procedures as it
follows with respect to automotive retail installment sale contracts it services
for itself and others. Consistent with its normal procedures, the Servicer may,
in its sole discretion, arrange with the Obligor on a Receivable to extend the
payment schedule; provided, however, that the Servicer may be limited as to the
number of times an extension may be granted and as to the timing of such
extensions. No such arrangement will, for purposes of a Sale and Servicing
Agreement, modify the original due dates or the amount of the scheduled
payments, or extend the final payment date on any Receivable beyond the last day
of the penultimate Collection Period before the Final Schedule Payment Date
under the related Trust Documents. If the Servicer grants an extension with
respect to a Receivable other than in accordance with the aforementioned
limitations, the Servicer will be required to purchase the Receivable. Following
any such purchase of a Receivable by the Servicer, such Receivable will be
released from the Trust and conveyed to the Servicer. The Servicer may sell the
Vehicle securing the respective defaulted Receivable, if any, at a public or
private sale, or take any other action permitted by applicable law. See "Certain
Legal Aspects of the Receivables."
The material aspects of any particular Servicer's collections and other
relevant procedures will be set forth in the related Prospectus Supplement.
Payments on Receivables
With respect to each Series of Securities, unless the related Prospectus
Supplement does not so provide, the Servicer will notify each Obligor that
payments made by such Obligor after the Cutoff Date with respect to a Receivable
must be mailed directly to the Post Office Box set forth in the Sale and
Servicing Agreement relating to such Receivable. On each Business Day, the
Lock-Box Processor set forth in the Sale and Servicing Agreement relating to
such Receivable (the "Lock-Box Processor") will transfer any such payments
received in the applicable post office box in the name of the applicable Trustee
for the benefit of the Securityholders and the related Credit Enhancer (if any)
(the "Post Office Box") to the applicable segregated lock-box account in the
name of the applicable Trustee for the benefit of the Securityholders and the
related Credit Enhancer (if any) (the "Lock-Box Account"). Any payments received
by the Servicer from an Obligor or from a source other than an Obligor must be
deposited in the applicable Lock-Box Account or the applicable Collection
Account upon receipt. The Servicer will, following the receipt of funds in such
Lock-Box Account, direct the Lock-Box Bank to transfer such funds to the
applicable Collection Account. Prior to the applicable Payment Date, the
applicable Trustee, on the basis of instructions provided by the Servicer, will
transfer funds held in such Collection Account to the applicable Payahead
Account if such payments constitute Payaheads or to the applicable Distribution
Account for distribution to, the Securityholders of the related Series.
31
<PAGE>
Collections on a Rule of 78's Receivable made during a Collection Period
will be applied first, to the scheduled payment on such Rule of 78's Receivable,
and second, to any late fees accrued with respect to such Rule of 78's
Receivable.
Servicing Compensation
As will be described in the related Prospectus Supplement with respect to
any Series of Securities issued by a Trust, the Servicer will be entitled to
receive a servicing fee on each Payment Date (the "Servicing Fee"), equal to the
product of one-twelfth of the specified percentage per annum and the Pool
Balance (each as set forth in the related Prospectus Supplement) as of the close
of business on the last day of the second preceding Collection Period; provided,
however, that with respect to the first Payment Date, the Servicing Fee will
equal the product of one-twelfth of the Servicing Fee Rate and the original Pool
Balance. So long as CPS is Servicer, a portion of the Servicing Fee will be
payable to the Standby Servicer, if any (as set forth in the related Prospectus
Supplement), for agreeing to stand by as successor Servicer and for performing
certain other functions. If the Standby Servicer, or any other entity serving at
the time as Standby Servicer, becomes the successor Servicer, it will receive
compensation for acting in such capacity. See "Standby Servicer" in the related
Prospectus Supplement. The Servicer will also collect and retain, as additional
servicing compensation, any late fees, prepayment charges, including, in the
case of a Rule 78's Receivable that is part of the Trust and that is prepaid in
full, to the extent not required by law to be remitted to the related Obligor,
the difference between the principal balance of such Receivable computed on an
actuarial basis plus accrued interest to the date of prepayment and the
principal balance of such Receivable computed according to the Rule of 78's, and
other administrative fees or similar charges allowed by applicable law with
respect to the Receivables that are part of the Trust, and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to scheduled payments, late fees and other charges
and principal and interest in accordance with the Servicer's normal practices
and procedures. The Servicing Fee will be paid out of collections from the
Receivables, prior to distributions to Securityholders of the related Series.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables that are part of the Trust, investigating delinquencies, sending
payment coupons to Obligors, reporting tax information to Obligors, paying costs
of disposition of defaults and policing the collateral. The Servicing Fee also
will compensate the Servicer for administering the Receivables that are part of
the Trust, including accounting for collections and furnishing monthly and
annual statements as required with respect to a Series of Securities regarding
distributions and generating federal income tax information. The Servicing Fee
also will reimburse the Servicer for certain taxes, accounting fees, outside
auditor fees, data processing costs and other costs incurred in connection with
administering the Receivables that are part of the Trust.
Distributions
With respect to each Series of Securities, beginning on the Payment Date
specified in the related Prospectus Supplement, distributions of principal and
interest (or, where applicable, of principal or interest only) on each Class of
such Securities entitled thereto will be made by the applicable Indenture
Trustee to the holders of Notes (the "Noteholders") and by the applicable
Trustee to the holders of Certificates (the "Certificateholders") of such
Series. The timing, calculation, allocation, order, source, priorities of and
requirements for each class of Noteholders and all distributions to each class
of Certificateholders of such Series will be set forth in the related Prospectus
Supplement.
With respect to each Series of Securities, on each Payment Date
collections on the related Receivables will be transferred from the Collection
Account to the Distribution Account for distribution to Securityholders,
respectively, to the extent provided in the related Prospectus Supplement.
Credit Enhancement, such as a reserve account, may be available to cover any
shortfalls in the amount available for distribution on such date, to the extent
specified in the related Prospectus Supplement. As more fully described in the
related Prospectus Supplement, and unless not provided for therein,
distributions in respect of principal of a Class of Securities
32
<PAGE>
of a given Series will be subordinate to distributions in respect of interest on
such Class, and distributions in respect of the Certificates of such Series will
be subordinate to payments in respect of the Notes of such Series.
Credit and Cash Flow Enhancements
The amounts and types of Credit Enhancement arrangements, if any, and the
provider thereof, if applicable, with respect to each class of Securities of a
given Series will be set forth in the related Prospectus Supplement. If and to
the extent provided in the related Prospectus Supplement, credit enhancement may
be in the form of a Policy, subordination of one or more Classes of Securities,
reserve accounts, overcollateralization, letters of credit, credit or liquidity
facilities, third party payments or other support, surety bonds, guaranteed cash
deposits or such other arrangements as may be described in the related
Prospectus Supplement or any combination of two or more of the foregoing. If
specified in the applicable Prospectus Supplement, Credit Enhancement for a
Class of Securities may cover one or more other Classes of Securities of the
same Series, and Credit Enhancement for a Series of Securities may cover one or
more other Series of Securities.
The presence of Credit Enhancement for the benefit of any Class or Series
of Securities is intended to enhance the likelihood of receipt by the
Securityholders or such Class or Series of the full amount of principal and
interest due thereon and to decrease the likelihood that such Securityholders
will experience losses. As more specifically provided in the related Prospectus
Supplement, the credit enhancement for a Class or Series of Securities may not
provide protection against all risks of loss and may not guarantee repayment of
the entire principal balance and interest thereon. If losses occur which exceed
the amount covered by any Credit Enhancement or which are not covered by any
Credit Enhancement, Securityholders of any Class or Series will bear their
allocable share of deficiencies, as described in the related Prospectus
Supplement. In addition, if a form of Credit Enhancement covers more than one
Series of Securities, Securityholders of any such Series will be subject to the
risk that such Credit Enhancement will be exhausted by the claims of
Securityholders of other Series.
Statements to Indenture Trustees and Trustees
Prior to each Payment Date with respect to each Series of Securities, the
Servicer will provide to the applicable Indenture Trustee and/or the applicable
Trustee and Credit Enhancer as of the close of business on the last day of the
preceding related Collection Period a statement setting forth substantially the
same information as is required to be provided in the periodic reports provided
to Securityholders of such Series described under "Description of the Securities
- -- Reports to Securityholders."
Evidence as to Compliance
Each Sale and Servicing Agreement will provide that a firm of independent
public accountants will furnish to the related Trust and/or the applicable
Indenture Trustee and Credit Enhancer, annually, a statement as to compliance by
the Servicer during the preceding twelve months (or, in the case of the first
such certificate, the period from the applicable Closing Date) with certain
standards relating to the servicing of the Receivables.
Each Sale and Servicing Agreement will also provide for delivery to the
related Trust and the applicable Indenture Trustee of a certificate signed by an
officer of the Servicer stating that the Servicer either has fulfilled its
obligations under such Sale and Servicing Agreement in all material respects
throughout the preceding 12 months (or, in the case of the first such
certificate, the period from the applicable Closing Date) or, if there has been
a default in the fulfillment of any such obligation in any material respect,
describing each such default. The Servicer also will agree to give each
Indenture Trustee and each Trustee notice of certain Servicer Termination Events
(as hereinafter defined) under the related Sale and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Securityholders by a request in writing addressed to the applicable Indenture
Trustee or the applicable Trustee.
33
<PAGE>
Certain Matters Regarding the Servicers
Each Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and under certain other circumstances. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the applicable Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby
Servicer, if any, will agree to assume the servicing obligations and duties
under the Sale and Servicing Agreement.
Each Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officer, employees, and agents will be under
any liability to the Trust or the Securityholders of the related Series for
taking any action or for refraining from taking any action pursuant to such Sale
and Servicing Agreement, or for errors in judgment; provided, however, that
neither the Servicer nor any such person will be protected against any liability
that would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties thereunder. In addition, each Sale and Servicing
Agreement will provide that the Servicer is under no obligation to appear in,
prosecute, or defend any legal action that is not incidental to its servicing
responsibilities under the applicable Sale and Servicing Agreement and that, in
its opinion, may cause it to incur any expense or liability.
Under the circumstances specified in each Sale and Servicing Agreement any
entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer, which corporation or
other entity in each of the foregoing cases assumes the obligations of the
Servicer, will be the successor to the Servicer under the applicable Sale and
Servicing Agreement.
Servicer Termination Event
Except as otherwise provided in the related Prospectus Supplement,
"Servicer Termination Event" under the related Trust Documents will include (i)
any failure by the Servicer to deliver to the applicable Trustee for deposit in
any of the related Trust Accounts any required payment or to direct such Trustee
to make any required distributions therefrom, which failure continues unremedied
for more than three (3) Business Days after written notice from such Trustee is
received by the Servicer or after discovery by the Servicer; (ii) any failure by
the Servicer duly to observe or perform in any material respect any other
covenant or agreement in such Trust Documents, which failure materially and
adversely affects the rights of the related Securityholders and which continues
unremedied for more than thirty (30) days after the giving of written notice of
such failure (1) to the Servicer by the applicable Trustee or (2) to the
Servicer, and to the applicable Trustee by holders of the related Securities, as
applicable, evidencing not less than 50% of the voting rights of such
outstanding Securities; (iii) any Insolvency Event; and (iv) any claim being
made on a Policy issued as Credit Enhancement. An "Insolvency Event" shall mean
financial insolvency, readjustment of debt, marshaling of assets and
liabilities, or similar proceedings with respect to the Servicer and certain
actions by the Servicer indicating its insolvency, reorganization pursuant to
bankruptcy proceedings, or inability to pay its obligations.
Rights upon Servicer Termination Event
As more fully described and except as otherwise provided in the related
Prospectus Supplement, as long as a Servicer Termination Event under the related
Trust Documents remains unremedied, the applicable Trustee, Credit Enhancer or
holders of Notes of the related Series evidencing not less than 50% of the
voting rights of such then outstanding Notes or, after the Notes have been paid
in full, holders of Certificates of the related Series evidencing not less than
50% of the voting rights of such then outstanding Certificates may terminate all
the rights and obligations of the Servicer, if any, under such Sale and
Servicing Agreement, whereupon a successor servicer appointed by such Trustee or
such Trustee will succeed to all the responsibilities, duties and liabilities of
the Servicer under such Trust Documents and will be entitled to similar
compensation arrangements. If, however, a bankruptcy trustee or similar official
has been appointed for the Servicer, and no Servicer Termination Event other
than such appointment has occurred, such bankruptcy
34
<PAGE>
trustee or official may have the power to prevent the applicable Trustee or such
Securityholders from effecting a transfer of servicing.
Waiver of Past Defaults
With respect to each Trust, except as otherwise provided in the related
Prospectus Supplement and subject to the approval of any Credit Enhancer, the
holders of Notes evidencing at least a majority of the voting rights of such
then outstanding Securities may, on behalf of all Securityholders of the related
Securities, waive any default by the Servicer in the performance of its
obligations under the related Trust Documents and its consequences, except a
default in making any required deposits to or payments from any of the Trust
Accounts in accordance with such Trust Documents. No such waiver shall impair
the Securityholders' rights with respect to subsequent defaults.
Amendments
As more fully described in, and unless not provided for by, the related
Prospectus Supplement, each of the Trust Documents may be amended by the parties
thereto, without the consent of the related Securityholders, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Trust Documents or of modifying in any manner the rights of
such Securityholders; provided that such action will not, in the opinion of
counsel satisfactory to the applicable Trustee, materially and adversely affect
the interests of any such Securityholder and subject to the approval of any
Credit Enhancer. As may be described in the related Prospectus Supplement, the
Trust Documents may also be amended by CPS, the Servicer, and the applicable
Trustee with the consent of the holders of Notes evidencing at least a majority
of the voting rights of such then outstanding Notes or, after the Notes have
been paid in full, holders of Certificates of the related Series evidencing not
less than 50% of the voting rights of such then outstanding Certificates for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of such Trust Documents or of modifying in any manner the
rights of such Securityholders; provided, however, that no such amendment may
(i) increase or reduce in any manner the amount or priority of, or accelerate or
delay the timing of, collections of payments on the related Receivables or
distributions that are required to be made for the benefit of such
Securityholders or (ii) reduce the aforesaid percentage of the Securities of
such Series which are required to consent to any such amendment, without the
consent of the Securityholders of such Series.
Termination
With respect to each Trust, the obligations of the Servicer, CPS and the
applicable Trustee pursuant to the related Trust Documents will terminate upon
the earlier to occur of (i) the maturity or other liquidation of the last
related Receivable and the disposition of any amounts received upon liquidation
of any such remaining Receivables and (ii) the payment to Securityholders of the
related Series of all amounts required to be paid to them pursuant to such Trust
Documents. As more fully described in the related Prospectus Supplement, in
order to avoid excessive administrative expense, the Servicer will be permitted
in respect of the applicable Trust Assets, unless the related Prospectus
Supplement does not so provide, at its option to purchase from such Trust
Assets, as of the end of any Collection Period immediately preceding a Payment
Date, if the Pool Balance of the related Contracts is less than 10% of the
initial Pool Balance in respect of such Trust Assets, all such remaining
Receivables at a price equal to the aggregate of the Purchase Amounts thereof as
of the end of such Collection Period. The related Securities will be redeemed
following such purchase.
If and to the extent provided in the related Prospectus Supplement, any
outstanding Notes of the related Series will be redeemed concurrently with the
events specified above and the subsequent distribution to the related
Securityholders of all amounts required to be distributed to them pursuant to
the applicable Trust Documents may effect the prepayment of the Certificates of
such Series.
35
<PAGE>
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
General
The transfer of Receivables by the Seller to the Trust pursuant to the
related Sale and Servicing Agreement, the perfection of the security interests
in the Receivables and the enforcement of rights to realize on the Financed
Vehicles as collateral for the Receivables are subject to a number of federal
and state laws, including the UCC as in effect in various states. As specified
in each Prospectus Supplement, the Servicer will take such action as is required
to perfect the rights of the Trustee in the Receivables. If, through
inadvertence or otherwise, a third party were to purchase (including the taking
of a security interest in) a Receivable for new value in the ordinary course of
its business, without actual knowledge of the Trust's interest, and take
possession of a Receivable, the purchaser would acquire an interest in such
Receivable superior to the interest of the Trust. Unless specified in a
Prospectus Supplement, no action will be taken to perfect the rights of the
Trustee in proceeds of any insurance policies covering individual Financed
Vehicles or Obligors. Therefore, the rights of a third party with an interest in
such proceeds could prevail against the rights of the Trust prior to the time
such proceeds are deposited by the Servicer into a Trust Account.
Security Interests in the Financed Vehicles
In states in which retail installment sale contracts such as the
Receivables evidence the credit sale of automobiles, light trucks, vans and
minivans by dealers to Obligors, the contracts also constitute personal property
security agreements and include grants of security interests in the vehicles
under the applicable UCC. Perfection of security interests in the financed
automobiles, light trucks, vans and minivans is generally governed by the motor
vehicle registration laws of the state in which the vehicle is located. In all
states in which the Receivables have been originated, a security interest in
automobiles, light trucks, vans and minivans is perfected by obtaining the
certificate of title to the Financed Vehicle or notation of the secured party's
lien on the vehicles' certificate of title (in addition, in Louisiana, a copy of
the installment sale contract must be filed with the appropriate governmental
recording office).
Unless the related Prospectus Supplement does not so provide, each
Contract will name CPS or the applicable Affiliated Originator as obligee or
assignee and as the secured party. Unless the related Prospectus Supplement does
not so provide, CPS will have represented and warranted that it has taken all
actions necessary under the laws of the state in which the Financed Vehicle is
located to perfect CPS's or such Affiliated Originator's security interest in
the Financed Vehicle, including, where applicable, having a notation of its lien
recorded on such vehicle's certificate of title. The Obligors on the Contracts
will not be notified of the sale from CPS or an Affiliated Originator, directly
or indirectly, to the Seller, or the sale from the Seller to the Trust, and no
action will be taken to record the transfer of the security interest from CPS or
such Affiliated Originator, directly or indirectly, to the Seller or from the
Seller to the Trust by amendment of the certificates of title for the Financed
Vehicles or otherwise.
CPS or the related Affiliated Originator will transfer and assign its
security interest in the related Financed Vehicles directly or indirectly to the
Seller, and the Seller will transfer and assign its security interest in such
Financed Vehicles to the related Trust pursuant to a Sale and Servicing
Agreement. However, because of the administrative burden and expense, neither
CPS nor the Seller will amend the certificates of title of such Financed
Vehicles to identify the related Trust as the new secured party.
In most states, an assignment such as that under each Sale and Servicing
Agreement is an effective conveyance of a security interest without amendment of
any lien noted on a vehicle's certificate of title, and the assignee succeeds
thereby to the assignor's rights as secured party. However, by not identifying
such Trust as the secured party on the certificate of title, the security
interest of such Trust in the vehicle could be defeated through fraud or
negligence.
Under the laws of most states, the perfected security interest in a
vehicle continues for four months after the vehicle is moved to a state other
than the state in which it is initially registered and thereafter until the
owner thereof re-registers the vehicle in the new state. A majority of states
generally require surrender of a certificate of title to re-register a vehicle.
Accordingly, a secured party must surrender possession if it holds the
certificate of title to the vehicle or, in the case of a vehicle registered in a
state providing for the notation
36
<PAGE>
of a lien on the certificate of title but not possession by the secured party,
the secured party will receive notice of surrender if the security interest is
noted on the certificate of title. Thus, the secured party will have the
opportunity to re-perfect its security interest in the vehicle in the state of
relocation. In states that do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. Unless
the related Prospectus Supplement does not so provide, under each Sale and
Servicing Agreement, the Servicer will be obligated to take appropriate steps,
at the Servicer's expense, to maintain perfection of security interests in the
Financed Vehicles and will be obligated to purchase the related Receivable if it
fails to do so.
Under the laws of most states, liens for repairs performed on a motor
vehicle and liens for unpaid taxes take priority over even a perfected security
interest in a financed vehicle. The Code also grants priority to certain federal
tax liens over the lien of a secured party. The laws of certain states and
federal law permit the confiscation of vehicles by government authorities under
certain circumstances if used in unlawful activities, which may result in the
loss of a secured party's perfected security interest in the confiscated
vehicle.
Repossession
In the event of default by vehicle purchasers, the holder of the motor
vehicle retail installment sale contract has all the remedies of a secured party
under the UCC, except where specifically limited by other state laws. Among the
UCC remedies, the secured party has the right to perform self-help repossession
unless such act would constitute a breach of the peace. Unless otherwise
specified in the related Prospectus Supplement, self-help is the most likely
method to be used by the Servicer and is accomplished simply by retaking
possession of the financed vehicle. In the event of default by the 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
37
<PAGE>
adequate disclosure of loan terms (including finance charges and deemed finance
charges), and limitations on loan terms (including the permitted finance charge
or deemed finance charge), collection practices and creditor remedies. The
application of these laws to particular circumstances is not always certain and
some courts and regulatory authorities have shown a willingness to adopt novel
interpretations of such laws. These laws include the Truth-in-Lending Act, the
Equal Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Fair Debt Collection Procedures
Act, the Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, the Solders' and Sailors' Civil Relief Act of 1940, state adoptions of
the National Consumer Act and the Uniform Consumer Credit Code, and state motor
vehicle retail installment sales act, retail installment sales acts and other
similar laws. Also, state laws impose finance charge ceilings and other
restrictions on consumer transactions and 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 or result in the imposition
of penalties in excess of amounts owing on the Receivables. In some instances,
particularly in actions based upon fraud or unfair and deceptive practices,
damage awards have been large. If the Trust were obligated to pay any such
damages, its assets would be directly reduced, resulting in a potential loss to
the Securityholders.
Under the laws of certain states, finance charges with respect to motor
vehicle retail installment contracts may include the additional amount, if any,
that a purchaser pays as part of the purchase price for a vehicle solely because
the purchaser is buying on credit rather than for cash (a "cash sale
differential"). If a dealer charges such a differential, applicable finance
charge ceilings could be exceeded.
To so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the
Uniform Consumer Credit Code, other statutes or the common law, has the effect
of subjecting an assignee of a seller of goods in a consumer credit transaction
(and certain related creditors) to all claims and defenses that the obligor in
the transaction could assert against the seller of the goods. Liability under
the FTC Rule is limited to the amounts paid by the obligor under the contract
and the holder of the contract may also be unable to collect any balance
remaining due thereunder from the obligor.
Most of the Receivables will be subject to the requirements of the FTC
Rule. Accordingly, each Trust, as holder of the related Receivables, will be
subject to any claims or defenses that the purchaser of the applicable Financed
Vehicle may assert against the seller of the Financed Vehicle. Such claims are
limited to a maximum liability equal to the amounts paid by the Obligor on the
Receivable. If an Obligor were successful in asserting any such claim or
defense, such claim or defense would constitute a breach of CPS's warranties
under the related Purchase Agreement and would create an obligation of CPS to
repurchase the Receivable unless the breach is cured. See "Description of the
Trust Documents -- Sale and Assignment of Receivables."
Courts have applied general equitable principles to secured parties
pursuing repossession and litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to borrowers.
Under most state vehicle dealer licensing laws, sellers of automobiles,
light trucks, vans and minivans are required to be licensed to sell vehicles at
retail sale. In addition, with respect to used vehicles, the Federal Trade
Commission's Rule on Sale of Used Vehicles requires that all sellers of used
vehicles prepare, complete and display a "Buyer's Guide" which explains the
warranty coverage for such vehicles. Furthermore, Federal Odometer Regulations
promulgated under the Motor Vehicle Information and Cost Savings Act and the
motor
38
<PAGE>
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 Sale and Servicing Agreements.
Under each Purchase Agreement, CPS will have represented and warranted
that each Receivable complies with all requirements of law in all material
respects. Accordingly, if an Obligor has a claim against a Trust for violation
of any law and such claim materially and adversely affects such Trust's interest
in a Receivable, such violation would constitute a breach of the warranties of
CPS and would create an obligation of CPS to repurchase the Receivable unless
the breach is cured.
Other Limitations
In addition to the laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including federal bankruptcy laws and
related state laws, may interfere with or affect the ability of a secured party
to realize upon collateral or to enforce a deficiency judgment. For example, in
a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a
creditor from repossession a vehicle and, as part of the rehabilitation plan,
may reduce the amount of the secured indebtedness to the market value of the
vehicle at the time of bankruptcy (as determined by the court), leaving the
creditor as a general unsecured creditor for the remainder of the indebtedness.
A bankruptcy court may also reduce the monthly payments due under a contract or
change the rate of interest and time of repayment of the indebtedness.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the purchase, ownership and disposition of the Notes and the
Certificates. However, the summary does not purport to deal with Federal income
tax consequences applicable to all categories of holders, some of which may be
subject to special rules. For example, it does not discuss the tax treatment of
Noteholders or Certificateholders that are insurance companies, regulated
investment companies or dealers in securities. This discussion is directed to
prospective purchasers who purchase Notes or Certificates in the initial
distribution thereof and who hold the Notes or Certificates as "capital assets"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). Prospective investors are urged to consult their own tax
advisors in determining the Federal, state, local, foreign and any other tax
consequences to them of the purchase, ownership and disposition of the Notes and
the Certificates.
The following summary is based upon current provisions of the Code, the
Treasury regulations promulgated thereunder, judicial authority, and ruling
authority, all of which are subject to change, which change may be retroactive.
Each Trust will be provided with an opinion of Mayer, Brown & Platt, special
Federal tax counsel to such Trust ("Federal Tax Counsel"), regarding certain
Federal income tax matters discussed below. An opinion of Federal Tax Counsel,
however, is not binding on the Internal Revenue Service (the "IRS") or the
courts. Moreover, there are no cases or IRS rulings on similar transactions
involving both debt and equity interests issued by a trust with terms similar to
those of the Notes and the Certificates. As a result, the IRS may disagree with
all or a part of the discussion below. No ruling on any of the issues discussed
below will be sought from the IRS. For purposes of the following summary,
references to the Trust, the Notes, the Certificates and related terms, parties
and documents shall be deemed to refer, unless otherwise specified herein, to
each Trust and the Notes, Certificates and related terms, parties and documents
applicable to such Trust.
39
<PAGE>
Tax Characterization of the Trust
Prior to the issuance of Securities by the related Trust, Federal Tax
Counsel will deliver its opinion that the Trust will not be treated as an
association (or publicly traded partnership) taxable as a corporation for
Federal income tax purposes. This opinion will be based on the assumption that
the terms of the Trust Documents will be complied with, and on counsel's
conclusions that the nature of the income of the Trust will exempt it from the
rule that certain publicly traded partnerships are taxable as corporations.
If the Trust were taxable as a corporation for Federal income tax
purposes, the Trust would be subject to corporate income tax on its taxable
income. The Trust's taxable income would include all its income on the
Receivables, possibly reduced by its interest expense on the Notes. Any such
corporate income tax could materially reduce cash available to make payments on
the Notes and distributions on the Certificates, and Certificateholders could be
liable for any such tax that is unpaid by the Trust.
Tax Consequences to Holders of the Notes
Treatment of the Notes as Indebtedness. The Seller will agree, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for Federal, state and local income and franchise tax purposes. Prior to the
sale of Securities by the related Trust, Federal Tax Counsel will deliver its
opinion to the Trust with respect to each series of Notes that either (i) the
Notes of such series will be characterized as debt for Federal income tax
purposes or (ii) the Notes of such series should be characterized as debt for
Federal income tax purposes, but if such Notes are not characterized as debt,
such Notes will be characterized as interests in a partnership. Except as
described below under the heading "--Possible Alternative Treatment of the
Notes" below, the discussion below assumes that the characterization of the
Notes as debt for Federal income tax purposes is correct.
OID, [Indexed Securities,] etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not [Indexed Securities or] Strip Notes (the Federal income tax consequences for
which will be described in the applicable Prospectus Supplement). Moreover, the
discussion assumes that the interest formula for the Notes meets the
requirements for "qualified stated interest" under Treasury regulations (the
"OID Regulations") relating to debt instruments issued with original issue
discount ("OID"), and that any OID on the Notes (i.e., any excess of the
principal amount of the Notes over their issue price) is de minimis (i.e., less
than 1/4% of their principal amount multiplied by the weighted average maturity
of the Notes), all within the meaning of the OID Regulations. If these
conditions are not satisfied with respect to any given series of Notes and as a
result the Notes are treated as issued with OID, additional tax considerations
with respect to such Notes will be disclosed in the applicable Prospectus
Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed below, the Notes will not be considered issued with OID. The stated
interest thereon generally will be taxable to a Noteholder as ordinary interest
income when received or accrued in accordance with such Noteholder's method of
tax accounting. Under the OID Regulations, a holder of a Note issued with a de
minimis amount of OID generally must include such OID in income, on a pro rata
basis, as principal payments are made on the Note. It is believed that any
prepayment premium paid as a result of a mandatory redemption will be taxable as
contingent interest when it becomes fixed and unconditionally payable. A
purchaser who buys a Note for more or less than its principal amount will
generally be subject, respectively, to the premium amortization or market
discount rules of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. Under the OID Regulations, all stated interest will be treated as
OID. An accrual basis holder of a Short-Term Note (and certain cash basis
holders, including regulated investment companies, as set forth in Section 1281
of the Code) generally would be required to report interest income as OID
accrues on a straight-line basis over the term of each interest period. Other
cash basis holders of a Short-Term Note would, in general, be required to report
interest income as interest is paid (or, if earlier, upon the taxable
disposition of the Short-Term Note). However, a cash basis holder of a
Short-Term Note reporting interest income as it is paid may be required to defer
a portion of any interest
40
<PAGE>
expense otherwise deductible on indebtedness incurred to purchase or carry the
Short-Term Note until the taxable disposition of the Short-Term Note. A cash
basis taxpayer may elect under Section 1281 of the Code to accrue interest
income on all nongovernment debt obligations with a term of one year or less, in
which case the taxpayer would include OID on the Short-Term Note in income as it
accrues, but would not be subject to the interest expense deferral rule referred
to in the preceding sentence. Certain special rules apply if a Short-Term Note
is purchased for more or less than its principal amount.
Sale or Other Disposition. If a Noteholder sells a Note, the holder will
recognize gain or loss in an amount equal to the difference between the amount
realized on the sale and the holder's adjusted tax basis in the Note. The
adjusted tax basis of a Note to a particular Noteholder will equal the holder's
cost for the Note, increased by any market discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased by
the amount of premium (if any) previously amortized and by the amount of
principal payments previously received by such Noteholder with respect to such
Note. Any such gain or loss will be capital gain or loss, except for gain
representing accrued interest and accrued market discount not previously
included in income. Capital losses generally may be used by a corporate taxpayer
only to offset capital gains, and by an individual taxpayer only to the extent
of capital gains plus $3,000 of other income. Capital gains realized by
individual taxpayers from the sale or exchange of capital assets held for more
than 12 months are subject to preferential rates of tax.
Foreign Holders. Interest paid (or accrued) to a Noteholder who is a
nonresident alien, foreign corporation or other person other than a United
States person as defined in the Code and Treasury Regulations (a "foreign
person") generally will be considered "portfolio interest," and generally will
not be subject to United States Federal income tax and withholding tax, if the
interest is not effectively connected with the conduct of a trade or business
within the United States by the foreign person and the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Trust or the Seller
(including a holder of 10% of the outstanding Certificates) or a "controlled
foreign corporation" with respect to which the Trust or the Seller is a "related
person" within the meaning of the Code and (ii) provides the Trustee or other
person who is otherwise required to withhold U.S. tax with respect to the Notes
with an appropriate statement (on Form W-8 or a similar form), signed under
penalties of perjury, certifying that the beneficial owner of the Note is a
foreign person and providing the foreign person's name and address. If the
information provided in this statement changes, the foreign person must inform
the Trust within 30 days of such change. If a Note is held through a securities
clearing organization or certain other financial institutions, the organization
or institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a Form
W-8 or substitute form provided by the foreign person that owns the Note. If
such interest is not portfolio interest, then it will be subject to United
States Federal income and withholding tax at a rate of 30%, unless reduced or
eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States Federal income and withholding tax; provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days or
more in the taxable year.
Final regulations dealing with withholding tax on income paid to foreign
persons and related matters (the "New Withholding Regulations") were issued by
the Treasury Department on October 6, 1997. The New Withholding Regulations will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. Prospective Noteholders who are foreign persons are
strongly urged to consult their own tax advisors with respect to the New
Withholding Regulations.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's name,
address, correct Federal taxpayer identification number and a statement that the
holder is not subject to backup withholding. Should a nonexempt Noteholder
41
<PAGE>
fail to provide the required certification, the Trust will be required to
withhold 31% of the amount otherwise payable to the holder, and remit the
withheld amount to the IRS as a credit against the holder's Federal income tax
liability.
Possible Alternative Treatment of the Notes. In the opinion of Federal Tax
Counsel, in the event that any series of Notes were not treated as debt for
Federal income tax purposes, such series of Notes would be characterized for
Federal income tax purposes as interests in a partnership. If any series of the
Notes did constitute interests in such a partnership, it is expected that stated
interest payments on such Notes would be treated either as guaranteed payments
under section 707(c) of the Code or as a preferential allocation of net income
of the Trust (with all other items of Trust income, gain, loss, deduction and
credit being allocated to the holders of the Certificates). Although the Federal
income tax treatment of such Notes for most accrual basis taxpayers should not
differ materially under such characterization from the treatment of such Notes
as debt, such characterization could result in adverse effects for certain
holders of Notes. For example, holders of Notes treated as interests in a
partnership could be subject to tax on income equal to the entire amount of the
stated interest payments on the Notes (plus possibly certain other items) even
though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders would in effect be
required to report income in respect of such Notes on the accrual basis and
holders of such Notes could become liable for taxes on Trust income even if they
have not received cash from the Trust to pay such taxes. Moreover, income
allocable to a holder of a Note treated as a partnership interest that is a
pension, profit-sharing or employee benefit plan or other tax-exempt entity
(including an individual retirement account) would constitute "unrelated
debt-financed income" generally taxable to such a holder under the Code. In
addition, foreign persons holding such Notes could be subject to withholding or
required to file a U.S. Federal income tax return and to pay U.S. Federal income
tax (and, in the case of a corporation, branch profits tax) on their share of
accruals of guaranteed payments and Trust income, and individuals holding such
Notes might be subject to certain limitations on their ability to deduct their
share of Trust expenses.
Tax Consequences to Holders of the Certificates
Treatment of the Trust as a Partnership. The Seller and the Servicer will
agree, and the Certificateholders will agree by their purchase of Certificates,
to treat the Trust as a partnership for purposes of Federal and state income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the Trust, the
partners of the partnership being the Certificateholders (including the Seller
in its capacity as recipient of distributions from the Spread Account and any
other account specified in the related Prospectus Supplement in which the Seller
has an interest), and the Notes being debt of the partnership. However, the
proper characterization of the arrangement involving the Trust, the
Certificates, the Notes, the Seller and the Servicer is not clear because there
is no authority on transactions closely comparable to that contemplated herein.
A variety of alternative characterizations are possible. For example,
because the Certificates may have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust. Any such
characterization should not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
[Indexed Securities, etc]. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are [Indexed Securities or] Strip Certificates and a series of
Securities includes a single class of Certificates. If these conditions are not
satisfied with respect to any given series of Certificates, additional tax
considerations with respect to such Certificates will be disclosed in the
applicable Prospectus Supplement.
Partnership Taxation. As a partnership, the Trust will not be subject to
Federal income tax. Rather, each Certificateholder will be required to
separately take into account such holder's accruals of guaranteed payments from
the Trust and its allocated share of other income, gains, losses, deductions and
credits of the Trust. The Trust's income will consist primarily of interest and
finance charges earned on the Receivables (including
42
<PAGE>
appropriate adjustments for market discount, OID and premium) and any gain upon
collection or disposition of Receivables. The Trust's deductions will consist
primarily of interest accruing with respect to the Notes, guaranteed payments on
the Certificates, servicing and other fees, and losses or deductions upon
collection or disposition of Receivables.
Under the Trust Agreement, stated interest payments on the Certificates
(including interest on amounts previously due on the Certificates but not yet
distributed) will be treated as "guaranteed payments" under Section 707(c) of
the Code. Guaranteed payments are payments to partners for the use of their
capital and, in the present circumstances, are treated as deductible to the
Trust and ordinary income to the Certificateholders. The Trust will have a
calendar year tax year and will deduct the guaranteed payments under the accrual
method of accounting. Certificateholders with a calendar year tax year are
required to include the accruals of guaranteed payments in income in their
taxable year that corresponds to the year in which the Trust deducts the
payments, and Certificateholders with a different taxable year are required to
include the payments in income in their taxable year that includes the December
31 of the Trust year in which the Trust deducts the payments. It is possible
that guaranteed payments will not be treated as interest for all purposes of the
Code.
In addition, the Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust for each
Collection Period equal to the sum of (i) any Trust income attributable to
discount on the Receivables that corresponds to any excess of the principal
amount of the Certificates over their initial issue price; (ii) prepayment
premium, if any, payable to the Certificateholders for such month and (iii) any
other amounts of income payable to the Certificateholders for such month. Such
allocation will be reduced by any amortization by the Trust of premium on
Receivables that corresponds to any excess of the issue price of Certificates
over their principal amount. All remaining items of income, gain, loss and
deduction of the Trust will be allocated to the Seller.
Based on the economic arrangement of the parties, this approach for
accruing guaranteed payments and allocating Trust income should be permissible
under applicable Treasury regulations, although no assurance can be given that
the IRS would not require a greater amount of income to be allocated to
Certificateholders. Moreover, even under the foregoing method of allocation,
Certificateholders may be subject to tax on income equal to the entire amount of
stated interest payments on the Certificates plus the other items described
above even though the Trust might not have sufficient cash to make current cash
distributions of such amount. Thus, cash basis holders will in effect be
required to report income from the Certificates on the accrual basis and
Certificateholders may become liable for taxes on Trust income even if they have
not received cash from the Trust to pay such taxes. In addition, because tax
allocations and tax reporting will be done on a uniform basis for all
Certificateholders but Certificateholders may be purchasing Certificates at
different times and at different prices, Certificateholders may be required to
report on their tax returns taxable income that is greater or less than the
amount reported to them by the Trust.
Most of the guaranteed payments and taxable income allocated to a
Certificateholder that is a pension, profit-sharing or employee benefit plan or
other tax-exempt entity (including an individual retirement account) will
constitute "unrelated debt-financed income" generally taxable to such a holder
under the Code.
An individual taxpayer's share of expenses of the Trust (including fees to
the Servicer but not interest expense) would be miscellaneous itemized
deductions. Such deductions might be disallowed to the individual in whole or in
part and might result in such holder being taxed on an amount of income that
exceeds the amount of cash actually distributed to such holder over the life of
the Trust. It is not clear whether these rules would be applicable to a
Certificateholder accruing guaranteed payments.
The Trust intends to make all tax calculations relating to income and
allocations to Certificateholders on an aggregate basis. If the IRS were to
require that such calculations be made separately for each Receivable, the Trust
might be required to incur additional expense but it is believed that there
would not be a material adverse effect on Certificateholders.
43
<PAGE>
Discount and Premium. The purchase price paid by the Trust for the
Receivables may be greater or less than the remaining principal balance of the
Receivables at the time of purchase. If so, the Receivables will have been
acquired at a premium or discount, as the case may be. (As indicated above, the
Trust will make this calculation on an aggregate basis, but might be required to
recompute it on a Receivable-by-Receivable basis.)
If the Trust acquires the Receivables at a market discount or premium, the
Trust will elect to include any such discount in income currently as it accrues
over the life of the Receivables or to offset any such premium against interest
income on the Receivables. As indicated above, a portion of such market discount
income or premium deduction may be allocated to Certificateholders.
Disposition of Certificates. Generally, capital gain or loss will be
recognized on a sale of Certificates in an amount equal to the difference
between the amount realized and the seller's tax basis in the Certificates sold.
A Certificateholder's tax basis in a Certificate will generally equal the
holder's cost increased by the holder's share of Trust income and accruals of
guaranteed payments (includible in income) and decreased by any distributions
received with respect to such Certificate. In addition, both the tax basis in
the Certificates and the amount realized on a sale of a Certificate would
include the holder's share of the Notes and other liabilities of the Trust. A
holder acquiring Certificates at different prices may be required to maintain a
single aggregate adjusted tax basis in such Certificates, and, upon sale or
other disposition of some of the Certificates, allocate a pro rata portion of
such aggregate tax basis to the Certificates sold (rather than maintaining a
separate tax basis in each Certificate for purposes of computing gain or loss on
a sale of that Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust does not expect to have any other assets that
would give rise to such special reporting requirements. Thus, to avoid those
special reporting requirements, the Trust will elect to include market discount
in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise to
a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust's
taxable income and losses will be determined monthly and the tax items and
accruals of guaranteed payments for a particular calendar month will be
apportioned among the Certificateholders in proportion to the principal amount
of Certificates owned by them as of the close of the last day of such month. As
a result, a holder purchasing Certificates may be allocated tax items and
accruals of guaranteed payments (which will affect its tax liability and tax
basis) attributable to periods before the actual transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or losses
and accruals of guaranteed payments of the Trust might be reallocated among the
Certificateholders. The Company is authorized to revise the Trust's method of
allocation between transferors and transferees to conform to a method permitted
by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder had.
The tax basis of the Trust's assets will not be adjusted to reflect that higher
(or lower) basis unless the Trust were to file an election under Section 754 of
the Code. In order to avoid the administrative complexities that would be
involved in keeping accurate accounting records, as well as potentially onerous
information reporting requirements, the Trust will not make such election. As a
result, Certificateholders might be allocated a greater or lesser amount of
Trust income than would be appropriate based on their own purchase price for
Certificates.
44
<PAGE>
Administrative Matters. The Trustee is required to keep or have kept
complete and accurate books of the Trust. Such books will be maintained for
financial reporting and tax purposes on an accrual basis and the fiscal year of
the Trust will be the calendar year. The Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust issuing Certificates and will report each Certificateholder's accruals of
guaranteed payments and allocable share of items of Trust income and expense to
holders and the IRS on Schedule K-1. The Trust will provide the Schedule K-1
information to nominees that fail to provide the Trust with the information
statement described below and such nominees will be required to forward such
information to the beneficial owners of the Certificates. Generally, holders
must file tax returns that are consistent with the information return filed by
the Trust or be subject to penalties unless the holder notifies the IRS of all
such inconsistencies.
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust with
a statement containing certain information on the nominee, the beneficial owners
and the Certificates so held. Such information includes (i) the name, address
and taxpayer identification number of the nominee and (ii) as to each beneficial
owner (x) the name, address and taxpayer identification number of such person,
(y) whether such person is a United States person, a tax-exempt entity or a
foreign government, an international organization, or any wholly-owned agency or
instrumentality of either of the foregoing and (z) certain information on
Certificates that were held, bought or sold on behalf of such person throughout
the year. In addition, brokers and financial institutions that hold Certificates
through a nominee are required to furnish directly to the Trust information as
to themselves and their ownership of Certificates. A clearing agency registered
under Section 17A of the Exchange Act is not required to furnish any such
information statement to the Trust. The information referred to above for any
calendar year must be furnished to the Trust on or before the following January
31. Nominees, brokers and financial institutions that fail to provide the Trust
with the information described above may be subject to penalties.
The Seller will be designated as the tax matters partner in the Trust
Agreement and, as such, will be responsible for representing the
Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the Trust by the appropriate taxing authorities could
result in an adjustment of the returns of the Certificateholders, and, under
certain circumstances, a Certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Trust. An adjustment could
also result in an audit of a Certificateholder's returns and adjustments of
items not related to the income and losses of the Trust.
Tax Consequences to Foreign Certificateholders. It appears under recent
amendments to the Code that the Trust would not be considered to be engaged in
the conduct of a trade or business in the United States for purposes of Federal
withholding taxes with respect to foreign persons, and, although there is no
clear authority dealing with that issue under facts substantially similar to
those described herein, the Trust intends to take the position that it is not
engaged in the conduct of a trade or business in the United States. Foreign
persons that are partners in a partnership that is not engaged in the conduct of
a trade or business in the United States are subject to U.S. withholding tax at
a rate of 30 percent assessed on a gross basis on certain items of fixed or
determinable annual or periodical gains, profits and income earned by the
partnership from U.S. sources that are allocable to such foreign partners. To
the extent that any such income earned by a partnership is allocable to partners
that are foreign persons, such partnership is obligated to withhold such gross
basis tax, unless such tax is eliminated by an income tax treaty to which the
United States is a signatory or another exemption applies. It is not expected
that interest earned by the Trust would qualify as "portfolio interest" that was
not subject to U.S. withholding tax to the extent allocable to a
Certificateholder that was a foreign person. Assuming then that the Trust is not
considered to be engaged in the conduct of a trade or business in the United
States, the Trust would be required to withhold U.S. tax on interest earned by
the Trust on the Receivables that was allocable to Certificateholders that are
foreign persons, unless such tax is eliminated by an income tax treaty. Foreign
persons holding Certificates will therefore be required to provide to the
Trustee an IRS Form 1001 or successor form establishing such non-U.S.
Certificateholder's entitlement to benefits
45
<PAGE>
under an income tax treaty that eliminates U.S. withholding tax on payments of
interest from U.S. sources. Subsequent adoption of Treasury regulations or the
issuance of other administrative pronouncements may require the Trust to change
its withholding procedures.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding tax
of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code. See "Tax Consequences to Holders of the Notes
- -- Backup Withholding."
ERISA CONSIDERATIONS
The Prospectus Supplement for each Series of Securities will summarize,
subject to the limitations discussed therein, considerations under ERISA
relevant to the purchase of such Securities by employee benefit plans and
individual retirement accounts.
PLAN OF DISTRIBUTION
CPS may sell Securities (i) through underwriters or dealers: (ii) directly
to one or more purchasers: or (iii) through agents. The related Prospectus
Supplement in respect of a Series offered hereby will set forth the terms of the
offering of such Securities, including the name or names of any underwriters,
the purchase price of such Securities and the proceeds to CPS from such sale,
any underwriting discounts and other items constituting underwriters'
compensation, any initial offering price and any discounts or concessions
allowed or reallowed or paid to dealers. Only underwriters so named in such
Prospectus Supplement shall be deemed to be underwriters in connection with the
Securities offered thereby.
Subject to the terms and conditions set forth in an underwriting agreement
(an "Underwriting Agreement") to be entered into with respect to each Series of
Securities, CPS will agree to sell to each of the underwriters named therein and
in the related Prospectus Supplement, and each of such underwriters will
severally agree to purchase from CPS, the principal amount of Securities set
forth therein and in the related Prospectus Supplement (subject to proportional
adjustment on the terms and conditions set forth in the related Underwriting
Agreement in the event of an increase or decrease in the aggregate amount of
Securities offered hereby and by the related Prospectus Supplement).
In each Underwriting Agreement, the several underwriters will agree,
subject to the terms and conditions set forth therein, to purchase all the
Securities offered hereby and by the related Prospectus Supplement if any of
such Securities are purchased. In the event of a default by any underwriter,
each Underwriting Agreement will provide that, in certain circumstances,
purchase commitments of the nondefaulting underwriters may be increased or the
Underwriting Agreement may be terminated.
Each Underwriting Agreement will provide that CPS will indemnify the
related underwriters and, in certain limited circumstances, the underwriters
will indemnify CPS against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
The place and time of delivery for any Series of Securities in respect of
which this Prospectus is delivered will be set forth in the accompanying
Prospectus Supplement.
LEGAL OPINIONS
Certain legal matters relating to the issuance of the Securities of any
Series, including certain federal and state income tax consequences with respect
thereto and certain Bankruptcy matters, will be passed upon by Mayer, Brown &
Platt, New York, New York, or other counsel specified in the related Prospectus
Supplement.
46
<PAGE>
FINANCIAL INFORMATION
Certain specified Trust Assets will secure each Series of Securities, no
Trust will engage in any business activities or have any assets or obligations
prior to the issuance of the related Series of Securities. Accordingly, no
financial statements with respect to any Trust Assets will be included in this
Prospectus or in the related Prospectus Supplement.
A Prospectus Supplement may contain the financial statements of the
related Credit Enhancer, if any.
47
<PAGE>
INDEX OF TERMS
"Accrual Securities".......................................................7
"Actuarial Receivables"...................................................22
"Affiliate Purchase Agreement"............................................20
"Affiliated Originator"................................................9, 23
"APR".....................................................................22
"cash sale differential"..................................................40
"CEDEL Participants"......................................................28
"Cede"....................................................................10
"Certificateholders"......................................................34
"Certificates"..........................................................1, 4
"Class"....................................................................1
"Closing Date".........................................................9, 30
"Code"....................................................................41
"Collection Account"......................................................31
"Collection Period"........................................................6
"Commission"...............................................................2
"Contracts"............................................................1, 23
"Cooperative".............................................................29
"CPS"......................................................................4
"Credit Enhancement"......................................................18
"Credit Enhancer".........................................................18
"Cutoff Date"..............................................................9
"Dealer Agreements".......................................................19
"Dealers".................................................................19
"Definitive Securities"...................................................29
"Depositaries"............................................................27
"Direct Participants".....................................................18
"Distribution Account"....................................................31
"DTC".....................................................................10
"Eligible Deposit Account"................................................32
"Eligible Institution"....................................................32
"Eligible Investments"................................................27, 31
"ERISA"...................................................................12
"Euroclear Operator"......................................................29
"Euroclear Participants"..................................................29
"Exchange Act".........................................................2, 12
"Federal Tax Counsel".....................................................41
"Financed Vehicles".....................................................1, 9
"foreign person"..........................................................43
"FTC Rule"................................................................40
"Funding Period"...........................................................9
"IFC's"...................................................................23
"Indenture Trustee"........................................................4
"Indenture"................................................................4
"Indirect Participants"...............................................18, 27
"Initial Receivables"......................................................9
"Insolvency Event"........................................................36
"Insolvency Laws".........................................................16
48
<PAGE>
"Interest Rate".........................................................2, 7
"Interest Reserve Account"................................................31
"Investment Earnings".....................................................32
"Investment Income".......................................................10
"IRS".....................................................................41
"Issuer"...............................................................4, 19
"Lock-Box Account"........................................................33
"Lock-Box Processor"......................................................33
"national statistical rating organizations"...............................12
"New Withholding Regulations".............................................43
"Noteholders".............................................................34
"Notes".................................................................1, 4
"Obligors"................................................................19
"OID Regulations".........................................................42
"OID".....................................................................42
"Participants"............................................................27
"Payment Date".............................................................5
"Policy"...................................................................1
"Pool Balance"............................................................24
"Pool Factor".............................................................24
"Post Office Box".........................................................33
"Pre-Funded Amount"........................................................9
"Pre-Funding Account"......................................................9
"prepayments".............................................................13
"Prospectus Supplement"....................................................1
"Purchase Agreement"......................................................20
"Purchase Amount".........................................................20
"Receivables Pool"........................................................19
"Receivables"...........................................................1, 8
"Record Date"..............................................................5
"Registration Statement"...................................................2
"Relief Act"..............................................................18
"Residual Interest"........................................................8
"Rule of 78's Receivables"................................................21
"Rule of 78's"............................................................22
"Rules"...................................................................28
"Sale and Servicing Agreement".........................................9, 19
"Securities Act"...........................................................2
"Securities"...............................................................1
"Security Balance".........................................................7
"Securityholders"..........................................................5
"Seller"...................................................................4
"Senior Securities"........................................................7
"Series"...............................................................1, 25
"Servicer Termination Event"..............................................36
"Servicer"..............................................................1, 4
"Servicing Agreement"......................................................4
"Servicing Fee"...........................................................33
"Short-Term Note".........................................................42
"Simple Interest Receivables".............................................22
"Sponsor"..................................................................4
"Standby Servicer"....................................................32, 33
49
<PAGE>
"Strip Securities".........................................................7
"Sub-Prime Borrowers".....................................................23
"sub-prime"...............................................................13
"Subordinate Securities"...................................................7
"Subsequent Receivables"...................................................9
"Subsequent Transfer Date"............................................14, 21
"Subservicer"..............................................................4
"sum of monthly payments".................................................21
"sum of periodic balances"................................................21
"Terms and Conditions"....................................................29
"Trust Accounts"..........................................................31
"Trust Agreement"..........................................................4
"Trust Assets"..........................................................1, 4
"Trust Documents"......................................................5, 30
"Trustee"...............................................................4, 5
"Trust".................................................................1, 4
"Underwriting Agreement"..................................................48
50
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
================================================================================
No person has been authorized in connection with the offering made hereby to
give any information or to make any representation not contained in this
Prospectus Supplement or the Prospectus, and, if given or made, such information
or representations must not be relied upon as having been authorized by CPS, the
Seller or any Underwriter. This Prospectus Supplement and the Prospectus do not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or by anyone in any jurisdiction in
which it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus Supplement or the Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication that the information contained
herein is correct as of any date subsequent to the date hereof.
================================================================================
TABLE OF CONTENTS
Prospectus Supplement
PAGE
----
Available Information.....................................................S-2
Incorporation of Certain Documents by Reference...........................S-2
Reports to Noteholders....................................................S-3
Summary...................................................................S-4
Risk Factors.............................................................S-17
Formation of the Trust..................................................S-19
The Trust Assets.........................................................S-20
CPS's Automobile Contract Portfolio......................................S-21
The Receivables Pool.....................................................S-28
Yield Considerations.....................................................S-35
Pool Factors and Other Information.......................................S-35
Use of Proceeds..........................................................S-36
The Seller, CPS, Samco and Linc..........................................S-36
The Standby Servicer.....................................................S-36
Description of the Securities............................................S-36
Registration of Notes....................................................S-38
Description of the Trust Documents.......................................S-39
Credit Enhancement.......................................................S-50
The Policy...............................................................S-50
The Insurer..............................................................S-52
Federal Income Tax Consequences..........................................S-53
ERISA Considerations.....................................................S-53
Underwriting.............................................................S-54
Legal Opinions...........................................................S-55
Experts..................................................................S-55
Index of Terms...........................................................S-56
Prospectus
----------
Prospectus Supplement.......................................................2
Available Information.......................................................2
Incorporation of Certain Documents by Reference.............................2
Report to Securityholders...................................................3
Summary of Terms............................................................4
Risk Factors...............................................................13
The Issuers................................................................18
The Trust Assets...........................................................19
Acquisition of Receivables by the Seller...................................20
The Receivables............................................................20
CPS's Automobile Contract Portfolio........................................22
Pool Factors...............................................................23
Use of Proceeds............................................................23
The Seller and CPS.........................................................23
The Trustee................................................................24
Description of the Securities..............................................25
Description of the Trust Documents.........................................29
Certain Legal Aspects of the Receivables...................................36
Federal Income Tax Consequences............................................40
ERISA Considerations.......................................................46
Plan of Distribution.......................................................46
Legal Opinions.............................................................47
Financial Information......................................................47
Index of Terms.............................................................48
------------------------
Until 90 days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Class A Notes offered hereby, whether or not
participating in this distribution, may be required to deliver this Prospectus
Supplement and the Prospectus. This is in addition and the Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>
================================================================================
$[ ]
[CPS Logo]
CPS Auto Receivables Trust [ ]
[ ]% Asset-Backed Notes, Class A-1
[ ]% Asset-Backed Notes, Class A-2
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-----------------------------
PROSPECTUS SUPPLEMENT
-----------------------------
[Underwriter]
================================================================================
<PAGE>
[ ]
Prospectus Supplement
To Prospectus Dated [ ]
$[ ]
[CPS Logo]
CPS Auto Receivables Trust 1998-3
$[ ][ ]% Asset-Backed Notes, Class A-1
$[ ][ ]% Asset-Backed Notes, Class A-2
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-----------------------------
CPS Auto Receivables Trust 199[ ] (the "Trust") was formed pursuant to a
Trust Agreement, dated as of [ ], between CPS Receivables Corp., as depositor
(the "Seller"), and [ ], as owner trustee (the "Owner Trustee"). The [ ]%
Asset-Backed Notes, Class A-1 (the "Class A-1 Notes") and the [ ]% Asset-Backed
Notes, Class A-2 (the "Class A-2 Notes" and, together with the Class A-1 Notes,
the "Class A Notes" or the "Notes"), will be issued pursuant to an Indenture
(the "Indenture"), dated as of [ ], between the Trust and [ ], as indenture
trustee (in such capacity, the "Indenture Trustee"). The Trust will also issue
Asset-Backed Certificates (the "Certificates" and, together with the Notes, the
"Securities") in an initial principal amount of [ ] which will not bear interest
and which will initially be retained by the Seller. The rights of the holders of
the Certificates to receive payments of principal will be subordinated to the
rights of Noteholders to the extent described herein. Only the Notes are offered
hereby.
-----------------------------
The Trust Assets will include a pool of retail installment sale contracts
(including contracts representing obligations of Sub-Prime Borrowers (as defined
herein) ) and all rights thereunder, certain monies received thereunder after [
], security interests in the used and new automobiles, light trucks, vans and
minivans securing the Receivables (as defined herein) , certain bank accounts
and the proceeds thereof and the right of Consumer Portfolio Services, Inc.
("CPS") or CPS's subsidiaries, Samco Acceptance Corp. ("Samco") and Linc
Acceptance Company LLC ("Linc") and such other affiliated originator as may be
described herein, (an "Affiliated Originator"), to receive certain insurance
proceeds and certain other property, as more fully described herein. The
Receivables will be purchased by the Seller from CPS, Samco and Linc, on or
prior to the date of the issuance of the Securities.
-----------------------------
The Underwriter has agreed to purchase from the Seller the Class A-1
Notes at a purchase price equal to [ ]% of the principal amount of Class A-1
Notes and the Class A-2 Notes at a purchase price equal to [ ]% of the principal
amount of Class A-2 Notes and in each case subject to the terms and conditions
set forth in the Underwriting Agreement referred to herein under "Underwriting".
The aggregate proceeds to the Seller, after deducting expenses payable by the
Seller, estimated at $[ ], will be $[ ] for the Notes, subject to adjustment as
set forth under the caption "Underwriting" herein.
-----------------------------
The Underwriter proposes to offer the Notes from time to time in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. For further information with respect to the plan of distribution
and any discounts, commissions or profits that may be deemed underwriting
discounts or commissions, see "Underwriting" herein.
-----------------------------
[Credit Enhancement] in respect of the Notes on each Payment Date is
unconditionally and irrevocably guaranteed pursuant to a financial guaranty
insurance policy (the "Policy") to be issued by [Credit Enhancer].
For a discussion of certain factors relating to the transaction, see "Risk
Factors" at page S-[ ] herein and page [ ] in the accompanying prospectus.
-----------------------------
THE SECURITIES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY AFFILIATE
THEREOF. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR 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 Notes are offered hereby by the Underwriter when, as and if issued by
the Trust, delivered to and accepted by the Underwriter and subject to the right
of the Underwriter to reject any order in whole or in part. It is expected that
delivery of the Notes will be made on or about [ ], only through The Depository
Trust Company.
-----------------------------
[Underwriter]
-----------------------------
The date of this Prospectus Supplement is [ ].
<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
Notes offered pursuant to this Prospectus Supplement. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder. Upon the receipt of a request from an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriter or a request from such investor's representative within the
period during which there is an obligation to deliver a Prospectus Supplement
and Prospectus, CPS, the Seller or the Underwriter will promptly deliver, or
cause to be delivered, without charge, a paper copy of the Prospectus Supplement
and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes 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.
All financial statements of [Credit Enhancer] included in documents
filed by [Credit Enhancer] pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus Supplement and prior to
the termination of the offering of the Notes shall be deemed to be incorporated
by reference into this Prospectus Supplement and to be a part hereof from the
respective dates of filing of such documents.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial conditions and
results of operations of an insurance company, for determining its solvency
under the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the New
S-2
<PAGE>
York State Insurance Department to financial statements prepared in accordance
with generally accepted accounting principles in making such determinations.
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 [Credit Enhancer] 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 Notes offered hereby, and the offering of such Notes at that
time shall be deemed to be the initial bona fide offering thereof.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes 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 Notes. 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
<PAGE>
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement on the pages indicated in the
"Index of Terms" or, to the extent not defined herein, have the meaning assigned
to such terms in the Prospectus.
Issuer........................... CPS Auto Receivables Trust 199[ ]-[ ] (the
"Trust" or the "Issuer").
Seller........................... CPS Receivables Corp. (the "Seller"), a
California corporation. See "The Seller and
CPS" in this Prospectus Supplement.
Servicer......................... Consumer Portfolio Services, Inc. ("CPS" or,
in its capacity as the servicer, the
"Servicer"), a California corporation. See
"CPS's Automobile Contract Portfolio" and
"The Seller and CPS" in this Prospectus
Supplement.
Originators...................... CPS, Samco Acceptance Corp. ("Samco"), a
Delaware corporation, and Linc Acceptance
Company LLC ("Linc"; Samco and Linc are each
an "Affiliated Originator" and are,
together, the "Affiliated Originators"), a
Delaware limited liability company (each, in
such capacity, an "Originator" and,
together, the "Originators"). CPS holds an
80% ownership interest in each of Samco and
Linc.
Indenture Trustee and
Standby Servicer............... [Name and Address]
Owner Trustee.................... [Name and Address]
[Credit Enhancer]................ [Name and Address]
Closing Date..................... On or about [ ] (the "Closing Date").
The Trust........................ The Trust will be a business trust
established under the laws of the State of
Delaware. The activities of the Trust are
limited by the terms of the Trust Agreement,
dated as of [ ], between the Seller, as
depositor, and the Owner Trustee (the "Trust
Agreement"). The Trust will issue [ ]%
Asset-Backed Notes, Class A-1 (the "Class
A-1 Notes") in the aggregate original
principal amount of $[ ] and [ ]%
Asset-Backed Notes, Class A-2 (the "Class
A-2 Notes and together with the Class A-1
Notes, the "Notes") in the aggregate
original principal amount of $[ ]. The
aggregate original principal amount of the
Notes will be $[ ]. The Trust will also
issue Asset-Backed Certificates in the
aggregate original principal amount of $[ ]
(the "Certificates" and, together with the
Notes, the "Securities") which will not bear
interest. The Notes will be issued
S-4
<PAGE>
pursuant to an Indenture, dated as of [ ]
(the "Indenture"). The Notes will be offered
for purchase in minimum denominations of
$1,000 and integral multiples of $1,000 in
excess thereof, in book entry form only. See
"Description of the Securities Book-Entry
Registration" in the Prospectus. The Notes
will be secured by the Trust Assets as, and
to the extent, provided in the Indenture and
the Trust Agreement. Only the Notes are
offered hereby.
Trust Assets..................... The property of the Trust (the "Trust
Assets") will include (i) a pool of retail
installment sale contracts (each a
"Receivable" and collectively, the
"Receivables Pool") secured by the used and
new automobiles, light trucks, vans and
minivans financed thereby (the "Financed
Vehicles"), (ii) all payments received on
the Receivables after [ ] (the "Cutoff
Date"), (iii) security interests in the
Financed Vehicles, (iv) certain bank
accounts and the proceeds thereof, (v) the
right of CPS, Samco and Linc to receive
proceeds from claims under, or refunds of
unearned premiums from, certain insurance
policies and extended service contracts,
(vi) all right, title and interest of the
Seller in and to the Purchase Agreements (as
defined below) and (vii) certain other
property, as more fully described herein.
See "The Trust Assets" in this Prospectus
Supplement and "The Receivables" in the
Prospectus.
The Receivables.................. As of the Cutoff Date, the aggregate
outstanding principal balance of the
Receivables was $[ ] (the "Original Pool
Balance"). On or prior to the Closing Date,
the Seller will purchase the Receivables
from CPS, Samco and Linc pursuant to three
purchase agreements, each dated as of [ ]
(the "CPS Purchase Agreement", the "Samco
Purchase Agreement" and the "Linc Purchase
Agreement", respectively, and each, a
"Purchase Agreement" and, together, the
"Purchase Agreements"), each between the
respective Originator and the Seller. The
Receivables sold by CPS, Samco and Linc (the
"CPS Receivables", "Samco Receivables" and
"Linc Receivables", respectively) will
represent approximately [ ]%, [ ]% and [ ]%,
respectively, of the Original Pool Balance.
Pursuant to the Sale and Servicing
Agreement, dated as of [ ] (the "Sale and
Servicing Agreement"), the Trust, in turn,
will purchase from the Seller the
Receivables. The Receivables consist of
retail installment sale contracts secured by
used and new automobiles, light trucks, vans
and minivans including 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, independent finance
companies ("IFCs") or Deposit Institutions
for assignment to CPS, Samco or Linc
pursuant to CPS's auto loan
S-5
<PAGE>
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", "The Receivables Pool"
and "Risk Factors--Sub-Prime Obligors;
Servicing" in this Prospectus Supplement and
"Risk Factors--Sub-Prime Obligors" in the
Prospectus.
The Receivables have been selected from
motor vehicle retail installment sale
contracts in CPS's, Samco's and Linc's
portfolios based on the criteria specified
in the Purchase Agreements and the Sale and
Servicing Agreement and described in this
Prospectus Supplement. 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
average original term to maturity of the
Receivables was approximately [ ] months. No
Receivable has a scheduled maturity date
later than [ ].
Terms of the Notes............... The principal terms of the Notes will be as
described below:
A. Payment Dates............... Payments of interest and principal on the
Notes will be made on the 15th day of each
month or, if such 15th day is not a Business
Day, on the next following Business Day
(each a "Payment Date"), commencing [ ].
Payments will be made to holders of record
of the Notes (the "Noteholders") as of the
close of business on the Record Date
applicable to such Payment Date. A "Business
Day" is a day other than a Saturday, a
Sunday or a day on which banking
institutions in the City of New York, New
York, the State in which the principal
corporate trust office of the Indenture
Trustee is located, the State in which the
principal corporate trust office of the
Owner Trustee is located, the State in which
the executive offices of the Servicer are
located, or the State in which the principal
place of business of the Insurer is located
are authorized or obligated by law,
executive order or governmental decree to be
closed.
B. Final Scheduled
Payment Date................ The "Final Scheduled Payment Date" for the
Class A-1 Notes will be the [ ] Payment Date
(the "Class A-1 Final Scheduled Payment
Date") and for the Class A-2 Notes will be
the [ ] Payment Date (the "Class A-2 Final
Scheduled Payment Date"). See "Risk
Factors--Final Scheduled Payment Dates of
the Notes".
C. Interest Rates................ The Class A-1 Notes will bear interest at a
rate equal to [ ]% per annum (the "Class A-1
Interest Rate"). The Class A-2 Notes will
bear interest at a rate equal to [ ]% per
annum (the "Class A-2 Interest Rate"). Each
such interest rate for a class of Notes is
referred
S-6
<PAGE>
to as an "Interest Rate". Interest on the
Class A-1 Notes will be calculated on the
basis of a 360-day year and the actual
number of days elapsed from and including
the most recent Payment Date on which
interest has been paid (or, in the case of
the first Payment Date, from and including
the Closing Date) to, but excluding, the
following Payment Date (each a "Class A-1
Interest Period"). Interest on the Class A-2
Notes, will be calculated on the basis of a
360 day year consisting of twelve 30 day
months.
D. Interest.................... On each Payment Date, the holders of record
of the Class A-1 Notes (the "Class A-1
Noteholders") as of the related Record Date
will be entitled to receive, pro rata,
interest for the applicable Class A-1
Interest Period at the Class A-1 Interest
Rate on the outstanding principal amount of
the Class A-1 Notes at the close of the
preceding Payment Date. On each Payment
Date, the holders of record of the Class A-2
Notes (the "Class A-2 Noteholders") as of
the related Record Date will be entitled to
receive, pro rata, thirty (30) days of
interest at the Class A-2 Interest Rate on
the outstanding principal amount of the
Class A-2 Notes at the close of the
preceding Payment Date. Notwithstanding the
foregoing, on the initial Payment Date, the
interest payable to the Noteholders of
record of each class of Notes will be an
amount equal to the product of (a) the
Interest Rate applicable to such class of
Notes, (b) the initial principal amount of
such class of Notes and (c) a fraction (i)
the numerator of which is the number of days
from and including the Closing Date to and
including [ ] (assuming, in the case of the
Class A-2 Notes, that there are 30 days in
each month of the year) and (ii) the
denominator of which is 360.
Interest on the Notes which is due but not
paid on any Payment Date will be payable on
the next Payment Date together with, to the
extent permitted by law, interest on such
unpaid amount at the applicable Interest
Rate. See "Description of the
Securities--Payment of Interest" in this
Prospectus Supplement.
E. Principal..................... Principal of the Notes will be payable on
each Payment Date in an amount equal to the
Class A Noteholders' Principal Distributable
Amount for the related Collection Period.
The "Class A Noteholders' Principal
Distributable Amount" is equal to the Class
A Noteholders' Percentage (as of each
Payment Date) of the Principal Distributable
Amount. The Noteholders also will be
entitled to receive on each Payment Date any
unpaid portion of the Class A Noteholders'
Principal Distributable Amount with respect
to a prior Payment Date. In addition to the
Class A Noteholders' Principal Distributable
Amount, on each Payment Date on which the
principal balance of the Notes (after giving
effect to the payment of the Class A
Noteholders' Principal Distributable Amount
on such Payment Date) exceeds the Class A
Target Amount for such Payment Date, the
holders of the Notes will
S-7
<PAGE>
be entitled to receive a further payment in
respect of principal in an amount equal to
the lesser of (a) the portion of the Total
Distribution Amount remaining after payment
of amounts having a higher priority of
payment has been made and (b) the amount by
which the principal balance of the Notes
(after giving effect to the payment of the
Class A Noteholders' Principal Distributable
Amount on such Payment Date) exceeds the
Class A Target Amount for such Payment Date.
See "Priority of Payments" below.
The "Class A Noteholders' Percentage" will
be [ ]% on the initial Payment Date and on
any Payment Date after the initial Payment
Date will be the percentage equivalent of a
fraction, the numerator of which is the
principal amount of the Notes as of the
close of the preceding Payment Date, and the
denominator of which is the Pool Balance as
of such Payment Date.
The "Class A Target Amount" means, with
respect to any Payment Date, an amount equal
to [ ]% of the Pool Balance as of such
Payment Date.
Amounts paid on account of the Class A
Noteholders' Principal Distributable Amount
will be applied sequentially, to pay
principal of the Class A-1 Notes until the
principal balance of the Class A-1 Notes has
been reduced to zero and then to pay
principal of the Class A-2 Notes until the
principal balance of the Class A-2 Notes has
been reduced to zero.
The "Principal Distributable Amount" for a
Payment Date will equal the sum of (a)
collections on Receivables (other than
Liquidated Receivables) allocable to
principal including full and partial
prepayments; (b) the portion of the Purchase
Amount allocable to principal of each
Receivable that was repurchased by CPS or
purchased by the Servicer as of the last day
of the related Collection Period and, at the
option of the Insurer, the Principal Balance
of each Receivable that was required to be
but was not so purchased or repurchased
(without duplication of the amounts referred
to in (a) above); (c) 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);
(d) the aggregate amount of Cram Down Losses
with respect to the Receivables that shall
have occurred during the preceding
Collection Period (without duplication of
amounts included in (a) through (c) above)
and (e) any proceeds from the liquidation of
the Trust Assets pursuant to an acceleration
of the Notes upon an Event of Default. In
addition, the outstanding principal amount
of the Notes of any class, to the extent not
previously paid, will be payable on the
respective Final Scheduled Payment Date for
such class.
S-8
<PAGE>
A "Collection Period" with respect to a
Payment Date will be the calendar month
preceding the month in which such Payment
Date occurs; provided, however, that with
respect to the first Payment Date, the
"Collection Period" will be the period from
and excluding the Cutoff Date to and
including [ ].
F. Optional
Redemption.................. The Notes, to the extent still outstanding,
may be redeemed in whole, but not in part,
on any Payment Date on which the Servicer
exercises its option to purchase all the
Receivables on or after the last day of any
Collection Period on or after which the
aggregate Principal Balance of the
Receivables is equal to [ ]% or less of the
Original Pool Balance, at a redemption price
equal to at least the unpaid principal
amount of the Notes, plus accrued and unpaid
interest thereon; provided that the
Servicer's right to exercise such option
will be subject to the prior approval of the
Insurer, but only if, after giving effect to
such sale and redemption, a claim on the
Policy would occur or any amount owing to
the Insurer or the holders of the Notes
would remain unpaid. See "Description of the
Securities--Optional Redemption" in this
Prospectus Supplement.
G. Mandatory
Redemption.................. The Notes may be accelerated and subject to
immediate payment at par with accrued
interest thereon upon the occurrence of an
Event of Default under the Indenture. So
long as no Insurer Default shall have
occurred and be continuing, an Event of
Default under the Indenture will occur only
upon delivery by the Insurer to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the Insurance Agreement, dated as of [
]. In the case of such an Event of Default
and notice by the [Credit Enhancer], the
Notes will automatically be accelerated and
subject to immediate payment at par with
accrued interest thereon. The Policy does
not guarantee payments of any amounts that
become due on an accelerated basis, unless
the [Credit Enhancer] elects, in its sole
discretion to pay such amounts in whole or
in part. See "Description of the Trust
Documents--Events of Default" in this
Prospectus Supplement.
Overcollateralization............ To the extent that the outstanding principal
balance of the Notes on any Payment Date
exceeds the Class A Target Amount for such
Payment Date, the portion of the Total
Distribution Amount remaining after payment
of the amounts described in items (i)
through (ix) under "Description of the Trust
Documents -- Distributions -- Priority of
Distributions" will be applied to make a
principal payment on the Notes in an amount
equal to the lesser of (a) such remaining
portion of the Total Distribution Amount and
(b) the amount by which the outstanding
principal balance of the Notes on such
Payment Date exceeds the Class A Target
Amount for such Payment Date. Such
S-9
<PAGE>
additional principal payment will cause the
principal amount of the Notes to amortize
more quickly relative to the principal
amount of the Receivables than would be the
case if the Noteholders received only the
Class A Noteholders' Principal Distributable
Amount.
Priority of Payments............. On each Payment Date, the Indenture Trustee
shall make the following distributions in
the following order of priority:
(i) to the Standby Servicer, so long
as CPS is the Servicer and
Norwest Bank Minnesota, National
Association is the Standby
Servicer, the Standby Fee and all
unpaid Standby Fees from prior
Collection Periods;
(ii) to the Servicer, the Servicing
Fee and all unpaid Servicing Fees
from prior Collection Periods;
(iii) in the event the Standby Servicer
becomes the successor Servicer,
to the Standby Servicer, to the
extent not previously paid by the
predecessor Servicer pursuant to
the Sale and Servicing Agreement,
reasonable transition expenses
(up to a maximum of $[ ])
incurred in becoming the
successor Servicer;
(iv) to the Indenture Trustee and the
Owner Trustee, pro rata, the
Trustee Fees and reasonable
out-of-pocket expenses and all
unpaid Trustee Fees and unpaid
reasonable out-of-pocket expenses
from prior Collection Periods;
(v) to the Collateral Agent, all fees
and expenses payable to the
Collateral Agent with respect to
such Payment Date;
(vi) to the Noteholders, the Class A
Noteholders' Interest
Distributable Amount, to be
distributed as described under
"Description of the Trust
Documents--Distributions";
(vii) to the Noteholders, the Class A
Noteholders' Principal
Distributable Amount, plus the
Class A Noteholders' Principal
Carryover Shortfall, if any, to
be distributed as described under
"Description of the Trust
Documents-- Distributions";
(viii) to the [Credit Enhancer], any
amounts due to the [Credit
Enhancer] under the terms of the
Insurance Agreement ;
(ix) on any Payment Date prior to the
First Target Date, to the
Collateral Agent, for deposit in
the Spread Account, the amount by
which the Initial Spread Account
Deposit exceeds the amount in the
Spread Account on such Payment
Date;
S-10
<PAGE>
(x) on any Payment Date on which the
principal balance of the Notes
(after giving effect to the
payment described in paragraph
(vii) above) exceeds the Class A
Target Amount for such Payment
Date to the Noteholders, an
amount equal to the lesser of
(a) the portion of the Total
Distribution Amount remaining
after making the payments
described in (i ) through (ix)
above and (b) the excess of the
principal balance of the Notes
(after giving effect to the
payment described in (vii)
above) over the Class A Target
Amount, to be distributed as
described under "Description
of the Trust Documents --
Distributions";
(xi) in the event any Person other
than the Standby Servicer becomes
the successor Servicer, to such
successor Servicer, to the extent
not previously paid by the
predecessor Servicer pursuant to
the Sale and Servicing Agreement,
reasonable transition expenses
(up to a maximum of $[ ] for all
such expenses) incurred in
becoming the successor Servicer;
and
(xii) to the Collateral Agent, for
deposit into the Spread Account,
the remaining Total Distribution
Amount, if any.
See "Description of the Trust
Documents--Distributions--Priority of
Distribution Amounts" in this Prospectus
Supplement.
The "First Target Date" means the first
Payment Date on which the principal
balance of the Notes is equal to or less
than the Class A Target Amount.
Record Dates..................... The record date applicable to each Payment
Date (each, a "Record Date") will be the
10th day of the calendar month in which such
Payment Date occurs.
The Policy....................... On the Closing Date, the [Credit Enhancer]
will issue the Policy to the Indenture
Trustee for the benefit of the Noteholders
(the "Policy"). Pursuant to the Policy, the
[Credit Enhancer] will unconditionally and
irrevocably guarantee to the Noteholders
payment of the Class A Noteholders' Interest
Distributable Amount and the Class A
Noteholders' Principal Distributable Amount
(collectively, the "Scheduled Payments") on
each Payment Date. The Certificates do not
have the benefit of the Policy.
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 [Credit Enhancer] and the
Indenture Trustee on behalf of the
Noteholders. On the Closing Date, the Seller
will deposit into the Spread Account an
amount specified by
S-11
<PAGE>
the [Credit Enhancer] (such amount, the
"Initial Spread Account Deposit").
Thereafter, any portion of the Total
Distribution Amount remaining on any Payment
Date after payment of all fees and expenses
due on such date to the Servicer, the
Standby Servicer, the Indenture Trustee, the
Owner Trustee, the Collateral Agent, the
[Credit Enhancer], any successor Servicer
and all principal and interest payments due
to the Noteholders on such Payment Date,
will be deposited in the Spread Account and
held by the Collateral Agent for the benefit
of the Indenture Trustee, on behalf of the
Noteholders and the [Credit Enhancer].
Amounts on deposit in the Spread Account on
any Payment Date which (after all payments
required to be made on such date have been
made) are in excess of the requisite amount
determined from time to time in accordance
with certain portfolio performance tests
agreed upon by the [Credit Enhancer] and the
Seller as a condition to the issuance of the
Policy (such requisite amount, the
"Requisite Amount") will be released to or
at the direction of the Seller. Because the
Requisite Amount or the existence of the
Spread Account may be modified or terminated
by the [Credit Enhancer] prior to the
occurrence and continuation of a [Credit
Enhancer] Default with the written consent
of CPS, the Seller and the Collateral Agent
(but without the consent of the Indenture
Trustee or any Noteholder), Noteholders
should not rely on amounts in the Spread
Account for payments of principal of or
interest on the Notes. See "Description of
the Trust Documents--Distributions--The
Spread Account" in this Prospectus
Supplement.
Repurchases and Purchases of
Certain Receivables............ CPS has made certain representations and
warranties relating to the Receivables
(including the Samco Receivables and the
Linc Receivables) to the Seller in the CPS
Purchase Agreement, and the Seller has made
such representations and warranties for the
benefit of the Trust and the [Credit
Enhancer] in the Sale and Servicing
Agreement. The Indenture Trustee, as
acknowledged assignee of the repurchase
obligations of CPS under the CPS Purchase
Agreement, will be entitled to require CPS
to repurchase any Receivable (including any
Samco Receivable or Linc Receivable) if such
Receivable is materially and 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 within the applicable cure period
following discovery by the Seller or CPS or
notice to the Seller and CPS. See
"Description of the Trust Documents--Sale
and Assignment of Receivables" in the
Prospectus.
The Servicer will be obligated to repurchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the last
day of the penultimate Collection Period
preceding the Class A-2 Final Scheduled
Payment Date or fails
S-12
<PAGE>
to maintain a perfected security interest in
the Financed Vehicle. See "Description of
the Trust Documents--Servicing Procedures"
in this Prospectus Supplement and in the
Prospectus.
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 Seller for the
benefit of the Noteholders and the [Credit
Enhancer] (the "Post Office Box"). On each
Business Day, Bank of America, as the
lock-box processor (the "Lock-Box
Processor"), will transfer any such payments
received in the Post Office Box to a
segregated lock-box account at [Lock-Box
Bank] (the "Lock-Box Bank") in the name of
the Seller for the benefit of the
Noteholders and the [Credit Enhancer] (the
"Lock-Box Account"). Within two Business
Days of receipt of funds into the Lock-Box
Account, the Servicer is required to direct
the Lock-Box Bank to effect a transfer of
funds from the Lock-Box Account to one or
more accounts established with the Indenture
Trustee. See "Description of the Trust
Documents--Accounts" in this Prospectus
Supplement and "Description of the Trust
Documents--Payments on Receivables" in the
Prospectus.
Standby Servicer................. [Name and Address]
If a Servicer Termination Event occurs and
remains unremedied, (1) provided no [Credit
Enhancer] Default has occurred and is
continuing, then the [Credit Enhancer] in
its sole and absolute discretion, or (2) if
a [Credit Enhancer] Default shall have
occurred and be continuing, then the
Indenture Trustee may, with the consent of
the Class A Note Majority, terminate the
rights and obligations of the Servicer under
the Sale and Servicing Agreement. See "Risk
Factors -- Sub-Prime Obligors; Servicing"
and "Description of the Trust Documents
--Servicer Termination Events" in this
Prospectus Supplement. If such event occurs
when CPS is the Servicer, or if CPS resigns
as Servicer or is terminated as Servicer by
the [Credit Enhancer], (in such capacity,
the "Standby Servicer") has agreed to serve
as successor Servicer under the Sale and
Servicing Agreement pursuant to a Servicing
and Lockbox Processing Assumption Agreement,
dated as of [ ], among CPS, the Standby
Servicer and the Indenture Trustee (the
"Servicing Assumption Agreement"). The
Standby Servicer will receive a 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 in an amount equal
to [one twelfth of] the Servicing Fee Rate
times the Pool Balance as of the close of
business on the last day of the second
preceding Collection Period. The
S-13
<PAGE>
"Servicing Fee Rate" will be a rate that
will (i) reflect current market practice
with respect to compensation of servicers of
receivables comparable to the Receivables
and (ii) not exceed [ ]% per annum. See "The
Standby Servicer" in this Prospectus
Supplement.
Servicing Fee.................... The Servicing Fee for each Payment Date
shall be equal to the result of [one
twelfth] times [ ]% of the Pool Balance as
of the close of business on the last day of
the second preceding Collection Period;
provided, however, that with respect to the
first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to
the result of one-twelfth times [ ]% of the
Original Pool Balance. As additional
servicing compensation, the Servicer will
also be entitled to receive certain late
fees, prepayment charges and other
administrative fees or similar charges.
Certain Legal Aspects of
the Receivables................ In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the Receivables
will be assigned by the Originators to the
Seller pursuant to the applicable Purchase
Agreements and by the Seller to the Trust
pursuant to the Sale and Servicing
Agreement. Certain of the Receivables (the
"Affiliate Receivables"), representing
approximately [ ]% of the aggregate
principal balance of the Receivables as of
the Cutoff Date, have been originated by
Samco or Linc, affiliates of CPS. The
certificates of title to the Financed
Vehicles securing the Receivables show the
applicable Originator as the lienholder. Due
to the administrative burden and expense,
the certificates of title to the Financed
Vehicles securing the Receivables (including
those securing the Affiliate Receivables)
will not be marked, amended or re-issued to
reflect the assignment thereof to the
Seller, nor will the certificates of title
to any Financed Vehicles be marked, amended
or reissued to reflect the assignment
thereof to the Trust. In the absence of such
an amendment, the Trust may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states.
By virtue of the assignment of the Purchase
Agreements to the Trust, CPS and, pursuant
to the Sale and Servicing Agreement, the
Seller, will be obligated to repurchase any
Receivable (including any Samco Receivable
and any Linc Receivable) sold to the Trust
by the Seller, as to which there did not
exist on the Closing Date a perfected
security interest in the name of CPS, Samco
or Linc in the Financed Vehicle securing
such Receivable, 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, Samco or Linc in the Financed Vehicle
securing such Receivable (which perfected
security interest has been assigned to, and
is for the benefit of, the Trust) if, in
either case, such breach materially and
adversely
S-14
<PAGE>
affects the interests of the Trust, the
Indenture Trustee, the Noteholders 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, Samco or Linc 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 unpaid storage charges or for
taxes unpaid by an Obligor under a
Receivable, or through fraud, forgery or
negligence or error, CPS, Samco or Linc, and
therefore the Trust, could lose its prior
perfected security interest in a Financed
Vehicle. None of CPS, the Seller or 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--Lack of
Perfected Security Interest in Financed
Vehicles" in this Prospectus Supplement and
in the Prospectus.
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.
Because of the consumer-oriented nature of
the non-prime automobile industry,
uncertainty regarding the application of
certain of such laws to particular
circumstances, as well as the willingness of
some courts and regulatory agencies to adopt
novel interpretations of such laws,
participants in the non-prime automobile
financing business are frequently named as
defendants in litigation involving such
laws. Any violation of such laws, or
litigation alleging such a violation, with
respect to a Receivable could give rise to
defenses to payment by an Obligor against
CPS, the Seller, the Depositor, the Owner
Trustee, the Trust or the Indenture Trustee,
or subject them to claims by the Obligor for
damages or legal sanction. In some cases,
substantial jury verdicts have been upheld.
In addition, an Obligor may be entitled to
assert against CPS, the Seller, the
Depositor, the Owner Trustee, the Trust and
the Indenture Trustee claims or defenses
which it had against the seller of the
Financed Vehicle. To the extent specified
herein, CPS will be obligated to purchase
any Receivable sold to the Trust that failed
to comply with such legal requirements. See
"Certain Legal Aspects of the
Receivables--Consumer Protection Laws" in
the Prospectus.
Book-Entry Notes................. The Notes initially will be represented by
one or more notes registered in the name of
Cede & Co. ("Cede") as the nominee of The
Depository Trust Company ("DTC"), and will
only be available in the form of
S-15
<PAGE>
book-entries on the records of DTC and
participating members thereof. Transfers
within DTC will be in accordance with DTC's
usual rules and operating procedures. Notes
will be issued in definitive form only under
the limited circumstances described herein.
All references herein to "holders" of the
Notes or "Noteholders" shall reflect the
rights of beneficial owners of the Notes
(the "Note Owners") as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein. See
"Registration of Notes" in this Prospectus
Supplement and "Description of the
Securities--Book-Entry Registration" and
"Definitive Notes" in the Prospectus.
Tax Status....................... In the opinion of Mayer, Brown & Platt
("Federal Tax Counsel"), for Federal income
tax purposes the Notes will be characterized
as debt and the Trust will not be
characterized as an association (or publicly
traded partnership) taxable as a
corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat
the Notes as indebtedness for Federal income
tax purposes. See "Federal Income Tax
Consequences" in the Prospectus and "Federal
Income Tax Consequences" in this Prospectus
Supplement for additional information
concerning the application of Federal tax
laws to the Trust and the Notes.
Money Market Eligibility......... The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule [ ] under the Investment
Company Act of 1940, as amended. A fund
should consult with its advisor regarding
the eligibility of the Class A-1 Notes under
Rule [ ] and the fund's investment policies
and objectives.
ERISA Considerations............. Subject to the conditions and considerations
discussed under "ERISA Considerations" in
this Prospectus Supplement, the Notes are
eligible for purchase by pension,
profit-sharing or other employee benefit
plans, as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan"). By its acquisition
of a Note, each Benefit Plan shall be deemed
to represent that its purchase and holding
of the Note will not give rise to a
non-exempt prohibited transaction. See
"ERISA Considerations" in this Prospectus
Supplement.
Rating of the Notes.............. It is a condition of issuance that the Class
A-1 Notes be rated "A-1+" by Standard &
Poor's Ratings Group, a Division of The
McGraw Hill Companies ("Standard & Poor's"),
and "P-1" by Moody's Investors Service, Inc.
("Moody's", and together with Standard &
Poor's, the "Rating Agencies") and the Class
A-2 Notes, Class A-3 Notes and Class A-4
Notes be rated "AAA" by Standard & Poor's
and "Aaa" by Moody's, on the basis of the
issuance of the Policy by the [Credit
Enhancer]. A security rating is not a
recommendation to buy, sell or hold
securities and may be revised or withdrawn
at any time by the
S-16
<PAGE>
assigning Rating Agency. See "Risk
Factors--Ratings of the Notes" in this
Prospectus Supplement.
S-17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective Noteholders should consider the
following factors, as well as those matters discussed in "Risk Factors" in the
Prospectus, in evaluating an investment in the Notes:
Sub-Prime Obligors; Servicing
The Originators purchase loans originated for assignment to the
Originators through automobile dealers, IFCs or Deposit Institutions (as defined
herein). The Originators' customers are generally "sub-prime borrowers" who 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 average interest rate charged by CPS to such "sub-prime borrowers" is
generally higher than that charged by commercial banks, financing arms of
automobile manufacturers and other traditional sources of consumer credit, which
typically impose more stringent credit requirements. 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. As a result of the credit profile of the Obligors and the APRs of the
Receivables, the historical credit loss and delinquency rates on the Receivables
may be higher than those experienced by banks and the captive finance companies
of the automobile manufacturers. In the event of a default under a Receivable,
the only source of repayment may be liquidation proceeds from the related
Financed Vehicle. The Financed Vehicles securing the Receivables will consist
primarily of used vehicles which are likely to have a liquidation value
substantially below the amount financed by the related Receivable.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated as Servicer by the [Credit
Enhancer], the Standby Servicer has agreed to assume the obligations of
successor Servicer under the Sale and Servicing Agreement. See "Description of
the Trust Documents--Rights Upon Servicer Termination Event" in this Prospectus
Supplement. There can be no assurance, however, that collections with respect to
the Receivables will not be adversely affected by any change in Servicer. See
"The Standby Servicer" in this Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate each March 31, June 30, September 30 and
December 31 unless renewed by the [Credit Enhancer] for successive quarterly
periods. The [Credit Enhancer] will agree to grant continuous renewals so long
as (i) no Servicer Termination Event under the Sale and Servicing Agreement has
occurred and (ii) no event of default under the insurance and indemnity
agreement among CPS, the Seller and the [Credit Enhancer] (the "Insurance
Agreement") has occurred.
Upon the occurrence of an Insurance Agreement Event of Default (under
the Insurance Agreement or any other insurance agreement pursuant to which
Financial Security has issued or issues in the future
S-18
<PAGE>
a financial guaranty insurance policy in respect of securities issued by a trust
for which CPS is the Servicer), the [Credit Enhancer] will have the right to
terminate CPS's appointment as Servicer. The events constituting an Insurance
Agreement Event of Default may be modified, amended or waived by Financial
Security without notice to or consent of the Indenture Trustee or any
Noteholder. See "Description of the Trust Documents -- Servicer Termination
Events".
Liquidity of CPS
As a result of the performance of the portfolio of Contracts serviced
by CPS, the [Credit Enhancer] has increased the amount required to be on deposit
in the Spread Account in respect of the Notes. In response to such increase in
required credit enhancement and certain other obligations, CPS has implemented a
plan to raise additional working capital. CPS believes that the increased credit
enhancement requirement will not have a material adverse effect on its ability
to perform its obligations under the Trust Documents or any "insurance
agreement" pursuant to which Financial Security has issued or issues in the
future a financial guaranty insurance policy in respect of securities issued by
a trust for which CPS is the Servicer however, no assurances can be made to that
effect.
Trust Relationship to the Seller and CPS
In connection with each sale of Receivables by CPS, Samco or Linc to
the Seller and by the Seller to the Trust, each of CPS and the Seller will make
representations and warranties with respect to the characteristics of such
Receivables. In certain circumstances as set forth herein, CPS and the Seller
are required to repurchase Receivables with respect to which such
representations or warranties are not true as of the date made. Neither CPS nor
the Seller is otherwise obligated with respect to the Notes or payments thereon.
See "Description of the Trust Documents--Sale and Assignment of the Receivables"
in this Prospectus Supplement.
Certain Legal Aspects -- Lack of Perfected Security Interests in Financed
Vehicles
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the Receivables will not be marked, amended or
reissued to reflect the assignment of the Receivables to the Seller by CPS,
Samco or Linc, as applicable, nor will the certificates of title to any of the
Financed Vehicles (including those securing the Samco Receivables and the Linc
Receivables) be amended or reissued to reflect the assignment to the Trust. In
the absence of such an amendment or reissuance, the Trust may not have a
perfected security interest in the Financed Vehicles securing the Receivables in
some states. By virtue of the assignment of the Purchase Agreements to the
Trust, CPS, and pursuant to the Sale and Servicing Agreement, the Seller will be
obligated to repurchase any Receivable sold to the Trust by the Seller
(including any Samco Receivable or Linc Receivable) as to which there did not
exist on the Closing Date a perfected security interest in the name of CPS,
Samco or Linc in the Financed Vehicle securing such Receivable, 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, Samco or
Linc in the Financed Vehicle securing such Receivable if, in either case, such
breach materially and adversely affects the interests of the Trust, the
Noteholders, the Indenture Trustee or the [Credit Enhancer] in 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, Samco or
Linc 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
S-19
<PAGE>
for taxes unpaid by an Obligor under a Receivable, or through fraud, forgery,
negligence or error, CPS, Samco or Linc, and therefore the Trust, could lose the
priority of its security interest or its security interest in a Financed
Vehicle. None of CPS, the Seller 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" in the
Prospectus.
Geographic Concentration
As of the Cutoff Date, [ ]% of the Receivables by Principal Balance had
Obligors residing in the State of [ ]. Economic conditions in the State of [ ]
may affect the delinquency, loan loss and repossession experience of the Trust
with respect to the Receivables. See "The Receivables Pool" in this Prospectus
Supplement.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders. The Notes represent obligations solely of the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Notes by the [Credit Enhancer] pursuant to
the Policy, as described herein. The Seller will take such steps as are
necessary for the [Credit Enhancer] to issue the Policy to the Indenture Trustee
for the benefit of the Noteholders. Under the Policy, the [Credit Enhancer] will
unconditionally and irrevocably guarantee to the Class A Noteholders full and
complete payment of the Scheduled Payments on each Payment Date. Although the
Policy will be available on each Payment Date to cover shortfalls in
distributions of the Class A Noteholders' Distributable Amount on such Payment
Date, in the event of a [Credit Enhancer] Default, the Noteholders must rely on
the collections on the Receivables, and the proceeds from the repossession and
sale of Financed Vehicles which secure defaulted Receivables. In such event,
certain factors, such as the Trust not having perfected security interests in
the Financed Vehicles, may affect the Trust's ability to realize on the
collateral securing the Receivables and thus may reduce the proceeds to be
distributed to Noteholders on a current basis. See "Credit Enhancement",
"Description of the Securities--Payment of Principal", "--Payment of Interest"
and "The [Credit Enhancer]" herein.
Risk of Changes in Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio--Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on Samco's and Linc's
originations is limited, CPS expects that the delinquency and net credit loss
and repossession experience with respect to the Receivables originated by Samco
and Linc will be similar to that of CPS's existing portfolio.
S-20
<PAGE>
Ratings of the Notes
It is a condition to the issuance of the Notes that the Class A-1 Notes
be rated "A-1+" by Standard & Poor's and "P-1" by Moody's and the Class A-2
Notes, Class A-3 Notes and Class A-4 Notes be rated "AAA" by Standard & Poor's
and "Aaa" by Moody's, on the basis of the issuance of the Policy by the [Credit
Enhancer]. A rating is not a recommendation to purchase, hold or sell the Notes,
inasmuch as such rating does not comment as to market price or suitability for a
particular investor. The Rating Agencies do not evaluate, and the ratings do not
address, the possibility that Noteholders may receive a lower than anticipated
yield. There is no assurance that a rating will remain for any given period of
time or that a rating will not be lowered or withdrawn entirely by a Rating
Agency if in its judgment circumstances in the future so warrant. The ratings of
the Notes are based primarily on the rating of the [Credit Enhancer]. Upon a
[Credit Enhancer] Default, the rating on the Notes may be lowered or withdrawn
entirely. In the event that any rating initially assigned to the Notes were
subsequently lowered or withdrawn for any reason, including by reason of a
downgrading of the [Credit Enhancer]'s claims-paying ability, no person or
entity will be obligated to provide any additional credit enhancement with
respect to the Notes. Any reduction or withdrawal of a rating may have an
adverse effect on the liquidity and market price of the Notes.
Final Scheduled Payment Dates of the Notes
The Final Scheduled Payment Date for each class of Notes which is
specified at page S-6 herein, is the date by which the principal thereof is
required to be fully paid. The Final Scheduled Payment Date for each class of
Notes has been determined so that distributions on the underlying Receivables
will be sufficient to retire each such class on or before its respective Final
Scheduled Payment Date without the necessity of a claim on the Policy. However,
because (i) some prepayments of the Receivables are likely and (ii) certain of
the Receivables have terms to maturity that are shorter than the term to
maturity assumed in calculating each class's Final Scheduled Payment Date, the
actual payment of any class of Notes likely will occur earlier, and could occur
significantly earlier, than such class's Final Scheduled Payment Date.
Nevertheless, there can be no assurance that the final distribution of principal
of any or all classes of Notes will be earlier than such class's Final Scheduled
Payment Date.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 1998-3, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes and the Certificates, (iii) making payments in respect of the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Trust Documents--Servicing Compensation" in this
Prospectus Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
S-21
<PAGE>
certificates of title to the Financed Vehicles will not be endorsed or otherwise
amended to identify the Trust or the Indenture Trustee as the new secured party.
In the absence of amendments to the certificates of title, the Indenture Trustee
may not have perfected security interests in the Financed Vehicles securing the
Receivables originated in some states. See "Certain Legal Aspects of the
Receivables" in the Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to $10 and Certificates with an aggregate original principal balance of $[ ]
will initially be retained by the Seller. The Trust will issue the Notes and the
Certificates to or at the direction of the Seller in exchange for the
Receivables and the other Trust Assets. The Seller will use the proceeds of the
initial sale of the Notes to purchase the Receivables from the Originators and
to fund the Initial Spread Account Deposit. The Trust will not acquire any
assets other than the Trust Assets, and it is not anticipated that the Trust
will have any need for additional capital resources. Because the Trust will have
no operating history upon its establishment and will not engage in any business
other than acquiring and holding the Trust Assets, issuing the Securities and
distributing payments on the Securities, no historical or pro forma financial
statements or ratios of earnings to fixed charges with respect to the Trust have
been included herein.
The Owner Trustee
[ ], is the Owner Trustee under the Trust Agreement. The principal
offices of the Owner Trustee are located at [ ]. The Owner Trustee will perform
limited administrative functions under the Trust Agreement. The Owner Trustee's
duties in connection with the issuance and sale of the Securities is limited
solely to the express obligations of the Owner Trustee set forth in the Trust
Agreement and the Sale and Servicing Agreement.
The Indenture Trustee
[ ], is the Indenture Trustee under the Indenture. The principal
offices of the Indenture Trustee are located at [ ]. The Indenture Trustee's
duties in connection with the Notes are limited solely to its express
obligations under the Indenture and the Sale and Servicing Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts on used and
new automobiles, light trucks, vans and minivans between dealers (the
"Dealers"), IFCs or Deposit Institutions and retail purchasers (the "Obligors")
and certain monies received thereunder after the Cutoff Date. The Receivables
were originated by the Dealers, IFCs or Deposit Institutions for assignment to
CPS, Samco or Linc. Pursuant to agreements between the Dealers and CPS ("Dealer
Agreements") or between the IFCs or Deposit Institutions and an Affiliated
Originator, the Receivables were purchased by CPS, Samco or Linc and, prior to
the Closing Date, evidenced financing made available by CPS, Samco or Linc to
the Obligors. The Trust Assets also include (i) such amounts as from time to
time may be held in one or more trust accounts established and maintained by the
Indenture Trustee pursuant to the Sale and Servicing Agreement, as described
below; see "Description of the Trust Documents --Accounts" in this Prospectus
Supplement; (ii) the rights of the Seller under the Purchase Agreements; (iii)
security interests in the Financed Vehicles; (v) the rights of CPS, Samco and
Linc to receive any proceeds with respect to the Receivables from claims on
physical damage, credit life and credit accident and health insurance policies
S-22
<PAGE>
covering the Financed Vehicles or the Obligors, as the case may be; (vi) 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 (vii) any and all proceeds of the foregoing. In addition, the
Seller will cause the [Credit Enhancer] to issue the Policy for the benefit of
the Noteholders.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On October 1, 1991, CPS began its program of purchasing Contracts from
Dealers and selling them to institutional investors. Through [ ], CPS had
purchased $[ ] of Contracts from Dealers and sold $[ ] 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 4,000
dealerships located in 42 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $[ ]. 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 Notes, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of the
Contracts receive a pass-through rate of interest set at the time of the sale,
and CPS receives a base servicing fee for its duties relating to the accounting
for and collection of the Contracts. In addition, CPS is entitled to certain
excess servicing fees that represent collections on the Contracts, such as
certain late fees, prepayment charges and other administrative fees and similar
charges 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, and prepayments
under, the Contracts.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92718. CPS's telephone number is (714) 753-6800.
S-23
<PAGE>
Samco employees call on IFCs primarily in the southeastern United
States and present them with financing programs that are essentially identical
to those which CPS markets directly to Dealers through its marketing
representatives. CPS believes that a typical rural IFC has relationships with
many local automobile purchasers as well as Dealers but, because of limitations
of financial resources or capital structure, such IFCs generally are unable to
provide 36, 48 or 60 month financing for an automobile. IFCs may offer Samco's
financing programs to borrowers directly or indirectly through local dealers.
Samco purchases contracts from the IFCs after Samco's credit personnel have
performed all of the same underwriting and verification procedures and have
applied all the same credit criteria that CPS performs and applies for Contracts
that CPS purchases from Dealers. Samco purchases Contracts at a discount ranging
from 0% to 8% of the total amount financed under such Contracts. In addition,
Samco generally charges IFCs an acquisition fee to defray the direct
administrative costs associated with the processing of Contracts that are
ultimately purchased by Samco. Servicing and collection procedures on Contracts
owned by Samco are performed by CPS at its headquarters in Irvine, California.
For the year ended December 31, 1997, Samco purchased 2,306 Contracts with
original balances totaling $26.2 million. In the six months ended [ ], Samco
purchased [ ] Contracts with original balances totaling $[ ] million.
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide CPS's sub-prime auto
finance products to deposit institutions such as banks, thrifts and credit
unions ("Deposit Institutions"). CPS believes that such Deposit Institutions do
not generally make loans to sub-prime borrowers even though they may have
relationships with automobile dealers who sell vehicles to sub-prime borrowers
and may have sub-prime borrowers as deposit customers.
Linc's employees call on various Deposit Institutions and present them
with a financing program that is similar to CPS's Alpha Program (as defined
below). The Linc program is intended to result in a slightly more creditworthy
borrower than CPS's Standard Program by requiring slightly higher income and
lower debt-to-income ratios than CPS requires under its Standard Program. Linc's
customers may offer its financing program to borrowers directly or to local
Dealers. Linc typically purchases Contracts at par, without a fee to the Deposit
Institution. Servicing and collection procedures on Contracts are performed
entirely by CPS using the same personnel, procedures and systems as CPS uses for
its own programs. For the year ended December 31, 1997, Linc purchased 678
Contracts with original balances totaling $[ ] million. In the six months ended
[ ], Linc purchased [ ] Contracts with original balances totaling $[ ] million.
Underwriting
CPS markets its services to Dealers under five programs: the CPS
Standard Program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program"), the
CPS Delta Program (the "Delta Program") and the CPS Super Alpha Program (the
"Super Alpha Program"). In addition, Samco offers IFCs essentially the same
programs that CPS offers to Dealers, while Linc offers only its program (the
"Linc Program") to Deposit Institutions. 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 Linc Program guidelines are designed for applicants with slightly
better credit than applicants under the Alpha Program and include requirements
such as higher income and lower
S-24
<PAGE>
debt ratio as compared to the Alpha Program guidelines. The Delta Program
guidelines are designed to accommodate applicants who may not meet all of the
requirements of the Standard Program but who are deemed by CPS to be generally
as creditworthy as Standard Program applicants. The First Time Buyer Program
guidelines are designed to accommodate applicants who have not previously had
significant credit. Applicants under the First Time Buyer Program must meet all
the requirements of the Standard Program, as well as slightly higher income and
down payment requirements. The Super Alpha Program guidelines are more stringent
than any other CPS program in categories such as advance rate, age of
collateral, credit history and stability. CPS uses the degree of the applicant's
creditworthiness and the collateral value of the financed vehicle as the basic
criteria in determining whether to purchase an installment sales contract from a
Dealer. Each credit application provides current information regarding the
applicant's employment and residence history, bank account information, debts,
credit references, and other factors that bear on an applicant's
creditworthiness. Upon receiving from the Dealer the completed application of a
prospective purchaser and a one-page Dealer summary of the proposed financing,
generally by facsimile copy, CPS obtains a credit report compiling credit
information on the applicant from three credit bureaus. The credit report
summarizes the applicant's credit history and paying habits, including such
information as open accounts, delinquent payments, bankruptcy, repossessions,
lawsuits and judgments. At this point a CPS loan officer will review the credit
application, Dealer summary and credit report and will either conditionally
approve or reject the application. Such conditional approval or rejection by the
loan officer usually occurs within one business day of receipt of the credit
application. The loan officer determines the conditions to his or her approval
of a credit application based on many factors such as the applicant's
residential situation, down payment, and collateral value with regard to the
loan, employment history, monthly income level, household debt ratio and the
applicant's credit history. Based on the stipulations of the loan officer, the
Dealer and the applicant compile a more complete application package which is
forwarded to CPS and reviewed by a processor for deficiencies. As part of this
review, references are checked, direct calls are made to the applicant and
employment income and residence verification is done. Upon the completion of his
or her review, the processor forwards the application package to an underwriter
for further review. The underwriter will confirm the satisfaction of any
remaining deficiencies in the application package. Finally, before the loan is
funded, the application package is checked for deficiencies again by a loan
review officer. CPS conditionally approves approximately [ ]% of the credit
applications it receives and ultimately purchases approximately [ ]% of the
received applications.
CPS has purchased portfolios of Contracts in bulk from other companies
that had previously purchased the Contracts from Dealers. From [ ] to [ ], CPS
made four such bulk purchases aggregating approximately $[ ] 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 the underwriting standards used by CPS in its normal course of
business. Bulk purchases were made at a purchase price approximately equal to a
[ ]% discount from the aggregate principal balance of the Contracts. CPS has not
purchased any portfolios of Contracts in bulk since [ ], but may consider doing
so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, [ ]% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, [ ]% 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 $[ ]. The maximum
term of the Contract depends
S-25
<PAGE>
primarily on the age of the vehicle and its mileage. Vehicles having in excess
of 80,000 miles will not be financed.
The minimum down payment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The down payment may be made in
cash, and/or with a trade-in car and, if available, a proven manufacturer's
rebate. The cash and trade-in value must equal at least 50% of the minimum down
payment required, with the proven manufacturer's rebate constituting the
remainder of the down payment. CPS believes that the relatively high down
payment requirement will result in higher collateral values as a percentage of
the amount financed and the selection of buyers with stronger commitment to the
vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS's 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 CPS's computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Samco offers to IFCs financing programs which are essentially identical
to those offered by CPS. The IFCs may offer Samco's financing programs to
borrowers directly or indirectly through local Dealers. Upon submission of
applications to Samco, Samco credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. Samco purchases Contracts from the IFC after its credit personnel have
performed all of the underwriting and verification procedures and have applied
all the same credit criteria that CPS performs and applies for Contracts it
purchases from Dealers. Prior to CPS purchasing a Contract from Samco, CPS
personnel perform procedures intended to verify that such Contract has been
underwritten and originated in conformity with the requirements applied by CPS
with respect to Contracts acquired by it directly from Dealers.
Linc offers to Deposit Institutions financing programs which are
similar to CPS's Alpha Program. Unlike Samco, which has employees who evaluate
applications and make decisions to purchase Contracts, applications for
Contracts to be purchased by Linc are submitted by the Deposit Institution
directly to
S-26
<PAGE>
CPS, where the approval, underwriting and purchase procedures are performed by
CPS staff who work with Linc as well as with the Dealers to which CPS markets
its programs.
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 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's services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS'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 other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high-penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents--Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
On April 1, 1997 CPS established a satellite collection facility in
Chesapeake, Virginia. The 16,000 square foot facility was opened with 35 staff
dedicated solely to collections. As of June 30, 1998 the Chesapeake facility had
more than 120 collectors. The Chesapeake facility is on-line with CPS's
automated collection system at its headquarters in Irvine, California.
Chesapeake staff have been trained by Irvine collection management personnel at
both the Chesapeake facility and at CPS's headquarters. Irvine collection
management has the ability to allocate the collection workload between the two
facilities
S-27
<PAGE>
as well as monitor the effectiveness of the collection effort by office and
individual collector. CPS expects to add resources to both collection locations
as its servicing portfolio grows.
Servicing and collection procedures on Contracts owned by Samco and
Linc are performed by CPS at its headquarters in Irvine, California and at its
Chesapeake, Virginia collection facility. However, Samco may solicit aid from
the related IFC in collecting past due accounts with respect to which
repossession may be considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994,
under the Alpha Program in April 1995, under the Linc Program in December 1996
and under the Super Alpha Program in December 1997. CPS has found that the
delinquency and net credit loss and repossession experience with respect to the
Delta Program is somewhat higher than under its Standard Program. CPS has found
that the delinquency and net credit loss and repossession experience with
respect to the Alpha Program, the Linc Program and the Super Alpha Program is
somewhat lower than that experienced under the Standard Program. CPS has
purchased Contracts representing financing for first-time purchasers of
automobiles since the inception of its Contract purchasing activities in 1991.
Prior to the establishment of the First Time Buyer Program in July 1996, CPS
purchased such Contracts under its Standard Program guidelines. CPS expects that
the delinquency and net credit loss and repossession experience with respect to
loans originated under the First Time Buyer Program will be somewhat higher than
under the Standard Program. CPS began servicing Contracts originated by Samco in
March 1996 and Linc in November 1996. Although credit history on Samco's and
Linc's originations is limited, CPS expects that the delinquency and net credit
loss and repossession experience with respect to the Receivables originated by
Samco and Linc will be similar to that of CPS's existing portfolio. There can be
no assurance, however, that the delinquency and net credit loss and repossession
experience on the Receivables or any other isolated group of receivables from
the CPS portfolio would be comparable to CPS's experience as shown in the
following tables. In particular, the information in the tables has not been
adjusted to eliminate the effects of the significant growth in the size of CPS's
loan portfolio during the periods shown.
S-28
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PORTFOLIO SERVICES, INC.
DELINQUENCY EXPERIENCE
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997
-----------------------------------------------------------------------------------------------------------
Number Number Number Number
of Loans Amount of Loans Amount of Loans Amount of Loans Amount
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio(1)............
Period of Delinquency(2)
31-60..............
61-90
91+................
Total Delinquencies.....
Amount in
Repossession(3).........
Total Delinquencies and
Amount in
Repossession(4).........
Delinquencies as a
Percent of the Portfolio
Repo Inventory as Percent
of the Portfolio
Total Delinquencies and
Amount in Repossession
as a Percent of Portfolio % % % % % % % %
[TABLE SPLIT]
June 30, 1997 June 30, 1998
-------------------------------------------------------
Number Number
of Loans Amount of Loans Amount
-------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio(1)............
Period of Delinquency(2)
31-60..............
61-90
91+................
Total Delinquencies.....
Amount in
Repossession(3).........
Total Delinquencies and
Amount in
Repossession(4).........
Delinquencies as a
Percent of the Portfolio
Repo Inventory as Percent
of the Portfolio
Total Delinquencies and
Amount in Repossession
as a Percent of Portfolio % % % %
- ------------------
(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.
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PORTFOLIO SERVICES, INC.
NET CREDIT LOSS/REPOSSESSION EXPERIENCE
Year Ended Year Ended Year Ended
December 31, December December 31,
1994 1995 1996
------------------------------------------------------------------
<S> <C> <C> <C>
Average Amount Outstanding
During the Period(1)...............................
Average Number of Loans
Outstanding During the Period......................
Number of Repossessions..............................
Gross Charge-Offs (2)................................
Recoveries (3).......................................
Net Losses...........................................
Annualized Repossessions as a
Percentage of Average Number of
Loans Outstanding.................................. % % %
Annualized Net Losses as a % % %
Percentage of Average Amount
Outstanding........................................
[TABLE SPLIT]
Year Ended Six Months Six Months
December 31, Ended June 30, Ended June 30,
1997 1997 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Average Amount Outstanding
During the Period(1)...............................
Average Number of Loans
Outstanding During the Period......................
Number of Repossessions..............................
Gross Charge-Offs (2)................................
Recoveries (3).......................................
Net Losses...........................................
Annualized Repossessions as a
Percentage of Average Number of
Loans Outstanding.................................. % % %
Annualized Net Losses as a % % %
Percentage of 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) Delinquent Contracts for which the related Financed Vehicle has been
repossessed are charged off no later than the end of the calendar quarter
in which the Financed Vehicle was sold. The amount charged off is the
remaining principal balance of the Contract, after the application of the
net proceeds from the liquidation of the Financed Vehicle. With respect to
delinquent Contracts for which the related Financed Vehicle has not been
repossessed, the remaining principal balance thereof is charged off no
later than the 120th day after delinquency. In any case, amounts charged
off do not include 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-30
<PAGE>
Recent Developments
Litigation. On June 30, 1997, CPS was served with summons and
counterclaim in the bankruptcy court for the Northern District of Illinois in
connection with the Chapter 13 bankruptcy of obligors Madeline and Darryl
Brownlee, of Chicago, Illinois. The obligors seek class-action treatment of
their allegation that the cost of an extended service contract on the automobile
they purchased was inadequately disclosed by Joe Cotton Ford of Carol Stream,
Illinois, the automobile dealer who sold them their car. The disclosure is
alleged to be violative of the Federal Truth in Lending Act and of Illinois
consumer protection statutes. The obligors' claim is directed against both the
dealer for making the allegedly improper disclosures and against CPS as holder
of the purchase contract. The relief sought is damages in an unspecified amount,
plus costs of suit and attorney's fees. The court has not yet ruled on the
obligors' request for class-action treatment.
In another proceeding, arising out of efforts to collect a deficiency
balance from Joseph Barrios of Chicago, Illinois, the debtor has brought suit
against CPS alleging defects in the notice given upon repossession of the
vehicle. This lawsuit was filed on February 18, 1998 in the circuit court of
Cook County, Illinois. Barrios, represented by the same law firm as the Brownlee
obligors, seeks class-action treatment of his allegation that notice of a
fifteen day period to reinstate his Contract was misleading, in that it did not
refer to an alleged right to redeem collateral up to the date of sale. The
relief sought is damages in an unspecified amount, plus costs of suit and
attorney's fees. As of the date of this Prospectus Supplement, CPS has not been
required to respond to this litigation and has not yet done so.
Although the Receivables relating to the above litigation matters are
not included in the Receivables Pool, if the request for class action status is
granted in either case, Receivables in the Receivables Pool could become subject
to the litigation. Furthermore, the existence of such litigation, or an adverse
decision in such litigation, could encourage similar actions to be brought
involving Receivables in the Receivables Pool. If an Obligor has a claim against
the Trust as a result of a violation of law relating to a Receivable and such
claim materially and adversely affects the Trust's interest in such Receivable,
such a violation would constitute a breach of the representations and warranties
of CPS and would create an obligation of CPS to repurchase such Receivable
unless the breach is cured. In addition, CPS will be required to indemnify the
Indenture Trustee, the Owner Trustee, the [Credit Enhancer], the Trust and the
Securityholders against all costs, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel which may be asserted against
or incurred by any of them as a result of a third party claim arising out of
events or facts giving rise to such breach. See "Description of the Trust
Documents--Sale and Assignment of Receivables" in this Prospectus Supplement.
CPS intends to dispute the above-described litigation vigorously, and
believes that it has meritorious defenses to each claim made by those obligors.
Nevertheless, the outcome of any litigation is uncertain, and there is the
possibility that damages could be assessed against CPS in amounts that could be
material. It is management's opinion that the above-described litigation will
not have a material adverse effect on CPS's consolidated financial position,
results of operations or liquidity.
Liquidity of CPS. As a result of the performance of the portfolio of
Contracts serviced by CPS, the [Credit Enhancer] has increased the amount
required to be on deposit in the Spread Account in respect of the Notes. In
response to such increase in required credit enhancement and certain other
obligations, CPS has implemented a plan to raise additional working capital. CPS
believes that the increased credit enhancement requirement will not have a
material adverse effect on its ability to perform its obligations
S-31
<PAGE>
under the Trust Documents or any "insurance agreement" pursuant to which
Financial Security has issued or issues in the future a financial guaranty
insurance policy in respect of securities issued by a trust for which CPS is the
Servicer however, no assurances can be made to that effect.
THE RECEIVABLES POOL
The pool of Receivables existing as of the Cutoff Date consists of
Contracts selected from the Originators' portfolio by several criteria,
including the following: each Receivable was originated, based on the billing
address of the Obligors, in the United States, has an original term of not more
than 60 months, provides for level monthly payments which fully amortize the
amount financed over the original term (except for the last payment, which may
be different from the level payment for various reasons, including late or early
payments during the term of the Contract), has a remaining maturity of 60 months
or less as of the Cutoff Date, has an outstanding principal balance of not more
than $[ ] as of the Cutoff Date, is not more than 30 days past due as of the
Cutoff Date and has an annual percentage rate ("APR") of not less than [ ]%. As
of the date of each Obligor's application for the loan from which the related
Receivable arises, each Obligor (i) did not have any material past due credit
obligations or any repossessions or garnishments of property within one year
prior to the date of application, unless such amounts have been repaid or
discharged through bankruptcy, (ii) was not the subject of any bankruptcy or
insolvency proceeding that is not discharged, and (iii) had not been the subject
of more than one bankruptcy proceeding. As of the Cutoff Date, the latest
scheduled maturity of any Receivable is not later than July 11, 2003.
As of the Cutoff Date, approximately [ ]% of the aggregate principal
balance of the Receivables, constituting [ ]% of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. As of the Cutoff Date, approximately [ ]%
of the aggregate principal balance of the Receivables were originated under the
Delta Program, approximately [ ]% of the aggregate principal balance of the
Receivables were originated under the Alpha Program, approximately [ ]% of the
aggregate principal balance of the Receivables were originated under the First
Time Buyer Program, approximately [ ]% of the aggregate principal balance of the
Receivables were originated under the Standard Program, approximately [ ]% of
the aggregate principal balance of the Receivables were originated under the
Linc Program and approximately [ ]% of the aggregate principal balance of the
Receivables were originated under the Super Alpha Program. As of the Cutoff
Date, approximately [ ]% of the aggregate principal balance of the Receivables
were Samco Receivables and approximately [ ]% of the aggregate principal balance
of the Receivables were Linc Receivables. The composition, geographic
distribution, distribution by APR, distribution by remaining term, distribution
by date of origination, distribution by original term, distribution by model
year and distribution by original principal balance of the Receivables as of the
Cutoff Date are set forth in the following tables.
<TABLE>
<CAPTION>
Composition of the Receivables as of the Cutoff Date
Weighted Aggregate Number of Average Weighted Weighted
Average APR of Principal Receivables Principal Balance Average Average
Receivables Balance In Pool Principal Balance Reaming Original
- -------------------- -------------------- ------------------ ---------------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
% $ $ mos. mos.
S-32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number Of
State(1) Principal Balance Principal Balance Receivables Receivables
-------- ----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Alabama...................... $ % %
California...................
Florida......................
Georgia......................
Hawaii.......................
Illinois.....................
Indiana......................
Kentucky.....................
Louisiana....................
Maryland.....................
Michigan.....................
Minnesota....................
Mississippi..................
Nevada.......................
New Jersey...................
New York.....................
North Carolina...............
Ohio.........................
Pennsylvania.................
South Carolina...............
Tennessee....................
Texas........................
Virginia.....................
Washington...................
All Others(2)................
-------------------- ------ --------- ------
Total...............$ (3)100.00%(4) 100.00%(4)
==================== ====== ========= ======
- ----------
(1) Based on billing address of Obligor.
(2) No other state represents a percentage of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Balances may not add up to total because of rounding.
(4) Percentages may not add up to 100% because of rounding.
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Receivables by APR as of the Cutoff Date
PERCENT OF PERCENT OF
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
APR RANGE PRINCIPAL BALANCE PRINCIPAL BALANCE RECEIVABLES RECEIVABLES
<S> <C> <C> <C> <C> <C>
15.501% - 16.000%
16.001% - 16.500%
16.501% - 17.000%
17.001% - 17.500%
17.501% - 18.000%
18.001% - 18.500%
18.501% - 19.000%
19.001% - 19.500%
19.501% - 20.000%
20.001% - 20.500%
20.501% - 21.000%
21.001% - 21.500%
21.501% - 22.000%
22.001% - 22.500%
22.501% - 23.000%
23.001% - 23.500%
23.501% - 24.000%
24.001% - 24.500%
24.501% - 25.000%
25.001% - 25.500%
25.501% - 26.000%
26.001% - 26.500%
26.501% - 27.000%
27.001% - 27.500%
27.501% - 28.000%
28.001% - 28.500%
28.501% - 29.000%
29.001% - 29.500%
29.501% - 30.000%
--------------- ------- -------
Total .. $ 100.00%(2)
100.00%(2)
- ---------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of
Aggregate Percent of
Remaining Term to Aggregate Principal Number of Number of
Scheduled Maturity Principal Balance Balance Receivables Receivables
- ----------------------------------- ---------------------- --------------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
19-24 months........................
25-30 months........................
31-36 months........................
37-42 months........................
43-48 months........................
49-54 months........................
55-60 months........................
Total.......................... $ (1) %(2) %(2)
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
Distribution of the Receivables by
Date of Origination as of the Cutoff Date
<TABLE>
<CAPTION>
Percent of
Aggregate Percent of
Aggregate Principal Number of Number ofs
Date of Ordination Principal Balance Balance Receivables Receivables
- ----------------------------------- ------------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
05/01/97-05/31/97...................
06/01/97-06/30/97...................
07/01/97-07/31/97...................
08/01/97-08/31/97...................
09/01/97-09/30/97...................
10/01/97-10/31/97...................
11/01/97-11/30/97...................
12/01/97-12/31/97...................
S-35
<PAGE>
01/01/98-01/31/98...................
02/01/98-02/28/98...................
03/01/98-03/31/98...................
04/01/98-04/30/98...................
05/01/98-05/31/98...................
06/01/98-06/30/98...................
Total......................$ (1) 100.00%(2)
= ==================== ==========
- -------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C> <C>
19-24 months........................
25-30 months........................
31-36 months........................
37-42 months........................
43-48 months........................
49-54 months........................
55-60 months........................
Total.......................... $ (1) %(2) %(2)
===================== =========== =========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of the Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C> <C>
1990................................. $ % %
1991.................................
1992.................................
1993.................................
1994.................................
1995.................................
1996.................................
1997.................................
1998.................................
1999.................................
Total....................... $ (1) 100.00%(2) 100.00%(2)
====================== ========== ==========
</TABLE>
S-37
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Principal Aggregate Aggregate Number of Number of
Balances Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C> <C>
$ 0.001 - 5,000.00...............
5,000.01 - 10,000.00...............
10,000.01 - 15,000.00...............
15,000.01 - 20,000.00...............
20,000.01 - 25,000.00...............
25,000.01 - 30,000.00...............
Total...................... $ (1) %(2) %(2)
===================== =========== =========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
As of the Cutoff Date, approximately [ ]% of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables") and
approximately [ ]% of the aggregate Principal Balance of the Receivables in the
Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. Each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the final
S-38
<PAGE>
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, instead of receiving a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining Scheduled Receivable Payments (as defined herein) of interest that
would have been due under a Simple Interest Receivable for which all payments
were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
All of the Receivables are prepayable at any time without charge. (For
this purpose "prepayments" include prepayments in full, liquidations due to
default, as well as receipts of proceeds from physical damage, credit life and
credit accident and health insurance policies and certain other Receivables
repurchased for administrative reasons.) The rate of prepayments on the
Receivables may be influenced by a variety of economic, social, and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a Receivable without the consent of CPS. In
addition, the rate of prepayments on the Receivables may be affected by the
nature of the Obligors and the Financed Vehicles and servicing decisions. See
"Risk Factors--Nature of Obligors; Servicing" in this Prospectus Supplement. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne entirely by the Noteholders and Certificateholders.
See also "Description of the Securities--Optional Redemption" in this Prospectus
Supplement regarding the Servicer's option to purchase the Receivables and
redeem the Notes when the aggregate Principal Balance of the Receivables is less
than or equal to [ ]% or less of the Original Pool Balance. See also
"Description of the Securities--Mandatory Redemption" in this Prospectus
Supplement regarding the acceleration of the Notes after the occurrence of an
Event of Default.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors with respect to such
Collection Period, all payments and Purchase Amounts (as defined herein)
remitted by CPS or the Servicer, as the case may be, for such Collection Period,
all losses realized on Receivables liquidated during such Collection Period and
any Cram Down Losses with respect to such Receivables. The Pool Balance is
computed by allocating payments to principal and to interest, with respect to
Rule of 78's Receivables, using the constant yield or actuarial method, and with
respect to Simple Interest Receivables, using the simple interest method. The
"Class A-1 Pool Factor" is a seven digit decimal which
S-39
<PAGE>
the Servicer will compute each month indicating the principal balance of the
Class A-1 Notes as a fraction of the initial principal balance of the Class A-1
Notes. The Class A-1 Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Class A-1 Pool Factor will decline to reflect reductions in the
principal balance of the Class A-1 Notes. An individual Class A-1 Noteholder's
share of the principal balance of the Class A-1 Notes is the product of (i) the
original denomination of the Noteholder's Note and (ii) the Class A-1 Pool
Factor.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors and various other items of information. Noteholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Description of the Trust
Documents--Statements to Noteholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the CPS Receivables from CPS, the Samco
Receivables from Samco and the Linc Receivables from Linc. CPS, Samco and Linc
will apply the net proceeds received from the Seller to purchase new Contracts
or to repay debt incurred to purchase the Contracts.
THE SELLER, CPS, SAMCO AND LINC
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 its subsidiaries and transferring such receivables to
third parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes. The principal executive offices of the
Seller are located at 2 Ada, Irvine, California 92718; telephone (714) 753-6800.
In March 1996, CPS formed Samco, an 80 percent-owned subsidiary based
in Dallas, Texas. Samco's business plan is to provide CPS's sub-prime auto
finance products to rural areas through IFCs. CPS believes that many rural areas
are not adequately served by other industry participants due to their distance
from large metropolitan areas where a Dealer marketing representative is most
likely to be based. The principal executive offices of Samco are located at 8150
N. Central Expressway, Dallas, Texas 75206; telephone (800) 544-8802.
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide sub-prime auto finance
products to deposit institutions such as banks, thrifts and credit unions. CPS
believes that such institutions do not generally make loans to sub-prime
borrowers even though they may have relationships with automobile dealers who
sell vehicles to sub-prime borrowers and may have sub-prime borrowers as deposit
customers. The principal executive offices of Linc are located at One Selleck
Street, Norwalk, Connecticut 06855; telephone (203) 831-8300. For further
information regarding the Seller and CPS, see "The Seller and CPS" in the
Prospectus.
S-40
<PAGE>
THE 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 Payment Date for agreeing to stand by as successor
Servicer and for performing certain other functions. Such fee will be payable to
the Standby Servicer from the Servicing Fee payable to CPS. If the Standby
Servicer, or any other entity serving at the time as Standby Servicer, becomes
the successor Servicer, it will receive compensation at a Servicing Fee Rate
which shall (i) reflect current market practice with respect to compensation of
servicers of receivables comparable to the Receivables and (ii) not exceed [ ] %
per annum.
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued pursuant to the terms of the Indenture, and
the Certificates will be issued pursuant to the terms of the Trust Agreement,
forms of each of which have been filed as exhibits to the Registration
Statement.
The Notes initially will be represented by notes registered in the name
of Cede as the nominee of The Depository Trust Company ("DTC"), and will only be
available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Noteholders" and to authorized denominations, when used with respect to the
Notes, shall reflect the rights of beneficial owners of the Notes ("Note
Owners"), and limitations thereof, as they may be indirectly exercised through
DTC and its participating members, except as otherwise specified herein. See
"Registration of Notes" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the holders of record of the Class A-1 Notes (the
"Class A-1 Noteholders") as of the related Record Date will be entitled to
receive, pro rata, interest for the applicable Class A-1 Interest Period at the
Class A-1 Interest Rate, on the outstanding principal balance of the Class A-1
Notes as of the close of the preceding Payment Date. Notwithstanding the
foregoing, on the initial Payment Date, the interest payable to the Noteholders
of record of each class of Notes will be an amount equal to the product of (a)
the Interest Rate applicable to such class of Notes, (b) the initial principal
amount of such class of Notes and (c) a fraction (i) the numerator of which is
the number of days from and including the Closing Date to and including [ ]
(assuming, in the case of the Class A-2 Notes, that there are 30 days in each
month of the year) and (ii) the denominator of which is 360. Interest on the
Notes which is due but not paid on any Payment Date will be payable on the next
Payment Date together with, to the extent permitted by law, interest on such
unpaid amount at the applicable Interest Rate. See "Description of the Trust
Documents--Distributions" in this Prospectus Supplement.
Payment of Principal
Principal of the Notes will be payable on each Payment Date in an
amount equal to the Class A Noteholders' Principal Distributable Amount for the
related Collection Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the Class A Noteholders' Percentage (as of each Payment
Date) multiplied by the Principal Distributable Amount. The Noteholders also
will be entitled to receive
S-41
<PAGE>
on each Payment Date any unpaid portion of the Class A Noteholders' Principal
Distributable Amount with respect to a prior Payment Date. In addition to the
Class A Noteholders' Principal Distributable Amount, on each Payment Date on
which the principal balance of the Notes (after giving effect to the payment of
the Class A Noteholders' Principal Distributable Amount on such Payment Date)
exceeds the Class A Target Amount for such Payment Date, the Noteholders will be
entitled to receive, as an additional payment of principal, the lesser of (x)
the portion of the Total Distribution Amount remaining after application thereof
to pay the amounts described in clauses (i) through (ix) under "Description of
the Trust Documents--Distributions--Priority of Distribution Amounts" and (y)
the amount by which the outstanding principal balance of the Notes exceeds the
Class A Target Amount.
On each Payment Date, the amounts distributed on account of the Class A
Noteholders' Principal Distributable Amount will be applied, sequentially, to
pay principal of the Class A-1 Notes until the principal balance of the Class
A-1 Notes has been reduced to zero and then to the holders of the Class A-2
Notes until the principal balance of the Class A-2 Notes has been reduced to
zero.
Mandatory Redemption
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default shall not have occurred and be continuing, the Notes shall
become due and payable at par with accrued interest thereon, the [Credit
Enhancer] will have the right, but not the obligation, to cause the Indenture
Trustee to liquidate the Trust Assets, in whole or in part, on any date or dates
following the acceleration of the Notes due to such Event of Default, and to
distribute the proceeds of such liquidation in accordance with the terms of the
Indenture. Following the occurrence of any Event of Default, the Indenture
Trustee will continue to submit claims as necessary under the Policy for any
shortfalls in the Scheduled Payments on the Notes, except that the [Credit
Enhancer], in its sole discretion, may elect to pay all or any portion of the
outstanding amount of the Notes in excess thereof, plus accrued interest
thereon. The Policy does not guarantee payments of any amounts that become due
on an accelerated basis, unless the [Credit Enhancer] elects, in its sole
discretion to pay such amounts in whole or in part. See "Description of the
Trust Documents--Events of Default" and "The Policy" herein.
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase all remaining Receivables
from the Trust (with the consent of the [Credit Enhancer] if such purchase and
redemption would result in a claim under the Policy or any amount owing to the
[Credit Enhancer] or on the Notes would remain unpaid), on or after the last day
of any month on or after which the then outstanding Pool Balance is equal to [
]% or less of the Original Pool Balance, at a price equal to at least the
aggregate of the unpaid principal amount of the Notes plus accrued and unpaid
interest thereon as of such last day. Exercise of such right will effect early
retirement of the Notes. Upon declaration of an optional redemption, the
Indenture Trustee will give written notice of termination to each Noteholder of
record. The final distribution to any Noteholder will be made only upon
surrender and cancellation of such holder's Note at the office or agency of the
Indenture Trustee specified in the notice of termination. Any funds remaining
with the Indenture Trustee after the Indenture Trustee has taken certain
measures to locate a Noteholder, and such measures have failed, will be
distributed to The American Red Cross.
S-42
<PAGE>
REGISTRATION OF NOTES
The Notes will initially be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. DTC is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC accepts securities
for deposit from its participating organizations ("Participants") and
facilitates the clearance and settlement of securities transactions between
Participants in such securities through electronic book-entry changes in
accounts of Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
Persons acquiring beneficial ownership interests in the Notes may hold
their Notes directly though DTC if they are Participants or indirectly through
organizations which are Participants. The beneficial owner's ownership of a
book-entry note will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (each, a "Financial
Intermediary") that maintains the beneficial owner's account for such purpose.
In turn the Financial Intermediary's ownership of such book-entry note will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant). See "Description of the Securities--Book-Entry Registration" in
the Prospectus.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreements, the Sale and Servicing Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). Forms of the Trust Documents have
been filed as exhibits to the Registration Statement. A copy of the Trust
Documents will be filed with the Commission following the issuance of the
Securities. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Documents. The following summary supplements the description of the general
terms and provisions of the Trust Documents (as such terms are used in the
accompanying Prospectus) set forth in the accompanying Prospectus, to which
description reference is hereby made.
Sale and Assignment of Receivables
On or prior to the Closing Date, the Seller will purchase from Samco
pursuant to the Samco Purchase Agreement, without recourse, except as provided
in the Samco Purchase Agreement, Samco's entire interest in the Samco
Receivables, together with Samco's security interests in the related Financed
Vehicles. On or prior to the Closing Date, the Seller will purchase from Linc
pursuant to the Linc Purchase Agreement, without recourse, except as provided in
the Linc Purchase Agreement, Linc's entire interest in the Linc Receivables,
together with Linc's security interests in the related Financed Vehicles. On or
prior to the Closing Date, the Seller will purchase from CPS pursuant to the CPS
Purchase Agreement, without recourse, except as provided in the CPS Purchase
Agreement, CPS's entire interest in the CPS Receivables, together with CPS's
security interests in the related Financed Vehicles. At the time of issuance of
the Notes, the Seller will sell and assign to the Trust, without recourse except
as provided in the Sale and Servicing Agreement, its entire interest in the
Receivables, together with its
S-43
<PAGE>
security interests in the Financed Vehicles. Each Receivable will be identified
in a schedule appearing as an exhibit to the related Purchase Agreement. The
Indenture Trustee will, concurrently with such sale and assignment, execute,
authenticate, and deliver the Securities to the Seller in exchange for the
Receivables. The Seller will sell the Notes to the Underwriter. See
"Underwriting" in this Prospectus Supplement.
In the CPS Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the CPS
Purchase Agreement with respect to the Receivables (including, without
limitation, the Samco Receivables and the Linc 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
the normal requirements of CPS, Samco or Linc, as applicable; (iii) at the date
of issuance of the Securities, the Receivables are free and clear of all
security interests, liens, charges, and encumbrances and no offsets, defenses,
or counterclaims against Dealers, IFCs or Deposit Institutions have been
asserted or threatened; (iv) at the date of issuance of the Securities, each of
the Receivables is or will be secured by a first-priority perfected security
interest in the related Financed Vehicle in favor of CPS, Samco or Linc; and (v)
each Receivable, at the time it was originated, complied and, at the date of
issuance of the Securities, complies in all material respects with applicable
federal and state laws, including, without limitation, consumer credit, truth in
lending, equal credit opportunity and disclosure laws. As of the last day of the
second (or, if CPS elects, the first) month following the discovery by or notice
to the Seller and CPS of a breach of any representation or warranty that
materially and adversely affects the interest of the Trust, the Indenture
Trustee or the [Credit Enhancer], unless the breach is cured, CPS will purchase
such Receivable from the Trust for the Purchase Amount. The repurchase
obligation will constitute the sole remedy available to the Noteholders, the
[Credit Enhancer], the Owner Trustee or the Indenture Trustee for any such
uncured breach; provided, however, that CPS will be required to indemnify the
Owner Trustee, the Indenture Trustee, the [Credit Enhancer], the Trust and the
Noteholders against all costs, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel, which may be asserted against
or incurred by any of them, as a result of third party claims arising out of
events or facts giving rise to such breach.
On or prior to the Closing Date, the related Contracts will be
delivered to the Indenture Trustee as custodian, and the Indenture Trustee
thereafter will maintain physical possession of the Receivables except as may be
necessary for the servicing thereof by the Servicer. The Receivables will not be
stamped to show the ownership thereof by the Trust. However, CPS's, Samco's and
Linc's accounting records and computer systems will reflect the sale and
assignment of the Receivables to the Seller, and Uniform Commercial Code ("UCC")
financing statements reflecting such sales and assignments will be filed. See
"Formation of the Trust" in this Prospectus Supplement and "Certain Legal
Aspects of the Receivables" in the Prospectus.
Accounts
The segregated Lock-Box Account will be established and maintained with
Bank of America in the name of the Seller for the benefit of the Noteholders 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. See
"Description of the Trust Documents--Payments on Receivables" in the Prospectus.
The Indenture Trustee will also establish and maintain initially with itself one
or more accounts (collectively, the "Collection Account") in the name of the
Indenture Trustee on behalf of the Noteholders and the [Credit Enhancer], into
which all amounts previously deposited in the Lock-Box Account will be
transferred within two Business Days of the receipt of funds therein. On the
first Business Day after
S-44
<PAGE>
receipt, the Servicer will deposit all amounts received by it in respect of the
Receivables in the Lock-Box Account or the Collection Account. The Indenture
Trustee will also establish and maintain initially with itself one or more
accounts, in the name of the Indenture Trustee on behalf of the Noteholders,
from which all distributions with respect to the Notes will be made (the "Note
Distribution Account").
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the result of [one twelfth] times [ ]% of the Pool
Balance as of the close of business on the last day of the second preceding
Collection Period; provided, however, that with respect to the first Payment
Date the Servicer will be entitled to receive a Servicing Fee equal to the
result of [one twelfth] times [ ]% of the Original Pool Balance. As additional
servicing compensation, the Servicer will also be entitled to receive certain
late fees, prepayment charges and other administrative fees or similar charges.
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 which shall (i) reflect current market practice with respect
to compensation of servicers of receivables comparable to the Receivables and
(ii) not exceed [ ]% per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
amounts received upon payment in full of Rule of 78's Receivables in excess of
the then outstanding principal balance of such Receivables and accrued interest
thereon (calculated pursuant to the actuarial method) and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to Scheduled Receivable Payments, late fees and
other charges and principal and interest in accordance with the Servicer's
normal practices and procedures. The Servicing Fee will be paid out of
collections from the Receivables, prior to distributions to Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
[Credit Enhancer] with respect to distributions and generating federal income
tax information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
S-45
<PAGE>
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Noteholders' Interest Distributable Amount, the
Class A Noteholders' Principal Distributable Amount, the Certificateholders'
Interest Distributable Amount and the Certificateholders' Principal
Distributable Amount.
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date will be the sum of the following amounts with respect
to the preceding Collection Period: (i) all collections on Receivables; (ii) all
proceeds received during the Collection Period with respect to Receivables that
became Liquidated Receivables during the Collection Period in accordance with
the Servicer's customary servicing procedures, net of the reasonable expenses
incurred by the Servicer in connection with such liquidation and any amounts
required by law to be remitted to the Obligor on such Liquidated Receivable
("Liquidation Proceeds") in accordance with the Servicer's customary servicing
procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables; (iv) earnings on investments of funds in the Collection Account
during the related Collection Period; and (v) the Purchase Amount of each
Receivable that was repurchased by CPS or purchased by the Servicer as of the
last day of the related Collection Period.
"Cram Down Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
Scheduled Payments to be made on a Receivable, an amount equal to such reduction
in Principal Balance of such Receivable or the reduction in 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 or restructured. A Cram Down Loss shall be deemed to have occurred on
the date such order is entered.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a Scheduled Receivable Payment of more than ten dollars
for 120 (or, if the related Financed Vehicle has been repossessed, 210) or more
days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount
S-46
<PAGE>
with respect to the Receivable allocable to principal; (iv) any Cram Down Loss
in respect of such Receivable; and (v) any prepayment in full or any partial
prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Noteholders will be entitled
to receive the Noteholders' Distributable Amount with respect to each Payment
Date. The "Noteholders' Distributable Amount" with respect to a Payment Date
will be an amount equal to the sum of:
(i) the "Class A Noteholders' Principal Distributable Amount,"
consisting of the Class A Noteholders' Percentage of the following:
(a) collections on Receivables (other than Liquidated Receivables)
allocable to principal including full and partial prepayments;
(b) the portion of the Purchase Amount allocable to principal of each
Receivable that was repurchased by CPS or purchased by the Servicer as of the
last day of the related Collection Period and, at the option of the [Credit
Enhancer] the Principal Balance of each Receivable that was required to be but
was not so purchased or repurchased (without duplication of the amounts referred
to in (a) above);
(c) 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) above);
(d) the aggregate amount of Cram Down Losses with respect to the
Receivables that shall have occurred during the preceding Collection Period
(without duplication of amounts included in (a) through (c) above); and
(e) any proceeds from the liquidation of the Trust Assets pursuant to
an acceleration of the Notes upon an Event of Default (the amounts set forth in
(a) through (e), the "Principal Distributable Amount"); plus
(ii) the Class A Noteholders' Principal Carryover Shortfall; and
(iii) the Class A Noteholders' Interest Distributable Amount.
On the Class A-1 Final Scheduled Payment Date, the Class A Noteholders'
Principal Distributable Amount will at least equal an amount sufficient to pay
in full the then outstanding principal balance of the Class A-1 Notes. On the
Class A-2 Final Scheduled Payment Date, the Class A Noteholders' Principal
S-47
<PAGE>
Distributable Amount will at least equal an amount sufficient to pay in full the
then outstanding principal balance of the Class A-2 Notes.
"Class A Noteholders' Interest Distributable Amount" means,
with respect to any Payment Date, the sum of (i) the Class A-1
Noteholders' Interest Distributable Amount and (ii) the Class A-2
Noteholders' Interest Distributable Amount.
The "Class A Noteholders' Percentage" will be [ ]% on the
initial Payment Date and on any Payment Date after the initial Payment
Date will be the percentage equivalent of a fraction, the numerator of
which is the principal amount of the Notes as of the close of the
preceding Payment Date and the denominator of which is the Pool Balance
as of such Payment Date.
"Class A Target Amount" means, with respect to any Payment
Date, an amount equal to [ ] of the Pool Balance as of such Payment
Date.
"Class A-1 Noteholders' Interest Carryover Shortfall" means,
with respect to any Payment Date, the excess of the Class A-1
Noteholders' Interest Distributable Amount for the preceding Payment
Date over the amount that was actually deposited in the Note
Distribution Account on such preceding Payment Date on account of the
Class A-1 Noteholders' Interest Distributable Amount.
"Class A-1 Noteholders' Interest Distributable Amount" means,
with respect to any Payment Date, the sum of the Class A-1 Noteholders'
Monthly Interest Distributable Amount for such Payment Date and the
Class A-1 Noteholders' Interest Carryover Shortfall for such Payment
Date, plus interest on such Class A-1 Noteholder's Interest Carryover
Shortfall, to the extent permitted by law, at the Class A-1 Interest
Rate through the current Payment Date.
"Class A-1 Noteholders' Monthly Interest Distributable Amount"
means an amount equal to the product of (i) the Class A-1 Interest
Rate, (ii) the outstanding principal balance of the Class A-1 Notes as
of the close of the preceding Payment Date (or, in the case of the
initial Payment Date, as of the Closing Date) after giving effect to
all distributions on account of principal on such preceding Payment
Date and (iii) a fraction, the numerator of which is the actual number
of days elapsed in the applicable Class A-1 Interest Period and the
denominator of which is 360.
"Class A-2 Noteholders' Interest Carryover Shortfall" means,
with respect to any Payment Date, the excess of the Class A-2
Noteholders' Interest Distributable Amount for the preceding Payment
Date over the amount that was actually deposited in the Note
Distribution Account on such preceding Payment Date on account of the
Class A-2 Noteholders' Interest Distributable Amount.
"Class A-2 Noteholders' Interest Distributable Amount" means,
with respect to any Payment Date, the sum of the Class A-2 Noteholders'
Monthly Interest Distributable Amount for such Payment Date and the
Class A-2 Noteholders' Interest Carryover Shortfall for such Payment
Date, plus interest on such Class A-2 Noteholder's Interest Carryover
Shortfall, to the extent permitted by law, at the Class A-2 Interest
Rate through the current Payment Date.
S-48
<PAGE>
"Class A-2 Noteholders' Monthly Interest Distributable Amount"
means, (a) for the first Payment Date, an amount equal to the product
of (i) the Class A-2 Interest Rate, (ii) the initial principal balance
of the Class A-2 Notes and (iii) a fraction, the numerator of which is
the number of days from and including the Closing Date to and including
[ ] (assuming that there are 30 days in each month of the year) and
(ii) the denominator of which is 360 and (b) for any Payment Date after
the first Payment Date, an amount equal to the product of (i)
one-twelfth of the Class A-2 Interest Rate and (ii) the outstanding
principal balance of the Class A-2 Notes as of the close of the
preceding Payment Date (after giving effect to all distributions on
account of principal on such preceding Payment Date).
Priority of Distribution Amounts. On each Determination Date,
the Servicer will calculate the amount to be distributed to the
Noteholders.
On each Payment Date, the Indenture Trustee (based on the
Servicer's determination made on the related Determination Date) shall
make the following distributions in the following order of priority:
(i) to the Standby Servicer, so long as CPS is the Servicer
and [ ] is the Standby Servicer, the Standby Fee and all unpaid Standby
Fees from prior Collection Periods;
(ii) to the Servicer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clause (i) above), the Servicing Fee and all unpaid Servicing Fees from
prior Collection Periods;
(iii) 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 clauses (i) and (ii) above), to the extent not previously
paid by the predecessor Servicer pursuant to the Sale and Servicing
Agreement, reasonable transition expenses (up to a maximum of $[ ])
incurred in becoming the successor Servicer;
(iv) to the Indenture Trustee and the Owner Trustee, pro rata,
from the Total Distribution Amount (as such Total Distribution Amount
has been reduced by payments pursuant to clauses (i) through (iii)
above), the fees payable thereto for services pursuant to the Indenture
and the Trust Agreement (the "Trustee Fees") and reasonable
out-of-pocket expenses thereof (including counsel fees and expenses),
and all unpaid Trustee Fees and unpaid reasonable out-of-pocket
expenses (including counsel fees and expenses) from prior Collection
Periods;
(v) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
(vi) to the Noteholders (pro rata to each class of Notes on
the basis of the accrued and unpaid interest thereon), from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (v) above), the Class A
Noteholders' Interest Distributable Amount;
S-49
<PAGE>
(vii) to the Noteholders, 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 Noteholders'
Principal Distributable Amount, plus the Class A Noteholders' Principal
Carryover
Shortfall, if any;
(viii) to the [Credit Enhancer], from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (vii) above), any amounts due to the
[Credit Enhancer] under the terms of the Insurance Agreement;
(ix) on any Payment Date prior to the First Target Date, to
the Collateral Agent for deposit in the Spread Account, from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (viii) above) the amount by
which the Initial Spread Account Deposit exceeds the amount in the
Spread Account on such Payment Date;
(x) on any Payment Date on which the principal balance of the
Notes (after giving effect to the payment described in paragraph (vii)
above) exceeds the Class A Target Amount for such Payment Date, to the
Noteholders, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clauses
(i) through (ix) above), an amount equal to the lesser of (a) the
portion of the Total Distribution Amount remaining after making the
payments described in (i) through (ix) above and (b) the excess of the
principal balance of the Notes (after giving effect to the payment
described in (vii) above) over the Class A Target Amount;
(xi) in the event any Person other than the Standby Servicer
becomes the successor Servicer, to such successor Servicer, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) through (x) above), to the
extent not previously paid by the predecessor Servicer pursuant to the
Sale and Servicing Agreement, reasonable transition expenses (up to a
maximum of $[ ] for all such expenses) incurred in becoming the
successor Servicer; and
(xii) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any.
Amounts distributed on account of the Class A Noteholders' Principal
Distributable Amount pursuant to priority (vii) above and amounts distributed
pursuant to (x) above will be applied, sequentially, to pay principal of the
Class A-1 Notes until the principal balance of the Class A-1 Notes has been
reduced to zero, and then to the holders of the Class A-2 Notes until the
principal balance of the Class A-2 Notes has been reduced to zero.
On the fourth business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set forth in the priorities
of distribution in the Indenture, to distribute the Class A Noteholders'
Distributable Amount.
The [Credit Enhancer] shall at any time, and from time to time, with
respect to a Payment Date, have the option (but shall not be required, except as
required under the Policy) to deliver amounts to the
S-50
<PAGE>
Indenture 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 Payment
Date, (ii) to distribute as a component of the Class A Noteholders' Principal
Distributable Amount to the extent that the principal balance of the Notes as of
the Determination Date preceding such Payment Date exceeds the Pool Balance as
of such Determination Date, or (iii) to include such amount as part of the Total
Distribution Amount for such Payment Date to the extent that without such amount
a draw would be required to be made on the Policy.
The Spread Account. As part of the consideration for the issuance of
the Policy, the Seller has agreed to cause to be established with [ ] (in such
capacity, the "Collateral Agent") an account (the "Spread Account") for the
benefit of the [Credit Enhancer] and the Indenture Trustee on behalf of the
Noteholders. Any portion of the Total Distribution Amount remaining on any
Payment Date after payment of all fees and expenses due on such date to the
Servicer, the Standby Servicer, the Indenture Trustee, the Owner Trustee, any
successor Servicer and the Collateral Agent and all amounts owing to the [Credit
Enhancer] on such date and all principal and interest payments due to the
Noteholders on such Payment Date, will be deposited in the Spread Account and
held by the Collateral Agent for the benefit of the [Credit Enhancer] and the
Indenture Trustee on behalf of the Noteholders. If on any Payment Date, the
Total Distribution Amount is insufficient to pay all distributions required to
be made on such day pursuant to priorities (i) through (viii) under "Priority of
Distribution Amounts", then amounts on deposit in the Spread Account will be
applied to pay the amounts due on such Payment Date pursuant to such priorities
(i) through (viii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date and distributions
to be made in accordance with the Master Spread Account Agreement have been
made) are in excess of the Requisite Amount will be released to or at the
direction of the Seller on such Payment Date.
So long as no [Credit Enhancer] Default shall have occurred and be
continuing, the [Credit Enhancer] will be entitled to exercise in its sole
discretion all rights under the master spread account agreement among the
Seller, the [Credit Enhancer], the Indenture Trustee and the Collateral Agent
(the "Master Spread Account Agreement") with respect to the Spread Account and
any amounts on deposit therein and will have no liability to the Indenture
Trustee or the Noteholders for the exercise of such rights. The [Credit
Enhancer] (so long as a [Credit Enhancer] Default shall not have occurred and be
continuing) may, with the written consent of CPS, the Seller and the Collateral
Agent but without the consent of the Indenture Trustee or any Noteholder, reduce
the Requisite Amount or modify any term of the Master Spread Account Agreement
(including terminating the Master Spread Account Agreement and releasing all
funds on deposit in the Spread Account). Because the Requisite Amount or the
existence of the Spread Account may be modified or terminated by the [Credit
Enhancer] as described above, Noteholders should not rely on amounts in the
Spread Account for payments of principal or interest on the Notes.
Events of Default
Unless a [Credit Enhancer] Default shall have occurred and be
continuing, "Events of Default" under the Indenture will consist of those events
defined in the Insurance Agreement as Insurance Agreement Indenture Cross
Defaults, and will constitute an Event of Default under the Indenture only if
the [Credit Enhancer] shall have delivered to the Indenture Trustee a written
notice specifying that any
S-51
<PAGE>
such Insurance Agreement Indenture Cross Default constitutes an Event of Default
under the Indenture. An "Insurance Agreement Indenture Cross Default" may result
from: (i) a demand for payment under the Policy; (ii) an Insolvency Event ;
(iii) the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;
(iv) the sum of the Total Distribution Amount with respect to any Payment Date
plus the amount (if any) available from certain collateral accounts maintained
for the benefit of the [Credit Enhancer] is less than the sum of the amounts
described in clauses (i) through (vii) under "Description of the Trust
Documents--Distributions--Priority of Distribution Amounts" herein; and (v) any
failure to observe or perform in any material respect any other covenants,
representation, warranty or agreements of the Trust in the Indenture, any
certificate or other writing delivered in connection therewith, which failure
continues for 30 days after written notice of such failure or incorrect
representation or warranty has been given to the Trust and the Indenture Trustee
by the [Credit Enhancer].
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default shall not have occurred and be continuing, the Notes shall
become due and payable at par with accrued interest thereon, the [Credit
Enhancer] will have the right, but not the obligation, to cause the Indenture
Trustee to liquidate the Trust Assets, in whole or in part, on any date or dates
following the acceleration of the Notes due to such Event of Default, and to
distribute the proceeds of such liquidation in accordance with the terms of the
Indenture. Following the occurrence of any Event of Default, the Indenture
Trustee will continue to submit claims as necessary under the Policy for any
shortfalls in the Scheduled Payments on the Notes, except that the [Credit
Enhancer], in its sole discretion, may elect to pay all or any portion of the
outstanding amount of the Notes in excess thereof, plus accrued interest
thereon. See "The Policy" and "Description of the Securities--Mandatory
Prepayment" herein.
If a [Credit Enhancer] Default has occurred and is continuing, "Events
of Default" will consist of the following events set forth in the Indenture: (i)
a default for five days or more in the payment of any interest on the Notes;
(ii) a default for five days or more in the payment of the principal of the
Notes when the same becomes due and payable; (iii) a default in the observance
or performance in any material respect of any covenant or agreement of the Trust
made in the Indenture, or any representation or warranty made by the Trust in
the Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect as of the time made, and the continuation of any
such default or the failure to cure such breach of a representation or warranty
for a period of 30 days (or such longer period not in excess of 90 days as is
reasonably necessary to cure such default) after notice thereof is given to the
Trust by the Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25% in principal amount of the Notes then outstanding; or
(iv) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust.
Upon the occurrence of an Event of Default, and so long as a [Credit
Enhancer] Default has occurred and is continuing the Indenture Trustee or the
holders of Notes representing at least a majority of the principal amount of the
Notes then outstanding may declare the principal of the Notes to be immediately
due and payable. Such declaration may, under certain circumstances, be rescinded
by the holders of Notes representing at least a majority of the principal amount
of the Notes then outstanding. The Indenture Trustee may also institute
proceedings to collect amounts due or foreclose on the Trust Property, exercise
remedies as a secured party, sell the related Receivables or elect to have the
Trust maintain possession of such Receivables. If the Indenture Trustee has the
right to liquidate the Trust Estate, because a [Credit Enhancer] Default has
occurred and is continuing, nevertheless, the Indenture Trustee will be
prohibited from selling the related Receivables following an Event of Default
unless (i)
S-52
<PAGE>
the holders of all the outstanding Notes consent to such sale or (ii) the
proceeds of such sale are sufficient to pay in full the principal of and the
accrued interest on such outstanding Notes at the date of such sale.
Statements to Noteholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Noteholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
a statement (prepared by the Servicer) setting forth the following information
with respect to the preceding Collection Period, to the extent applicable: (i)
the amount of the distribution allocable to principal of each class of Notes;
(ii) the amount of the distribution allocable to interest on each class of
Notes; (iii) the Pool Balance and the Pool Factor for each class of Notes as of
the close of business on the last day of the preceding Collection Period; (iv)
the aggregate principal balance of each class of Notes and the Certificates as
of the close of business on the last day of the preceding Collection Period,
after giving effect to payments allocated to principal reported under (i) above;
(v) the amount of the Servicing Fee paid to the Servicer with respect to the
related Collection Period (inclusive of the Standby Fee), the amount of any
unpaid Servicing Fees and the change in such amount from that of the prior
Payment Date; (vi) the amount of the Class A-1 Noteholders' Interest Carryover
Shortfall, Class A-2 Noteholders' Interest Carryover Shortfall and Class A
Noteholders' Principal Carryover Shortfall on such Payment Date and the change
in such amounts from those on the prior Payment Date; (vii) the amount paid to
the Noteholders under the Policy or from the Spread Account for such Payment
Date; (viii) the amount distributable to the [Credit Enhancer] on such Payment
Date; (ix) the aggregate amount in the Spread Account and the change in such
amount from the previous Payment Date; (x) the number of Receivables and the
aggregate gross amount scheduled to be paid thereon, including unearned finance
and other charges, for which the related Obligors are delinquent in making
Scheduled Receivable Payments between 31 and 59 days and 60 days or more; (xi)
the number and the aggregate Purchase Amount of Receivables repurchased by CPS
or purchased by the Servicer; and (xii) the cumulative Principal Balance of all
Receivables that have become Liquidated Receivables, net of Recoveries, during
the period from the Cutoff Date to the last day of the related Collection
Period.
Each amount set forth pursuant to subclauses (i), (ii), (v), (vi),
(vii) and (xi) above shall be expressed in the aggregate and as a dollar amount
per $1,000 of original principal balance of a Note.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Noteholder and received any payment on such
holder's Notes, a statement (prepared by the Servicer) containing the sum of the
amounts described in (i), (ii) and (v) above for the purposes of such
Noteholder's preparation of federal income tax returns. See "Description of the
Trust Documents--Statements to Noteholders" and "Federal Income Tax
Consequences"in this Prospectus Supplement.
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the [Credit Enhancer] on or before July 31 of each year, beginning July 31,
[ ], a report as to compliance by the Servicer during the preceding twelve
months ended March 31 with certain standards relating to the servicing of the
Receivables (or in the case of the first such certificate, the period from the
Cutoff Date to March 31, [ ]).
S-53
<PAGE>
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the [Credit Enhancer], on or before July 31 of each year,
commencing July 31, [ ] of a certificate signed by an officer of the Servicer
stating that the Servicer has fulfilled its obligations under the Sale and
Servicing Agreement throughout the preceding twelve months ended March 31 or, if
there has been a default in the fulfillment of any such obligation, describing
each such default (or in the case of the first such certificate, the period from
the Cutoff Date to March 31, [ ]). The Servicer has agreed to give the Indenture
Trustee and the [Credit Enhancer] notice of any Events of Default under the Sale
and Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the [Credit Enhancer]. No such
resignation will become effective until a successor servicer has assumed the
servicing obligations and duties under the Sale and Servicing Agreement. In the
event CPS resigns as Servicer or is terminated as Servicer, the Standby Servicer
has agreed pursuant to the Servicing Assumption Agreement to assume the
servicing obligations and duties under the Sale and Servicing Agreement;
however, so long as no [Credit Enhancer] Default shall have occurred and be
continuing, the [Credit Enhancer] in its sole and absolute discretion may
appoint a successor Servicer other than the Standby Servicer.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate each March 31, June 30, September 30 and
December 31 unless renewed by the [Credit Enhancer] for successive quarterly
periods. The [Credit Enhancer] will agree to grant continuous renewals so long
as (i) no Servicer Termination Event under the Sale and Servicing Agreement has
occurred and (ii) no event of default under the Insurance Agreement has
occurred. See "Description of the Securities--Certain Matters Regarding the
Servicer" in the Prospectus.
S-54
<PAGE>
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days (or,
in the case of a payment or deposit to be made no later than a Payment Date, the
failure to make such payment or deposit by such Payment Date), or any failure to
deliver to the Indenture Trustee the annual accountants' report, the annual
statement as to compliance or the statement to the Noteholders, in each case,
within five days of the date it is due; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement 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 [Credit Enhancer] or by the Indenture Trustee, or (2)
to the Servicer or the Seller, as the case may be, and to the Indenture Trustee
and the [Credit Enhancer] by the holders of Notes evidencing not less than [ ]%
of the outstanding principal balance of the Notes; (iii) certain events of
insolvency, readjustment of debt, marshaling of assets and liabilities, or
similar proceedings with respect to the Servicer or, so long as CPS is Servicer,
of any of its affiliates, and certain actions by the Servicer, the Seller or, so
long as CPS is Servicer, of any of its affiliates, indicating its insolvency,
reorganization pursuant to bankruptcy proceedings, or inability to pay its
obligations; (iv) a claim is made under the Policy; or (v) the occurrence of an
Insurance Agreement Event of Default.
An "Insurance Agreement Event of Default" means an event of default
under the Insurance Agreement or under any other "insurance agreement" pursuant
to which Financial Security has issued (or issues in the future) a financial
guaranty insurance policy in respect of securities issued by a trust for which
CPS is the Servicer. The events constituting an Insurance Agreement Event of
Default (including the events of default under any such other insurance
agreements) may be modified, amended or waived by Financial Security without
notice to or consent of the Indenture Trustee or any Noteholder. Remedies
available to Financial Security upon the occurrence of an Insurance Agreement
Event of Default include increasing the amount required to be on deposit in the
Spread Account and terminating CPS's appointment as Servicer. See "Risk Factors
- -- Sub-Prime Obligers; Servicing".
Rights Upon Servicer Termination Event
Following the occurrence of a Servicer Termination Event that remains
unremedied, (x) provided no [Credit Enhancer] Default shall have occurred and be
continuing, the [Credit Enhancer] in its sole and absolute discretion or (y) if
a [Credit Enhancer] Default shall have occurred and be continuing, then the
Indenture Trustee or the holders of Notes evidencing not less than [ ]% of the
outstanding principal balance of the Notes may terminate all the rights and
obligations of the Servicer under the Sale and Servicing Agreement, whereupon
the Standby Servicer, or such other successor Servicer as shall be or have been
appointed by the [Credit Enhancer] (or, if a [Credit Enhancer] Default shall
have occurred and be continuing, by the Indenture Trustee or the Noteholders, as
described above) will succeed to all the responsibilities, duties and
liabilities of the Servicer under the Sale and Servicing Agreement; provided,
however, that such successor Servicer shall have no liability with respect to
any obligation which was required to be performed by the predecessor Servicer
prior to the date such successor Servicer becomes the Servicer or the claim of a
third party (including a Noteholder) based on any alleged action or inaction of
the predecessor Servicer as Servicer.
S-55
<PAGE>
"[Credit Enhancer] Default" shall mean any one of the following events
shall have occurred and be continuing: (i) the [Credit Enhancer] fails to make a
payment required under the Policy in accordance with its terms; (ii) the [Credit
Enhancer] (A) files any petition or commences any case or proceeding under any
provision or chapter of the United States Bankruptcy Code or any other similar
federal or state law relating to insolvency, bankruptcy, rehabilitation,
liquidation or reorganization, (B) makes a general assignment for the benefit of
its creditors, or (C) has an order for relief entered against it under the
United States Bankruptcy Code or any other similar federal or state law relating
to insolvency, bankruptcy, rehabilitation, liquidation or reorganization which
is final and nonappealable; or (iii) a court of competent jurisdiction, the New
York Department of Insurance or other competent regulatory authority enters a
final and nonappealable order, judgment or decree (A) appointing a custodian,
trustee, agent or receiver for the [Credit Enhancer] or for all or any material
portion of its property or (B) authorizing the taking of possession by a
custodian, trustee, agent or receiver of the [Credit Enhancer] (or the taking of
possession of all or any material portion of the property of the [Credit
Enhancer]).
Waiver of Past Defaults
With respect to the Trust, subject to the approval of the [Credit
Enhancer], the holders of Notes evidencing more than [ ]% of the outstanding
principal balance of the Notes (the "Class A Note Majority") may, on behalf of
all Securityholders waive any default by the Servicer in the performance of its
obligations under the Sale and Servicing Agreement and its consequences, except
a default in making any required deposits to or payments from any of the Trust
Accounts in accordance with the Sale and Servicing Agreement. No such waiver
shall impair the Noteholders' rights with respect to subsequent defaults.
CREDIT ENHANCEMENT
The Policy
Concurrently with the issuance of the Securities, the [Credit Enhancer]
will issue the Policy to the Indenture Trustee for the benefit of the
Noteholders. Under the Policy, the [Credit Enhancer] will unconditionally and
irrevocably guarantee the full, complete and timely payment of (i) the Class A
Noteholders' Interest Distributable Amount and (ii) the Class A Noteholders'
Principal Distributable Amount. See "The Policy" in this Prospectus Supplement.
Overcollateralization
To the extent that the outstanding principal balance of the Notes on
any Payment Date exceeds the Class A Target Amount for such Payment Date, the
portion of the Total Distribution Amount remaining after payment of the amounts
described in items (i) through (ix) under "Description of the Trust Documents --
Distributions -- Priority of Distributions" will be applied to make a principal
payment on the Notes in an amount equal to the lesser of (a) such remaining
portion of the Total Distribution Amount and (b) the amount by which the
outstanding principal balance of the Notes on such Payment Date exceeds the
Class A Target Amount for such Payment Date. Such additional principal payment
will cause the principal amount of the Notes to amortize more quickly relative
to the principal amount of the Receivables than would be the case if the
Noteholders received only the Class A Noteholders' Principal Distributable
Amount.
S-56
<PAGE>
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the [Credit Enhancer]
will deliver the Policy to the Indenture Trustee for the benefit of each Class A
Noteholder. Under the Policy, the [Credit Enhancer] unconditionally and
irrevocably guarantees to the Indenture Trustee for the benefit of each Class A
Noteholder the full and complete payment of (i) Scheduled Payments (as defined
below) on the Notes and (ii) any Scheduled Payment which subsequently is avoided
in whole or in part as a preference payment under applicable law.
"Scheduled Payments" means payments that are scheduled to be made on
the Notes during the term of the Policy in an amount equal to the sum of (i) the
Class A Noteholders' Interest Distributable Amount and (ii) the Class A
Noteholders' Principal Distributable Amount on a Payment Date, in each case, in
accordance with the original terms of the Notes when issued and without regard
to any amendment or modification of the Notes or the Indenture which has not
been consented to by the [Credit Enhancer]. Scheduled Payments do not include
payments which become due on an accelerated basis as a result of (a) a default
by the Issuer, (b) an election by the Issuer to pay principal on an accelerated
basis, (c) the occurrence of an Event of Default under the Indenture or (d) any
other cause, unless the [Credit Enhancer] elects, in its sole discretion, to pay
in whole or in part such principal due upon acceleration, together with any
accrued interest to the date of acceleration. In the event the [Credit Enhancer]
does not so elect, the Policy will continue to guarantee Scheduled Payments due
on the Notes in accordance with their original terms. Scheduled Payments shall
not include, nor shall coverage be provided under the Policy in respect of, (i)
any portion of a Class A Noteholders' Interest Distributable Amount due to
Noteholders because a notice and certificate in proper form was not timely
Received by the [Credit Enhancer], or (ii) any portion of the Class A
Noteholders' Interest Distributable Amount due to Noteholders representing
interest on any Noteholders' Interest Carryover Shortfall accrued from and
including the date of payment of the amount of such Noteholders' Interest
Carryover Shortfall pursuant to the Policy. Scheduled Payments shall not include
any amounts due in respect of the Notes attributable to any increase in interest
rates, penalties or other sums payable by the Trust by reason of a default or
Event of Default in respect of the Notes, or by reason of a deterioration of the
creditworthiness of the Trust, nor shall Scheduled Payments include, nor shall
coverage be provided under the Policy in respect of, any taxes, withholding or
other charges with respect to any Noteholder imposed by any governmental
authority due in connection with the payment of any Scheduled Payments to a
Class A Noteholder.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the [Credit Enhancer] following Receipt by the [Credit Enhancer]
of the appropriate notice for payment on the later to occur of (a) 12:00 noon,
New York City time, on the third Business Day following Receipt of such notice
for payment, and (b) 12:00 noon, New York City time, on the Payment Date on
which such payment was due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the [Credit Enhancer] 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
[Credit Enhancer] from the Indenture Trustee of (i) a certified copy of the
order (the "Order") of the court or other governmental
S-57
<PAGE>
body which exercised jurisdiction to the effect that the Class A Noteholder is
required to return the amount of any Scheduled Payment distributed with respect
to the Notes during the term of the Policy because such distributions were
avoidable as preference payments under applicable bankruptcy law, (ii) a
certificate of the Noteholder that the Order has been entered and is not subject
to any stay, and (iii) an assignment duly executed and delivered by the Class A
Noteholder, in such form as is reasonably required by the [Credit Enhancer] and
provided to the Class A Noteholder by the [Credit Enhancer], irrevocably
assigning to the [Credit Enhancer] all rights and claims of the Class A
Noteholder relating to or arising under the Notes against the debtor which made
such preference payment or otherwise with respect to such preference payment, or
(b) the date of Receipt by the [Credit Enhancer] from the Indenture Trustee of
the items referred to in clauses (i), (ii) and (iii) above if, at least four
Business Days prior to such date of Receipt, the [Credit Enhancer] shall have
received written notice from the Indenture Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
shall be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Order and not to the Indenture Trustee or any Class A
Noteholder directly (unless a Class A Noteholder has previously paid such amount
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy
named in the Order, in which event, such payment shall be disbursed to the
Indenture Trustee for distribution to such Class A Noteholder upon proof of such
payment reasonably satisfactory to the [Credit Enhancer]). In connection with
the foregoing, the [Credit Enhancer] shall have the rights provided pursuant to
the Indenture.
The terms "Receipt" and "Received" with respect to the Policy, shall
mean actual delivery to the [Credit Enhancer] and to its fiscal agent, if any,
prior to 12:00 noon, New York City time, on a Business Day; delivery either on a
day that is not a Business Day or after 12:00 noon, New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. If any notice or
certificate given under the Policy by the Indenture Trustee is not in proper
form or is not properly completed, executed or delivered, it shall be deemed not
to have been Received, and the [Credit Enhancer] or its fiscal agent shall
promptly so advise the Indenture Trustee and the Indenture Trustee may submit an
amended notice.
Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York, Minneapolis, Minnesota, the State in which the principal
corporate trust office of the Indenture Trustee is located, or any other
location of any successor indenture trustee or successor Collateral Agent are
authorized or obligated by law or executive order to be closed.
The [Credit Enhancer]'s obligations under the Policy in respect of the
Scheduled Payments shall be discharged to the extent funds are transferred to
the Indenture Trustee as provided in the Policy whether or not such funds are
properly applied by the Indenture Trustee.
The [Credit Enhancer] shall be subrogated to the rights of each Class A
Noteholder to receive payments of principal and interest to the extent of any
payment by the [Credit Enhancer] under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the [Credit Enhancer] ranking not less than pari passu with other
unsecured and unsubordinated indebtedness of the [Credit Enhancer] for borrowed
money. Claims against the [Credit Enhancer] under the Policy and claims against
the [Credit Enhancer] under each other financial guaranty insurance policy
issued thereby constitute pari passu claims against the general assets of the
[Credit Enhancer]. The terms of the Policy cannot be modified or altered by any
other agreement or instrument, or by the merger, consolidation or
S-58
<PAGE>
dissolution of the Trust. The Policy may not be canceled or revoked prior to
distribution in full of all Scheduled Payments with respect to the Notes. The
Policy is not covered by the Property/Casualty Insurance Security Fund specified
in Article 76 of the New York Insurance Law. The Policy is governed by the laws
of the State of New York.
THE [CREDIT ENHANCER]
General
[Credit Enhancer], for purposes of this Section, the "Credit
Enhancer"), is a monoline insurance company incorporated in 1984 under the laws
of the State of New York. [Credit Enhancer] is licensed, to engage in financial
guaranty insurance business in [ ].
[Credit Enhancer] 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 [Credit Enhancer]. [Credit
Enhancer] 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. [Credit Enhancer] insures both newly issued securities sold in the
primary market and outstanding securities sold in the secondary market that
satisfy [Credit Enhancer]'s underwriting criteria.
The principal executive offices of [Credit Enhancer] are located at
[address, telephone].
Reinsurance
Pursuant to an intercompany agreement, liabilities on financial
guaranty insurance written or reinsured from third parties by [Credit Enhancer]
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, [Credit Enhancer] reinsures a portion of its
liabilities under certain of its financial guaranty insurance policies with
other [Credit Enhancer] under various quota share treaties and on a
transaction-by-transaction basis. Such reinsurance is utilized by [Credit
Enhancer] as a risk management device and to comply with certain statutory and
rating agency requirements; it does not alter or limit [Credit Enhancer]'s
obligations under any financial guaranty insurance policy.
Rating of Claims-Paying Ability
[Credit Enhancer]'s claims-paying ability is rated "Aaa" by Moody's
Investors Service, Inc. and "AAA" by Standard & Poor's Ratings Services, Fitch
IBCA, Inc., Japan Rating and Investment Information, 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 Notes" in this Prospectus Supplement.
S-59
<PAGE>
Capitalization
The following table sets forth the capitalization of [Credit Enhancer]
and its wholly owned subsidiaries on the basis of generally accepted accounting
principles as of [ ] (in thousands):
<TABLE>
<CAPTION>
<S> <C>
[ ]
(UNAUDITED)
Deferred premium revenue (net of prepaid reinsurance premiums) $[ ]
Shareholder's equity:
Common stock [ ]
Additional paid-in capital [ ]
Unrealized gain on investments (net of deferred income taxes) [ ]
Accumulated earnings [ ]
----------
Total shareholder's equity [ ]
----------
Total deferred premium revenue and shareholder's equity.... $[ ]
===========
</TABLE>
For further information concerning [Credit Enhancer], see the
Consolidated Financial Statements of [Credit Enhancer], 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 [Credit
Enhancer] are available upon request to the State of New York Insurance
Department.
Insurance Regulation
[Credit Enhancer] 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, [Credit Enhancer] 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, [Credit Enhancer]
is subject to Article 69 of the New York Insurance Law which, among other
things, limits the business of each [Credit Enhancer] to financial guaranty
insurance and related lines, requires that each such [Credit Enhancer] maintain
a minimum surplus to policyholders, establishes contingency, loss and unearned
premium reserve requirements for each such [Credit Enhancer], and limits the
size of individual transactions ("single risks") and the volume of transactions
("aggregate risks") that may be underwritten by each such [Credit Enhancer].
Other provisions of the New York Insurance Law, applicable to non-life insurance
companies such as [Credit Enhancer], 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.
[Credit Enhancer] does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding [Credit Enhancer] set forth under the heading "The
[Credit Enhancer]."
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Federal Tax Counsel, for Federal income tax purposes
the Notes will be characterized as debt, and the Trust will not be characterized
as an association (or publicly traded partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a Note, will agree to treat
S-60
<PAGE>
the Notes as indebtedness for Federal income tax purposes. See "Federal Income
Tax Consequences" in the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the Notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan within the meaning of Section 3(3)
of ERISA, as well as an individual retirement account, a Keogh plan and any
other plan within the meaning of Section 4975 of the Code (each a "Benefit
Plan"), from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons or the fiduciaries of the Benefit Plan. In addition, Title
I of ERISA also requires fiduciaries of a Benefit Plan subject to ERISA to make
investments that are prudent, diversified and in accordance with the governing
plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes if assets of the Trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Regulation was applicable. An equity interest is defined under the
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is little guidance on the subject, the Seller believes
that, at the time of their issuance, the Notes should be treated as indebtedness
of the Trust without substantial equity features for purposes of the Regulation.
This determination is based in part upon the traditional debt features of the
Notes, including the reasonable expectation of purchasers of Notes that the
Notes will be repaid when due, as well as the absence of conversion rights,
warrants and other typical equity features. The debt treatment of the Notes for
ERISA purposes could change if the Trust incurred losses.
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee is or becomes a party in interest or a disqualified person
with respect to such Benefit Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of Notes by a
Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding transactions
effected by "in-house asset managers"; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments by
bank collective investment funds; and PTCE 84-14, regarding transactions
effected by "qualified professional asset managers." By acquiring a Class A
Note, each initial purchaser, transferee and owner of a beneficial interest will
be deemed to represent that either (i) it is not acquiring the Notes with the
assets of a Benefit Plan; or (ii) the acquisition and holding of the Notes will
not give rise to a nonexempt prohibited transaction under Section 406(a) of
ERISA or Section 4975 of the Code.
S-61
<PAGE>
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements, however governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated [ ] (the "Underwriting Agreement") among CPS, the
Seller, Samco, Linc and [Underwriter], the Seller has agreed to sell to the
Underwriter, and the Underwriter has agreed to purchase, Notes in the following
amounts:
Principal Amount of Principal Amount of
Class A-1 Notes Class A-2 Notes
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all the Notes offered hereby if any of such Notes are purchased.
CPS and the Seller have been advised by the Underwriter that the
Underwriter proposes to offer the Notes from time to time for sale in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. The Underwriter has held back from the purchase price payable by the
Underwriter for the Notes an amount included in expenses of the offering to be
applied as necessary to insure that the Underwriter receives underwriting
compensation of the initial principal amount of the Notes and, to the extent not
so applied, to be released to the Seller. The Underwriter may effect such
transactions by selling the Notes to or through dealers and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter and any purchasers of Notes for whom they may
act as agent. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Notes may be deemed to be underwriters,
and any discounts or commissions received by them and any profit on the resale
of Notes by them may be deemed to be underwriting discounts or commissions,
under the Securities Act.
The Notes are a new issue of securities with no established trading
market. The Underwriter has advised CPS and the Seller that it intends to act as
a market maker for the Notes. However, the Underwriter is not obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of any trading market for the Notes.
CPS and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriter may be required to make in respect
thereof.
S-62
<PAGE>
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for the Seller and the Servicer by Mayer, Brown & Platt, New York, New York.
Certain legal matters relating to the Notes will be passed upon for the
Underwriter by [ ]. Certain legal matters related to the Policy will be passed
upon for the [Credit Enhancer] by [ ], General Counsel of [Credit Enhancer].
EXPERTS
The consolidated balance sheets of [Credit Enhancer] as of December 31,
[ ] and [ ] 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 [ ], incorporated by reference in this Prospectus Supplement, have been
incorporated herein in reliance on the report of [ ], independent accountants,
given on the authority of that firm as experts in accounting and auditing.
S-63
<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.
Actuarial Receivables...................................................S-39
Affiliate Receivables...................................................S-14
Affiliated Originator.................................................1, S-4
Aggregate risks.........................................................S-60
Alpha Program...........................................................S-24
APR................................................................S-6, S-32
Benefit Plan......................................................S-16, S-61
Business Day.......................................................S-6, S-58
Cede.........................................................S-3, S-15, S-43
Certificates..........................................................1, S-4
Class A Note Majority...................................................S-56
Class A Noteholders' Interest Distributable Amount......................S-48
Class A Noteholders' Percentage....................................S-8, S-48
Class A Noteholders' Principal Distributable Amount................S-7, S-41
Class A Notes..............................................................1
Class A Target Amount..............................................S-8, S-48
Closing Date.............................................................S-4
Collection Account......................................................S-44
Collection Period........................................................S-9
Commission...............................................................S-2
Contracts...............................................................S-23
CPS Purchase Agreement...................................................S-5
CPS Receivables..........................................................S-5
CPS...................................................................1, S-4
Cram Down Loss..........................................................S-46
Cutoff Date..............................................................S-5
Dealer Agreements.......................................................S-22
Dealers.................................................................S-22
Delta Program...........................................................S-24
Deposit Institutions....................................................S-24
Determination Date......................................................S-46
DTC..........................................................S-3, S-15, S-41
ERISA...................................................................S-61
Events of Default.................................................S-51, S-52
Exchange Act.............................................................S-2
Federal Tax Counsel.....................................................S-16
Final Scheduled Payment Date.............................................S-6
Financed Vehicles........................................................S-5
Financial Intermediary..................................................S-43
Financial Security......................................................S-59
First Target Date.......................................................S-11
First Time Buyer Program................................................S-24
S-64
<PAGE>
Holders...........................................................S-16, S-41
IFCs.....................................................................S-5
Indenture Trustee..........................................................1
Indenture.............................................................1, S-5
Initial Spread Account Deposit..........................................S-12
Insurance Agreement Event of Default....................................S-55
Insurance Agreement Indenture Cross Default.............................S-52
Insurance Agreement...................................S-18, S-19, S-32, S-55
Interest Rate............................................................S-7
Issuer...................................................................S-4
Linc Program............................................................S-24
Linc Purchase Agreement..................................................S-5
Linc Receivables.........................................................S-5
Linc..................................................................1, S-4
Liquidated Receivable...................................................S-46
Liquidation Proceeds....................................................S-46
Master Spread Account Agreement.........................................S-51
Moody's.................................................................S-16
Note Distribution Account...............................................S-45
Note Owners.......................................................S-16, S-41
Noteholders..................................................S-6, S-16, S-41
Noteholders' Distributable Amount.......................................S-47
Notes.................................................................1, S-4
Obligors................................................................S-22
Order...................................................................S-57
Original Pool Balance....................................................S-5
Originator...............................................................S-4
Owner Trustee..............................................................1
Participants............................................................S-43
Payment Date.............................................................S-6
Policy...............................................................1, S-11
Pool Balance............................................................S-39
Post Office Box.........................................................S-13
prepayments.............................................................S-39
Principal Balance.......................................................S-46
Principal Distributable Amount.....................................S-8, S-47
PTCE....................................................................S-61
Purchase Agreements......................................................S-5
Purchase Amount.........................................................S-46
Rating Agencies.........................................................S-16
Receipt.................................................................S-58
Receivables Pool.........................................................S-5
Receivable...............................................................S-5
Received................................................................S-58
Record Date.............................................................S-11
Recoveries..............................................................S-47
Registration Statement...................................................S-2
S-65
<PAGE>
Regulation..............................................................S-61
Requisite Amount........................................................S-12
Rule of 78's Receivables................................................S-38
Sale and Servicing Agreement.............................................S-5
Samco Purchase Agreement.................................................S-5
Samco Receivables........................................................S-5
Samco.................................................................1, S-4
Scheduled Payments................................................S-11, S-57
Scheduled Receivable Payment............................................S-47
Securities Act...........................................................S-2
Securities............................................................1, S-4
Seller................................................................1, S-4
Servicer Termination Event..............................................S-55
Servicer.................................................................S-4
Servicing Assumption Agreement..........................................S-13
Servicing Fee Rate......................................................S-14
Simple Interest Receivables.............................................S-38
single risks............................................................S-60
Spread Account..........................................................S-51
Standard & Poor's.......................................................S-16
Standard Program........................................................S-24
Standby Fee.............................................................S-13
Standby Servicer..................................................S-13, S-41
Super Alpha Program.....................................................S-24
Total Distribution Amount...............................................S-46
Trust Agreement..........................................................S-4
Trust Assets.............................................................S-5
Trust Documents.........................................................S-43
Trustee Fees............................................................S-49
Trust.................................................................1, S-4
UCC.....................................................................S-44
Underwriting Agreement..................................................S-62
S-66
<PAGE>
Prospectus Supplement
To Prospectus Dated September [ ], 1998
$[ ]
[CPS Logo]
CPS Auto Receivables Trust 1998-4
$[ ] Floating Rate Asset-Backed Notes, Class A-1
$[ ] Floating Rate Asset-Backed Notes, Class A-2
CPS Receivables Corp.
(Seller)
Consumer Portfolio Services, Inc.
(Servicer)
-----------------------------
CPS Auto Receivables Trust 1998-4 (the "Trust") was formed pursuant to
a Trust Agreement, dated as of September 17, 1998, to be amended and restated as
of October [ ], 1998, between CPS Receivables Corp., as depositor (the
"Seller"), and Bankers Trust (Delaware), as owner trustee (the "Owner Trustee").
The Floating Rate Asset-Backed Notes, Class A-1 (the "Class A-1 Notes") and the
Floating Rate Asset-Backed Notes, Class A-2 (the "Class A-2 Notes" and, together
with the Class A-1 Notes, the "Class A Notes" or the "Notes"), will be issued
pursuant to an Indenture (the "Indenture"), dated as of October [ ], 1998,
between the Trust and Norwest Bank Minnesota, National Association, as indenture
trustee (in such capacity, the "Indenture Trustee"). The Trust will also issue
Asset-Backed Certificates (the "Certificates" and, together with the Notes, the
"Securities") in an initial principal amount of [$ ] which will not bear
interest and which will initially be retained by the Seller. The rights of the
holders of the Certificates to receive payments of principal will be
subordinated to the rights of Noteholders to the extent described herein. Only
the Notes are offered hereby.
-----------------------------
The Trust Assets will include a pool of retail installment sale
contracts (including contracts representing obligations of Sub-Prime Borrowers
(as defined herein) ) and all rights thereunder, certain monies received
thereunder after September [ ], 1998, security interests in the used and new
automobiles, light trucks, vans and minivans securing the Receivables (as
defined herein) , certain bank accounts and the proceeds thereof and the right
of Consumer Portfolio Services, Inc. ("CPS") or CPS's subsidiaries, Samco
Acceptance Corp. ("Samco") and Linc Acceptance Company LLC ("Linc"), to receive
certain insurance proceeds and certain other property, as more fully described
herein. The Receivables will be purchased by the Seller from CPS, Samco and
Linc, on or prior to the date of the issuance of the Securities.
-----------------------------
First Union Capital Markets, a division of Wheat First Securities, Inc.
("First Union Capital Markets" or, in its capacity as underwriter, the
"Underwriter"), has agreed to purchase from the Seller the Class A-1 Notes at a
purchase price equal to [ %] of the principal amount of Class A-1 Notes and the
Class A-2 Notes at a purchase price equal to [ %] of the principal amount of
Class A-2 Notes and in each case subject to the terms and conditions set forth
in the Underwriting Agreement referred to herein under "Underwriting". The
aggregate proceeds to the Seller, after deducting expenses payable by the
Seller, estimated at [$ ], will be [$ ] for the Notes.
-----------------------------
The Underwriter proposes to offer the Notes from time to time in
negotiated transactions or otherwise, at varying prices to be determined at the
time of sale. For further information with respect to the plan of distribution
and any discounts, commissions or profits that may be deemed underwriting
discounts or commissions, see "Underwriting" herein.
-----------------------------
Full and timely payment of the Scheduled Payments (as defined herein)
in respect of the Notes on each Payment Date is unconditionally and irrevocably
guaranteed pursuant to a financial guaranty insurance policy (the "Policy") to
be issued by Financial Security Assurance Inc. (the "Insurer").
[FSA Logo]
For a discussion of certain factors relating to the transaction, see
"Risk Factors" at page [S-17] herein and page [13] in the accompanying
prospectus.
-----------------------------
THE SECURITIES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
INTERESTS IN OR OBLIGATIONS OF THE SELLER, THE SERVICER OR ANY AFFILIATE
THEREOF. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR 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 Notes are offered hereby by the Underwriter when, as and if issued
by the Trust, delivered to and accepted by the Underwriter and subject to the
right of the Underwriter to reject any order in whole or in part. It is expected
that delivery of the Notes will be made on or about October [ ], 1998, only
through The Depository Trust Company.
-----------------------------
First Union Capital Markets
-----------------------------
The date of this Prospectus Supplement is September [ ], 1998.
<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
Notes offered pursuant to this Prospectus Supplement. For further information,
reference is made to the Registration Statement which may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional
offices at 500 West Madison, 14th Floor, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration
Statement may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission also maintains a web site at http://www.sec.gov containing reports,
proxy statements, information statements and other information regarding
registrants, including CPS, that file electronically with the Commission. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as may be required under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations of the Commission thereunder. Upon the receipt of a request from an
investor who has received an electronic Prospectus Supplement and Prospectus
from the Underwriter or a request from such investor's representative within the
period during which there is an obligation to deliver a Prospectus Supplement
and Prospectus, CPS, the Seller or the Underwriter will promptly deliver, or
cause to be delivered, without charge, a paper copy of the Prospectus Supplement
and Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents subsequently filed by CPS with the Registration
Statement, either on its own behalf or on behalf of the Trust, relating to the
Notes, with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act, after the date of this Prospectus Supplement and prior to the
termination of the offering of the Notes hereby, shall be deemed to be
incorporated by reference in this Prospectus Supplement and to be a part of this
Prospectus Supplement from the date of the filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus Supplement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or replaces such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
In addition to the documents described above and in the accompanying
Prospectus under "Incorporation of Certain Documents by Reference", the
consolidated financial statements of Financial Security Assurance Inc.
("Financial Security") 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 year ended December 31, 1997,
(b) Quarterly Report on Form 10-Q for the period ended March 31, 1998,
and
(c) Quarterly Report on Form 10-Q for the period ended June 30, 1998.
S-2
<PAGE>
All financial statements of Financial Security and its subsidiaries
included in documents filed by Holdings pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus Supplement
and prior to the termination of the offering of the Notes shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing of such documents.
The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial conditions and
results of operations of an insurance company, for determining its solvency
under the New York Insurance Law, and for determining whether its financial
condition warrants the payment of a dividend to its stockholders. No
consideration is given by the New York State Insurance Department to financial
statements prepared in accordance with generally accepted accounting principles
in making such determinations.
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
Notes offered hereby, and the offering of such Notes at that time shall be
deemed to be the initial bona fide offering thereof.
CPS will provide without charge to each person to whom this Prospectus
Supplement is delivered, on the written or oral request of such person, a copy
of any or all of the documents referred to above that have been or may be
incorporated by reference in this Prospectus Supplement (not including exhibits
to the information that is incorporated by reference unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
Supplement incorporates). Written requests for such copies should be directed
to: Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention: Jeffrey P. Fritz. Telephone requests for such copies should be
directed to Consumer Portfolio Services, Inc. at (714) 753-6800.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes 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 Notes. 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
<PAGE>
SUMMARY
This Summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement on the pages indicated in the
"Index of Terms" or, to the extent not defined herein, have the meaning assigned
to such terms in the Prospectus.
Issuer........................... CPS Auto Receivables Trust 1998-4 (the
"Trust" or the "Issuer").
Seller........................... CPS Receivables Corp. (the "Seller"), a
California corporation. See "The Seller and
CPS" in this Prospectus Supplement.
Servicer......................... Consumer Portfolio Services, Inc. ("CPS" or,
in its capacity as the servicer, the
"Servicer"), a California corporation. See
"CPS's Automobile Contract Portfolio" and
"The Seller and CPS" in this Prospectus
Supplement.
Originators...................... CPS, Samco Acceptance Corp. ("Samco"), a
Delaware corporation, and Linc Acceptance
Company LLC ("Linc"; Samco and Linc are each
an "Affiliated Originator" and are,
together, the "Affiliated Originators"), a
Delaware limited liability company (each, in
such capacity, an "Originator" and,
together, the "Originators"). CPS holds an
80% ownership interest in each of Samco and
Linc.
Indenture Trustee and
Standby Servicer............... Norwest Bank Minnesota, National
Association, a national banking association,
located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479-0070.
Owner Trustee.................... Bankers Trust (Delaware), located at 1011
Centre Road, Suite 200, Wilmington, Delaware
19805-1266.
Insurer.......................... Financial Security Assurance Inc., a
financial guaranty insurance company
incorporated under the laws of the State of
New York (the "Insurer"). See "The Insurer"
in this Prospectus Supplement.
Closing Date..................... On or about October [ ], 1998 (the "Closing
Date").
The Trust........................ The Trust will be a business trust
established under the laws of the State of
Delaware. The activities of the Trust are
limited by the terms of the Trust Agreement,
dated as of September 17, 1998, to be
amended and restated as of October [ ],
1998, between the Seller, as depositor, and
the Owner Trustee (the "Trust Agreement").
The Trust will issue Floating Rate
Asset-Backed Notes, Class A-1 (the "Class
A-1 Notes") in the aggregate original
principal amount of [$ ] and Floating Rate
Asset-Backed Notes, Class A-2 (the "Class
A-2 Notes"
S-4
<PAGE>
and, together with the Class A-1 Notes, the
"Notes") in the aggregate original principal
amount of [$ ]. The aggregate original
principal amount of the Notes will be [$ ].
The Trust will also issue Asset-Backed
Certificates in the aggregate original
principal amount of [$ ] (the "Certificates"
and, together with the Notes, the
"Securities") which will not bear interest.
The Notes will be issued pursuant to an
Indenture, dated as of October [ ], 1998
(the "Indenture"). The Notes will be offered
for purchase in minimum denominations of
$1,000 and integral multiples of $1,000 in
excess thereof, in book entry form only. See
"Description of the Securities Book-Entry
Registration" in the Prospectus. The Notes
will be secured by the Trust Assets as, and
to the extent, provided in the Indenture and
the Trust Agreement. Only the Notes are
offered hereby.
Trust Assets..................... The property of the Trust (the "Trust
Assets") will include (i) a pool of retail
installment sale contracts (each a
"Receivable" and collectively, the
"Receivables Pool") secured by the used and
new automobiles, light trucks, vans and
minivans financed thereby (the "Financed
Vehicles"), (ii) all payments received on
the Receivables after September [ ], 1998
(the "Cutoff Date"), (iii) security
interests in the Financed Vehicles, (iv)
certain bank accounts and the proceeds
thereof, (v) the right of CPS, Samco and
Linc to receive proceeds from claims under,
or refunds of unearned premiums from,
certain insurance policies and extended
service contracts, (vi) all right, title and
interest of the Seller in and to the
Purchase Agreements (as defined below) and
(vii) certain other property, as more fully
described herein. See "The Trust Assets" in
this Prospectus Supplement and "The
Receivables" in the Prospectus.
The Receivables.................. As of the Cutoff Date, the aggregate
outstanding principal balance of the
Receivables was [$ ] (the "Original Pool
Balance"). On or prior to the Closing Date,
the Seller will purchase the Receivables
from CPS, Samco and Linc pursuant to three
purchase agreements, each dated as of
October [ ], 1998 (the "CPS Purchase
Agreement", the "Samco Purchase Agreement"
and the "Linc Purchase Agreement",
respectively, and each, a "Purchase
Agreement" and, together, the "Purchase
Agreements"), each between the respective
Originator and the Seller. The Receivables
sold by CPS, Samco and Linc (the "CPS
Receivables", "Samco Receivables" and "Linc
Receivables", respectively) will represent
approximately [ %], [ %] and [ %],
respectively, of the Original Pool Balance.
Pursuant to the Sale and Servicing
Agreement, dated as of October [ ], 1998
(the "Sale and Servicing Agreement"), the
Trust, in turn, will purchase from the
Seller the Receivables. The Receivables
consist of retail installment sale contracts
secured by used and new automobiles, light
trucks, vans and minivans including the
rights to all payments received with respect
to such Receivables after the Cutoff Date.
As of the Cutoff Date,
S-5
<PAGE>
approximately [ %] of the aggregate
principal balance of the Receivables
represented financing of used vehicles.
The Receivables arise from loans originated
by automobile dealers, independent finance
companies ("IFCs") or Deposit Institutions
for assignment to CPS, Samco or Linc
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",
"The Receivables Pool" and "Risk
Factors--Sub-Prime Obligors; Servicing" in
this Prospectus Supplement and "Risk
Factors--Sub-Prime Obligors" in the
Prospectus.
The Receivables have been selected from
motor vehicle retail installment sale
contracts in CPS's, Samco's and Linc's
portfolios based on the criteria specified
in the Purchase Agreements and the Sale and
Servicing Agreement and described in this
Prospectus Supplement. 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
average original term to maturity of the
Receivables was approximately [ ] months. No
Receivable has a scheduled maturity date
later than [ ].
Terms of the Notes............... The principal terms of the Notes will be as
described below:
A. Payment Dates............... Payments of interest and principal on the
Notes will be made on the 15th day of each
month or, if such 15th day is not a Business
Day, on the next following Business Day
(each a "Payment Date"), commencing November
16, 1998. Payments will be made to holders
of record of the Notes (the "Noteholders")
as of the close of business on the Record
Date applicable to such Payment Date. A
"Business Day" is a day other than a
Saturday, a Sunday or a day on which banking
institutions in the City of New York, New
York, the State in which the principal
corporate trust office of the Indenture
Trustee is located, the State in which the
principal corporate trust office of the
Owner Trustee is located, the State in which
the executive offices of the Servicer are
located, or the State in which the principal
place of business of the Insurer is located
are authorized or obligated by law,
executive order or governmental decree to be
closed.
B. Final Scheduled
Payment Date................ The "Final Scheduled Payment Date" for the
Class A-1 Notes will be the [ ] Payment Date
(the "Class A-1 Final Scheduled Payment
Date") and for the Class A-2 Notes will be
the [ ] Payment Date
S-6
<PAGE>
(the "Class A-2 Final Scheduled Payment
Date"). See "Risk Factors--Final Scheduled
Payment Dates of the Notes".
C. Interest Rates................ The Class A-1 Notes will bear interest at a
floating rate equal to [ ] (the "Class A-1
Interest Rate"). The Class A-2 Notes will
bear interest at a floating rate equal to [
] (the "Class A-2 Interest Rate"). Each such
interest rate for a class of Notes is
referred to as an "Interest Rate". Interest
on the Notes will be calculated on the basis
of a 360-day year and the actual number of
days elapsed from and including the most
recent Payment Date on which interest has
been paid (or, in the case of the first
Payment Date, from and including the Closing
Date) to, but excluding, the following
Payment Date (each a "Class A-1 Interest
Period").
D. Interest.................... On each Payment Date, the holders of record
of the Class A-1 Notes (the "Class A-1
Noteholders") as of the related Record Date
will be entitled to receive, pro rata,
interest for the applicable Class A-1
Interest Period at the Class A-1 Interest
Rate on the outstanding principal amount of
the Class A-1 Notes at the close of the
preceding Payment Date. On each Payment
Date, the holders of record of the Class A-2
Notes (the "Class A-2 Noteholders") as of
the related Record Date will be entitled to
receive, pro rata, interest for the
applicable Class A-2 Interest Period at the
Class A-2 Interest Rate on the outstanding
principal amount of the Class A-2 Notes at
the close of the preceding Payment Date.
Notwithstanding the foregoing, on the
initial Payment Date, the interest payable
to the Noteholders of record of each class
of Notes will be an amount equal to the
product of (a) the Interest Rate applicable
to such class of Notes, (b) the initial
principal amount of such class of Notes and
(c) a fraction (i) the numerator of which is
the number of days from and including the
Closing Date to and including November 14,
1998 and (ii) the denominator of which is
360.
Interest on the Notes which is due but not
paid on any Payment Date will be payable on
the next Payment Date together with, to the
extent permitted by law, interest on such
unpaid amount at the applicable Interest
Rate. See "Description of the
Securities--Payment of Interest" in this
Prospectus Supplement.
E. Principal..................... Principal of the Notes will be payable on
each Payment Date in an amount equal to the
Class A Noteholders' Principal Distributable
Amount for the related Collection Period.
The "Class A Noteholders' Principal
Distributable Amount" is equal to the Class
A Noteholders' Percentage (as of each
Payment Date) of the Principal Distributable
Amount. The Noteholders also will be
entitled to receive on each Payment Date any
unpaid portion of the Class A Noteholders'
Principal Distributable Amount with respect
to a prior Payment Date. In addition to the
Class A Noteholders' Principal Distributable
Amount, on each
S-7
<PAGE>
Payment Date on which the principal balance
of the Notes (after giving effect to the
payment of the Class A Noteholders'
Principal Distributable Amount on such
Payment Date) exceeds the Class A Target
Amount for such Payment Date, the holders of
the Notes will be entitled to receive a
further payment in respect of principal in
an amount equal to the lesser of (a) the
portion of the Total Distribution Amount
remaining after payment of amounts having a
higher priority of payment has been made and
(b) the amount by which the principal
balance of the Notes (after giving effect to
the payment of the Class A Noteholders'
Principal Distributable Amount on such
Payment Date) exceeds the Class A Target
Amount for such Payment Date. See "Priority
of Payments" below.
The "Class A Noteholders' Percentage" will
be [98%] on the initial Payment Date and on
any Payment Date after the initial Payment
Date will be the percentage equivalent of a
fraction, the numerator of which is the
principal amount of the Notes as of the
close of the preceding Payment Date, and the
denominator of which is the Pool Balance as
of such Payment Date.
The "Class A Target Amount" means, with
respect to any Payment Date, an amount equal
to [90%] of the Pool Balance as of such
Payment Date.
Amounts paid on account of the Class A
Noteholders' Principal Distributable Amount
will be applied sequentially, to pay
principal of the Class A-1 Notes until the
principal balance of the Class A-1 Notes has
been reduced to zero, then to pay principal
of the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been
reduced to zero.
The "Principal Distributable Amount" for a
Payment Date will equal the sum of (a)
collections on Receivables (other than
Liquidated Receivables) allocable to
principal including full and partial
prepayments; (b) the portion of the Purchase
Amount allocable to principal of each
Receivable that was repurchased by CPS or
purchased by the Servicer as of the last day
of the related Collection Period and, at the
option of the Insurer, the Principal Balance
of each Receivable that was required to be
but was not so purchased or repurchased
(without duplication of the amounts referred
to in (a) above); (c) 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);
(d) the aggregate amount of Cram Down Losses
with respect to the Receivables that shall
have occurred during the preceding
Collection Period (without duplication of
amounts included in (a) through (c) above)
and (e) any proceeds from the liquidation of
the Trust Assets pursuant to an acceleration
of
S-8
<PAGE>
the Notes upon an Event of Default. In
addition, the outstanding principal amount
of the Notes of any class, to the extent not
previously paid, will be payable on the
respective Final Scheduled Payment Date for
such class.
A "Collection Period" with respect to a
Payment Date will be the calendar month
preceding the month in which such Payment
Date occurs; provided, however, that with
respect to the first Payment Date, the
"Collection Period" will be the period from
and excluding the Cutoff Date to and
including September 30, 1998.
F. Optional
Redemption.................. The Notes, to the extent still outstanding,
may be redeemed in whole, but not in part,
on any Payment Date on which the Servicer
exercises its option to purchase all the
Receivables on or after the last day of any
Collection Period on or after which the
aggregate Principal Balance of the
Receivables is equal to 10% or less of the
Original Pool Balance, at a redemption price
equal to at least the unpaid principal
amount of the Notes, plus accrued and unpaid
interest thereon; provided that the
Servicer's right to exercise such option
will be subject to the prior approval of the
Insurer, but only if, after giving effect to
such sale and redemption, a claim on the
Policy would occur or any amount owing to
the Insurer or the holders of the Notes
would remain unpaid. See "Description of the
Securities--Optional Redemption" in this
Prospectus Supplement.
G. Mandatory
Redemption.................. The Notes may be accelerated and subject to
immediate payment at par with accrued
interest thereon upon the occurrence of an
Event of Default under the Indenture. So
long as no Insurer Default shall have
occurred and be continuing, an Event of
Default under the Indenture will occur only
upon delivery by the Insurer to the
Indenture Trustee of notice of the
occurrence of certain events of default
under the Insurance Agreement, dated as of
October [ ], 1998. In the case of such an
Event of Default and notice by the Insurer,
the Notes will automatically be accelerated
and subject to immediate payment at par with
accrued interest thereon. The Policy does
not guarantee payments of any amounts that
become due on an accelerated basis, unless
the Insurer elects, in its sole discretion
to pay such amounts in whole or in part. See
"Description of the Trust Documents--Events
of Default" in this Prospectus Supplement.
Overcollateralization............ To the extent that the outstanding principal
balance of the Notes on any Payment Date
exceeds the Class A Target Amount for such
Payment Date, the portion of the Total
Distribution Amount remaining after payment
of the amounts described in items (i)
through (ix) under "Description of the Trust
Documents--Distributions--Priority of
S-9
<PAGE>
Distributions" will be applied to make a
principal payment on the Notes in an amount
equal to the lesser of (a) such remaining
portion of the Total Distribution Amount and
(b) the amount by which the outstanding
principal balance of the Notes on such
Payment Date exceeds the Class A Target
Amount for such Payment Date. Such
additional principal payment will cause the
principal amount of the Notes to amortize
more quickly relative to the principal
amount of the Receivables than would be the
case if the Noteholders received only the
Class A Noteholders' Principal Distributable
Amount.
Priority of Payments............. On each Payment Date, the Indenture Trustee
shall make the following distributions in
the following order of priority:
(i) to the Standby Servicer, so long
as CPS is the Servicer and
Norwest Bank Minnesota, National
Association is the Standby
Servicer, the Standby Fee and all
unpaid Standby Fees from prior
Collection Periods;
(ii) to the Servicer, the Servicing
Fee and all unpaid Servicing Fees
from prior Collection Periods;
(iii) in the event the Standby Servicer
becomes the successor Servicer,
to the Standby Servicer, to the
extent not previously paid by the
predecessor Servicer pursuant to
the Sale and Servicing Agreement,
reasonable transition expenses
(up to a maximum of $50,000)
incurred in becoming the
successor Servicer;
(iv) to the Indenture Trustee and the
Owner Trustee, pro rata, the
Trustee Fees and reasonable
out-of-pocket expenses and all
unpaid Trustee Fees and unpaid
reasonable out-of-pocket expenses
from prior Collection Periods;
(v) to the Collateral Agent, all fees
and expenses payable to the
Collateral Agent with respect to
such Payment Date;
(vi) to the Noteholders, the Class A
Noteholders' Interest
Distributable Amount, to be
distributed as described under
"Description of the Trust
Documents--Distributions";
(vii) to the Noteholders, the Class A
Noteholders' Principal
Distributable Amount, plus the
Class A Noteholders' Principal
Carryover Shortfall, if any, to
be distributed as described under
"Description of the Trust
Documents--Distributions";
(viii) to the Insurer, any amounts due
to the Insurer under the terms of
the Insurance Agreement ;
S-10
<PAGE>
(ix) on any Payment Date prior to the
First Target Date, to the
Collateral Agent, for deposit in
the Spread Account, the amount by
which the Initial Spread Account
Deposit exceeds the amount in the
Spread Account on such Payment
Date;
(x) on any Payment Date on which the
principal balance of the Notes
(after giving effect to the
payment described in paragraph
(vii) above) exceeds the Class A
Target Amount for such Payment
Date to the Noteholders, an
amount equal to the lesser of
(a) the portion of the Total
Distribution Amount remaining
after making the payments
described in (i) through (ix)
above and (b) the excess of the
principal balance of the Notes
(after giving effect to the
payment described in (vii)
above) over the Class A Target
Amount;
(xi) in the event any Person other
than the Standby Servicer becomes
the successor Servicer, to such
successor Servicer, to the extent
not previously paid by the
predecessor Servicer pursuant to
the Sale and Servicing Agreement,
reasonable transition expenses
(up to a maximum of $50,000 for
all such expenses) incurred in
becoming the successor Servicer;
and
(xii) to the Collateral Agent, for
deposit into the Spread Account,
the remaining Total Distribution
Amount, if any.
See "Description of the Trust
Documents--Distributions--Priority of
Distribution Amounts" in this Prospectus
Supplement.
The "First Target Date" means the first
Payment Date on which the principal
balance of the Notes is equal to or less
than the Class A Target Amount.
Record Dates..................... The record date applicable to each Payment
Date (each, a "Record Date") will be the
10th day of the calendar month in which such
Payment Date occurs.
The Policy....................... On the Closing Date, the Insurer will issue
the Policy to the Indenture Trustee for the
benefit of the Noteholders (the "Policy").
Pursuant to the Policy, the Insurer will
unconditionally and irrevocably guarantee to
the Noteholders payment of the Class A
Noteholders' Interest Distributable Amount
and the Class A Noteholders' Principal
Distributable Amount (collectively, the
"Scheduled Payments") on each Payment Date.
The Certificates do not have the benefit of
the Policy.
Spread Account................... As part of the consideration for the
issuance of the Policy, the Seller has
agreed to cause the Spread Account to be
established with the Collateral Agent for
the benefit of the Insurer and the Indenture
Trustee
S-11
<PAGE>
on behalf of the Noteholders. On the Closing
Date, the Seller will deposit into the
Spread Account an amount specified by the
Insurer (such amount, the "Initial Spread
Account Deposit"). Thereafter, any portion
of the Total Distribution Amount remaining
on any Payment Date after payment of all
fees and expenses due on such date to the
Servicer, the Standby Servicer, the
Indenture Trustee, the Owner Trustee, the
Collateral Agent, the Insurer, any successor
Servicer and all principal and interest
payments due to the Noteholders on such
Payment Date, will be deposited in the
Spread Account and held by the Collateral
Agent for the benefit of the Indenture
Trustee, on behalf of the Noteholders and
the Insurer. Amounts on deposit in the
Spread Account on any Payment Date which
(after all payments required to be made on
such date have been made) are in excess of
the requisite amount determined from time to
time in accordance with certain portfolio
performance tests agreed upon by the Insurer
and the Seller as a condition to the
issuance of the Policy (such requisite
amount, the "Requisite Amount") will be
released to or at the direction of the
Seller. Because the Requisite Amount or the
existence of the Spread Account may be
modified or terminated by the Insurer prior
to the occurrence and continuation of an
Insurer Default with the written consent of
CPS, the Seller and the Collateral Agent
(but without the consent of the Indenture
Trustee or any Noteholder), Noteholders
should not rely on amounts in the Spread
Account for payments of principal of or
interest on the Notes. See "Description of
the Trust Documents--Distributions--The
Spread Account" in this Prospectus
Supplement.
Repurchases and Purchases of
Certain Receivables............ CPS has made certain representations and
warranties relating to the Receivables
(including the Samco Receivables and the
Linc Receivables) to the Seller in the CPS
Purchase Agreement, and the Seller has made
such representations and warranties for the
benefit of the Trust and the Insurer in the
Sale and Servicing Agreement. The Indenture
Trustee, as acknowledged assignee of the
repurchase obligations of CPS under the CPS
Purchase Agreement, will be entitled to
require CPS to repurchase any Receivable
(including any Samco Receivable or Linc
Receivable) if such Receivable is materially
and 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 within the applicable
cure period following discovery by the
Seller or CPS or notice to the Seller and
CPS. See "Description of the Trust
Documents--Sale and Assignment of
Receivables" in the Prospectus.
The Servicer will be obligated to repurchase
any Receivable if, among other things, it
extends the date for final payment by the
Obligor of such Receivable beyond the last
day of the penultimate Collection
S-12
<PAGE>
Period preceding the Class [A-2] Final
Scheduled Payment Date or fails to maintain
a perfected security interest in the
Financed Vehicle. See "Description of the
Trust Documents--Servicing Procedures" in
this Prospectus Supplement and in the
Prospectus.
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 Seller for the
benefit of the Noteholders and the Insurer
(the "Post Office Box"). On each Business
Day, Bank of America, as the lock-box
processor (the "Lock-Box Processor"), will
transfer any such payments received in the
Post Office Box to a segregated lock-box
account at Bank of America National Trust
and Savings Association (the "Lock-Box
Bank") in the name of the Seller for the
benefit of the Noteholders and the Insurer
(the "Lock- Box Account"). Within two
Business Days of receipt of funds into the
Lock-Box Account, the Servicer is required
to direct the Lock-Box Bank to effect a
transfer of funds from the Lock-Box Account
to one or more accounts established with the
Indenture Trustee. See "Description of the
Trust Documents--Accounts" in this
Prospectus Supplement and "Description of
the Trust Documents--Payments on
Receivables" in the Prospectus.
Standby Servicer................. Norwest Bank Minnesota, National
Association, a national banking association,
located at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota.
If a Servicer Termination Event occurs and
remains unremedied, (1) provided no Insurer
Default has occurred and is continuing, then
the Insurer in its sole and absolute
discretion, or (2) if an Insurer Default
shall have occurred and be continuing, then
the Indenture Trustee may, with the consent
of the Class A Note Majority, terminate the
rights and obligations of the Servicer under
the Sale and Servicing Agreement. See "Risk
Factors--Sub-Prime Obligors; Servicing" and
"Description of the Trust
Documents--Servicer Termination Events" in
this Prospectus Supplement. If such event
occurs when CPS is the Servicer, or if CPS
resigns as Servicer or is terminated as
Servicer by the Insurer, Norwest Bank
Minnesota, National Association (in such
capacity, the "Standby Servicer") has agreed
to serve as successor Servicer under the
Sale and Servicing Agreement pursuant to a
Servicing and Lockbox Processing Assumption
Agreement, dated as of October [ ], 1998,
among CPS, the Standby Servicer and the
Indenture Trustee (the "Servicing Assumption
Agreement"). The Standby Servicer will
receive a 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
S-13
<PAGE>
Servicer becomes the successor Servicer, it
will receive compensation in an amount equal
to one twelfth of the Servicing Fee Rate
times the Pool Balance as of the close of
business on the last day of the second
preceding Collection Period. The "Servicing
Fee Rate" will be a rate that will (i)
reflect current market practice with respect
to compensation of servicers of receivables
comparable to the Receivables and (ii) not
exceed 3.00% per annum. See "The Standby
Servicer" in this Prospectus Supplement.
Servicing Fee.................... The Servicing Fee for each Payment Date
shall be equal to the result of one twelfth
times 2.00% of the Pool Balance as of the
close of business on the last day of the
second preceding Collection Period;
provided, however, that with respect to the
first Payment Date the Servicer will be
entitled to receive a Servicing Fee equal to
the result of one-twelfth times 2.00% of the
Original Pool Balance. As additional
servicing compensation, the Servicer will
also be entitled to receive certain late
fees, prepayment charges and other
administrative fees or similar charges.
Certain Legal Aspects of
the Receivables................ In connection with the sale of the
Receivables, security interests in the
Financed Vehicles securing the Receivables
will be assigned by the Originators to the
Seller pursuant to the applicable Purchase
Agreements and by the Seller to the Trust
pursuant to the Sale and Servicing
Agreement. Certain of the Receivables (the
"Affiliate Receivables"), representing
approximately [ %] of the aggregate
principal balance of the Receivables as of
the Cutoff Date, have been originated by
Samco or Linc, affiliates of CPS. The
certificates of title to the Financed
Vehicles securing the Receivables show the
applicable Originator as the lienholder. Due
to the administrative burden and expense,
the certificates of title to the Financed
Vehicles securing the Receivables (including
those securing the Affiliate Receivables)
will not be marked, amended or re-issued to
reflect the assignment thereof to the
Seller, nor will the certificates of title
to any Financed Vehicles be marked, amended
or reissued to reflect the assignment
thereof to the Trust. In the absence of such
an amendment, the Trust may not have a
perfected security interest in the Financed
Vehicles securing the Receivables in some
states.
By virtue of the assignment of the Purchase
Agreements to the Trust, CPS and, pursuant
to the Sale and Servicing Agreement, the
Seller, will be obligated to repurchase any
Receivable (including any Samco Receivable
and any Linc Receivable) sold to the Trust
by the Seller, as to which there did not
exist on the Closing Date a perfected
security interest in the name of CPS, Samco
or Linc in the Financed Vehicle securing
such Receivable, and the Servicer will be
obligated to purchase any Receivable sold to
the Trust as to which it failed to
S-14
<PAGE>
maintain a perfected security interest in
the name of CPS, Samco or Linc in the
Financed Vehicle securing such Receivable
(which perfected security interest has been
assigned to, and is for the benefit of, the
Trust) if, in either case, such breach
materially and adversely affects the
interests of the Trust, the Indenture
Trustee, the Noteholders or the 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, Samco or Linc 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 unpaid storage charges or for
taxes unpaid by an Obligor under a
Receivable, or through fraud, forgery or
negligence or error, CPS, Samco or Linc, and
therefore the Trust, could lose its prior
perfected security interest in a Financed
Vehicle. None of CPS, the Seller or 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--Lack of
Perfected Security Interest in Financed
Vehicles" in this Prospectus Supplement and
in the Prospectus.
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.
Because of the consumer-oriented nature of
the non-prime automobile industry,
uncertainty regarding the application of
certain of such laws to particular
circumstances, as well as the willingness of
some courts and regulatory agencies to adopt
novel interpretations of such laws,
participants in the non-prime automobile
financing business are frequently named as
defendants in litigation involving such
laws. Any violation of such laws, or
litigation alleging such a violation, with
respect to a Receivable could give rise to
defenses to payment by an Obligor against
CPS, the Seller, the Depositor, the Owner
Trustee, the Trust or the Indenture Trustee,
or subject them to claims by the Obligor for
damages or legal sanction. In some cases,
substantial jury verdicts have been upheld.
In addition, an Obligor may be entitled to
assert against CPS, the Seller, the
Depositor, the Owner Trustee, the Trust and
the Indenture Trustee claims or defenses
which it had against the seller of the
Financed Vehicle. To the extent specified
herein, CPS will be obligated to purchase
any Receivable sold to the Trust that failed
to comply with such legal requirements. See
"Certain Legal Aspects of the
Receivables--Consumer Protection Laws" in
the Prospectus.
S-15
<PAGE>
Book-Entry Notes................. The Notes initially will be represented by
one or more notes registered in the name of
Cede & Co. ("Cede") as the nominee of The
Depository Trust Company ("DTC"), and will
only be available in the form of
book-entries on the records of DTC and
participating members thereof. Transfers
within DTC will be in accordance with DTC's
usual rules and operating procedures. Notes
will be issued in definitive form only under
the limited circumstances described herein.
All references herein to "holders" of the
Notes or "Noteholders" shall reflect the
rights of beneficial owners of the Notes
(the "Note Owners") as they may indirectly
exercise such rights through DTC and
participating members thereof, except as
otherwise specified herein. See
"Registration of Notes" in this Prospectus
Supplement and "Description of the
Securities--Book-Entry Registration" and
"Definitive Notes" in the Prospectus.
Tax Status....................... In the opinion of Mayer, Brown & Platt
("Federal Tax Counsel"), for Federal income
tax purposes the Notes will be characterized
as debt and the Trust will not be
characterized as an association (or publicly
traded partnership) taxable as a
corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat
the Notes as indebtedness for Federal income
tax purposes. See "Federal Income Tax
Consequences" in the Prospectus and "Federal
Income Tax Consequences" in this Prospectus
Supplement for additional information
concerning the application of Federal tax
laws to the Trust and the Notes.
[Money Market Eligibility........ The Class A-1 Notes will be eligible
securities for purchase by money market
funds under Rule 2a-7 under the Investment
Company Act of 1940, as amended. A fund
should consult with its advisor regarding
the eligibility of the Class A-1 Notes under
Rule 2a-7 and the fund's investment policies
and objectives.]
ERISA Considerations............. Subject to the conditions and considerations
discussed under "ERISA Considerations" in
this Prospectus Supplement, the Notes are
eligible for purchase by pension,
profit-sharing or other employee benefit
plans, as well as individual retirement
accounts and certain types of Keogh Plans
(each, a "Benefit Plan"). By its acquisition
of a Note, each Benefit Plan shall be deemed
to represent that its purchase and holding
of the Note will not give rise to a
non-exempt prohibited transaction. See
"ERISA Considerations" in this Prospectus
Supplement.
Rating of the Notes.............. It is a condition of issuance that the Class
A-1 Notes be rated [ ] by Standard & Poor's
Ratings Group, a Division of The McGraw Hill
Companies ("Standard & Poor's"), and [ ] by
Moody's Investors Service, Inc. ("Moody's",
and together with Standard & Poor's, the
"Rating Agencies") and the Class A-2 Notes
be rated [ ] by Standard & Poor's and [ ] by
Moody's, on the basis of the issuance of the
Policy by the Insurer. A security rating is
not a recommendation to
S-16
<PAGE>
buy, sell or hold securities and may be
revised or withdrawn at any time by the
assigning Rating Agency. See "Risk
Factors--Ratings of the Notes" in this
Prospectus Supplement.
S-17
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus
Supplement and the Prospectus, prospective Noteholders should consider the
following factors, as well as those matters discussed in "Risk Factors" in the
Prospectus, in evaluating an investment in the Notes:
Sub-Prime Obligors; Servicing
The Originators purchase loans originated for assignment to the
Originators through automobile dealers, IFCs or Deposit Institutions (as defined
herein). The Originators' customers are generally "sub-prime borrowers" who 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 average interest rate charged by CPS to such "sub-prime borrowers" is
generally higher than that charged by commercial banks, financing arms of
automobile manufacturers and other traditional sources of consumer credit, which
typically impose more stringent credit requirements. 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. As a result of the credit profile of the Obligors and the APRs of the
Receivables, the historical credit loss and delinquency rates on the Receivables
may be higher than those experienced by banks and the captive finance companies
of the automobile manufacturers. In the event of a default under a Receivable,
the only source of repayment may be liquidation proceeds from the related
Financed Vehicle. The Financed Vehicles securing the Receivables will consist
primarily of used vehicles which are likely to have a liquidation value
substantially below the amount financed by the related Receivable.
The servicing of receivables of customers with marginal credit requires
special skill and diligence. The Servicer believes that its credit loss and
delinquency experience reflects in part its trained staff and collection
procedures. If a Servicer Termination Event occurs and CPS is removed as
Servicer or, if CPS resigns or is terminated as Servicer by the Insurer, the
Standby Servicer has agreed to assume the obligations of successor Servicer
under the Sale and Servicing Agreement. See "Description of the Trust
Documents--Rights Upon Servicer Termination Event" in this Prospectus
Supplement. There can be no assurance, however, that collections with respect to
the Receivables will not be adversely affected by any change in Servicer. See
"The Standby Servicer" in this Prospectus Supplement.
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate each March 31, June 30, September 30 and
December 31 unless renewed by the Insurer for successive quarterly periods. The
Insurer will agree to grant continuous renewals so long as (i) no Servicer
Termination Event under the Sale and Servicing Agreement has occurred and (ii)
no event of default under the insurance and indemnity agreement among CPS, the
Seller and the Insurer (the "Insurance Agreement") has occurred.
Upon the occurrence of an Insurance Agreement Event of Default (under
the Insurance Agreement or any other insurance agreement pursuant to which
Financial Security has issued or issues in the future a financial guaranty
insurance policy in respect of securities issued by a trust for which CPS is the
S-18
<PAGE>
Servicer), the Insurer will have the right to terminate CPS's appointment as
Servicer. The events constituting an Insurance Agreement Event of Default may be
modified, amended or waived by Financial Security without notice to or consent
of the Indenture Trustee or any Noteholder. See "Description of the Trust
Documents--Servicer Termination Events".
Liquidity of CPS
As a result of the performance of the portfolio of Contracts serviced
by CPS, the Insurer has increased the amount required to be on deposit in the
Spread Account in respect of the Notes. In response to such increase in required
credit enhancement and certain other obligations, CPS has implemented a plan to
raise additional working capital. CPS believes that the increased credit
enhancement requirement will not have a material adverse effect on its ability
to perform its obligations under the Trust Documents or any "insurance
agreement" pursuant to which Financial Security has issued or issues in the
future a financial guaranty insurance policy in respect of securities issued by
a trust for which CPS is the Servicer however, no assurances can be made to that
effect.
Trust's Relationship to the Seller and CPS
In connection with each sale of Receivables by CPS, Samco or Linc to
the Seller and by the Seller to the Trust, each of CPS and the Seller will make
representations and warranties with respect to the characteristics of such
Receivables. In certain circumstances as set forth herein, CPS and the Seller
are required to repurchase Receivables with respect to which such
representations or warranties are not true as of the date made. Neither CPS nor
the Seller is otherwise obligated with respect to the Notes or payments thereon.
See "Description of the Trust Documents--Sale and Assignment of the Receivables"
in this Prospectus Supplement.
Certain Legal Aspects -- Lack of Perfected Security Interests in Financed
Vehicles
Due to the administrative burden and expense, the certificates of title
to the Financed Vehicles securing the Receivables will not be marked, amended or
reissued to reflect the assignment of the Receivables to the Seller by CPS,
Samco or Linc, as applicable, nor will the certificates of title to any of the
Financed Vehicles (including those securing the Samco Receivables and the Linc
Receivables) be amended or reissued to reflect the assignment to the Trust. In
the absence of such an amendment or reissuance, the Trust may not have a
perfected security interest in the Financed Vehicles securing the Receivables in
some states. By virtue of the assignment of the Purchase Agreements to the
Trust, CPS, and pursuant to the Sale and Servicing Agreement, the Seller will be
obligated to repurchase any Receivable sold to the Trust by the Seller
(including any Samco Receivable or Linc Receivable) as to which there did not
exist on the Closing Date a perfected security interest in the name of CPS,
Samco or Linc in the Financed Vehicle securing such Receivable, 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, Samco or
Linc in the Financed Vehicle securing such Receivable if, in either case, such
breach materially and adversely affects the interests of the Trust, the
Noteholders, the Indenture Trustee or the Insurer in 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, Samco or Linc 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,
Samco or Linc,
S-19
<PAGE>
and therefore the Trust, could lose the priority of its security interest or its
security interest in a Financed Vehicle. None of CPS, the Seller 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" in the Prospectus.
Geographic Concentration
As of the Cutoff Date, [ %] of the Receivables by Principal Balance had
Obligors residing in the State of California. Economic conditions in the State
of California may affect the delinquency, loan loss and repossession experience
of the Trust with respect to the Receivables. See "The Receivables Pool" in this
Prospectus Supplement.
Limited Assets
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables and amounts on
deposit in certain accounts held by the Indenture Trustee on behalf of the
Noteholders. The Notes represent obligations solely of the Trust and are not
obligations of, and will not be insured or guaranteed by, the Seller, the
Servicer, the Indenture Trustee or any other person or entity except for the
guaranty provided with respect to the Notes by the Insurer pursuant to the
Policy, as described herein. The Seller will take such steps as are necessary
for the Insurer to issue the Policy to the Indenture Trustee for the benefit of
the Noteholders. Under the Policy, the Insurer will unconditionally and
irrevocably guarantee to the Class A Noteholders full and complete payment of
the Scheduled Payments on each Payment Date. Although the Policy will be
available on each Payment Date to cover shortfalls in distributions of the Class
A Noteholders' Distributable Amount on such Payment Date, in the event of an
Insurer Default, the Noteholders must rely on the collections on the
Receivables, and the proceeds from the repossession and sale of Financed
Vehicles which secure defaulted Receivables. In such event, certain factors,
such as the Trust not having perfected security interests in the Financed
Vehicles, may affect the Trust's ability to realize on the collateral securing
the Receivables and thus may reduce the proceeds to be distributed to
Noteholders on a current basis. See "Credit Enhancement", "Description of the
Securities--Payment of Principal", "--Payment of Interest" and "The Insurer"
herein.
Risk of Changes in Delinquency and Loan Loss Experience
CPS began purchasing Contracts from Dealers in October 1991. Although
CPS has calculated and presented herein its net loss experience with respect to
its servicing portfolio, there can be no assurance that the information
presented will reflect actual experience with respect to the Receivables. In
addition, there can be no assurance that the future delinquency or loan loss
experience of the Trust with respect to the Receivables will be better or worse
than that set forth herein with respect to CPS's servicing portfolio. See "CPS's
Automobile Contract Portfolio--Delinquency and Loss Experience" in this
Prospectus Supplement. Although credit history on Samco's and Linc's
originations is limited, CPS expects that the delinquency and net credit loss
and repossession experience with respect to the Receivables originated by Samco
and Linc will be similar to that of CPS's existing portfolio.
S-20
<PAGE>
Ratings of the Notes
It is a condition to the issuance of the Notes that the Class A-1 Notes
be rated [ ] by Standard & Poor's and [ ] by Moody's and the Class A-2 Notes,
Class A-3 Notes and Class A-4 Notes be rated [ ] by Standard & Poor's and [ ] by
Moody's, on the basis of the issuance of the Policy by the Insurer. A rating is
not a recommendation to purchase, hold or sell the Notes, inasmuch as such
rating does not comment as to market price or suitability for a particular
investor. The Rating Agencies do not evaluate, and the ratings do not address,
the possibility that Noteholders may receive a lower than anticipated yield.
There is no assurance that a rating will remain for any given period of time or
that a rating will not be lowered or withdrawn entirely by a Rating Agency if in
its judgment circumstances in the future so warrant. The ratings of the Notes
are based primarily on the rating of the Insurer. Upon an Insurer Default, the
rating on the Notes may be lowered or withdrawn entirely. In the event that any
rating initially assigned to the Notes were subsequently lowered or withdrawn
for any reason, including by reason of a downgrading of the Insurer's
claims-paying ability, no person or entity will be obligated to provide any
additional credit enhancement with respect to the Notes. Any reduction or
withdrawal of a rating may have an adverse effect on the liquidity and market
price of the Notes.
Final Scheduled Payment Dates of the Notes
The Final Scheduled Payment Date for each class of Notes which is
specified at page [S-6] herein, is the date by which the principal thereof is
required to be fully paid. The Final Scheduled Payment Date for each class of
Notes has been determined so that distributions on the underlying Receivables
will be sufficient to retire each such class on or before its respective Final
Scheduled Payment Date without the necessity of a claim on the Policy. However,
because (i) some prepayments of the Receivables are likely and (ii) certain of
the Receivables have terms to maturity that are shorter than the term to
maturity assumed in calculating each class's Final Scheduled Payment Date, the
actual payment of any class of Notes likely will occur earlier, and could occur
significantly earlier, than such class's Final Scheduled Payment Date.
Nevertheless, there can be no assurance that the final distribution of principal
of any or all classes of Notes will be earlier than such class's Final Scheduled
Payment Date.
FORMATION OF THE TRUST
The Issuer, CPS Auto Receivables Trust 1998-4, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement.
Prior to the sale and assignment of the Trust Assets to the Trust, the Trust
will have no assets or obligations or any operating history. The Trust will not
engage in any business other than (i) acquiring, holding and managing the
Receivables, the other assets of the Trust and any proceeds thereof, (ii)
issuing the Notes and the Certificates, (iii) making payments in respect of the
Notes and the Certificates and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto.
The Servicer will initially service the Receivables pursuant to the
Sale and Servicing Agreement and will be compensated for acting as the Servicer.
See "Description of the Trust Documents--Servicing Compensation" in this
Prospectus Supplement. The Indenture Trustee will be appointed custodian for the
Receivables and the certificates of title relating to the Financed Vehicles, and
the Receivables and such certificates of title will be delivered to and held in
physical custody by the Indenture Trustee. However, the Receivables will not be
marked or stamped to indicate that they have been sold to the Trust, and the
certificates of title to the Financed Vehicles will not be endorsed or otherwise
amended to identify the
S-21
<PAGE>
Trust or the Indenture Trustee as the new secured party. In the absence of
amendments to the certificates of title, the Indenture Trustee may not have
perfected security interests in the Financed Vehicles securing the Receivables
originated in some states. See "Certain Legal Aspects of the Receivables" in the
Prospectus.
The Trust will initially be capitalized by the Seller with equity equal
to $10 and Certificates with an aggregate original principal balance of [$ ]
will initially be retained by the Seller. The Trust will issue the Notes and the
Certificates to or at the direction of the Seller in exchange for the
Receivables and the other Trust Assets. The Seller will use the proceeds of the
initial sale of the Notes to purchase the Receivables from the Originators and
to fund the Initial Spread Account Deposit. The Trust will not acquire any
assets other than the Trust Assets, and it is not anticipated that the Trust
will have any need for additional capital resources. Because the Trust will have
no operating history upon its establishment and will not engage in any business
other than acquiring and holding the Trust Assets, issuing the Securities and
distributing payments on the Securities, no historical or pro forma financial
statements or ratios of earnings to fixed charges with respect to the Trust have
been included herein.
The Owner Trustee
Bankers Trust (Delaware), a Delaware banking corporation, is the Owner
Trustee under the Trust Agreement. The principal offices of the Owner Trustee
are located at 1011 Centre Road, Suite 200, Wilmington, Delaware 19805-1266. The
Owner Trustee will perform limited administrative functions under the Trust
Agreement. The Owner Trustee's duties in connection with the issuance and sale
of the Securities is limited solely to the express obligations of the Owner
Trustee set forth in the Trust Agreement and the Sale and Servicing Agreement.
The Indenture Trustee
Norwest Bank Minnesota, National Association, a national banking
association, is the Indenture Trustee under the Indenture. The principal offices
of the Indenture Trustee are located at Sixth Street and Marquette Avenue,
Minneapolis, Minnesota 55479-1054. The Indenture Trustee's duties in connection
with the Notes are limited solely to its express obligations under the Indenture
and the Sale and Servicing Agreement.
THE TRUST ASSETS
The Trust Assets include retail installment sale contracts on used and
new automobiles, light trucks, vans and minivans between dealers (the
"Dealers"), IFCs or Deposit Institutions and retail purchasers (the "Obligors")
and certain monies received thereunder after the Cutoff Date. The Receivables
were originated by the Dealers, IFCs or Deposit Institutions for assignment to
CPS, Samco or Linc. Pursuant to agreements between the Dealers and CPS ("Dealer
Agreements") or between the IFCs or Deposit Institutions and an Affiliated
Originator, the Receivables were purchased by CPS, Samco or Linc and, prior to
the Closing Date, evidenced financing made available by CPS, Samco or Linc to
the Obligors. The Trust Assets also include (i) such amounts as from time to
time may be held in one or more trust accounts established and maintained by the
Indenture Trustee pursuant to the Sale and Servicing Agreement, as described
below; see "Description of the Trust Documents --Accounts" in this Prospectus
Supplement; (ii) the rights of the Seller under the Purchase Agreements; (iii)
security interests in the Financed Vehicles; (v) the rights of CPS, Samco and
Linc to receive any proceeds with respect to the
S-22
<PAGE>
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; (vi) 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 (vii) any and all proceeds of the
foregoing. In addition, the Seller will cause the Insurer to issue the Policy
for the benefit of the Noteholders.
CPS'S AUTOMOBILE CONTRACT PORTFOLIO
General
CPS was incorporated in the State of California on March 8, 1991. CPS
and its subsidiaries engage primarily in the business of purchasing, selling and
servicing retail automobile installment sales contracts ("Contracts") originated
by Dealers located primarily in California, Florida, Pennsylvania, Texas,
Illinois and Nevada. CPS specializes in Contracts with borrowers ("Sub-Prime
Borrowers") who generally would not be expected to qualify for traditional
financing such as that provided by commercial banks or automobile manufacturers'
captive finance companies. Sub-Prime Borrowers generally have limited credit
history, lower than average income or past credit problems.
On October 1, 1991, CPS began its program of purchasing Contracts from
Dealers and selling them to institutional investors. Through June 30, 1998, CPS
had purchased $1.95 billion of Contracts from Dealers and sold $1.68 billion 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 4,000
dealerships located in 42 states of the United States. CPS purchases Contracts
from Dealers for a fee ranging from $0 to $1,395. 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 Notes, Contracts have been sold to
institutional investors either as bulk sales or as private placements or public
offerings of securities collateralized by the Contracts. Purchasers of the
Contracts receive a pass-through rate of interest set at the time of the sale,
and CPS receives a base servicing fee for its duties relating to the accounting
for and collection of the Contracts. In addition, CPS is entitled to certain
excess servicing fees that represent collections on the Contracts, such as
certain late fees, prepayment charges and other administrative fees and similar
charges 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, and prepayments
under, the Contracts.
The principal executive offices of CPS are located at 2 Ada, Irvine,
California 92718. CPS's telephone number is (714) 753-6800.
S-23
<PAGE>
Samco employees call on IFCs primarily in the southeastern United
States and present them with financing programs that are essentially identical
to those which CPS markets directly to Dealers through its marketing
representatives. CPS believes that a typical rural IFC has relationships with
many local automobile purchasers as well as Dealers but, because of limitations
of financial resources or capital structure, such IFCs generally are unable to
provide 36, 48 or 60 month financing for an automobile. IFCs may offer Samco's
financing programs to borrowers directly or indirectly through local dealers.
Samco purchases contracts from the IFCs after Samco's credit personnel have
performed all of the same underwriting and verification procedures and have
applied all the same credit criteria that CPS performs and applies for Contracts
that CPS purchases from Dealers. Samco purchases Contracts at a discount ranging
from 0% to 8% of the total amount financed under such Contracts. In addition,
Samco generally charges IFCs an acquisition fee to defray the direct
administrative costs associated with the processing of Contracts that are
ultimately purchased by Samco. Servicing and collection procedures on Contracts
owned by Samco are performed by CPS at its headquarters in Irvine, California.
For the year ended December 31, 1997, Samco purchased 2,306 Contracts with
original balances totaling $26.2 million. In the six months ended June 30, 1998,
Samco purchased 2,787 Contracts with original balances totaling $32.7 million.
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide CPS's sub-prime auto
finance products to deposit institutions such as banks, thrifts and credit
unions ("Deposit Institutions"). CPS believes that such Deposit Institutions do
not generally make loans to sub-prime borrowers even though they may have
relationships with automobile dealers who sell vehicles to sub-prime borrowers
and may have sub-prime borrowers as deposit customers.
Linc's employees call on various Deposit Institutions and present them
with a financing program that is similar to CPS's Alpha Program (as defined
below). The Linc program is intended to result in a slightly more creditworthy
borrower than CPS's Standard Program by requiring slightly higher income and
lower debt-to-income ratios than CPS requires under its Standard Program. Linc's
customers may offer its financing program to borrowers directly or to local
Dealers. Linc typically purchases Contracts at par, without a fee to the Deposit
Institution. Servicing and collection procedures on Contracts are performed
entirely by CPS using the same personnel, procedures and systems as CPS uses for
its own programs. For the year ended December 31, 1997, Linc purchased 678
Contracts with original balances totaling $8.9 million. In the six months ended
June 30, 1998, Linc purchased 902 Contracts with original balances totaling
$11.9 million.
Underwriting
CPS markets its services to Dealers under five programs: the CPS
Standard Program (the "Standard Program"), the CPS First Time Buyer Program (the
"First Time Buyer Program"), the CPS Alpha Program (the "Alpha Program"), the
CPS Delta Program (the "Delta Program") and the CPS Super Alpha Program (the
"Super Alpha Program"). In addition, Samco offers IFCs essentially the same
programs that CPS offers to Dealers, while Linc offers only its program (the
"Linc Program") to Deposit Institutions. 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 Linc Program guidelines are designed for applicants with slightly
better credit than applicants under the Alpha Program and include requirements
such as higher income and lower
S-24
<PAGE>
debt ratio as compared to the Alpha Program guidelines. The Delta Program
guidelines are designed to accommodate applicants who may not meet all of the
requirements of the Standard Program but who are deemed by CPS to be generally
as creditworthy as Standard Program applicants. The First Time Buyer Program
guidelines are designed to accommodate applicants who have not previously had
significant credit. Applicants under the First Time Buyer Program must meet all
the requirements of the Standard Program, as well as slightly higher income and
down payment requirements. The Super Alpha Program guidelines are more stringent
than any other CPS program in categories such as advance rate, age of
collateral, credit history and stability. CPS uses the degree of the applicant's
creditworthiness and the collateral value of the financed vehicle as the basic
criteria in determining whether to purchase an installment sales contract from a
Dealer. Each credit application provides current information regarding the
applicant's employment and residence history, bank account information, debts,
credit references, and other factors that bear on an applicant's
creditworthiness. Upon receiving from the Dealer the completed application of a
prospective purchaser and a one-page Dealer summary of the proposed financing,
generally by facsimile copy, CPS obtains a credit report compiling credit
information on the applicant from three credit bureaus. The credit report
summarizes the applicant's credit history and paying habits, including such
information as open accounts, delinquent payments, bankruptcy, repossessions,
lawsuits and judgments. At this point a CPS loan officer will review the credit
application, Dealer summary and credit report and will either conditionally
approve or reject the application. Such conditional approval or rejection by the
loan officer usually occurs within one business day of receipt of the credit
application. The loan officer determines the conditions to his or her approval
of a credit application based on many factors such as the applicant's
residential situation, down payment, and collateral value with regard to the
loan, employment history, monthly income level, household debt ratio and the
applicant's credit history. Based on the stipulations of the loan officer, the
Dealer and the applicant compile a more complete application package which is
forwarded to CPS and reviewed by a processor for deficiencies. As part of this
review, references are checked, direct calls are made to the applicant and
employment income and residence verification is done. Upon the completion of his
or her review, the processor forwards the application package to an underwriter
for further review. The underwriter will confirm the satisfaction of any
remaining deficiencies in the application package. Finally, before the loan is
funded, the application package is checked for deficiencies again by a loan
review officer. CPS conditionally approves approximately 50% of the credit
applications it receives and ultimately purchases approximately 11% 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 the underwriting standards used by CPS in its
normal course of business. Bulk purchases were made at a purchase price
approximately equal to a 7.0% discount from the aggregate principal balance of
the Contracts. CPS has not purchased any portfolios of Contracts in bulk since
July 31, 1995, but may consider doing so in the future.
Generally, the amount funded by CPS will not exceed, in the case of new
cars, 110% of the dealer invoice plus taxes, license fees, insurance and the
cost of the service contract, and in the case of used cars, 115% of the value
quoted in industry-accepted used car guides (such as the Kelley Wholesale Blue
Book) plus the same additions as are allowed for new cars. The maximum amount
that will be financed on any
S-25
<PAGE>
vehicle generally will not exceed $25,000. The maximum term of the Contract
depends primarily on the age of the vehicle and its mileage. Vehicles having in
excess of 80,000 miles will not be financed.
The minimum down payment required on the purchase of a vehicle is
generally 10% to 15% of the purchase price. The down payment may be made in
cash, and/or with a trade-in car and, if available, a proven manufacturer's
rebate. The cash and trade-in value must equal at least 50% of the minimum down
payment required, with the proven manufacturer's rebate constituting the
remainder of the down payment. CPS believes that the relatively high down
payment requirement will result in higher collateral values as a percentage of
the amount financed and the selection of buyers with stronger commitment to the
vehicle.
Prior to purchasing any Contract, CPS verifies that the Obligor has
arranged for casualty insurance by reviewing documentary evidence of the policy
or by contacting the insurance company or agent. The policy must indicate that
CPS is the lien holder and loss payee. The insurance company's name and policy
expiration date are recorded in CPS's 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 CPS's computerized records. In the event that a policy reaches its expiration
date without a renewal, or if CPS receives a notice that the policy has been
canceled prior to its expiration date, a letter is generated to advise the
borrower of its obligation to continue to provide insurance. If no action is
taken by the borrower to insure the vehicle, two successive and more forceful
letters are generated, after which the collection department will contact the
borrower telephonically to further counsel the borrower, including possibly
advising them that CPS has the right to repossess the vehicle if the borrower
refuses to obtain insurance. Although it has the right, CPS rarely repossesses
vehicles in such circumstances. In addition, CPS does not force place a policy
and add the premium to the borrower's outstanding obligation, although it also
has the right to do so. Rather in such circumstances the account is flagged as
not having insurance and continuing efforts are made to get the Obligor to
comply with the insurance requirement in the Contract. CPS believes that
handling non-compliance with insurance requirements in this manner ultimately
results in better portfolio performance because it believes that the increased
monthly payment obligation of the borrower which would result from force placing
insurance and adding the premium to the borrower's outstanding obligation would
increase the likelihood of delinquency or default by such borrower on future
monthly payments.
Samco offers to IFCs financing programs which are essentially identical
to those offered by CPS. The IFCs may offer Samco's financing programs to
borrowers directly or indirectly through local Dealers. Upon submission of
applications to Samco, Samco credit personnel, who have been trained by CPS, use
CPS's proprietary systems to evaluate the borrower and the proposed Contract
terms. Samco purchases Contracts from the IFC after its credit personnel have
performed all of the underwriting and verification procedures and have applied
all the same credit criteria that CPS performs and applies for Contracts it
purchases from Dealers. Prior to CPS purchasing a Contract from Samco, CPS
personnel perform procedures intended to verify that such Contract has been
underwritten and originated in conformity with the requirements applied by CPS
with respect to Contracts acquired by it directly from Dealers.
Linc offers to Deposit Institutions financing programs which are
similar to CPS's Alpha Program. Unlike Samco, which has employees who evaluate
applications and make decisions to purchase Contracts, applications for
Contracts to be purchased by Linc are submitted by the Deposit Institution
directly to
S-26
<PAGE>
CPS, where the approval, underwriting and purchase procedures are performed by
CPS staff who work with Linc as well as with the Dealers to which CPS markets
its programs.
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 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's services, CPS
mails to borrowers monthly billing statements directing them to mail payments on
the Contracts or other receivables to a lock-box account which is unique for
each investor or portfolio owner. CPS engages an independent lock-box processing
agent to retrieve and process payments received in the lock-box account. This
results in a daily deposit to the investor or portfolio owner's account of the
day's lock-box account receipts and a simultaneous electronic data transfer to
CPS of the borrower payment data for posting to CPS'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 other receivables.
If an account becomes six days past due, CPS's collection staff
typically attempts to contact the borrower with the aid of a high-penetration
auto-dialing computer. A collection officer tries to establish contact with the
customer and obtain a promise by the customer to make the overdue payment within
seven days. If payment is not received by the end of such seven-day period, the
customer is called again through the auto dialer system and the collection
officer attempts to elicit a second promise to make the overdue payment within
seven days. If a second promise to make the overdue payment is not satisfied,
the account automatically is referred to a supervisor for further action. In
most cases, if payment is not received by the tenth day after the due date, a
late fee of approximately 5% of the delinquent payment is imposed. If the
customer cannot be reached by a collection officer, a letter is automatically
generated and the customer's references are contacted. Field agents (who are
independent contractors) often make calls on customers who are unreachable or
whose payment is thirty days or more delinquent. A decision to repossess the
vehicle is generally made after 30 to 90 days of delinquency or three
unfulfilled promises to make the overdue payment. Other than granting such
limited extensions as are described under the heading "Description of the Trust
Documents--Servicing Procedures" in the Prospectus, CPS does not modify or
rewrite delinquent Contracts.
On April 1, 1997 CPS established a satellite collection facility in
Chesapeake, Virginia. The 16,000 square foot facility was opened with 35 staff
dedicated solely to collections. As of June 30, 1998 the Chesapeake facility had
more than 120 collectors. The Chesapeake facility is on-line with CPS's
automated collection system at its headquarters in Irvine, California.
Chesapeake staff have been trained by Irvine collection management personnel at
both the Chesapeake facility and at CPS's headquarters. Irvine collection
management has the ability to allocate the collection workload between the two
facilities
S-27
<PAGE>
as well as monitor the effectiveness of the collection effort by office and
individual collector. CPS expects to add resources to both collection locations
as its servicing portfolio grows.
Servicing and collection procedures on Contracts owned by Samco and
Linc are performed by CPS at its headquarters in Irvine, California and at its
Chesapeake, Virginia collection facility. However, Samco may solicit aid from
the related IFC in collecting past due accounts with respect to which
repossession may be considered.
Delinquency and Loss Experience
Set forth on the following page is certain information concerning the
experience of CPS pertaining to retail new and used automobile, light truck, van
and minivan receivables, including those previously sold, which CPS continues to
service. Contracts were first originated under the Delta Program in August 1994,
under the Alpha Program in April 1995, under the Linc Program in December 1996
and under the Super Alpha Program in December 1997. CPS has found that the
delinquency and net credit loss and repossession experience with respect to the
Delta Program is somewhat higher than under its Standard Program. CPS has found
that the delinquency and net credit loss and repossession experience with
respect to the Alpha Program, the Linc Program and the Super Alpha Program is
somewhat lower than that experienced under the Standard Program. CPS has
purchased Contracts representing financing for first-time purchasers of
automobiles since the inception of its Contract purchasing activities in 1991.
Prior to the establishment of the First Time Buyer Program in July 1996, CPS
purchased such Contracts under its Standard Program guidelines. CPS expects that
the delinquency and net credit loss and repossession experience with respect to
loans originated under the First Time Buyer Program will be somewhat higher than
under the Standard Program. CPS began servicing Contracts originated by Samco in
March 1996 and Linc in November 1996. Although credit history on Samco's and
Linc's originations is limited, CPS expects that the delinquency and net credit
loss and repossession experience with respect to the Receivables originated by
Samco and Linc will be similar to that of CPS's existing portfolio. There can be
no assurance, however, that the delinquency and net credit loss and repossession
experience on the Receivables or any other isolated group of receivables from
the CPS portfolio would be comparable to CPS's experience as shown in the
following tables. In particular, the information in the tables has not been
adjusted to eliminate the effects of the significant growth in the size of CPS's
loan portfolio during the periods shown.
S-28
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PORTFOLIO SERVICES, INC.
DELINQUENCY EXPERIENCE
December 31, 1994 December 31, 1995 December 31, 1996 December 31, 1997
-----------------------------------------------------------------------------------------------------------
Number Number Number Number
of Loans Amount of Loans Amount of Loans Amount of Loans Amount
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Portfolio(1)............
Period of Delinquency(2)
31-60..............
61-90
91+................
Total Delinquencies.....
Amount in
Repossession(3).........
Total Delinquencies and
Amount in
Repossession(4).........
Delinquencies as a
Percent of the Portfolio
Repo Inventory as Percent
of the Portfolio
Total Delinquencies and
Amount in Repossession
as a Percent of Portfolio % % % % % % % %
[TABLE SPLIT]
June 30, 1997 June 30, 1998
-------------------------------------------------------
Number Number
of Loans Amount of Loans Amount
-------------------------------------------------------
<S> <C> <C> <C> <C>
Portfolio(1)............
Period of Delinquency(2)
31-60..............
61-90
91+................
Total Delinquencies.....
Amount in
Repossession(3).........
Total Delinquencies and
Amount in
Repossession(4).........
Delinquencies as a
Percent of the Portfolio
Repo Inventory as Percent
of the Portfolio
Total Delinquencies and
Amount in Repossession
as a Percent of Portfolio % % % %
- ------------------
(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.
</TABLE>
S-29
<PAGE>
<TABLE>
<CAPTION>
CONSUMER PORTFOLIO SERVICES, INC.
NET CREDIT LOSS/REPOSSESSION EXPERIENCE
Year Ended Year Ended Year Ended
December 31, December December 31,
1994 1995 1996
------------------------------------------------------------------
<S> <C> <C> <C>
Average Amount Outstanding
During the Period(1)...............................
Average Number of Loans
Outstanding During the Period......................
Number of Repossessions..............................
Gross Charge-Offs (2)................................
Recoveries (3).......................................
Net Losses...........................................
Annualized Repossessions as a
Percentage of Average Number of
Loans Outstanding.................................. % % %
Annualized Net Losses as a % % %
Percentage of Average Amount
Outstanding........................................
[TABLE SPLIT]
Year Ended Six Months Six Months
December 31, Ended June 30, Ended June 30,
1997 1997 1998
--------------------------------------------------------------
<S> <C> <C> <C>
Average Amount Outstanding
During the Period(1)...............................
Average Number of Loans
Outstanding During the Period......................
Number of Repossessions..............................
Gross Charge-Offs (2)................................
Recoveries (3).......................................
Net Losses...........................................
Annualized Repossessions as a
Percentage of Average Number of
Loans Outstanding.................................. % % %
Annualized Net Losses as a % % %
Percentage of 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) Delinquent Contracts for which the related Financed Vehicle has been
repossessed are charged off no later than the end of the calendar quarter
in which the Financed Vehicle was sold. The amount charged off is the
remaining principal balance of the Contract, after the application of the
net proceeds from the liquidation of the Financed Vehicle. With respect to
delinquent Contracts for which the related Financed Vehicle has not been
repossessed, the remaining principal balance thereof is charged off no
later than the 120th day after delinquency. In any case, amounts charged
off do not include 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-30
<PAGE>
Recent Developments
Litigation. On June 30, 1997, CPS was served with summons and
counterclaim in the bankruptcy court for the Northern District of Illinois in
connection with the Chapter 13 bankruptcy of obligors Madeline and Darryl
Brownlee, of Chicago, Illinois. The obligors seek class-action treatment of
their allegation that the cost of an extended service contract on the automobile
they purchased was inadequately disclosed by Joe Cotton Ford of Carol Stream,
Illinois, the automobile dealer who sold them their car. The disclosure is
alleged to be violative of the Federal Truth in Lending Act and of Illinois
consumer protection statutes. The obligors' claim is directed against both the
dealer for making the allegedly improper disclosures and against CPS as holder
of the purchase contract. The relief sought is damages in an unspecified amount,
plus costs of suit and attorney's fees. The court has not yet ruled on the
obligors' request for class-action treatment.
In another proceeding, arising out of efforts to collect a deficiency
balance from Joseph Barrios of Chicago, Illinois, the debtor has brought suit
against CPS alleging defects in the notice given upon repossession of the
vehicle. This lawsuit was filed on February 18, 1998 in the circuit court of
Cook County, Illinois. Barrios, represented by the same law firm as the Brownlee
obligors, seeks class-action treatment of his allegation that notice of a
fifteen day period to reinstate his Contract was misleading, in that it did not
refer to an alleged right to redeem collateral up to the date of sale. The
relief sought is damages in an unspecified amount, plus costs of suit and
attorney's fees. As of the date of this Prospectus Supplement, CPS has not been
required to respond to this litigation and has not yet done so.
Although the Receivables relating to the above litigation matters are
not included in the Receivables Pool, if the request for class action status is
granted in either case, Receivables in the Receivables Pool could become subject
to the litigation. Furthermore, the existence of such litigation, or an adverse
decision in such litigation, could encourage similar actions to be brought
involving Receivables in the Receivables Pool. If an Obligor has a claim against
the Trust as a result of a violation of law relating to a Receivable and such
claim materially and adversely affects the Trust's interest in such Receivable,
such a violation would constitute a breach of the representations and warranties
of CPS and would create an obligation of CPS to repurchase such Receivable
unless the breach is cured. In addition, CPS will be required to indemnify the
Indenture Trustee, the Owner Trustee, the Insurer, the Trust and the
Securityholders against all costs, losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel which may be asserted against
or incurred by any of them as a result of a third party claim arising out of
events or facts giving rise to such breach. See "Description of the Trust
Documents--Sale and Assignment of Receivables" in this Prospectus Supplement.
CPS intends to dispute the above-described litigation vigorously, and
believes that it has meritorious defenses to each claim made by those obligors.
Nevertheless, the outcome of any litigation is uncertain, and there is the
possibility that damages could be assessed against CPS in amounts that could be
material. It is management's opinion that the above-described litigation will
not have a material adverse effect on CPS's consolidated financial position,
results of operations or liquidity.
Liquidity of CPS. As a result of the performance of the portfolio of
Contracts serviced by CPS, the Insurer has increased the amount required to be
on deposit in the Spread Account in respect of the Notes. In response to such
increase in required credit enhancement and certain other obligations, CPS has
implemented a plan to raise additional working capital. CPS believes that the
increased credit enhancement requirement will not have a material adverse effect
on its ability to perform its obligations under the Trust
S-31
<PAGE>
Documents or any "insurance agreement" pursuant to which Financial Security has
issued or issues in the future a financial guaranty insurance policy in respect
of securities issued by a trust for which CPS is the Servicer however, no
assurances can be made to that effect.
THE RECEIVABLES POOL
The pool of Receivables existing as of the Cutoff Date consists of
Contracts selected from the Originators' portfolio by several criteria,
including the following: each Receivable was originated, based on the billing
address of the Obligors, in the United States, has an original term of not more
than 60 months, provides for level monthly payments which fully amortize the
amount financed over the original term (except for the last payment, which may
be different from the level payment for various reasons, including late or early
payments during the term of the Contract), has a remaining maturity of 60 months
or less as of the Cutoff Date, has an outstanding principal balance of not more
than [$ ] as of the Cutoff Date, is not more than 30 days past due as of the
Cutoff Date and has an annual percentage rate ("APR") of not less than [ %]. As
of the date of each Obligor's application for the loan from which the related
Receivable arises, each Obligor (i) did not have any material past due credit
obligations or any repossessions or garnishments of property within one year
prior to the date of application, unless such amounts have been repaid or
discharged through bankruptcy, (ii) was not the subject of any bankruptcy or
insolvency proceeding that is not discharged, and (iii) had not been the subject
of more than one bankruptcy proceeding. As of the Cutoff Date, the latest
scheduled maturity of any Receivable is not later than [ ].
As of the Cutoff Date, approximately [ %] of the aggregate principal
balance of the Receivables, constituting [ %] of the number of Contracts,
represents financing of used vehicles; the remainder of the Receivables
represent financing of new vehicles. As of the Cutoff Date, approximately [ %]
of the aggregate principal balance of the Receivables were originated under the
Delta Program, approximately [ %] of the aggregate principal balance of the
Receivables were originated under the Alpha Program, approximately [ %] of the
aggregate principal balance of the Receivables were originated under the First
Time Buyer Program, approximately [ %] of the aggregate principal balance of the
Receivables were originated under the Standard Program, approximately [ %] of
the aggregate principal balance of the Receivables were originated under the
Linc Program and approximately [ %] of the aggregate principal balance of the
Receivables were originated under the Super Alpha Program. As of the Cutoff
Date, approximately [ %] of the aggregate principal balance of the Receivables
were Samco Receivables and approximately [ %] of the aggregate principal balance
of the Receivables were Linc Receivables. The composition, geographic
distribution, distribution by APR, distribution by remaining term, distribution
by date of origination, distribution by original term, distribution by model
year and distribution by original principal balance of the Receivables as of the
Cutoff Date are set forth in the following tables.
<TABLE>
<CAPTION>
Composition of the Receivables as of the Cutoff Date
Weighted Aggregate Number of Average Weighted Weighted
Average APR of Principal Receivables Principal Balance Average Average
Receivables Balance In Pool Principal Balance Reaming Original
- -------------------- -------------------- ------------------ ---------------------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
% $ $ mos. mos.
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
Geographic Distribution of the Receivables as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number Of
State(1) Principal Balance Principal Balance Receivables Receivables
-------- ----------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Alabama...................... $ % %
California...................
Florida......................
Georgia......................
Hawaii.......................
Illinois.....................
Indiana......................
Kentucky.....................
Louisiana....................
Maryland.....................
Michigan.....................
Minnesota....................
Mississippi..................
Nevada.......................
New Jersey...................
New York.....................
North Carolina...............
Ohio.........................
Pennsylvania.................
South Carolina...............
Tennessee....................
Texas........................
Virginia.....................
Washington...................
All Others(2)................
-------------------- ------ --------- ------
Total...............$ (3)100.00%(4) 100.00%(4)
==================== ====== ========= ======
- ----------
</TABLE>
(1) Based on billing address of Obligor.
(2) No other state represents a percentage of the aggregate Principal Balance
as of the Cutoff Date in excess of one percent.
(3) Balances may not add up to total because of rounding.
(4) Percentages may not add up to 100% because of rounding.
S-33
<PAGE>
<TABLE>
<CAPTION>
Distribution of the Receivables by APR as of the Cutoff Date
PERCENT OF PERCENT OF
AGGREGATE AGGREGATE NUMBER OF NUMBER OF
APR RANGE PRINCIPAL BALANCE PRINCIPAL BALANCE RECEIVABLES RECEIVABLES
<S> <C> <C> <C> <C> <C>
15.501% - 16.000%
16.001% - 16.500%
16.501% - 17.000%
17.001% - 17.500%
17.501% - 18.000%
18.001% - 18.500%
18.501% - 19.000%
19.001% - 19.500%
19.501% - 20.000%
20.001% - 20.500%
20.501% - 21.000%
21.001% - 21.500%
21.501% - 22.000%
22.001% - 22.500%
22.501% - 23.000%
23.001% - 23.500%
23.501% - 24.000%
24.001% - 24.500%
24.501% - 25.000%
25.001% - 25.500%
25.501% - 26.000%
26.001% - 26.500%
26.501% - 27.000%
27.001% - 27.500%
27.501% - 28.000%
28.001% - 28.500%
28.501% - 29.000%
29.001% - 29.500%
29.501% - 30.000%
--------------- ------- -------
Total .. $ 100.00%(2)
100.00%(2)
- ---------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Remaining Term to
Scheduled Maturity as of the Cutoff Date
Percent of
Aggregate Percent of
Remaining Term to Aggregate Principal Number of Number of
Scheduled Maturity Principal Balance Balance Receivables Receivables
- ----------------------------------- ---------------------- --------------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
19-24 months........................
25-30 months........................
31-36 months........................
37-42 months........................
43-48 months........................
49-54 months........................
55-60 months........................
Total.......................... $ (1) %(2) %(2)
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
Distribution of the Receivables by
Date of Origination as of the Cutoff Date
<TABLE>
<CAPTION>
Percent of
Aggregate Percent of
Aggregate Principal Number of Number ofs
Date of Ordination Principal Balance Balance Receivables Receivables
- ----------------------------------- ------------------------- --------------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
05/01/97-05/31/97...................
06/01/97-06/30/97...................
07/01/97-07/31/97...................
08/01/97-08/31/97...................
09/01/97-09/30/97...................
10/01/97-10/31/97...................
11/01/97-11/30/97...................
12/01/97-12/31/97...................
01/01/98-01/31/98...................
02/01/98-02/28/98...................
03/01/98-03/31/98...................
04/01/98-04/30/98...................
05/01/98-05/31/98...................
06/01/98-06/30/98...................
Total......................$ (1) 100.00%(2)
= ==================== ==========
- -------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Term to
Scheduled Maturity as of the Cutoff Date
Percent of Percent of
Original Term to Aggregate Aggregate Number of Number of
Scheduled Maturity Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C> <C>
19-24 months........................
25-30 months........................
31-36 months........................
37-42 months........................
43-48 months........................
49-54 months........................
55-60 months........................
Total.......................... $ (1) %(2) %(2)
===================== =========== =========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
<TABLE>
<CAPTION>
Distribution of the Receivables by Model Year of Financed Vehicle
as of the Cutoff Date
Percent of Percent of
Aggregate Aggregate Number of Number of
Model Year Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C> <C>
1990................................. $ % %
1991.................................
1992.................................
1993.................................
1994.................................
1995.................................
1996.................................
1997.................................
1998.................................
1999.................................
Total....................... $ (1) 100.00%(2) 100.00%(2)
====================== ========== ==========
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
Distribution of Receivables by Original Principal Balance
as of the Cutoff Date
Percent of Percent of
Range of Original Principal Aggregate Aggregate Number of Number of
Balances Principal Balance Principal Balance Receivables Receivables
<S> <C> <C> <C> <C> <C>
$ 0.001 - 5,000.00...............
5,000.01 - 10,000.00...............
10,000.01 - 15,000.00...............
15,000.01 - 20,000.00...............
20,000.01 - 25,000.00...............
25,000.01 - 30,000.00...............
Total...................... $ (1) %(2) %(2)
===================== =========== =========
- --------
(1) Balances may not add up to total because of rounding.
(2) Percentages may not add up to 100% because of rounding.
</TABLE>
As of the Cutoff Date, approximately [ %] of the aggregate Principal
Balance of the Receivables in the Receivables Pool provide for allocation of
payments according to the "sum of periodic balances" or "sum of monthly
payments" method, similar to the "Rule of 78's" ("Rule of 78's Receivables") and
approximately [ %] of the aggregate Principal Balance of the Receivables in the
Receivables Pool provide for allocation of payments according to the "simple
interest" method ("Simple Interest Receivables"). A Rule of 78's Receivable
provides for payment by the Obligor of a specified total amount of payments,
payable in equal monthly installments on each due date, which total represents
the principal amount financed and add-on interest in an amount calculated on the
basis of the stated APR for the term of the Receivable. The rate at which such
amount of add-on interest is earned and, correspondingly, the amount of each
fixed monthly payment allocated to reduction of the outstanding principal are
calculated in accordance with the "Rule of 78's". A Simple Interest Receivable
provides for the amortization of the amount financed under the Receivable over a
series of fixed level monthly payments. Each monthly payment consists of an
installment of interest which is calculated on the basis of the outstanding
principal balance of the Receivable multiplied by the stated APR and further
multiplied by the period elapsed (as a fraction of a calendar year) since the
preceding payment of interest was made. As payments are received under a Simple
Interest Receivable, the amount received is applied first to interest accrued to
the date of payment and the balance is applied to reduce the unpaid principal
balance. Accordingly, if an Obligor pays a fixed monthly installment before its
scheduled due date, the portion of the payment allocable to interest for the
period since the preceding payment was made will be less than it would have been
had the payment been made as scheduled, and the portion of the payment applied
to reduce the unpaid principal balance will be correspondingly greater.
Conversely, if an Obligor pays a fixed monthly installment after its scheduled
due date, the portion of the payment allocable to interest for the period since
the preceding payment was made will be greater than it would have been had the
payment been made as scheduled, and the portion of the payment applied to reduce
the unpaid principal balance will be correspondingly less. In either case, the
Obligor pays a fixed monthly installment until the final
S-37
<PAGE>
scheduled payment date, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance.
In the event of the prepayment in full (voluntarily or by acceleration)
of a Rule of 78's Receivable, under the terms of the contract, a "refund" or
"rebate" will be made to the Obligor of the portion of the total amount of
payments then due and payable under the contract allocable to "unearned" add-on
interest, calculated in accordance with a method equivalent to the Rule of 78's.
If a Simple Interest Receivable is prepaid, instead of receiving a rebate, the
Obligor is required to pay interest only to the date of prepayment. The amount
of a rebate under a Rule of 78's Receivable generally will be less than the
remaining Scheduled Receivable Payments (as defined herein) of interest that
would have been due under a Simple Interest Receivable for which all payments
were made on schedule.
The Trust will account for the Rule of 78's Receivables as if such
Receivables provided for amortization of the loan over a series of fixed level
payment monthly installments ("Actuarial Receivables"). Amounts received upon
prepayment in full of a Rule of 78's Receivable in excess of the then
outstanding Principal Balance of such Receivable and accrued interest thereon
(calculated pursuant to the actuarial method) will not be passed through to
Noteholders but will be paid to the Servicer as additional servicing
compensation.
YIELD CONSIDERATIONS
All of the Receivables are prepayable at any time without charge. (For
this purpose "prepayments" include prepayments in full, liquidations due to
default, as well as receipts of proceeds from physical damage, credit life and
credit accident and health insurance policies and certain other Receivables
repurchased for administrative reasons.) The rate of prepayments on the
Receivables may be influenced by a variety of economic, social, and other
factors, including the fact that an Obligor generally may not sell or transfer
the Financed Vehicle securing a Receivable without the consent of CPS. In
addition, the rate of prepayments on the Receivables may be affected by the
nature of the Obligors and the Financed Vehicles and servicing decisions. See
"Risk Factors--Nature of Obligors; Servicing" in this Prospectus Supplement. Any
reinvestment risks resulting from a faster or slower incidence of prepayment of
Receivables will be borne entirely by the Noteholders and Certificateholders.
See also "Description of the Securities--Optional Redemption" in this Prospectus
Supplement regarding the Servicer's option to purchase the Receivables and
redeem the Notes when the aggregate Principal Balance of the Receivables is less
than or equal to 10% or less of the Original Pool Balance. See also "Description
of the Securities--Mandatory Redemption" in this Prospectus Supplement regarding
the acceleration of the Notes after the occurrence of an Event of Default.
POOL FACTORS AND OTHER INFORMATION
The "Pool Balance" at any time represents the aggregate principal
balance of the Receivables at the end of the preceding Collection Period, after
giving effect to all payments received from Obligors with respect to such
Collection Period, all payments and Purchase Amounts (as defined herein)
remitted by CPS or the Servicer, as the case may be, for such Collection Period,
all losses realized on Receivables liquidated during such Collection Period and
any Cram Down Losses with respect to such Receivables. The Pool Balance is
computed by allocating payments to principal and to interest, with respect to
Rule of 78's Receivables, using the constant yield or actuarial method, and with
respect to Simple Interest Receivables, using the simple interest method. The
"Class A-1 Pool Factor" is a seven digit decimal which
S-38
<PAGE>
the Servicer will compute each month indicating the principal balance of the
Class A-1 Notes as a fraction of the initial principal balance of the Class A-1
Notes. The Class A-1 Pool Factor will be 1.0000000 as of the Closing Date;
thereafter, the Class A-1 Pool Factor will decline to reflect reductions in the
principal balance of the Class A-1 Notes. An individual Class A-1 Noteholder's
share of the principal balance of the Class A-1 Notes is the product of (i) the
original denomination of the Noteholder's Note and (ii) the Class A-1 Pool
Factor. The "Class A-2 Pool Factor" is a seven-digit decimal which the Servicer
will compute each month indicating the principal balance of the Class A-2 Notes
as a fraction of the initial principal balance of the Class A-2 Notes. The Class
A-2 Pool Factor will be 1.0000000 as of the Closing Date; thereafter, the Class
A-2 Pool Factor will decline to reflect reductions in the principal balance of
the Class A-2 Notes. An individual Class A-2 Noteholder's share of the principal
balance of the Class A-2 Notes is the product of (i) the original denomination
of the Noteholder's Note and (ii) the Class A-2 Pool Factor.
Pursuant to the Indenture, the Noteholders will receive monthly reports
concerning the payments received on the Receivables, the Pool Balance, the Pool
Factors and various other items of information. Noteholders of record during any
calendar year will be furnished information for tax reporting purposes not later
than the latest date permitted by law. See "Description of the Trust
Documents--Statements to Noteholders" in this Prospectus Supplement.
USE OF PROCEEDS
The net proceeds to be received by the Seller from the sale of the
Notes will be applied to the purchase of the CPS Receivables from CPS, the Samco
Receivables from Samco and the Linc Receivables from Linc. CPS, Samco and Linc
will apply the net proceeds received from the Seller to purchase new Contracts
or to repay debt incurred to purchase the Contracts.
THE SELLER, CPS, SAMCO AND LINC
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 its subsidiaries and transferring such receivables to
third parties and any activities incidental to and necessary or convenient for
the accomplishment of such purposes. The principal executive offices of the
Seller are located at 2 Ada, Irvine, California 92718; telephone (714) 753-6800.
In March 1996, CPS formed Samco, an 80 percent-owned subsidiary based
in Dallas, Texas. Samco's business plan is to provide CPS's sub-prime auto
finance products to rural areas through IFCs. CPS believes that many rural areas
are not adequately served by other industry participants due to their distance
from large metropolitan areas where a Dealer marketing representative is most
likely to be based. The principal executive offices of Samco are located at 8150
N. Central Expressway, Dallas, Texas 75206; telephone (800) 544-8802.
In May 1996, CPS formed Linc, an 80 percent-owned subsidiary based in
Norwalk, Connecticut. Linc's business plan is to provide sub-prime auto finance
products to deposit institutions such as banks, thrifts and credit unions. CPS
believes that such institutions do not generally make loans to sub-prime
borrowers even though they may have relationships with automobile dealers who
sell vehicles to sub-prime borrowers and may have sub-prime borrowers as deposit
customers. The principal executive offices of
S-39
<PAGE>
Linc are located at One Selleck Street, Norwalk, Connecticut 06855; telephone
(203) 831-8300. For further information regarding the Seller and CPS, see "The
Seller and CPS" in the Prospectus.
THE STANDBY SERVICER
If CPS is terminated or resigns as Servicer, Norwest Bank Minnesota,
National Association (in such capacity, the "Standby Servicer") will serve as
successor Servicer. The Standby Servicer will receive a fee on each Payment Date
for agreeing to stand by as successor Servicer and for performing certain other
functions. Such fee will be payable to the Standby Servicer from the Servicing
Fee payable to CPS. If the Standby Servicer, or any other entity serving at the
time as Standby Servicer, becomes the successor Servicer, it will receive
compensation at a Servicing Fee Rate which shall (i) reflect current market
practice with respect to compensation of servicers of receivables comparable to
the Receivables and (ii) not exceed 3.0% per annum.
DESCRIPTION OF THE SECURITIES
General
The Notes will be issued pursuant to the terms of the Indenture, and
the Certificates will be issued pursuant to the terms of the Trust Agreement,
forms of each of which have been filed as exhibits to the Registration
Statement.
The Notes initially will be represented by notes registered in the name
of Cede as the nominee of The Depository Trust Company ("DTC"), and will only be
available in the form of book-entries on the records of DTC and participating
members thereof in denominations of $1,000. All references to "holders" or
"Noteholders" and to authorized denominations, when used with respect to the
Notes, shall reflect the rights of beneficial owners of the Notes ("Note
Owners"), and limitations thereof, as they may be indirectly exercised through
DTC and its participating members, except as otherwise specified herein. See
"Registration of Notes" in this Prospectus Supplement.
Payment of Interest
On each Payment Date, the holders of record of the Class A-1 Notes (the
"Class A-1 Noteholders") as of the related Record Date will be entitled to
receive, pro rata, interest for the applicable Class A-1 Interest Period at the
Class A-1 Interest Rate, on the outstanding principal balance of the Class A-1
Notes as of the close of the preceding Payment Date. On each Payment Date, the
holders of record of the Class A-2 Notes (the "Class A-2 Noteholders") as of the
related Record Date will be entitled to receive, pro rata, interest for the
applicable Class A-2 Interest Period at the Class A-2 Interest Rate on the
outstanding principal amount of the Class A-2 Notes as of the close of the
preceding Payment Date. Notwithstanding the foregoing, on the initial Payment
Date, the interest payable to the Noteholders of record of each class of Notes
will be an amount equal to the product of (a) the Interest Rate applicable to
such class of Notes, (b) the initial principal amount of such class of Notes and
(c) a fraction (i) the numerator of which is the number of days from and
including the Closing Date to and including November 14, 1998 and (ii) the
denominator of which is 360. Interest on the Notes which is due but not paid on
any Payment Date will be payable on the next Payment Date together with, to the
extent permitted by law, interest on such unpaid amount at the applicable
Interest Rate. See "Description of the Trust Documents--Distributions" in this
Prospectus Supplement.
S-40
<PAGE>
Payment of Principal
Principal of the Notes will be payable on each Payment Date in an
amount equal to the Class A Noteholders' Principal Distributable Amount for the
related Collection Period. The "Class A Noteholders' Principal Distributable
Amount" is equal to the Class A Noteholders' Percentage (as of each Payment
Date) multiplied by the Principal Distributable Amount. The Noteholders also
will be entitled to receive on each Payment Date any unpaid portion of the Class
A Noteholders' Principal Distributable Amount with respect to a prior Payment
Date. In addition to the Class A Noteholders' Principal Distributable Amount, on
each Payment Date on which the principal balance of the Notes (after giving
effect to the payment of the Class A Noteholders' Principal Distributable Amount
on such Payment Date) exceeds the Class A Target Amount for such Payment Date,
the Noteholders will be entitled to receive, as an additional payment of
principal, the lesser of (a) the portion of the Total Distribution Amount
remaining after application thereof to pay the amounts described in clauses (i)
through (ix) under "Description of the Trust Documents-Distributions-Priority of
Distribution Amounts" and (b) the amount by which the outstanding principal
balance of the Notes exceeds the Class A Target Amount.
On each Payment Date, the amounts distributed on account of the Class A
Noteholders' Principal Distributable Amount will be applied, sequentially, to
pay principal of the Class A-1 Notes until the principal balance of the Class
A-1 Notes has been reduced to zero, then to the holders of the Class A-2 Notes
until the principal balance of the Class A-2 Notes has been reduced to zero.
Mandatory Redemption
Upon the occurrence of an Event of Default, and so long as an Insurer
Default shall not have occurred and be continuing, the Notes shall become due
and payable at par with accrued interest thereon, the Insurer will have the
right, but not the obligation, to cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture.
Following the occurrence of any Event of Default, the Indenture Trustee will
continue to submit claims as necessary under the Policy for any shortfalls in
the Scheduled Payments on the Notes, except that the Insurer, in its sole
discretion, may elect to pay all or any portion of the outstanding amount of the
Notes in excess thereof, plus accrued interest thereon. The Policy does not
guarantee payments of any amounts that become due on an accelerated basis,
unless the Insurer elects, in its sole discretion to pay such amounts in whole
or in part. See "Description of the Trust Documents--Events of Default" and "The
Policy" herein.
Optional Redemption
In order to avoid excessive administrative expense, the Servicer, or
its successor, is permitted at its option to purchase all remaining Receivables
from the Trust (with the consent of the Insurer if such purchase and redemption
would result in a claim under the Policy or any amount owing to the Insurer or
on the Notes would remain unpaid), on or after the last day of any month on or
after which the then outstanding Pool Balance is equal to 10% or less of the
Original Pool Balance, at a price equal to at least the aggregate of the unpaid
principal amount of the Notes plus accrued and unpaid interest thereon as of
such last day. Exercise of such right will effect early retirement of the Notes.
Upon declaration of an optional redemption, the Indenture Trustee will give
written notice of termination to each Noteholder of record. The final
distribution to any Noteholder will be made only upon surrender and cancellation
of such
S-41
<PAGE>
holder's Note at the office or agency of the Indenture Trustee specified in the
notice of termination. Any funds remaining with the Indenture Trustee after the
Indenture Trustee has taken certain measures to locate a Noteholder, and such
measures have failed, will be distributed to The American Red Cross.
REGISTRATION OF NOTES
The Notes will initially be registered in the name of Cede & Co.
("Cede"), the nominee of DTC. DTC is a limited-purpose trust company organized
under the laws of the State of New York, a member of the Federal Reserve System,
a "clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the Securities Exchange Act of 1934, as amended. DTC accepts securities
for deposit from its participating organizations ("Participants") and
facilitates the clearance and settlement of securities transactions between
Participants in such securities through electronic book-entry changes in
accounts of Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks and
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system is also available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly.
Persons acquiring beneficial ownership interests in the Notes may hold
their Notes directly though DTC if they are Participants or indirectly through
organizations which are Participants. The beneficial owner's ownership of a
book-entry note will be recorded on the records of the brokerage firm, bank,
thrift institution or other financial intermediary (each, a "Financial
Intermediary") that maintains the beneficial owner's account for such purpose.
In turn the Financial Intermediary's ownership of such book-entry note will be
recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the beneficial owner's Financial Intermediary is not a DTC
participant). See "Description of the Securities--Book-Entry Registration" in
the Prospectus.
DESCRIPTION OF THE TRUST DOCUMENTS
The following summary describes certain terms of the Purchase
Agreements, the Sale and Servicing Agreement, the Indenture and the Trust
Agreement (together, the "Trust Documents"). Forms of the Trust Documents have
been filed as exhibits to the Registration Statement. A copy of the Trust
Documents will be filed with the Commission following the issuance of the
Securities. This summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Trust
Documents. The following summary supplements the description of the general
terms and provisions of the Trust Documents (as such terms are used in the
accompanying Prospectus) set forth in the accompanying Prospectus, to which
description reference is hereby made.
Sale and Assignment of Receivables
On or prior to the Closing Date, the Seller will purchase from Samco
pursuant to the Samco Purchase Agreement, without recourse, except as provided
in the Samco Purchase Agreement, Samco's entire interest in the Samco
Receivables, together with Samco's security interests in the related Financed
Vehicles. On or prior to the Closing Date, the Seller will purchase from Linc
pursuant to the Linc Purchase Agreement, without recourse, except as provided in
the Linc Purchase Agreement, Linc's entire
S-42
<PAGE>
interest in the Linc Receivables, together with Linc's security interests in the
related Financed Vehicles. On or prior to the Closing Date, the Seller will
purchase from CPS pursuant to the CPS Purchase Agreement, without recourse,
except as provided in the CPS Purchase Agreement, CPS's entire interest in the
CPS Receivables, together with CPS's security interests in the related Financed
Vehicles. At the time of issuance of the Notes, the Seller will sell and assign
to the Trust, without recourse except as provided in the Sale and Servicing
Agreement, its entire interest in the Receivables, together with its security
interests in the Financed Vehicles. Each Receivable will be identified in a
schedule appearing as an exhibit to the related Purchase Agreement. The
Indenture Trustee will, concurrently with such sale and assignment, execute,
authenticate, and deliver the Securities to the Seller in exchange for the
Receivables. The Seller will sell the Notes to the Underwriter. See
"Underwriting" in this Prospectus Supplement.
In the CPS Purchase Agreement, CPS will represent and warrant to the
Seller, among other things, that (i) the information provided in the CPS
Purchase Agreement with respect to the Receivables (including, without
limitation, the Samco Receivables and the Linc 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
the normal requirements of CPS, Samco or Linc, as applicable; (iii) at the date
of issuance of the Securities, the Receivables are free and clear of all
security interests, liens, charges, and encumbrances and no offsets, defenses,
or counterclaims against Dealers, IFCs or Deposit Institutions have been
asserted or threatened; (iv) at the date of issuance of the Securities, each of
the Receivables is or will be secured by a first-priority perfected security
interest in the related Financed Vehicle in favor of CPS, Samco or Linc; and (v)
each Receivable, at the time it was originated, complied and, at the date of
issuance of the Securities, complies in all material respects with applicable
federal and state laws, including, without limitation, consumer credit, truth in
lending, equal credit opportunity and disclosure laws. As of the last day of the
second (or, if CPS elects, the first) month following the discovery by or notice
to the Seller and CPS of a breach of any representation or warranty that
materially and adversely affects the interest of the Trust, the Indenture
Trustee or the Insurer, unless the breach is cured, CPS will purchase such
Receivable from the Trust for the Purchase Amount. The repurchase obligation
will constitute the sole remedy available to the Noteholders, the Insurer, the
Owner Trustee or the Indenture Trustee for any such uncured breach; provided,
however, that CPS will be required to indemnify the Owner Trustee, the Indenture
Trustee, the Insurer, the Trust and the Noteholders against all costs, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel, which may be asserted against or incurred by any of them, as a result
of third party claims arising out of events or facts giving rise to such breach.
On or prior to the Closing Date, the related Contracts will be
delivered to the Indenture Trustee as custodian, and the Indenture Trustee
thereafter will maintain physical possession of the Receivables except as may be
necessary for the servicing thereof by the Servicer. The Receivables will not be
stamped to show the ownership thereof by the Trust. However, CPS's, Samco's and
Linc's accounting records and computer systems will reflect the sale and
assignment of the Receivables to the Seller, and Uniform Commercial Code ("UCC")
financing statements reflecting such sales and assignments will be filed. See
"Formation of the Trust" in this Prospectus Supplement and "Certain Legal
Aspects of the Receivables" in the Prospectus.
Accounts
The segregated Lock-Box Account will be established and maintained with
Bank of America in the name of the Seller for the benefit of the Noteholders and
the Insurer, into which all payments made
S-43
<PAGE>
by Obligors on or with respect to the Receivables must be deposited by the
Lock-Box Processor. See "Description of the Trust Documents--Payments on
Receivables" in the Prospectus. The Indenture Trustee will also establish and
maintain initially with itself one or more accounts (collectively, the
"Collection Account") in the name of the Indenture Trustee on behalf of the
Noteholders and the Insurer, into which all amounts previously deposited in the
Lock-Box Account will be transferred within two Business Days of the receipt of
funds therein. On the first Business Day after receipt, the Servicer will
deposit all amounts received by it in respect of the Receivables in the Lock-Box
Account or the Collection Account. The Indenture Trustee will also establish and
maintain initially with itself one or more accounts, in the name of the
Indenture Trustee on behalf of the Noteholders, from which all distributions
with respect to the Notes will be made (the "Note Distribution Account").
The Collateral Agent will establish the Spread Account as a segregated
trust account at its office or at another depository institution or trust
company.
Servicing Compensation
The Servicer will be entitled to receive the Servicing Fee on each
Payment Date, equal to the result of one twelfth times 2.00% of the Pool Balance
as of the close of business on the last day of the second preceding Collection
Period; provided, however, that with respect to the first Payment Date the
Servicer will be entitled to receive a Servicing Fee equal to the result of one
twelfth times 2.00% of the Original Pool Balance. As additional servicing
compensation, the Servicer will also be entitled to receive certain late fees,
prepayment charges and other administrative fees or similar charges. 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 which shall (i) reflect current market practice with respect to
compensation of servicers of receivables comparable to the Receivables and (ii)
not exceed 3.00% per annum. See "The Standby Servicer" in this Prospectus
Supplement. The Servicer will also collect and retain, as additional servicing
compensation, any late fees, prepayment charges and other administrative fees or
similar charges allowed by applicable law with respect to the Receivables, and
amounts received upon payment in full of Rule of 78's Receivables in excess of
the then outstanding principal balance of such Receivables and accrued interest
thereon (calculated pursuant to the actuarial method) and will be entitled to
reimbursement from the Trust for certain liabilities. Payments by or on behalf
of Obligors will be allocated to Scheduled Receivable Payments, late fees and
other charges and principal and interest in accordance with the Servicer's
normal practices and procedures. The Servicing Fee will be paid out of
collections from the Receivables, prior to distributions to Noteholders.
The Servicing Fee and additional servicing compensation will compensate
the Servicer for performing the functions of a third party servicer of
automotive receivables as an agent for their beneficial owner, including
collecting and posting all payments, responding to inquiries of Obligors on the
Receivables, investigating delinquencies, sending payment coupons to Obligors,
reporting tax information to Obligors, paying costs of disposition of defaults
and policing the collateral. The Servicing Fee also will compensate the Servicer
for administering the Receivables, including accounting for collections and
furnishing monthly and annual statements to the Indenture Trustee and the
Insurer with respect to distributions and generating federal income tax
information. The Servicing Fee also will reimburse the Servicer for certain
taxes, accounting fees, outside auditor fees, data processing costs and other
costs incurred in connection with administering the Receivables.
S-44
<PAGE>
Distributions
No later than 10:00 a.m., Minneapolis time, on each Determination Date,
the Servicer will inform the Indenture Trustee of the amount of aggregate
collections on the Receivables, and the aggregate Purchase Amount of Receivables
to be repurchased by CPS or to be purchased by the Servicer, in each case, with
respect to the related Collection Period.
The Servicer will determine prior to such Determination Date the Total
Distribution Amount, the Class A Noteholders' Interest Distributable Amount, the
Class A Noteholders' Principal Distributable Amount, the Certificateholders'
Interest Distributable Amount and the Certificateholders' Principal
Distributable Amount.
The "Determination Date" applicable to any Payment Date will be the
earlier of (i) the seventh Business Day of the month of such Payment Date and
(ii) the fifth Business Day preceding such Payment Date.
Determination of Total Distribution Amount. The "Total Distribution
Amount" for a Payment Date will be the sum of the following amounts with respect
to the preceding Collection Period: (i) all collections on Receivables; (ii) all
proceeds received during the Collection Period with respect to Receivables that
became Liquidated Receivables during the Collection Period in accordance with
the Servicer's customary servicing procedures, net of the reasonable expenses
incurred by the Servicer in connection with such liquidation and any amounts
required by law to be remitted to the Obligor on such Liquidated Receivable
("Liquidation Proceeds") in accordance with the Servicer's customary servicing
procedures; (iii) proceeds from Recoveries with respect to Liquidated
Receivables; (iv) earnings on investments of funds in the Collection Account
during the related Collection Period; and (v) the Purchase Amount of each
Receivable that was repurchased by CPS or purchased by the Servicer as of the
last day of the related Collection Period.
"Cram Down Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
Scheduled Payments to be made on a Receivable, an amount equal to such reduction
in Principal Balance of such Receivable or the reduction in 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 or restructured. A Cram Down Loss shall be deemed to have occurred on
the date such order is entered.
"Liquidated Receivable" means a Receivable (i) which has been
liquidated by the Servicer through the sale of the Financed Vehicle, or (ii) for
which the related Financed Vehicle has been repossessed and 90 days have elapsed
since the date of such repossession, or (iii) as to which an Obligor has failed
to make more than 90% of a Scheduled Receivable Payment of more than ten dollars
for 120 (or, if the related Financed Vehicle has been repossessed, 210) or more
days as of the end of a Collection Period, or (iv) with respect to which
proceeds have been received which, in the Servicer's judgment, constitute the
final amounts recoverable in respect of such Receivable.
"Purchase Amount" means, with respect to a Receivable, the amount, as
of the close of business on the last day of a Collection Period, required to
prepay in full such Receivable under the terms thereof including interest to the
end of the month of purchase.
S-45
<PAGE>
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period, means the amount financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments received on or
prior to such day allocable to principal using the actuarial or constant yield
method; (ii) in the case of a Simple Interest Receivable, that portion of all
Scheduled Receivable Payments received on or prior to such day allocable to
principal using the Simple Interest Method; (iii) any payment of the Purchase
Amount with respect to the Receivable allocable to principal; (iv) any Cram Down
Loss in respect of such Receivable; and (v) any prepayment in full or any
partial prepayment applied to reduce the Principal Balance of the Receivable.
"Recoveries" means, with respect to a Liquidated Receivable, the monies
collected from whatever source, during any Collection Period following the
Collection Period in which such Receivable became a Liquidated Receivable, net
of the reasonable costs of liquidation plus any amounts required by law to be
remitted to the Obligor.
"Scheduled Receivable Payment" means, for any Collection Period for any
Receivable, the amount indicated in such Receivable as required to be paid by
the Obligor in such Collection Period (without giving effect to deferments of
payments granted to Obligors by the Servicer pursuant to the Sale and Servicing
Agreement or any rescheduling of payments in any insolvency or similar
proceedings).
Calculation of Distribution Amounts. The Noteholders will be entitled
to receive the Noteholders' Distributable Amount with respect to each Payment
Date. The "Noteholders' Distributable Amount" with respect to a Payment Date
will be an amount equal to the sum of:
(i) the "Class A Noteholders' Principal Distributable Amount,"
consisting of the Class A Noteholders' Percentage of the following:
(a) collections on Receivables (other than Liquidated Receivables)
allocable to principal including full and partial prepayments;
(b) the portion of the Purchase Amount allocable to principal of each
Receivable that was repurchased by CPS or purchased by the Servicer as of the
last day of the related Collection Period and, at the option of the Insurer the
Principal Balance of each Receivable that was required to be but was not so
purchased or repurchased (without duplication of the amounts referred to in (a)
above);
(c) 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) above);
(d) the aggregate amount of Cram Down Losses with respect to the
Receivables that shall have occurred during the preceding Collection Period
(without duplication of amounts included in (a) through (c) above); and
(e) any proceeds from the liquidation of the Trust Assets pursuant to
an acceleration of the Notes upon an Event of Default (the amounts set forth in
(a) through (e), the "Principal Distributable Amount"); plus
(ii) the Class A Noteholders' Principal Carryover Shortfall; and
S-46
<PAGE>
(iii) the Class A Noteholders' Interest Distributable Amount.
On the Class A-1 Final Scheduled Payment Date, the Class A Noteholders'
Principal Distributable Amount will at least equal an amount sufficient to pay
in full the then outstanding principal balance of the Class A-1 Notes. On the
Class A-2 Final Scheduled Payment Date, the Class A Noteholders' Principal
Distributable Amount will at least equal an amount sufficient to pay in full the
then outstanding principal balance of the Class A-2 Notes.
"Class A Noteholders' Interest Distributable Amount" means,
with respect to any Payment Date, the sum of (i) the Class A-1
Noteholders' Interest Distributable Amount and (ii) the Class A-2
Noteholders' Interest Distributable Amount.
The "Class A Noteholders' Percentage" will be [98%] on the
initial Payment Date and on any Payment Date after the initial Payment
Date will be the percentage equivalent of a fraction, the numerator of
which is the principal amount of the Notes as of the close of the
preceding Payment Date and the denominator of which is the Pool Balance
as of such Payment Date.
"Class A Target Amount" means, with respect to any Payment
Date, an amount equal to [90%] of the Pool Balance as of such Payment
Date.
"Class A-1 Noteholders' Interest Carryover Shortfall" means,
with respect to any Payment Date, the excess of the Class A-1
Noteholders' Interest Distributable Amount for the preceding Payment
Date over the amount that was actually deposited in the Note
Distribution Account on such preceding Payment Date on account of the
Class A-1 Noteholders' Interest Distributable Amount.
"Class A-1 Noteholders' Interest Distributable Amount" means,
with respect to any Payment Date, the sum of the Class A-1 Noteholders'
Monthly Interest Distributable Amount for such Payment Date and the
Class A-1 Noteholders' Interest Carryover Shortfall for such Payment
Date, plus interest on such Class A-1 Noteholder's Interest Carryover
Shortfall, to the extent permitted by law, at the Class A-1 Interest
Rate through the current Payment Date.
"Class A-1 Noteholders' Monthly Interest Distributable Amount"
means an amount equal to the product of (i) the Class A-1 Interest
Rate, (ii) the outstanding principal balance of the Class A-1 Notes as
of the close of the preceding Payment Date (or, in the case of the
initial Payment Date, as of the Closing Date) after giving effect to
all distributions on account of principal on such preceding Payment
Date and (iii) a fraction, the numerator of which is the actual number
of days elapsed in the applicable Class A-1 Interest Period and the
denominator of which is 360.
"Class A-2 Noteholders' Interest Carryover Shortfall" means,
with respect to any Payment Date, the excess of the Class A-2
Noteholders' Interest Distributable Amount for the preceding Payment
Date over the amount that was actually deposited in the Note
Distribution Account on such preceding Payment Date on account of the
Class A-2 Noteholders' Interest Distributable Amount.
"Class A-2 Noteholders' Interest Distributable Amount" means,
with respect to any Payment Date, the sum of the Class A-2 Noteholders'
Monthly Interest Distributable Amount for
S-47
<PAGE>
such Payment Date and the Class A-2 Noteholders' Interest Carryover
Shortfall for such Payment Date, plus interest on such Class A-2
Noteholder's Interest Carryover Shortfall, to the extent permitted by
law, at the Class A-2 Interest Rate through the current Payment Date.
"Class A-2 Noteholders' Monthly Interest Distributable Amount"
means, [(a) for the first Payment Date, an amount equal to the product
of (i) the Class A-2 Interest Rate, (ii) the initial principal balance
of the Class A-2 Notes and (iii) a fraction, the numerator of which is
the number of days from and including the Closing Date to and including
August 14, 1998 (assuming that there are 30 days in each month of the
year) and (ii) the denominator of which is 360 and (b) for any Payment
Date after the first Payment Date, an amount equal to the product of
(i) one-twelfth of the Class A-2 Interest Rate and (ii) the outstanding
principal balance of the Class A-2 Notes as of the close of the
preceding Payment Date (after giving effect to all distributions on
account of principal on such preceding Payment Date).]
Priority of Distribution Amounts. On each Determination Date,
the Servicer will calculate the amount to be distributed to the
Noteholders.
On each Payment Date, the Indenture Trustee (based on the
Servicer's determination made on the related Determination Date) shall
make the following distributions in the following order of priority:
(i) to the Standby Servicer, so long as CPS is the Servicer
and Norwest Bank Minnesota, National Association is the Standby
Servicer, the Standby Fee and all unpaid Standby Fees from prior
Collection Periods;
(ii) to the Servicer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clause (i) above), the Servicing Fee and all unpaid Servicing Fees from
prior Collection Periods;
(iii) 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 clauses (i) and (ii) above), to the extent not previously
paid by the predecessor Servicer pursuant to the Sale and Servicing
Agreement, reasonable transition expenses (up to a maximum of $50,000)
incurred in becoming the successor Servicer;
(iv) to the Indenture Trustee and the Owner Trustee, pro rata,
from the Total Distribution Amount (as such Total Distribution Amount
has been reduced by payments pursuant to clauses (i) through (iii)
above), the fees payable thereto for services pursuant to the Indenture
and the Trust Agreement (the "Trustee Fees") and reasonable
out-of-pocket expenses thereof (including counsel fees and expenses),
and all unpaid Trustee Fees and unpaid reasonable out-of-pocket
expenses (including counsel fees and expenses) from prior Collection
Periods;
(v) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above), all fees and expenses
payable to the Collateral Agent with respect to such Payment Date;
S-48
<PAGE>
(vi) to the Noteholders (pro rata to each class of Notes on
the basis of the accrued and unpaid interest thereon), from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (v) above), the Class A
Noteholders' Interest Distributable Amount;
(vii) to the Noteholders, 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 Noteholders'
Principal Distributable Amount, plus the Class A Noteholders' Principal
Carryover
Shortfall, if any;
(viii) to the Insurer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clauses (i) through (vii) above), any amounts due to the Insurer under
the terms of the Insurance Agreement;
(ix) on any Payment Date prior to the First Target Date, to
the Collateral Agent for deposit in the Spread Account, from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (viii) above) the amount by
which the Initial Spread Account Deposit exceeds the amount in the
Spread Account on such Payment Date;
(x) on any Payment Date on which the principal balance of the
Notes (after giving effect to the payment described in paragraph (vii)
above) exceeds the Class A Target Amount for such Payment Date, to the
Noteholders, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clauses
(i) through (ix) above), an amount equal to the lesser of (a) the
portion of the Total Distribution Amount remaining after making the
payments described in (i) through (ix) above and (b) the excess of the
principal balance of the Notes (after giving effect to the payment
described in (vii) above) over the Class A Target Amount;
(xi) in the event any Person other than the Standby Servicer
becomes the successor Servicer, to such successor Servicer, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) through (x) above), to the
extent not previously paid by the predecessor Servicer pursuant to the
Sale and Servicing Agreement, reasonable transition expenses (up to a
maximum of $50,000 for all such expenses) incurred in becoming the
successor Servicer; and
(xii) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any.
Amounts distributed on account of the Class A Noteholders' Principal
Distributable Amount pursuant to priority (vii) above and amounts distributed
pursuant to (x) above will be applied, sequentially, to pay principal of the
Class A-1 Notes until the principal balance of the Class A-1 Notes has been
reduced to zero, then to the holders of the Class A-2 Notes until the principal
balance of the Class A-2 Notes has been reduced to zero.
On the fourth business day prior to a Payment Date, the Indenture
Trustee will determine, based on a certificate from the Servicer, whether there
are amounts sufficient, after payment of amounts as set
S-49
<PAGE>
forth in the priorities of distribution in the Indenture, to distribute the
Class A Noteholders' Distributable Amount.
The Insurer shall at any time, and from time to time, with respect to a
Payment Date, have the option (but shall not be required, except as required
under the Policy) to deliver amounts to the Indenture 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 Payment Date, (ii) to distribute as a component of
the Class A Noteholders' Principal Distributable Amount to the extent that the
principal balance of the Notes as of the Determination Date preceding such
Payment Date exceeds the Pool Balance as of such Determination Date, or (iii) to
include such amount as part of the Total Distribution Amount for such Payment
Date to the extent that without such amount a draw would be required to be made
on the Policy.
The Spread Account. As part of the consideration for the issuance of
the Policy, the Seller has agreed to cause to be established with Norwest Bank
Minnesota, National Association (in such capacity, the "Collateral Agent") an
account (the "Spread Account") for the benefit of the Insurer and the Indenture
Trustee on behalf of the Noteholders. Any portion of the Total Distribution
Amount remaining on any Payment Date after payment of all fees and expenses due
on such date to the Servicer, the Standby Servicer, the Indenture Trustee, the
Owner Trustee, any successor Servicer and the Collateral Agent and all amounts
owing to the Insurer on such date and all principal and interest payments due to
the Noteholders on such Payment Date, will be deposited in the Spread Account
and held by the Collateral Agent for the benefit of the Insurer and the
Indenture Trustee on behalf of the Noteholders. If on any Payment Date, the
Total Distribution Amount is insufficient to pay all distributions required to
be made on such day pursuant to priorities (i) through (viii) under "Priority of
Distribution Amounts", then amounts on deposit in the Spread Account will be
applied to pay the amounts due on such Payment Date pursuant to such priorities
(i) through (viii).
Amounts on deposit in the Spread Account on any Payment Date which
(after all payments required to be made on such Payment Date and distributions
to be made in accordance with the Master Spread Account Agreement have been
made) are in excess of the Requisite Amount will be released to or at the
direction of the Seller on such Payment Date.
So long as no Insurer Default shall have occurred and be continuing,
the Insurer will be entitled to exercise in its sole discretion all rights under
the master spread account agreement among the Seller, the Insurer, the Indenture
Trustee and the Collateral Agent (the "Master Spread Account Agreement") with
respect to the Spread Account and any amounts on deposit therein and will have
no liability to the Indenture Trustee or the Noteholders for the exercise of
such rights. The Insurer (so long as an Insurer Default shall not have occurred
and be continuing) may, with the written consent of CPS, the Seller and the
Collateral Agent but without the consent of the Indenture Trustee or any
Noteholder, reduce the Requisite Amount or modify any term of the Master Spread
Account Agreement (including terminating the Master Spread Account Agreement and
releasing all funds on deposit in the Spread Account). Because the Requisite
Amount or the existence of the Spread Account may be modified or terminated by
the Insurer as described above, Noteholders should not rely on amounts in the
Spread Account for payments of principal or interest on the Notes.
S-50
<PAGE>
Events of Default
Unless an Insurer Default shall have occurred and be continuing,
"Events of Default" under the Indenture will consist of those events defined in
the Insurance Agreement as Insurance Agreement Indenture Cross Defaults, and
will constitute an Event of Default under the Indenture only if the Insurer
shall have delivered to the Indenture Trustee a written notice specifying that
any such Insurance Agreement Indenture Cross Default constitutes an Event of
Default under the Indenture. An "Insurance Agreement Indenture Cross Default"
may result from: (i) a demand for payment under the Policy; (ii) an Insolvency
Event ; (iii) the Trust becoming taxable as an association (or publicly traded
partnership) taxable as a corporation for federal or state income tax purposes;
(iv) the sum of the Total Distribution Amount with respect to any Payment Date
plus the amount (if any) available from certain collateral accounts maintained
for the benefit of the Insurer is less than the sum of the amounts described in
clauses (i) through (vii) under "Description of the Trust
Documents--Distributions--Priority of Distribution Amounts" herein; and (v) any
failure to observe or perform in any material respect any other covenants,
representation, warranty or agreements of the Trust in the Indenture, any
certificate or other writing delivered in connection therewith, which failure
continues for 30 days after written notice of such failure or incorrect
representation or warranty has been given to the Trust and the Indenture Trustee
by the Insurer.
Upon the occurrence of an Event of Default, and so long as an Insurer
Default shall not have occurred and be continuing, the Notes shall become due
and payable at par with accrued interest thereon, the Insurer will have the
right, but not the obligation, to cause the Indenture Trustee to liquidate the
Trust Assets, in whole or in part, on any date or dates following the
acceleration of the Notes due to such Event of Default, and to distribute the
proceeds of such liquidation in accordance with the terms of the Indenture.
Following the occurrence of any Event of Default, the Indenture Trustee will
continue to submit claims as necessary under the Policy for any shortfalls in
the Scheduled Payments on the Notes, except that the Insurer, in its sole
discretion, may elect to pay all or any portion of the outstanding amount of the
Notes in excess thereof, plus accrued interest thereon. See "The Policy" and
"Description of the Securities--Mandatory Prepayment" herein.
If an Insurer Default has occurred and is continuing, "Events of
Default" will consist of the following events set forth in the Indenture: (i) a
default for five days or more in the payment of any interest on the Notes; (ii)
a default for five days or more in the payment of the principal of the Notes
when the same becomes due and payable; (iii) a default in the observance or
performance in any material respect of any covenant or agreement of the Trust
made in the Indenture, or any representation or warranty made by the Trust in
the Indenture or in any certificate delivered pursuant thereto or in connection
therewith having been incorrect as of the time made, and the continuation of any
such default or the failure to cure such breach of a representation or warranty
for a period of 30 days (or such longer period not in excess of 90 days as is
reasonably necessary to cure such default) after notice thereof is given to the
Trust by the Indenture Trustee or to the Trust and the Indenture Trustee by the
holders of at least 25% in principal amount of the Notes then outstanding; or
(iv) certain events of bankruptcy, insolvency, receivership or liquidation of
the Trust.
Upon the occurrence of an Event of Default, and so long as an Insurer
Default has occurred and is continuing the Indenture Trustee or the holders of
Notes representing at least a majority of the principal amount of the Notes then
outstanding may declare the principal of the Notes to be immediately due and
payable. Such declaration may, under certain circumstances, be rescinded by the
holders of Notes
S-51
<PAGE>
representing at least a majority of the principal amount of the Notes then
outstanding. The Indenture Trustee may also institute proceedings to collect
amounts due or foreclose on the Trust Property, exercise remedies as a secured
party, sell the related Receivables or elect to have the Trust maintain
possession of such Receivables. If the Indenture Trustee has the right to
liquidate the Trust Estate, because an Insurer Default has occurred and is
continuing, nevertheless, the Indenture Trustee will be prohibited from selling
the related Receivables following an Event of Default unless (i) the holders of
all the outstanding Notes consent to such sale or (ii) the proceeds of such sale
are sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale.
Statements to Noteholders
On each Payment Date, the Indenture Trustee will include with each
distribution to each Noteholder of record as of the close of business on the
applicable Record Date and each Rating Agency that is currently rating the Notes
a statement (prepared by the Servicer) setting forth the following information
with respect to the preceding Collection Period, to the extent applicable: (i)
the amount of the distribution allocable to principal of each class of Notes;
(ii) the amount of the distribution allocable to interest on each class of
Notes; (iii) the Pool Balance and the Pool Factor for each class of Notes as of
the close of business on the last day of the preceding Collection Period; (iv)
the aggregate principal balance of each class of Notes and the Certificates as
of the close of business on the last day of the preceding Collection Period,
after giving effect to payments allocated to principal reported under (i) above;
(v) the amount of the Servicing Fee paid to the Servicer with respect to the
related Collection Period (inclusive of the Standby Fee), the amount of any
unpaid Servicing Fees and the change in such amount from that of the prior
Payment Date; (vi) the amount of the Class A-1 Noteholders' Interest Carryover
Shortfall, Class A-2 Noteholders' Interest Carryover Shortfall and Class A
Noteholders' Principal Carryover Shortfall on such Payment Date and the change
in such amounts from those on the prior Payment Date; (vii) the amount paid to
the Noteholders under the Policy or from the Spread Account for such Payment
Date; (viii) the amount distributable to the Insurer on such Payment Date; (ix)
the aggregate amount in the Spread Account and the change in such amount from
the previous Payment Date; (x) the number of Receivables and the aggregate gross
amount scheduled to be paid thereon, including unearned finance and other
charges, for which the related Obligors are delinquent in making Scheduled
Receivable Payments between 31 and 59 days and 60 days or more; (xi) the number
and the aggregate Purchase Amount of Receivables repurchased by CPS or purchased
by the Servicer; and (xii) the cumulative Principal Balance of all Receivables
that have become Liquidated Receivables, net of Recoveries, during the period
from the Cutoff Date to the last day of the related Collection Period.
Each amount set forth pursuant to subclauses (i), (ii), (v), (vi),
(vii) and (xi) above shall be expressed in the aggregate and as a dollar amount
per $1,000 of original principal balance of a Note.
Within the prescribed period of time for tax reporting purposes after
the end of each calendar year during the term of the Sale and Servicing
Agreement, the Indenture Trustee will mail to each person who at any time during
such calendar year shall have been a Noteholder and received any payment on such
holder's Notes, a statement (prepared by the Servicer) containing the sum of the
amounts described in (i), (ii) and (v) above for the purposes of such
Noteholder's preparation of federal income tax returns. See "Description of the
Trust Documents--Statements to Noteholders" and "Federal Income Tax
Consequences"in this Prospectus Supplement.
S-52
<PAGE>
Evidence as to Compliance
The Sale and Servicing Agreement will provide that a firm of
independent certified public accountants will furnish to the Indenture Trustee
and the Insurer on or before July 31 of each year, beginning July 31, 1999, a
report as to compliance by the Servicer during the preceding twelve months ended
March 31 with certain standards relating to the servicing of the Receivables (or
in the case of the first such certificate, the period from the Cutoff Date to
March 31, 1999).
The Sale and Servicing Agreement will also provide for delivery to the
Indenture Trustee and the Insurer, on or before July 31 of each year, commencing
July 31, 1999 of a certificate signed by an officer of the Servicer stating that
the Servicer has fulfilled its obligations under the Sale and Servicing
Agreement throughout the preceding twelve months ended March 31 or, if there has
been a default in the fulfillment of any such obligation, describing each such
default (or in the case of the first such certificate, the period from the
Cutoff Date to March 31, 1999). The Servicer has agreed to give the Indenture
Trustee and the Insurer notice of any Events of Default under the Sale and
Servicing Agreement.
Copies of such statements and certificates may be obtained by
Noteholders by a request in writing addressed to the Indenture Trustee.
Certain Matters Regarding the Servicer
The Sale and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as Servicer thereunder except upon
determination that its performance of such duties is no longer permissible under
applicable law and with the consent of the Insurer. No such resignation will
become effective until a successor servicer has assumed the servicing
obligations and duties under the Sale and Servicing Agreement. In the event CPS
resigns as Servicer or is terminated as Servicer, the Standby Servicer has
agreed pursuant to the Servicing Assumption Agreement to assume the servicing
obligations and duties under the Sale and Servicing Agreement; however, so long
as no Insurer Default shall have occurred and be continuing, the Insurer in its
sole and absolute discretion may appoint a successor Servicer other than the
Standby Servicer.
The Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees, and agents will be under
any liability to the Trust or the Noteholders for taking any action or for
refraining from taking any action pursuant to the Sale and Servicing Agreement,
or for errors in judgment; provided, however, that neither the Servicer nor any
such person will be protected against any liability that would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of duties or by reason of reckless disregard of obligations and
duties thereunder. In addition, the Sale and Servicing Agreement will provide
that the Servicer is under no obligation to appear in, prosecute, or defend any
legal action that is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement and that, in its opinion, may cause it to incur any
expense or liability.
Under the circumstances specified in the Sale and Servicing Agreement
any entity into which the Servicer may be merged or consolidated, or any entity
resulting from any merger or consolidation to which the Servicer is a party, or
any entity succeeding to the business of the Servicer which corporation or other
entity in each of the foregoing cases assumes the obligations of the Servicer,
will be the successor of the Servicer under the Sale and Servicing Agreement.
S-53
<PAGE>
The Sale and Servicing Agreement provides that the rights and
obligations of the Servicer terminate each March 31, June 30, September 30 and
December 31 unless renewed by the Insurer for successive quarterly periods. The
Insurer will agree to grant continuous renewals so long as (i) no Servicer
Termination Event under the Sale and Servicing Agreement has occurred and (ii)
no event of default under the Insurance Agreement has occurred. See "Description
of the Securities-Certain Matters Regarding the Servicer" in the Prospectus.
Servicer Termination Events
Any of the following events will constitute a "Servicer Termination
Event" under the Sale and Servicing Agreement: (i) any failure by the Servicer
to deliver to the Indenture Trustee for distribution to the Securityholders any
required payment, which failure continues unremedied for two Business Days (or,
in the case of a payment or deposit to be made no later than a Payment Date, the
failure to make such payment or deposit by such Payment Date), or any failure to
deliver to the Indenture Trustee the annual accountants' report, the annual
statement as to compliance or the statement to the Noteholders, in each case,
within five days of the date it is due; (ii) any failure by the Servicer duly to
observe or perform in any material respect any other covenant or agreement in
the Sale and Servicing Agreement 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 Insurer or by the Indenture Trustee, or (2) to the
Servicer or the Seller, as the case may be, and to the Indenture Trustee and the
Insurer by the holders of Notes evidencing not less than 25% of the outstanding
principal balance of the Notes; (iii) certain events of insolvency, readjustment
of debt, marshaling of assets and liabilities, or similar proceedings with
respect to the Servicer or, so long as CPS is Servicer, of any of its
affiliates, and certain actions by the Servicer, the Seller or, so long as CPS
is Servicer, of any of its affiliates, indicating its insolvency, reorganization
pursuant to bankruptcy proceedings, or inability to pay its obligations; (iv) a
claim is made under the Policy; or (v) the occurrence of an Insurance Agreement
Event of Default.
An "Insurance Agreement Event of Default" means an event of default
under the Insurance Agreement or under any other "insurance agreement" pursuant
to which Financial Security has issued (or issues in the future) a financial
guaranty insurance policy in respect of securities issued by a trust for which
CPS is the Servicer. The events constituting an Insurance Agreement Event of
Default (including the events of default under any such other insurance
agreements) may be modified, amended or waived by Financial Security without
notice to or consent of the Indenture Trustee or any Noteholder. Remedies
available to Financial Security upon the occurrence of an Insurance Agreement
Event of Default include increasing the amount required to be on deposit in the
Spread Account and terminating CPS's appointment as Servicer. See "Risk
Factors-Sub-Prime Obligers; Servicing".
Rights Upon Servicer Termination Event
Following the occurrence of a Servicer Termination Event that remains
unremedied, (x) provided no Insurer Default shall have occurred and be
continuing, the Insurer in its sole and absolute discretion or (y) if an Insurer
Default shall have occurred and be continuing, then the Indenture Trustee or the
holders of Notes evidencing not less than 25% of the outstanding principal
balance of the Notes may terminate all the rights and obligations of the
Servicer under the Sale and Servicing Agreement, whereupon the Standby Servicer,
or such other successor Servicer as shall be or have been appointed by the
Insurer (or, if an Insurer Default shall have occurred and be continuing, by the
Indenture Trustee or the Noteholders, as described above) will succeed to all
the responsibilities, duties and liabilities of the
S-54
<PAGE>
Servicer under the Sale and Servicing Agreement; provided, however, that such
successor Servicer shall have no liability with respect to any obligation which
was required to be performed by the predecessor Servicer prior to the date such
successor Servicer becomes the Servicer or the claim of a third party (including
a Noteholder) based on any alleged action or inaction of the predecessor
Servicer as Servicer.
"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing: (i) the Insurer fails to make a payment required
under the Policy in accordance with its terms; (ii) the Insurer (A) files any
petition or commences any case or proceeding under any provision or chapter of
the United States Bankruptcy Code or any other similar federal or state law
relating to insolvency, bankruptcy, rehabilitation, liquidation or
reorganization, (B) makes a general assignment for the benefit of its creditors,
or (C) has an order for relief entered against it under the United States
Bankruptcy Code or any other similar federal or state law relating to
insolvency, bankruptcy, rehabilitation, liquidation or reorganization which is
final and nonappealable; or (iii) a court of competent jurisdiction, the New
York Department of Insurance or other competent regulatory authority enters a
final and nonappealable order, judgment or decree (A) appointing a custodian,
trustee, agent or receiver for the Insurer or for all or any material portion of
its property or (B) authorizing the taking of possession by a custodian,
trustee, agent or receiver of the Insurer (or the taking of possession of all or
any material portion of the property of the Insurer).
Waiver of Past Defaults
With respect to the Trust, subject to the approval of the Insurer, the
holders of Notes evidencing more than 50% of the outstanding principal balance
of the Notes (the "Class A Note Majority") may, on behalf of all Securityholders
waive any default by the Servicer in the performance of its obligations under
the Sale and Servicing Agreement and its consequences, except a default in
making any required deposits to or payments from any of the Trust Accounts in
accordance with the Sale and Servicing Agreement. No such waiver shall impair
the Noteholders' rights with respect to subsequent defaults.
CREDIT ENHANCEMENT
The Policy
Concurrently with the issuance of the Securities, the Insurer will
issue the Policy to the Indenture Trustee for the benefit of the Noteholders.
Under the Policy, the Insurer will unconditionally and irrevocably guarantee the
full, complete and timely payment of (i) the Class A Noteholders' Interest
Distributable Amount and (ii) the Class A Noteholders' Principal Distributable
Amount. See "The Policy" in this Prospectus Supplement.
Overcollateralization
To the extent that the outstanding principal balance of the Notes on
any Payment Date exceeds the Class A Target Amount for such Payment Date, the
portion of the Total Distribution Amount remaining after payment of the amounts
described in items (i) through (ix) under "Description of the Trust Documents -
Distributions - Priority of Distributions" will be applied to make a principal
payment on the Notes in an amount equal to the lesser of (a) such remaining
portion of the Total Distribution Amount and (b) the amount by which the
outstanding principal balance of the Notes on such Payment Date exceeds the
Class A Target Amount for such Payment Date. Such additional principal payment
will cause the
S-55
<PAGE>
principal amount of the Notes to amortize more quickly relative to the principal
amount of the Receivables than would be the case if the Noteholders received
only the Class A Noteholders' Principal Distributable Amount.
THE POLICY
The following summary of the terms of the Policy does not purport to be
complete and is qualified in its entirety by reference to the Policy.
Simultaneously with the issuance of the Notes, the Insurer will deliver
the Policy to the Indenture Trustee for the benefit of each Class A Noteholder.
Under the Policy, the Insurer unconditionally and irrevocably guarantees to the
Indenture Trustee for the benefit of each Class A Noteholder the full and
complete payment of (i) Scheduled Payments (as defined below) on the Notes and
(ii) any Scheduled Payment which subsequently is avoided in whole or in part as
a preference payment under applicable law.
"Scheduled Payments" means payments that are scheduled to be made on
the Notes during the term of the Policy in an amount equal to the sum of (i) the
Class A Noteholders' Interest Distributable Amount and (ii) the Class A
Noteholders' Principal Distributable Amount on a Payment Date, in each case, in
accordance with the original terms of the Notes when issued and without regard
to any amendment or modification of the Notes or the Indenture which has not
been consented to by the Insurer. Scheduled Payments do not include payments
which become due on an accelerated basis as a result of (a) a default by the
Issuer, (b) an election by the Issuer to pay principal on an accelerated basis,
(c) the occurrence of an Event of Default under the Indenture or (d) any other
cause, unless the Insurer elects, in its sole discretion, to pay in whole or in
part such principal due upon acceleration, together with any accrued interest to
the date of acceleration. In the event the Insurer does not so elect, the Policy
will continue to guarantee Scheduled Payments due on the Notes in accordance
with their original terms. Scheduled Payments shall not include, nor shall
coverage be provided under the Policy in respect of, (i) any portion of a Class
A Noteholders' Interest Distributable Amount due to Noteholders because a notice
and certificate in proper form was not timely Received by the Insurer, or (ii)
any portion of the Class A Noteholders' Interest Distributable Amount due to
Noteholders representing interest on any Noteholders' Interest Carryover
Shortfall accrued from and including the date of payment of the amount of such
Noteholders' Interest Carryover Shortfall pursuant to the Policy. Scheduled
Payments shall not include any amounts due in respect of the Notes attributable
to any increase in interest rates, penalties or other sums payable by the Trust
by reason of a default or Event of Default in respect of the Notes, or by reason
of a deterioration of the creditworthiness of the Trust, nor shall Scheduled
Payments include, nor shall coverage be provided under the Policy in respect of,
any taxes, withholding or other charges with respect to any Noteholder imposed
by any governmental authority due in connection with the payment of any
Scheduled Payments to a Class A Noteholder.
Payment of claims on the Policy made in respect of Scheduled Payments
will be made by the Insurer following Receipt by the Insurer of the appropriate
notice for payment on the later to occur of (a) 12:00 noon, New York City time,
on the third Business Day following Receipt of such notice for payment, and (b)
12:00 noon, New York City time, on the Payment Date on which such payment was
due on the Notes.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Policy, the Insurer shall cause such payment
S-56
<PAGE>
to be made on the later of the date when due to be paid pursuant to the Order
referred to below or the first to occur of (a) the fourth Business Day following
Receipt by the Insurer from the Indenture Trustee of (i) a certified copy of the
order (the "Order") of the court or other governmental body which exercised
jurisdiction to the effect that the Class A Noteholder is required to return the
amount of any Scheduled Payment distributed with respect to the Notes during the
term of the Policy because such distributions were avoidable as preference
payments under applicable bankruptcy law, (ii) a certificate of the Noteholder
that the Order has been entered and is not subject to any stay, and (iii) an
assignment duly executed and delivered by the Class A Noteholder, in such form
as is reasonably required by the Insurer and provided to the Class A Noteholder
by the Insurer, irrevocably assigning to the Insurer all rights and claims of
the Class A Noteholder relating to or arising under the Notes against the debtor
which made such preference payment or otherwise with respect to such preference
payment, or (b) the date of Receipt by the Insurer from the Indenture Trustee of
the items referred to in clauses (i), (ii) and (iii) above if, at least four
Business Days prior to such date of Receipt, the Insurer shall have received
written notice from the Indenture Trustee that such items were to be delivered
on such date and such date was specified in such notice. Such payment shall be
disbursed to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order and not to the Indenture Trustee or any Class A
Noteholder directly (unless a Class A Noteholder has previously paid such amount
to the receiver, conservator, debtor-in-possession or trustee in bankruptcy
named in the Order, in which event, such payment shall be disbursed to the
Indenture Trustee for distribution to such Class A Noteholder upon proof of such
payment reasonably satisfactory to the Insurer). In connection with the
foregoing, the Insurer shall have the rights provided pursuant to the Indenture.
The terms "Receipt" and "Received" with respect to the Policy, shall
mean actual delivery to the Insurer and to its fiscal agent, if any, prior to
12:00 noon, New York City time, on a Business Day; delivery either on a day that
is not a Business Day or after 12:00 noon, New York City time, shall be deemed
to be Receipt on the next succeeding Business Day. If any notice or certificate
given under the Policy by the Indenture Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Insurer or its fiscal agent shall promptly so advise the
Indenture Trustee and the Indenture Trustee may submit an amended notice.
Under the Policy, "Business Day" means any day other than (i) a
Saturday or Sunday or (ii) a day on which banking institutions in the City of
New York, New York, Minneapolis, Minnesota, the State in which the principal
corporate trust office of the Indenture Trustee is located, or any other
location of any successor indenture trustee or successor Collateral Agent are
authorized or obligated by law or executive order to be closed.
The Insurer's obligations under the Policy in respect of the Scheduled
Payments shall be discharged to the extent funds are transferred to the
Indenture Trustee as provided in the Policy whether or not such funds are
properly applied by the Indenture Trustee.
The Insurer shall be subrogated to the rights of each Class A
Noteholder to receive payments of principal and interest to the extent of any
payment by the Insurer under the Policy.
Claims under the Policy constitute direct, unsecured and unsubordinated
obligations of the Insurer ranking not less than pari passu with other unsecured
and unsubordinated indebtedness of the Insurer for borrowed money. Claims
against the Insurer under the Policy and claims against the Insurer under each
other financial guaranty insurance policy issued thereby constitute pari passu
claims against the general
S-57
<PAGE>
assets of the Insurer. The terms of the Policy cannot be modified or altered by
any other agreement or instrument, or by the merger, consolidation or
dissolution of the Trust. The Policy may not be canceled or revoked prior to
distribution in full of all Scheduled Payments with respect to the Notes. The
Policy is not covered by the Property/Casualty Insurance Security Fund specified
in Article 76 of the New York Insurance Law. The Policy is governed by the laws
of the State of New York.
THE INSURER
General
Financial Security Assurance Inc. (the "Insurer" and, for purposes of
this Section, "Financial Security") is a monoline insurance company incorporated
in 1984 under the laws of the State of New York. Financial Security is licensed
to engage in the 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
S-58
<PAGE>
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, Fitch
IBCA, Inc., Japan Rating and Investment Information, 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 Notes" 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 March 31, 1998 (in thousands):
<TABLE>
<CAPTION>
March 31, 1998
(Unaudited)
<S> <C> <C>
Deferred premium revenue (net of prepaid reinsurance premiums).......... $ 428,157
Shareholder's equity:
Common stock........................................................... 15,000
Additional paid-in capital............................................. 618,317
Unrealized gain on investments (net of deferred income taxes).......... 24,700
Accumulated earnings................................................... 265,030
-----------
Total shareholder's equity........................................ 923,047
-----------
Total deferred premium revenue and shareholder's equity........... $1,351,204
==========
</TABLE>
For further information concerning Financial Security, see the
Consolidated Financial Statements of Financial Security Assurance Inc., 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
S-59
<PAGE>
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.
Financial Security does not accept any responsibility for the accuracy
or completeness of this Prospectus Supplement or any information or disclosure
contained herein, or omitted herefrom, other than with respect to the accuracy
of the information regarding Financial Security set forth under the heading "The
Insurer."
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Federal Tax Counsel, for Federal income tax purposes
the Notes will be characterized as debt, and the Trust will not be characterized
as an association (or publicly traded partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a Note, will agree to treat the Notes as
indebtedness for Federal income tax purposes. See "Federal Income Tax
Consequences" in the Prospectus for additional information concerning the
application of Federal income tax laws to the Trust and the Notes.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and Section 4975 of the Code prohibit a pension,
profit-sharing or other employee benefit plan within the meaning of Section 3(3)
of ERISA, as well as an individual retirement account, a Keogh plan and any
other plan within the meaning of Section 4975 of the Code (each a "Benefit
Plan"), from engaging in certain transactions with persons that are "parties in
interest" under ERISA or "disqualified persons" under the Code with respect to
such Benefit Plan. A violation of these "prohibited transaction" rules may
result in an excise tax or other penalties and liabilities under ERISA and the
Code for such persons or the fiduciaries of the Benefit Plan. In addition, Title
I of ERISA also requires fiduciaries of a Benefit Plan subject to ERISA to make
investments that are prudent, diversified and in accordance with the governing
plan documents.
Certain transactions involving the Trust might be deemed to constitute
prohibited transactions under ERISA and the Code with respect to a Benefit Plan
that purchased Notes if assets of the Trust were deemed to be assets of the
Benefit Plan. Under a regulation issued by the United States Department of Labor
(the "Regulation"), the assets of the Trust would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquired an "equity interest" in the Trust and none of the exceptions contained
in the Regulation was applicable. An equity interest is defined under the
Regulation as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features. Although there is little guidance on the subject, the Seller believes
that, at the time of their issuance, the Notes should be treated as indebtedness
of the Trust without substantial equity features for purposes of the Regulation.
This determination is based in part upon the traditional debt features of the
Notes, including the reasonable expectation of purchasers of Notes that the
Notes will be repaid when due, as well as the absence of conversion rights,
warrants and other typical equity features. The debt treatment of the Notes for
ERISA purposes could change if the Trust incurred losses.
S-60
<PAGE>
However, without regard to whether the Notes are treated as an equity
interest for purposes of the Regulation, the acquisition or holding of Notes by
or on behalf of a Benefit Plan could be considered to give rise to a prohibited
transaction if the Trust, the Seller, the Servicer, the Owner Trustee or the
Indenture Trustee is or becomes a party in interest or a disqualified person
with respect to such Benefit Plan. Certain exemptions from the prohibited
transaction rules could be applicable to the purchase and holding of Notes by a
Benefit Plan depending on the type and circumstances of the plan fiduciary
making the decision to acquire such Notes. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 96-23, regarding transactions
effected by "in-house asset managers"; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 91-38, regarding investments by
bank collective investment funds; and PTCE 84-14, regarding transactions
effected by "qualified professional asset managers." By acquiring a Class A
Note, each initial purchaser, transferee and owner of a beneficial interest will
be deemed to represent that either (i) it is not acquiring the Notes with the
assets of a Benefit Plan; or (ii) the acquisition and holding of the Notes will
not give rise to a nonexempt prohibited transaction under Section 406(a) of
ERISA or Section 4975 of the Code.
Employee benefit plans that are governmental plans (as defined in
Section 3(32) of ERISA) and certain church plans (as defined in Section 3(33) of
ERISA) are not subject to ERISA requirements; however, governmental plans may be
subject to comparable state law restrictions.
A plan fiduciary considering the purchase of Notes should consult its
legal advisors regarding whether the assets of the Trust would be considered
plan assets, the possibility of exemptive relief from the prohibited transaction
rules and other issues and their potential consequences.
UNDERWRITING
Under the terms and subject to the conditions contained in an
underwriting agreement dated September [ ], 1998 (the "Underwriting Agreement")
among CPS, the Seller, Samco, Linc and the Underwriter, the Seller has agreed to
sell to the Underwriter, and the Underwriter has agreed to purchase, Notes in
the following amounts:
Principal Amount Principal Amount
of Class A-1 Notes of Class A-2 Notes
------------------ ------------------
[$ ] [$ ]
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all the Notes offered hereby if any of such Notes are purchased.
CPS and the Seller have been advised by the Underwriter that the
Underwriter proposes to offer the Notes from time to time for sale in negotiated
transactions or otherwise, at varying prices to be determined at the time of
sale. The Underwriter may effect such transactions by selling the Notes to or
through dealers and such dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriter and any
purchasers of Notes for whom they may act as agent. The Underwriter and any
dealers that participate with the Underwriter in the distribution of the Notes
may be deemed to be underwriters, and any discounts or commissions received by
them and any
S-61
<PAGE>
profit on the resale of Notes by them may be deemed to be underwriting discounts
or commissions, under the Securities Act.
The Notes are a new issue of securities with no established trading
market. The Underwriter has advised CPS and the Seller that it intends to act as
a market maker for the Notes. However, the Underwriter is not obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of any trading market for the Notes.
CPS and the Seller have agreed to indemnify the Underwriter against
certain liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriter may be required to make in respect
thereof.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon
for the Seller and the Servicer by Mayer, Brown & Platt, New York, New York.
Certain legal matters relating to the Notes will be passed upon for the
Underwriter by [ ], New York, New York. Certain legal matters related to the
Policy will be passed upon for the Insurer by Bruce E. Stern, Esq., General
Counsel of the Insurer or an Associate General Counsel of the Insurer.
EXPERTS
The consolidated balance sheets of Financial Security Assurance Inc.
and its subsidiaries as of December 31, 1997 and 1996 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, 1997,
incorporated by reference in this Prospectus Supplement, have been incorporated
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
S-62
<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.
Actuarial Receivables....................................................S-39
Affiliate Receivables....................................................S-14
Affiliated Originator.....................................................S-4
Aggregate risks..........................................................S-60
Alpha Program............................................................S-24
APR.................................................................S-6, S-32
Benefit Plan.......................................................S-16, S-61
Business Day........................................................S-6, S-58
Cede..........................................................S-3, S-16, S-43
Certificates...........................................................1, S-5
Class A Note Majority....................................................S-56
Class A Noteholders' Interest Distributable Amount.......................S-48
Class A Noteholders' Percentage.....................................S-8, S-48
Class A Noteholders' Principal Distributable Amount.................S-7, S-42
Class A Notes...............................................................1
Class A Target Amount...............................................S-8, S-48
Class A-1 Final Scheduled Payment Date....................................S-6
Class A-1 Interest Period.................................................S-7
Class A-1 Interest Rate...................................................S-7
Class A-1 Noteholders...............................................S-7, S-41
Class A-1 Noteholders' Interest Carryover Shortfall......................S-48
Class A-1 Noteholders' Interest Distributable Amount.....................S-48
Class A-1 Noteholders' Monthly Interest Distributable Amount.............S-48
Class A-1 Notes........................................................1, S-4
Class A-1 Pool Factor....................................................S-39
Class A-2 Final Scheduled Payment Date....................................S-7
Class A-2 Interest Rate...................................................S-7
Class A-2 Noteholders...............................................S-7, S-41
Class A-2 Noteholders' Interest Carryover Shortfall......................S-48
Class A-2 Noteholders' Interest Distributable Amount.....................S-48
Class A-2 Noteholders' Monthly Interest Distributable Amount.............S-49
Class A-2 Notes........................................................1, S-4
Class A-2 Pool Factor....................................................S-40
Closing Date..............................................................S-4
Collection Account.......................................................S-45
Collection Period.........................................................S-9
Commission................................................................S-2
Contracts................................................................S-23
CPS Purchase Agreement....................................................S-5
CPS Receivables...........................................................S-5
CPS....................................................................1, S-4
Cram Down Loss...........................................................S-46
S-63
<PAGE>
Cutoff Date...............................................................S-5
Dealer Agreements........................................................S-22
Dealers..................................................................S-22
Delta Program............................................................S-24
Deposit Institutions.....................................................S-24
Determination Date.......................................................S-46
DTC...........................................................S-3, S-16, S-41
ERISA....................................................................S-61
Events of Default........................................................S-52
Exchange Act..............................................................S-2
Federal Tax Counsel......................................................S-16
Final Scheduled Payment Date..............................................S-6
Financed Vehicles.........................................................S-5
Financial Intermediary...................................................S-43
Financial Security..................................................S-2, S-59
First Target Date........................................................S-11
First Time Buyer Program.................................................S-24
Holders............................................................S-16, S-41
Holdings............................................................S-2, S-59
IFCs......................................................................S-6
Indenture Trustee...........................................................1
Indenture..............................................................1, S-5
Initial Spread Account Deposit...........................................S-12
Insurance Agreement Event of Default.....................................S-55
Insurance Agreement Indenture Cross Default..............................S-52
Insurance Agreement....................................S-18, S-19, S-32, S-55
Insurer Default..........................................................S-56
Insurer..........................................................1, S-4, S-59
Interest Rate.............................................................S-7
Issuer....................................................................S-4
Linc Program.............................................................S-24
Linc Purchase Agreement...................................................S-5
Linc Receivables..........................................................S-5
Linc...................................................................1, S-4
Liquidated Receivable....................................................S-46
Liquidation Proceeds.....................................................S-46
Lock-Box Bank............................................................S-13
Lock-Box Processor.......................................................S-13
Master Spread Account Agreement..........................................S-51
Moody's..................................................................S-16
Note Distribution Account................................................S-45
Note Owners........................................................S-16, S-41
Noteholders...................................................S-6, S-16, S-41
Noteholders' Distributable Amount........................................S-47
Notes..................................................................1, S-5
Obligors.................................................................S-22
Order....................................................................S-58
S-64
<PAGE>
Original Pool Balance.....................................................S-5
Originator................................................................S-4
Owner Trustee...............................................................1
Participants.............................................................S-43
Payment Date..............................................................S-6
Policy................................................................1, S-11
Pool Balance.............................................................S-39
Post Office Box..........................................................S-13
prepayments..............................................................S-39
Principal Balance........................................................S-47
Principal Distributable Amount......................................S-8, S-47
PTCE.....................................................................S-62
Purchase Agreements.......................................................S-5
Purchase Amount..........................................................S-46
Rating Agencies..........................................................S-16
Receipt..................................................................S-58
Receivables Pool..........................................................S-5
Receivable................................................................S-5
Received.................................................................S-58
Record Date..............................................................S-11
Recoveries...............................................................S-47
Registration Statement....................................................S-2
Regulation...............................................................S-61
Requisite Amount.........................................................S-12
Rule of 78's Receivables.................................................S-38
Sale and Servicing Agreement..............................................S-5
Samco Purchase Agreement..................................................S-5
Samco Receivables.........................................................S-5
Samco..................................................................1, S-4
Scheduled Payments.................................................S-11, S-57
Scheduled Receivable Payment.............................................S-47
Securities Act............................................................S-2
Securities.............................................................1, S-5
Seller.................................................................1, S-4
Servicer Termination Event...............................................S-55
Servicer..................................................................S-4
Servicing Assumption Agreement...........................................S-13
Servicing Fee Rate.......................................................S-14
Simple Interest Receivables..............................................S-38
single risks.............................................................S-60
Spread Account...........................................................S-51
Standard & Poor's........................................................S-16
Standard Program.........................................................S-24
Standby Fee..............................................................S-13
Standby Servicer...................................................S-13, S-41
Sub-Prime Borrowers................................................S-18, S-23
Super Alpha Program......................................................S-24
S-65
<PAGE>
Total Distribution Amount................................................S-46
Trust Agreement...........................................................S-4
Trust Assets..............................................................S-5
Trust Documents..........................................................S-43
Trustee Fees.............................................................S-49
Trust..................................................................1, S-4
UCC......................................................................S-44
Underwriting Agreement...................................................S-62
S-66
<PAGE>
PART II
Item 14. Other Expenses of Issuance and Distribution
Registration Fee..........................................$196,387.00
Printing and Engraving.................................... 40,000.00
Legal Fees and Expenses................................... 150,000.00
Accountants' Fees and Expenses............................ 20,000.00
Rating Agency Fees........................................ 50,000.00
Credit Enhancement Fee.................................... 101,291.66
Miscellaneous Fees........................................ 10,000.00
Total.....................................................$567,678.00
Item 15. Indemnification of Directors and Officers
Indemnification. Under the laws which govern the organization of the
registrant, the registrant has the power and in some instances may be required
to provide an agent, including an officer or director, who was or is a party or
is threatened to be made a party to certain proceedings, with indemnification
against certain expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such person's status as an
agent of Consumer Portfolio Services, Inc., if that person acted in good faith
and in a manner reasonably believed to be in the best interests of Consumer
Portfolio Services, Inc. and, in the case of a criminal proceeding, had no
reasonable cause to believe the conduct of that person was unlawful.
Article IV of the Articles of Incorporation and Section 2 of Article VI
of the Amended and Restated By-Laws of Consumer Portfolio Services, Inc.
provides that all officers and directors of the corporation shall be indemnified
by the corporation from and against all expenses, judgments, fines, settlements
and other amounts actually and reasonably incurred in connection with such
person's status as an agent of Consumer Portfolio Services, Inc., if that person
acted in good faith and in a manner reasonably believed to be in the best
interests of Consumer Portfolio Services, Inc. and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of that person was
unlawful.
The form of the Underwriting Agreement, to be filed as an exhibit to
this Registration Statement, will provide that Consumer Portfolio Services, Inc.
will indemnify and reimburse the underwriter(s) and each controlling person of
the underwriter with respect to certain expenses and liabilities, including
liabilities under the 1933 Act or other federal or state regulations or under
the common law, which arise out of or are based on certain material
misstatements or omissions in the Registration Statement. In addition, the
Underwriting Agreement will provide that the underwriter(s) will similarly
indemnify and reimburse Consumer Portfolio Services, Inc. with respect to
certain material misstatements or omissions in the Registration Statement which
are based on certain written information furnished by the underwriter(s) for use
in connection with the preparation of the Registration Statement.
II-1
<PAGE>
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-2
<PAGE>
Item 16. Exhibits and Financial Statements
(a) Exhibits
1.1 -- Form of Underwriting Agreement.
4.1 -- Form of Trust Agreement, and certain other related agreements as
Exhibits thereto.
4.2 -- Form of Indenture, and certain other related agreement as Exhibits
thereto.
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.
10.1 -- Form of Sale and Servicing Agreement.
10.2 -- Form of CPS Purchase Agreement
10.3 -- Form of Samco Purchase Agreement
10.4 -- Form of Link 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.
II-3
<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
II-4
<PAGE>
described under Item 15 above, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in such Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the capacities
indicated.
CONSUMER PORTFOLIO SERVICES, INC.,
as sponsor and manager of the Trust (Registrant)
By:/s/ Jeffrey P. Fritz
Name: Jeffrey P. Fritz
Title: Senior Vice President
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on September 18, 1998 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 Trust Agreement, and certain other related agreements
as Exhibits thereto.
4.2 -- Form of Indenture, and certain other related agreements as
Exhibits thereto.
5.1 -- Opinion of Mayer, Brown & Platt with respect to legality.
8.1 -- Opinion of Mayer, Brown & Platt with respect to tax matters.
10.1 -- Form of Sale and Servicing Agreement.
10.2 -- Form of CPS Purchase Agreement
10.3 -- Form of Samco Purchase Agreement
10.4 -- Form of Link 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.
II-7
EXHIBIT 1.1
FORM OF
UNDERWRITING
AGREEMENT
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ] [$
] [ %] Class [A-1] Asset Backed Notes [$ ]
[ %] Class [A-2] Asset Backed Notes
UNDERWRITING AGREEMENT
[Date]
[Underwriter]
[ ]
[ ]
Ladies and Gentlemen:
CPS Receivables Corp. (the "Company"), a California corporation and
wholly-owned subsidiary of Consumer Portfolio Services, Inc., a California
corporation ("CPS"), proposes to sell to you in your capacity as the Underwriter
(the "Underwriter"), [$ ] aggregate principal amount of CPS Auto Receivables
Trust 199[ ]-[ ] [ %] Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), [$
] aggregate principal amount of [ %] Asset Backed Notes, Class A-2 (the "Class
A-2 Notes"), [identify additional classes of Notes, if any] and, together with
the Class A-1 Notes, the "Notes"). The Notes will be issued by CPS Auto
Receivables Trust 199[ ]-[ ] (the "Trust") pursuant to the Indenture (the
"Indenture"), dated as of [ ], among the Trust and [ ], as trustee (the
"Trustee"). The assets of the Trust will include, among other things, a pool of
retail installment sale contracts and all rights and obligations thereunder (the
"Receivables"), all payments received thereon 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, and the right of the Company to receive certain insurance proceeds and
certain other property, all as more specifically described in the Sale and
Servicing Agreement, dated as of [ ], among the Trust, CPS, as servicer (in such
capacity, the "Servicer"), the Company, as Seller and Norwest Bank Minnesota,
National Association, as trustee. The Company and CPS will also undertake to
cause the Note Insurer to issue the Policy for the benefit of the Noteholders.
<PAGE>
The Class A-1 Notes will be issued in an aggregate principal amount of
[$ ] and will bear interest at an annual rate equal to [ %] (the "Class A-1
Interest Rate"). The Class A-2 Notes will be issued in an aggregate principal
amount of [$ ] and will bear interest at an annual rate equal to [ %] (the
"Class A-2 Interest Rate"). [Describe additional classes of Notes, if any.] The
aggregate principal amount of the Notes will equal [ %] of the aggregate
principal balance of the Receivables as of the Cutoff Date. Calculations of
interest for each class of Notes will be in accordance with the provisions of
the Sale and Servicing Agreement.
The Certificates will be issued in an aggregate principal amount of [$
] which is equal to [ %] of the aggregate principal balance of the Receivables
as of the Cutoff Date. The Certificates will not be underwritten by the
Underwriter pursuant to this Agreement.
To the extent not otherwise defined herein, capitalized terms used
herein shall have the meanings assigned to such terms in the Indenture or, if
not defined therein, in the Sale and Servicing Agreement.
As the Underwriter, you have advised the Company that (a) you are
authorized to enter into this Agreement and (b) you are willing to purchase the
aggregate principal amount of each class of Notes set forth 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, CPS, SAMCO
AND LINC.
The Company (with respect to the Company), CPS (with respect to CPS,
the Company, Samco and Linc), Samco (with respect to Samco), and Linc (with
respect to Linc), and both the Company and CPS in all other instances, each
represents and warrants to, and agrees with the Underwriter, as of the date
hereof and as of the Issuance, that:
(a) CPS has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (File No. 333-25301),
including a Base Prospectus, for registration of the offering and sale of the
Notes under the Securities Act of 1933, as amended (the "1933 Act"), and the
rules and regulations (the "1933 Act Regulations") of the Commission thereunder
which conforms with the requirements of the 1933 Act and the 1933 Act
Regulations and has become and remains effective. CPS has complied, and is in
compliance, with the conditions for the use of a Registration Statement on Form
S-3. The offering of the Notes is a Delayed Offering and, although the Base
Prospectus may not include all the information with respect to the Notes and the
offering thereof required by the 1933 Act and the 1933 Act Regulations to be
included in the Final Prospectus, the Base Prospectus includes all such
information required by the 1933 Act and the 1933 Act Regulations to be included
therein as of the Effective Date. The Company will hereafter file with the
Commission pursuant to Rules 415 and 424(b), a final supplement to the Base
Prospectus relating to the Notes and the offering
-2-
<PAGE>
thereof. As filed, such final supplement shall include all required information
with respect to the Notes and, except to the extent the Underwriter shall agree
in writing to any modification thereof, shall be in all substantive respects in
the form furnished to the Underwriter 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
the Underwriter, prior to the Execution Time, will be included or made therein.
(b) On the Effective Date, the Registration Statement did, 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 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 date thereof,
the date of any filing pursuant to Rule 424(b) and 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 none of CPS, the Company, Samco or Linc makes any representations
or warranties as to the information contained in or omitted from the
Registration Statement or the Final Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with information specified in
Section 9(b) furnished in writing to the Company by the Underwriter specifically
for inclusion in the Registration Statement or the Final Prospectus (or any
supplement or amendment thereto) or the information regarding the Note Insurer
in or incorporated by reference in the Final Prospectus under the headings "The
Insurer" and "Incorporation of Certain Documents by Reference".
(c) The terms which follow, when used in this Agreement, shall have the
meanings indicated.
"Base Prospectus" shall mean the prospectus referred to in
Section 1(a) hereof contained in the Registration Statement at the
Effective Date.
"Delayed Offering" shall mean the offering of the Notes
pursuant to Rule 415 which does not commence promptly after the
effective date of the Registration Statement, with the result that only
information required pursuant to Rule 415 need be included in such
Registration Statement at the effective date thereof with respect to
the Notes.
"Effective Date" shall mean each date prior to the Execution
Time that the Registration Statement and any post-effective
amendment(s) thereto became effective and each date on and after the
date hereof on which a document incorporated by reference in the
Registration Statement is filed by the Company.
-3-
<PAGE>
"Execution Time" shall mean the date and time that this
Agreement is executed and delivered by the parties hereto.
"Final Prospectus" shall mean the prospectus supplement
relating to the Notes that is first filed pursuant to Rule 424(b) under
the 1933 Act after the Execution Time, together with the Base
Prospectus including all documents incorporated therein by reference,
exhibits, financial statements and notes thereto and related schedules
and other statistical and financial data and information included
therein, as amended at the Execution Time.
"Preliminary Final Prospectus" shall mean any preliminary
prospectus supplement to the Base Prospectus which describes the Notes
and the offering thereof and is used prior to filing of the Final
Prospectus.
"Prospectus" shall mean, collectively, the Base Prospectus,
any Preliminary Final Prospectus and the Final Prospectus.
"Registration Statement" shall mean (i) the Registration
Statement referred to in Section 1(a) hereof, including all documents
incorporated therein by reference, exhibits, financial statements and
notes thereto and related schedules and other statistical and financial
data and information included therein, as amended at the Execution
Time; (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
Notes and the offering thereof permitted to be omitted from the
Registration Statement when it became effective pursuant to Rule 430A.
"Rule 462(b) Registration Statement" means the Registration
Statement filed pursuant to Rule 462(b) under the 1933 Act relating to
the offering covered by the Registration Statement (File No.
333-25301).
Any reference herein to the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus shall be
deemed to refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 which were filed under the 1934 Act on or before
the Effective Date of the Registration Statement or the issue date of the Base
Prospectus, any Preliminary Final Prospectus or the Final Prospectus, as the
case may be;
-4-
<PAGE>
and any reference herein to the terms "amend", "amendment" or "supplement" with
respect to the Registration Statement, the Base Prospectus, any Preliminary
Final Prospectus or the Final Prospectus shall be deemed to refer to and include
the filing of any document under the 1934 Act after the Effective Date of the
Registration Statement or the issue date of the Base Prospectus, any Preliminary
Final Prospectus or the Final Prospectus, as the case may be, deemed to be
incorporated therein by reference.
(d) Each of the Company and CPS is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and is duly qualified to transact business as a foreign corporation in each
jurisdiction in which it is required to be so qualified and in which the failure
to so qualify, taken in the aggregate, would have a material adverse effect on
it.
(e) Samco Acceptance Corp. ("Samco") is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and is duly
qualified to transact business as a foreign corporation in each jurisdiction in
which it is required to be so qualified and in which failure to so qualify,
taken in the aggregate, would have a material adverse effect on it.
(f) Linc Acceptance Company LLC ("Linc") is a limited liability company
duly formed, validly existing and in good standing under the laws of Delaware
and is duly qualified to transact business as a foreign entity in each
jurisdiction in which it is required to be so qualified and in which failure to
so qualify, taken in the aggregate, would have a material adverse effect on it.
(g) 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, business or properties, or results of operations of the
Company, CPS, Samco or Linc or the Company's or CPS's Samco's or Linc's ability
to perform its obligations under this Agreement, the Indenture, the Trust
Agreement or the Sale and Servicing Agreement or any of the other Basic
Documents (as defined below), other than as set forth or incorporated by
reference in the Registration Statement or as set forth in the Final Prospectus.
(h) Except for the registration of the Notes under the 1933 Act and
such consents, approvals, authorizations, registrations or qualifications as may
be required under the 1934 Act and applicable State securities or Blue Sky laws
in connection with the purchase and distribution of the Notes by the Underwriter
or the filing requirements of Rule 430A or Rule 424(b) under the 1933 Act, no
consent, approval, authorization or order of or declaration or filing with any
governmental authority is required for the issuance or sale of the Notes or the
consummation of the other transactions contemplated by this Agreement or the
Sale and Servicing Agreement or any of the other Basic Documents, except such as
have been duly made or obtained or as will be duly made or obtained on or before
the Closing Date.
-5-
<PAGE>
(i) The Commission has not issued an order preventing or suspending the
use of any Prospectus relating to the proposed offering of the Notes, nor
instituted proceedings for that purpose (and no proceedings for such purpose
are, to the knowledge of the Company or CPS, contemplated). No injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has, to the knowledge of the Company or CPS, been issued
which would prevent the issuance of the Notes. 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 conform to, the requirements of the 1933 Act and the 1933 Act Regulations.
(j) The documents (other than the financial statements of the Insurer,
as to which no representation is made by CPS or the Company) which are
incorporated by reference in the Registration Statement and the Final Prospectus
or from which information is so incorporated by reference, as of the dates
thereof and 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.
(k) Each of the Company, CPS, Linc and Samco confirms as of the date
hereof that it is in compliance with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of doing Business with
Cuba, and each of the Company, CPS, Linc and Samco further agrees that if it
commences engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement became
effective with the Commission or with the Florida Department of Banking and
Finance (the "Department"), whichever date is later, or if the information
included in the Final Prospectus, if any, concerning either the Company's,
CPS's, Linc's or Samco's business with Cuba or with any person or affiliate
located in Cuba changes in any material way, each of the Company, CPS, Linc and
Samco, as the case may be, will provide the Department notice of such business
or change, as appropriate, in a form acceptable to the Department.
(l) All representations and warranties of the Company, CPS, Linc and
Samco contained in each of the Basic Documents, including this Agreement, will
be true and correct in all material respects when delivered and as of the
Closing Date and are hereby incorporated by reference as if each such
representation and warranty were specifically made herein.
(m) Each of the Company, CPS, Linc and Samco has full power and
authority (corporate and other) to enter into and perform its obligations under
this Agreement, the Indenture, the Trust Agreement, the Sale and Servicing
Agreement, the CPS Purchase Agreement, the Samco Purchase Agreement, the Linc
Purchase Agreement, the Insurance Agreement, the Indemnification Agreement, the
Spread Account Agreement, the Lock-Box Agreement and the Servicing and Lockbox
Processing Assumption Agreement (collectively, the "Basic Documents"), and to
consummate the transactions contemplated hereby and thereby.
-6-
<PAGE>
(n) On or before the Closing Date, the direction by the Company to the
Trustee to authenticate the Notes will have been duly authorized by the Company,
the Notes will have been duly executed and delivered by the Company and, when
authenticated by the Trustee in accordance with the Indenture and delivered and
paid for pursuant to this Agreement, will be duly issued and will entitle the
holder thereof to the benefits and security afforded by the Indenture.
(o) This Agreement and each Basic Document to which the Company, CPS,
Samco or Linc is a party has been duly authorized, executed and delivered by
each of the Company, CPS, Linc and Samco, as applicable, and constitutes a valid
and binding agreement of each of the Company, CPS, Linc and Samco, as
applicable, enforceable against the Company, CPS, Linc and Samco in accordance
with its terms, subject as to the enforcement of remedies (x) to applicable
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
affecting creditors' rights generally, (y) to general principles of equity
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law) and (z) with respect to rights of indemnity
under this Agreement, to limitations of public policy under applicable
securities laws.
(p) None of the Company, CPS, Samco or Linc is in breach or violation
of its Articles of Incorporation, Charter or Certificate of Formation, as
applicable, or By-Laws or Limited Liability Company Agreement, as applicable, or
in default in the performance or observance of any credit or security agreement
or other agreement or instrument to which it is a party or by which it or its
properties may be bound, or in violation of any applicable law, statute,
regulation, order or ordinance of any governmental body having jurisdiction over
it, which breach or violation would have a material adverse effect on the
ability of the Company or CPS or Samco or Linc to perform its obligations under
any of the Basic Documents or the Notes.
(q) The issuance and delivery of the Notes, the consummation of any
other of the transactions contemplated herein or in the Indenture, the Trust
Agreement, the Sale and Servicing Agreement or in any of the other Basic
Documents or the fulfillment of the terms of this Agreement, the Indenture, the
Trust Agreement, or the Sale and Servicing Agreement or any of the other Basic
Documents, subject to the registration of the Notes under the 1933 Act and such
consents, approvals, authorizations, registrations or qualifications as may be
required under the 1934 Act and applicable State securities or Blue Sky laws in
connection with the purchase and distribution of the Notes by the Underwriter 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, Charter or Certificate of Formation, as applicable, or By-Laws or
Limited Liability Company Agreement of the Company, CPS, Samco or Linc, any
statute, order or regulation applicable to the Company, CPS, Samco or Linc of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over the Company, CPS, Samco or Linc 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, CPS,
Samco or Linc (other than in favor of the Trustee, the Owner Trustee or as
otherwise permitted under the Indenture or
-7-
<PAGE>
the Sale and Servicing Agreement) pursuant to the terms of any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company, CPS, Samco or Linc is a party or by which the Company, CPS,
Samco or Linc may be bound or to which any of the property or assets of the
Company, CPS, Samco or Linc 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, CPS, Samco or Linc or
materially adverse to the transactions contemplated by this Agreement or the
Basic Documents.
(r) Any taxes, fees and other governmental charges due on or prior to
the Closing Date (including, without limitation, sales taxes) in connection with
the execution, delivery and issuance of this Agreement, the Indenture, the Trust
Agreement, the Sale and Servicing Agreement, the other Basic Documents and the
Notes have been or will have been paid at or prior to the Closing Date.
(s) The CPS Receivables are chattel paper as defined in the Uniform
Commercial Code as in effect in the State of California, which is the State in
which the chief executive office of CPS is located. The Samco Receivables are
chattel paper as defined in the Uniform Commercial Code as in effect in the
State of Texas, which is the State in which the chief executive office of Samco
is located. The Linc Receivables are chattel paper as defined in the Uniform
Commercial Code as in effect in the State of Connecticut, which is the State in
which the chief executive office of Linc is located.
(t) Under generally accepted accounting principles, CPS will report its
transfer of the CPS Receivables to the Company pursuant to the CPS Purchase
Agreement as a sale of the CPS Receivables, Samco will report its transfer of
the Samco Receivables to the Company pursuant to the Samco Purchase Agreement as
a sale of the Samco Receivables Linc will report its transfer of the Linc
Receivables to the Company pursuant to the Linc Purchase Agreement as a sale of
the Linc Receivables and the Company will report its transfer of the Receivables
to the Trust pursuant to the Sale 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 CPS Purchase
Agreement, the Samco Purchase Agreement, the Linc Purchase Agreement and the
Sale and Servicing Agreement will be so classified under generally accepted
accounting principles in accordance with Statement No. 77 of the Financial
Accounting Standards Board (December 1983) and with Statement No. 125 of the
Financial Accounting Standards Board (June 1996).
(u) Pursuant to the CPS Purchase Agreement, the Samco Purchase
Agreement and the Linc Purchase Agreement, CPS, Samco and Linc are transferring
to the Company ownership of the Receivables, the security interests in the
Financed Vehicles securing the Receivables, certain other property related to
the Receivables and the proceeds of each of the foregoing (collectively, the
"Trust Property"). Immediately prior to the transfer of any CPS Receivables to
the Company, CPS will be the sole owner of all right, title and interest in, and
will have good and marketable title to, the CPS Receivables. Immediately prior
to the transfer of any Samco Receivables to the Company, Samco will be the sole
owner of all right, title and interest in, and
-8-
<PAGE>
will have good and marketable title to, the Samco Receivables. Immediately prior
to the transfer of any Linc Receivables to the Company, Linc will be the sole
owner of all right, title and interest in, and has good and marketable title to,
the Linc Receivables. The assignment of the Receivables, including all the other
Conveyed Property including the proceeds thereof, to the Company pursuant to the
Purchase Agreements, vests in the Company all interests which are purported to
be conveyed thereby, free and clear of any liens, security interests or
encumbrances.
(v) Immediately prior to the transfer of any Receivables 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 Property. The
assignment of the Receivables and the other Trust Property, including all the
proceeds thereof, to the Trust pursuant to the Sale and Servicing Agreement,
vests in the Trust all interests which are purported to be conveyed thereby,
free and clear of any liens, security interests or encumbrances.
(w) Immediately prior to the transfer of any Receivables to the Trust,
the Company's interest in such Receivables and the proceeds thereof shall have
been perfected, UCC-1 financing statements (the "Financing Statements") (i)
evidencing the transfer of the CPS Receivables to the Company shall have been
filed in the Office of the Secretary of State of the State of California (the
"CPS Financing Statement"), (ii) evidencing the transfer of the Samco
Receivables to the Company shall have been filed in the Office of the Secretary
of State of the State of Texas (the "Samco Financing Statement"), (iii)
evidencing the transfer of the Linc Receivables to the Company shall have been
filed in the Office of the Secretary of State of the State of Connecticut (the
"Linc Financing Statement"), (iv) evidencing the transfer of the Receivables by
the Company to the Trust shall have been filed in the Office of the Secretary of
State of the State of California (the "Company Financing Statement"), and (v)
evidencing the pledge of the Receivables by the Trust to the Trustee shall have
been filed in the Office of the Secretary of State of the State of Delaware (the
"Trust Financing Statement") and there shall be no unreleased statements
affecting the Receivables filed in any such office other than the Financing
Statements.
(x) If a court concludes that (i) the transfer of the CPS Receivables
from CPS to the Company is a sale, then the interest of the Company in the CPS
Receivables and the proceeds thereof, will be perfected by virtue of the CPS
Financing Statement having been filed in the office of the Secretary of State of
the State of California, (ii) the transfer of the Samco Receivables from Samco
to the Company is a sale, then the interest of the Company in the Samco
Receivables and the proceeds thereof, will be perfected by virtue of the Samco
Financing Statement having been filed in the office of the Secretary of State of
the State of Texas or (iii) the transfer of the Linc Receivables from Linc to
the Company is a sale, then the interest of the Company in the Linc Receivables
and the proceeds thereof, will be perfected by virtue of the Linc Financing
Statement having been filed in the office of the Secretary of State of the State
of Connecticut.
(y) If a court concludes that (i) the transfer of the CPS Receivables
from CPS to the Company is not a sale, the CPS Purchase Agreement and the
transactions contemplated thereby
-9-
<PAGE>
constitute a grant by CPS to the Company of a valid security interest in the CPS
Receivables and the proceeds thereof, which security interest will be a first
priority perfected security interest by virtue of the CPS Financing Statement
having been filed in the office of the Secretary of State of the State of
California, (ii) the transfer of the Samco Receivables from Samco to the Company
is not a sale, the Samco Purchase Agreement and the transactions contemplated
thereby constitute a grant by Samco to the Company of a valid security interest
in the Samco Receivables and the proceeds thereof, which security interest will
be a first priority perfected security interest by virtue of the Samco Financing
Statement having been filed in the office of the Secretary of State of the State
of Texas and (iii) the transfer of the Linc Receivables from Linc to the Company
is not a sale, the Linc Purchase Agreement and the transactions contemplated
thereby constitute a grant by Linc to the Company of a valid security interest
in the Linc Receivables and the proceeds thereof, which security interest will
be a first priority perfected security interest by virtue of the Linc Financing
Statement having been filed in the office of the Secretary of State of the State
of Connecticut. No filing or other action, other than the filing of the
Financing Statements in the offices of the Secretaries of State of the States of
California, Texas and Connecticut referred to above and the execution and
delivery of the Purchase Agreements, is necessary to perfect the interest or the
security interest of the Company in the Receivables and the proceeds thereof
against third parties.
(z) If a court concludes that the transfer of the Receivables from the
Company to the Trust is a sale, then the interest of the Trust in the
Receivables, the other Trust Property and the proceeds thereof, will be a first
priority perfected security interest by virtue of the Company Financing
Statement having been filed in the office of the Secretary of State of the State
of California. If a court concludes that such transfer is not a sale, the Sale
and Servicing Agreement and the transactions contemplated thereby constitute a
grant by the Company to the Trust of a valid security interest in the
Receivables, the other Trust Property and the proceeds thereof, which security
interest will be a first priority perfected security interest by virtue of the
Company Financing Statement 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 Company Financing Statement in the office of the Secretary of
State of the State of California referred to above and the execution and
delivery of the Sale and Servicing Agreement, is necessary to perfect the
interest or the security interest of the Trust in the Receivables and the
proceeds thereof against third parties.
(aa) The security interest of the Trustee in the Receivables, the other
Trust Property and the proceeds thereof, will be a first priority perfected
security interest by virtue of the Trust Financing Statement having been filed
in the office of the Secretary of State of the State of Delaware. The Indenture
and the transactions contemplated thereby constitute a grant by the Trust to the
Trustee of a valid security interest in the Receivables, the other Trust
Property and the proceeds thereof, which security interest will be a first
priority perfected security interest by virtue of the Trust Financing Statement
having been filed in the office of the Secretary of State of the State of
Delaware. No filing or other action, other than the filing of the Trust
Financing Statement in the office of the Secretary of State of the State of
Delaware referred to above and
-10-
<PAGE>
the execution and delivery of the Indenture, is necessary to perfect the
security interest of the Trustee in the Receivables and the proceeds thereof
against third parties.
(bb) None of the Company, CPS, Samco, Linc, the Trustee or the Trust is
required to be registered as an "investment company" under the Investment
Company Act.
(cc) The Indenture has been duly qualified under the Trust Indenture
Act of 1939, as amended.
(dd) Except as disclosed in the Final Prospectus, there are no actions,
suits, proceedings or investigations pending or threatened against the Company,
CPS, Samco or Linc before any court, administrative agency or other tribunal
which would have a material adverse effect upon any of the Company, CPS, Samco
or Linc.
(ee) Each of the Company, CPS, Samco and Linc has all licenses, permits
and consents necessary to conduct its business as presently conducted and to
perform its obligations under this Agreement and the Basic Documents and none of
CPS, Samco, Linc or the Company has received notice of any pending or threatened
revocation thereof (except, in any case, to the extent that the failure to have
same is not reasonably likely to have a material adverse effect on the ability
of such party to so conduct its business or to perform its obligations under
this Agreement and the Basic Documents).
2. PURCHASE, SALE AND DELIVERY OF THE NOTES.
Subject to the terms and conditions and in reliance upon the
representations, warranties and covenants herein set forth, the Company agrees
to sell to the Underwriter, and the Underwriter agrees to purchase from the
Company, the initial principal amount of each class of the Notes as set forth in
Schedule I hereto, at the purchase price specified in Schedule I with respect to
each Class of Notes.
The Company will deliver against payment of the purchase price the
Notes in the form of one or more permanent global Notes in definitive form (the
"Global Notes") deposited with the Trustee as custodian for The Depository Trust
Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC.
Interests in any Global Notes will be held only in book-entry form through DTC
except in the limited circumstances described in the Final Prospectus. Payment
for the Notes will be made by the Underwriter by wire transfer of same day funds
to an account previously designated to the Underwriter by the Company at the
offices of [ ], at 9:30 a.m. (New York time) on [ ], or at such other time as is
mutually agreed (such time being herein referred to as the "Closing Date")
against delivery of the Global Notes representing all of the Notes. The Notes
will be made available for inspection at the above office of [ ] at least 24
hours prior to the Closing Date.
-11-
<PAGE>
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 UNDERWRITER.
(a) The Company and CPS are advised by the Underwriter that it proposes
to make a public offering of the Notes, as set forth in the Final Prospectus,
from time to time as and when the Underwriter deems advisable after the
Execution Time. The Company agrees that the Underwriter may, but is not
obligated to, make a market in the Notes and that any such market making by the
Underwriter may be discontinued at any time in the sole discretion of the
Underwriter.
(b) The Underwriter may prepare and provide to prospective investors
certain Computational Materials, ABS Term Sheets or Collateral Term Sheets in
connection with its offering of the Notes, subject to the following conditions:
(i) The Underwriter shall comply with the requirements of the
No-Action Letter of May 20, 1994 issued by the Commission to Kidder,
Peabody Acceptance Corporation I and certain affiliates, as made
applicable to other issuers and underwriters by the Commission in
response to the request of the Public Securities Association dated May
24, 1994 (collectively, the "Kidder/PSA Letter"), and the requirements
of the No-Action Letter of February 17, 1995 issued by the Commission
to the Public Securities Association (the "PSA Letter" and, together
with the Kidder/PSA Letter, the "No-Action Letters").
(ii) For purposes hereof, "Computational Materials" shall have
the meaning given such term in the No-Action Letters, but shall include
only those Computational Materials that have been prepared or delivered
to prospective investors by the Underwriter. For purposes hereof, "ABS
Term Sheets" and "Collateral Term Sheets" shall have the meanings given
such terms in the PSA Letter but shall include only those ABS Term
Sheets or Collateral Term Sheets that have been prepared or delivered
to prospective investors by the Underwriter.
(iii) The Underwriter shall provide to CPS any Computational
Materials, ABS Term Sheets or Collateral Term Sheets which are provided
to investors no later than the second Business Day preceding the date
such Computational Materials, ABS Term Sheets or Collateral Term Sheets
are required to be filed pursuant to the applicable No-Action Letters.
The Underwriter may provide copies of the foregoing in a consolidated
or aggregated form including all information required to be filed.
(iv) In the event that CPS, the Company or the Underwriter
discovers an error in the Computational Materials, ABS Term Sheets or
Collateral Term Sheets, the
-12-
<PAGE>
Underwriter shall prepare corrected Computational Materials, ABS Term
Sheets or Collateral Term Sheets and deliver it to CPS for filing
pursuant to Section 4(n).
4. COVENANTS OF THE COMPANY AND CPS.
The Company, and CPS (if so stated), covenants and agrees with the
Underwriter that:
(a) CPS has caused the Registration Statement to become effective and,
as soon as reasonably practicable, shall prepare and timely file with the
Commission under Rule 424(b) a Final Prospectus. Prior to the termination of the
offering of the Notes neither CPS nor the Company will file any amendment of the
Registration Statement or amendment or supplement (including the Final
Prospectus or any Preliminary Final Prospectus) to the Base Prospectus or any
Rule 462(b) Registration Statement unless CPS or the Company has furnished to
the Underwriter a copy for its review prior to filing and will not file any such
proposed amendment or supplement to which the Underwriter reasonably objects or
which is not in compliance with the 1933 Act Regulations. CPS or the Company
will promptly advise the Underwriter (i) when the Final Prospectus, and any
supplement thereto, shall have been filed with the Commission pursuant to Rule
424(b); (ii) when, prior to termination of the offering of the Notes, any
amendment to the Registration Statement shall have been filed or become
effective; (iii) of any request by the Commission for any amendment of the
Registration Statement or supplement to the Final Prospectus or for any other
additional information; (iv) 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 (v) of the receipt by CPS or the Company of
any notification with respect to the suspension of the qualification of the
Notes for sale in any jurisdiction or the initiation of any proceeding for such
purpose. The Company will use its best efforts to prevent the issuance of any
such stop order or the suspension of any such qualification and, if issued or
suspended, to obtain as soon as possible the withdrawal thereof.
(b) Prior to the filing thereof with the Commission, the Company will
submit to the Underwriter, for its approval after reasonable notice thereof,
such approval not to be unreasonably withheld or delayed, a copy of any
post-effective amendment to the Registration Statement, any Rule 462(b)
Registration Statement proposed to be filed or a copy of any document proposed
to be filed under the 1934 Act before the termination of the offering of the
Notes by the Underwriter 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 Underwriter
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 Underwriter may reasonably request. The Company will
deliver to the Underwriter at or before the Closing Date 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 Underwriter may from time to time reasonably
request.
-13-
<PAGE>
(d) The Company will, and will cause the Trust to, comply with the 1933
Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, so as
to permit the completion of the distribution of the Notes as contemplated in
this Agreement and the Final Prospectus. If during the period in which a
prospectus is required by law to be delivered by the Underwriter or dealer in
connection with the sale of any Notes, any event shall occur as a result of
which, in the judgment of the Company or in the reasonable opinion of the
Underwriter, 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 the
Underwriter and will promptly either (i) prepare and file, or cause to be
prepared and filed, with the Commission (at the expense of the Company) 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 Underwriter in endeavoring to
qualify the Notes for sale under the laws of such jurisdictions as the
Underwriter may designate and will maintain such qualifications in effect so
long as required for the distribution of the Notes, except that the Company will
not be obligated to qualify the Notes in any jurisdiction in which such
qualification would require the Company to qualify to do business as a foreign
corporation, file a general or unlimited consent to service of process or
subject itself to taxation in any such jurisdiction to which it is not subject.
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 Underwriter may reasonably request for
distribution of the Notes.
(f) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Notes in such a manner as would
require the Company, CPS, the Trust or the Trustee to register as an investment
company under the 1940 Act.
(g) Until the retirement of the Notes, or until such time as the
Underwriter shall cease to maintain a secondary market in the Notes, whichever
occurs first, the Company will deliver to the Underwriter the annual statements
of compliance and the annual independent certified public accountant's reports
furnished to the Trustee pursuant to the Sale and Servicing Agreement, as soon
as such statements and reports are furnished to the Trustee.
(h) The Company, CPS, Linc and Samco shall, from the date hereof
through and including the Closing Date, furnish, or cause to be furnished, or
make available, or cause to be made available, to the Underwriter or its counsel
such additional documents and information
-14-
<PAGE>
regarding each of them and their respective affairs as the Underwriter may from
time to time reasonably request and which the Company, CPS, Linc or Samco
possesses or can acquire without unreasonable effort or expense, including any
and all documentation requested in connection with the Underwriter's due
diligence efforts regarding information in the Registration Statement and the
Final Prospectus and in order to evidence the accuracy or completeness of any of
the conditions contained in this Agreement; and all actions taken by the Company
or CPS to authorize the sale of the Notes shall be reasonably satisfactory in
form and substance to the Underwriter.
(i) The Company will cause the Trust to make generally available to
Noteholders as soon as practicable, but no later than sixteen months after the
Effective Date, an earnings statement of the Trust covering a period of at least
twelve consecutive months beginning after such Effective Date and satisfying the
provisions of Section 11(a) of the Act (including Rule 158 promulgated
thereunder).
(j) So long as any of the Notes are outstanding, the Company will
furnish to the Underwriter copies of all reports or other communications
(financial or otherwise) furnished or made available to Noteholders, and deliver
to the Underwriter 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 1934 Act and (ii) such
additional information concerning the business and financial condition of the
Company, CPS, Samco and Linc as the Underwriter may from time to time reasonably
request.
(k) On or before the Closing Date, the Company, CPS, Linc and Samco
shall cause their respective computer records relating to the Receivables to be
marked to show the Trust's ownership of, and the Trustee's security interest in,
the Receivables, and from and after the Closing Date none of the Company, CPS,
Linc or Samco shall take any action inconsistent with the Trust's ownership of,
or the Trustee's security interest in, such Receivables, other than as expressly
permitted by the Sale and Servicing Agreement or any other Basic Document.
(l) To the extent, if any, that the ratings provided with respect to
the Notes by either of the Rating Agencies is conditional upon the furnishing of
documents or the taking of any other actions by the Company, CPS, Linc or Samco,
CPS shall, or shall cause the Company, Samco or Linc to, furnish such documents
and take any such other actions.
(m) On the Closing Date, the Company and CPS shall cause the Note
Insurer to issue the Policy to the Trustee for the benefit of the holders of the
Notes in form and substance satisfactory to the Underwriter.
(n) CPS shall file or cause to be filed with the Commission, in
accordance with the No-Action Letters, any Computational Materials, ABS Term
Sheets and Collateral Term Sheets provided that CPS has received such
Computational Materials, ABS Term Sheets and Collateral Term Sheets at least 2
Business Days prior to the time for filing same.
-15-
<PAGE>
5. [RESERVED]
6. COSTS AND EXPENSES.
The Company and CPS will pay upon receipt of a written request therefor
all costs, expenses and fees incident to the performance of the obligations of
the Company and CPS under this Agreement and will, jointly and severally,
reimburse the Underwriter for all reasonable out-of-pocket expenses, including
reasonable fees and disbursements of counsel, reasonably incurred in connection
with investigating, marketing and proposing to market the Notes or in
contemplation of performing the Underwriter's obligations hereunder and
including, without limiting the generality of the foregoing, the following: (i)
accounting fees of the Company; (ii) the fees and disbursements of Mayer, Brown
& Platt; (iii) the cost of printing and delivering to, or as requested by, the
Underwriter copies of the Registration Statement, the Final Prospectus, this
Agreement, the Basic Documents, the Computational Materials and the listing
application in respect of the Notes; (iv) the filing fees of the Commission; (v)
any fees charged by the Rating Agencies for rating the Notes; (vi) the fees and
expenses of the Trustee, the Owner Trustee, the Collateral Agent and the Lockbox
Processor, including the fees and disbursements of counsel for the Trustee, the
Owner Trustee, the Collateral Agent and the Lockbox Processor, in connection
with the Notes, the Sale and Servicing Agreement and the other Basic Documents
to which any of the foregoing, as applicable, is a party and the expenses,
including the fees and disbursements of counsel for the Underwriter incurred in
qualifying the Notes under State securities or Blue Sky laws; and (vii) the
initial payment of Premium under the Policy. If this Agreement shall not be
consummated because the conditions in Section 7 hereof are not satisfied, or
because this Agreement is terminated by the Underwriter pursuant to Section 12
hereof, or by reason of any failure, refusal or inability on the part of the
Company, CPS, Samco or Linc 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 shall be due to the default of the Underwriter, then the Company and CPS,
jointly and severally, shall reimburse the Underwriter for reasonable
out-of-pocket expenses, including reasonable fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Notes or in contemplation of performing their obligations hereunder
upon receipt of a written request therefor; but the Company shall not in any
event be liable to the Underwriter for damages on account of loss of anticipated
profits from the sale of the Notes. Except to the extent expressly set forth in
this Section 6, the Underwriter shall be responsible for its own costs and
expenses, including the fees and expenses of its counsel.
7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITER.
The obligations of the Underwriter to purchase and pay for the Notes on
the Closing Date are subject to the accuracy in all material respects as of the
Closing Date of the representations and warranties of the Company, CPS, Linc and
Samco contained herein, to the performance by the Company, CPS, Linc and Samco
of their respective covenants and obligations hereunder and to the following
additional conditions precedent:
-16-
<PAGE>
(a) The Registration Statement shall be effective. The Final
Prospectus, and any such supplement, shall be 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 Underwriter and
complied with to its reasonable satisfaction. No stop order suspending the
effectiveness of the Registration Statement, as amended from time to time, shall
have been issued and no proceedings for that purpose shall have been taken or,
to the knowledge of the Company, shall be contemplated by the Commission and no
injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Notes.
(b) The Underwriter shall have received a letter or letters, dated as
of the date of the Computational Materials, as of [ ], and as of the Closing
Date, respectively, of KPMG Peat Marwick LLP, Certified Public Accountants,
substantially in the form of the drafts to which the Underwriter has previously
agreed and otherwise in form and substance satisfactory to the 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 or
financial position of the Company, CPS or any Affiliate of the Company or CPS
which, in the judgment of the Underwriter, materially impairs the investment
quality of the Notes or the ability of CPS to act as Servicer or (ii) any
downgrading in the rating of any debt securities or preferred stock of the
Company, CPS or any Affiliate thereof by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Securities Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities or preferred stock of
the Company, CPS or any Affiliate thereof (other than an announcement with
positive implications of a possible upgrading, and no implication of a possible
downgrading of such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of minimum
prices for trading on such exchange, or any suspension of trading of any
securities of the Company or CPS or any Affiliate of the Company or CPS on any
exchange or in the over-the-counter market; (iv) any banking moratorium declared
by Federal, New York or California authorities; or (v) any outbreak or
escalation of major hostilities in which the United States is involved, any
declaration of war by Congress or any other substantial national or
international calamity, emergency or change in financial markets if, in the
judgment of the Underwriter, the effect of any such outbreak, escalation,
declaration, calamity, emergency or change makes it impractical or inadvisable
to market the Notes on the terms and in the manner set forth in the Final
Prospectus.
(d) The Company, CPS, Linc and Samco shall have furnished the
Underwriter with such number of conformed copies of such opinions, certificates,
letters and documents as it may reasonably request.
-17-
<PAGE>
(e) On the Closing Date, each of the Basic Documents, the Notes 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 Notes, a conformed copy thereof. The Basic Documents,
the Notes and the Certificates shall be substantially in the forms heretofore
provided to the Underwriter.
(f) The Underwriter shall have received evidence satisfactory to the
Underwriter that the Class A-1 Notes have been rated [ ] and that the Class A-2
Notes have been rated [ ].
(g) The Underwriter shall have received from Mayer, Brown & Platt,
special counsel for CPS, Samco, Linc (with respect to New York law) and the
Company, opinions dated the Closing Date, addressed to the Underwriter, in a
form satisfactory to the Underwriter.
(h) The Underwriter shall have received from Pullman & Comley LLC,
special Connecticut counsel for Linc, opinions dated the Closing Date, addressed
to the Underwriter in a form satisfactory to the Underwriter.
(i) The Underwriter shall have received from Mayer, Brown & Platt,
special Federal tax counsel for the Company, an opinion dated the Closing Date,
addressed to the Underwriter, with respect to the status of the Trust for
federal income tax purposes.
(j) The Underwriter shall have received from Mayer, Brown & Platt, an
opinion dated the Closing Date, addressed to the Underwriter, with respect to
the validity of the Notes and such other related matters as the 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) The Underwriter shall have received from counsel to the Trustee,
the Standby Servicer and the Collateral Agent (which counsel shall be reasonably
acceptable to the Underwriter), an opinion addressed to the Underwriter dated
the Closing Date, in form and substance satisfactory to the Underwriter and its
counsel.
(l) The Underwriter shall have received from counsel to the Owner
Trustee, which counsel shall be reasonably acceptable to the Underwriter, an
opinion addressed to the Underwriter, dated the Closing Date, in form and
substance satisfactory to the Underwriter and its counsel.
(m) The Underwriter shall have received from special Delaware counsel
to the Trust, which counsel shall be reasonably acceptable to the Underwriter,
an opinion addressed to the Underwriter, dated the Closing Date, in form and
substance satisfactory to the Underwriter and its counsel.
-18-
<PAGE>
(n) The Underwriter shall have received from counsel to the Insurer,
which counsel shall be reasonably acceptable to the Underwriter, an opinion
addressed to the Underwriter, dated the Closing Date, in form and substance
satisfactory to the Underwriter and its counsel.
(o) At the Closing Date, the Underwriter shall have received any and
all opinions of counsel to the Company and CPS supplied to the Rating Agencies
and the Insurer relating to, among other things, the interest of the Trustee in
the Receivables and the other Trust Property and the proceeds thereof and
certain monies due or to become due with respect thereto, certain bankruptcy
issues and certain matters with respect to the Notes. Any such opinions shall be
addressed to the Underwriter or shall indicate that the Underwriter may rely on
such opinions as though they were addressed to the Underwriter, and shall be
dated the Closing Date.
(p) At the Closing Date, the Company, CPS, Linc and Samco shall have
furnished to the Underwriter a certificate, dated the Closing Date, of the
President, the Chief Financial Officer or any Vice President of the Company,
CPS, Linc or Samco, as the case may be, in which each such officer shall state
that: (i) the representations and warranties of the Company, CPS, Linc or Samco,
as applicable, in this Agreement are true and correct on and as of the Closing
Date; (ii) the Company, CPS, Linc or Samco, as applicable, has complied with all
agreements and satisfied all conditions on its part required to be performed or
satisfied hereunder and under each of the other Basic Documents at or prior to
the Closing Date; (iii) the representations and warranties of the Company, CPS,
Linc or Samco, as applicable, in each of the Basic Documents are true and
correct as of the dates specified therein; (iv) with respect to the certificate
delivered by CPS, the Registration Statement has become effective under the 1933
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for such purpose have been taken or are, to
his or her knowledge, contemplated by the Commission; (v) with respect to the
certificates delivered by CPS and the Company, he or she has carefully examined
the Registration Statement and the Final Prospectus and, in his or her opinion,
as of the Effective Date of the Registration Statement, the statements contained
in the Registration Statement and the statements contained in the Final
Prospectus were true and correct, and as of the Closing Date the Registration
Statement and the Final Prospectus do not contain any untrue statement of a
material fact or omit to state a material fact with respect to the Company, CPS,
Linc or Samco 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, CPS, Linc or Samco which should have been set forth in a
supplement to or an amendment of the Final Prospectus which has not been so set
forth in such supplement or amendment; and (vi) with respect to the certificate
delivered by the Company and CPS, subsequent to the respective dates as of which
information is given in the Registration Statement and the Final Prospectus,
there has been no material adverse change, or any development with respect to
the Company, CPS, Linc or Samco which could reasonably be expected to result in
a material adverse change, in or affecting particularly the business or
properties of the Trust, the Company, CPS, Linc or Samco except as contemplated
by the Final Prospectus or as described in such certificate.
-19-
<PAGE>
(q) The Underwriter shall have received evidence satisfactory to the
Underwriter that the Insurer shall have issued the Policy to the Trustee for the
benefit of the Noteholders in form and substance satisfactory to the
Underwriter.
(r) The Underwriter shall have received evidence satisfactory to it
that, on or before the Closing Date, the Financing Statements have been filed in
(i) the office of the Secretary of State of the State of California reflecting
the sale and assignment of the CPS Receivables and the related other Trust
Property and the proceeds thereof to the Company, (ii) the office of the
Secretary of State of the State of Texas reflecting the sale and assignment of
the Samco Receivables and the related other Trust Property and the proceeds
thereof to the Company, (iii) the office of the Secretary of State of the State
of Connecticut reflecting the sale and assignment of the Linc Receivables and
the related other Trust Property and the proceeds thereof to the Company, (iv)
the office of the Secretary of State of California reflecting the sale and
assignment of the Receivables and the related other Trust Property and the
proceeds thereof to the Trust and (v) the office of the Secretary of State of
Delaware reflecting the grant of a security interest by the Trust in the
Receivables and the related other Trust Property and the proceeds thereof to the
Trustee.
(s) All proceedings in connection with the transactions contemplated by
this Agreement, the Sale 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 the Underwriter.
(t) The Company shall have furnished to the Underwriter such further
certificates and documents confirming the representations and warranties,
covenants and conditions contained herein and related matters as the Underwriter
may reasonably have requested.
(u) The Underwriter shall have received a certificate of the Owner
Trustee regarding the execution of the Notes. The Underwriter shall have
received a certificate of the Trustee regarding the acceptance and
authentication of the Notes.
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 Underwriter and to counsel for
the Underwriter.
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 Underwriter hereunder may be terminated by the
Underwriter 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
Underwriter shall not be under any obligation to each other (except to the
extent provided in Sections 6 and 9 hereof).
-20-
<PAGE>
8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of the
Notes required to be delivered as and when specified in this Agreement are
subject to the condition that, at the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and in effect
or proceedings therefor initiated or threatened.
9. INDEMNIFICATION.
(a) (i) The Company and CPS, jointly and severally, agree to indemnify
and hold harmless the Underwriter, its directors, officers, employees and agents
and each person, if any, who controls the Underwriter within the meaning of the
1933 Act or the 1934 Act, against any losses, claims, damages or liabilities to
which the 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 (A)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, the Base Prospectus, the Final Prospectus, or any
amendment or supplement thereto (other than information contained therein under
the heading "the Insurer" and information incorporated by reference under such
heading), or (B) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made; and
will reimburse the Underwriter and each such person within 30 days of
presentation of a written request therefor for any legal or other expenses
reasonably incurred by the Underwriter in connection with investigating or
defending any such loss, claim, damage or liability, action or proceeding or in
responding to a subpoena or governmental inquiry related to the offering of the
Notes, whether or not the Underwriter or such person is a party to any action or
proceeding; provided, however, that neither the Company nor CPS will be liable
in any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement,
or omission or alleged omission made in the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus, the Final Prospectus or any
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company or CPS, as the case may be, by the
Underwriter specifically for use therein; provided, further, 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
any Computational Materials, ABS Term Sheets or Collateral Term Sheets, except
to the extent expressly provided in (ii) below. 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 the Underwriter if the 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
-21-
<PAGE>
thereto to the 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.
(ii) The Company and CPS, jointly and severally, agree to
indemnify and hold harmless the Underwriter, its directors, officers, employees
and agents and each person, if any, who controls the Underwriter within the
meaning of the 1933 Act or the 1934 Act, to the same extent as the indemnity
from each of the Company and CPS contained in (i) above, against any losses,
claims, damages or liabilities to which such person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are based upon
(A) any untrue statement or alleged untrue statement of any material fact
contained in the Computational Materials, any ABS Term Sheet or any Collateral
Term Sheet provided by the Underwriter or (B) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances in
which they were made, not misleading (in each case, to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission
results from the failure of the Company Provided Information to be accurate in
all material respects); and will reimburse each such party within 30 days of
written request therefor for any legal or other expenses reasonably incurred by
such person in connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related thereto, whether or not such person is a party to
any action or proceeding. The obligations of each of the Company and CPS under
this subsection (ii) shall be in addition to any other liability which such
party may otherwise have. "Company Provided Information" means the information
contained in the data tape delivered by CPS to the Underwriter on or about [ ]
containing information with respect to the Receivables as of the Cutoff Date.
(b) (i) The Underwriter will indemnify and hold harmless each of CPS,
Samco, Linc and the Company, each of their directors, officers, employees and
agents and each person, if any, who controls CPS, Samco, Linc or 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 the Underwriter, its
directors, officers, employees and agents and each person who controls the
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 the
Underwriter specifically for use therein. This indemnity agreement will be in
addition to any liability which the Underwriter may otherwise have. CPS, Samco,
Linc, the Company and the Underwriter acknowledge and agree that the only
information furnished or to be furnished by the Underwriter to the Company or
CPS 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 first
sentence of the fourth
-22-
<PAGE>
paragraph on the front cover page and in the last paragraph on the front cover
page of the Final Prospectus concerning the terms of the offering by the
Underwriter (insofar as such information relates to the Underwriter), and the
information in the first and second sentences of the third paragraph under the
caption "Underwriting" in the Final Prospectus and in the second sentence of the
fourth paragraph under the caption "Underwriting" in the Final Prospectus.]
(ii) The Underwriter agrees to indemnify and hold harmless the
Company, CPS, Samco, Linc, the respective officers, directors, employees and
agents of any such party, and each person who controls the Company, CPS, Samco
or Linc within the meaning of the 1933 Act or the 1934 Act against any losses,
claims, damages or liabilities to which such person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are based upon
(A) any untrue statement or alleged untrue statement of any material fact
contained in the Computational Materials, any ABS Term Sheet or any Collateral
Term Sheet distributed by the Underwriter or (B) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances in which they were made (except, in each case, to the extent that
such untrue statement or alleged untrue statement or omission or alleged
omission results from the failure of the Company Provided Information to be
accurate in all material respects); and will reimburse each such party within 30
days of written request therefor for any legal or other expenses reasonably
incurred by such person in connection with investigating or defending any such
loss, claim, damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related thereto, whether or not such person is
a party to any action or proceeding. The obligations of the Underwriter under
this subsection (ii) shall be in addition to any other liability which the
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 indemnity or contribution or otherwise
than on account of the provisions of Section 9(a) or (b), except and only to the
extent such omission so to notify shall have materially prejudiced the
indemnifying party under Section 9(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation of an invoice)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified
-23-
<PAGE>
party shall have mutually agreed to the retention of such counsel, (ii) the
indemnified party has reasonably concluded (based on advice of counsel) that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(iii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them or (iv) the indemnifying party shall
have failed to assume the defense and employ counsel acceptable to the
indemnified party within a reasonable period of time after notice of
commencement of the action. It is understood that the indemnifying party shall
not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by the Underwriter 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 is 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 for 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, CPS,
Samco and Linc on the one hand and the Underwriter on the other hand from the
offering of the Notes. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company, CPS, Samco or Linc on the one hand
and the Underwriter on the other hand 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, CPS,
Samco and Linc on the one hand and the Underwriter on the other hand shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriter (in each case
as set forth on the cover page of the Final Prospectus). The relative fault
shall be determined by
-24-
<PAGE>
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, CPS, Samco or Linc on the one
hand or the Underwriter on the other hand and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, CPS, Samco, Linc and the Underwriter agree that it would
not be just and equitable if contributions pursuant to this Section 9(d) were
determined by pro rata allocation 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) the Underwriter shall not be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Notes
purchased by the 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.
(e) In any proceeding relating to the Registration Statement, the Base
Prospectus, any Preliminary Final Prospectus, the Final Prospectus, or any
supplement or amendment thereto, each party against whom contribution may be
sought under this Section 9 hereby consents to the jurisdiction of any court
having jurisdiction over any other contributing party, agrees that process
issuing from such court may be served upon it by any other contributing party
and consents to the service of such process and agrees that any other
contributing party may join it as an additional defendant in any such proceeding
in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
obligations of the Company and CPS pursuant to Section 6, the indemnity and
contribution agreements contained in this Section 9 and the representations and
warranties of each of the Company, CPS, Samco and Linc 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 the Underwriter, the Company, CPS,
Samco, Linc, their respective directors, officers, employees or agents or any
persons controlling the Underwriter, CPS, Samco, Linc or the Company, (ii)
acceptance of any Notes and payment thereof or hereunder, and (iii) any
termination of this Agreement. A successor to the Underwriter, the Company,
Samco, Linc or CPS, their respective directors, officers, employees or agents,
or any person controlling the Underwriter, the Company, Samco, Linc or CPS,
shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 9.
-25-
<PAGE>
10. [RESERVED]
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 Underwriter, to the following address:
[ ]
if to the Company, at the following address:
CPS Receivables Corp.
2 Ada
Irvine, California 92618
Attention: Charles Bradley, Jr.
Facsimile No.: (714) 753-6805;
-26-
<PAGE>
if to CPS, at the following address:
Consumer Portfolio Services, Inc.
2 Ada
Irvine, California 92618
Attention: Charles Bradley, Jr.
Facsimile No.: (714) 753-6805
if to Samco, at the following address:
Samco Acceptance Corp.
8150 N. Central Expressway
Suite 600
Lock-Box 39
Dallas, Texas 75206
Attention: Alex B. Louis
Facsimile No.: (214) 691-2166
if to Linc, at the following address:
Linc Acceptance Company LLC
One Selleck Street
Norwalk, Connecticut 06855
Attention: Joe Gilbert
Facsimile No.: (203) 838-7390
12. TERMINATION.
This Agreement may be terminated by the Underwriter by notice to the
Company as follows:
(a) at any time prior to the Closing Date, if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Final Prospectus, any material adverse change or
any development involving a prospective material adverse change in the business,
properties, results of operations, financial condition or business prospects of
CPS, Samco, Linc or the Company, whether or not arising in the ordinary course
of business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or crisis
or change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the financial
markets of the United States would, in the Underwriter's reasonable judgment,
make it impracticable to market the Notes or to enforce contracts for the sale
of the Notes, (iii) any suspension of trading in securities generally on the New
York Stock Exchange or
-27-
<PAGE>
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
the Underwriter's reasonable opinion materially and adversely affects or may
materially and adversely affect the business or operations of the Company or
CPS, (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 or CPS'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 the Underwriter's reasonable opinion has a
material adverse effect on the securities markets in the United States; or
(b) as provided in Section 7 of this Agreement.
13. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriter, CPS, Samco, Linc and the Company and their respective successors,
executors, administrators, heirs and assigns, and the respective affiliates,
officers, directors, employees, agents and controlling persons referred to
herein, and no other person will have any right or obligation hereunder. No
purchaser of any of the Notes from the Underwriter shall be deemed a successor
or assign merely because of such purchase.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement, the obligations of the Company and CPS under
Section 6 and the representations, warranties and covenants in this Agreement
shall remain in full force and effect regardless of (a) any termination of this
Agreement, (b) any investigation made by or on behalf of the Underwriter, the
Company or CPS, their respective directors, officers, employees or agents or any
controlling person of the Underwriter, the Company or CPS indemnified herein and
(c) delivery of and payment for the Notes under this Agreement.
The 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.
-28-
<PAGE>
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York without regard to the conflict of laws
provisions thereof. With respect to any claim arising out of this Agreement (i)
each party irrevocably submits to the exclusive jurisdiction of the courts of
the State of New York and the United States District Court for the Southern
District of New York, and (ii) each party irrevocably waives (1) any objection
which it may have at any time to the laying of venue of any suit, action or
proceeding arising out of or relating hereto brought in any such court, (2) any
claim that any such suit, action or proceeding brought in any such court has
been brought in any inconvenient forum and (3) the right to object, with respect
to such claim, suit, action or proceeding brought in any such court, that such
court does not have jurisdiction over such party. To the extent permitted by
applicable law, the Underwriter, the Company, Samco, Linc 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.]
-29-
<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, CPS, Samco, Linc
and the Underwriter in accordance with its terms.
Very truly yours,
CPS RECEIVABLES CORP.
By:
Title:
CONSUMER PORTFOLIO SERVICES, INC.
By:
Title:
SAMCO ACCEPTANCE CORP.
By:
Title:
LINC ACCEPTANCE COMPANY LLC
By:
Title:
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written:
[UNDERWRITER]
By:
Title:
<PAGE>
SCHEDULE I
Principal Amount Purchase
Class to be Purchased Price
- ----- --------------- -----
Total
Exhibit 4.1
FORM OF
TRUST AGREEMENT
TRUST AGREEMENT
Dated as of [ ]
between
CPS RECEIVABLES CORP., as Depositor
and
[ ], as
Owner Trustee
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms............................................1
SECTION 1.2. Other Definitional Provisions................................3
ARTICLE II.
Organization
SECTION 2.1. Name.........................................................4
SECTION 2.2. Office.......................................................4
SECTION 2.3. Purposes and Powers..........................................4
SECTION 2.4. Appointment of Owner Trustee.................................5
SECTION 2.5. Initial Capital Contribution of Trust Estate.................5
SECTION 2.6. Declaration of Trust.........................................5
SECTION 2.7. Title to Trust Property......................................6
SECTION 2.8. Situs of Trust...............................................6
SECTION 2.9. Representations and Warranties of the Depositor..............6
SECTION 2.10. Federal Income Tax Allocations...............................7
SECTION 2.11. Covenants of the Depositor...................................8
SECTION 2.12. Covenants of the Certificateholders..........................9
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership...........................................10
SECTION 3.2. The Certificates............................................10
SECTION 3.3. Authentication of Certificates..............................10
SECTION 3.4. Registration of Transfer and Exchange of Certificates.......11
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates...........14
SECTION 3.6. Persons Deemed Certificateholders...........................14
SECTION 3.7. Access to List of Certificateholders' Names and
Addresses...................................................15
SECTION 3.8. Maintenance of Office or Agency.............................15
SECTION 3.9. ERISA Restrictions..........................................15
<PAGE>
Page
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to Certain
Matters.....................................................15
SECTION 4.2. Action by Certificateholders with Respect to Certain
Matters.....................................................16
SECTION 4.3. Action by Certificateholders with Respect to
Bankruptcy..................................................16
SECTION 4.4. Restrictions on Certificateholders' Power...................16
SECTION 4.5. Majority Control............................................17
SECTION 4.6. Rights of Insurer...........................................17
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholders, the Internal Revenue Service and
Others......................................................18
SECTION 5.2. Signature on Returns; Tax Matters Partner...................18
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority...........................................19
SECTION 6.2. General Duties..............................................19
SECTION 6.3. Action upon Instruction.....................................19
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions................................................20
SECTION 6.5. No Action Except under Basic Documents or
Instructions................................................21
SECTION 6.6. Restrictions................................................21
<PAGE>
Page
ARTICLE VII.
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties.............................21
SECTION 7.2. Furnishing of Documents.....................................22
SECTION 7.3. Representations and Warranties..............................23
SECTION 7.4. Reliance; Advice of Counsel.................................23
SECTION 7.5. Not Acting in Individual Capacity...........................23
SECTION 7.6. Owner Trustee Not Liable for Certificates or
Receivables.................................................24
SECTION 7.7. Owner Trustee May Own Certificates and Notes................24
SECTION 7.8. Payments from Owner Trust Estate............................24
SECTION 7.9. Doing Business in other Jurisdictions.......................24
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses...........................25
SECTION 8.2. Indemnification.............................................25
SECTION 8.3. Payments to the Owner Trustee...............................25
SECTION 8.4. Non-recourse Obligations....................................26
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement..............................26
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee..................27
SECTION 10.2. Resignation or Removal of Owner Trustee.....................28
SECTION 10.3. Successor Owner Trustee.....................................28
SECTION 10.4. Merger or Consolidation of Owner Trustee....................29
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee...............29
<PAGE>
Page
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments..................................31
SECTION 11.2. No Legal Title to Owner Trust Estate in
Certificateholders..........................................32
SECTION 11.3. Limitations on Rights of Others.............................32
SECTION 11.4. Notices.....................................................32
SECTION 11.5. Severability................................................33
SECTION 11.6. Separate Counterparts.......................................33
SECTION 11.7. Assignments; Insurer........................................33
SECTION 11.8. No Petition.................................................33
SECTION 11.9. No Recourse.................................................34
SECTION 11.10. Headings....................................................34
SECTION 11.11. GOVERNING LAW...............................................34
SECTION 11.12. Servicer....................................................34
EXHIBITS
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
Exhibit C Form of Transferee Certificate
<PAGE>
TRUST AGREEMENT dated as of [ ] between CPS RECEIVABLES CORP., a
California corporation (the "Depositor") [ ] as Owner Trustee.
W I T N E S S E T H
In consideration of the foregoing, other good and valuable
considerations, and the mutual terms and covenants contained herein, the parties
hereto agree as follows:
ARTICLE I.
Definitions
SECTION 1.1. Capitalized Terms. Terms not defined in this Agreement
shall have the meaning set forth in the Sale and Servicing Agreement and if not
defined therein, shall have the meanings set forth in the Indenture. For all
purposes of this Agreement, the following terms shall have the meanings set
forth below:
"Agreement" shall mean this Trust Agreement, as the same may be amended
or supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Certificate of Trust,
the Sale and Servicing Agreement, the Purchase Agreements, the Spread Account
Agreement, the Spread Account Agreement Supplement, the Insurance Agreement, the
Indenture, the Lockbox Agreement, the Underwriting Agreement and the other
documents and certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in Section
3.10.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss.ss. 3801 et. seq. as the same may be amended from
time to time.
"Certificate" means a trust certificate evidencing the beneficial
interest of a Certificateholder in the Trust, substantially in the form of
Exhibit A attached hereto.
"Certificate Balance" means, as of any date of determination, the Pool
Balance as of such date minus the outstanding principal balance of the Notes as
of such date.
"Certificate of Trust" shall mean the Certificate of Trust in the form
of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of the
Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean the
register mentioned and the registrar appointed pursuant to Section 3.4.
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and Treasury Regulations promulgated thereunder.
"Corporate Trust Office" shall mean, with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee located at [ ], or at
such other address as the Owner Trustee may designate by notice to the
Certificateholders and the Depositor, or the principal corporate trust office of
any successor Owner Trustee (the address of which the successor owner trustee
will notify the Certificateholders and the Depositor).
"Depositor" shall mean CPS Receivables Corp. in its capacity as
Depositor hereunder.
"ERISA" shall have the meaning assigned to such term in Section 3.10.
"Expenses" shall have the meaning assigned to such term in Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose name a
Certificate is registered on the Certificate Register.
"Indemnified Parties" shall have the meaning assigned to such term in
Section 8.2.
"Indenture" shall mean the Indenture dated as of [ ], among the Trust
and [ ], as Trustee, as the same may be amended and supplemented from time to
time.
"Initial Certificate Balance" means [$ ].
"Instructing Party" shall have the meaning assigned to such term in
Section 6.3(a).
"Insurer" shall mean Financial Security Assurance Inc., or its
successor in interest.
"Owner Trust Estate" shall mean all right, title and interest of the
Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and all other property of the Trust from time to
time, including any rights of the Owner Trustee and the Trust pursuant to the
Sale and Servicing Agreement and the Spread Account Agreement.
"Owner Trustee" shall mean [ ], not in its individual capacity but
solely as owner trustee under this Agreement, and any successor Owner Trustee
hereunder.
"Paying Agent" shall mean [ ].
"Record Date" shall mean with respect to any Payment Date, the close of
business on the 10th day of the calendar month of such Payment Date.
2
<PAGE>
"Responsible Officer" when used with respect to the Owner Trustee, any
officer (or agent acting under a power of attorney) who is responsible for
administering the transactions contemplated by this Trust Agreement and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Sale and Servicing Agreement" shall mean the Sale and Servicing
Agreement among the Trust, the Depositor, Consumer Portfolio Services, Inc. and
the Trustee, dated as of [ ] as the same may be amended and supplemented from
time to time.
"Secretary of State" shall mean the Secretary of State of the State of
Delaware.
"Spread Account" shall mean the Spread Account established and
maintained pursuant to the Spread Account Agreement.
"Spread Account Agreement" shall mean the Master Spread Account
Agreement, amended and restated as of [ ], among the Depositor, the Insurer, and
the Trustee, as the same may be amended, supplemented or otherwise modified in
accordance with the terms thereof.
"Treasury Regulations" shall mean regulations, including proposed or
temporary regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trustee" means the Person acting as Trustee under the Indenture, its
successors in interest and any successor trustee under the Indenture.
SECTION 1.2. Other Definitional Provisions. (a) Capitalized terms used
herein and not otherwise defined have the meanings assigned to them in the Sale
and Servicing Agreement or, if not defined therein, in the Spread Account
Agreement or in the Indenture.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto or thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles as in effect on the date of
this Agreement or any such certificate or other document, as applicable. To the
extent
3
<PAGE>
that the definitions of accounting terms in this Agreement or in any such
certificate or other document are inconsistent with the meanings of such terms
under generally accepted accounting principles, the definitions contained in
this Agreement or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
ARTICLE II.
Organization
SECTION 2.1. Name. There is hereby formed a trust to be known as "CPS
Auto Receivables Trust 199[ ]-[ ]", in which name the Owner Trustee may conduct
the business of the Trust, make and execute contracts and other instruments on
behalf of the Trust and sue and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care of the
Owner Trustee at the Corporate Trust Office or at such other address as the
Owner Trustee may designate by written notice to the Certificateholders and the
Depositor.
SECTION 2.3. Purposes and Powers. (a) The purpose of the Trust is, and
the Trust shall have the power and authority, to engage in the following
activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement;
(ii) to pay the organizational, start-up and transactional
expenses of the Trust pursuant to the Sale and Servicing Agreement;
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate to the Trustee pursuant to the Indenture for the
benefit of the Insurer and the Noteholders and to hold, manage and
distribute to the Certificateholders and the Depositor pursuant to the
terms of the Sale and Servicing Agreement any portion of the Owner
Trust Estate released from the Lien of, and remitted to the Trust
pursuant to, the Indenture;
4
<PAGE>
(iv) to enter into and perform its obligations under the Basic
Documents to which it is a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to accomplish
the foregoing or are incidental thereto or connected therewith; and
(vi) subject to compliance with the Basic Documents, to engage
in such other activities as may be required in connection with the
conservation of the Owner Trust Estate and the making of distributions
to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4. Appointment of Owner Trustee. The Depositor hereby
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate. The
Depositor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $10.00. The Owner Trustee hereby
acknowledges receipt of the foregoing contribution in trust from the Depositor,
as of the date hereof, which contribution shall constitute the initial Owner
Trust Estate. The Depositor shall pay organizational expenses of the Trust as
they may arise.
SECTION 2.6. Declaration of Trust. The Owner Trustee hereby declares
that it will hold the Owner Trust Estate in trust upon and subject to the
conditions set forth herein for the use and benefit of the Certificateholders,
subject to the conditions of the Trust under the Basic Documents. It is the
intention of the parties hereto that the Trust constitute a business trust under
the Business Trust Statute and that this Agreement constitute the governing
instrument of such business trust. It is the intention of the parties hereto
that (i) so long as the Depositor is the Holder of 100 percent of the
Certificates (either directly or indirectly through wholly-owned non-corporate
subsidiaries), for federal income tax purposes and to the extent consistent with
the laws of any other jurisdiction for which the characterization of the Trust
as an entity is relevant, the Trust shall be treated solely as a security device
and not as an entity separate from the Depositor, and (ii) if the Depositor is
not the Holder of 100 percent of the Certificates (either directly or indirectly
through wholly-owned non-corporate subsidiaries), then for federal income tax
purposes and for purposes of the laws of any other jurisdiction for which the
characterization of the Trust as an entity is relevant, the Trust shall be
treated as a partnership among the Certificateholders and the Depositor and not
as an association (or publicly traded partnership) taxable as a corporation. The
parties agree that, unless otherwise required by appropriate tax authorities,
the Trust will file or cause to be filed annual or other necessary returns,
reports and other forms, if any, consistent with such characterization of the
5
<PAGE>
Trust. Effective as of the date hereof, the Owner Trustee shall have all rights,
powers and duties set forth herein and to the extent not inconsistent herewith,
in the Business Trust the Certificate of Trust with the Secretary of State.
SECTION 2.7. Title to Trust Property. (a) Legal title to all the Owner
Trust Estate shall be vested at all times in the Trust as a separate legal
entity except where applicable law in any jurisdiction requires title to any
part of the Owner Trust Estate to be vested in a trustee or trustees, in which
case title shall be deemed to be vested in the Owner Trustee, a co-trustee
and/or a separate trustee, as the case may be.
(b) The Holders shall not have legal title to any part of the Owner
Trust Estate. The Holders shall be entitled to receive distributions in respect
of their undivided ownership interest therein only in accordance with Article
IX. No transfer, by operation of law or otherwise, of any right, title or
interest by any Certificateholder of its ownership interest in the Owner Trust
Estate shall operate to terminate this Agreement or the trusts hereunder or
entitle any transferee to an accounting or the transfer to it of legal title to
any part of the Owner Trust Estate.
SECTION 2.8. Situs of Trust. The Trust will be located and administered
in the State of Delaware or the State of New York. All bank accounts maintained
by the Owner Trustee on behalf of the Trust shall be located in the State of
Delaware, the State of New York or the State of Minnesota. Payments will be
received by the Trust only in Delaware, New York or Minnesota and payments will
be made by the Trust only from Delaware, New York or Minnesota. The Trust shall
not have any employees in any state other than Delaware or New York; provided,
however, that nothing herein shall restrict or prohibit the Owner Trustee or the
Servicer or any agent of the Trust from having employees within or without the
State of Delaware and New York. The only office of the Trust will be at the
Corporate Trust Office in Delaware.
SECTION 2.9. Representations and Warranties of the Depositor. The
Depositor makes the following representations and warranties on which the Owner
Trustee relies in accepting the Owner Trust Estate in trust and issuing the
Certificates and upon which the Insurer relies in issuing the Note Policy.
(a) Organization and Good Standing. The Depositor is duly
organized and validly existing as a California corporation with power
and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted
and is proposed to be conducted pursuant to this Agreement and the
Basic Documents.
(b) Due Qualification. The Depositor is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of its property, the
6
<PAGE>
conduct of its business and the performance of its obligations under
this Agreement and the Basic Documents requires such qualification.
(c) Power and Authority. The Depositor has the corporate power
and authority to execute and deliver this Agreement and to carry out
its terms; the Depositor has full power and authority to sell and
assign the property to be sold and assigned to, and deposited with, the
Trust and the Depositor has duly authorized such sale and assignment
and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement has been duly
authorized by the Depositor by all necessary corporate action.
(d) No Consent Required. No consent, license, approval or
authorization or registration or declaration with, any Person or with
any governmental authority, bureau or agency is required in connection
with the execution, delivery or performance of this Agreement and the
Basic Documents, except for such as have been obtained, effected or
made.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the fulfillment of the terms hereof
do not conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse of time)
a default under, the certificate of incorporation or by-laws of the
Depositor, or any material indenture, agreement or other instrument to
which the Depositor is a party or by which it is bound; nor result in
the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other
instrument (other than pursuant to the Basic Documents); nor violate
any law or, to the best of the Depositor's knowledge, any order, rule
or regulation applicable to the Depositor of any court or of any
Federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Depositor or
its properties.
(f) No Proceedings. There are no proceedings or investigations
pending or, to its knowledge, threatened against it before any court,
regulatory body, administrative agency or other tribunal or
governmental instrumentality having jurisdiction over it or its
properties (A) asserting the invalidity of this Agreement or any of the
Basic Documents, (B) seeking to prevent the issuance of the
Certificates or the Notes or the consummation of any of the
transactions contemplated by this Agreement or any of the Basic
Documents, (C) seeking any determination or ruling that might
materially and adversely affect its performance of its obligations
under, or the validity or enforceability of, this Agreement or any of
the Basic Documents, or (D) seeking to adversely affect the federal
income tax or other federal, state or local tax attributes of the
Certificates.
SECTION 2.10. Federal Income Tax Allocations. (a) For purposes of the
laws of any jurisdiction for which the Trust is characterized as a partnership
(consistent with the
7
<PAGE>
characterization of the Trust described in Section 2.6 above), the following
allocations shall apply for Federal income tax purposes. Net income of the Trust
for any month as determined for Federal income tax purposes (and each item of
income, gain, loss and deduction entering into the computation thereof) shall be
allocated among the Holders of Certificates as of the close of business on the
last day of such month, in proportion to their ownership of the principal amount
of the Certificates on such date. Net losses of the Trust, if any, for any month
as determined for Federal income tax purposes (and each item of income, gain,
loss and deduction entering into the computation thereof) shall be allocated to
the Depositor, to the extent it is reasonably expected to bear the economic
burden of such net losses, and any remaining net losses shall be allocated among
the other Holders of Certificates as of the close of business on the last day of
such month in proportion to their ownership of principal amount of Certificates
on such day. The Depositor is authorized to modify the allocations in this
paragraph if necessary or appropriate, in its sole discretion, for the
allocations to fairly reflect the economic income, gain or loss to the Holders
of Certificates, or as otherwise required by the Code. Notwithstanding anything
provided in this Section 2.10(a), if all Certificates are held solely by the
Depositor, the application of this Section 2.10(a) shall be disregarded.
(b) One hundred percent of the "excess nonrecourse liabilities" of the
Trust represented by all outstanding Classes of Notes shall be allocated, for
purposes of Treasury Regulations section 1.752-3(3), to the Depositor.
SECTION 2.11. Covenants of the Depositor. The Depositor agrees and
covenants for the benefit of each Certificateholder, the Insurer and the Owner
Trustee, during the term of this Agreement, and to the fullest extent permitted
by applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as
permitted by its certificate of incorporation and the Basic Documents;
(b) it shall not, for any reason, institute proceedings for
the Trust to be adjudicated a bankrupt or insolvent, or consent to the
institution of bankruptcy or insolvency proceedings against the Trust,
or file a petition seeking or consenting to reorganization or relief
under any applicable federal or state law relating to the bankruptcy of
the Trust, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the
Trust or a substantial part of the property of the Trust or cause or
permit the Trust to make any assignment for the benefit of creditors,
or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the
debt of the Trust or take any action in furtherance of any such action;
(c) it shall obtain from each counterparty to each Basic
Document to which it or the Trust is a party and each other agreement
entered into on or after the date hereof to which it or the Trust is a
party, an agreement by each such counterparty that
8
<PAGE>
prior to the occurrence of the event specified in Section 9.1(e) such
counterparty shall not institute against, or join any other Person in
instituting against, it or the Trust, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or other similar
proceedings under the laws of the United States or any state of the
United States; and
(d) it shall not, for any reason, withdraw or attempt to
withdraw from this Agreement, dissolve, institute proceedings for it to
be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against it, or file a petition
seeking or consenting to reorganization or relief under any applicable
federal or state law relating to bankruptcy, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of it or a substantial part of its
property, or make any assignment for the benefit of creditors, or admit
in writing its inability to pay its debts generally as they become due,
or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
SECTION 2.12. Covenants of the Certificateholders. Each
Certificateholder by its acceptance of a Certificate agrees:
(a) to be bound by the terms and conditions of the
Certificates of which such party is the record or beneficial owner and
of this Agreement, including any supplements or amendments hereto and
to perform the obligations of a Holder as set forth therein or herein,
in all respects as if it were a signatory hereto. This undertaking is
made for the benefit of the Trust, the Owner Trustee, the Insurer and
all other Holders present and future;
(b) to hereby appoint the Depositor as its agent and
attorney-in-fact to sign any federal income tax information return
filed on behalf of the Trust and agree that, if requested by the Trust,
it will sign such federal income tax information return in its capacity
as a Holder of an interest in the Trust. Each Holder also hereby agrees
that in its tax returns it will not take any position inconsistent with
those taken in any tax returns filed by the Trust;
(c) if such Holder is other than an individual or other entity
holding its Certificate through a broker who reports securities sales
on Form 1099-B, to notify the Owner Trustee of any transfer by it of a
Certificate or a beneficial interest in a Certificate in a taxable sale
or exchange, within 30 days of the date of the transfer; and
(d) until the completion of the events specified in Section
9.1(e), not to, for any reason, institute proceedings for the Trust or
the Depositor to be adjudicated a bankrupt or insolvent, or consent to
the institution of bankruptcy or insolvency proceedings against the
Trust, or file a petition seeking or consenting to reorganization or
relief under any applicable federal or state law relating to
bankruptcy, or consent to
9
<PAGE>
the appointment of a receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Trust or a substantial
part of its property, or cause or permit the Trust to make any
assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or declare or
effect a moratorium on its debt or take any action in furtherance of
any such action.
ARTICLE III.
Certificates and Transfer of Interests
SECTION 3.1. Initial Ownership. Upon the formation of the Trust by the
contribution by the Depositor pursuant to Section 2.5 and until the issuance of
the Certificates, the Depositor shall be the sole beneficiary of the Trust.
SECTION 3.2. The Certificates. The Certificates shall be issued
initially to the Depositor with a Certificate Balance of [$ ]. Certificates
shall be issued in minimum denominations of $1,000 and integral multiples
thereof (except for one Certificate which may be issued in a denomination other
than an integral multiple of $1,000). The Certificates shall be executed on
behalf of the Trust by manual or facsimile signature of an authorized officer of
the Owner Trustee. Certificates bearing the manual or facsimile signatures of
individuals who were, at the time when such signatures shall have been affixed,
authorized to sign on behalf of the Trust, shall be validly issued and entitled
to the benefit of this Agreement, notwithstanding that such individuals or any
of them shall have ceased to be so authorized prior to the authentication and
delivery of such Certificates or did not hold such offices at the date of
authentication and delivery of such Certificates. A transferee of a Certificate
shall become a Certificateholder, and shall be entitled to the rights and
subject to the obligations of a Certificateholder hereunder, upon due
registration of such Certificate in such transferee's name pursuant to Section
3.4.
SECTION 3.3. Authentication of Certificates. Concurrently with the
initial sale of the Receivables to the Trust pursuant to the Sale and Servicing
Agreement, the Owner Trustee shall cause the Certificates with an aggregate
Certificate Balance equal to $4,807,160.19 to be executed on behalf of the
Trust, authenticated and delivered upon the written order of the Depositor,
signed by its chairman of the board, its president or any vice president, its
treasurer or any assistant treasurer without further corporate action by the
Depositor, in authorized denominations. No Certificate shall entitle its holder
to any benefit under this Agreement, or shall be valid for any purpose, unless
there shall appear on such Certificate a certificate of authentication
substantially in the form set forth in Exhibit A, executed by the Owner Trustee
or the Owner Trustee's authentication agent, by manual signature; such
authentication shall constitute conclusive evidence that such Certificate shall
have been duly authenticated and delivered hereunder. All Certificates shall be
dated the date of their authentication. Bankers Trust Company shall be the
initial authentication agent of the Owner Trustee and all
10
<PAGE>
references herein to the authentication of Certificates shall be deemed to
include the authentication agent.
SECTION 3.4. Registration of Transfer and Exchange of Certificates. (a)
The Certificate Registrar shall keep or cause to be kept, at the office or
agency maintained pursuant to Section 3.8, a Certificate Register in which,
subject to such reasonable regulations as it may prescribe, the Owner Trustee
shall provide for the registration of Certificates and of transfers and
exchanges of Certificates as herein provided. Bankers Trust Company shall be the
initial Certificate Registrar.
(b) The Certificate Registrar shall provide the Paying Agent with a
list of the names and addresses of the Certificateholders on the Closing Date in
the form in which such information is provided to the Certificate Registrar.
Upon any transfers of Certificates, the Certificate Registrar shall promptly
notify the Paying Agent (if other than the Certificate Registrar) of the name
and address of the transferee in writing, by facsimile.
(c) No transfer of a Certificate shall be made unless (i) the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and any applicable State securities laws are complied with,
(ii) such transfer is exempt from the registration requirements under said
Securities Act and laws or (iii) such transfer is made to a Person who the
transferor reasonably believes is a "qualified institutional buyer" (as defined
in Rule 144A of the Securities Act) that is purchasing such Certificate for its
own account or the account of a qualified institutional buyer to whom notice is
given that the transfer is being made in reliance on said Rule 144A. In the
event that a transfer is to be made in reliance upon clause (ii) above, the
Certificateholder desiring to effect such transfer and such Certificateholder's
prospective transferee must each (x) certify in writing to the Certificate
Registrar the facts surrounding such transfer and (y) provide the Certificate
Registrar with a written opinion of counsel in form and substance satisfactory
to the Depositor and the Certificate Registrar that such transfer may be made
pursuant to an exemption from the Securities Act or laws, which Opinion of
Counsel shall not be an expense of the Depositor or the Certificate Registrar.
In the event that a transfer is to be made in reliance upon clause (iii) above,
the prospective transferee shall have furnished to the Certificate Registrar and
the Depositor a Transferee Certificate, signed by such transferee, in the form
of Exhibit C. Neither the Depositor nor the Certificate Registrar is under any
obligation to register the Certificates under said Securities Act or any other
securities law. The Certificate Registrar may request and shall receive in
connection with any transfer signature guarantees satisfactory to it in its sole
discretion.
(d) In no event shall a Certificate be transferred to an employee
benefit plan, trust annuity or account subject to ERISA or a plan described in
Section 4975(e)(1) of the Code (any such plan, trust or account including any
Keogh (HR-10) plans, individual retirement accounts or annuities and other
employee benefit plans subject to Section 406 of ERISA or Section 4975 of the
Code being referred to in this Section 6.3 as an "Employee Plan"), a trustee of
any Employee Plan, or an entity, account or other pooled investment fund the
underlying assets of which include or are deemed to include Employee Plan assets
by reason
11
<PAGE>
of an Employee Plan's investment in the entity, account or other pooled
investment fund. The Seller, the Servicer, the Trustee, the Owner Trustee, the
Insurer and the Standby Servicer shall not be responsible for confirming or
otherwise investigating whether a proposed purchaser is an employee benefit
plan, trust or account subject to ERISA, or described in Section 4975(e)(1) of
the Code.
(e) Each Holder of a Certificate, except the Depositor, if the
Depositor is the Holder of a Certificate, by virtue of the acquisition and
holding thereof, will be deemed to have represented and agreed as follows:
(i) It is a qualified institutional buyer as defined in Rule
144A or an institutional accredited investor as defined in Regulation D
promulgated under the Securities Act and is acquiring the Certificates
for its own institutional account or for the account of a qualified
institutional buyer or an institutional accredited investor.
(ii) It understands that the Certificates have been offered in
a transaction not involving any public offering within the meaning of
the Securities Act, and that, if in the future it decides to resell,
pledge or otherwise transfer any Certificates, such Certificates may be
resold, pledged or transferred only (a) to a person whom the seller
reasonably believes is a qualified institutional buyer (as defined in
Rule 144A under the Securities Act) that purchases for its own account
or for the account of a qualified institutional buyer to whom notice is
given that the resale, pledge or transfer is being made in reliance on
Rule 144A, (b) pursuant to an effective registration statement under
the Securities Act or (c) in reliance on another exemption under the
Securities Act.
(iii) It understands that the Certificates will bear a legend
substantially to the following effect:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES THAT THIS
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT
TO RULE 144A, TO A PERSON WHOM THE TRANSFEROR REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING
OF RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER
TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER
TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, AND SUBJECT
TO THE RECEIPT BY THE CERTIFICATE REGISTRAR AND THE DEPOSITOR
OF A TRANSFEREE CERTIFICATE, (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER
12
<PAGE>
THE SECURITIES ACT OR (3) IN RELIANCE ON ANOTHER EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
SUBJECT TO THE RECEIPT BY THE CERTIFICATE REGISTRAR AND THE
DEPOSITOR, OF A CERTIFICATION OF THE TRANSFEREE (SATISFACTORY
TO THE CERTIFICATE REGISTRAR AND THE DEPOSITOR) AND AN OPINION
OF COUNSEL (SATISFACTORY TO THE CERTIFICATE REGISTRAR AND THE
DEPOSITOR) TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
AND IN COMPLIANCE WITH THE TRANSFER REQUIREMENTS SET FORTH IN
SECTION 3.4 OF THE TRUST AGREEMENT.
IN NO EVENT SHALL THIS SECURITY BE TRANSFERRED TO AN
EMPLOYEE BENEFIT PLAN, TRUST ANNUITY OR ACCOUNT SUBJECT TO
ERISA OR A PLAN DESCRIBED IN SECTION 4975(E)(1) OF THE CODE,
(ANY SUCH PLAN, TRUST OR ACCOUNT BEING REFERRED TO AS AN
"EMPLOYEE PLAN"), A TRUSTEE OF ANY EMPLOYEE PLAN, OR AN
ENTITY, ACCOUNT OR OTHER POOLED INVESTMENT FUND THE UNDERLYING
ASSETS OF WHICH INCLUDE OR ARE DEEMED TO INCLUDE EMPLOYEE PLAN
ASSETS BY REASON OF AN EMPLOYEE PLAN'S INVESTMENT IN THE
ENTITY, ACCOUNT OR OTHER POOLED INVESTMENT FUND. INCLUDED
WITHIN THE DEFINITION OF "EMPLOYEE PLANS" ARE, WITHOUT
LIMITATION, KEOGH (HR-10) PLANS, IRA's (INDIVIDUAL RETIREMENT
ACCOUNTS OR ANNUITIES) AND OTHER EMPLOYEE BENEFIT PLANS,
SUBJECT TO SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE.
(iv) It has not acquired the Certificates with the assets of
an Employee Plan.
(f) Upon surrender for registration of transfer of any Certificate at
the office or agency maintained pursuant to Section 3.8, the Owner Trustee shall
execute, authenticate and deliver (or shall cause its authenticating agent to
authenticate and deliver), in the name of the designated transferee or
transferees, one or more new Certificates in authorized denominations of a like
class and aggregate Certificate Balance dated the date of authentication by the
Owner Trustee or any authenticating agent. At the option of a Holder,
Certificates may be exchanged for other Certificates of the same class in
authorized denominations of a like aggregate Certificate Balance upon surrender
of the Certificates to be exchanged at the office or agency maintained pursuant
to Section 3.8.
(g) Every Certificate presented or surrendered for registration of
transfer or exchange shall be accompanied by a written instrument of transfer in
form satisfactory to the Owner
13
<PAGE>
Trustee and the Certificate Registrar duly executed by the Certificateholder or
his attorney duly authorized in writing, with such signature guaranteed by an
"eligible guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in the
Securities Transfer Agent's Medallion Program ("STAMP") or such other "signature
guarantee program" as may be determined by the Certificate Registrar in addition
to, or in substitution for, STAMP, all in accordance with the Exchange Act. Each
Certificate surrendered for registration of transfer or exchange shall be
canceled and subsequently disposed of by the Owner Trustee in accordance with
its customary practice.
(h) No service charge shall be made for any registration of transfer or
exchange of Certificates, but the Owner Trustee or the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates. If (a)
any mutilated Certificate shall be surrendered to the Certificate Registrar, or
if the Certificate Registrar shall receive evidence to its satisfaction of the
destruction, loss or theft of any Certificate and (b) there shall be delivered
to the Certificate Registrar, the Owner Trustee and (unless an Insurer Default
shall have occurred and be continuing) the Insurer, such security or indemnity
as may be required by them to save each of them harmless, then in the absence of
notice that such Certificate shall have been acquired by a bona fide purchaser,
the Owner Trustee on behalf of the Trust shall execute and the Owner Trustee, or
the Owner Trustee's authenticating agent, shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like class, tenor and denomination. In
connection with the issuance of any new Certificate under this Section, the
Owner Trustee or the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
shall constitute conclusive evidence of an ownership interest in the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 3.6. Persons Deemed Certificateholders. Every Person by virtue
of becoming a Certificateholder in accordance with this Agreement and the rules
and regulations of the Clearing Agency shall be deemed to be bound by the terms
of this Agreement. Prior to due presentation of a Certificate for registration
of transfer, the Owner Trustee, the Certificate Registrar and the Insurer and
any agent of the Owner Trustee, the Certificate Registrar and the Insurer, may
treat the Person in whose name any Certificate shall be registered in the
Certificate Register as the owner of such Certificate for the purpose of
receiving distributions pursuant to the Sale and Servicing Agreement and for all
other purposes whatsoever, and none of the Owner Trustee, the Certificate
Registrar or the Insurer nor any agent of the Owner Trustee, the Certificate
Registrar or the Insurer shall be bound by any notice to the contrary.
14
<PAGE>
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.
The Certificate Registrar shall furnish or cause to be furnished to the
Servicer, the Depositor or (unless an Insurer Default shall have occurred and be
continuing) the Insurer, within 15 days after receipt by the Certificate
Registrar of a request therefor from such Person in writing, a list, of the
names and addresses of the Certificateholders as of the most recent Record Date.
If three or more Holders of Certificates or one or more Holders of Certificates
evidencing not less than 25% of the Certificate Balance then outstanding apply
in writing to the Certificate Registrar, and such application states that the
applicants desire to communicate with other Certificateholders with respect to
their rights under this Agreement or under the Certificates and such application
is accompanied by a copy of the communication that such applicants propose to
transmit, then the Certificate Registrar shall, within five Business Days after
the receipt of such application, afford such applicants access during normal
business hours to the current list of Certificateholders. Each Holder, by
receiving and holding a Certificate or a beneficial interest therein, shall be
deemed to have agreed not to hold any of the Depositor, the Servicer, the Owner
Trustee, the Certificate Registrar or the Insurer or any agent thereof
accountable by reason of the disclosure of its name and address, regardless of
the source from which such information was derived.
SECTION 3.8. Maintenance of Office or Agency. The Trust shall maintain
in New York, an office or offices or agency or agencies where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trust in respect of the Certificates and the Basic
Documents may be served. The Trust initially designates [ ] at [ ] as its
principal corporate trust office for such purposes. The Owner Trustee shall give
prompt written notice to the Depositor, the Certificateholders and (unless an
Insurer Default shall have occurred and be continuing) the Insurer of any change
in the location of the Certificate Register or any such office or agency.
SECTION 3.9. ERISA Restrictions. The Certificates may not be acquired
by or for the account of (i) an employee benefit plan (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as
amended, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its ownership interest in its Certificate, the Holder
thereof shall be deemed to have represented and warranted that it is not a
Benefit Plan.
ARTICLE IV.
Voting Rights and Other Actions
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters.
With respect to the following matters, the Owner Trustee shall not take action
unless at least 30 days before the taking of such action, the Owner Trustee
shall have notified the Certificateholders
15
<PAGE>
in writing of the proposed action and the Certificateholders shall not have
notified the Owner Trustee in writing prior to the 30th day after such notice is
given that such Certificateholders have withheld consent or provided alternative
direction:
(a) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed
under the Business Trust Statute or unless such amendment would not
materially and adversely affect the interests of the Holders);
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Certificateholder is
required;
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Certificateholder is not
required and such amendment materially adversely affects the interest
of the Certificateholders; or
(d) except pursuant to Section 13.1(b) of the Sale and
Servicing Agreement, the amendment, change or modification of the Sale
and Servicing Agreement, except to cure any ambiguity or defect or to
amend or supplement any provision in a manner that would not materially
adversely affect the interests of the Certificateholders.
The Depositor shall notify the Certificateholders in writing of any appointment
of a successor Note Registrar, Trustee or Certificate Registrar within five
Business Days thereof.
SECTION 4.2. Action by Certificateholders with Respect to Certain
Matters. The Owner Trustee shall not have the power, except upon the direction
of the Certificateholders or the Insurer in accordance with the Basic Documents,
to (a) remove the Servicer under the Sale and Servicing Agreement pursuant to
Section 10.1 thereof or (b) except as expressly provided in the Basic Documents,
sell the Receivables after the termination of the Indenture. The Owner Trustee
shall take the actions referred to in the preceding sentence only upon written
instructions signed by the Certificateholders and the furnishing of
indemnification satisfactory to the Owner Trustee by the Certificateholders.
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy.
The Owner Trustee shall not have the power to, and shall not, commence any
proceeding or other actions contemplated by Section 2.12(d) relating to the
Trust without the prior written consent of the Insurer (unless an Insurer
Default shall have occurred and be continuing) and the unanimous prior approval
of all Certificateholders and the delivery to the Owner Trustee by each
Certificateholder of a certificate signed by such Certificateholder, certifying
that such Certificateholder reasonably believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholders' Power. (a) The
Certificateholders shall not direct the Owner Trustee to take or refrain from
taking any action if such action or inaction would be contrary to any obligation
of the Trust or the Owner Trustee under this
16
<PAGE>
Agreement or any of the Basic Documents or would be contrary to Section 2.3 nor
shall the Owner Trustee be obligated to follow any such direction, if given.
(b) No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action, or
proceeding in equity or at law upon or under or with respect to this Agreement
or any Basic Document, unless the Certificateholders are the Instructing Party
pursuant to Section 6.3 and unless a Certificateholder previously shall have
given to the Owner Trustee a written notice of default and of the continuance
thereof, as provided in this Agreement, and also unless Certificateholders
evidencing not less than 25% of the Certificate Balance then outstanding shall
have made written request upon the Owner Trustee to institute such action, suit
or proceeding in its own name as Owner Trustee under this Agreement and shall
have offered to the Owner Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby,
and the Owner Trustee, for 30 days after its receipt of such notice, request,
and offer of indemnity, shall have neglected or refused to institute any such
action, suit, or proceeding, and during such 30-day period no request or waiver
inconsistent with such written request has been given to the Owner Trustee
pursuant to and in compliance with this Section or Section 6.3; it being
understood and intended, and being expressly covenanted by each
Certificateholder with every other Certificateholder and the Owner Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb, or prejudice the rights of the Holders of any
other of the Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner provided in this Agreement and for the equal,
ratable, and common benefit of all Certificateholders. For the protection and
enforcement of the provisions of this Section 4.4, each and every
Certificateholder and the Owner Trustee shall be entitled to such relief as can
be given either at law or in equity.
SECTION 4.5. Majority Control. No Certificateholder shall have any
right to vote or in any manner otherwise control the operation and management of
the Trust except as expressly provided in this Agreement. Except as expressly
provided herein, any action that may be taken by the Certificateholders under
this Agreement may be taken by the Holders of Certificates evidencing not less
than a majority of the aggregate Certificate Balance. Except as expressly
provided herein, any written notice of the Certificateholders delivered pursuant
to this Agreement shall be effective if signed by Certificateholders evidencing
not less than a majority of the Certificate Balance at the time of the delivery
of such notice.
SECTION 4.6. Rights of Insurer. Notwithstanding anything to the
contrary in the Basic Documents, without the prior written consent of the
Insurer (so long as no Insurer Default shall have occurred and be continuing),
the Owner Trustee shall not (i) remove the Servicer, (ii) initiate any claim,
suit or proceeding by the Trust or compromise any claim, suit or proceeding
brought by or against the Trust, other than with respect to the enforcement of
any Receivable or any rights of the Trust thereunder, (iii) authorize the merger
or
17
<PAGE>
consolidation of the Trust with or into any other business trust or other entity
(other than in accordance with Section 3.10 of the Indenture) or (iv) amend the
Certificate of Trust.
ARTICLE V.
Certain Duties
SECTION 5.1. Accounting and Records to the Noteholders,
Certificateholders, the Internal Revenue Service and Others. Subject to Sections
12.1(b)(iii) and 12.1(c) of the Sale and Servicing Agreement, the Depositor
shall (a) maintain (or cause to be maintained) the books of the Trust on a
calendar year basis on the accrual method of accounting, (b) deliver (or cause
to be delivered) to each Certificateholder, as may be required by the Code and
applicable Treasury Regulations, such information, if any, as may be required
(including, if appropriate consistent with the characterization of the Trust
pursuant to Section 2.6, Schedule K-1) to enable each Certificateholder to
prepare its Federal and state income tax returns, (c) file or cause to be filed
such tax returns, if any, relating to the Trust (including, if appropriate
consistent with the characterization of the Trust pursuant to Section 2.6, a
partnership information return on Internal Revenue Service Form 1065), and
direct the Servicer to make such elections as may from time to time be required
or appropriate under any applicable state or Federal statute or rule or
regulation thereunder so as to maintain the Trust's characterization pursuant to
Section 2.6 for Federal income and California franchise tax purposes and for
purposes of any other jurisdiction for which the characterization of the Trust
is relevant. In any period in which the Paying Agent receives written notice
that the Trust is not treated solely as a security device in accordance with the
provisions of Section 2.6, the Paying Agent will, in accordance with Section
1446 of the Code and Rev. Proc. 89-31, 1989- 1 C.B. 895 thereunder, collect or
cause to be collected any withholding tax as described in and in accordance with
Section 5.5 with respect to income or distributions to Certificateholders and
the appropriate forms relating thereto. The Depositor shall make all elections
pursuant to this Section. The Depositor shall have the power to sign all tax
information returns filed pursuant to this Section 5.1 and any other returns as
may be required by law, to the extent it is legally entitled to do so. In the
event the Trust is treated as a partnership for federal income tax purposes, the
Depositor shall elect under Section 1278 of the Code to include in income
currently any market discount that accrues with respect to the Receivables. None
of the Trust, the Depositor nor any Person on behalf of the Trust or the
Depositor shall make the election provided under Section 754 of the Code.
SECTION 5.2. Signature on Returns; Tax Matters Partner. (a) The
Depositor shall sign on behalf of the Trust the tax returns of the Trust, unless
applicable law requires a Certificateholder to sign such documents.
(b) In the event the Trust is treated as a partnership for federal
income tax purposes, the Depositor shall be the "tax matters partner" of the
Trust pursuant to the Code.
18
<PAGE>
ARTICLE VI.
Authority and Duties of Owner Trustee
SECTION 6.1. General Authority. The Owner Trustee is authorized and
directed to execute and deliver the Basic Documents to which the Trust is named
as a party and each certificate or other document attached as an exhibit to or
contemplated by the Basic Documents to which the Trust is named as a party and
any amendment thereto, in each case, in such form as the Depositor shall approve
as evidenced conclusively by the Owner Trustee's execution thereof, and on
behalf of the Trust, to direct the Trustee to authenticate and deliver Class A-1
Notes in the aggregate principal amount of [$ ], Class A-2 Notes in the
aggregate principal amount of [$ ]. [Describe additional classes of Notes, if
any.] In addition to the foregoing, the Owner Trustee is authorized but shall
not be obligated, to take all actions required of the Trust pursuant to the
Basic Documents. The Owner Trustee is further authorized from time to time to
take such action as the Instructing Party recommends with respect to the Basic
Documents so long as such activities are consistent with the terms of the Basic
Documents.
SECTION 6.2. General Duties. It shall be the duty of the Owner Trustee
to discharge (or cause to be discharged) all of its responsibilities pursuant to
the terms of this Agreement and the Sale and Servicing Agreement and to
administer the Trust in the interest of the Holders, subject to the Basic
Documents and in accordance with the provisions of this Agreement.
Notwithstanding the foregoing, the Owner Trustee shall be deemed to have
discharged its duties and responsibilities hereunder and under the Basic
Documents to the extent the Servicer has agreed in the Sale and Servicing
Agreement to perform any act or to discharge any duty of the Trust or the Owner
Trustee hereunder or under any Basic Document, and the Owner Trustee shall not
be liable for the default or failure of the Servicer to carry out its
obligations under the Sale and Servicing Agreement.
SECTION 6.3. Action upon Instruction. (a) Subject to Article IV and the
terms of the Spread Account Agreement, the Insurer (so long as an Insurer
Default shall not have occurred and be continuing) or the Certificateholders (if
an Insurer Default shall have occurred and be continuing) (the "Instructing
Party") shall have the exclusive right to direct the actions of the Owner
Trustee in the management of the Trust, so long as such instructions are not
inconsistent with the express terms set forth herein or in any Basic Document.
The Instructing Party shall not instruct the Owner Trustee in a manner
inconsistent with this Agreement or the Basic Documents.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
19
<PAGE>
(c) Whenever the Owner Trustee is unable to decide between alternative
courses of action permitted or required by the terms of this Agreement or any
Basic Document, the Owner Trustee shall promptly give notice (in such form as
shall be appropriate under the circumstances) to the Instructing Party
requesting instruction as to the course of action to be adopted, and to the
extent the Owner Trustee acts in good faith in accordance with any written
instruction received from the Instructing Party, the Owner Trustee shall not be
liable on account of such action to any Person. If the Owner Trustee shall not
have received appropriate instruction within ten days of such notice (or within
such shorter period of time as reasonably may be specified in such notice or may
be necessary under the circumstances) it may, but shall be under no duty to,
take or refrain from taking such action, not inconsistent with this Agreement or
the Basic Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
(d) In the event that the Owner Trustee is unsure as to the application
of any provision of this Agreement or any Basic Document or any such provision
is ambiguous as to its application, or is, or appears to be, in conflict with
any other applicable provision, or in the event that this Agreement permits any
determination by the Owner Trustee or is silent or is incomplete as to the
course of action that the Owner Trustee is required to take with respect to a
particular set of facts, the Owner Trustee may give notice (in such form as
shall be appropriate under the circumstances) to the Instructing Party
requesting instruction and, to the extent that the Owner Trustee acts or
refrains from acting in good faith in accordance with any such instruction
received, the Owner Trustee shall not be liable, on account of such action or
inaction, to any Person. If the Owner Trustee shall not have received
appropriate instruction within 10 days of such notice (or within such shorter
period of time as reasonably may be specified in such notice or may be necessary
under the circumstances) it may but shall be under no duty to, take or refrain
from taking such action not inconsistent with this Agreement or the Basic
Documents as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement or in
Instructions. The Owner Trustee shall not have any duty or obligation to manage,
make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any United States Securities and Exchange
Commission filing for the Trust or to record this Agreement or any Basic
Document.
20
<PAGE>
SECTION 6.5. No Action Except under Basic Documents or Instructions.
The Owner Trustee shall not manage, control, use, sell, dispose of or otherwise
deal with any part of the Owner Trust Estate except (i) in accordance with the
powers granted to and the authority conferred upon the Owner Trustee pursuant to
this Agreement, (ii) in accordance with the Basic Documents and (iii) in
accordance with any document or instruction delivered to the Owner Trustee
pursuant to Section 6.3.
SECTION 6.6. Restrictions. The Owner Trustee shall not take any action
(a) that is inconsistent with the purposes of the Trust set forth in Section 2.3
or (b) that, to the actual knowledge of the Owner Trustee, would result in the
Trust's becoming taxable as a corporation for Federal income tax purposes or for
the purposes of any applicable state tax on corporations. The Certificateholders
shall not direct the Owner Trustee to take action that would violate the
provisions of this Section.
ARTICLE VII.
Concerning the Owner Trustee
SECTION 7.1. Acceptance of Trusts and Duties. The Owner Trustee accepts
the trusts hereby created and agrees to perform its duties hereunder with
respect to such trusts but only upon the terms of this Agreement. The Owner
Trustee also agrees to disburse all moneys actually received by it constituting
part of the Owner Trust Estate upon the terms of the Basic Documents and this
Agreement. The Owner Trustee shall not be answerable or accountable hereunder or
under any Basic Document under any circumstances, except (i) for its own willful
misconduct, bad faith or negligence, (ii) in the case of the inaccuracy of any
representation or warranty contained in Section 7.3 expressly made by the Owner
Trustee, (iii) for liabilities arising from the failure of the Owner Trustee to
perform obligations expressly undertaken by it in the last sentence of Section
6.4 hereof, (iv) for any investments issued by the Owner Trustee or any branch
or affiliate thereof in its commercial capacity or (v) for taxes, fees or other
charges on, based on or measured by, any fees, commissions or compensation
received by the Owner Trustee. In particular, but not by way of limitation (and
subject to the exceptions set forth in the preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment made by a Responsible Officer of the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in accordance with the
instructions of the Instructing Party, the Servicer or any
Certificateholder;
(c) no provision of this Agreement or any Basic Document shall
require the Owner Trustee to expend or risk funds or otherwise incur
any financial liability in the performance of any of its rights or
powers hereunder or under any Basic Document if
21
<PAGE>
the Owner Trustee shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured or provided to it;
(d) under no circumstances shall the Owner Trustee be liable
for indebtedness evidenced by or arising under any of the Basic
Documents, including the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Depositor or for the form, character,
genuineness, sufficiency, value or validity of any of the Owner Trust
Estate or for or in respect of the validity or sufficiency of the Basic
Documents, other than the certificate of authentication on the
Certificates, and the Owner Trustee shall in no event assume or incur
any liability, duty or obligation to the Insurer, Trustee, the
Collateral Agent, any Noteholder or to any Certificateholder, other
than as expressly provided for herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Depositor, the Insurer, the Trustee or the Servicer
under any of the Basic Documents or otherwise and the Owner Trustee
shall have no obligation or liability to perform the obligations under
this Agreement or the Basic Documents that are required to be performed
by the Depositor under this Agreement, the Insurer or the Trustee under
the Note Policy, by the Trustee under the Indenture or the Trustee or
the Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to
institute, conduct or defend any litigation under this Agreement or
otherwise or in relation to this Agreement or any Basic Document, at
the request, order or direction of the Instructing Party or any of the
Certificateholders, unless such Instructing Party or Certificateholders
have offered to the Owner Trustee security or indemnity satisfactory to
it against the costs, expenses and liabilities that may be incurred by
the Owner Trustee therein or thereby. The right of the Owner Trustee to
perform any discretionary act enumerated in this Agreement or in any
Basic Document shall not be construed as a duty, and the Owner Trustee
shall not be answerable for other than its negligence, bad faith or
willful misconduct in the performance of any such act.
SECTION 7.2. Furnishing of Documents. The Owner Trustee shall furnish
to the Certificateholders promptly upon receipt of a written request therefor,
duplicates or copies of all reports, notices, requests, demands, certificates,
financial statements and any other instruments furnished to the Owner Trustee
under the Basic Documents.
22
<PAGE>
SECTION 7.3. Representations and Warranties. The Owner Trustee hereby
represents and warrants to the Depositor, the Holders and the Insurer (which
shall have relied on such representations and warranties in issuing the Note
Policy), that:
(a) It is a banking corporation, duly organized and validly
existing in good standing under the laws of the State of Delaware. It
has all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement
will be executed and delivered by one of its officers who is duly
authorized to execute and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated
hereby nor compliance by it with any of the terms or provisions hereof
will contravene or constitute any default under its charter documents
or by-laws.
SECTION 7.4. Reliance; Advice of Counsel. (a) The Owner Trustee shall
incur no liability to anyone in acting upon any signature, instrument, notice,
resolution, request, consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed by it to be signed
by the proper party or parties. The Owner Trustee may accept a certified copy of
a resolution of the board of directors or other governing body of any corporate
party as conclusive evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to any fact or matter the
method of the determination of which is not specifically prescribed herein, the
Owner Trustee may for all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer, secretary or other
authorized officers of the relevant party, as to such fact or matter, and such
certificate shall constitute full protection to the Owner Trustee for any action
taken or omitted to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder and in
the performance of its duties and obligations under this Agreement or the Basic
Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and the Owner
Trustee shall not be liable for the conduct or misconduct of such agents or
attorneys if such agents or attorneys shall have been selected by the Owner
Trustee with reasonable care, and (ii) may consult with counsel, accountants and
other skilled persons to be selected with reasonable care and employed by it.
The Owner Trustee shall not be liable for anything done, suffered or omitted in
good faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and according to such opinion not
contrary to this Agreement or any Basic Document.
SECTION 7.5. Not Acting in Individual Capacity. Except as provided in
this Article VII, in accepting the trusts hereby created Bankers Trust
(Delaware) acts solely as Owner
23
<PAGE>
Trustee hereunder and not in its individual capacity and all Persons having any
claim against the Owner Trustee by reason of the transactions contemplated by
this Agreement or any Basic Document shall look only to the Owner Trust Estate
for payment or satisfaction thereof.
SECTION 7.6. Owner Trustee Not Liable for Certificates or Receivables.
The recitals contained herein and in the Certificates (other than the signature
and countersignature of the Owner Trustee on the Certificates) shall be taken as
the statements of the Depositor and the Owner Trustee assumes no responsibility
for the correctness thereof. The Owner Trustee makes no representations as to
the validity or sufficiency of this Agreement, of any Basic Document or of the
Certificates (other than the signature and countersignature of the Owner Trustee
on the Certificates) or the Notes, or of any Receivable or related documents.
The Owner Trustee shall at no time have any responsibility or liability for or
with respect to the legality, validity and enforceability of any Receivable, or
the perfection and priority of any security interest created by any Receivable
in any Financed Vehicle or the maintenance of any such perfection and priority,
or for or with respect to the sufficiency of the Owner Trust Estate or its
ability to generate the payments to be distributed to Certificateholders under
this Agreement or the Noteholders under the Indenture, including, without
limitation: the existence, condition and ownership of any Financed Vehicle; the
existence and enforceability of any insurance thereon; the existence and
contents of any Receivable on any computer or other record thereof; the validity
of the assignment of any Receivable to the Trust or of any intervening
assignment; the completeness of any Receivable; the performance or enforcement
of any Receivable; the compliance by the Depositor, the Servicer or any other
Person with any warranty or representation made under any Basic Document or in
any related document or the accuracy of any such warranty or representation or
any action of the Trustee or the Servicer or any subservicer taken in the name
of the Owner Trustee.
SECTION 7.7. Owner Trustee May Own Certificates and Notes. The Owner
Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates or Notes and may deal with the Depositor, the Trustee and the
Servicer in banking transactions with the same rights as it would have if it
were not Owner Trustee.
SECTION 7.8. Payments from Owner Trust Estate. All payments to be made
by the Owner Trustee under this Agreement or any of the Basic Documents to which
the Trust or the Owner Trustee is a party shall be made only from the income and
proceeds of the Owner Trust Estate and only to the extent that the Owner Trust
shall have received income or proceeds from the Owner Trust Estate to make such
payments in accordance with the terms hereof. [ ], or any successor thereto, in
its individual capacity, will not be liable for any amounts payable under this
Agreement or any of the Basic Documents to which the Trust or the Owner Trustee
is a party.
SECTION 7.9. Doing Business in other Jurisdictions. Notwithstanding
anything herein contained to the contrary, neither [ ] nor any successor
thereto, nor the Owner Trustee shall be required to take any action in any
jurisdiction other than in the State of Delaware if the taking of such action
will, even after the appointment of a co-trustee or
24
<PAGE>
separate trustee in accordance with Section 10.5 hereof, (i) require the consent
or approval or authorization or order of or the giving of notice to, or the
registration with or the taking of any other action in respect of, any state or
other governmental authority or agency of any jurisdiction other than the State
of Delaware; (ii) result in any fee, tax or other governmental charge under the
laws of the State of Delaware becoming payable by [ ] (or any successor
thereto); or (iii) subject [ ] (or any successor thereto) to personal
jurisdiction in any jurisdiction other than the State of Delaware for causes of
action arising from acts unrelated to the consummation of the transactions by [
] (or any successor thereto) or the Owner Trustee, as the case may be,
contemplated hereby.
ARTICLE VIII.
Compensation of Owner Trustee
SECTION 8.1. Owner Trustee's Fees and Expenses. The Owner Trustee shall
receive at the direction of the Depositor as compensation for its services
hereunder such fees as have been separately agreed upon before the date hereof
between CPS and the Owner Trustee, and the Owner Trustee shall be entitled to be
reimbursed by the Depositor for its other reasonable expenses hereunder,
including the reasonable compensation, expenses and disbursements of such
agents, representatives, experts and counsel as the Owner Trustee may employ in
connection with the exercise and performance of its rights and its duties
hereunder and under the Basic Documents.
SECTION 8.2. Indemnification. The Depositor shall be liable as primary
obligor for, and shall indemnify the Owner Trustee and its officers, directors,
successors, assigns, agents and servants (collectively, the "Indemnified
Parties") from and against, any and all liabilities, obligations, losses,
damages, taxes, claims, actions and suits, and any and all reasonable costs,
expenses and disbursements (including reasonable legal fees and expenses) of any
kind and nature whatsoever (collectively, "Expenses") which may at any time be
imposed on, incurred by, or asserted against the Owner Trustee or any
Indemnified Party in any way relating to or arising out of this Agreement, the
Basic Documents, the Owner Trust Estate, the administration of the Owner Trust
Estate or the action or inaction of the Owner Trustee hereunder, except only
that the Depositor shall not be liable for or required to indemnify the Owner
Trustee from and against Expenses arising or resulting from any of the matters
described in the third sentence of Section 7.1. The indemnities contained in
this Section 8.2 and the rights under Section 8.1 shall survive the resignation
or termination of the Owner Trustee or the termination of this Agreement.
SECTION 8.3. Payments to the Owner Trustee. Any amounts paid to the
Owner Trustee pursuant to this Article VIII shall be deemed not to be a part of
the Owner Trust Estate immediately after such payment.
25
<PAGE>
SECTION 8.4. Non-recourse Obligations. Notwithstanding anything in this
Agreement or any Basic Document, the Owner Trustee agrees in its individual
capacity and in its capacity as Owner Trustee for the Trust that all obligations
of the Trust to the Owner Trustee individually or as Owner Trustee for the Trust
shall be recourse to the Owner Trust Estate only and specifically shall not be
recourse to the assets of any Certificateholder.
ARTICLE IX.
Termination of Trust Agreement
SECTION 9.1. Termination of Trust Agreement. (a) This Agreement and the
Trust shall terminate and be of no further force or effect upon the latest of
(i) the maturity or other liquidation of the last Receivable (including the
purchase by the Servicer at its option of the corpus of the Trust as described
in Section 11.1 of the Sale and Servicing Agreement) and the subsequent
distribution of amounts in respect of such Receivables as provided in the Basic
Documents, or (ii) the payment to Certificateholders of all amounts required to
be paid to them pursuant to this Agreement and the Sale and Servicing Agreement
and the payment to the Insurer of all amounts payable or reimbursable to it
pursuant to the Sale and Servicing Agreement; provided, however, that the rights
to indemnification under Section 8.2 and the rights under Section 8.1 shall
survive the termination of the Trust. The Servicer shall promptly notify the
Owner Trustee and the Insurer of any prospective termination pursuant to this
Section 9.1. The bankruptcy, liquidation, dissolution, death or incapacity of
any Certificateholder shall not (x) operate to terminate this Agreement or the
Trust, nor (y) entitle such Certificateholder's legal representatives or heirs
to claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Owner Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Except as provided in clause (a), neither the Depositor nor any
Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the Payment Date
upon which the Certificateholders shall surrender their Certificates to the
Paying Agent for payment of the final distribution and cancellation, shall be
given by the Paying Agent by letter to Certificateholders mailed within five
Business Days of receipt of notice of such termination from the Servicer given
pursuant to Section 11.1(c) of the Sale and Servicing Agreement, stating (i) the
Payment Date upon or with respect to which final payment of the Certificates
shall be made upon presentation and surrender of the Certificates at the office
of the Paying Agent therein designated (ii) the amount of any such final payment
and (iii) that the Record Date otherwise applicable to such Payment Date is not
applicable, payments being made only upon presentation and surrender of the
Certificates at the office of the Paying Agent therein specified. The Paying
Agent shall give such notice to the Certificate Registrar (if other than the
Paying Agent) at the time such notice is given to Certificateholders. Upon
presentation
26
<PAGE>
and surrender of the Certificates, if any, the Paying Agent shall cause to be
distributed to Certificateholders amounts distributable on such Payment Date
pursuant to Section 5.7 of the Sale and Servicing Agreement and Section 5.5
hereof.
In the event that all of the Certificateholders shall not surrender
their Certificates for cancellation within six months after the date specified
in the above mentioned written notice, the Paying Agent shall give a second
written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Certificates shall
not have been surrendered for cancellation, the Paying Agent may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds remaining in the Trust after
exhaustion of such remedies shall be distributed, subject to applicable escheat
laws, by the Paying Agent to the Depositor and Holders shall look solely to the
Depositor for payment.
(d) Any funds remaining in the Trust after funds for final distribution
have been distributed or set aside for distribution and all amounts owed to the
Owner Trustee pursuant to this Agreement have been paid shall be distributed by
the Paying Agent to the Depositor.
(e) Upon the winding up of the Trust and its termination, the Owner
Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation presented to the Owner Trustee in execution form by
the Servicer with the Secretary of State in accordance with the provisions of
Section 3810 of the Business Trust Statute.
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
SECTION 10.1. Eligibility Requirements for Owner Trustee. The Owner
Trustee shall at all times be a corporation (i) satisfying the provisions of
Section 3807(a) of the Business Trust Statute; (ii) authorized to exercise
corporate trust powers; (iii) having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by Federal or State
authorities; and (iv) acceptable to the Insurer in its sole discretion, so long
as an Insurer Default shall not have occurred and be continuing. If such
corporation shall publish reports of condition at least annually, pursuant to
law or to the requirements of the aforesaid supervising or examining authority,
then for the purpose of this Section 10.1, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. In case at any time
the Owner Trustee shall cease to be eligible in accordance with the provisions
of this Section 10.1, the Owner Trustee shall resign immediately in the manner
and with the effect specified in Section 10.2.
27
<PAGE>
SECTION 10.2. Resignation or Removal of Owner Trustee. The Owner
Trustee may at any time resign and be discharged from the trusts hereby created
by giving written notice thereof to the Depositor, the Insurer and the Servicer.
Upon receiving such notice of resignation, the Depositor shall promptly appoint
a successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the resigning Owner Trustee and one copy to the
successor Owner Trustee, provided that the Depositor shall have received written
confirmation from each of the Rating Agencies that the proposed appointment will
not result in an increased capital charge to the Insurer by either of the Rating
Agencies. If no successor Owner Trustee shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Owner Trustee or the Insurer may petition any court
of competent jurisdiction for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Depositor, or if at any time the Owner Trustee
shall be legally unable to act or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Depositor with the consent of the Insurer (so long as an
Insurer Default shall not have occurred and be continuing) may remove the Owner
Trustee. If the Depositor shall remove the Owner Trustee under the authority of
the immediately preceding sentence, the Depositor shall promptly appoint a
successor Owner Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the outgoing Owner Trustee so removed, one copy
to the Insurer and one copy to the successor Owner Trustee and payment of all
fees owed to the outgoing Owner Trustee.
Any resignation or removal of the Owner Trustee and appointment of a
successor Owner Trustee pursuant to any of the provisions of this Section 10.2
shall not become effective until acceptance of appointment by the successor
Owner Trustee pursuant to Section 10.3 and payment of all fees and expenses owed
to the outgoing Owner Trustee. The Depositor shall provide notice of such
resignation or removal of the Owner Trustee to each of the Rating Agencies.
SECTION 10.3. Successor Owner Trustee. Any successor Owner Trustee
appointed pursuant to Section 10.2 shall execute, acknowledge and deliver to the
Depositor, the Servicer, the Insurer and to its predecessor Owner Trustee an
instrument accepting such appointment under this Agreement, and thereupon the
resignation or removal of the predecessor Owner Trustee shall become effective
and such successor Owner Trustee, without any further act, deed or conveyance,
shall become fully vested with all the rights, powers, duties and obligations of
its predecessor under this Agreement, with like effect as if originally named as
Owner Trustee. The predecessor Owner Trustee shall upon payment of its fees and
expenses deliver to the successor Owner Trustee all documents and statements and
monies held by it under this Agreement; and the Depositor and the predecessor
Owner Trustee shall
28
<PAGE>
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Owner Trustee all such rights, powers, duties and obligations.
No successor Owner Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Owner Trustee shall
be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee pursuant to
this section, the Servicer shall mail notice of the successor of such Owner
Trustee to all Certificateholders, the Trustee, the Noteholders and the Rating
Agencies. If the Servicer shall fail to mail such notice within 10 days after
acceptance of appointment by the successor Owner Trustee, the successor Owner
Trustee shall cause such notice to be mailed at the expense of the Servicer.
SECTION 10.4. Merger or Consolidation of Owner Trustee. Any corporation
into which the Owner Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Owner Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Owner Trustee, shall be the successor of the Owner Trustee hereunder, provided
such corporation shall be eligible pursuant to Section 10.1, without the
execution or filing of any instrument or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided
further that the Owner Trustee shall mail notice of such merger or consolidation
to the Rating Agencies.
SECTION 10.5. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any part
of the Owner Trust Estate or any Financed Vehicle may at the time be located,
the Servicer and the Owner Trustee acting jointly shall have the power and shall
execute and deliver all instruments to appoint one or more Persons approved by
the Owner Trustee and the Insurer to act as co-trustee, jointly with the Owner
Trustee, or separate trustee or separate trustees, of all or any part of the
owner Trust Estate, and to vest in such Person, in such capacity, such title to
the Trust, or any part thereof, and, subject to the other provisions of this
Section, such powers, duties, obligations, rights and trusts as the Servicer and
the Owner Trustee may consider necessary or desirable. If the Servicer shall not
have joined in such appointment within 15 days after the receipt by it of a
request so to do, the Owner Trustee subject, unless an Insurer Default shall
have occurred and be continuing, to the approval of the Insurer (which approval
shall not be unreasonably withheld) shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
29
<PAGE>
Each separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and exercised or
performed by the Owner Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee
is not authorized to act separately without the Owner Trustee joining
in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed,
the Owner Trustee shall be incompetent or unqualified to perform such
act or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Owner Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee under this
Agreement; and
(iii) the Servicer and the Owner Trustee acting jointly may at
any time accept the resignation of or remove any separate trustee or
co-trustee.
Any notice, request or other writing given to the Owner Trustee shall
be deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article X. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer and the Insurer.
Any separate trustee or co-trustee may at any time appoint the Owner
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Owner Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
30
<PAGE>
ARTICLE XI.
Miscellaneous
SECTION 11.1. Supplements and Amendments. (a) This Agreement may be
amended by the Depositor and the Owner Trustee, with the prior written consent
of the Insurer (so long as an Insurer Default shall not have occurred and be
continuing) and with prior written notice to the Rating Agencies and the
Trustee, without the consent of any of the Noteholders or the
Certificateholders, (i) to cure any ambiguity or defect or (ii) to correct,
supplement or modify any provisions in this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel which may be based
upon a certificate of the Servicer, adversely affect in any material respect the
interests of any Noteholder or Certificateholder.
(b) This Agreement may also be amended from time to time, with the
prior written consent of the Insurer (so long as an Insurer Default shall not
have occurred and be continuing) by the Depositor and the Owner Trustee, with
prior written notice to the Rating Agencies and the Trustee and the consent of
the Certificateholders evidencing not less than a majority by aggregate
Certificate Balance and, to the extent such amendment materially and adversely
affects the interests of the Noteholders, with the consent of Noteholders
evidencing not less than a majority of the aggregate outstanding principal
amount of the Notes (which consent of any Holder of a Certificate or Note given
pursuant to this Section or pursuant to any other provision of this Agreement
shall be conclusive and binding on such Holder and on all future Holders of such
Certificate or Note and of any Certificate or Note issued upon the transfer
thereof or in exchange thereof or in lieu thereof whether or not notation of
such consent is made upon the Certificate or Note) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Agreement or of modifying in any manner the rights of the Noteholders or
the Certificateholders; provided, however, that, subject to the express rights
of the Insurer under the Basic Documents, no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or distributions that shall be required
to be made for the benefit of the Noteholders or the Certificateholders or (b)
reduce the aforesaid percentage of the aggregate outstanding principal amount of
the Notes and the Certificate Balance required to consent to any such amendment,
without the consent of the Holders of all the outstanding Notes and Holders of
all outstanding Certificates.
For purposes of determining the extent to which an amendment does not
have a material adverse effect on the Noteholders, the Owner Trustee may rely on
an Opinion of Counsel, which may be based upon a certificate of the Servicer.
Promptly after the execution of any such amendment or consent, the
Servicer shall furnish written notification of the substance of such amendment
or consent to each Certificateholder, the Trustee and each of the Rating
Agencies.
31
<PAGE>
It shall not be necessary for the consent of Certificateholders, the
Noteholders or the Trustee pursuant to this Section to approve the particular
form of any proposed amendment or consent, but it shall be sufficient if such
consent shall approve the substance thereof. The manner of obtaining such
consents (and any other consents of Certificateholders provided for in this
Agreement or in any other Basic Document) and of evidencing the authorization of
the execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Owner Trustee may prescribe. Promptly after the execution of
any amendment to the Certificate of Trust, the Owner Trustee shall cause the
filing of such amendment with the Secretary of State.
Prior to the execution of any amendment to this Agreement or the
Certificate of Trust, the Owner Trustee shall be entitled to receive and rely
upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be obligated to, enter into any such amendment which
affects the Owner Trustee's own rights, duties or immunities under this
Agreement or otherwise.
SECTION 11.2. No Legal Title to Owner Trust Estate in
Certificateholders. The Certificateholders shall not have legal title to any
part of the Owner Trust Estate. The Certificateholders shall be entitled to
receive distributions with respect to their undivided ownership interest therein
only in accordance with Article IX. No transfer, by operation of law or
otherwise, of any right, title or interest of the Certificateholders to and in
their ownership interest in the Owner Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Owner
Trust Estate.
SECTION 11.3. Limitations on Rights of Others. Except for Section 2.7,
the provisions of this Agreement are solely for the benefit of the Owner
Trustee, the Depositor, the Certificateholders, the Servicer and, to the extent
expressly provided herein, the Insurer, the Trustee and the Noteholders, and
nothing in this Agreement, whether express or implied, shall be construed to
give to any other Person any legal or equitable right, remedy or claim in the
Owner Trust Estate or under or in respect of this Agreement or any covenants,
conditions or provisions contained herein.
SECTION 11.4. Notices. (a) Unless otherwise expressly specified or
permitted by the terms hereof, all notices shall be in writing and shall be
deemed given upon receipt personally delivered, delivered by overnight courier
or mailed first class mail or certified mail, in each case return receipt
requested, and shall be deemed to have been duly given upon receipt, if to the
Owner Trustee, addressed to the Corporate Trust Office; if to the Depositor,
addressed to CPS Receivables Corp., 2 Ada, Irvine, California 92718; if to the
Insurer, addressed to Financial Security Assurance Inc., 350 Park Avenue, New
York, New York 10022, Attention: Senior Vice President Surveillance (Telecopy:
(212) 339-3547); (in each case in which notice or other communication to the
Insurer refers to an Event of Default, a
32
<PAGE>
claim on the Note Policy or with respect to which failure on the part of the
Insurer to respond shall be deemed to constitute consent or acceptance, then a
copy of such notice or other communication should also be sent to the attention
of the General Counsel and the Head-Financial Guaranty Group "URGENT MATERIAL
ENCLOSED"); or, as to each party, at such other address as shall be designated
by such party in a written notice to each other party.
(b) Any notice required or permitted to be given to a Certificateholder
shall be given by first-class mail, postage prepaid, at the address of such
Holder as shown in the Certificate Register. Any notice so mailed within the
time prescribed in this Agreement shall be conclusively presumed to have been
duly given, whether or not the Certificateholder receives such notice.
SECTION 11.5. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 11.6. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 11.7. Assignments; Insurer. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Upon issuance of the Note Policy, this
Agreement shall also inure to the benefit of the Insurer for so long as an
Insurer Default shall not have occurred and be continuing. Without limiting the
generality of the foregoing, all covenants and agreements in this Agreement
which confer rights upon the Insurer shall be for the benefit of and run
directly to the Insurer, and the Insurer shall be entitled to rely on and
enforce such covenants, subject, however, to the limitations on such rights
provided in this Agreement and the Basic Documents. The Insurer may disclaim any
of its rights and powers under this Agreement (but not its duties and
obligations under the Policies) upon delivery of a written notice to the Owner
Trustee.
SECTION 11.8. No Petition. The Owner Trustee (not in its individual
capacity but solely as Owner Trustee), by entering into this Agreement, each
Certificateholder, by accepting a Certificate, and the Trustee and each
Noteholder by accepting the benefits of this Agreement, hereby covenants and
agrees that it will not at any time institute against the Depositor, or join in
any institution against the Depositor of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Certificates, the Notes, this Agreement or any
of the Basic Documents.
33
<PAGE>
SECTION 11.9. No Recourse. Each Certificateholder, by accepting a
Certificate, acknowledges that such Certificateholder's Certificates represent
beneficial interests in the Trust only and do not represent interests in or
obligations of the Depositor, the Servicer, the Owner Trustee, the Trustee, the
Noteholders, the Insurer or any Affiliate thereof and no recourse may be had
against such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Certificates or the Basic Documents.
SECTION 11.10. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 11.11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.12. Servicer. The Servicer is authorized to prepare, or
cause to be prepared, execute and deliver on behalf of the Trust all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Trust or Owner Trustee to prepare, file or deliver pursuant
to the Basic Documents. Upon written request, the Owner Trustee shall execute
and deliver to the Servicer a limited power of attorney appointing the Servicer
the Trust's agent and attorney-in-fact to prepare, or cause to be prepared,
execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement
to be duly executed by their respective officers hereunto duly authorized as of
the day and year first above written.
[ ], as
Owner Trustee
By:
Title:
CPS RECEIVABLES CORP., as Depositor
By:
Title:
35
<PAGE>
EXHIBIT A
NUMBER Initial Certificate Balance:
R-1 [$ ]
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (1) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A, TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT,
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, AND SUBJECT TO THE RECEIPT BY THE CERTIFICATE
REGISTRAR AND THE DEPOSITOR OF A TRANSFEREE CERTIFICATE, (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (3) IN RELIANCE ON
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
SUBJECT TO THE RECEIPT BY THE CERTIFICATE REGISTRAR AND THE DEPOSITOR, OF A
CERTIFICATION OF THE TRANSFEREE (SATISFACTORY TO THE CERTIFICATE REGISTRAR AND
THE DEPOSITOR) AND AN OPINION OF COUNSEL (SATISFACTORY TO THE CERTIFICATE
REGISTRAR AND THE DEPOSITOR) TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND IN COMPLIANCE WITH THE
TRANSFER REQUIREMENTS SET FORTH IN SECTION 3.4 OF THE TRUST AGREEMENT.
IN NO EVENT SHALL THIS SECURITY BE TRANSFERRED TO AN EMPLOYEE BENEFIT
PLAN, TRUST ANNUITY OR ACCOUNT SUBJECT TO ERISA OR A PLAN DESCRIBED IN SECTION
4975(E)(1) OF THE CODE, (ANY SUCH PLAN, TRUST OR ACCOUNT BEING REFERRED TO AS AN
"EMPLOYEE PLAN"), A TRUSTEE OF ANY EMPLOYEE PLAN, OR AN ENTITY, ACCOUNT OR OTHER
POOLED INVESTMENT FUND THE UNDERLYING ASSETS OF WHICH INCLUDE OR ARE DEEMED TO
INCLUDE EMPLOYEE PLAN ASSETS BY REASON OF AN EMPLOYEE PLAN'S INVESTMENT IN THE
ENTITY, ACCOUNT OR OTHER POOLED INVESTMENT FUND. INCLUDED WITHIN THE DEFINITION
OF "EMPLOYEE PLANS" ARE, WITHOUT LIMITATION, KEOGH (HR-10) PLANS, IRA's
(INDIVIDUAL
<PAGE>
RETIREMENT ACCOUNTS OR ANNUITIES) AND OTHER EMPLOYEE BENEFIT PLANS, SUBJECT TO
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE.
THE PRINCIPAL OF THIS CERTIFICATE IS DISTRIBUTABLE IN INSTALLMENTS AS
SET FORTH IN THE TRUST AGREEMENT. ACCORDINGLY, THE OUTSTANDING PRINCIPAL OF THIS
CERTIFICATE AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
------------------------------
ASSET BACKED CERTIFICATE
evidencing a beneficial ownership interest in certain distributions of the
Trust, as defined below, the property of which includes a pool of retail
installment sale contracts secured by new or used automobiles, vans or light
duty trucks and sold to the Trust by CPS Receivables Corp.
(This Certificate does not represent an interest in or obligation of CPS
Receivables Corp. or any of its Affiliates, except to the extent described
below.)
2
<PAGE>
THIS CERTIFIES THAT CPS RECEIVABLES CORP. is the registered owner of [
] DOLLARS nonassessable, fully-paid, beneficial interest in certain
distributions of CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust") formed by
CPS Receivables Corp., a California corporation.
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned
Trust Agreement.
[ ] [ ]
not in its individual not in its individual
capacity but solely or capacity but solely as
as Owner Trustee Owner Trustee
By: By: [ ]
Authenticating Agent
By:
Date:
The Trust was created pursuant to a Trust Agreement dated as of [ ],
between the Depositor and [ ], as Owner Trustee (the "Owner Trustee") as amended
by an amendment, dated as of [ ], between the Depositor and the Owner Trustee
(the "Trust Agreement"), a summary of certain of the pertinent provisions of
which is set forth below. To the extent not otherwise defined herein, the
capitalized terms used herein have the meanings assigned to them in the Trust
Agreement.
This Certificate is one of the duly authorized Certificates designated
as "Asset Backed Certificates" (herein called the "Certificates"). Issued under
the Indenture, dated as of [ ] between the Trust and [ ], as Trustee and
collateral agent, are [ ] classes of Notes designated as "Class A-1 [ %] Asset
Backed Notes" (the "Class A-1 Notes"), "Class A-2 [ %] Asset Backed Notes" (the
"Class A-2 Notes") and together with the Class A-1 Notes, the "Notes"). This
Certificate is issued under and is subject to the terms, provisions and
conditions of the Trust Agreement, to which Trust Agreement the holder of this
Certificate by virtue of the acceptance hereof assents and by which such holder
is bound. The property of the Trust includes a pool of retail installment sale
contracts secured by new and used automobiles, vans or light duty trucks (the
"Receivables"), all monies received thereunder after the Cutoff Date, security
interests in the vehicles financed thereby, certain bank accounts and the
proceeds thereof, proceeds from claims on certain insurance policies and certain
other rights under the Trust Agreement and the Sale and Servicing Agreement, all
right, to and interest of the Depositor in and to the Purchase Agreement dated
as of [ ] between Consumer Portfolio Services, Inc. and the Depositor, all right
to
3
<PAGE>
and interest of the Depositor in and to the Purchase Agreement dated as of [ ]
between Samco Acceptance Corp. and the Depositor, all right to and interest of
the Depositor in and to the Purchase Agreement dated as of [ ] between Linc
Acceptance Company LLC and the Depositor, and all proceeds of the foregoing.
Under the Trust Agreement, there will be distributed on the 15th day of
each month or, if such 15th day is not a Business Day, the next Business Day
(the "Payment Date"), commencing on [ ], to the Person in whose name this
Certificate is registered at the close of business on the 10th day of the
calendar month of such Payment Date (the "Record Date") such Certificateholder's
fractional undivided interest in the amount to be distributed to
Certificateholders on such Payment Date.
The holder of this Certificate acknowledges and agrees that its rights
to receive distributions in respect of this Certificate are subordinated to the
rights of the Noteholders as described in the Sale and Servicing Agreement, the
Indenture and the Trust Agreement, as applicable.
It is the intent of the Depositor, Servicer, and Certificateholders
that, in the event that Certificates are held by any person other than the
Depositor, for purposes of Federal income taxes, the Trust will be treated as a
partnership and the Certificateholders (including the Depositor) will be treated
as partners in that partnership. In such event, the Depositor and such other
Certificateholders, by acceptance of a Certificate, agree to treat, and to take
no action inconsistent with the treatment of, the Certificates for such tax
purposes as partnership interests in the Trust. Each Certificateholder, by its
acceptance of a Certificate, covenants and agrees that such Certificateholder
will not at any time institute against the Trust or the Depositor, or join in
any institution against the Trust or the Depositor of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates, the Notes, the
Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in the Trust
Agreement by the Owner Trustee or its agent by wire transfer or check mailed to
the Certificateholder of record in the Certificate Register without the
presentation or surrender of this Certificate or the making of any notation
hereon. Except as otherwise provided in the Trust Agreement and notwithstanding
the above, the final distribution on this Certificate will be made after due
notice by the Owner Trustee of the pendency of such distribution and only upon
presentation and surrender of this Certificate at the office or agency
maintained for the purpose by the Owner Trustee in the Borough of Manhattan, The
City of New York.
Reference is hereby made to the further provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
4
<PAGE>
Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Owner Trustee or its agent, by manual
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Trust Agreement or the Sale and Servicing Agreement or be valid for
any purpose.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE IN ACCORDANCE
WITH SUCH LAWS.
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust and not
in its individual capacity, has caused this Certificate to be duly executed.
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ]
By:[ ], not in its
individual capacity, but solely as Owner Trustee
By: _______________________________
Name:
Title:
Date: [ ]
5
<PAGE>
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an interest in
the Servicer, the Depositor, the Owner Trustee or any Affiliates of any of them
and no recourse may be had against such parties or their assets, except as may
be expressly set forth or contemplated herein or in the Trust Agreement, the
Indenture or the Basic Documents. In addition, this Certificate is not
guaranteed by any governmental agency or instrumentality and is limited in right
of payment to certain collections with respect to the Receivables, all as more
specifically set forth herein and in the Sale and Servicing Agreement. A copy of
each of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Depositor, and at
such other places, if any, designated by the Depositor, by any Certificateholder
upon written request.
The Trust Agreement permits, with certain exceptions therein provided,
the amendment thereof and the modification of the rights and obligations of the
Depositor and the rights of the Certificateholders under the Trust Agreement at
any time by the Depositor and the Owner Trustee with the consent of the holders
of the Notes and the Certificates evidencing not less than a majority of the
outstanding principal balance of the Notes and the Certificate Balance. Any such
consent by the holder of this Certificate shall be conclusive and binding on
such holder and on all future holders of this Certificate and of any Certificate
issued upon the transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent is made upon this Certificate. The Trust
Agreement also permits the amendment thereof, in certain limited circumstances,
without the consent of the holders of any of the Certificates.
As provided in the Trust Agreement and subject to certain limitations
therein set forth, the transfer of this Certificate is registerable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies of the Certificate Registrar maintained by
the Owner Trustee in the Borough of Manhattan, The City of New York, accompanied
by a written instrument of transfer in form satisfactory to the Owner Trustee
and the Certificate Registrar duly executed by the holder hereof or such
holder's attorney duly authorized in writing, and thereupon one or more new
Certificates in authorized denominations evidencing the same aggregate interest
in the Trust will be issued to the designated transferee. The initial
Certificate Registrar appointed under the Trust Agreement is Bankers Trust
Company.
Except for Certificates issued to the Depositor, the Certificates are
issuable only as registered Certificates without coupons in denominations of
$1,000 or integral multiples thereof. As provided in the Trust Agreement and
subject to certain limitations therein set forth, Certificates are exchangeable
for new Certificates in authorized denominations evidencing the same aggregate
denomination as requested by the holder surrendering the same. No service charge
will be made for any such registration of transfer or exchange, but the Owner
Trustee or the Certificate Registrar may require payment of a sum sufficient to
cover any tax or governmental charge payable in connection therewith.
<PAGE>
The Owner Trustee, the Certificate Registrar, the Insurer and any agent
of the Owner Trustee, the Certificate Registrar or the Insurer may treat the
person in whose name this Certificate is registered as the owner hereof for all
purposes, and none of the Owner Trustee, the Certificate Registrar, the Insurer
nor any such agent shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust Agreement and
the Trust created thereby shall terminate upon the payment to Certificateholders
of all amounts required to be paid to them pursuant to the Trust Agreement and
the Sale and Servicing Agreement and the disposition of all property held as
part of the Trust. The Servicer of the Receivables may at its option purchase
all remaining Receivables from the Trust on or after 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.
The Certificates may not be acquired by (a) an employee benefit plan
(as defined in Section 3(3) of ERISA) that is subject to the provisions of Title
I of ERISA, (b) a plan described in Section 4975(e) (1) of the Code or (c) any
entity whose underlying assets include plan assets by reason of a plan's
investment in the entity (each, a "Benefit Plan"). By accepting and holding this
Certificate, the Holder hereof shall be deemed to have represented and warranted
that it is not a Benefit Plan.
The recitals contained herein shall be taken as the statements of the
Depositor or the Servicer, as the case may be, and the Owner Trustee assumes no
responsibility for the correctness thereof. The Owner Trustee makes no
representations as to the validity or sufficiency of this Certificate or of any
Receivable or related document.
-2-
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing _______________________________ Attorney to transfer
said Certificate on the books of the Certificate Registrar, with full power of
substitution in the premises.
Dated:
-------------------------
Signature
Guaranteed:
*
-------------------------
- ----------
* NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatever. Such signature must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be determined
by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
EXHIBIT B
[FORM OF]
CERTIFICATE OF TRUST OF
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ]
This Certificate of Trust of CPS Auto Receivables Trust 199[ ]-[ ] (the
"Trust"), dated as of ___________, 199_, is being duly executed and filed by
_______________________________, a ____________, and ______________, an
individual, as trustee, to form a business trust under the Delaware Business
Trust Act (12 Del. Code, ss.
3801 et seq.).
1. Name. The name of the business trust formed hereby is CPS Auto
Receivables Trust 199[ ]-[ ].
2. This Certificate of Trust will be effective ______ __, 199_.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of the
Trust, has executed this Certificate of Trust as of the date first above
written.
[ ],
not in its individual capacity, but
solely as Owner Trustee of the Trust.
By:
Name:
Title:
2
<PAGE>
Exhibit C to
Trust Agreement
Transferee Certificate
Pursuant to Section 3.4 of
the Trust Agreement
In connection with the transfer of $________________ aggregate
principal amount of CPS Auto Receivables Trust 1998-3 [ ]% Asset Backed
Certificates (the "Transferred Certificates"), __________________________, the
undersigned transferee (the "Transferee"), pursuant to Section 3.4 of the Trust
Agreement (as defined below), hereby notifies the Trustee and the Seller and
certifies, represents and warrants to each of them that it is a "qualified
institutional buyer" (as defined in Rule 144A promulgated under the Securities
Act of 1933, as amended), that it is purchasing such Transferred Certificates
for its own account or the account of a qualified institutional buyer to whom
notice has been given that the transfer is to be made in reliance of Rule 144A,
and acknowledges that it has received such information regarding the Trust and
the Transferred Certificates as it has requested and that it is aware that the
transferor is relying upon the foregoing certification to claim the exemption
from registration provided by Rule 144A and the Transferee represents and
warrants that it has delivered an executed copy of this certificate to the
Trustee and the Seller prior to the transfer of any Transferred Certificates
discussed herein.
In no event shall a Certificate be transferred to an employee benefit
plan, trust annuity or account subject to ERISA or a plan described in Section
4975(e)(1) of the Code (any such plan, trust or account including any Keogh
(HR-10) plans, individual retirement accounts or annuities and other employee
benefit plans subject to Section 406 of ERISA or Section 4975 of the Code being
referred to herein as an "Employee Plan"), a trustee of any Employee Plan, or an
entity, account or other pooled investment fund, the underlying assets of which
include or are deemed to include Employee Plan assets by reason of an Employee
Plan's investment in the entity, account or other pooled investment fund. The
Seller, Servicer, Trustee and Standby Servicer shall not be responsible for
confirming or otherwise investigating whether a proposed transferee is an
employee benefit plan, trust or account subject to ERISA, or described in
Section 4975(e)(1) of the Code.
Terms used herein and not otherwise defined have the meanings assigned
to them in the Trust Agreement dated as of [ ], between CPS Receivables Corp.
and [ ], as Owner Trustee.
[TRANSFEREE]
By:
Name:
Title:
Exhibit 4.2
FORM OF INDENTURE
- --------------------------------------------------------------------------------
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ]
Class A-1 [ %] Asset-Backed Notes Class
A-2 [ %] Asset-Backed Notes [other
classes of Notes, if any]
---------------------------------
INDENTURE
Dated as of [ ]
-----------------------------------
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions..................................................3
SECTION 1.2. Incorporation by Reference of Trust Indenture Act...........10
SECTION 1.3. Other Definitional Provisions...............................11
ARTICLE II
The Notes
SECTION 2.1. Form........................................................11
SECTION 2.2. Execution, Authentication and Delivery......................12
SECTION 2.3. Temporary Notes.............................................12
SECTION 2.4. Registration; Registration of Transfer and Exchange.........13
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes..................14
SECTION 2.6. Persons Deemed Owner........................................15
SECTION 2.7. Payment of Principal and Interest; Defaulted Interest.......15
SECTION 2.8. Cancellation................................................16
SECTION 2.9. Release of Collateral.......................................17
SECTION 2.10. Book-Entry Notes............................................17
SECTION 2.11. Notices to Clearing Agency..................................18
SECTION 2.12. Definitive Notes............................................18
ARTICLE III
Covenants
SECTION 3.1. Payment of Principal and Interest...........................18
SECTION 3.2. Maintenance of Office or Agency.............................19
SECTION 3.3. Money for Payments to be Held in Trust......................19
SECTION 3.4. Existence...................................................20
SECTION 3.5. Protection of Trust Estate..................................21
SECTION 3.6. Opinions as to Trust Estate.................................21
SECTION 3.7. Performance of Obligations; Servicing of Receivables........22
SECTION 3.8. Negative Covenants..........................................23
SECTION 3.9. Annual Statement as to Compliance...........................23
SECTION 3.10. Issuer May Consolidate, Etc. Only on Certain Terms..........24
-i-
<PAGE>
SECTION 3.11. Successor or Transferee.....................................26
SECTION 3.12. No Other Business...........................................26
SECTION 3.13. No Borrowing................................................26
SECTION 3.14. Servicer's Obligations......................................27
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities...........27
SECTION 3.16. Capital Expenditures........................................27
SECTION 3.17. Compliance with Laws........................................27
SECTION 3.18. Restricted Payments.........................................27
SECTION 3.19. Notice of Events of Default.................................27
SECTION 3.20. Further Instruments and Acts................................28
SECTION 3.21. Amendments of Sale and Servicing Agreement and Trust
Agreement...................................................28
SECTION 3.22. Income Tax Characterization.................................28
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture.....................28
SECTION 4.2. Application of Trust Money..................................29
SECTION 4.3. Repayment of Moneys Held by Note Paying Agent...............29
ARTICLE V
Remedies
SECTION 5.1. Events of Default...........................................29
SECTION 5.2. Rights Upon Event of Default................................31
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.....................................................32
SECTION 5.4. Remedies....................................................35
SECTION 5.5. Optional Preservation of the Receivables....................36
SECTION 5.6. Priorities..................................................36
SECTION 5.7. Limitation of Suits.........................................37
SECTION 5.8. Unconditional Rights of Noteholders To Receive Principal
and Interest................................................38
SECTION 5.9. Restoration of Rights and Remedies..........................38
SECTION 5.10. Rights and Remedies Cumulative..............................38
SECTION 5.11. Delay or Omission Not a Waiver..............................38
SECTION 5.12. Control by Noteholders......................................38
SECTION 5.13. Waiver of Past Defaults.....................................39
SECTION 5.14. Undertaking for Costs.......................................39
SECTION 5.15. Waiver of Stay or Extension Laws............................40
-ii-
<PAGE>
ARTICLE VI
The Trustee
SECTION 6.1. Duties of Trustee...........................................40
SECTION 6.2. Rights of Trustee...........................................42
SECTION 6.3. Individual Rights of Trustee................................43
SECTION 6.4. Trustee's Disclaimer........................................43
SECTION 6.5. Notice of Defaults..........................................43
SECTION 6.6. Reports by Trustee to Holders...............................43
SECTION 6.7. Compensation and Indemnity..................................44
SECTION 6.8. Replacement of Trustee......................................44
SECTION 6.9. Successor Trustee by Merger.................................46
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee...............46
SECTION 6.11. Eligibility: Disqualification...............................47
SECTION 6.12. Preferential Collection of Claims Against Issuer............47
SECTION 6.13. Appointment and Powers......................................47
SECTION 6.14. Performance of Duties.......................................48
SECTION 6.15. Limitation on Liability.....................................48
SECTION 6.16. Reserved....................................................49
SECTION 6.17. Successor Trustee...........................................49
SECTION 6.18. [Reserved]..................................................50
SECTION 6.19. Representations and Warranties of the Trustee...............50
SECTION 6.20. Waiver of Setoffs...........................................50
SECTION 6.21. Control by the Controlling Party............................51
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish To Trustee Names and Addresses of
Noteholders.................................................51
SECTION 7.2. Preservation of Information; Communications to Noteholders..51
SECTION 7.3. Reports by Issuer...........................................51
SECTION 7.4. Reports by Trustee..........................................52
ARTICLE VIII
Collection of Money and Releases of Trust Estate
SECTION 8.1. Collection of Money.........................................52
SECTION 8.2. Release of Trust Estate.....................................53
SECTION 8.3. Opinion of Counsel..........................................53
-iii-
<PAGE>
ARTICLE IX
Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders......53
SECTION 9.2. Supplemental Indentures with Consent of Noteholders.........55
SECTION 9.3. Execution of Supplemental Indentures........................56
SECTION 9.4. Effect of Supplemental Indenture............................56
SECTION 9.5. Conformity With Trust Indenture Act.........................57
SECTION 9.6. Reference in Notes to Supplemental Indentures...............57
ARTICLE X
Redemption of Notes
SECTION 10.1. Redemption..................................................57
SECTION 10.2. Form of Redemption Notice...................................57
SECTION 10.3. Notes Payable on Redemption Date............................58
ARTICLE XI
Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc...................58
SECTION 11.2. Form of Documents Delivered to Trustee......................60
SECTION 11.3. Acts of Noteholders.........................................61
SECTION 11.4. Notices, etc., to Trustee, Issuer and Rating Agencies.......61
SECTION 11.5. Notices to Noteholders; Waiver..............................62
SECTION 11.6. Alternate Payment and Notice Provisions.....................63
SECTION 11.7. Conflict with Trust Indenture Act...........................63
SECTION 11.8. Effect of Headings and Table of Contents....................63
SECTION 11.9. Successors and Assigns......................................63
SECTION 11.10. Severability................................................64
SECTION 11.11. Benefits of Indenture.......................................64
SECTION 11.12. Legal Holidays..............................................64
SECTION 11.13. Governing Law...............................................64
SECTION 11.14. Counterparts................................................64
SECTION 11.15. Recording of Indenture......................................64
SECTION 11.16. Trust Obligation............................................64
SECTION 11.17. No Petition.................................................65
SECTION 11.18. Inspection..................................................65
-iv-
<PAGE>
Exhibit A-1 Form of Class A-1 Note
Exhibit A-2 Form of Class A-2 Note
Exhibit A-3 Form of Class A-3 Note
Exhibit A-4 Form of Class A-4 Note
Exhibit B Form of Depository Agreement
-v-
<PAGE>
INDENTURE dated as of [ ], between CPS AUTO RECEIVABLES TRUST 199[ ]-
[ ], a Delaware business trust (the "Issuer"), and NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association, as trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Issuer's Class A-1 [ %]
Asset-Backed Notes (the "Class A-1 Notes") and Class A-2 [ %] Asset-Backed Notes
(the "Class A-2 Notes") and, together with the Class A-1 Notes, the "Class A
Notes" or "Notes"):
As security for the payment and performance by the Issuer of its
obligations under this Indenture and the Notes, the Issuer has agreed to assign
the Collateral (as defined below) as collateral to the Trustee for the benefit
of the Noteholders.
[Financial Security Assurance Inc. (the "Note Insurer") has issued and
delivered a financial guaranty insurance policy, dated the Closing Date (with
endorsements, the "Note Policy"), pursuant to which the Note Insurer guarantees
Scheduled Payments, as defined in the Note Policy.]
[As an inducement to the Note Insurer to issue and deliver the Note
Policy, the Issuer and the Note Insurer have executed and delivered the
Insurance and Indemnity Agreement, dated as of [ ] (as amended from time to
time, the "Insurance Agreement") among the Note Insurer, the Issuer, Consumer
Portfolio Services, Inc., and CPS Receivables Corp.]
As an additional inducement to the Note Insurer to issue the Note
Policy, and as security for the performance by the Issuer of the Insurer Secured
Obligations (as defined below) and as security for the performance by the Issuer
of the Trustee Secured Obligations, the Issuer has agreed to assign the
Collateral (as defined below) as collateral to the Trustee for the benefit of
the Issuer Secured Parties, as their respective interests may appear.
GRANTING CLAUSE
The Issuer hereby Grants to the Trustee at the Closing Date, for the
benefit of the Issuer Secured Parties,
(i) all right, title and interest of the Issuer in and to the
Receivables listed in Schedule A to the Sale and Servicing Agreement,
all monies received thereon after the Cutoff Date and all Net
Liquidation Proceeds received with respect thereto after the Cutoff
Date;
(ii) all right, title and interest of the Issuer in and to the
security interests in the Financed Vehicles granted by Obligors
pursuant to the Receivables and any other
<PAGE>
interest of the Issuer in such Financed Vehicles, including, without
limitation, the certificates of title or, with respect to such Financed
Vehicles in the State of Michigan, all other evidence of ownership with
respect to such Financed Vehicles;
(iii) all right, title and interest of the Issuer in and to
any proceeds from claims on any physical damage, credit life and credit
accident and health insurance policies or certificates relating to the
Financed Vehicles or the Obligors;
(iv) all right, title and interest of the Issuer in and to the
Purchase Agreements, including a direct right to cause CPS to purchase
Receivables from the Trust pursuant to the CPS Purchase Agreement under
the circumstances specified therein;
(v) the Issuer's rights and benefits, but none of its
obligations or burdens, under the Sale and Servicing Agreement
(including all rights of the Seller under the Purchase Agreements);
(vi) all right, title and interest of the Issuer in and to
refunds for the costs of extended service contracts with respect to
Financed Vehicles, refunds of unearned premiums with respect to credit
life and credit accident and health insurance policies or certificates
covering an Obligor or Financed Vehicle or his or her obligations with
respect to a Financed Vehicle and any recourse to Dealers for any of
the foregoing;
(vii) the Receivable File related to each Receivable;
(viii) all amounts and property from time to time held in or
credited to the Collection Account, the Lockbox Account and the Note
Distribution Account; and
(ix) all present and future claims, demands, causes and choses
in action in respect of any or all of the foregoing and all payments on
or under and all proceeds of every kind and nature whatsoever in
respect of any or all of the foregoing, including all proceeds of the
conversion, voluntary or involuntary, into cash or other liquid
property, all cash proceeds, accounts, accounts receivable, notes,
drafts, acceptances, chattel paper, checks, deposit accounts, insurance
proceeds, condemnation awards, rights to payment of any and every kind
and other forms of obligations and receivables, instruments and other
property which at any time constitute all or part of or are included in
the proceeds of any of the foregoing (collectively, the "Collateral").
In addition, the Issuer shall cause the Note Policy to be issued for the benefit
of the Class A Noteholders.
The foregoing Grant is made in trust to the Trustee, for the benefit of
the Holders of the Notes and for the benefit of the Note Insurer. The Trustee
hereby acknowledges such Grant, accepts the trusts under this Indenture in
accordance with the provisions of this Indenture and
-2-
<PAGE>
agrees to perform its duties as required in this Indenture to the best of its
ability to the end that the interests of such parties, recognizing the
priorities of their respective interests may be adequately and effectively
protected.
ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.1. Definitions. Except as otherwise specified herein, the
following terms have the respective meanings set forth below for all purposes of
this Indenture and the definitions of such terms are equally applicable to both
the singular and plural forms of such terms and to each gender.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Trust Agreement.
"Act" has the meaning specified in Section 11.3(a).
"Affiliate" of any Person means any Person who directly or indirectly
controls, is controlled by, or is under direct or indirect common control with
such Person. For purposes of this definition of "Affiliate", the term "control"
(including the terms "controlling", "controlled by" and "under common control
with") means the possession, directly or indirectly, of the power to direct or
cause a direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.
"Amount Financed" with respect to a Receivable shall have the meaning
specified in the Sale and Servicing Agreement.
"Annual Percentage Rate" or "APR" of a Receivable means the annual rate
of finance charges stated in the Receivable.
"Authorized Officer" means, with respect to the Issuer and the
Servicer, any officer or agent acting pursuant to a power of attorney of the
Owner Trustee or the Servicer, as applicable, who is authorized to act for the
Owner Trustee or the Servicer, as applicable, in matters relating to the Issuer
and who is identified on the list of Authorized Officers delivered by each of
the Owner Trustee and the Servicer to the Trustee on the Closing Date (as such
list may be modified or supplemented from time to time thereafter).
"Basic Documents" means this Indenture, the Certificate of Trust, the
Trust Agreement, the Sale and Servicing Agreement, the Master Spread Account
Agreement, the Spread Account
-3-
<PAGE>
Supplement, the Insurance Agreement, the Indemnification Agreement, the Lockbox
Agreement and other documents and certificates delivered in connection
therewith.
"Book Entry Notes" means a beneficial interest in the Notes, ownership
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.10.
"Business Day" means (i) with respect to the Note Policy, any day other
than a Saturday, Sunday, legal holiday or other day on which commercial banking
institutions in Wilmington, Delaware, the City of New York, Minneapolis,
Minnesota, or the state in which the principal Corporate Trust Office of the
Trustee is located or any other location of any successor Servicer, successor
Owner Trustee or successor Trustee are authorized or obligated by law, executive
order or governmental decree to be closed and (ii) otherwise, a day other than a
Saturday, a Sunday or other day on which commercial banks located in the states
of Delaware, Minnesota, California or New York are authorized or obligated to be
closed.
"Certificate of Trust" means the certificate of trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Class A-1 Interest Rate" means a [floating/fixed] rate equal to [ %]
per annum.
"Class A-1 Notes" means the Class A-1 [ %] Asset-Backed Notes,
substantially in the form of Exhibit A-1.
"Class A-2 Interest Rate" means a [floating/fixed] rate equal to [ %]
per annum.
"Class A-2 Notes" means the Class A-2 [ %] Asset-Backed Notes,
substantially in the form of Exhibit A-2.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act, or any successor provision
thereto. The initial Clearing Agency shall be The Depository Trust Company.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means [ ].
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collateral" has the meaning specified in the Granting Clause of this
Indenture.
-4-
<PAGE>
"Commission" means the United State Securities and Exchange Commission.
"Corporate Trust Office" means the principal office of the Trustee at
which at any particular time its corporate trust business shall be administered
which office at date of the execution of this Agreement is located at Sixth
Street and Marquette Avenue, Minneapolis, Minnesota 55479-0070, Attention:
Corporate Trust Services--Asset-Backed Administration, or at such other address
as the Trustee may designate from time to time by notice to the Noteholders, the
Note Insurer, the Servicer and the Issuer, or the principal corporate trust
office of any successor Trustee (the address of which the successor Trustee will
notify the Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the lapse of
time or both would become, an Event of Default.
"Definitive Notes" has the meaning specified in Section 2.10.
"Depositor" means the Seller, in its capacity as such under the Trust
Agreement.
"Event of Default" has the meaning specified in Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; with respect to any limited liability company, the manager;
and with respect to any partnership, any general partner thereof.
"Grant" means to mortgage, pledge, bargain, sell, warrant, alienate,
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the granting party or otherwise and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
-5-
<PAGE>
"Indebtedness" means, with respect to any Person at any time, (a)
indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b)
obligations of such Person as lessee under leases which should be, in accordance
with generally accepted accounting principles, recorded as capital leases; (c)
current liabilities of such Person in respect of unfunded vested benefits under
plans covered by Title IV of ERISA; (d) obligations issued for or liabilities
incurred on the account of such Person; (e) obligations or liabilities of such
Person arising under acceptance facilities; (f) obligations of such Person under
any guarantees, endorsements (other than for collection or deposit in the
ordinary course of business) and other contingent obligations to purchase, to
provide funds for payment, to supply funds to invest in any Person or otherwise
to assure a creditor against loss; (g) obligations of such Person secured by any
lien on property or assets of such Person, whether or not the obligations have
been assumed by such Person; or (h) obligations of such Person under any
interest rate or currency exchange agreement.
"Indenture" means this Indenture as amended, supplemented or otherwise
modified from time to time in accordance with its terms.
"Independent" means, when used with respect to any specified Person,
that the person (a) is in fact independent of the Issuer, any other obliger upon
the Notes, the Seller and any Affiliate of any of the foregoing persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Seller or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obliger, the Seller or any Affiliate of any of the foregoing Persons as an
officer, employee, promoter, underwriter, trustee, partner, director or Person
performing similar functions.
"Independent Certificate" means a certificate or opinion to be
delivered to the Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1, prepared by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Insurance Agreement Indenture Cross Default" has the meaning specified
therefor in the Insurance Agreement.
"Insurer Secured Obligations" means all amounts and obligations which
the Issuer may at any time owe to or on behalf of the Note Insurer under this
Indenture, the Insurance Agreement or any other Basic Document.
"Interest Rate" means, with respect to the (i) Class A-1 Notes, the
Class A-1 Interest Rate, (ii) Class A-2 Notes, the Class A-2 Interest Rate,
(iii) [describe other classes of Notes, if any].
-6-
<PAGE>
"Issuer" means the party named as such in this Indenture until a
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or request
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Trustee.
"Issuer Secured Obligations" means the Insurer Secured Obligations and
the Trustee Secured obligations.
"Issuer Secured Parties" means each of the Trustee, in respect of the
Trustee Secured Obligations, and the Note Insurer, in respect of the Insurer
Secured Obligations.
"Note" means a Class A-1 Note, a Class A-2 Note [other classes of
Notes, if any].
"Note Owner" means, with respect to a Book-Entry Note, the person who
is the owner of such Book-Entry Note, as reflected on the books of the Clearing
Agency, or on the books of a Person maintaining an account with such Clearing
Agency (directly as a Clearing Agency Participant or as an indirect participant,
in each case in accordance with the rules of such Clearing Agency).
"Note Paying Agent" means the Trustee or any other Person that meets
the eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make the payments to and distributions from the
Collection Account and the Note Distribution Account, including payment of
principal of or interest on the Notes on behalf of the Issuer.
"Note Policy" means the insurance policy issued by the Note Insurer
with respect to the Notes, including any endorsements thereto.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 2.4.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Owner Trustee, under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1 and TIA
ss. 314, and delivered to the Trustee. Unless otherwise specified, any reference
in this Indenture to an Officer's Certificate shall be to an Officer's
Certificate of any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who
may, except as otherwise expressly provided in this Indenture, be employees of
or counsel to the Issuer and who shall be satisfactory to the Trustee and, if
addressed to the Note Insurer, satisfactory to the Note Insurer, and which shall
comply with any applicable requirements of Section 11.1, and shall be
-7-
<PAGE>
in form and substance satisfactory to the Trustee, and if addressed to the Note
Insurer, satisfactory to the Note Insurer.
"Outstanding" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or
delivered to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in
the necessary amount has been theretofore deposited with the Trustee or
any Note Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture, satisfactory
to the Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which
have been authenticated and delivered pursuant to this Indenture unless
proof satisfactory to the Trustee is presented that any such Notes are
held by a bona fide purchaser;
provided, however, that Notes which have been paid with proceeds of the Note
Policy shall continue to remain Outstanding for purposes of this Indenture until
the Note Insurer has been paid as subrogee hereunder or reimbursed pursuant to
the Insurance Agreement as evidenced by a written notice from the Note Insurer
delivered to the Trustee, and the Note Insurer shall be deemed to be the Holder
thereof to the extent of any payments thereon made by the Note Insurer;
provided, further, that in determining whether the Holders of the requisite
Outstanding Amount of the Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or under any Basic Document,
Notes owned by the Issuer, any other obliger upon the Notes, the Seller or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that a Responsible Officer of the Trustee
either actually knows to be so owned or has received written notice thereof
shall be so disregarded. Notes so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgees right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obliger upon the Notes, the Seller or any
Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all Notes,
or class of Notes, as applicable, Outstanding at the date of determination.
"Owner Trustee" means [ ], and its successors.
"Payment Date" has the meaning specified in the Notes.
-8-
<PAGE>
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.5 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial
or administrative proceeding.
"Rating Agency" means [each of Moody's and Standard & Poor's,] so long
as such Persons maintain a rating on the Notes; and if either [Moody's or
Standard & Poor's] no longer maintains a rating on the Notes, such other
nationally recognized statistical rating organization selected by the Seller and
(so long as an Insurer Default shall not have occurred and be continuing)
acceptable to the Note Insurer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer, the Note Insurer,
the Trustee, the Owner Trustee and the Issuer in writing that such action will
not result in a reduction or withdrawal of the then current rating of the Notes.
"Record Date" means, with respect to a Payment Date or Redemption Date,
the tenth day of the calendar month in which such Payment Date or Redemption
Date occurs.
"Redemption Date" means, in the case of a redemption of the Notes
pursuant to Section 10.1, the Payment Date specified by the Servicer or the
Issuer pursuant to Section 10.1.
"Redemption Price" means, in the case of a redemption of the Notes
pursuant to Section 10.1, an amount equal to the unpaid principal amount of each
class of Notes being redeemed plus accrued and unpaid interest thereon to but
excluding the Redemption Date.
"Responsible Officer" means, with respect to the Trustee, any officer
within the Corporate Trust Office of the Trustee, including any Vice President,
Assistant Vice President, Assistant Treasurer, Assistant Secretary, or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of [ ], among the Issuer, the Seller, the Servicer and the Trustee as
Standby Servicer and Trustee, as the same may be amended or supplemented from
time to time.
"Scheduled Payments" has the meaning specified in the Note Policy.
-9-
<PAGE>
"State" means any one of the 50 states of the United States of America
or the District of Columbia.
"Termination Date" means the latest of (i) the expiration of the Note
Policy and the return of the Note Policy to the Note Insurer for cancellation,
(ii) the date on which the Note Insurer shall have received payment and
performance of all Insurer Secured Obligations and (iii) the date on which the
Trustee shall have received payment and performance of all Trustee Secured
Obligations.
"Trust Estate" means all money, instruments, rights and other property
that are subject or intended to be subject to the lien and security interest of
this Indenture for the benefit of the Noteholders (including all property and
interests Granted to the Trustee), including all proceeds thereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended and as in force on the date hereof, unless otherwise specifically
provided.
"Trustee" means Norwest Bank Minnesota, National Association, a
national banking association, not in its individual capacity but as trustee
under this Indenture, or any successor trustee under this Indenture.
"Trustee Secured Obligations" means all amounts and obligations which
the Issuer may at any time owe to or on behalf of the Trustee for the benefit of
the Noteholders under this Indenture or the Notes.
"UCC" means, unless the context otherwise requires, the Uniform
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
SECTION 1.2. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
-10-
<PAGE>
"obligor" on the indenture securities means the Issuer.
All other TIA terms used in this Indenture that are defined by the TIA, defined
by TIA reference to another statute or defined by Commission rule have the
meaning assigned to them by such definitions.
SECTION 1.3. Other Definitional Provisions. Unless the context
otherwise requires:
(i) All references in this instrument to designated
"Articles," "Sections," "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of
this instrument as originally executed.
(ii) The words "herein," "hereof," "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section, Subsection or other subdivision.
(iii) an accounting term not otherwise defined herein has the
meaning assigned to it in accordance with generally accepted accounting
principles as in effect from time to time;
(iv) "or" is not exclusive; and
(v) "including" means including without limitation.
ARTICLE II
The Notes
SECTION 2.1. Form. (a) The Class A-1 Notes, the Class A-2 Notes, [other
classes of Notes, if any], in each case together with the Trustee's certificate
of authentication, shall be in substantially the form set forth in Exhibits A-1,
A-2, [other classes of Notes, if any], respectively, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may,
consistently herewith, be determined by the officers executing such Notes, as
evidenced by their execution of the Notes. Any portion of the text of any Note
may be set forth on the reverse thereof, with an appropriate reference thereto
on the face of the Note.
(b) The Definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods (with or without steel
engraved borders), all as determined by the officers executing such Notes, as
evidenced by their execution of such Notes.
-11-
<PAGE>
(c) Each Note shall be dated the date of its authentication. The terms
of the Notes set forth in Exhibits A-1, A-2, [other classes of Notes, if any],
are part of the terms of this Indenture.
SECTION 2.2. Execution, Authentication and Delivery. (a) The Notes
shall be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
(b) Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
(c) The Trustee shall [upon receipt of the Note Policy and] Issuer
Order authenticate and deliver Class A-1 Notes for original issue in an
aggregate principal amount of [$ ], Class A-2 Notes for original issue in an
aggregate principal amount of [$ ], [other classes of Notes, if any], Class A-1
Notes, Class A-2 Notes, [other classes of Notes, if any] outstanding at any time
may not exceed such amounts except as provided in Section 2.5.
(d) Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $1,000 and
in integral multiples thereof (except for one Note of each class which may be
issued in a denomination other than an integral multiple of $1,000).
(e) No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Note a
certificate of authentication substantially in the form provided for herein,
executed by the Trustee by the manual signature of one of its authorized
signatories, and such certificate upon any Note shall be conclusive evidence,
and the only evidence, that such Note has been duly authenticated and delivered
hereunder.
SECTION 2.3. Temporary Notes. (a) Pending the preparation of Definitive
Notes, the Issuer may execute, and upon receipt of an Issuer Order the Trustee
shall authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, of the tenor of the Definitive
Notes in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
(b) If temporary Notes are issued, the Issuer will cause Definitive
Notes to be prepared without unreasonable delay. After the preparation of
Definitive Notes, the temporary Notes shall be exchangeable without charge to
the Holder for Definitive Notes upon surrender of the temporary Notes at the
office or agency of the Issuer to be maintained as provided in Section 3.2. Upon
surrender for cancellation of any one or more temporary Notes, the Issuer shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
like principal amount of
-12-
<PAGE>
Definitive Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as Definitive Notes.
SECTION 2.4. Registration; Registration of Transfer and Exchange. (a)
The Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Notes and the registration of transfers of
Notes. The Trustee is hereby initially appointed "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon any
resignation or removal of any Note Registrar, the Issuer shall promptly appoint
a successor or, in the absence of such an appointment, assume the duties of Note
Registrar.
(b) If a Person other than the Trustee is appointed by the Issuer as
Note Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such Notes.
(c) Subject to Sections 2.10 and 2.12 hereof, upon surrender for
registration of transfer of any Note at the office or agency of the Issuer to be
maintained as provided in Section 3.2, if the requirements of Section 8-401(l)
of the UCC are met, the Issuer shall execute, and upon request by the Issuer the
Trustee shall authenticate, and the Noteholder shall obtain from the Trustee, in
the name of the designated transferee or transferees, one or more new Notes in
any authorized denominations of the same class and a like aggregate principal
amount.
(d) At the option of the Holder, Notes may be exchanged for other Notes
in any authorized denominations, of the same class and a like aggregate
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, subject to Sections
2.10 and 2.12 hereof, if the requirements of Section 8-401(1) of the UCC are met
the Issuer shall execute, and upon request by the Issuer the Trustee shall
authenticate, and the Noteholder shall obtain from the Trustee, the Notes which
the Noteholder making the exchange is entitled to receive.
(e) All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
(f) Every Note presented or surrendered for registration of transfer or
exchange shall be (i) duly endorsed by, or accompanied by a written instrument
of transfer in the form attached to Exhibits A-1, A-2 [others] and duly executed
by, the Holder thereof or such Holder's attorney, duly authorized in writing,
with such signature guaranteed by an "eligible guarantor institution" meeting
the requirements of the Note Registrar which requirements include membership or
-13-
<PAGE>
participation in Securities Transfer Agents Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Note Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Exchange Act and (ii) accompanied by such other documents as the Trustee may
require.
(g) Each Noteholder by its acquisition of any Notes (or a beneficial
interest therein) shall be deemed to have represented and warranted for the
benefit of the Issuer, the Trustee, the Indenture Trustee and the Noteholders,
that either (i) it is not acquiring any Notes with the assets of any "employee
benefit plan" as defined in Section 3(3) of ERISA which is subject to Title I of
ERISA or any "plan" as defined in Section 4875 of the Internal Revenue Code or
(ii) the acquisition of the Notes will not give rise to a nonexempt prohibited
transaction under Section 406(a) of ERISA or Section 4975 of the Code.
(h) No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Note Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.3 or 9.6 not involving any transfer.
(i) The preceding provisions of this Section 2.4 notwithstanding, the
Issuer shall not be required to make and the Note Registrar shall not register
transfers or exchanges of Notes selected for redemption or of any Note for a
period of 15 days preceding the due date for any payment with respect to the
Note.
SECTION 2.5. Mutilated, Destroyed, Lost or Stolen Notes. (a) If (i) any
mutilated Note is surrendered to the Trustee, or the Trustee receives evidence
to its satisfaction of the destruction, loss or theft of any Note, and (ii)
there is delivered to the Trustee and the Note Insurer (unless an Insurer
Default shall have occurred and be continuing) such security or indemnity as may
be required by it to hold the Issuer, the Trustee and the Note Insurer harmless,
then, in the absence of notice to the Issuer, the Note Registrar or the Trustee
that such Note has been acquired by a bona fide purchaser, and, provided that
the requirements of Section 8-405 of the UCC are met, the Issuer shall execute,
and upon request by the Issuer, the Trustee shall authenticate and deliver in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a
replacement Note; provided, however, that if any such destroyed, lost or stolen
Note, but not a mutilated Note, shall have become, or within seven days shall
be, due and payable or shall have been called for redemption, instead of issuing
a replacement Note, the Issuer may direct the Trustee, in writing, to pay such
destroyed, lost or stolen Note when so due or payable or upon the Redemption
Date without surrender thereof. If, after the delivery of such replacement Note
or payment of a destroyed, lost or stolen Note pursuant to the proviso to the
preceding sentence, a bona fide purchaser of the original Note in lieu of which
such replacement Note was issued, presents for payment such original Note, the
Issuer, the Trustee and the Note Insurer shall be entitled to recover such
replacement Note (or such payment) from the Person to whom it was delivered or
any Person taking such replacement Note from such Person to whom such
-14-
<PAGE>
replacement Note was delivered or any assignee of such Person, except a bona
fide purchaser, and shall be entitled to recover upon the security or indemnity
provided therefor to the extent of any loss, damage, cost or expense incurred by
the Issuer or the Trustee in connection therewith.
(b) Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Trustee) connected therewith.
(c) Every replacement Note issued pursuant to this Section in
replacement of any mutilated, destroyed, lost or stolen Note shall constitute an
original additional contractual obligation of the Issuer, whether or not the
mutilated, destroyed, lost or stolen Note shall be at any time enforceable by
anyone, and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
(d) The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.6. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee, the Note Insurer
and any agent of the Issuer, the Trustee or the Note Insurer may treat the
Person in whose name any Note is registered (as of the applicable Record Date)
as the owner of such Note for the purpose of receiving payments of principal of
and interest, if any, on such Note, for all other purposes whatsoever and
whether or not such Note be overdue, and none of the Issuer, the Note Insurer,
the Trustee nor any agent of the Issuer, the Note Insurer or the Trustee shall
be affected by notice to the contrary.
SECTION 2.7. Payment of Principal and Interest; Defaulted Interest. (a)
The Notes shall accrue interest as provided in the forms of the Class A-1 Note,
the Class A-2 Note, [other classes if any] set forth in Exhibits A-1, A-2,
[other classes if any] respectively, and such interest shall be payable on each
Payment Date as specified therein. Any installment of interest or principal, if
any, payable on any Note which is punctually paid or duly provided for by the
Issuer on the applicable Payment Date shall be paid to the Person in whose name
such Note (or one or more Predecessor Notes) is registered on the Record Date,
by check mailed first-class, postage prepaid, to such Person's address as it
appears on the Note Register on such Record Date, except that, unless Definitive
Notes have been issued pursuant to Section 2.12, with respect to Notes
registered on the Record Date in the name of the nominee of the Clearing Agency
(initially, such nominee to be Cede & Co.), payment will be made by wire
transfer in immediately available funds to the account designated by such
nominee, except for the final installment of principal payable with respect to
such Note on a Payment Date or on the Final Scheduled Payment Date (and except
for the Redemption Price for any Note called for redemption pursuant to Section
10.1), which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.3.
-15-
<PAGE>
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the forms of the Class A-1 Notes, the Class A-2
Notes, [other classes if any] set forth in Exhibits A-1, A-2, [other classes if
any] respectively. Notwithstanding the foregoing, the entire unpaid principal
amount of the Notes shall be due and payable, if not previously paid, on the
date on which an Event of Default shall have occurred and be continuing in the
manner and under the circumstances provided in Section 5.2. All principal
payments on each class of Notes shall be made pro rata to the Noteholders of
such class entitled thereto. Upon written notice from the Issuer, the Trustee
shall notify the Person in whose name a Note is registered at the close of
business on the Record Date preceding the Payment Date on which the Issuer
expects that the final installment of principal of and interest on such Note
will be paid. Such notice shall be mailed or transmitted by facsimile prior to
such final Payment Date and shall specify that such final installment will be
payable only upon presentation and surrender of such Note and shall specify the
place where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) at the applicable Interest Rate in any lawful manner. The
Issuer may pay such defaulted interest to the Persons who are Noteholders on a
subsequent special record date, which date shall be at least five Business Days
prior to the payment date. The Issuer shall fix or cause to be fixed any such
special record date and payment date, and, at least 15 days before any such
special record date, the Issuer shall mail to each Noteholder and the Trustee a
notice that states the special record date, the payment date and the amount of
defaulted interest to be paid.
(d) Promptly following the date on which all principal of and interest
on the Notes has been paid in full and the Notes have been surrendered to the
Trustee, the Trustee shall, if the Note Insurer has paid any amount in respect
of the Notes under the Note Policy or otherwise which has not been reimbursed to
it, deliver such surrendered Notes to the Note Insurer.
SECTION 2.8. Cancellation. Subject to Section 2.7(d), all Notes
surrendered for payment, registration of transfer, exchange or redemption shall,
if surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly canceled by the Trustee. Subject to Section 2.7(d), the
Issuer may at any time deliver to the Trustee for cancellation any Notes
previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
canceled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes canceled as provided in this Section, except as expressly
permitted by this Indenture. Subject to Section 2.7(d), all canceled Notes may
be held or disposed of by the Trustee in accordance with its standard retention
or disposal policy as in effect at the time unless the Issuer shall direct by an
Issuer Order that they be destroyed or returned to it; provided that such Issuer
Order is timely and the Notes have not been previously disposed of by the
Trustee.
-16-
<PAGE>
SECTION 2.9. Release of Collateral. The Trustee shall, on or after the
Termination Date, release any remaining portion of the Trust Estate from the
lien created by this Indenture and deposit in the Collection Account any funds
then on deposit in any other Trust Account. The Trustee shall release property
from the lien created by this Indenture pursuant to this Section 2.9 only upon
receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion
of Counsel and (if required by the TIA) Independent Certificates in accordance
with TIA ss. 314(c) and 314(d)(1) meeting the applicable requirements of Section
11.1.
SECTION 2.10. Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of typewritten Notes representing the Book-Entry Notes, to
be delivered to DTC or to the Trustee as custodian for the initial Clearing
Agency, by, or on behalf of, the Issuer. Such Notes shall initially be
registered on the Note Register in the name of Cede & Co., the nominee of the
initial Clearing Agency, and no Note Owner will receive a Definitive Note
representing such Note Owner's interest in such Note, except as provided in
Section 2.12. Unless and until definitive, fully registered Notes (the
"Definitive Notes") have been issued to Note Owners pursuant to Section 2.12:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Trustee shall be entitled to
deal with the Clearing Agency for all purposes of this Indenture
(including the payment of principal of and interest on the Notes and
the giving of instructions or directions hereunder) as the sole Holder
of the Notes, and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section
conflict with any other provisions of this Indenture, the provisions of
this Section shall control;
(iv) the rights of Note Owners shall be exercised only through
the Clearing Agency and shall be limited to those established by law
and agreements between such Note Owners and the Clearing Agency and/or
the Clearing Agency Participants. Unless and until Definitive Notes are
issued pursuant to Section 2.12, the Clearing Agency will make
book-entry transfers among the Clearing Agency Participants and receive
and transmit payments of principal of and interest on the Notes to such
Clearing Agency Participants;
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Holders of Notes
evidencing a specified percentage of the Outstanding Amount of the
Notes, the Clearing Agency shall be deemed to represent such percentage
only to the extent that it has received instructions to such effect
from Note Owners and/or Clearing Agency Participants owning or
representing, respectively, such required percentage of the beneficial
interest in the Notes and has delivered such instructions to the
Trustee; and
-17-
<PAGE>
(vi) Note Owners may receive copies of any reports sent to
Noteholders pursuant to this Indenture, upon written request, together
with a certification that they are Note Owners and payment of
reproduction and postage expenses associated with the distribution of
such reports, from the Trustee at the Corporate Trust Office.
SECTION 2.11. Notices to Clearing Agency. Whenever a notice or other
communication to the Class A Noteholders is required under this Indenture,
unless and until Definitive Notes shall have been issued to Note Owners pursuant
to Section 2.12, the Trustee shall give all such notices and communications
specified herein to be given to Holders of the Notes to the Clearing Agency and
shall have no obligation to deliver such notices or communications to the Note
Owners.
SECTION 2.12. Definitive Notes. If (i) the Servicer advises the Trustee
in writing that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Notes, and the Servicer is
unable to locate a qualified successor, (ii) the Servicer at its option advises
the Trustee in writing that it elects to terminate the book-entry system through
the Clearing Agency or (iii) after the occurrence of an Event of Default, Note
Owners representing beneficial interests aggregating at least a majority of the
Outstanding Amount of the Notes advise the Trustee through the Clearing Agency
in writing that the continuation of a book entry system through the Clearing
Agency is no longer in the best interests of the Note Owners, then the Clearing
Agency shall notify all Note Owners and the Trustee of the occurrence of any
such event and of the availability of Definitive Notes to Note Owners requesting
the same. Upon surrender to the Trustee of the typewritten Note or Notes
representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Trustee shall
authenticate the Definitive Notes in accordance with the instructions of the
Clearing Agency. None of the Issuer, the Note Registrar or the Trustee shall be
liable for any delay in delivery of such instructions and may conclusively rely
on, and shall be protected in relying on, such instructions. Upon the issuance
of Definitive Notes, the Trustee shall recognize the Holders of the Definitive
Notes as Class A Noteholders.
ARTICLE III
Covenants
SECTION 3.1. Payment of Principal and Interest. The Issuer will duly
and punctually pay the principal of and interest on the Notes in accordance with
the terms of the Notes and this Indenture. Without limiting the foregoing, the
Issuer will cause to be distributed on each Payment Date all amounts deposited
in the Note Distribution Account pursuant to the Sale and Servicing Agreement
(i) for the benefit of the Class A-1 Notes, to the Class A-1 Noteholders, (ii)
for the benefit of the Class A-2 Notes, to the Class A-2 Noteholders, (iii) for
the benefit of the Class A-3 Notes, to the Class A-3 Noteholders and (iv) for
the benefit of the Class A-4 Notes, to the Class A-4 Noteholders. Amounts
properly withheld under the Code by any Person from a
-18-
<PAGE>
payment to any Noteholder of interest and/or principal shall be considered as
having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
SECTION 3.2. Maintenance of Office or Agency. The Issuer will maintain
in Minneapolis, Minnesota, an office or agency where Notes may be surrendered
for registration of transfer or exchange, and where notices and demands to or
upon the Issuer in respect of the Notes and this Indenture may be served. The
Issuer hereby initially appoints the Trustee to serve as its agent for the
foregoing purposes. The Issuer will give prompt written notice to the Trustee of
the location, and of any change in the location, of any such office or agency.
If at any time the Issuer shall fail to maintain any such office or agency or
shall fail to furnish the Trustee with the address thereof, such surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Issuer hereby appoints the Trustee as its agent to receive all such surrenders,
notices and demands.
SECTION 3.3. Money for Payments to be Held in Trust. (a) On or before
each Payment Date and Redemption Date, the Issuer shall deposit or cause to be
deposited in the Note Distribution Account from the Collection Account an
aggregate sum sufficient to pay the amounts then becoming due under the Notes,
such sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Note Paying Agent is the Trustee) shall promptly notify the Trustee
of its action or failure so to act.
(b) The Issuer shall cause each Note Paying Agent other than the
Trustee to execute and deliver to the Trustee and the Note Insurer an instrument
in which such Note Paying Agent shall agree with the Trustee (and if the Trustee
acts as Note Paying Agent, it hereby so agrees), subject to the provisions of
this Section, that such Note Paying Agent shall:
(i) hold all sums held by it for the payment of amounts due
with respect to the Notes in trust for the benefit of the Persons
entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and pay such sums to such
Persons as herein provided;
(ii) give the Trustee notice of any default by the Issuer (or
any other obligor upon the Notes) of which it has actual knowledge in
the making of any payment required to be made with respect to the
Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Note Paying Agent;
(iv) immediately resign as a Note Paying Agent and forthwith
pay to the Trustee all sums held by it in trust for the payment of
Notes if at any time it ceases to meet the standards required to be met
by a Note Paying Agent at the time of its appointment; and
-19-
<PAGE>
(v) comply with all requirements of the Code with respect to
the withholding from any payments made by it on any Notes of any
applicable withholding taxes imposed thereon and with respect to any
applicable reporting requirements in connection therewith.
(c) The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Note Paying Agent to pay to the Trustee all sums held in trust
by such Note Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which the sums were held by such Note Paying Agent; and
upon such a payment by any Note Paying Agent to the Trustee, such Note Paying
Agent shall be released from all further liability with respect to such money.
(d) Subject to applicable laws with respect to the escheat of funds,
any money held by the Trustee or any Note Paying Agent in trust for the payment
of any amount due with respect to any Note and remaining unclaimed for two years
after such amount has become due and payable shall be discharged from such trust
and be paid to the Issuer on Issuer Request with the consent of the Note Insurer
(unless an Insurer Default shall have occurred and be continuing) and shall be
deposited by the Trustee in the Collection Account; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Trustee or such Note Paying Agent with respect to such
trust money shall thereupon cease; provided, however, that if such money or any
portion thereof had been previously deposited by the Note Insurer with the
Trustee for the payment of principal or interest on the Notes, to the extent any
amounts are owing to the Note Insurer, such amounts shall be paid promptly to
the Note Insurer upon receipt of a written request by the Note Insurer to such
effect, and provided, further, that the Trustee or such Note Paying Agent,
before being required to make any such repayment, shall at the expense of the
Issuer cause to be published once, in a newspaper published in the English
language, customarily published on each Business Day and of general circulation
in the City of New York, notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Issuer. The Trustee shall also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Trustee or of any Note Paying
Agent, at the last address of record for each such Holder).
SECTION 3.4. Existence. Except as otherwise permitted by the provisions
of Section 3.10, the Issuer will keep in full effect its existence, rights and
franchises as a business trust under the laws of the State of Delaware (unless
it becomes, or any successor Issuer hereunder is or becomes, organized under the
laws of any other state or of the United States of America, in which case the
Issuer will keep in full effect its existence, rights and franchises under the
laws of such other jurisdiction) and will obtain and preserve its qualification
to do
-20-
<PAGE>
business in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Indenture, the
Notes, the Collateral and each other instrument or agreement included in the
Trust Estate.
SECTION 3.5. Protection of Trust Estate. The Issuer intends the
security interest Granted pursuant to this Indenture in favor of the Issuer
Secured Parties to be prior to all other liens in respect of the Trust Estate,
and the Issuer shall take all actions necessary to obtain and maintain, in favor
of the Trustee, for the benefit of the Issuer Secured Parties, a first lien on
and a first priority, perfected security interest in the Trust Estate. The
Issuer will from time to time prepare (or shall cause to be prepared), execute
and deliver all such supplements and amendments hereto and all such financing
statements, continuation statements, instruments of further assurance and other
instruments, and will take such other action necessary or advisable to:
(i) Grant more effectively all or any portion of the Trust
Estate;
(ii) maintain or preserve the lien and security interest (and
the priority thereof) in favor of the Trustee for the benefit of the
Issuer Secured Parties created by this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of
any Grant made or to be made by this Indenture;
(iv) enforce any of the collateral;
(v) preserve and defend title to the Trust Estate and the
rights of the Trustee in such Trust Estate against the claims of all
persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the
Trust Estate when due.
The Issuer hereby designates the Trustee its agent and attorney-in-fact to
execute any financing statement, continuation statement or other instrument
required by the Trustee pursuant to this Section.
SECTION 3.6. Opinions as to Trust Estate. (a) On the Closing Date, the
Issuer shall furnish to the Trustee and the Note Insurer an Opinion of Counsel
either stating that, in the opinion of such counsel, such action has been taken
with respect to the recording and filing of this Indenture, any indentures
supplemental hereto, and any other requisite documents, and with respect to the
execution and filing of any financing statements and continuation statements, as
are necessary to perfect and make effective the first priority lien and security
interest in favor of the Trustee, for the benefit of the Issuer Secured Parties,
created by this Indenture and reciting
-21-
<PAGE>
the details of such action, or stating that, in the opinion of such counsel, no
such action is necessary to make such lien and security interest effective.
(b) Within 90 days after the beginning of each calendar year, beginning
with the first calendar year beginning more than three months after the Cutoff
Date, the Issuer shall furnish to the Trustee and the Note Insurer an Opinion of
Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording, filing, re-recording and refiling of
this Indenture, any indentures supplemental hereto and any other requisite
documents and with respect to the execution and filing of any financing
statements and continuation statements as are necessary to maintain the lien and
security interest created by this Indenture and reciting the details of such
action or stating that in the opinion of such counsel no such action is
necessary to maintain such lien and security interest. Such Opinion of Counsel
shall also describe any action necessary (as of the date of such opinion) to be
taken in the following year to maintain the lien and security interest of this
Indenture.
SECTION 3.7. Performance of Obligations; Servicing of Receivables. (a)
The Issuer will not take any action and will use its best efforts not to permit
any action to be taken by others that would release any Person from any of such
Person's material covenants or obligations under any instrument or agreement
included in the Trust Estate or that would result in the amendment,
hypothecation, subordination, termination or discharge of or impair the validity
or effectiveness of, any such instrument or agreement, except as ordered by any
bankruptcy or other court or as expressly provided in this Indenture, the Basic
Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons acceptable to the Note
Insurer (so long as no Insurer Default shall have occurred and be continuing) to
assist it in performing its duties under this Indenture, and any performance of
such duties by a Person identified to the Trustee and the Note Insurer in an
Officer's Certificate of the Issuer shall be deemed to be action taken by the
Issuer. Initially, the Issuer has contracted with the Servicer to assist the
Issuer in performing its duties under this Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Estate, including but
not limited to preparing (or causing to prepared) and filing (or causing to be
filed) all UCC financing statements and continuation statements required to be
filed by the terms of this Indenture and the Sale and Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Trustee, the Note Insurer or the Holders of
at least a majority of the Outstanding Amount of the Notes.
(d) If a responsible officer of the Owner Trustee shall have written
notice or actual knowledge of the occurrence of a Servicer Termination Event
under the Sale and Servicing
-22-
<PAGE>
Agreement, the Issuer shall promptly notify the Trustee, the Note Insurer and
the Rating Agencies thereof in accordance with Section 11.4, and shall specify
in such notice the action, if any, the Issuer is taking in respect of such
default. If a Servicer Termination Event shall arise from the failure of the
Servicer to perform any of its duties or obligations under the Sale and
Servicing Agreement with respect to the Receivables, the Issuer shall take all
reasonable steps available to it to remedy such failure.
(e) The Issuer agrees that it will not waive timely performance or
observance by the Servicer or the Seller of their respective duties under the
Basic Documents (x) without the prior consent of the Note Insurer (unless an
Insurer Default shall have occurred and be continuing) or (y) if the effect
thereof would adversely affect the Holders of the Notes.
SECTION 3.8. Negative Covenants. So long as any Notes are Outstanding,
the Issuer shall not:
(i) except as expressly permitted by this Indenture or the
Basic Documents, sell, transfer, exchange or otherwise dispose of any
of the properties or assets of the Issuer, including those included in
the Trust Estate, unless directed to do so by the Controlling Party;
(ii) claim any credit on, or make any deduction from the
principal or interest payable in respect of, the Notes (other than
amounts properly withheld from such payments under the Code) or assert
any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust
Estate; or
(iii) (A) permit the validity or effectiveness of this
Indenture to be impaired, or permit the lien in favor of the Trustee
created by this Indenture to be amended, hypothecated, subordinated,
terminated or discharged, or permit any Person to be released from any
covenants or obligations with respect to the Notes under this Indenture
except as may be expressly permitted hereby, (B) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance
(other than the lien of this Indenture) to be created on or extend to
or otherwise arise upon or burden the Trust Estate or any part thereof
or any interest therein or the proceeds thereof (other than tax liens,
mechanics' liens and other liens that arise by operation of law, in
each case on a Financed Vehicle and arising solely as a result of an
action or omission of the related Obligor), (C) permit the lien of this
Indenture not to constitute a valid first priority (other than with
respect to any such tax, mechanics' or other lien) security interest in
the Trust Estate or (D) amend, modify or fail to comply with the
provisions of the Basic Documents without the prior written consent of
the Controlling Party.
SECTION 3.9. Annual Statement as to Compliance. The Issuer will deliver
to the Trustee and the Note Insurer, on or before July 31 of each year,
beginning July 31, [ ]and
-23-
<PAGE>
otherwise in compliance with the requirements of TIA Section 314(a)(4) an
Officer's Certificate, dated as of March 31 of such year, stating, as to the
Authorized Officer signing such Officer's Certificate, that
(i) a review of the activities of the Issuer during such year
and of performance under this Indenture has been made under such
Authorized Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based
on such review, the Issuer has complied with all conditions and
covenants under this Indenture throughout such year, or, if there has
been a default in the compliance of any such condition or covenant,
specifying each such default known to such Authorized Officer and the
nature and status thereof.
SECTION 3.10. Issuer May Consolidate, Etc. Only on Certain Terms. (a)
The Issuer shall not consolidate or merge with or into any other Person, unless
(i) the Person (if other than the Issuer) formed by or
surviving such consolidation or merger shall be a Delaware Business
Trust organized and existing under the laws of the United States of
America or any state and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee and the Note Insurer (so long as no Insurer
Default shall have occurred and be continuing), the due and punctual
payment of the principal of and interest on all Notes and the
performance or observance of every agreement and covenant of this
Indenture on the part of the Issuer to be performed or observed, all as
provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee and the Note Insurer
(so long as no Insurer Default shall have occurred and be continuing))
to the effect that such transaction will not have any material adverse
tax consequence to the Trust, the Note Insurer, any Noteholder or any
Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation or merger and such supplemental indenture comply with
this Article III and that all conditions precedent herein provided
-24-
<PAGE>
for relating to such transaction have been complied with (including any
filing required by the Exchange Act); and
(vii) so long as no Insurer Default shall have occurred and be
continuing, the Issuer shall have given the Note Insurer written notice
of such conveyance or transfer at least 20 Business Days prior to the
consummation of such action and shall have received the prior written
approval of the Note Insurer of such conveyance or transfer and the
Issuer or the Person (if other than the Issuer) formed by or surviving
such conveyance or transfer has a net worth, immediately after such
conveyance or transfer, that is (a) greater than zero and (b) not less
than the net worth of the Issuer immediately prior to giving effect to
such conveyance or transfer.
(b) The Issuer shall not convey or transfer all or substantially all of
its properties or assets, including those included in the Trust Estate, to any
Person, unless
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer the conveyance or transfer of which
is hereby restricted shall (A) be a Delaware Business Trust organized
and existing under the laws of the United States of America or any
state, (B) expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, and the Note Insurer (so long as no Insurer Default shall have
occurred and be continuing), the due and punctual payment of the
principal of and interest on all Notes and the performance or
observance of every agreement and covenant of this Indenture and each
of the Basic Documents on the part of the Issuer to be performed or
observed, all as provided herein, (C) expressly agree by means of such
supplemental indenture that all right, title and interest so conveyed
or transferred shall be subject and subordinate to the rights of
Holders of the Notes, (D) unless otherwise provided in such
supplemental indenture, expressly agree to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense
arising under or related to this Indenture and the Notes and (E)
expressly agree by means of such supplemental indenture that such
Person (or if a group of persons, then one specified Person) shall
prepare (or cause to be prepared) and make all filings with the
Commission (and any other appropriate Person) required by the Exchange
Act in connection with the Notes;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied
with respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel (and
shall have delivered copies thereof to the Trustee and the Note Insurer
(so long as no Insurer Default shall have occurred and be continuing))
to the effect that such transaction will not
-25-
<PAGE>
have any material adverse tax consequence to the Trust, the Note
Insurer, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and
security interest created by this Indenture shall have been taken; and
(vi) the Issuer shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
conveyance or transfer and such supplemental indenture comply with this
Article III and that all conditions precedent herein provided for
relating to such transaction have been complied with (including any
filing required by the Exchange Act); and
(vii) so long as no Insurer Default shall have occurred and be
continuing, the Issuer shall have given the Note Insurer written notice
of such conveyance or transfer at least 20 Business Days prior to the
consummation of such action and shall have received the prior written
approval of the Note Insurer of such consolidation or merger and the
Issuer or the Person (if other than the Issuer) formed by or surviving
such consolidation or merger has a net worth, immediately after such
consolidation or merger, that is (a) greater than zero and (b) not less
than the net worth of the Issuer immediately prior to giving effect to
such consolidation or merger.
SECTION 3.11. Successor or Transferee. (a) Upon any consolidation or
merger of the Issuer in accordance with Section 3.10(a), the Person formed by or
surviving such consolidation or merger (if other than the Issuer) shall succeed
to, and be substituted for, and may exercise every right and power of, the
Issuer under this Indenture with the same effect as if such Person had been
named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of
the Issuer pursuant to Section 3.10(b), CPS Auto Receivables Trust 1998[ ]-[ ]
will be released from every covenant and agreement of this Indenture to be
observed or performed on the part of the Issuer with respect to the Notes
immediately upon the delivery of written notice to the Trustee stating that CPS
Auto Receivables Trust 1998[ ]-[ ] is to be so released.
SECTION 3.12. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Receivables in the manner contemplated by this Indenture and the Basic Documents
and activities incidental thereto. After the Closing Date, the Issuer shall not
fund the purchase of any additional Receivables.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes (ii) obligations owing from time to time
to the Note Insurer under the Insurance Agreement and (iii) any other
Indebtedness permitted by or arising under the Basic Documents. The proceeds of
the Notes shall be used exclusively to fund the Issuer's purchase of the
Receivables and the other
-26-
<PAGE>
assets specified in the Sale and Servicing Agreement, to fund the Spread Account
and to pay the Issuer's organizational, transactional and start-up expenses.
SECTION 3.14. Servicer's Obligations. The Issuer shall cause the
Servicer to comply with Sections 4.9, 4.10, 4.11 and 5.11 of the Sale and
Servicing Agreement.
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities. Except
as contemplated by the Sale and Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having the effect of assuring another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.16. Capital Expenditures. The Issuer shall not make any
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personalty).
SECTION 3.17. Compliance with Laws. The Issuer shall comply with the
requirements of all applicable laws, the non-compliance with which would,
individually or in the aggregate, materially and adversely affect the ability of
the Issuer to perform its obligations under the Notes, this Indenture or any
Basic Document.
SECTION 3.18. Restricted Payments. The Issuer shall not, directly or
indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
to the Servicer, the Owner Trustee, the Trustee and the Certificateholders as
permitted by, and to the extent funds are available for such purpose under, the
Sale and Servicing Agreement or the Trust Agreement. The Issuer will not,
directly or indirectly, make payments to or distributions from the Collection
Account except in accordance with this Indenture and the Basic Documents.
SECTION 3.19. Notice of Events of Default. Upon a responsible officer
of the Owner Trustee having notice or actual knowledge thereof, the Issuer
agrees to give the Trustee, the Note Insurer and the Rating Agencies prompt
written notice of each Event of Default hereunder and each default on the part
of the Servicer or the Seller of its obligations under the Sale and Servicing
Agreement.
-27-
<PAGE>
SECTION 3.20. Further Instruments and Acts. Upon request of the Trustee
or the Note Insurer, the Issuer will execute and deliver such further
instruments and do such further acts as may be reasonably necessary or proper to
carry out more effectively the purpose of this Indenture.
SECTION 3.21. Amendments of Sale and Servicing Agreement and Trust
Agreement. The Issuer shall not agree to any amendment to Section 13.1 of the
Sale and Servicing Agreement or Section 11.1 of the Trust Agreement to eliminate
the requirements thereunder that the Trustee or the Holders of the Notes consent
to amendments thereto as provided therein.
SECTION 3.22. Income Tax Characterization. For purposes of federal
income tax, state and local income tax franchise tax and any other income taxes,
the Issuer will treat the Notes as indebtedness of the Issuer and hereby
instructs the Trustee to treat the Notes as indebtedness of the Issuer for
federal and state tax reporting purposes.
ARTICLE IV
Satisfaction and Discharge
SECTION 4.1. Satisfaction and Discharge of Indenture. This Indenture
shall cease to be of further effect with respect to the Notes except as to (i)
rights of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8,
3.10, 3.12, 3.13, 3.20, 3.21 and 3.22, (v) the rights, obligations and
immunities of the Trustee hereunder (including the rights of the Trustee under
Section 6.7 and the obligations of the Trustee under Section 4.2) and (vi) the
rights of Noteholders as beneficiaries hereof with respect to the property so
deposited with the Trustee payable to all or any of them, and the Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when
(A) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 2.5 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to the
Issuer or discharged from such trust, as provided in Section 3.3) have
been delivered to the Trustee for cancellation and the Note Policy has
expired and been returned to the Note Insurer for cancellation;
(B) the Issuer has paid or caused to be paid all Insurer
Secured Obligations and all Trustee Secured Obligations; and
-28-
<PAGE>
(C) the Issuer has delivered (i) to the Trustee and the Note
Insurer an Officer's Certificate, an Opinion of Counsel and (ii) if
required by the TIA, to the Trustee or the Note Insurer (so long as an
Insurer Default shall not have occurred and be continuing) an
Independent Certificate from a firm of certified public accountants,
each meeting the applicable requirements of Section 11.1(a) and each
stating that all conditions precedent herein provided for relating to
the satisfaction and discharge of this Indenture have been complied
with.
SECTION 4.2. Application of Trust Money. All moneys deposited with the
Trustee pursuant to Section 4.1 hereof shall be held in trust and applied by it,
in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Note Paying Agent, as the Trustee may
determine, to the Holders of the particular Notes for the payment or redemption
of which such moneys have been deposited with the Trustee, of all sums due and
to become due thereon for principal and interest; but such moneys need not be
segregated from other funds except to the extent required herein or in the Sale
and Servicing Agreement or required by law.
SECTION 4.3. Repayment of Moneys Held by Note Paying Agent. In
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all moneys then held by any Note Paying Agent other than the Trustee
under the provisions of this Indenture with respect to such Notes shall, upon
demand of the Issuer, be paid to the Trustee to be held and applied according to
Section 3.3 and thereupon such Note Paying Agent shall be released from all
further liability with respect to such moneys.
ARTICLE V
Remedies
SECTION 5.1. Events of Default. (a) "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when
the same becomes due and payable, and such default shall continue for a
period of five days (solely for purposes of this clause, a payment on
the Notes funded by the Note Insurer or the Collateral Agent pursuant
to the Master Spread Account Agreement shall be deemed to be a payment
made by the Issuer); or
(ii) default in the payment of the principal of or any
installment of the principal of any Note when the same becomes due and
payable and such default shall continue for
-29-
<PAGE>
a period of five days (solely for purposes of this clause, a payment on
the Notes funded by the Note Insurer or the Collateral Agent pursuant
to the Master Spread Account Agreement, shall be deemed to be a payment
made by the Issuer); or
(iii) so long as an Insurer Default shall not have occurred
and be continuing, an Insurance Agreement Indenture Cross Default shall
have occurred; provided, however, that the occurrence of an Insurance
Agreement Indenture Cross Default may not form the basis of an Event of
Default unless the Note Insurer shall, upon prior written notice to the
Rating Agencies, have delivered to the Issuer and the Trustee and not
rescinded a written notice specifying that such Insurance Agreement
Indenture Cross Default constitutes an Event of Default under the
Indenture; or
(iv) so long as an Insurer Default shall have occurred and be
continuing, default in the observance or performance of any covenant or
agreement of the Issuer made in this Indenture (other than a covenant
or agreement, a default in the observance or performance of which is
elsewhere in this Section specifically dealt with), or any
representation or warranty of the Issuer made in this Indenture or in
any certificate or other writing delivered pursuant hereto or in
connection herewith proving to have been incorrect in any material
respect as of the time when the same shall have been made, and such
default shall continue or not be cured, or the circumstance or
condition in respect of which such misrepresentation or warranty was
incorrect shall not have been eliminated or otherwise cured, for a
period of 30 days (or for such longer period, not in excess of 90 days,
as may be reasonably necessary to remedy such default; provided that
such default is capable of remedy within 90 days or less and the
Servicer on behalf of the Owner Trustee delivers an Officer's
Certificate to the Trustee to the effect that the Issuer has commenced,
or will promptly commence and diligently pursue, all reasonable efforts
to remedy such default) after there shall have been given, by
registered or certified mail, to the Issuer by the Trustee or to the
Issuer and the Trustee by the Holders of at least 25% of the
Outstanding Amount of the Notes, a written notice specifying such
default or incorrect representation or warranty and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(v) so long as an Insurer Default shall have occurred and be
continuing, the filing of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Issuer or any
substantial part of the Trust Estate in an involuntary case under any
applicable Federal or state bankruptcy, insolvency or other similar law
now or hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust Estate, or ordering the
winding-up or liquidation of the Issuer's affairs, which decree or
order shall remain unstayed and in effect for a period of 60
consecutive days; or
(vi) so long as an Insurer Default shall have occurred and be
continuing, the commencement by the Issuer of a voluntary case under
any applicable Federal or state
-30-
<PAGE>
bankruptcy, insolvency or other similar law now or hereafter in effect,
or the consent by the Issuer to the entry of an order for relief in an
involuntary case under any such law, or the consent by the Issuer to
the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Issuer or for any substantial part of the Trust Estate, or the making
by the Issuer of any general assignment for the benefit of creditors,
or the failure by the Issuer generally to pay its debts as such debts
become due, or the taking of action by the Issuer in furtherance of any
of the foregoing.
(b) The Issuer shall deliver to the Trustee and the Note Insurer,
within five days after the occurrence thereof, written notice in the form of an
Officer's Certificate of any event which with the giving of notice and the lapse
of time would become an Event of Default under clause (iii), its status and what
action the Issuer is taking or proposes to take with respect thereto.
SECTION 5.2. Rights Upon Event of Default. (a) If an Insurer Default
shall not have occurred and be continuing and an Event of Default shall have
occurred and be continuing, the Notes shall become immediately due and payable
at par, together with accrued interest thereon. If an Event of Default shall
have occurred and be continuing, the Controlling Party may exercise any of the
remedies specified in Section 5.4(a). In the event of any acceleration of any
Notes by operation of this Section 5.2, the Trustee shall continue to be
entitled to make claims under the Note Policy pursuant to the Sale and Servicing
Agreement for Scheduled Payments on the Notes. Payments under the Note Policy
following acceleration of any Notes shall be applied by the Trustee:
FIRST: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest;
SECOND: to Class A-1 Noteholders for amounts due and unpaid on
the Notes for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the A-1 Notes for
principal;
THIRD: to Class A-2 Noteholders for amounts due and unpaid on
the Notes for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Class A-2 Notes
for principal;
[other classes, if any]
(b) In the event any Notes are accelerated due to an Event of Default,
the Note Insurer shall have the right (in addition to its obligation to pay
Scheduled Payments on the Notes in accordance with the Note Policy), but not the
obligation, to make payments under the Note
-31-
<PAGE>
Policy or otherwise of interest and principal due on such Notes, in whole or in
part, on any date or dates following such acceleration as the Note Insurer, in
its sole discretion, shall elect.
(c) If an Insurer Default shall have occurred and be continuing and an
Event of Default shall have occurred and be continuing, the Trustee in its
discretion may, or if so requested in writing by Holders holding Notes
representing not less than a majority of the Outstanding Amount of the Notes,
declare by written notice to the Issuer that the Notes become, whereupon they
shall become, immediately due and payable at par, together with accrued interest
thereon.
(d) If an Insurer Default shall have occurred and be continuing, then
at any time after such declaration of acceleration of maturity has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article V provided, the Holders of Notes
representing a majority of the Outstanding Amount of the Notes, by written
notice to the Issuer and the Trustee, may rescind and annul such declaration and
its consequences if:
(i) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all payments of principal of and interest on all
Notes and all other amounts that would then be due hereunder
or upon such Notes if the Event of Default giving rise to such
acceleration had not occurred; and
(B) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee and its agents and
counsel; and
(ii) all Events of Default, other than the nonpayment of the
principal of the Notes that has become due solely by such acceleration,
have been cured or waived as provided in Section 5.12.
No such rescission shall affect any subsequent default or impair any
right consequent thereto.
SECTION 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee. (a) The Issuer covenants that if (i) default is made in the payment of
any interest on any Note when the same becomes due and payable, and such default
continues for a period of five days, or (ii) default is made in the payment of
the principal of or any installment of the principal of any Note when the same
becomes due and payable and such default continues for a period of five days,
the Issuer will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of the Notes, the whole amount then due and payable on such Notes for
principal and interest, with interest upon the overdue principal, and, to the
extent payment at such rate of interest shall be legally enforceable, upon
overdue installments of interest, at the applicable Interest Rate and in
addition thereto such further amount as shall be sufficient to cover the costs
and expenses of collection,
-32-
<PAGE>
including the reasonable compensation, expenses, disbursements and advances of
the Trustee and its agents and counsel.
(b) Each Issuer Secured Party hereby irrevocably and unconditionally
appoints the Controlling Party as the true and lawful attorney-in-fact of such
Issuer Secured Party for so long as such Issuer Secured Party is not the
Controlling Party, with full power of substitution, to execute, acknowledge and
deliver any notice, document, certificate, paper, pleading or instrument and to
do in the name of the Controlling Party as well as in the name, place and stead
of such Issuer Secured Party such acts, things and deeds for or on behalf of and
in the name of such Issuer Secured Party under this Indenture (including
specifically under Section 5.4) and under the Basic Documents which such Issuer
Secured Party could or might do or which may be necessary, desirable or
convenient in such Controlling Party's sole discretion to effect the purposes
contemplated hereunder and under the Basic Documents and, without limitation,
following the occurrence of an Event of Default, exercise full right, power and
authority to take, or defer from taking, any and all acts with respect to the
administration, maintenance or disposition of the Trust Estate.
(c) If an Event of Default occurs and is continuing, the Trustee may in
its discretion subject to the consent of the Controlling Party and shall, at the
direction of the Controlling Party (except as provided in Section 5.3(d) below),
proceed to protect and enforce its rights and the rights of the Noteholders by
such appropriate Proceedings as the Trustee or the Controlling Party shall deem
most effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Trustee by this Indenture or by law.
(d) [Reserved].
(e) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Trust Estate, proceedings under Title 11 of the United States Code or any
other applicable Federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Trustee, irrespective of whether the principal of any
Notes shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount
of principal and interest owing and unpaid in respect of the Notes and
to file such other papers or
-33-
<PAGE>
documents as may be necessary or advisable in order to have the claims
of the Trustee (including any claim for reasonable compensation to the
Trustee and each predecessor Trustee, and their respective agents,
attorneys and counsel, and for reimbursement of all expenses and
liabilities incurred, and all advances made, by the Trustee and each
predecessor Trustee, except as a result of negligence, bad faith or
willful misconduct) and of the Noteholders allowed in such proceedings;
(ii) unless prohibited by applicable law and regulations, to
vote on behalf of the Holders of Notes in any election of a trustee, a
standby trustee or person performing similar functions in any such
proceedings;
(iii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute all amounts
received with respect to the claims of the Noteholders and of the
Trustee on their behalf; and
(iv) to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims
of the Trustee or the Holders of Notes allowed in any judicial
proceedings relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such proceeding is hereby authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of payments directly to such Noteholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
(f) Nothing herein contained shall be deemed to authorize the Trustee
to authorize or consent to or vote for or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar person.
(g) All rights of action and of asserting claims under this Indenture,
the Master Spread Account Agreement or under any of the Notes, may be enforced
by the Trustee without the possession of any of the Notes or the production
thereof in any trial or other proceedings relative thereto, and any such action
or proceedings instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment, subject to the
payment of the expenses, disbursements and compensation of the Trustee, each
predecessor Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
-34-
<PAGE>
(h) In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture or the Master
Spread Account Agreement), the Trustee shall be held to represent all the
Holders of the Notes, and it shall not be necessary to make any Noteholder a
party to any such proceedings.
SECTION 5.4. Remedies. If an Event of Default shall have occurred and
be continuing, the Controlling Party may do one or more of the following
(subject to Section 5.5):
(i) institute or direct the Trustee to institute Proceedings
in its own name and as trustee of an express trust for the collection
of all amounts then payable on the Notes or under this Indenture with
respect thereto, whether by declaration or otherwise, enforce any
judgment obtained, and collect from the Issuer and any other obligor
upon such Notes moneys adjudged due;
(ii) institute or direct the Trustee to institute Proceedings
from time to time for the complete or partial foreclosure of this
Indenture with respect to the Trust Estate;
(iii) exercise or direct the Trustee to exercise any remedies
of a secured party under the UCC and take any other appropriate action
to protect and enforce the rights and remedies of the Trustee and the
Holders of the Notes; and
(iv) sell or direct the Trustee to sell the Trust Estate or
any portion thereof or rights or interest therein, at one or more
public or private sales called and conducted in any manner permitted by
law; provided, however, that if the Trustee is the Controlling Party,
the Trustee may not sell or otherwise liquidate the Trust Estate
following an Event of Default unless
(A) such Event of Default is of the type described in
Section 5.1(i) or (ii), or
(B) either
(x) the Holders of 100% of the Outstanding
Amount of the Notes consent thereto, or
(y) the proceeds of such sale or liquidation
distributable to the Noteholders are sufficient to
discharge in full all amounts then due and unpaid
upon such Notes for principal and interest.
In determining such sufficiency or insufficiency with respect to clause
(y), the Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
-35-
<PAGE>
SECTION 5.5. Optional Preservation of the Receivables. If the Trustee
is the Controlling Party and if the Notes have been declared to be due and
payable under Section 5.2 following an Event of Default and such declaration and
its consequences have not been rescinded and annulled, the Trustee may, but need
not, elect to maintain possession of the Trust Estate. It is the desire of the
parties hereto and the Noteholders that there be at all times sufficient funds
for the payment of principal of and interest on the Notes, and the Trustee shall
take such desire into account when determining whether or not to maintain
possession of the Trust Estate. In determining whether to maintain possession of
the Trust Estate, the Trustee may, but need not, obtain and rely upon an opinion
of an Independent investment banking or accounting firm of national reputation
as to the feasibility of such proposed action and as to the sufficiency of the
Trust Estate for such purpose.
SECTION 5.6. Priorities.
(a) Following (1) the acceleration of the Notes pursuant to Section 5.2
or (2) if an Insurer Default shall have occurred and be continuing, the
occurrence of an Event of Default pursuant to Section 5.1(i), 5.1(ii), 5.1(iv),
5.1(v) or 5.1(vi) of this Indenture the Total Distribution Amount, including any
money or property collected pursuant to Section 5.4 of this Indenture shall be
applied by the Trustee on the related Payment Date in the following order of
priority:
FIRST: amounts due and owing and required to be distributed to
the Servicer, the Standby Servicer, the Owner Trustee, the Trustee and
the Collateral Agent, respectively, pursuant to priorities (i) through
(v) of Section 5.7(b) of the Sale and Servicing Agreement and not
previously distributed, in the order of such priorities and without
preference or priority of any kind within such priorities;
SECOND: to Noteholders for amounts due and unpaid on the Notes
for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for interest;
THIRD: to Class A-1 Noteholders for amounts due and unpaid on
the Notes for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Class A-1 Notes
for principal;
FOURTH: to Class A-2 Noteholders for amounts due and unpaid on
the Notes for principal, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Class A-2 Notes
for principal;
[other classes of Notes, if any]
FIFTH: amounts due and owing and required to be distributed to
the Note Insurer pursuant to priority (viii) of Section 5.7(b) of the
Sale and Servicing Agreement and not previously distributed);
-36-
<PAGE>
SIXTH: in the event any Person other than the Standby Servicer
becomes the successor Servicer, to such successor Servicer, to the
extent not previously paid by the predecessor Servicer pursuant to the
Sale and Servicing Agreement, reasonable transition expenses (up to a
maximum of $50,000 for all such expenses) incurred in becoming the
successor Servicer; and
SEVENTH: to the Collateral Agent to be applied as provided in
the Master Spread Account Agreement.
(b) The Trustee may fix a record date and payment date for any payment
to Noteholders pursuant to this Section. At least 15 days before such record
date the Issuer shall mail to each Noteholder and the Trustee a notice that
states such record date, the payment date and the amount to be paid.
SECTION 5.7. Limitation of Suits. No Holder of any Note shall have any
right to institute any proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding
Amount of the Notes have made written request to the Trustee to
institute such proceeding in respect of such Event of Default in its
own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute such
proceedings;
(v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority of the Outstanding Amount of the Notes; and
(vi) an Insurer Default shall have occurred and be continuing;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
-37-
<PAGE>
In the event the Trustee shall receive conflicting or inconsistent
requests and indemnity from two or more groups of Holders of Notes, each
representing less than a majority of the Outstanding Amount of the Notes, the
Trustee in its sole discretion may determine what action, if any, shall be
taken, notwithstanding any other provisions of this Indenture.
SECTION 5.8. Unconditional Rights of Noteholders To Receive Principal
and Interest. Notwithstanding any other provisions of this Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest, if any, on such Note on or
after the respective due dates thereof expressed in such Note or in this
Indenture (or, in the case of redemption, on or after the Redemption Date) and
to institute suit for the enforcement of any such payment, and such right shall
not be impaired without the consent of such Holder.
SECTION 5.9. Restoration of Rights and Remedies. If the Controlling
Party or any Noteholder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Trustee or to
such Noteholder, then and in every such case the Issuer, the Trustee and the
Noteholders shall, subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Noteholders shall continue as
though no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Controlling Party or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. Delay or Omission Not a Waiver. No delay or omission of
the Controlling Party or any Holder of any Note to exercise any right or remedy
accruing upon any Default or Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article V or by law
to the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 5.12. Control by Noteholders. If the Trustee is the Controlling
Party, the Holders of a majority of the Outstanding Amount of the Notes shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee with respect to the Notes or exercising
any trust or power conferred on the Trustee; provided that
-38-
<PAGE>
(i) such direction shall not be in conflict with any rule of
law or with this Indenture;
(ii) subject to the express terms of Section 5.4, any
direction to the Trustee to sell or liquidate the Trust Estate shall be
by the Holders of Notes representing not less than 100% of the
Outstanding Amount of the Notes;
(iii) if the conditions set forth in Section 5.5 have been
satisfied and the Trustee elects to retain the Trust Estate pursuant to
such Section, then any direction to the Trustee by Holders of Notes
representing less than 100% of the Outstanding Amount of the Notes to
sell or liquidate the Trust Estate shall be of no force and effect; and
(iv) the Trustee may take any other action deemed proper by
the Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Trustee need not take any
action that it determines might involve it in liability or might materially
adversely affect the rights of any Noteholders not consenting to such action.
SECTION 5.13. Waiver of Past Defaults. (a) If an Insurer Default shall
have occurred and be continuing, prior to the declaration of the acceleration of
the maturity of the Notes as provided in Section 5.4, the Holders of Notes of
not less than a majority of the Outstanding Amount of the Notes may waive any
past Default or Event of Default and its consequences except a Default or Event
of Default (i) in payment of principal of or interest on any of the Notes or
(ii) in respect of a covenant or provision hereof which cannot be modified or
amended without the consent of the Holder of each Note. In the case of any such
waiver, the Issuer, the Trustee and the Holders of the Notes shall be restored
to their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other Default or Event of Default or impair
any right consequent thereto.
Upon any such waiver, such Default or Event of Default shall cease to
exist and be deemed to have been cured and not to have occurred, and any Event
of Default arising therefrom shall be deemed to have been cured and not to have
occurred, for every purpose of this Indenture; but no such waiver shall extend
to any subsequent or other Default or Event of Default or impair any right
consequent thereto.
SECTION 5.14. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good
-39-
<PAGE>
faith of the claims or defenses made by such party litigant; but the provisions
of this Section shall not apply to (a) any suit instituted by the Trustee, (b)
any suit instituted by any Noteholder, or group of Noteholders, in each case
holding in the aggregate more than 10% of the Outstanding Amount of the Notes or
(c) any suit instituted by any Noteholder for the enforcement of the payment of
principal of or interest on any Note on or after the respective due dates
expressed in such Note and in this Indenture (or, in the case of redemption, on
or after the Redemption Date).
SECTION 5.15. Waiver of Stay or Extension Laws. The Issuer covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power and any right of the
Issuer to take such action shall be suspended.
ARTICLE VI
The Trustee
SECTION 6.1. Duties of Trustee. (a) If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in it
by this Indenture and the Basic Documents and use the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture; however, the Trustee shall examine the certificates and
opinions to determine whether or not they conform on their face to the
requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
-40-
<PAGE>
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.12.
(d) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Issuer.
(e) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law or the terms of this Indenture
or the Sale and Servicing Agreement.
(f) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(g) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
(h) The Trustee shall permit any representative of the Note Insurer,
during the Trustee's normal business hours, to examine all books of account,
records, reports and other papers of the Trustee relating to the Notes, to make
copies and extracts therefrom and to discuss the Trustee's affairs and actions,
as such affairs and actions relate to the Trustee's duties with respect to the
Notes, with the Trustee's officers and employees responsible for carrying out
the Trustee's duties with respect to the Notes.
(i) The Trustee shall, and hereby agrees that it will, perform all of
the obligations and duties required of it under the Sale and Servicing
Agreement.
(j) The Trustee shall, and hereby agrees that it will, hold the Note
Policy in trust, and will hold any proceeds of any claim on the Note Policy in
trust solely for the use and benefit of the Noteholders.
(k) In no event shall Norwest Bank Minnesota, National Association, in
any of its capacities hereunder, be deemed to have assumed any duties of the
Owner Trustee under the Delaware Business Trust Statute, common law, or the
Trust Agreement.
-41-
<PAGE>
(l) Except for actions expressly authorized by this Indenture, the
Trustee shall take no action reasonably likely to impair the security interests
created or existing under any Receivable or Financed Vehicle or to impair the
value of any Receivable or Financed Vehicle.
(m) All information obtained by the Trustee regarding the Obligors and
the Receivables, whether upon the exercise of its rights under this Indenture or
otherwise, shall be maintained by the Trustee in confidence and shall not be
disclosed to any other Person, other than the Trustee's attorneys, accountants
and agents unless such disclosure is required by this Indenture or any
applicable law or regulation.
SECTION 6.2. Rights of Trustee. (a) Subject to Sections 6.1 and 6.2,
the Trustee shall be protected and shall incur no liability to the Issuer or any
Issuer Secured Party in relying upon the accuracy, acting in reliance upon the
contents, and assuming the genuineness of any notice, demand, certificate,
signature, instrument or other document reasonably believed by the Trustee to be
genuine and to have been duly executed by the appropriate signatory, and, except
to the extent the Trustee has actual knowledge to the contrary or as required
pursuant to Section 6.1 or Section 6.2(g) the Trustee shall not be required to
make any independent investigation with respect thereto.
(b) Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate. Subject to Section 6.1(c), the Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officer's Certificate.
(c) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Trustee shall not be responsible
for any misconduct or negligence on the part of, or for the supervision of
Consumer Portfolio Services, Inc., or any other such agent, attorney, custodian
or nominee appointed with due care by it hereunder.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
misconduct, negligence or bad faith.
(e) The Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the Notes
shall be full and complete authorization and protection from liability in
respect to any action taken, omitted or suffered by it hereunder in good faith
and in accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to institute, conduct or
defend any litigation under this Indenture or in relation to this Indenture, at
the request, order or direction of any of the Holders of Notes or the
Controlling Party, pursuant to the provisions of this Indenture, unless such
Holders of Notes or the Controlling Party shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred therein or
-42-
<PAGE>
thereby; provided, however, that the Trustee shall, upon the occurrence of an
Event of Default (that has not been cured), exercise the rights and powers
vested in it by this Indenture in accordance with Section 6.1.
(g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other paper
or document, unless requested in writing to do so by the Note Insurer (so long
as no Insurer Default shall have occurred and be continuing) or (if an Insurer
Default shall have occurred and be continuing) by the Holders of Notes
evidencing not less than 25% of the Outstanding Amount thereof; provided,
however, that if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture or the
Sale and Servicing Agreement, the Trustee may require reasonable indemnity
against such cost, expense or liability as a condition to so proceeding; the
reasonable expense of every such examination shall be paid by the Person making
such request, or, if paid by the Trustee, shall be reimbursed by the Person
making such request upon demand.
SECTION 6.3. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not the Trustee. Any Note Paying Agent, Note Registrar,
co-registrar or co-paying agent may do the same with like rights.
However, the Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4. Trustee's Disclaimer. The Trustee shall not be responsible
for and makes no representation as to the validity or adequacy of this
Indenture, the Trust Estate, the Collateral or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Trustee's certificate of authentication.
SECTION 6.5. Notice of Defaults. If an Event of Default occurs and is
continuing and if it is either known by, or written notice of the existence
thereof has been delivered to, a Responsible Officer of the Trustee, the Trustee
shall mail to each Noteholder notice of the Default within 30 days after such
knowledge or notice occurs. Except in the case of a Default in payment of
principal of or interest on any Note (including payments pursuant to the
mandatory redemption provisions of such Note, if any), the Trustee may withhold
the notice if and so long as a committee of its Responsible Officers in good
faith determines that withholding the notice is in the interests of Noteholders.
SECTION 6.6. Reports by Trustee to Holders. The Trustee shall on behalf
of the Issuer deliver to each Noteholder such information as may be reasonably
required to enable such Holder to prepare its Federal and state income tax
returns.
-43-
<PAGE>
SECTION 6.7. Compensation and Indemnity. (a) Pursuant to Section 5.7(b)
of the Sale and Servicing Agreement, the Issuer shall pay to the Trustee from
time to time compensation for its services. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of an express trust. The
Issuer shall reimburse the Trustee, pursuant to Section 5.7(b) of the Sale and
Servicing Agreement, for all reasonable out-of-pocket expenses incurred or made
by it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts. The Issuer shall or shall cause the Servicer to indemnify the Trustee
against any and all loss, liability or expense incurred by the Trustee without
willful misfeasance, negligence or bad faith on its part arising out of or in
connection with the acceptance or the administration of this trust and the
performance of its duties hereunder, including the costs and expenses of
defending itself against any claim or liability in connection therewith. The
Trustee shall notify the Issuer and the Servicer promptly of any claim for which
it may seek indemnity. Failure by the Trustee to so notify the Issuer and the
Servicer shall not relieve the Issuer of its obligations hereunder or the
Servicer of its obligations under Article XII of the Sale and Servicing
Agreement. The Trustee may have separate counsel and the Issuer shall or shall
cause the Servicer to pay the fees and expenses of such counsel. Neither the
Issuer nor the Servicer need reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the Trustee's own
wilful misconduct, negligence or bad faith.
(b) The Issuer's payment obligations to the Trustee pursuant to this
Section shall survive the discharge of this Indenture. When the Trustee incurs
expenses after the occurrence of a Default specified in Section 5.1(v) or (vi)
with respect to the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other applicable
Federal or state bankruptcy, insolvency or similar law. Notwithstanding anything
else set forth in this Indenture or the Basic Documents, the recourse of the
Trustee hereunder and under the Basic Documents shall be to the Trust Estate
only and specifically shall not be recourse to the assets of the Depositor or
any Noteholder. In addition, the Trustee agrees that its recourse to the Issuer,
the Trust Estate, the Seller and amounts held pursuant to the Master Spread
Account Agreement shall be limited to the right to receive the distributions
referred to in Section 5.7(b) of the Sale and Servicing Agreement.
SECTION 6.8. Replacement of Trustee. The Issuer may, with the consent
of the Note Insurer, and at the request of the Note Insurer (unless an Insurer
Default shall have occurred and be continuing), shall, remove the Trustee if:
(i) the Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect of the
Trustee in an involuntary case or proceeding under federal or state banking or
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, shall have entered
a decree or order granting relief or appointing a receiver,
-44-
<PAGE>
liquidator, assignee, custodian, trustee, conservator, sequestrator (or similar
official) for the Trustee or for any substantial part of the Trustee's property,
or ordering the winding-up or liquidation of the Trustee's affairs;
(iii) an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or another present or future federal or state bankruptcy,
insolvency or similar law is commenced with respect to the Trustee and such case
is not dismissed within 60 days;
(iv) the Trustee commences a voluntary case under any federal or state
banking or bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or
consents to the appointment of or taking possession by a received, liquidator,
assignee, custodian, trustee, conservator or sequestrator (or other similar
official) for the Trustee or for any substantial part of the Trustee's property,
or makes any assignment for the benefit of creditors or fails generally to pay
its debts as such debts become due or takes any corporate action in furtherances
of any of the foregoing; or
(v) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason (the Trustee in such event being referred to
herein as the retiring Trustee), the Issuer shall promptly appoint a successor
Trustee acceptable to the Note Insurer (so long as an Insurer Default shall not
have occurred and be continuing). If the Issuer fails to appoint such a
successor Trustee, the Note Insurer may appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee, the Note Insurer (provided that no Insurer
Default shall have occurred and be continuing) and the Issuer, whereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the retiring
Trustee under this Indenture, subject to satisfaction of the Rating Agency
Condition. The successor Trustee shall mail a notice of its succession to each
Noteholder. The retiring Trustee shall promptly transfer all property held by it
as Trustee to the successor Trustee.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of a majority in outstanding Amount of the Notes may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section shall not
become effective until acceptance of appointment by the successor Trustee
pursuant to Section 6.8.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Issuer's and the Servicer's obligations under Section 6.7 shall
continue for the benefit of the retiring Trustee.
-45-
<PAGE>
SECTION 6.9. Successor Trustee by Merger. (a) If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee. The Trustee shall provide the Rating
Agencies prior written notice of any such transaction.
(b) In case at the time such successor or successors to the Trustee by
merger, conversion or consolidation shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Indenture, at any time, for the
purpose of meeting any legal requirement of any jurisdiction in which any part
of the Trust may at the time be located, the Trustee with the consent of the
Note Insurer (so long as an Insurer Default shall not have occurred and be
continuing) shall have the power and may execute and deliver all instruments to
appoint one or more Persons to act as a co-trustee or co-trustees, or separate
trustee or separate trustees, of all or any part of the Trust, and to vest in
such Person or Persons, in such capacity and for the benefit of the Noteholders,
such title to the Trust, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 6.11 and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and
exercised or performed by the Trustee and such separate trustee or
co-trustee jointly (it being understood that such separate trustee or
co-trustee is not authorized to act separately without the Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed
the Trustee shall be incompetent or unqualified to perform such act or
acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in
any such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Trustee;
-46-
<PAGE>
(ii) no trustee hereunder shall be personally liable by reason
of any act or omission of any other trustee hereunder, including acts
or omissions of predecessor or successor trustees; and
(iii) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, dissolve, become insolvent, become incapable of acting, resign or be
removed, all of its estates, properties, rights, remedies and trusts shall
invest in and be exercised by the Trustee, to the extent permitted by law,
without the appointment of a new or successor trustee.
SECTION 6.11. Eligibility: Disqualification. The Trustee shall at all
times satisfy the requirements of TIA ss. 310(a). The Trustee shall have a
combined capital and surplus of at least $50,000,000 as set forth in its most
recent published annual report of condition and subject to supervision or
examination by federal or state authorities; and having a rating, both with
respect to long-term and short-term unsecured obligations, of not less than
investment grade by the Rating Agencies. The Trustee shall provide copies of
such reports to the Note Insurer upon request. The Trustee shall comply with TIA
ss. 310(b), including the optional provision permitted by the second sentence of
TIA ss. 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA ss. 310(b)(1) any indenture or indentures under which other
securities of the Issuer are outstanding if the requirements for such exclusion
set forth in TIA ss. 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Issuer. The
Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship
listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be
subject to TIA ss. 311(a) to the extent indicated.
SECTION 6.13. Appointment and Powers. Subject to the terms and
conditions hereof, each of the Issuer Secured Parties hereby appoints Norwest
Bank Minnesota, National
-47-
<PAGE>
Association as the Trustee with respect to the Collateral, and Norwest Bank
Minnesota, National Association hereby accepts such appointment and agrees to
act as Trustee with respect to the Collateral for the Issuer Secured Parties, to
maintain custody and possession of such Collateral (except as otherwise provided
hereunder) and to perform the other duties of the Trustee in accordance with the
provisions of this Indenture and the other Basic Documents. Each Issuer Secured
Party hereby authorizes the Trustee to take such action on its behalf, and to
exercise such rights, remedies, powers and privileges hereunder, as the
Controlling Party may direct and as are specifically authorized to be exercised
by the Trustee by the terms hereof, together with such actions, rights,
remedies, powers and privileges as are reasonably incidental thereto. The
Trustee shall act upon and in compliance with the written instructions of the
Controlling Party delivered pursuant to this Indenture promptly following
receipt of such written instructions; provided that the Trustee shall not act in
accordance with any instructions (i) which are not authorized by, or in
violation of the provisions of, this Indenture, (ii) which are in violation of
any applicable law, rule or regulation or (iii) for which the Trustee has not
received reasonable indemnity. Receipt of such instructions shall not be a
condition to the exercise by the Trustee of its express duties hereunder, except
where this Indenture provides that the Trustee is permitted to act only
following and in accordance with such instructions.
SECTION 6.14. Performance of Duties. The Trustee shall have no duties
or responsibilities except those expressly set forth in this Indenture and the
other Basic Documents to which the Trustee is a party or as directed by the
Controlling Party in accordance with this Indenture. The Trustee shall not be
required to take any discretionary actions hereunder except at the written
direction and with the indemnification of the Controlling Party and as provided
in Section 5.12. The Trustee shall, and hereby agrees that it will, perform all
of the duties and obligations required of it under the Sale and Servicing
Agreement.
SECTION 6.15. Limitation on Liability. Neither the Trustee nor any of
its directors, officers or employees shall be liable for any action taken or
omitted to be taken by it or them in good faith hereunder, or in connection
herewith, except that the Trustee shall be liable for its negligence, bad faith
or willful misconduct. Notwithstanding any term or provision of this Indenture,
the Trustee shall incur no liability to the Issuer or the Issuer Secured Parties
for any action taken or omitted by the Trustee in connection with the
Collateral, except for the negligence, bad faith or willful misconduct on the
part of the Trustee, and, further, shall incur no liability to the Issuer
Secured Parties except for negligence, bad faith or willful misconduct in
carrying out its duties to the Issuer Secured Parties. The Trustee shall at all
times be free independently to establish to its reasonable satisfaction, but
shall have no duty to independently verify, the existence or nonexistence of
facts that are a condition to the exercise or enforcement of any right or remedy
hereunder or under any of the Basic Documents. The Trustee may consult with
counsel, and shall not be liable for any action taken or omitted to be taken by
it hereunder in good faith and in accordance with the written advice of such
counsel. The Trustee shall not be under any obligation to exercise any of the
remedial rights or powers vested in it by this Indenture or to follow any
direction from the Controlling Party unless it shall have received
-48-
<PAGE>
reasonable security or indemnity satisfactory to the Trustee against the costs,
expenses and liabilities which might be incurred by it.
SECTION 6.16. Reserved.
SECTION 6.17. Successor Trustee.
(a) Merger. Any Person into which the Trustee may be converted or
merged, or with which it may be consolidated, or to which it may sell or
transfer its trust business and assets as a whole or substantially as a whole,
or any Person resulting from any such conversion, merger, consolidation, sale or
transfer to which the Trustee is a party, shall (provided it is otherwise
qualified to serve as the Trustee hereunder) be and become a successor Trustee
hereunder and be vested with all of the title to and interest in the Collateral
and all of the trusts, powers, descriptions, immunities, privileges and other
matters as was its predecessor without the execution or filing of any instrument
or any further act, deed or conveyance on the part of any of the parties hereto,
anything herein to the contrary notwithstanding, except to the extent, if any,
that any such action is necessary to perfect, or continue the perfection of, the
security interest of the Issuer Secured Parties in the Collateral; provided that
any such successor shall also be the successor Trustee under Section 6.9.
(b) Removal. The Trustee may be removed by the Note Insurer (or, if an
Insurer Default has occurred and is continuing, by Holders of Notes evidencing
more than 50% of the principal balance of the Notes) at any time, with or
without cause, by an instrument or concurrent instruments in writing delivered
to the Trustee, the other Issuer Secured Party and the Issuer. A temporary
successor may be removed at any time to allow a successor Trustee to be
appointed pursuant to subsection (c) below. Any removal pursuant to the
provisions of this subsection (b) shall take effect only upon the date which is
the latest of (i) the effective date of the appointment of a successor Trustee
and the acceptance in writing by such successor Trustee of such appointment and
of its obligation to perform its duties hereunder in accordance with the
provisions hereof, and (ii) receipt by the Controlling Party of an Opinion of
Counsel to the effect described in Section 3.6.
(c) Acceptance by Successor. The Controlling Party shall have the sole
right to appoint each successor Trustee. Every temporary or permanent successor
Trustee appointed hereunder shall execute, acknowledge and deliver to its
predecessor and to the Trustee, each Issuer Secured Party and the Issuer an
instrument in writing accepting such appointment hereunder and the relevant
predecessor shall execute, acknowledge and deliver such other documents and
instruments as will effectuate the delivery of all Collateral to the successor
Trustee, whereupon such successor, without any further act, deed or conveyance,
shall become fully vested with all the estates, properties, rights, powers,
duties and obligations of its predecessor. Such predecessor shall, nevertheless,
on the written request of either Issuer Secured Party or the Issuer, execute and
deliver an instrument transferring to such successor all the estates,
properties, rights and powers of such predecessor hereunder. In the event that
any instrument in writing
-49-
<PAGE>
from the Issuer or an Issuer Secured Party is reasonably required by a successor
Trustee to more fully and certainly vest in such successor the estates,
properties, rights, powers, duties and obligations vested or intended to be
vested hereunder in the Trustee, any and all such written instruments shall at
the request of the temporary or permanent successor Trustee, be forthwith
executed, acknowledged and delivered by the Trustee or the Issuer, as the case
may be. The designation of any successor Trustee and the instrument or
instruments removing any Trustee and appointing a successor hereunder, together
with all other instruments provided for herein, shall be maintained with the
records relating to the Collateral and, to the extent required by applicable
law, filed or recorded by the successor Trustee in each place where such filing
or recording is necessary to effect the transfer of the Collateral to the
successor Trustee or to protect or continue the perfection of the security
interests granted hereunder.
SECTION 6.18. [Reserved]
SECTION 6.19. Representations and Warranties of the Trustee. The
Trustee represents and warrants to the Issuer and to each Issuer Secured Party
as follows:
(a) Due Organization. The Trustee is a national banking
association, duly organized, validly existing and in good standing
under the laws of the United States and is duly authorized and licensed
under applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Trustee has all requisite right,
power and authority to execute and deliver this Indenture and to
perform all of its duties as Trustee hereunder.
(c) Due Authorization. The execution and delivery by the
Trustee of this Indenture and the other Basic Documents to which it is
a party, and the performance by the Trustee of its duties hereunder and
thereunder, have been duly authorized by all necessary corporate
proceedings and no further approvals or filings, including any
governmental approvals, are required for the valid execution and
delivery by the Trustee, or the performance by the Trustee, of this
Indenture and such other Basic Documents.
(d) Valid and Binding Indenture. The Trustee has duly executed
and delivered this Indenture and each other Basic Document to which it
is a party, and each of this Indenture and each such other Basic
Document constitutes the legal, valid and binding obligation of the
Trustee, enforceable against the Trustee in accordance with its terms,
except as (i) such enforceability may be limited by bankruptcy,
insolvency, reorganization and similar laws relating to or affecting
the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable
principles of general applicability.
SECTION 6.20. Waiver of Setoffs. The Trustee hereby expressly waives
any and all rights of setoff that the Trustee may otherwise at any time have
under applicable law with
-50-
<PAGE>
respect to any Trust Account and agrees that amounts in the Trust Accounts shall
at all times be held and applied solely in accordance with the provisions
hereof.
SECTION 6.21. Control by the Controlling Party. The Trustee shall
comply with notices and instructions given by the Issuer only if accompanied by
the written consent of the Controlling Party, except that if any Event of
Default shall have occurred and be continuing, the Trustee shall act upon and
comply with notices and instructions given by the Controlling Party alone in the
place and stead of the Issuer.
ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.1. Issuer To Furnish To Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Trustee (a)
not more than five days after the earlier of (i) each Record Date and (ii) three
months after the last Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of such Record
Date, (b) at such other times as the Trustee may request in writing, within 30
days after receipt by the Issuer of any such request, a list of similar form and
content as of a date not more than 10 days prior to the time such list is
furnished; provided, however, that so long as the Trustee is the Note Registrar,
no such list shall be required to be furnished. The Trustee or, if the Trustee
is not the Note Registrar, the Issuer shall furnish to the Note Insurer in
writing on an annual basis on each March 31 and at such other times as the Note
Insurer may request a copy of the list.
SECTION 7.2. Preservation of Information; Communications to
Noteholders. (a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Trustee as provided in Section 7.1 and the
names and addresses of Holders received by the Trustee in its capacity as Note
Registrar. The Trustee may destroy any list furnished to it as provided in such
Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have the
protection of TIA ss. 312(c).
SECTION 7.3. Reports by Issuer. (a) The Issuer shall:
(i) file with the Trustee, within 15 days after the Issuer is
required to file the same with the Commission, copies of the annual
reports and of the information,
-51-
<PAGE>
documents and other reports (or copies of such portions of any of the
foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Issuer may be required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Trustee and the Commission in accordance
with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with
respect to compliance by the Issuer with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(iii) supply to the Trustee (and the Trustee shall transmit by
mail to all Noteholders described in TIA ss. 313(c)) such summaries of
any information, documents and reports required to be filed by the
Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) as may
be required by rules and regulations prescribed from time to time by
the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
SECTION 7.4. Reports by Trustee. (a) If required by TIA ss. 313(a),
within 60 days after each November 30, beginning with November 30, [ ], the
Trustee shall mail to each Noteholder as required by TIA ss. 313(c) a brief
report dated as of such date that complies with TIA ss. 313(a). The Trustee also
shall comply with TIA ss. 313(b).
(b) A copy of each report at the time of its mailing to Noteholders
shall be filed by the Trustee with the Commission and each stock exchange, if
any, on which the Notes are listed. The Issuer shall notify the Trustee if and
when the Notes are listed on any stock exchange.
ARTICLE VIII
Collection of Money and Releases of Trust Estate
SECTION 8.1. Collection of Money. Except as otherwise expressly
provided herein, the Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Trustee pursuant to this Indenture and the Sale and Servicing
Agreement. The Trustee shall apply all such money received by it as provided in
this Indenture and the Sale and Servicing Agreement. Except as otherwise
expressly provided in this Indenture or in the Sale and Servicing Agreement, if
any default occurs in the making of any payment or performance under any
agreement or instrument that is part of the Trust Estate, the Trustee may take
such action as may be appropriate to enforce such payment or performance,
including the
-52-
<PAGE>
institution and prosecution of appropriate proceedings. Any such action shall be
without prejudice to any right to claim a Default or Event of Default under this
Indenture and any right to proceed thereafter as provided in Article V.
SECTION 8.2. Release of Trust Estate. (a) Subject to the payment of its
fees and expenses pursuant to Section 6.7, the Trustee may, and when required by
the provisions of this Indenture shall, execute instruments to release property
from the lien of this Indenture, in a manner and under circumstances that are
not inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Trustee as provided in this Article VIII shall be
bound to ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
(b) The Trustee shall, at such time as there are no Notes outstanding
and all sums due the Trustee pursuant to Section 6.7 have been paid, release any
remaining portion of the Trust Estate that secured the Notes from the lien of
this Indenture and release to the Issuer or any other Person entitled thereto
any funds then on deposit in the Trust Accounts. The Trustee shall release
property from the lien of this Indenture pursuant to this Section 8.2(b) only
upon receipt of an Issuer Request accompanied by an Officer's Certificate, an
Opinion of Counsel and (if required by the TIA) Independent Certificates in
accordance with TIA ss. 314(c) and ss. 314(d)(1) meeting the applicable
requirements of Section 11.1.
SECTION 8.3. Opinion of Counsel. The Trustee shall receive at least
seven days' notice when requested by the Issuer to take any action pursuant to
Section 8.2(a), accompanied by copies of any instruments involved, and the
Trustee shall also require as a condition to such action, an Opinion of Counsel
in form and substance satisfactory to the Trustee, stating the legal effect of
any such action, outlining the steps required to complete the same, and
concluding that all conditions precedent to the taking of such action have been
complied with and such action will not materially and adversely affect the
security for the Notes or the rights of the Noteholders in contravention of the
provisions of this Indenture; provided, however, that such Opinion of Counsel
shall not be required to express an opinion as to the fair value of the Trust
Estate. Counsel rendering any such opinion may rely, without independent
investigation, on the accuracy and validity of any certificate or other
instrument delivered to the Trustee in connection with any such action.
ARTICLE IX
Supplemental Indentures
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes but with the consent of the
Note Insurer (unless an Insurer Default shall have occurred and be continuing)
and with prior notice to the Rating Agencies by the Issuer, the Issuer and the
Trustee, when authorized by an Issuer Order, at any
-53-
<PAGE>
time and from time to time, may enter into one or more indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as in
force at the date of the execution thereof), in form satisfactory to the
Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at
any time subject to the lien of this Indenture, or better to assure,
convey and confirm unto the Trustee any property subject or required to
be subjected to the lien of this Indenture, or to subject to the lien
of this Indenture additional property;
(ii) to evidence the succession, in compliance with the
applicable provisions hereof, of another person to the Issuer, and the
assumption by any such successor of the covenants of the Issuer herein
and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit
of the Holders of the Notes, or to surrender any right or power herein
conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any
property to or with the Trustee;
(v) to cure any ambiguity, to correct or supplement any
provision herein or in any supplemental indenture which may be
inconsistent with any other provision herein or in any supplemental
indenture or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental
indenture; provided that such action shall not adversely affect the
interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the
appointment hereunder by a successor trustee with respect to the Notes
and to add to or change any of the provisions of this Indenture as
shall be necessary to facilitate the administration of the trusts
hereunder by more than one trustee, pursuant to the requirements of
Article VI; or
(vii) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualification of this Indenture under the TIA or under any similar
federal statute hereafter enacted and to add to this Indenture such
other provisions as may be expressly required by the TIA.
The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained not inconsistent with the foregoing.
(b) The Issuer and the Trustee, when authorized by an Issuer Order,
may, also without the consent of any of the Holders of the Notes but with prior
notice to the Rating Agencies by the Issuer, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this
-54-
<PAGE>
Indenture or of modifying in any manner the rights of the Holders of the Notes
under this Indenture; provided, however, that such action shall not, as
evidenced by an Opinion of Counsel, adversely affect the interests of any
Noteholder.
SECTION 9.2. Supplemental Indentures with Consent of Noteholders. The
Issuer and the Trustee, when authorized by an Issuer Order, also may, with prior
notice to the Rating Agencies, with the consent of the Note Insurer (unless an
Insurer Default shall have occurred and be continuing) and with the consent of
the Holders of not less than a majority of the outstanding Amount of the Notes,
by Act of such Holders delivered to the Issuer and the Trustee, enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that, subject to the express
rights of the Note Insurer under the Basic Documents, no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(i) change the date of payment of any installment of principal
of or interest on any Note, or reduce the principal amount thereof, the
interest rate thereon or the Redemption Price with respect thereto,
change the provision of this Indenture relating to the application of
collections on, or the proceeds of the sale of, the Trust Estate to
payment of principal of or interest on the Notes, or change any place
of payment where, or the coin or currency in which, any Note or the
interest thereon is payable;
(ii) impair the right to institute suit for the enforcement of
the provisions of this Indenture requiring the application of funds
available therefor, as provided in Article V, to the payment of any
such amount due on the Notes on or after the respective due dates
thereof (or, in the case of redemption, on or after the Redemption
Date);
(iii) reduce the percentage of the Outstanding Amount of the
Notes, the consent of the Holders of which is required for any such
supplemental indenture, or the consent of the Holders of which is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture;
(iv) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of the
Notes required to direct the Trustee to direct the Issuer to sell or
liquidate the Trust Estate pursuant to Section 5.4;
(vi) modify any provision of this Section except to increase
any percentage specified herein or to provide that certain additional
provisions of this Indenture or the
-55-
<PAGE>
Basic Documents cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby;
(vii) modify any of the provisions of this Indenture in such
manner as to affect the calculation of the amount of any payment of
interest or principal due on any Note on any Payment Date (including
the calculation of any of the individual components of such
calculation) or as to affect the rights of the Holders of Notes to the
benefit of any provisions for the mandatory redemption of the Notes
contained herein; or
(viii) permit the creation of any lien ranking prior to or on
a parity with the lien of this Indenture with respect to any part of
the Trust Estate or, except as otherwise permitted or contemplated
herein or in any of the Basic Documents, terminate the lien of this
Indenture on any property at any time subject hereto or deprive the
Holder of any Note of the security provided by the lien of this
Indenture.
It shall not be necessary for any Act of Noteholders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Notes to which such amendment or supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.3. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and subject to
Sections 6.1 and 6.2, shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture that affects the Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indenture. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Trustee, the Issuer and the Holders of the Notes shall thereafter be
determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
-56-
<PAGE>
SECTION 9.5. Conformity With Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Issuer shall, bear a
notation in form approved by the Issuer as to any matter provided for in such
supplemental indenture. If the Issuer shall so determine, new Notes so modified
as to conform, in the opinion of the Issuer, to any such supplemental indenture
may be prepared and executed by the Issuer and authenticated and delivered by
the Trustee in exchange for Outstanding Notes.
ARTICLE X
Redemption of Notes
SECTION 10.1. Redemption. The Notes are subject to redemption in whole,
but not in part, at the direction of the Servicer pursuant to Section 11.1(a) of
the Sale and Servicing Agreement, on any Payment Date on which the Servicer
exercises its option to purchase the Trust Estate pursuant to said Section
11.1(a), for a purchase price equal to the Redemption Price; provided, however,
that the Issuer has available funds sufficient to pay the Redemption Price. The
Servicer or the Issuer shall furnish the Note Insurer and the Rating Agencies
notice of such redemption. If the Notes are to be redeemed pursuant to this
Section 10.1, the Servicer or the Issuer shall furnish notice of such election
to the Trustee not later than 35 days prior to the Redemption Date and the
Issuer shall deposit with the Trustee in the Note Distribution Account the
Redemption Price of the Notes to be redeemed, whereupon all such Notes shall be
due and payable on the Redemption Date upon the furnishing of a notice complying
with Section 10.2 to each Holder of Notes.
SECTION 10.2. Form of Redemption Notice. Notice of redemption under
Section 10.1 shall be given by the Trustee by facsimile or by first-class mail,
postage prepaid, transmitted or mailed prior to the applicable Redemption Date
to each Holder of Notes, as of the close of business on the Record Date
preceding the applicable Redemption Date, at such Holder's address appearing in
the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
-57-
<PAGE>
(iii) that the Record Date otherwise applicable to such
Redemption Date is not applicable and that payments shall be made only
upon presentation and surrender of such Notes and the place where such
Notes are to be surrendered for payment of the Redemption Price (which
shall be the office or agency of the Issuer to be maintained as
provided in Section 3.2); and
(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the Trustee in the
name and at the expense of the Issuer. Failure to give notice of redemption, or
any defect therein, to any Holder of any Note shall not impair or affect the
validity of the redemption of any other Note.
SECTION 10.3. Notes Payable on Redemption Date. The Notes to be
redeemed shall, following notice of redemption as required by Section 10.2 (in
the case of redemption pursuant to Section 10.1), on the Redemption Date become
due and payable at the Redemption Price and (unless the Issuer shall default in
the payment of the Redemption Price) no interest shall accrue on the Redemption
Price for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Price.
ARTICLE XI
Miscellaneous
SECTION 11.1. Compliance Certificates and Opinions, etc. (a) Upon any
application or request by the Issuer to the Trustee to take any action under any
provision of this Indenture, the Issuer shall furnish to the Trustee and to the
Note Insurer (i) an Officer's Certificate stating that all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with, (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and (iii)
(if required by the TIA) an Independent Certificate from a firm of certified
public accountants meeting the applicable requirements of this Section, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or
opinion has read or has caused to be read such covenant or condition
and the definitions herein relating thereto;
-58-
<PAGE>
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory,
such signatory has made such examination or investigation as is
necessary to enable such signatory to express an informed opinion as to
whether or not such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Trustee that is to be made the basis for the release of any
property or securities subject to the lien of this Indenture, the Issuer shall,
in addition to any obligation imposed in Section 11.1(a) or elsewhere in this
Indenture, furnish to the Trustee and the Note Insurer an Officer's Certificate
certifying or stating the opinion of each person signing such certificate as to
the fair value (on the date of such deposit) to the Issuer of the Collateral or
other property or securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Trustee
and the Note Insurer an Officer's Certificate certifying or stating the
opinion of any signer thereof as to the matters described in clause (i)
above, the Issuer shall also deliver to the Trustee and the Note
Insurer an Independent Certificate as to the same matters, if the fair
value to the Issuer of the securities to be so deposited and of all
other such securities made the basis of any such withdrawal or release
since the commencement of the then-current fiscal year of the Issuer,
as set forth in the certificates delivered pursuant to clause (i) above
and this clause (ii) is 10% or more of the Outstanding Amount of the
Notes, but such a certificate need not be furnished with respect to any
securities so deposited, if the fair value thereof to the Issuer as set
forth in the related Officer's Certificate is less than $25,000 or less
than 1% percent of the Outstanding Amount of the Notes.
(iii) other than with respect to the release of any Purchased
Receivables or Liquidated Receivables, whenever any property or
securities are to be released from the lien of this Indenture, the
Issuer shall also furnish to the Trustee and the Note Insurer an
Officer's Certificate certifying or stating the opinion of each person
signing such certificate as to the fair value (within 90 days of such
release) of the property or securities proposed to be released and
stating that in the opinion of such person the proposed release will
not impair the security under this Indenture in contravention of the
provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Trustee
and the Note Insurer an Officer's Certificate certifying or stating the
opinion of any signer thereof as to
-59-
<PAGE>
the matters described in clause (iii) above, the Issuer shall also
furnish to the Trustee and the Note Insurer an Independent Certificate
as to the same matters if the fair value of the property or securities
and of all other property other than Purchased Receivables and
Defaulted Receivables, or securities released from the lien of this
Indenture since the commencement of the then current calendar year, as
set forth in the certificates required by clause (iii) above and this
clause (iv), equals 10% or more of the Outstanding Amount of the Notes,
but such certificate need not be furnished in the case of any release
of property or securities if the fair value thereof as set forth in the
related Officer's Certificate is less than $25,000 or less than 1
percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding Section 2.9 or any provision of this
Section, the Issuer may (A) collect, liquidate, sell or otherwise
dispose of Receivables as and to the extent permitted or required by
the Basic Documents and (B) make cash payments out of the Trust
Accounts as and to the extent permitted or required by the Basic
Documents.
SECTION 11.2. Form of Documents Delivered to Trustee. (a) In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
(b) Any certificate or opinion of an Authorized Officer of the Issuer
may be based, insofar as it relates to legal matters, upon a certificate or
opinion of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer or
Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Seller or the Issuer, stating that the information with
respect to such factual matters is in the possession of the Servicer, the Seller
or the Issuer, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
such matters are erroneous.
(c) Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
(d) Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof,
-60-
<PAGE>
it is intended that the truth and accuracy, at the time of the granting of such
application or at the effective date of such certificate or report (as the case
may be), of the facts and opinions stated in such document shall in such case be
conditions precedent to the right of the Issuer to have such application granted
or to the sufficiency of such certificate or report. The foregoing shall not,
however, be construed to affect the Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article VI.
SECTION 11.3. Acts of Noteholders. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor signed by
such Noteholders in person or by agents duly appointed in writing; and except as
herein otherwise expressly provided such action shall become effective when such
instrument or instruments are delivered to the Trustee, and, where it is hereby
expressly required, to the Issuer. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred to
as the "Act" of the Noteholders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and (subject to Section 6.1)
conclusive in favor of the Trustee and the Issuer, if made in the manner
provided in this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any customary manner of the Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 11.4. Notices, etc., to Trustee, Issuer and Rating Agencies.
(a) Any request, demand, authorization, direction, notice, consent, waiver or
Act of Noteholders or other documents provided or permitted by this Indenture to
be made upon, given or furnished to or filed with:
(i) the Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested and shall be deemed to have been duly given upon receipt to
the Trustee at its Corporate Trust Office, or
(ii) the Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered,
delivered by overnight courier or mailed certified mail, return receipt
requested and shall deemed to have been duly given upon
-61-
<PAGE>
receipt to the Issuer addressed to: CPS Auto Receivables Trust 199[ ]-[
], in care of [Bankers Trust (Delaware), 1011 Centre Street, Suite 200,
Wilmington, Delaware 19805-1266 with a copy of all notices and other
documents to Bankers Trust Company, 4 Albany Street, 10th Floor, Attn:
Corporate Trust and Agency Group, New York, New York 10006,] or at such
other address previously furnished in writing to the Trustee by the
Issuer. The Issuer shall promptly transmit any notice received by it
from the Noteholders to the Trustee.
(iii) the Note Insurer by the Issuer or the Trustee shall be
sufficient for any purpose hereunder if in writing and mailed by
registered mail or personally delivered or telexed or telecopied to the
recipient as follows:
To the Note Insurer:
[
]
(b) Notices required to be given to the Rating Agencies by the
Issuer, the Trustee or the Owner Trustee shall be in writing,
personally delivered, delivered by overnight courier or mailed
certified mail, return receipt requested to (i) in the case of Moody's,
at the following address: Moody's Investors Service, Inc., 99 Church
Street, New York New York 10004 and (ii) in the case of S&P, at the
following address: Standard & Poor's Ratings Group, a Division of The
McGraw Hill Companies, 26 Broadway (15th Floor), New York, New York
10004, Attention: Asset-Backed Surveillance Department; or as to each
of the foregoing, at such other address as shall be designated by
written notice to the other parties.
SECTION 11.5. Notices to Noteholders; Waiver. (a) Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise expressly provided herein) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
-62-
<PAGE>
(b) Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
(c) In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice.
(d) Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder, and shall not under any circumstance constitute a Default or
Event of Default.
SECTION 11.6. Alternate Payment and Notice Provisions. Notwithstanding
any provision of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Trustee or any Note Paying Agent to such Holder, that
is different from the methods provided for in this Indenture for such payments
or notices, provided that such methods are reasonable and consented to by the
Trustee (which consent shall not be unreasonably withheld). The Issuer will
furnish to the Trustee a copy of each such agreement and the Trustee will cause
payments to be made and notices to be given in accordance with such agreements.
SECTION 11.7. Conflict with Trust Indenture Act. (a) If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
(b) The provisions of TIA ss. 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.9. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Trustee in this
Indenture shall bind its successors. All agreements of the Trustee in this
Indenture shall bind its successors.
-63-
<PAGE>
SECTION 11.10. Severability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.11. Benefits of Indenture. The Note Insurer and its
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture, and shall be entitled to rely upon and directly to enforce such
provisions of this Indenture so long as no Insurer Default shall have occurred
and be continuing. Nothing in this Indenture or in the Notes, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, and the Noteholders, and any other party secured
hereunder, and any other person with an ownership interest in any part of the
Trust Estate, any benefit or any legal or equitable right, remedy or claim under
this Indenture. The Note Insurer may disclaim any of its rights and powers under
this Indenture (in which case the Trustee may exercise such right or power
hereunder), but not its duties and obligations under the Note Policy, upon
delivery of a written notice to the Trustee.
SECTION 11.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed in any
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Trustee or any other counsel reasonably acceptable
to the Trustee and the Note Insurer) to the effect that such recording is
necessary either for the protection of the Noteholders or any other person
secured hereunder or for the enforcement of any right or remedy granted to the
Trustee under this Indenture or to the Collateral Agent under the Master Spread
Account Agreement.
SECTION 11.16. Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Seller, the
Servicer, the Depositor, the Owner Trustee or the Trustee on the Notes or under
this Indenture or any certificate or other writing delivered in connection
herewith or therewith, against (i) the Seller, the Servicer, the Depositor,
-64-
<PAGE>
the Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any partner, owner, beneficiary,
agent, officer, director, employee or agent of the Seller, the Servicer, the
Depositor, the Trustee or the Owner Trustee in its individual capacity, any
holder of a beneficial interest in the Issuer, the Seller, the Servicer, the
Depositor, the Owner Trustee or the Trustee or of any successor or assign of the
Seller, the Servicer, the Depositor, the Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Trustee and the Owner Trustee have no such obligations
in their individual capacity) and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Article VI, VII and VIII of the Trust Agreement.
SECTION 11.17. No Petition. The Trustee, by entering into this
Indenture, and each Noteholder and Note Owner, by accepting a Note or a
beneficial interest therein, hereby covenant and agree that they will not at any
time institute against the Seller, the Depositor, or the Issuer, or join in any
institutional against the Seller, the Depositor, or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
SECTION 11.18. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Trustee or of the Note Insurer,
during the Issuer's normal business hours, to examine all the books of account,
records, reports, and other papers of the Issuer, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants, and to discuss the Issuer's affairs, finances and accounts with the
Issuer's officers, employees, and independent certified public accountants, all
at such reasonable times and as often as may be reasonably requested. The
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Trustee may reasonably determine that such disclosure is
consistent with its Obligations hereunder.
-65-
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this
Indenture to be duly executed by their respective officers, hereunto duly
authorized, all as of the day and year first above written.
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ],
By: [ ],
not in its individual capacity,
but solely as Owner Trustee
By:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION
By:
Title:
-66-
<PAGE>
EXHIBIT A-1 [Form of Class A-1 Note]
REGISTERED [$ ]
No. R-1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. [ ]
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE\ IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
CPS AUTO RECEIVABLES TRUST 1998[ ]-[ ]
CLASS A-1 [ %] ASSET-BACKED NOTES
CPS Auto Receivables Trust 199[ ]-[ ], a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of [ ] DOLLARS payable on each Payment
Date in an amount equal to the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-1 Notes pursuant to
Section 3.1 of the Indenture and Section 5.8 of the Sale and Servicing
Agreement; provided, however, that the entire unpaid principal amount of this
Note shall be due and payable on the [ ] Payment Date (the "Class A-1 Final
Scheduled Payment Date"). The Issuer will pay interest on this Note at the rate
per annum shown above on each Payment Date until the principal of this Note is
paid or made available for payment, on the principal amount of this Note
outstanding on the preceding Payment Date (after giving effect to all payments
of principal made on the preceding Payment Date). Interest on this Note will
accrue for each Payment Date from and including the most recent Payment Date on
which interest has been paid to but excluding such current Payment Date or, if
no interest has yet been paid, from and including [ ]. Interest will be computed
on the basis of [a 360-day year of twelve
A-1-1
<PAGE>
30-day months and] the actual number of days elapsed. Such principal of and
interest on this Note shall be paid in the manner specified on the reverse
hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
[The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by Financial Security Assurance Inc.
(the "Note Insurer"), pursuant to which the Note Insurer has unconditionally
guaranteed payments of the Class A Noteholders' Interest Distributable Amount
and the Class A Noteholders' Principal Distributable Amount on each Payment
Date, all as more fully set forth in the Indenture.]
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.
A-1-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer as of the date set forth
below.
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ]
By: [ ] not in
its individual capacity, but solely as Owner
Trustee
By:
Name:
Title:
A-1-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: [ ] NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, not in its
individual capacity, but solely as Trustee
By:
Authorized Signatory
A-1-4
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-1 [ %] Asset-Backed Notes (herein called the "Class
A-1 Notes"), all issued under an Indenture dated as of [ ] (such indenture, as
supplemented or amended, is herein called the "Indenture"), between the Issuer
and Norwest Bank Minnesota, National Association, as trustee (the "Trustee",
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights and obligations thereunder of the Issuer, the
Trustee and the Holders of the Notes. The Notes are subject to all terms of the
Indenture. All terms used in this Note that are defined in the Indenture,
supplemented or amended, shall have the meanings assigned to them in or pursuant
to the Indenture, as so supplemented or amended.
The Class A-1 Notes, the Class A-2 Notes, [other classes, if any]
(together, the "Notes") are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Class A-1 Notes will be payable on each Payment Date
in an amount described on the face hereof. "Payment Date" means the fifteenth
day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing [ ].
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-1 Final Scheduled Payment
Date and the Redemption Date, if any, pursuant to Section 10.1 of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable (i) on the date on which an Event of Default shall have
occurred and be continuing so long as an Insurer Default shall not have occurred
and be continuing or (ii) if an Insurer Default shall have occurred and be
continuing, on the date on which an Event of Default shall have occurred and be
continuing and the Trustee or the Holders of the Notes representing at least a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2 of the
Indenture. All principal payments on the Class A-1 Notes shall be made pro rata
to the Class A-1 Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Holder of this Note (or one or more Predecessor Notes) in the
Note Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in immediately available funds to the account designated
by such nominee. Such checks shall be mailed to the Person entitled thereto at
the address of such Person as it appears on the Note Register as of the
applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Payment Date
shall be binding upon
A-1-5
<PAGE>
all future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not rated
hereon. If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Note on a
Payment Date, then the Trustee, in the name of and on behalf of the Issuer, will
notify the Person who was the Holder hereof as of the Record Date preceding such
Payment Date by notice mailed prior to such Payment Date and the amount then due
and payable shall be payable only upon presentation and surrender of this Note
at the Trustee's principal Corporate Trust Office or at the office of the
Trustee's agent appointed for such purposes located in Minneapolis, Minnesota.
The Issuer shall pay interest on overdue installments of interest at
the Class A-1 Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to
Section 10.1 of the Indenture, in whole, but not in part, at the option of the
Servicer (with the consent of the Note Insurer under certain circumstances), on
any Payment Date on or after the date on which the Pool Balance is less than or
equal to 10% of the Original Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar which requirements include
membership or participation in Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act, and (ii) accompanied by such other documents
as the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Seller, the Servicer, the Depositor, the Trustee or the Owner
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or
employee of the Issuer, the Seller, the Servicer, the Depositor, the Trustee or
the Owner Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer, the Seller, the Servicer, the Depositor, the Owner
Trustee or the Trustee or of any successor or assign of the Issuer, the Seller,
the Servicer, the Depositor, the
A-1-6
<PAGE>
Trustee or the Owner Trustee in its individual capacity, except as any such
Person may have expressly agreed (it being understood that the Trustee and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Depositor or the Issuer or join in any institution
against the Depositor or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Trustee and the Note Insurer and any agent of the Issuer, the
Trustee or the Note Insurer may treat the Person in whose name this Note (as of
the day of determination or as of such other date as may be specified in the
Indenture) is registered as the owner hereof for all purposes, whether or not
this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Note Insurer and of the Holders of
Notes representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of the Notes,
on behalf of the Holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one of more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
A-1-7
<PAGE>
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither the Owner Trustee in
its individual capacity, any owner of a beneficial interest in the Issuer, nor
any of their respective partners, beneficiaries, agents, officers, directors,
employees or successors or assigns shall be personally liable for, nor shall
recourse be had to any of them for, the payment of principal of or interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in this Note or the Indenture, it being expressly
understood that said covenants, obligations and indemnifications have been made
by the Owner Trustee for the sole purposes of binding the interests of the Owner
Trustee in the assets of the Issuer. The Holder of this Note by the acceptance
hereof agrees that except as expressly provided in the Indenture or the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-1-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: 1/
----------------------
Signature Guaranteed:
- --------
1/ NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change
whatsoever.
A-1-9
<PAGE>
[Form of Class A-2 Note] EXHIBIT A-2
REGISTERED [$ ]
No. R-1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. [ ]
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ]
CLASS A-2 [ %] ASSET-BACKED NOTES
CPS Auto Receivables Trust 199[ ]-[ ], a business trust organized and
existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of [ ] DOLLARS payable on each Payment
Date in an amount equal to the aggregate amount, if any, payable from the Note
Distribution Account in respect of principal on the Class A-2 Notes pursuant to
Section 3.1 of the Indenture and Section 5.8 of the Sale and Servicing Agreement
provided, however, that the entire unpaid principal amount of this Note shall be
due and payable on the [ ] Payment Date (the "Class A-2 Final Scheduled Payment
Date"). The Issuer will pay interest on this Note at the rate per annum shown
above on each Payment Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Payment Date (after giving effect to all payments of principal made on
the preceding Payment Date). Interest on this Note will accrue for each Payment
Date from the most recent Payment Date on which interest has been paid to but
excluding such current Payment Date; provided that for the [ ] Payment Date
interest will accrue for the number of days from and including [ ] to and
including
A-2-1
<PAGE>
[ ] (assuming that there are 30 days in each month of the year). Interest will
be computed on the basis of a [360-day year of twelve 30-day months]. Such
principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
[The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by Financial Security Assurance Inc.
(the "Note Insurer"), pursuant to which the Note Insurer has unconditionally
guaranteed payments of the Class A Noteholders' Interest Distributable Amount
and the Class A Noteholders' Principal Distributable Amount on each Payment
Date, all as more fully set forth in the Indenture.]
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture referred to on the reverse hereof,
or be valid or obligatory for any purpose.
A-2-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer as of the date set forth
below.
CPS AUTO RECEIVABLES TRUST 199[ ]-[ ]
By:[ ], not
in its individual capacity,
but solely as Owner Trustee
By:
Name:
Title:
A-2-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: July [ ] NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, not in its
individual capacity, but solely
as Trustee
By:
Authorized Signatory
A-2-4
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A-2 [ %] Asset-Backed Notes (herein called the "Class
A-2 Notes"), all issued under an Indenture dated as of July 15, 1998 (such
indenture, as supplemented or amended, is herein called the "Indenture"),
between the Issuer and Norwest Bank Minnesota, National Association, as trustee
(the "Trustee", which term includes any successor Trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights and obligations thereunder of the
Issuer, the Trustee and the Holders of the Notes. The Notes are subject to all
terms of the Indenture. All terms used in this Note that are defined in the
Indenture, as supplemented or amended, shall have the meanings assigned to them
in or pursuant to the Indenture, as so supplemented or amended.
The Class A-1 Notes, the Class A-2 Notes, [other classes, if any]
(together, the "Notes") are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture.
Principal of the Class A-2 Notes will be payable on each Payment Date
in an amount described on the face hereof. "Payment Date" means the fifteenth
day of each month, or, if any such date is not a Business Day, the next
succeeding Business Day, commencing [ ].
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Class A-2 Final Scheduled Payment
Date and the Redemption Date, if any, pursuant to Section 10.1 of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable (i) on the date on which an Event of Default shall have
occurred and be continuing so long as an Insurer Default shall not have occurred
and be continuing or (ii) if an Insurer Default shall have occurred and be
continuing, on the date on which an Event of Default shall have occurred and be
continuing and the Trustee or the Holders of the Notes representing at least a
majority of the Outstanding Amount of the Notes have declared the Notes to be
immediately due and payable in the manner provided in Section 5.2 of the
Indenture. All principal payments on the Class A-2 Notes shall be made pro rata
to the Class A-2 Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Holder of this Note (or one or more Predecessor Notes) in the
Note Register as of the close of business on each Record Date, except that with
respect to Notes registered on the Record Date in the name of the nominee of the
Clearing Agency (initially, such nominee to be Cede & Co.), payments will be
made by wire transfer in immediately available funds to the account designated
by such nominee. Such checks shall be mailed to the Person entitled thereto at
the address of such Person as it appears on the Note Register as of the
applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Payment Date
shall be binding upon
A-2-5
<PAGE>
all future Holders of this Note and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof, whether or not noted
hereon. If funds are expected to be available, as provided in the Indenture, for
payment in full of the then remaining unpaid principal amount of this Note on a
Payment Date, then the Trustee, in the name of and on behalf of the Issuer, will
notify the Person who was the Holder hereof as of the Record Date preceding such
Payment Date by notice mailed prior to such Payment Date and the amount then due
and payable shall be payable only upon presentation and surrender of this Note
at the Trustee's principal Corporate Trust Office or at the office of the
Trustee's agent appointed for such purposes located in Minneapolis, Minnesota.
The Issuer shall pay interest on overdue installments of interest at
the Class A-2 Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to
Section 10.1 of the Indenture, in whole, but not in part, at the option of the
Servicer (with the consent of the Note Insurer under certain circumstances), on
any Payment Date on or after the date on which the Pool Balance is less than or
equal to 10% of the Original Pool Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar which requirements include
membership or participation in Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Note Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Exchange Act, and (ii) accompanied by such other documents
as the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Trustee on the Notes or under the
Indenture or any certificate or other writing delivered in connection therewith,
against (i) the Seller, the Servicer, the Depositor, the Trustee or the Owner
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or
employee of the Issuer, the Seller, the Servicer, the Depositor, the Trustee or
the Owner Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer, the Seller, the Servicer, the Depositor, the Owner
Trustee or the Trustee or of any successor or assign of the Issuer, the Seller,
the Servicer, the Depositor, the
A-2-6
<PAGE>
Trustee or the Owner Trustee in its individual capacity, except as any such
Person may have expressly agreed (it being understood that the Trustee and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such partner, owner or beneficiary shall be fully liable, to the extent
provided by applicable law, for any unpaid consideration for stock, unpaid
capital contribution or failure to pay any installment or call owing to such
entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Depositor or the Issuer or join in any institution
against the Depositor or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this Note,
the Issuer, the Trustee and the Note Insurer and any agent of the Issuer, the
Trustee or the Note Insurer may treat the Person in whose name this Note (as of
the day of determination or as of such other date as may be specified in the
Indenture) is registered as the owner hereof for all purposes, whether or not
this Note be overdue, and neither the Issuer, the Trustee nor any such agent
shall be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Note Insurer and of the Holders of
Notes representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of the Notes,
on behalf of the Holders of all the Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Note (or any one or more Predecessor Notes) shall be conclusive and binding
upon such Holder and upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note. The
Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances,
to merge or consolidate, subject to the rights of the Trustee and the Holders of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
A-2-7
<PAGE>
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither the Owner Trustee in
its individual capacity, any owner of a beneficial interest in the Issuer, nor
any of their respective partners, beneficiaries, agents, officers, directors,
employees or successors or assigns shall be personally liable for, nor shall
recourse be had to any of them for, the payment of principal of or interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in this Note or the Indenture, it being expressly
understood that said covenants, obligations and indemnifications have been made
by the Owner Trustee for the sole purposes of binding the interests of the Owner
Trustee in the assets of the Issuer. The Holder of this Note by the acceptance
hereof agrees that except as expressly provided in the Indenture or the Basic
Documents, in the case of an Event of Default under the Indenture, the Holder
shall have no claim against any of the foregoing for any deficiency, loss or
claim therefrom; provided, however, that nothing contained herein shall be taken
to prevent recourse to, and enforcement against, the assets of the Issuer for
any and all liabilities, obligations and undertakings contained in the Indenture
or in this Note.
A-2-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: 1/
-----------------------------------
Signature Guaranteed:
- --------------------- ---------------------------------------------
- --------
1/ NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within Note in
every particular, without alteration, enlargement or any change
whatsoever.
A-2-9
<PAGE>
EXHIBIT B
Form of Depository Agreement
See Following Page
B-1
Exhibit 5.1
Legality Opinion
September 18, 1998
To the Parties Listed on
Schedule I hereto
Re: Consumer Portfolio Services, Inc.
Registration Statement on Form S-3 dated September 18, 1998
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 CPS with the Securities and Exchange
Commission in connection with the registration of the Asset Backed Notes (the
"Notes") 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 Notes of each series
will be issued pursuant to an Indenture (the "Indenture") by and among a trust
(the "Trust"), as issuer and Norwest Bank Minnesota, National Association, as,
trustee (the "Trustee") with the Trust to be formed by the Seller pursuant to a
Trust Agreement (the "Trust Agreement") by and among the Seller as depositor and
the owner trustee. The Notes issued by the Trust will include one or more
classes of notes.
We are generally familiar with the proceedings required to be taken in
connection with the proposed authorization, issuance and sale of the Notes, and
in order to express the opinion hereinafter stated, we have examined copies of
the Registration Statement, including the form of Trust Agreement, the form of
Indenture and the form of Sale and Servicing Agreement included as exhibits to
the Registration Statement. We have examined such other documents and such
matters of law, and we 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 Notes, 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 Notes have been duly approved by
the Board of Directors of the Seller, (iii) the Indenture, the Trust
<PAGE>
The Parties Listed on Schedule I hereto September 18, 1998 Page 2 Agreement and
the Sale and Servicing Agreement relating thereto have been duly completed,
executed and delivered substantially in the form we have examined, duly
reflecting the terms established as described above, and (iv) such Notes have
been duly issued by the applicable Trust and authenticated by the applicable
Trustee all in accordance with the terms and conditions of the Indenture and
sold by the Seller in the manner described in the Registration Statement, such
notes 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 Indenture and the Sale 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 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 Notes.
We wish to advise you that we are members of the bar of the States and
California of New York and the opinions expressed herein are limited to the laws
of the States of New York and California and the Federal laws of the United
States.
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,
Mayer, Brown & Platt
Exhibit 8.1
Tax Opinion
September 18, 1998
To the Parties Listed on
Schedule I hereto
Re: Consumer Portfolio Services, Inc.
Registration Statement on Form S-3 dated September 18, 1998
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 (the "Servicer") 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 connection with the registration by the Servicer of Asset
Backed Notes (the "Notes") 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 forms of the Sale and Servicing Agreement, the Trust
Agreement and the Indenture filed as exhibits 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 used and not otherwise defined
herein have the meanings given to them in the Sale 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, the Servicer, 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
<PAGE>
The Parties Listed on Schedule I hereto September 18, 1998 Page 2 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 Services ("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 Sales and
Servicing Agreement, the Trust Agreement and the Indenture are executed and
delivered in form satisfactory to us, we hereby confirm that the statements in
the Prospectus under the heading "Federal Income Tax Consequences" that are
described to be the legal opinions that we will deliver prior to the issuance of
Securities will 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.
Except for the opinion expressed above, we express no opinion as to any
other tax consequences of the transaction 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 heading "Federal Income
Tax Consequences" in the Prospectus.
Very truly yours,
Mayer, Brown & Platt
Exhibit 10.1
[FORM OF SALE AND
SERVICING AGREEMENT]
- --------------------------------------------------------------------------------
SALE AND SERVICING
AGREEMENT
among
CPS AUTO RECEIVABLES TRUST 199[ ], as
Issuer,
CPS RECEIVABLES CORP., as
Seller,
CONSUMER PORTFOLIO SERVICES, INC., as
Servicer
and
[ ], as
Standby Servicer and Trustee
Dated as of [ ]
- --------------------------------------------------------------------------------
<PAGE>
SALE AND SERVICING AGREEMENT dated as of [ ] among CPS AUTO RECEIVABLES
TRUST 199[ ], a Delaware business trust (the "Issuer"), CPS RECEIVABLES CORP., a
California corporation (the "Seller"), CONSUMER PORTFOLIO SERVICES, INC., a
California corporation (the "Servicer"), and [ ], a national banking
association, in its capacity as Standby Servicer and Trustee.
WHEREAS the Issuer desires to purchase a portfolio of receivables
arising in connection with motor vehicle retail installment sale contracts
acquired by Consumer Portfolio Services, Inc., Samco Acceptance Corp. or Linc
Acceptance Company LLC through motor vehicle dealers and independent finance
companies;
WHEREAS the Seller has purchased such receivables from Consumer
Portfolio Services, Inc., Samco Acceptance Corp. and Linc Acceptance Company LLC
and is willing to sell such receivables to the Issuer;
WHEREAS the Servicer is willing to service all such receivables;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Whenever used in this Agreement, the
following words and phrases shall have the following meanings:
"Accountants' Report" means the report of a firm of nationally
recognized independent accountants described in Section 4.11.
"Administrative Receivable" means, with respect to any Collection
Period, a Receivable which the Servicer is required to purchase pursuant to
Section 4.7 with respect to such Collection Period.
"Affiliate" of any Person means any Person who directly or indirectly
controls, is controlled by, or is under direct or indirect common control with
such Person. For purposes of this definition, the term "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling", "controlled
by" and "under common control with" have meanings correlative to the foregoing.
"Aggregate Principal Balance" means, with respect to any date of
determination, the sum of the Principal Balances for all Receivables (other than
(i) any Receivable that became a
<PAGE>
Liquidated Receivable prior to the end of the related Collection Period and (ii)
any Receivable that became a Purchased Receivable prior to the end of the
related Collection Period) as of the date of determination.
"Agreement" means this Sale and Servicing Agreement, as the same may be
amended and supplemented from time to time.
"Amount Financed" means, with respect to a Receivable, the aggregate
amount advanced under such Receivable toward the purchase price of the Financed
Vehicle and any related costs, including amounts advanced in respect of
accessories, insurance premiums, service and warranty contracts, other items
customarily financed as part of retail automobile installment sale contracts or
promissory notes, and related costs.
"Annual Percentage Rate" or "APR" of a Receivable means the annual
percentage rate of finance charges or service charges, as stated in the related
Contract.
"Assumption Date" shall have the meaning specified in Section 10.3(a).
"Basic Documents" means this Agreement, the Certificate of Trust, the
Trust Agreement, the Indenture, each Purchase Agreement, the Master Spread
Account Agreement, the Spread Account Supplement, the Insurance Agreement, the
Indemnification Agreement, the Lockbox Agreement and other documents and
certificates delivered in connection therewith.
"Business Day" means any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York, the State in which the
Corporate Trust Office is located, the State in which the executive offices of
the Servicer are located and the State in which the principal place of business
of the Note Insurer is located shall be authorized or obligated by law,
executive order, or governmental decree to be closed.
"Casualty" means, with respect to a Financed Vehicle, the total loss or
destruction of such Financed Vehicle.
"Certificate" has the meaning assigned to such term in the Trust
Agreement.
"Certificate Balance" has the meaning assigned to such term in the
Trust Agreement.
"Certificate Deficiency" shall have the meaning assigned to such term
in Section 5.5(c).
"Certificate Distribution Account" has the meaning assigned to such
term in the Trust Agreement.
"Certificate Pool Factor" as of the close of business on any Payment
Date means a seven-digit decimal figure equal to the outstanding principal
amount of the Certificates divided by the original outstanding principal amount
of the Certificates.
-2-
<PAGE>
"Certificateholder" has the meaning assigned to such term in the Trust
Agreement.
"Class" means the Class A-1 Notes and the Class A-2 Notes, as the
context requires.
"Class A Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of (i) the Class A-1 Noteholders' Interest
Distributable Amount and (ii) the Class A-2 Noteholders' Interest Distributable
Amount.
"Class A Noteholders' Percentage" will be [ ]% on the initial Payment
Date and on any Payment Date after the initial Payment Date will be the
percentage equivalent of a fraction, the numerator of which is the principal
amount of the Notes as of the close of the preceding Payment Date and the
denominator of which is the Pool Balance as of such Payment Date.
"Class A Noteholders' Principal Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A Noteholders' Principal
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such Payment Date on
account of the Class A Noteholders' Principal Distributable Amount.
"Class A Noteholders' Principal Distributable Amount" means, with
respect to any Payment Date (other than the Final Scheduled Payment Date for any
Class of Notes), the Class A Noteholders' Percentage of the Principal
Distributable Amount. The Class A Noteholders' Principal Distributable Amount on
the Final Scheduled Payment Date for any Class of Notes will equal the
outstanding principal amount of such Class of Notes.
"Class A Target Amount" means, with respect to any Payment Date, an
amount equal to [ ]% of the Pool Balance as of such Payment Date after giving
effect to all payments of principal on the Receivables received during the
related Collection Period.
"Class A-1 Interest Period" means, for each Payment Date, the actual
number of days elapsed from and including the most recent preceding Payment Date
on which interest has been paid (or, in the case of the first Payment Date, from
and including the Closing Date) to, but excluding, such current Payment Date.
"Class A-1 Interest Rate" means [ ]% per annum.
"Class A-1 Final Scheduled Payment Date" means the [ ] Payment Date.
"Class A-1 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-1 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-1 Noteholders' Interest Distributable Amount.
-3-
<PAGE>
"Class A-1 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-1 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-1
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-1 Noteholder's Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-1 Interest Rate to, but excluding, the current
Payment Date.
"Class A-1 Noteholders' Monthly Interest Distributable Amount" means an
amount equal to the product of (i) the Class A-1 Interest Rate, (ii) the
outstanding principal balance of the Class A-1 Notes as of the close of the
preceding Payment Date (or, in the case of the initial Payment Date, as of the
Closing Date) after giving effect to all distributions on account of principal
on such preceding Payment Date and (iii) a fraction, the numerator of which is
the actual number of days elapsed in the applicable Class A-1 Interest Period
and the denominator of which is 360.
"Class A-1 Notes" has the meaning assigned to such term in the
Indenture.
"Class A-2 Interest Rate" means [ ]% per annum.
"Class A-2 Final Scheduled Payment Date" means the [ ] Payment Date.
"Class A-2 Noteholders' Interest Carryover Shortfall" means, with
respect to any Payment Date, the excess of the Class A-2 Noteholders' Interest
Distributable Amount for the preceding Payment Date over the amount that was
actually deposited in the Note Distribution Account on such preceding Payment
Date on account of the Class A-2 Noteholders' Interest Distributable Amount.
"Class A-2 Noteholders' Interest Distributable Amount" means, with
respect to any Payment Date, the sum of the Class A-2 Noteholders' Monthly
Interest Distributable Amount for such Payment Date and the Class A-2
Noteholders' Interest Carryover Shortfall for such Payment Date, plus interest
on such Class A-2 Noteholder's Interest Carryover Shortfall, to the extent
permitted by law, at the Class A-2 Interest Rate to, but excluding, the current
Payment Date.
"Class A-2 Noteholders' Monthly Interest Distributable Amount" means,
(a) for the first Payment Date, an amount equal to the product of (i) the Class
A-2 Interest Rate, (ii) the initial principal balance of the Class A-2 Notes and
(iii) [a fraction, the numerator of which is the number of days from and
including the Closing Date to and including [ ], 199[ ] (assuming that there are
30 days in each month of the year) and the denominator of which is 360] and (b)
for any Payment Date after the first Payment Date, an amount equal to the
product of [(i) one-twelfth of] the Class A-2 Interest Rate and (ii) the
principal balance of the Class A-2 Notes as of the close of the preceding
Payment Date (after giving effect to all distributions on account of principal
on such preceding Payment Date).
-4-
<PAGE>
"Class A-2 Notes" has the meaning assigned to such term in the
Indenture.
"Closing Date" means [ ].
"Code" shall have the meaning specified in Section 3.2.
"Collateral" shall have the meaning assigned to such term in the
Indenture.
"Collateral Agent" means [ ], in its capacity as Collateral Agent under
the Master Spread Account Agreement.
"Collateral Agent Fee" means the fee payable to the Collateral Agent on
each Payment Date in an amount equal to one-twelfth of [ ]% of the aggregate
outstanding principal amount of the Securities on the last day of the second
preceding Collection Period; provided, however, that on the first Payment Date
the Collateral Agent will be entitled to receive an amount equal to the product
of (i) the percentage equivalent of a fraction the numerator of which is the
number of days from the Closing Date to but excluding the first Payment Date and
the denominator of which is 360, (ii) [ ]% and (iii) the aggregate outstanding
principal amount of the Securities as of the Closing Date.
"Collection Account" means the account designated as such, established
and maintained pursuant to Section 5.1.
"Collection Period" means, with respect to the first Payment Date, the
period beginning on the close of business on the Cutoff Date and ending on the
close of business on [ ]. With respect to each subsequent Payment Date, the
preceding calendar month. Any amount stated "as of the close of business of the
last day of a Collection Period" shall give effect to the following calculations
as determined as of the end of the day on such last day: (i) all applications of
collections, and (ii) all distributions.
"Contract" means a motor vehicle retail installment sale contract.
"Controlling Party" shall be determined in accordance with the
provisions of Section 13.15.
"Corporate Trust Office" means (i) with respect to the Owner Trustee,
the principal corporate trust office of the Owner Trustee, which at the time of
execution of this agreement is [ ] with a copy to [ ], and (ii) with respect to
the Trustee and the Collateral Agent, the principal corporate trust office of
the Trustee, which at the time of execution of this agreement is [ ].
"CPS" means Consumer Portfolio Services, Inc., a California corporation
and its successors.
-5-
<PAGE>
"CPS Purchase Agreement" means the Purchase Agreement dated as of [ ]
by and between the Seller and CPS, as such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, relating to the purchase of the CPS Receivables by the Seller
from CPS.
"CPS Receivables" shall have the meaning specified in the CPS Purchase
Agreement.
"Cram Down Loss" means, with respect to a Receivable, if a court of
appropriate jurisdiction in an insolvency proceeding shall have issued an order
reducing the amount owed on a Receivable or otherwise modifying or restructuring
Scheduled Receivable Payments to be made on a Receivable, an amount equal to
such reduction in Principal Balance of such Receivable or the reduction in 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
Receivable Payments as so modified or restructured. A "Cram Down Loss" shall be
deemed to have occurred on the date such order is entered.
"Cutoff Date" means [ ].
"Dealer" means, with respect to a Receivable, the seller of the related
Financed Vehicle, who originated and assigned such Receivable to CPS, [ ] or [
], who in turn sold such Receivable to the Seller.
"Deficiency Claim Amount" shall have the meaning set forth in Section
5.5(a).
"Deficiency Claim Date" means, with respect to any Payment Date, the
fourth Business Day immediately preceding such Payment Date.
"Deficiency Notice" shall have the meaning set forth in Section 5.5(a).
"Delegation Notice" shall have the meaning specified in Section 9.5.
"Delivery" means, when used with respect to Trust Account Property:
(i) the perfection and priority of a security interest in such Trust
Account Property which is governed by the law of a jurisdiction which has
adopted the 1978 Revision to Article 8 of the UCC:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105 (1) (i) of
the UCC and are susceptible of physical delivery, transfer thereof to
the Trustee or its nominee or custodian by physical delivery to the
Trustee or its nominee or custodian endorsed to, or registered in the
name of, the Trustee or its nominee or custodian or endorsed in blank,
and, with respect to a certificated security (as defined in Section
8-102 of the UCC), transfer thereof (1) by delivery of such
-6-
<PAGE>
certificated security endorsed to, or registered in the name of, the
Trustee or its nominee or custodian or endorsed in blank to a financial
intermediary (as defined in Section 8-313 of the UCC) and the making by
such financial intermediary of entries on its books and records
identifying such certificated securities as belonging to the Trustee or
its nominee or custodian and the sending by such financial intermediary
of a confirmation of the purchase of such certificated security by the
Trustee or its nominee or custodian, or (2) by delivery thereof to a
"clearing corporation" (as defined in Section 8-102 (3) of the UCC) and
the making by such clearing corporation of appropriate entries on its
books reducing the appropriate securities account of the transferor and
increasing the appropriate securities account of a financial
intermediary by the amount of such certificated security, the
identification by the clearing corporation of the certificated
securities for the sole and exclusive account of the financial
intermediary, the maintenance of such certificated securities by such
clearing corporation or a "custodian bank" (as defined in Section
8-102(4) of the UCC) or the nominee of either subject to the clearing
corporation's exclusive control, the sending of a confirmation by the
financial intermediary of the purchase by the Trustee or its nominee or
custodian of such securities and the making by such financial
intermediary of entries on its books and records identifying such
certificated securities as belonging to the Trustee or its nominee or
custodian (all of the foregoing, "Physical Property"), and, in any
event, any such Physical Property in registered form shall be in the
name of the Trustee or its nominee or custodian; and such additional or
alternative procedures as may hereafter become appropriate to effect
the complete transfer of ownership of any such Trust Account Property
to the Trustee or its nominee or custodian, consistent with changes in
applicable law or regulations or the interpretation thereof;
(b) with respect to any security issued by the U.S. Treasury,
the Federal Home Loan Mortgage Corporation or by the Federal National
Mortgage Association that is a book-entry security held through the
Federal Reserve System pursuant to Federal book-entry regulations, the
following procedures, all in accordance with applicable law, including
applicable Federal regulations and Articles 8 and 9 of the UCC:
book-entry registration of such Trust Account Property to an
appropriate book-entry account maintained with a Federal Reserve Bank
by a financial intermediary which is also a "depository" pursuant to
applicable Federal regulations and issuance by such financial
intermediary of a deposit advice or other written confirmation of such
book-entry registration to the Trustee or its nominee or custodian of
the purchase by the Trustee or its nominee or custodian of such
book-entry securities; the making by such financial intermediary of
entries in its books and records identifying such book-entry security
held through the Federal Reserve System pursuant to Federal book-entry
regulations as belonging to the Trustee or its nominee or custodian and
indicating that such custodian holds such Trust Account Property solely
as agent for the Trustee or its nominee or custodian; and such
additional or alternative procedures as may hereafter become
appropriate to effect complete transfer of ownership of any such Trust
Account Property to the Trustee or its nominee or custodian, consistent
with changes in applicable law or regulations or the interpretation
thereof; and
-7-
<PAGE>
(c) with respect to any item of Trust Account Property that is
an uncertificated security under Article 8 of the UCC and that is not
governed by clause (b) above, registration on the books and records of
the issuer thereof in the name of the financial intermediary, the
sending of a confirmation by the financial intermediary of the purchase
by the Trustee or its nominee or custodian of such uncertificated
security, the making by such financial intermediary of entries on its
books and records identifying such uncertificated certificates as
belonging to the Trustee or its nominee or custodian; or
(ii) the perfection and priority of a security interest in such Trust
Account Property which is governed by the law of a jurisdiction which has
adopted the 1994 Revision to Article 8 of the UCC:
(a) with respect to bankers' acceptances, commercial paper,
negotiable certificates of deposit and other obligations that
constitute "instruments" within the meaning of Section 9-105(1)(i) of
the UCC (other than certificated securities) and are susceptible of
physical delivery, transfer thereof to the Trustee by physical delivery
to the Trustee, indorsed to, or registered in the name of, the Trustee
or its nominee or indorsed in blank and such additional or alternative
procedures as may hereafter become appropriate to effect the complete
transfer of ownership of any such Trust Property to the Trustee free
and clear of any adverse claims, consistent with changes in applicable
law or regulations or the interpretation thereof;
(b) with respect to a "certificated security" (as defined in
Section 8-102(a)(4) of the UCC), transfer thereof:
(1) by physical delivery of such certificated
security to the Trustee, provided that if the certificated
security is in registered form, it shall be indorsed to, or
registered in the name of, the Trustee or indorsed in blank;
(2) by physical delivery of such certificated
security in registered form to a "securities intermediary" (as
defined in Section 8-102(a)(14) of the UCC) acting on behalf
of the Trustee if the certificated security has been specially
endorsed to the Trustee by an effective endorsement.
(c) with respect to any security issued by the U.S. Treasury,
the Federal Home Loan Mortgage Corporation or by the Federal National
Mortgage Association that is a book-entry security held through the
Federal Reserve System pursuant to Federal book entry regulations, the
following procedures, all in accordance with applicable law, including
applicable federal regulations and Articles 8 and 9 of the UCC:
book-entry registration of such property to an appropriate book-entry
account maintained with a Federal Reserve Bank by a securities
intermediary which is also a "depositary" pursuant to applicable
federal regulations and issuance by such securities intermediary of a
deposit advice or other written confirmation of such book-entry
registration to the Trustee of the purchase by the securities
intermediary on behalf of the Trustee of such book-entry
-8-
<PAGE>
security; the making by such securities intermediary of entries in its
books and records identifying such book-entry security held through the
Federal Reserve System pursuant to Federal book-entry regulations as
belonging to the Trustee and indicating that such securities
intermediary holds such book-entry security solely as agent for the
Trustee; and such additional or alternative procedures as may hereafter
become appropriate to effect complete transfer of ownership of any such
Trust Property to the Trustee free of any adverse claims, consistent
with changes in applicable law or regulations or the interpretation
thereof;
(d) with respect to any item of Trust Property that is an
"uncertificated security" (as defined in Section 8-102(a)(18) of the
UCC) and that is not governed by clause (c) above, transfer thereof:
(1)(A) by registration to the Trustee as the
registered owner thereof, on the books and records of the
issuer thereof.
(B) by another Person (not a securities
intermediary) who either becomes the registered owner of the
uncertificated security on behalf of the Trustee, or having
become the registered owner acknowledges that it holds for the
Trustee.
(2) the issuer thereof has agreed that it will comply
with instructions originated by the Trustee without further
consent of the registered owner thereof.
(e) with respect to a "security entitlement" (as defined in
Section 8-102(a)(17) of the UCC)
(1) if a securities intermediary (A) indicates by
book entry that a "financial asset" (as defined in Section
8-102(a)(9) of the UCC) has been credited to the Trustee's
"securities account" (as defined in Section 8-501(a) of the
UCC), (B) receives a financial asset (as so defined) from the
Trustee or acquires a financial asset for the Trustee, and in
either case, accepts it for credit to the Trustee's securities
account (as so defined), (C) becomes obligated under other
law, regulation or rule to credit a financial asset to the
Trustee's securities account, or (D) has agreed that it will
comply with "entitlement orders" (as defined in Section
8-102(a)(8) of the UCC) originated by the Trustee, without
further consent by the "entitlement holder" (as defined in
Section 8-102(a)(7) of the UCC), of a confirmation of the
purchase and the making by such securities intermediary of
entries on its books and records identifying as belonging to
the Trustee of (I) a specific certificated security in the
securities intermediary's possession, (II) a quantity of
securities that constitute or are part of a fungible bulk of
certificated securities in the securities intermediary's
possession, or (III) a quantity of securities that constitute
or are part of a fungible bulk of securities
-9-
<PAGE>
shown on the account of the securities intermediary on the
books of another securities intermediary.
(f) in each case of delivery contemplated pursuant to
clause(a) through (e) of subsection (ii) hereof, the Trustee shall make
appropriate notations on its records, and shall cause the same to be
made on the records of its nominees, indicating that such Trust
Property which constitutes a security is held in trust pursuant to and
as provided in this Agreement.
"Depositor" shall mean the Seller in its capacity as Depositor under
the Trust Agreement.
"Determination Date" means the earlier of (i) the seventh Business Day
of each calendar month and (ii) the fifth Business Day preceding the related
Payment Date.
"Draw Date" means with respect to any Payment Date, the third Business
Day immediately preceding such Payment Date.
"Eligible Account" means (i) a segregated trust account that is
maintained with a depository institution acceptable to the Note Insurer (so long
as an Insurer Default shall not have occurred and be continuing), or (ii) a
segregated direct deposit account maintained with a depository institution or
trust company organized under the laws of the United States of America, or any
of the States thereof, or the District of Columbia, having a certificate of
deposit, short-term deposit or commercial paper rating of at least "A-1" by
Standard & Poor's and "P-1" by Moody's and (so long as an Insurer Default shall
not have occurred and be continuing) acceptable to the Note Insurer.
"Eligible Investments" mean book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully guaranteed as to the
full and timely payment by, the United States of America;
(b) demand deposits, time deposits or certificates of deposit of any
depository institution or trust company incorporated under the laws of the
United States of America or any State thereof (or any domestic branch of a
foreign bank) and subject to supervision and examination by Federal or State
banking or depository institution authorities; provided, however, that at the
time of the investment or contractual commitment to invest therein, the
commercial paper or other short-term unsecured debt obligations (other than such
obligations the rating of which is based on the credit of a Person other than
such depository institution or trust company) thereof shall be rated "A-1+" by
Standard & Poor's and "P-1" by Moody's;
(c) commercial paper that, at the time of the investment or contractual
commitment to invest therein, is rated "A-1+" by Standard & Poor's and "P-1" by
Moody's;
-10-
<PAGE>
(d) bankers' acceptances issued by any depository institution or trust
company referred to in clause (b) above;
(e) repurchase obligations with respect to any security that is a
direct obligation of, or fully guaranteed as to the full and timely payment by,
the United States of America or any agency or instrumentality thereof the
obligations of which are backed by the full faith and credit of the United
States of America, in either case entered into with (i) a depository institution
or trust company (acting as principal) described in clause (b) or (ii) a
depository institution or trust company whose commercial paper or other short
term unsecured debt obligations are rated "A-1+" by Standard & Poor's and "P-1"
by Moody's and long term unsecured debt obligations are rated "AAA" by Standard
& Poor's and "Aaa" by Moody's;
(f) with the prior written consent of the Note Insurer, money market
mutual funds registered under the Investment Company Act of 1940, as amended,
having a rating, at the time of such investment, from each of the Rating
Agencies in the highest investment category granted thereby; and
(g) any other investment as may be acceptable to the Note Insurer, as
evidenced by a writing to that effect, as may from time to time be confirmed in
writing to the Trustee by the Note Insurer.
Any of the foregoing Eligible Investments may be purchased by or
through the Owner Trustee or the Trustee or any of their respective Affiliates.
"ERISA" shall have the meaning specified in Section 3.2.
"FDIC" means the Federal Deposit Insurance Corporation.
"Final Scheduled Payment Date" means with respect to the Class A-1
Notes, the Class A- 1 Final Scheduled Payment Date and with respect to the Class
A-2 Notes, the Class A-2 Final Scheduled Payment Date.
"Financed Vehicle" means a new or used automobile, light truck, van or
minivan, together with all accessions thereto, securing an Obligor's
indebtedness under a Receivable.
"First Target Date" means the first Payment Date on which the principal
balance of the Notes is equal to or less than the Class A Target Amount.
"Holder" shall have the meaning specified in the Indenture.
"Indemnification Agreement" means the Indemnification Agreement among
the Note Insurer, CPS, the Seller and the Underwriter, dated as of [ ], as such
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
-11-
<PAGE>
"Indenture" means the Indenture dated as of [ ], between the Issuer and
[ ], as Trustee, as the same may be amended and supplemented from time to time.
"Initial Spread Account Deposit" shall have the meaning specified in
the Spread Account Supplement.
"Insolvency Event" means, with respect to a specified Person, (a) the
filing of a petition against such Person or the entry of a decree or order for
relief by a court having jurisdiction in the premises in respect of such Person
or any substantial part of its property in an involuntary case under any
applicable federal or state bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official for such Person or for any substantial
part of its property, or ordering the winding-up or liquidation or such Person's
affairs, and such petition, decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or (b) the commencement by such Person of a
voluntary case under any applicable federal or state bankruptcy, insolvency or
other similar law now or hereafter in effect, or the consent by such Person to
the entry of an order for relief in an involuntary case under any such law, or
the consent by such Person to the appointment of or taking possession by, a
receiver, liquidator, assignee, custodian, trustee, sequestrator, or similar
official for such Person or for any substantial part of its property, or the
making by such Person of any general assignment for the benefit of creditors, or
the failure by such Person generally to pay its debts as such debts become due,
or the taking of action by such Person in furtherance of any of the foregoing.
"Insurance Agreement" means the Insurance and Indemnity Agreement among
the Trust, CPS, the Seller, and the Note Insurer, dated as of [ ], as such
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
"Insurance Agreement Event of Default" means an "Event of Default" as
defined in the Insurance Agreement.
"Insurance Policy" means, with respect to a Receivable, any insurance
policy (including the insurance policies described in Section 4.4 hereof)
benefiting the holder of the Receivable providing loss or physical damage,
credit life, credit disability, theft, mechanical breakdown or similar coverage
with respect to the Financed Vehicle or the Obligor.
"Insurer Default" shall mean any one of the following events shall have
occurred and be continuing:
(i) the Note Insurer fails to make a payment required under
the Policy in accordance with its terms;
-12-
<PAGE>
(ii) the Note Insurer (A) files any petition or commences any
case or proceeding under any provision or chapter of the United States
Bankruptcy Code, the New York Department of Insurance Code or 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 Note 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 Note
Insurer (or the taking of possession of all or any material portion of
the property of the Note Insurer).
"Interest Period" means, with respect to any Payment Date, the period
from and including the Closing Date (in the case of the first Payment Date) or
from and including the most recent Payment Date on which interest has been paid
to but excluding such Payment Date.
"Interest Rate" means the Class A-1 Interest Rate or the Class A-2
Interest Rate, as applicable.
"Investment Earnings" means, with respect to any Payment Date and Trust
Account, the investment earnings on amounts on deposit in such Trust Account on
such Payment Date.
"Issuer" means CPS Auto Receivables Trust 199[ ].
"Lien" means a security interest, lien, charge, pledge, equity, or
encumbrance of any kind, other than tax liens, mechanics' liens and any liens
that attach to the respective Receivable by operation of law.
"Lien Certificate" means, with respect to a Financed Vehicle, an
original certificate of title, certificate of lien or other notification issued
by the Registrar of Titles of the applicable state to a secured party which
indicates that the lien of the secured party on the Financed Vehicle is recorded
on the original certificate of title. In any jurisdiction in which the original
certificate of title is required to be given to the obligor, the term "Lien
certificate" shall mean only a certificate or notification issued to a secured
party.
"Linc" means Linc Acceptance Company LLC and its successors.
"Linc Receivables" shall have the meaning specified in the Linc
Purchase Agreement.
-13-
<PAGE>
"Liquidated Receivable" means any 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 [ ] days have
elapsed since the date of such repossession or (iii) as to which an Obligor has
failed to make more than [ ]% of a Scheduled Receivable Payment of more than [ ]
dollars for [ ] (or, if the related Financed Vehicle has been repossessed, [ ])
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.
"Lockbox Account" means an account maintained on behalf of the Trustee
by the Lockbox Bank pursuant to Section 4.2(c).
"Lockbox Agreement" means the Three Party Agreement Relating to Lockbox
Services, dated as of [ ], by and among the Lockbox Processor, the Servicer, the
Seller and the Trustee, as such agreement may be amended or supplemented from
time to time, unless the Trustee shall cease to be a party thereunder, or such
agreement shall be terminated in accordance with its terms, in which event
"Lockbox Agreement" shall mean such other agreement, in form and substance
acceptable to the Controlling Party, among the Servicer, the Trustee and the
Lockbox Processor.
"Lockbox Bank" means as of any date a depository institution named by
the Servicer and acceptable to the Controlling Party at which the Lockbox
Account is established and maintained as of such date.
"Lockbox Processor" means Bank of America and its successors and
assigns.
"Master Spread Account Agreement" means the Master Spread Account
Agreement amended and restated as of [ ] among the Note Insurer, the Seller and
the Collateral Agent, as the same may be modified, supplemented or otherwise
amended in accordance with the terms thereof.
"Moody's" means Moody's Investors Service, Inc., or its successor.
"Net Liquidation Proceeds" means, with respect to a Liquidated
Receivable, all amounts realized with respect to such Receivable (other than
amounts withdrawn from the Spread Account and drawings under the Note Policy)
net of (i) reasonable expenses incurred by the Servicer in connection with the
collection of such Receivable and the repossession and disposition of the
Financed Vehicle and (ii) amounts that are required to be refunded to the
Obligor on such Receivable; provided, however, that the Net Liquidation Proceeds
with respect to any Receivable shall in no event be less than zero.
"Note" shall have the meaning provided in Section 1.1 of the Indenture.
-14-
<PAGE>
"Note Distribution Account" means the account designated as such,
established and maintained pursuant to Section 5.1.
"Note Insurer" means Financial Security Assurance Inc., a stock
insurance company organized and created under the laws of the State of New York,
or its successors in interest.
"Note Policy" means the Financial Guaranty Insurance Policy issued by
the Note Insurer for the benefit of the Holders of the Notes issued under the
Indenture, including any endorsements thereto.
"Note Policy Claim Amount" with respect to any Distribution Date, has
the meaning specified in Section 6.1.
"Note Pool Factor" for each Class of Notes as of the close of business
on any Payment Date means a seven-digit decimal figure equal to the outstanding
principal amount of such Class of Notes divided by the original outstanding
principal amount of such Class of Notes.
"Noteholder" shall have the meaning specified in the Indenture.
"Notes" means the Class A-1 Notes and the Class A-2 Notes.
"Objection Date" shall have the meaning specified in Section 9.5.
"Objection Notice" shall have the meaning specified in Section 9.5.
"Obligor" on a Receivable means the purchaser or co-purchasers of the
Financed Vehicle and any other Person who owes payments under the Receivable.
"Officer's Certificate" means a certificate signed by the chairman of
the board, the president, any vice chairman of the board, any vice president,
the treasurer, the controller or assistant treasurer or any assistant
controller, secretary or assistant secretary of CPS, the Seller or the Servicer,
as appropriate.
"Opinion of Counsel" means a written opinion of counsel who may but
need not be counsel to the Seller or the Servicer, which counsel shall be
reasonably acceptable to the Trustee and the Note Insurer and which opinion
shall be acceptable in form and substance to the Trustee and, if such opinion or
a copy thereof is required by the provisions of this Agreement to be delivered
to the Note Insurer, to the Note Insurer.
"Original Pool Balance" means the Pool Balance as of the Cutoff Date.
"Other Conveyed Property" means all property conveyed by the Seller to
the Trust pursuant to Section 2.1(b) through (h) of this Agreement.
-15-
<PAGE>
"Owner Trust Estate" has the meaning assigned to such term in the Trust
Agreement.
"Owner Trustee" means [ ], not in its individual capacity but solely as
Owner Trustee under the Trust Agreement, its successors in interest or any
successor Owner Trustee under the Trust Agreement.
"Payment Date" means, with respect to each Collection Period, the 15th
day of the following calendar month, or if such day is not a Business Day, the
immediately following Business Day, commencing on [ ].
"Person" means any individual, corporation, estate, partnership,
limited liability company, joint venture, association, joint stock company,
trust (including any beneficiary thereof), unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Property" has the meaning assigned to such term in the
definition of "Delivery" above.
"Pool Balance" means, as of any date of determination, the aggregate
Principal Balance of the Receivables (excluding Purchased Receivables and
Liquidated Receivables).
"Post-Office Box" means the separate post-office box in the name of the
Trustee for the benefit of the Securityholders and the Note Insurer, established
and maintained pursuant to Section 4.1.
"Preference Claim" shall have the meaning specified in Section 6.2(b).
"Principal Balance" of a Receivable, as of the close of business on the
last day of a Collection Period means the Amount Financed minus the sum of the
following amounts without duplication: (i) in the case of a Rule of 78's
Receivable, that portion of all Scheduled Receivable Payments actually received
on or prior to such day allocable to principal using the actuarial or constant
yield method; (ii) in the case of a Simple Interest Receivable, that portion of
all Scheduled Receivable Payments 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.
"Principal Distributable Amount" means, with respect to any Payment
Date, the sum of (i) collections on Receivables (other than Liquidated
Receivables) allocable to principal including full and partial prepayments; (ii)
the portion of the Purchase Amount allocable to principal of each Receivable
that became a Purchased Receivable as of the last day of the preceding
Collection Period and, at the option of the Note Insurer the Principal Balance
of each Receivable that was required to be but was not so purchased or
repurchased (without duplication
-16-
<PAGE>
of amounts referred to in clause (i) above); (iii) the Principal Balance of each
Receivable that first became a Liquidated Receivable during the preceding
Collection Period (without duplication of the amounts included in clause (i)
above); (iv) the aggregate amount of Cram Down Losses with respect to the
Receivables that have occurred during the preceding Collection Period (without
duplication of amounts referred to in clauses (i) through (iii) above); and (v)
following the acceleration of the Notes pursuant to Section 5.2 of the
Indenture, the amount of money or property collected pursuant to Section 5.4 of
the Indenture since the preceding Determination Date by the Trustee or
Controlling Party for distribution pursuant to Section 5.7 hereof.
"Program" shall have the meaning specified in Section 4.11.
"Purchase Agreement" means the CPS Purchase Agreement, the Samco
Purchase Agreement and/or the Linc Purchase Agreement.
"Purchase Amount" means, with respect to a Receivable, the Principal
Balance and all accrued and unpaid interest on the Receivable, after giving
effect to the receipt of any moneys collected (from whatever source) on such
Receivable, if any.
"Purchased Receivable" means a Receivable purchased as of the close of
business on the last day of a Collection Period by the Servicer pursuant to
Section 4.7 or repurchased by the Seller or CPS pursuant to Section 3.2 or
Section 11.1(a).
"Rating Agency" means each of Moody's and Standard & Poor's, and any
successors thereof. If no such organization or successor maintains a rating on
the Securities, "Rating Agency" shall be a nationally recognized statistical
rating organization or other comparable Person designated by the Note Insurer
(so long as an Insurer Default shall not have occurred and be continuing),
notice of which designation shall be given to the Trustee, the Owner Trustee and
the Servicer.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 3 days' (or such shorter period as shall be
acceptable to each Rating Agency) prior notice thereof and that each of the
Rating Agencies shall have notified the Seller, the Servicer, the Note Insurer,
the Owner Trustee and the Trustee in writing that such action will not result in
a reduction or withdrawal of the then current rating of any Class of Notes.
"Realized Losses" means, with respect to any Receivable that becomes a
Liquidated Receivable, the excess of the Principal Balance of such Liquidated
Receivable over Net Liquidation Proceeds to the extent allocable to principal.
"Receivable" means each retail installment sale contract for a Financed
Vehicle listed on Schedule A (which Schedule A may be in the form of microfiche)
and all rights and obligations thereunder except for Receivables that shall have
become Purchased Receivables.
-17-
<PAGE>
"Receivable Files" means the documents specified in Section 3.3.
"Record Date" means, with respect to any Payment Date, the tenth day of
the calendar month in which such Payment Date occurs.
"Registrar of Titles" means, with respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles and liens thereon.
"Responsible Officer" shall have the meaning specified in the Trust
Agreement.
"Rule of 78's Receivable" means any Receivable under which the portion
of a payment allocable to earned interest (which may be referred to in the
related retail installment sale contract as an add-on finance charge) and the
portion allocable to the Amount Financed is determined according to the method
commonly referred to as the "Rule of 78's" method or the "sum of the months'
digits" method or any equivalent method.
"Samco" means Samco Acceptance Corp., a subsidiary of CPS.
"Samco Purchase Agreement" means the Purchase Agreement, dated as of [
] by and between Samco and the Seller, as such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof, relating to the purchase of the Samco Receivables by the Seller
from Samco.
"Samco Receivables" shall have the meaning specified in the Samco
Purchase Agreement.
"Schedule of Receivables" means the schedule of all retail installment
sales contracts and promissory notes originally held as part of the Trust which
is attached hereto as Schedule A, as amended from time to time.
"Scheduled Receivable Payment" means, with respect to any Collection
Period for any Receivable, the amount set forth in such Receivable as required
to be paid by the Obligor in such Collection Period (without giving effect to
deferments of payments pursuant to Section 4.2 or any rescheduling of payments
in any insolvency or similar proceedings).
"Securities" means the Notes and the Certificates.
"Security Majority" means a majority by principal amount of the
Noteholders so long as the Notes are outstanding and a majority by Certificate
Balance of the Certificateholders thereafter.
"Securityholders" means the Noteholders and the Certificateholders.
-18-
<PAGE>
"Seller" means CPS Receivables Corp., a California corporation, and its
successors in interest to the extent permitted hereunder.
"Series 199[ ] Spread Account" means the account designated as such,
established and maintained pursuant to the Spread Account Supplement.
"Servicer" means Consumer Portfolio Services, Inc., as the servicer of
the Receivables, and each successor Servicer pursuant to Section 10.3.
"Servicer Termination Event" means an event specified in Section 10.1.
"Servicer's Certificate" means a certificate completed and executed by
a Servicing Officer and delivered pursuant to Section 4.9, substantially in the
form of Exhibit B.
"Servicing and Lockbox Processing Assumption Agreement" means the
Servicing and Lockbox Processing Assumption Agreement, dated as of [ ] among
CPS, the Standby Servicer and the Trustee, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms thereof.
"Servicing Fee" has the meaning specified in Section 4.8.
"Servicing Officer" means any Person whose name appears on a list of
Servicing Officers delivered to the Trustee and the Note Insurer, as the same
may be amended from time to time.
"Simple Interest Method" means the method of allocating a fixed level
payment between principal and interest, pursuant to which the portion of such
payment that is allocated to interest is equal to the product of the APR
multiplied by the unpaid balance multiplied by the period of time (expressed as
a fraction of a year, based on the actual number of days in the calendar month
and the actual number of days in the calendar year) elapsed since the preceding
payment of interest was made and the remainder of such payment is allocable to
principal.
"Simple Interest Receivable" means a Receivable under which the portion
of the payment allocable to interest and the portion allocable to principal is
determined in accordance with the Simple Interest Method.
"Specified Spread Account Requisite Amount" has the meaning specified
in the Spread Account Supplement.
"Spread Account Supplement" means the Series 199[ ] Supplement to the
Master Spread Account Agreement dated as of [ ] among the Note Insurer, the
Seller and the Collateral Agent, as the same may be modified, supplemented or
otherwise amended in accordance with the terms thereof.
-19-
<PAGE>
"Standard & Poor's" means Standard & Poor's Ratings Group, a division
of The McGraw-Hill Companies, or its successor.
"Standby Fee" means the fee payable to the Standby Servicer so long as
CPS is the Servicer, on each Payment Date in an amount equal to one-twelfth of [
]% of the aggregate outstanding principal amount of the Securities on the last
day of the second preceding Collection Period; provided, however, that on the
first Payment Date the Standby Servicer will be entitled to receive an amount
equal to the product of (i) the percentage equivalent of a fraction the
numerator of which is the number days from the Closing Date to but excluding the
first Payment Date and the denominator of which is 360, (ii) [ ]% and (iii) the
aggregate outstanding principal amount of the Securities as of the Closing Date.
"Standby Servicer" means [ ], in its capacity as Standby Servicer
pursuant to the terms of the Servicing and Lockbox Processing Assumption
Agreement or such Person as shall have been appointed Standby Servicer pursuant
to Section 9.2(c).
"Total Distribution Amount" means, for each Payment Date, the sum of
the following amounts with respect to the preceding Collection Period: (i) all
collections on the Receivables, (ii) Net Liquidation Proceeds received during
the Collection Period with respect to Liquidated Receivables; (iii) all Purchase
Amounts deposited in the Collection Account during the related Collection
Period; (iv) Investment Earnings for the related Payment Date; (v) following the
acceleration of the Notes pursuant to Section 5.2 of the Indenture, the amount
of money or property collected pursuant to Section 5.7 of the Indenture since
the preceding Payment Date by the Trustee or Controlling Party for distribution
pursuant to Section 5.6 and Section 5.8 hereof; and (vi) the proceeds of any
purchase or sale of the assets of the Trust described in Section 11.1 hereof.
"Trigger Event" has the meaning assigned thereto in the Spread Account
Supplement.
"Trust" means the Issuer.
"Trust Account Property" means the Trust Accounts, all amounts and
investments held from time to time in any Trust Account (whether in the form of
deposit accounts, Physical Property, book-entry securities, uncertificated
securities or otherwise), and all proceeds of the foregoing.
"Trust Accounts" has the meaning assigned thereto in Section 5.1.
"Trust Agreement" means the Trust Agreement dated as of [ ], between
the Seller, as Depositor, and the Owner Trustee, as the same may be further
amended or supplemented from time to time.
-20-
<PAGE>
"Trust Officer" means, (i) in the case of the Trustee, any vice
president, any assistant vice president, any assistant secretary, any assistant
treasurer, any trust officer, or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject, and (ii) in the case of the Owner
Trustee, any officer in the corporate trust office of the Owner Trustee or any
agent of the Owner Trustee under a power of attorney with direct responsibility
for the administration of this Agreement or any of the Basic Documents on behalf
of the Owner Trustee.
"Trust Property" means the property and proceeds conveyed pursuant to
Section 2.1, together with certain monies received after the Cutoff Date, the
Insurance Policies, the Collection Account (including all Eligible Investments
therein and all proceeds therefrom), the Lockbox Account and certain other
rights under this Agreement. Although the Seller has pledged the Spread Account
to the Trustee and the Note Insurer pursuant to the Master Spread Account
Agreement, the Spread Account shall not under any circumstances be deemed to be
a part of or otherwise includable in the Trust or the Trust Property.
"Trust Receipt" has the meaning assigned thereto by Section 3.5.
"Trustee" means the Person acting as Trustee under the Indenture, its
successors in interest and any successor trustee under the Indenture.
"Trustee Fee" means (A) the fee payable to the Trustee on each Payment
Date in an amount equal to one-twelfth of [ ]% of the aggregate outstanding
principal amount of the Securities on the last day of the second preceding
Collection Period; provided, however, that on the first Payment Date the Trustee
will be entitled to receive an amount equal to the product of (i) the percentage
equivalent of a fraction the numerator of which is the number days from the
Closing Date to but excluding the first Payment Date and the denominator of
which is 360, (ii) [ ]% and (iii) the aggregate outstanding principal amount of
the Securities as of the Closing Date and/or (B) any amounts payable to the
Owner Trustee pursuant to Section 4.11 of the Trust Agreement, as applicable.
"UCC" means the Uniform Commercial Code as in effect in the relevant
jurisdiction on the date of the Agreement.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture or, if not defined therein, in
the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any instrument governed hereby and in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
-21-
<PAGE>
(c) Accounting terms used but not defined or partly defined in this
Agreement, in any instrument governed hereby or in any certificate or other
document made or delivered pursuant hereto, to the extent not defined, shall
have the respective meanings given to them under generally accepted accounting
principles as in effect on the date of this Agreement or any such instrument,
certificate or other document, as applicable. To the extent that the definitions
of accounting terms in this Agreement or in any such instrument, certificate or
other document are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained in this Agreement or
in any such instrument, certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement.
(e) Section, Schedule and Exhibit references contained in this
Agreement are references to Sections, Schedules and Exhibits in or to this
Agreement unless otherwise specified; and the term "including" shall mean
"including without limitation."
(f) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(g) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as the same may from time to time be amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments and instruments associated therewith; all
references to a Person include its permitted successors and assigns.
ARTICLE II
CONVEYANCE OF RECEIVABLES
SECTION 2.1. Conveyance of Receivables. In consideration of the
Issuer's delivery to or upon the order of the Seller on the Closing Date of the
net proceeds from the sale of the Notes and the Certificates and the other
amounts to be distributed from time to time to the Seller in accordance with the
terms of this Agreement, the Seller does hereby sell, transfer, assign, set over
and otherwise convey to the Issuer, without recourse (subject to the obligations
set forth herein):
(a) all right, title and interest of the Seller in and to the
Receivables listed in Schedule A hereto, all monies received thereon
after the Cutoff Date and all Net Liquidation Proceeds received with
respect thereto after the Cutoff Date;
-22-
<PAGE>
(b) all right, title and interest of the Seller in and to the
security interests in the Financed Vehicles granted by Obligors
pursuant to the Receivables and any other interest of the Seller in
such Financed Vehicles, including, without limitation, the certificates
of title or, with respect to such Financed Vehicles in the State of
Michigan, all other evidence of ownership with respect to such Financed
Vehicles;
(c) all right, title and interest of the Seller in and to any
proceeds from claims on any physical damage, credit life and credit
accident and health insurance policies or certificates relating to the
Financed Vehicles or the Obligors;
(d) all right, title and interest of the Seller in and to the
Purchase Agreements, including a direct right to cause CPS to purchase
Receivables from the Trust pursuant to the CPS Purchase Agreement under
the circumstances specified therein;
(e) all right, title and interest of the Seller in and to
refunds for the costs of extended service contracts with respect to
Financed Vehicles securing Receivables, refunds of unearned premiums
with respect to credit life and credit accident and health insurance
policies or certificates covering an Obligor or Financed Vehicle or his
or her obligations with respect to a Financed Vehicle and any recourse
to Dealers for any of the foregoing;
(f) the Receivable File related to each Receivable;
(g) all amounts and property from time to time held in or
credited to the Collection Account, the Lockbox Account or the Note
Distribution Account;
(h) the proceeds of any and all of the foregoing; and
all present and future claims, demands, causes and
choses in action in respect of any or all of the foregoing and all
payments on or under and all proceeds of every kind and nature
whatsoever in respect of any or all of the foregoing, including all
proceeds of the conversion, voluntary or involuntary, into cash or
other liquid property, all cash proceeds, accounts, accounts
receivable, notes, drafts, acceptances, chattel paper, checks, deposit
accounts, insurance proceeds, condemnation awards, rights to payment of
any and every kind and other forms of obligations and receivables,
instruments and other property which at any time constitute all or part
of or are included in the proceeds of any of the foregoing.
[Prefunding provisions, if any, to be inserted]
It is the intention of the Seller that the transfer and assignment
contemplated by this Agreement shall constitute a sale of the Receivables and
other Trust Property from the Seller to the Issuer and the beneficial interest
in and title to the Receivables and the other Trust Property shall not be part
of the Seller's estate in the event of the filing of a bankruptcy petition by or
-23-
<PAGE>
against the Seller under any bankruptcy law. In the event that, notwithstanding
the intent of the Seller, the transfer and assignment contemplated hereby is
held not to be a sale, this Agreement shall constitute a grant of a security
interest in the property referred to in this Section 2.1 for the benefit of the
Securityholders and the Note Insurer.
SECTION 2.2. [RESERVED].
SECTION 2.3. Further Encumbrance of Trust Property.
(a) Immediately upon the conveyance to the Trust by the Seller of any
item of the Trust Property pursuant to Section 2.1, all right, title and
interest of the Seller in and to such item of Trust Property shall terminate,
and all such right, title and interest shall vest in the Trust, in accordance
with the Trust Agreement and Sections 3802 and 3805 of the Business Trust
Statute (as defined in the Trust Agreement).
(b) Immediately upon the vesting of the Trust Property in the Trust,
the Trust shall have the sole right to pledge or otherwise encumber, such Trust
Property. Pursuant to the Indenture, the Trust shall grant a security interest
in the Trust Property to secure the repayment of the Notes. The Certificates
shall represent beneficial ownership interests in the Trust Property, and the
Certificateholders shall be entitled to receive distributions with respect
thereto as set forth herein.
(c) Following the payment in full of the Notes and the release and
discharge of the Indenture, all covenants of the Issuer under Article III of the
Indenture shall, until all amounts due in respect of the Certificates have been
paid in full, remain as covenants of the Issuer for the benefit of the
Certificateholders, enforceable by the Certificateholders to the same extent as
such covenants were enforceable by the Noteholders prior to the discharge of the
Indenture. Any rights of the Trustee under Article III of the Indenture,
following the discharge of the Indenture, shall vest in the Certificateholders.
(d) The Trustee shall, at such time as there are no Securities
outstanding and all sums due to the Trustee pursuant to the Indenture and this
Agreement, have been paid, release any remaining portion of the Trust Property
to the Certificateholders.
ARTICLE III
THE RECEIVABLES
SECTION 3.1. Representations and Warranties of Seller. The Seller makes
the following representations and warranties as to the Receivables to the Note
Insurer, the Issuer and to the Trustee for the benefit of the Noteholders on
which the Issuer relies in acquiring the Receivables and on which the Note
Insurer relies in issuing the Note Policy. Such representations and warranties
speak as of the execution and delivery of this Agreement and as
-24-
<PAGE>
of the Closing Date, but shall survive the sale, transfer and assignment of the
Receivables to the Issuer and the pledge thereof to the Trustee pursuant to the
Indenture.
(i) Characteristics of Receivables. (A) Each Receivable (1)
has been originated in the United States of America by a Dealer for the
retail sale of a Financed Vehicle in the ordinary course of such
Dealer's business, has been fully and properly executed by the parties
thereto and has been purchased by CPS (or, with respect to the Samco
Receivables, Samco and, with respect to the Linc Receivables, Linc) in
connection with the sale of Financed Vehicles by the Dealers, (2) has
created a valid, subsisting, and enforceable first priority perfected
security interest in favor of CPS (or, with respect to the Samco
Receivables, Samco and, with respect to the Linc Receivables, Linc) in
the Financed Vehicle, which security interest has been assigned by CPS
(or, with respect to the Samco Receivables, Samco and, with respect to
the Linc Receivables, Linc) to the Seller, which in turn has assigned
such security interest to the Trust which has assigned such security
interest to the Trustee, (3) contains customary and enforceable
provisions such that the rights and remedies of the holder or assignee
thereof shall be adequate for realization against the collateral of the
benefits of the security, (4) provides for level monthly payments that
fully amortize the Amount Financed over the original term (except for
the last payment, which may be different from the level payment) and
yield interest at the Annual Percentage Rate, (5) has an Annual
Percentage Rate of not less than [ ]%, (6) that is a Rule of 78's
Receivable provides for, in the event that such contract is prepaid, a
prepayment that fully pays the Principal Balance and includes a full
month's interest, in the month of prepayment, at the Annual Percentage
Rate, (7) is a Rule of 78's Receivable or a Simple Interest Receivable,
and (8) was originated by a Dealer and was sold by the Dealer without
any fraud or misrepresentation on the part of such Dealer.
(B) Approximately [ ]% of the aggregate Principal Balance of
the Receivables, constituting [ ]% of the number of contracts, as of
the Cutoff Date, represents financing of used automobiles, light
trucks, vans or minivans; the remainder of the Receivables represent
financing of new automobiles, light trucks, vans or minivans;
approximately [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date were originated under the CPS Alpha
Program; approximately [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date were originated under the CPS Delta
Program; approximately [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date were originated under the CPS First
Time Buyer Program; approximately [ ]% of the aggregate Principal
Balance of the Receivables as of the Cutoff Date were originated under
the CPS Standard Program; approximately [ ]% of the aggregate Principal
Balance of the Receivables as of the Cutoff Date were originated under
the CPS Super Alpha Program; approximately [ ]% of the aggregate
Principal Balance of the Receivables as of the Cutoff Date were
originated under the Linc Program; approximately [ ]% of the aggregate
Principal Balance of the Receivables as of the Cutoff Date are Samco
Receivables; approximately [ ]% of the Receivables as of the Cutoff
Date are Linc Receivables; no Receivable shall have a payment that is
more
-25-
<PAGE>
than [ ] days overdue as of the Cutoff Date; [ ]% of the aggregate
Principal Balance of the Receivables as of the Cutoff Date are Rule of
78's Receivables and [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date are Simple Interest Receivables; each
Receivable shall have a final scheduled payment due no later than
[_________________]; and each Receivable was originated on or before
the Cutoff Date.
(ii) Schedule of Receivables. The information with respect to
the Receivables set forth in Schedule A to this Agreement is true and
correct in all material respects as of the close of business on the
Cutoff Date, and no selection procedures adverse to the Noteholders
have been utilized in selecting the Receivables.
(iii) Compliance with Law. Each Receivable, the sale of the
Financed Vehicle and the sale of any physical damage, credit life and
credit accident and health insurance and any extended warranties or
service contracts complied at the time the related Receivable was
originated or made and at the execution of this Agreement complies in
all material respects with all requirements of applicable Federal,
State, and local laws, and regulations thereunder including, without
limitation, usury laws, the Federal Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Fair Credit Reporting Act, the Fair Debt
Collection Practices Act, the Federal Trade Commission Act, the
Magnuson-Moss Warranty Act, the Federal Reserve Board's Regulations B
and Z, the Soldiers' and Sailors' Civil Relief Act of 1940, the Texas
Consumer Credit Code, the California Automobile Sales Finance Act and
State adaptations of the National Consumer Act and of the Uniform
Consumer Credit Code, and other consumer credit laws and equal credit
opportunity and disclosure laws.
(iv) No Government Obligor. None of the Receivables are due
from the United States of America or any State or from any agency,
department, or instrumentality of the United States of America or any
State.
(v) Security Interest in Financed Vehicle. Immediately
subsequent to the sale, assignment and transfer thereof to the Trust,
each Receivable shall be secured by a validly perfected first priority
security interest in the Financed Vehicle in favor of the Trust as
secured party, and such security interest is prior to all other liens
upon and security interests in such Financed Vehicle which now exist or
may hereafter arise or be created (except, as to priority, for any tax
liens or mechanics' liens which may arise after the Closing Date).
(vi) Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released
from the lien granted by the related Receivable in whole or in part.
(vii) No Waiver. No provision of a Receivable has been waived.
-26-
<PAGE>
(viii) No Amendments. No Receivable has been amended, except
as such Receivable may have been amended to grant extensions which
shall not have numbered more than (a) one extension of one calendar
month in any calendar year or (b) three such extensions in the
aggregate.
(ix) No Defenses. No right of rescission, setoff, counterclaim
or defense exists or has been asserted or threatened with respect to
any Receivable. The operation of the terms of any Receivable or the
exercise of any right thereunder will not render such Receivable
unenforceable in whole or in part or subject to any such right of
rescission, setoff, counterclaim, or defense.
(x) No Liens. As of the Cutoff Date there are no liens or
claims existing or which have been filed for work, labor, storage or
materials relating to a Financed Vehicle that shall be liens prior to,
or equal or coordinate with, the security interest in the Financed
Vehicle granted by the Receivable.
(xi) No Default; Repossession. Except for payment
delinquencies continuing for a period of not more than thirty days as
of the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Receivable has occurred; and no
continuing condition that with notice or the lapse of time would
constitute a default, breach, violation or event permitting
acceleration under the terms of any Receivable has arisen; and the
Seller shall not waive and has not waived any of the foregoing; and no
Financed Vehicle shall have been repossessed as of the Cutoff Date.
(xii) Insurance; Other. (A) Each Obligor has obtained
insurance covering the Financed Vehicle as of the execution of the
Receivable insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by
comprehensive and collision coverage, and each Receivable requires the
Obligor to obtain and maintain such insurance naming CPS (or, with
respect to the Samco Receivables, Samco, and with respect to the Linc
Receivables, Linc) and its successors and assigns as an additional
insured, (B) each Receivable that finances the cost of premiums for
credit life and credit accident and health insurance is covered by an
insurance policy or certificate of insurance naming CPS (or with
respect to the Samco Receivables, Samco and, with respect to the Linc
Receivables, Linc) as policyholder (creditor) under each such insurance
policy and certificate of insurance and (C) as to each Receivable that
finances the cost of an extended service contract, the respective
Financed Vehicle which secures the Receivable is covered by an extended
service contract.
(xiii) Title. It is the intention of the Seller that the
transfer and assignment herein contemplated constitute a sale of the
Receivables from the Seller to the Trust and that the beneficial
interest in and title to such Receivables not be part of the Seller's
estate in the event of the filing of a bankruptcy petition by or
against the Seller under any bankruptcy law. No Receivable has been
sold, transferred, assigned, or pledged by the Seller to any Person
other than the Trust. Immediately prior to the transfer and assignment
herein
-27-
<PAGE>
contemplated, the Seller had good and marketable title to each
Receivable and was the sole owner thereof, free and clear of all liens,
claims, encumbrances, security interests, and rights of others, and,
immediately upon the transfer thereof, the Trust for the benefit of the
Noteholders and the Note Insurer shall have good and marketable title
to each such Receivable and will be the sole owner thereof, free and
clear of all liens, encumbrances, security interests, and rights of
others, and the transfer has been perfected under the UCC.
(xiv) Lawful Assignment. No Receivable has been originated in,
or is subject to the laws of, any jurisdiction under which the sale,
transfer, and assignment of such Receivable under this Agreement or
pursuant to transfers of the Securities shall be unlawful, void, or
voidable. The Seller has not entered into any agreement with any
account debtor that prohibits, restricts or conditions the assignment
of any portion of the Receivables.
(xv) All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Trust a first priority perfected ownership interest in the Receivables
and the proceeds thereof and the Other Conveyed Property have been
made, taken or performed.
(xvi) Receivable File; One Original. CPS has delivered to the
Trustee a complete Receivable File with respect to each Receivable.
There is only one original executed copy of each Receivable.
(xvii) Chattel Paper. Each Receivable constitutes "chattel
paper" under the UCC.
(xviii) Title Documents. (A) If the Receivable was originated
in a State in which notation of a security interest on the title
document of the related Financed Vehicle is required or permitted to
perfect such security interest, the title document of the related
Financed Vehicle for such Receivable shows, or if a new or replacement
title document is being applied for with respect to such Financed
Vehicle the title document (or, with respect to Receivables originated
in the State of Michigan, a "Form RD108" stamped by the Department of
Motor Vehicles) will be received within 180 days and will show, CPS
(or, with respect to the Samco Receivables, Samco and, with respect to
the Linc Receivables, Linc) named as the original secured party under
the related Receivable as the holder of a first priority security
interest in such Financed Vehicle, and (B) if the Receivable was
originated in a State in which the filing of a financing statement
under the UCC is required to perfect a security interest in motor
vehicles, such filings or recordings have been duly made and show CPS
(or, with respect to the Samco Receivables, Samco and, with respect to
the Linc Receivables, Linc) named as the original secured party under
the related Receivable, and in either case, the Trust has the same
rights as such secured party has or would have (if such secured party
were still the owner of the Receivable) against all parties claiming an
interest in such Financed Vehicle. With respect to each Receivable for
which the title document has not yet been
-28-
<PAGE>
returned from the Registrar of Titles, CPS (or, with respect to the
Samco Receivables, Samco and, with respect to the Linc Receivables,
Linc) has received written evidence from the related Dealer that such
title document showing CPS, Samco or Linc (as applicable) as first
lienholder has been applied for.
(xix) Valid and Binding Obligation of Obligor. Each Receivable
is the legal, valid and binding obligation in writing of the Obligor
thereunder and is enforceable in accordance with its terms, except only
as such enforcement may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally, and all
parties to such contract had full legal capacity to execute and deliver
such contract and all other documents related thereto and to grant the
security interest purported to be granted thereby.
(xx) Tax Liens. As of the Cutoff Date, there is no lien
against the related Financed Vehicle for delinquent taxes.
(xxi) Characteristics of Obligors. As of the date of each
Obligor's application for the loan from which the related Receivable
arises, such Obligor (a) did not have any material past due credit
obligations or any personal or real property repossessed or wages
garnished within one year prior to the date of such application, unless
such amounts have been repaid or discharged through bankruptcy, (b) was
not the subject of any Federal, State or other bankruptcy, insolvency
or similar proceeding pending on the date of application that is not
discharged, (c) had not been the subject of more than one Federal,
State or other bankruptcy, insolvency or similar proceeding, and (d)
was domiciled in the United States.
(xxii) Origination Date. Each Receivable has an origination
date on or after [ ].
(xxiii) Maturity of Receivables. Each Receivable has an
original term to maturity of not more than [ ] months; the weighted
average original term to maturity of the Receivables was [ ] months as
of the Cutoff Date; the remaining term to maturity of each Receivable
was [ ] months or less as of the Cutoff Date; the weighted average
remaining term to maturity of the Receivables was [ ] months as of the
Cutoff Date.
(xxiv) Scheduled Receivable Payments. Each Receivable had an
original principal balance of not less than $[ ] nor more than $[ ] had
an outstanding principal balance as of the Cutoff Date of not less than
$[ ] nor more than $[ ].
(xxv) Origination of Receivables. Based on the billing address
of the Obligors and the Principal Balances as of the Cutoff Date,
approximately [ ]% of the aggregate Principal Balance of the
Receivables represents Receivables that were originated in California.
-29-
<PAGE>
(xxvi) Post-Office Box. On or prior to the next billing period
after the Cutoff Date, CPS will notify each Obligor to make payments
with respect to its respective Receivables after the Cutoff Date
directly to the Post-Office Box, and will provide each Obligor with a
monthly statement in order to enable such Obligors to make payments
directly to the Post-Office Box.
(xxvii) Location of Receivable Files. A complete Receivable
File with respect to each Receivable has been or prior to the Closing
Date will be delivered to the Trustee at the location listed in
Schedule B.
(xxviii) Casualty. No Financed Vehicle has suffered a
Casualty.
(xxix) Principal Balance/Number of Contracts. As of the Cutoff
Date, the total aggregate principal balance of the Receivables was $[
]. The Receivables are evidenced by [ ] Contracts.
(xxx) Full Amount Advanced. The full amount of each Receivable
has been advanced to each Obligor, and there are no requirements for
future advances thereunder. The Obligor with respect to the Receivable
does not have any option under the Receivable to borrow from any person
additional funds secured by the Financed Vehicle.
SECTION 3.2. Repurchase upon Breach.
(a) The Seller, the Servicer, the Note Insurer, the Trustee or (upon
actual knowledge of a Responsible Officer thereof) the Owner Trustee, as the
case may be, shall inform the other parties to this Agreement promptly, in
writing, upon the discovery of any breach of the Seller's representations and
warranties made pursuant to Section 3.1 (without regard to any limitations
therein as to the Seller's knowledge). Unless the breach shall have been cured
by the last day of the second Collection Period following the discovery thereof
by the Trustee or the Note Insurer or receipt by the Trustee, the Owner Trustee
and the Note Insurer of notice from the Seller or the Servicer of such breach,
CPS (pursuant to the CPS Purchase Agreement) shall repurchase any Receivable if
the value of such Receivable is materially and adversely affected by the breach
as of the last day of such second Collection Period (or, at CPS's option, the
last day of the first Collection Period following the discovery) and, in the
event that the breach relates to a characteristic of the Receivables in the
aggregate, and if the interests of the Trust, the Noteholders or the
Certificateholders are materially and adversely affected by such breach, unless
the breach shall have been cured by the last day of such second Collection
Period, CPS (pursuant to the CPS Purchase Agreement) shall purchase such
aggregate Principal Balance of Receivables, such that following such purchase
such representation shall be true and correct with respect to the remainder of
the Receivables in the aggregate. In consideration of the purchase of the
Receivable, CPS shall remit the Purchase Amount, in the manner specified in
Section 5.6. For purposes of this Section, the Purchase Amount of a Receivable
which is not consistent with the warranty pursuant to Section 3.1(i)(A)(4) or
(A)(5) shall include such additional amount as shall be necessary to provide the
full amount of interest as contemplated therein. The sole
-30-
<PAGE>
remedy of the Issuer, the Owner Trustee, the Trustee, the Securityholders or the
Note Insurer with respect to a breach of representations and warranties pursuant
to Section 3.1 shall be to enforce CPS's obligation to purchase such Receivables
pursuant to the CPS Purchase Agreement; provided, however, that CPS shall
indemnify the Trustee, the Owner Trustee, the Standby Servicer, the Collateral
Agent, the Note Insurer, the Trust and the Securityholders against all costs,
expenses, losses, damages, claims and liabilities, including reasonable fees and
expenses of counsel, which may be asserted against or incurred by any of them as
a result of third party claims arising out of the events or facts giving rise to
such breach. Upon receipt of the Purchase Amount and written instructions from
the Servicer, the Trustee shall release to CPS or its designee the related
Receivables File and shall execute and deliver all reasonable instruments of
transfer or assignment, without recourse, as are prepared by the Seller and
delivered to the Trustee and necessary to vest in CPS or such designee title to
the Receivable including a Trustee's Certificate in the form of Exhibit E-1. If
it is determined that consummation of the transactions contemplated by this
Agreement and the other transaction documents referenced in this Agreement, the
servicing and operation of the Trust pursuant to this Agreement and such other
documents, or the ownership of a Note or Certificate by a Holder constitutes a
violation of the prohibited transaction rules of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the Internal Revenue Code of
1986, as amended (the "Code") or any successor statutes of similar impact,
together with the regulations thereunder, to which no statutory exception or
administrative exemption applies, such violation shall not be treated as a
breach of the Seller's representations and warranties made pursuant to Section
3.1 if not otherwise such a breach.
(b) Pursuant to Section 2.1 of this Agreement, the Seller has conveyed
to the Trust all of the Seller's right, title and interest in its rights and
benefits, but none of its obligations or burdens, under the Purchase Agreements
including the Seller's rights under the Purchase Agreements and the delivery
requirements, representations and warranties and the cure or repurchase
obligations of CPS under the CPS Purchase Agreement. The Seller hereby
represents and warrants to the Trust that such assignment is valid, enforceable
and effective to permit the Trust to enforce such obligations of CPS under the
CPS Purchase Agreement.
SECTION 3.3. Custody of Receivables Files.
(a) In connection with the sale, transfer and assignment of the
Receivables and the other Conveyed Property to the Trust pursuant to this
Agreement the Trustee shall act as custodian of the following documents or
instruments in its possession which shall be delivered to the Trustee on or
before the Closing Date (with respect to each Receivable):
(i) The fully executed original of the Receivable (together
with any agreements modifying the Receivable, including without
limitation any extension agreements);
(ii) The original certificate of title in the name of CPS (or,
with respect to the Samco Receivables, Samco and, with respect to the
Linc Receivables, Linc) or such documents that CPS shall keep on file,
in accordance with its customary procedures,
-31-
<PAGE>
evidencing the security interest of CPS (or, with respect to the Samco
Receivables, Samco and, with respect to the Linc Receivables, Linc) in
the Financed Vehicle or, if not yet received, a copy of the application
therefor showing CPS (or, with respect to the Samco Receivables, Samco
and, with respect to the Linc Receivables, Linc) as secured party.
(b) Upon payment in full of any Receivable, the Servicer will notify
the Trustee pursuant to a certificate of an officer of the Servicer (which
certificate shall include a statement to the effect that all amounts received in
connection with such payments which are required to be deposited in the
Collection Account pursuant to Section 4.2 have been so deposited) and shall
request delivery of the Receivable and Receivable File to the Servicer.
SECTION 3.4. Acceptance of Receivable Files by Trustee. The Trustee
acknowledges receipt of files which the Seller has represented are the
Receivable Files. The Trustee has reviewed the Receivable Files and has
determined that it has received a file for each Receivable identified in
Schedule A to this Agreement. The Trustee declares that it holds and will
continue to hold such files and any amendments, replacements or supplements
thereto and all other Trust Assets as Trustee in trust for the use and benefit
of all present and future Securityholders. The Trustee agrees to review each
file delivered to it no later than [ ] days after the Closing Date to determine
whether such Receivable Files contain the documents referred to in Section
3.3(i) and (ii). If the Trustee has found or finds that a file for a Receivable
has not been received, or that a file is unrelated to the Receivables identified
in Schedule A to this Agreement or that any of the documents referred to in
Section 3.3(i) or (ii) are not contained in a Receivable File, the Trustee shall
inform CPS, the Seller, the Owner Trustee and the Note Insurer promptly, in
writing, of the failure to receive a file with respect to such Receivable (or of
the failure of any of the aforementioned documents to be included in the
Receivable File) or shall return to CPS as the Seller's designee any file
unrelated to a Receivable identified in Schedule A to this Agreement (it being
understood that the Trustee's obligation to review the contents of any
Receivable File shall be limited as set forth in the preceding sentence). Unless
such defect with respect to such Receivable File shall have been cured by the
last day of the second Collection Period following discovery thereof by the
Trustee, CPS shall repurchase any such Receivable as of such last day. In
consideration of the purchase of the Receivable, CPS shall remit the Purchase
Amount, in the manner specified in Section 5.6. The sole remedy of the Trustee,
the Trust, or the Securityholders with respect to a breach pursuant to this
Section 3.4 shall be to require CPS to purchase the applicable Receivables
pursuant to this Section 3.4; provided, however, that CPS shall indemnify the
Trustee, the Owner Trustee, the Standby Servicer, the Collateral Agent, the Note
Insurer, the Trust and the Securityholders against all costs, expenses, losses,
damages, claims and liabilities, including reasonable fees and expenses of
counsel, which may be asserted against or incurred by any of them as a result of
third party claims arising out of the events or facts giving rise to such
breach. Upon receipt of the Purchase Amount and written instructions from the
Servicer, the Trustee shall release to CPS or its designee the related
Receivable File and shall execute and deliver all reasonable instruments of
transfer or assignment, without recourse, as are prepared by CPS and delivered
to the Trustee and are necessary to vest in CPS or such designee title to the
Receivable including a Trustee's Certificate in the form of Exhibit E-1. The
-32-
<PAGE>
Trustee shall make a list of Receivables for which an application for a
certificate of title but not an original certificate of title or, with respect
to Receivables originated in the State of Michigan, a "Form RD108" stamped by
the Department of Motor Vehicles, is included in the Receivable File as of the
date of its review of the Receivable Files and deliver a copy of such list to
the Servicer, the Owner Trustee and the Note Insurer. On the date which is 180
days following the Closing Date or the next succeeding Business Day, the Trustee
shall inform CPS and the other parties to this Agreement and the Note Insurer of
any Receivable for which the related Receivable File on such date does not
include an original certificate of title or, with respect to Financed Vehicles
in the State of Michigan, for which the related Receivable File on such date
does not include a "Form RD108" stamped by the Department of Motor Vehicles, and
CPS shall repurchase any such Receivable as of the last day of the current
Collection Period.
SECTION 3.5. Access to Receivable Files. The Trustee shall permit the
Servicer and the Note Insurer access to the Receivable Files at all reasonable
times during the Trustee's normal business hours. The Trustee shall, within two
Business Days of the request of the Servicer, the Owner Trustee or the Note
Insurer, execute such documents and instruments as are prepared by the Servicer,
the Owner Trustee or the Note Insurer and delivered to the Trustee, as the
Servicer, the Owner Trustee or the Note Insurer deems necessary to permit the
Servicer, in accordance with its customary servicing procedures, to enforce the
Receivable on behalf of the Trust and any related insurance policies covering
the Obligor, the Receivable or Financed Vehicle so long as such execution in the
Trustee's sole discretion does not conflict with this Agreement and will not
cause it undue risk or liability. The Trustee shall not be obligated to release
any document from any Receivable File unless it receives a trust receipt signed
by a Servicing Officer in the form of Exhibit B hereto (the "Trust Receipt").
Such Trust Receipt shall obligate the Servicer to return such document(s) to the
Trustee when the need therefor no longer exists unless the Receivable shall be
liquidated, in which case, upon receipt of a certificate of a Servicing Officer
substantially in the form of Exhibit C hereto to the effect that all amounts
required to be deposited in the Collection Account with respect to such
Receivable have been so deposited, the Trust Receipt shall be released by the
Trustee to the Servicer.
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.1. Duties of the Servicer. The Servicer, as agent for the
Trust, the Securityholders and the Note Insurer (to the extent provided herein)
shall manage, service, administer and make collections on the Receivables with
reasonable care, using that degree of skill and attention customary and usual
for institutions which service motor vehicle retail installment contracts
similar to the Receivables and, to the extent more exacting, that the Servicer
exercises with respect to all comparable automotive receivables that it services
for itself or others. The Servicer's duties shall include collection and posting
of all payments, responding to inquiries of Obligors on such Receivables,
investigating delinquencies, sending payment statements to Obligors, reporting
tax information to Obligors, accounting for collections,
-33-
<PAGE>
furnishing monthly and annual statements to the Trustee, the Owner Trustee and
the Note Insurer with respect to distributions. Without limiting the generality
of the foregoing, and subject to the servicing standards set forth in this
Agreement, the Servicer is authorized and empowered by the Trust to execute and
deliver, on behalf of itself, the Trust or the Securityholders, any and all
instruments of satisfaction or cancellation, or partial or full release or
discharge, and all other comparable instruments, with respect to such
Receivables or to the Financed Vehicles securing such Receivables and/or the
certificates of title or, with respect to Financed Vehicles in the State of
Michigan, other evidence of ownership with respect to such Financed Vehicles. If
the Servicer shall commence a legal proceeding to enforce a Receivable, the
Trust shall thereupon be deemed to have automatically assigned, solely for the
purpose of collection, such Receivable to the Servicer. If in any enforcement
suit or legal proceeding it shall be held that the Servicer may not enforce a
Receivable on the ground that it shall not be a real party in interest or a
holder entitled to enforce such Receivable, the Trust shall, at the Servicer's
expense and direction, take steps to enforce such Receivable, including bringing
suit in its name or the name of the Securityholders. The Servicer shall prepare
and furnish, and the Trustee and the Owner Trustee shall execute, any powers of
attorney and other documents reasonably necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder.
SECTION 4.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreements.
(a) Consistent with the standards, policies and procedures required by
this Agreement, the Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Receivables as and
when the same shall become due and shall follow such collection procedures as it
follows with respect to all comparable automotive receivables that it services
for itself or others; provided, however, that promptly after the Closing Date
the Servicer shall notify each Obligor to make all payments with respect to the
Receivables to the Post-Office Box. The Servicer will provide each Obligor with
a monthly statement in order to notify such Obligors to make payments directly
to the Post-Office Box. The Servicer shall allocate collections between
principal and interest in accordance with the customary servicing procedures it
follows with respect to all comparable automotive receivables that it services
for itself or others and in accordance with the terms of this Agreement. Except
as provided below, the Servicer, for so long as CPS is the Servicer, may grant
extensions on a Receivable; provided, however, that the Servicer may not grant
more than one extension per calendar year with respect to a Receivable or grant
an extension with respect to a Receivable for more than one calendar month or
grant more than three extensions in the aggregate with respect to a Receivable
without the prior written consent of the Note Insurer and provided, further,
that if the Servicer extends the date for final payment by the Obligor of any
Receivable beyond the last day of the penultimate Collection Period preceding
the Class A-2 Final Scheduled Payment Date, it shall promptly purchase the
Receivable from the Trust in accordance with the terms of Section 4.7 hereof
(and for purposes thereof, the Receivable shall be deemed to be materially and
adversely affected by such breach). If the Servicer is not CPS, the Servicer may
not make any extension on a Receivable without the prior written consent of the
Note Insurer. The Servicer may in its discretion waive any late payment charge
or any other fees that may be collected in the ordinary
-34-
<PAGE>
course of servicing a Receivable. Notwithstanding anything to the contrary
contained herein, the Servicer shall not agree to any alteration of the interest
rate on any Receivable or of the amount of any Scheduled Receivable Payment on
Receivables.
(b) The Trustee shall establish the Lockbox Account in the name of the
Seller for the benefit of the Trustee for the further benefit of the
Securityholders and the Note Insurer. Pursuant to the Lockbox Agreement, the
Trustee has authorized the Servicer to direct dispositions of funds on deposit
in the Lockbox Account to the Collection Account (but not to any other account),
and no other Person, save the Lockbox Processor and the Trustee, has authority
to direct disposition of funds on deposit in the Lockbox Account. The Trustee
shall have no liability or responsibility with respect to the Lockbox
Processor's directions or activities as set forth in the preceding sentence. The
Lockbox Account shall be established pursuant to and maintained in accordance
with the Lockbox Agreement and shall be a demand deposit account initially
established and maintained with Bank of America, or at the request of the Note
Insurer (unless an Insurer Default shall have occurred and be continuing) an
Eligible Account satisfying clause (i) of the definition thereof; provided,
however, that the Trustee shall give the Servicer prior written notice of any
change made at the request of the Note Insurer in the location of the Lockbox
Account. The Trustee shall establish and maintain the Post-Office Box at a
United States Post Office Branch in the name of the Seller for the benefit of
the Securityholders and the Note Insurer.
(c) Notwithstanding any Lockbox Agreement, or any of the provisions of
this Agreement relating to the Lockbox Agreement, the Servicer shall remain
obligated and liable to the Trust, the Trustee and Securityholders for servicing
and administering the Receivables and the Other Conveyed Property in accordance
with the provisions of this Agreement without diminution of such obligation or
liability by virtue thereof.
(d) In the event the Servicer shall for any reason no longer be acting
as such, the Standby Servicer or a successor Servicer shall thereupon assume all
of the rights and obligations of the outgoing Servicer under the Lockbox
Agreement. In such event, the successor Servicer shall be deemed to have assumed
all of the outgoing Servicer's interest therein and to have replaced the
outgoing Servicer as a party to the Lockbox Agreement to the same extent as if
such Lockbox Agreement had been assigned to the successor Servicer, except that
the outgoing Servicer shall not thereby be relieved of any liability or
obligations on the part of the outgoing Servicer to the Lockbox Bank under such
Lockbox Agreement. The outgoing Servicer shall, upon request of the Trustee, but
at the expense of the outgoing Servicer, deliver to the successor Servicer all
documents and records relating to the Lockbox Agreement and an accounting of
amounts collected and held by the Lockbox Bank and otherwise use its best
efforts to effect the orderly and efficient transfer of any Lockbox Agreement to
the successor Servicer. In the event that the Note Insurer (so long as an
Insurer Default shall not have occurred and be continuing) or Holders of Notes
evidencing more than [ ]% of the outstanding principal balance of the Notes (if
an Insurer Default shall have occurred and be continuing) shall elect to change
the identity of the Lockbox Bank, the Servicer, at its expense, shall cause the
Lockbox Bank to deliver, at the direction of the Note Insurer (so long as an
Insurer Default shall not have occurred and be
-35-
<PAGE>
continuing) or Holders of Notes evidencing more than [ ]% of the outstanding
principal balance of the Notes (if an Insurer Default shall have occurred and be
continuing) to the Trustee or a successor Lockbox Bank, all documents and
records relating to the Receivables and all amounts held (or thereafter
received) by the Lockbox Bank (together with an accounting of such amounts) and
shall otherwise use its best efforts to effect the orderly and efficient
transfer of the Lockbox arrangements.
(e) On each Business Day, pursuant to the Lockbox Agreement, the
Lockbox Processor will transfer any payments from Obligors received in the
Post-Office Box to the Lockbox Account. Within two Business Days of receipt of
funds into the Lockbox Account, the Servicer shall cause the Lockbox Bank to
transfer funds from the Lockbox Account to the Collection Account. In addition,
the Servicer shall remit all payments by or on behalf of the Obligors received
by the Servicer with respect to the Receivables (other than Purchased
Receivables), and all Liquidation Proceeds no later than the Business Day
following receipt directly (without deposit into any intervening account) into
the Lockbox Account or the Collection Account.
SECTION 4.3. Realization Upon Receivables. On behalf of the Trust, the
Securityholders and the Note Insurer, the Servicer shall use its best efforts,
consistent with the servicing procedures set forth herein, to repossess or
otherwise convert the ownership of the Financed Vehicle securing any Receivable
as to which the Servicer shall have determined eventual payment in full is
unlikely. The Servicer shall commence efforts to repossess or otherwise convert
the ownership of a Financed Vehicle on or prior to the date that an Obligor has
failed to make more than 90% of a Scheduled Receivable Payment thereon in excess
of $[ ] for 120 days or more; provided, however, that the Servicer may elect not
to commence such efforts within such time period if in its good faith judgment
it determines either that it would be impracticable to do so or that the
proceeds ultimately recoverable with respect to such Receivable would be
increased by forbearance. The Servicer shall follow such customary and usual
practices and procedures as it shall deem necessary or advisable in its
servicing of automotive receivables, consistent with the standards of care set
forth in Section 4.2, which may include reasonable efforts to realize upon any
recourse to Dealers and selling the Financed Vehicle at public or private sale.
The foregoing shall be subject to the provision that, in any case in which the
Financed Vehicle shall have suffered damage, the Servicer shall not expend funds
in connection with the repair or the repossession of such Financed Vehicle
unless it shall determine in its discretion that such repair and/or repossession
will increase the proceeds ultimately recoverable with respect to such
Receivable by an amount greater than the amount of such expenses.
SECTION 4.4. Insurance.
(a) The Servicer, in accordance with the servicing procedures and
standards set forth herein, shall require that (i) each Obligor shall have
obtained insurance covering the Financed Vehicle, as of the date of the
execution of the Receivable, insuring against loss and damage due to fire,
theft, transportation, collision and other risks generally covered by
comprehensive and collision coverage and each Receivable requires the Obligor to
maintain such physical loss and
-36-
<PAGE>
damage insurance naming CPS (or, with respect to the Samco Receivables, Samco
and, with respect to the Linc Receivables, Linc) and its successors and assigns
as an additional insured, (ii) each Receivable that finances the cost of
premiums for credit life and credit accident and health insurance is covered by
an insurance policy or certificate naming CPS (or, with respect to the Samco
Receivables, Samco and, with respect to the Linc Receivables, Linc) as
policyholder (creditor) and (iii) as to each Receivable that finances the cost
of an extended service contract, the respective Financed Vehicle which secures
the Receivable is covered by an extended service contract.
(b) To the extent applicable, the Servicer shall not take any action
which would result in noncoverage under any of the insurance policies referred
to in Section 4.4(a) which, but for the actions of the Servicer, would have been
covered thereunder. The Servicer, on behalf of the Trust, shall take such
reasonable action as shall be necessary to permit recovery under any of the
foregoing insurance policies. Any amounts collected by the Servicer under any of
the foregoing insurance policies shall be deposited in the Collection Account
pursuant to Section 5.2.
SECTION 4.5. Maintenance of Security Interests in Vehicles.
(a) Consistent with the policies and procedures required by this
Agreement, the Servicer shall take such steps on behalf of the Trust as are
necessary to maintain perfection of the security interest created by each
Receivable in the related Financed Vehicle, including but not limited to
obtaining the execution by the Obligors and the recording, registering, filing,
re-recording, refiling, re-recording, re-registering and refiling of all
security agreements, financing statements and continuation statements or
instruments as are necessary to maintain the security interest granted by the
Obligors under the respective Receivables. The Trustee hereby authorizes the
Servicer, and the Servicer agrees, to take any and all steps necessary to
re-perfect or continue the perfection of such security interest on behalf of the
Trust as necessary because of the relocation of a Financed Vehicle or for any
other reason. In the event that the assignment of a Receivable to the Trust is
insufficient, without a notation on the related Financed Vehicle's certificate
of title, or without fulfilling any additional administrative requirements under
the laws of the state in which the Financed Vehicle is located, to perfect a
security interest in the related Financed Vehicle in favor of the Trust, the
Servicer hereby agrees that CPS's designation as the secured party on the
certificate of title is in its capacity as Servicer as agent of the Trust.
(b) Upon the occurrence of an Insurance Agreement Event of Default, the
Note Insurer may (so long as an Insurer Default shall not have occurred and be
continuing) instruct the Trustee and the Servicer to take or cause to be taken,
or, if an Insurer Default shall have occurred, upon the occurrence of a Servicer
Termination Event, the Trustee and the Servicer shall take or cause to be taken
such action as may, in the opinion of counsel to the Trustee, which opinion
shall not be an expense of the Trustee, be necessary to perfect or re-perfect
the security interests in the Financed Vehicles securing the Receivables in the
name of the Trust by amending the title documents of such Financed Vehicles or
by such other reasonable means as may, in the opinion of counsel to the Trustee,
which opinion shall not be an expense of the Trustee, be necessary or prudent.
CPS hereby agrees to pay all expenses related to such
-37-
<PAGE>
perfection or re-perfection and to take all action necessary therefor. The
Servicer hereby agrees to pay all expenses related to such perfection or
re-perfection and to take all action necessary therefor. In addition, prior to
the occurrence of an Insurance Agreement Event of Default, the Controlling Party
may instruct the Trustee and the Servicer to take or cause to be taken such
action as may, in the opinion of counsel to the Controlling Party, be necessary
to perfect or re-perfect the security interest in the Financed Vehicles
underlying the Receivables in the name of the Trust, including by amending the
title documents of such Financed Vehicles or by such other reasonable means as
may, in the opinion of counsel to the Controlling Party, be necessary or
prudent; provided, however, that if the Controlling Party requests (unless an
Insurer Default shall have occurred and be continuing) that the title documents
be amended prior to the occurrence of an Insurance Agreement Event of Default,
the out-of-pocket expenses of the Servicer or the Trustee in connection with
such action shall be reimbursed to the Servicer or the Trustee, as applicable,
by the Controlling Party.
SECTION 4.6. Additional Covenants of Servicer. The Servicer shall not
release the Financed Vehicle securing each Receivable from the security interest
granted by such Receivable in whole or in part except in the event of payment in
full by the Obligor thereunder or repossession, nor shall the Servicer impair
the rights of the Securityholders in such Receivables, nor shall the Servicer
amend a Receivable, except that extensions may be granted in accordance with
Section 4.2.
SECTION 4.7. Purchase of Receivables Upon Breach of Covenant. Upon
discovery by any of the Servicer, the Note Insurer, the Owner Trustee or the
Trustee of a breach of any of the covenants set forth in Section 4.2(a), 4.4,
4.5 or 4.6, the party discovering such breach shall give prompt written notice
to the others; provided, however, that the failure to give any such notice shall
not affect any obligation of the Servicer under this Section 4.7. Unless the
breach shall have been cured by the last day of the second Collection Period
following such discovery (or, at the Servicer's election, the last day of the
first following Collection Period), the Servicer shall purchase any Receivable
materially and adversely affected by such breach. In consideration of the
purchase of such Receivable, the Servicer shall remit the Purchase Amount in the
manner specified in Section 5.6. The sole remedy of the Trustee, the Trust, the
Owner Trustee, the Note Insurer or the Securityholders with respect to a breach
of Section 4.2(a), 4.4, 4.5 or 4.6 shall be to require the Servicer to
repurchase Receivables pursuant to this Section 4.7; provided, however, that the
Servicer shall indemnify the Trustee, the Standby Servicer, the Collateral
Agent, the Note Insurer, the Owner Trustee, the Trust and the Securityholders
against all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
incurred by any of them as a result of third party claims arising out of the
events or facts giving rise to such breach. If it is determined that the
management, administration and servicing of the Receivables and operation of the
Trust pursuant to this Agreement constitutes a violation of the prohibited
transaction rules of ERISA or the Code to which no statutory exception or
administrative exemption applies, such violation shall not be treated as a
breach of Section 4.2(a), 4.4, 4.5 or 4.6 if not otherwise such a breach.
-38-
<PAGE>
SECTION 4.8. Servicing Fee. The "Servicing Fee" for each Payment Date
shall be equal to the result of one twelfth times [ ]% of the Pool Balance as of
the close of business on the last day of the second preceding Collection Period;
provided, however, that with respect to the first Payment Date the Servicer will
be entitled to receive a Servicing Fee equal to the result of one-twelfth times
[ ]% of the Original Pool Balance. The Servicing Fee shall also include all late
fees, prepayment charges including, in the case of a Rule of 78's Receivable
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 Rule of
78's Receivable (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 Receivables, collected (from whatever source) on the Receivables. If
the Standby Servicer becomes the successor Servicer, the "Servicing Fee" payable
to the Standby Servicer as successor Servicer shall be determined in accordance
with the Servicing and Lockbox Processing Assumption Agreement.
SECTION 4.9. Servicer's Certificate. By 10:00 a.m., Minneapolis time,
on each Determination Date, the Servicer shall deliver to the Trustee, the Owner
Trustee, the Note Insurer, the Rating Agencies and the Seller a Servicer's
Certificate containing all information necessary to make the distributions
pursuant to Section 5.7 (including, if required, withdrawals from the Spread
Account) for the Collection Period preceding the date of such Servicer's
Certificate and all information necessary for the Trustee to send statements to
the Noteholders and the Note Insurer pursuant to Sections 5.8(b) and for the
Owner Trustee to send statements to Certificateholders pursuant to Section
5.5(c) of the Trust Agreement. Receivables to be purchased by the Servicer or to
be purchased by CPS shall be identified by the Servicer by account number with
respect to such Receivable (as specified in Schedule A).
SECTION 4.10. Annual Statement as to Compliance, Notice of Servicer
Termination Event.
(a) The Servicer shall deliver to the Owner Trustee, the Trustee, the
Standby Servicer, the Note Insurer and each Rating Agency, on or before July 31
of each year beginning [ ], an Officer's Certificate, dated as of March 31 of
such year, stating that (i) a review of the activities of the Servicer during
the preceding 12-month period (or, in the case of the first such certificate,
the period from the Cutoff Date to [ ]) and of its performance under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year (or, in the case of
the first such certificate, such shorter period), or, if there has been a
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status thereof. The Trustee shall send
a copy of such certificate and the report referred to in Section 4.11 to the
Rating Agencies. The Trustee shall forward a copy of such certificate as well as
the report referred to in Section 4.11 to each Noteholder and the Owner Trustee
shall forward a copy to each Certificateholder.
-39-
<PAGE>
(b) The Servicer shall deliver to the Owner Trustee, the Trustee, the
Standby Servicer, the Note Insurer, the Collateral Agent, and each Rating
Agency, promptly after having obtained knowledge thereof, but in no event later
than two (2) Business Days thereafter, written notice in an Officer's
Certificate of any event which with the giving of notice or lapse of time, or
both, would become a Servicer Termination Event under Section 10.1.
SECTION 4.11. Annual Independent Accountants' Report. The Servicer
shall cause a firm of nationally recognized independent certified public
accountants (the "Independent Accountants"), who may also render other services
to the Servicer or to the Seller, to deliver to the Trustee, the Owner Trustee,
the Standby Servicer, the Note Insurer and each Rating Agency, on or before [ ]
of each year beginning [ ], a report dated as of [ ] of such year (the
"Accountants' Report") and reviewing the Servicer's activities during the
preceding 12-month period (or, in the case of the first such report, the period
from the Cutoff Date to [ ]), addressed to the Board of Directors of the
Servicer, to the Owner Trustee, the Trustee, the Standby Servicer and to the
Note Insurer, to the effect that such firm has examined the financial statements
of the Servicer and issued its report therefor and that such examination (1) was
made in accordance with generally accepted auditing standards, and accordingly
included such tests of the accounting records and such other auditing procedures
as such firm considered necessary in the circumstances; (2) included tests
relating to auto loans serviced for others in accordance with the requirements
of the Uniform Single Audit Program for Mortgage Bankers (the "Program"), to the
extent the procedures in the Program are applicable to the servicing obligations
set forth in this Agreement; (3) included an examination of the delinquency and
loss statistics relating to the Servicer's portfolio of automobile and light
truck installment sales contracts; and (4) except as described in the report,
disclosed no exceptions or errors in the records relating to automobile and
light truck loans serviced for others that, in the firm's opinion, paragraph
four of the Program requires such firm to report. The accountant's report shall
further state that (1) a review in accordance with agreed upon procedures was
made of three randomly selected Servicer Certificates; (2) except as disclosed
in the report, no exceptions or errors in the Servicer Certificates were found;
and (3) the delinquency and loss information relating to the Receivables and the
stated amount of Liquidated Receivables, if any, contained in the Servicer
Certificates were found to be accurate. In the event such firm requires the
Trustee, the Owner Trustee and/or the Standby Servicer to agree to the
procedures performed by such firm, the Servicer shall direct the Trustee, the
Owner Trustee and/or the Standby Servicer, as applicable, in writing to so
agree; it being understood and agreed that the Trustee, the Owner Trustee and/or
the Standby Servicer will deliver such letter of agreement in conclusive
reliance upon the direction of the Servicer, and neither the Trustee, the Owner
Trustee nor the Standby Servicer makes any independent inquiry or investigation
as to, and shall have no obligation or liability in respect of, the sufficiency,
validity or correctness of such procedures.
The Report will also indicate that the firm is independent of the
Servicer within the meaning of the Code of Professional Ethics of the American
Institute of Certified Public Accountants.
-40-
<PAGE>
SECTION 4.12. Access to Certain Documentation and Information Regarding
Receivables. The Servicer shall provide to representatives of the Trustee, the
Owner Trustee, the Standby Servicer and the Note Insurer reasonable access to
the documentation regarding the Receivables. In each case, such access shall be
afforded without charge but only upon reasonable request and during normal
business hours. Nothing in this Section shall derogate from the obligation of
the Servicer to observe any applicable law prohibiting disclosure of information
regarding the Obligors, and the failure of the Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section.
SECTION 4.13. Verification of Servicer's Certificate. (a) On or before
the fifth calendar day of each month, the Servicer will deliver to the Trustee
and the Standby Servicer a computer diskette (or other electronic transmission)
in a format acceptable to the Trustee and the Standby Servicer containing
information with respect to the Receivables as of the close of business on the
last day of the preceding Collection Period which information is necessary for
preparation of the Servicer's Certificate. The Standby Servicer shall use such
computer diskette (or other electronic transmission) to verify certain
information specified in Section 4.13(b) contained in the Servicer's Certificate
delivered by the Servicer, and the Standby Servicer shall notify the Servicer
and the Note Insurer of any discrepancies on or before the second Business Day
following the Determination Date. In the event that the Standby Servicer reports
any discrepancies, the Servicer and the Standby Servicer shall attempt to
reconcile such discrepancies prior to the second Business Day prior to the
related Payment Date, but in the absence of a reconciliation, the Servicer's
Certificate shall control for the purpose of calculations and distributions with
respect to the related Payment Date. In the event that the Standby Servicer and
the Servicer are unable to reconcile discrepancies with respect to a Servicer's
Certificate by the related Payment Date, the Servicer shall cause a firm of
independent certified public accountants, at the Servicer's expense, to audit
the Servicer's Certificate and, prior to the fifth calendar day of the following
month, reconcile the discrepancies. The effect, if any, of such reconciliation
shall be reflected in the Servicer's Certificate for such next succeeding
Determination Date. Other than the duties specifically set forth in this
Agreement, the Standby Servicer shall have no obligations hereunder, including,
without limitation, to supervise, verify, monitor or administer the performance
of the Servicer. The Standby Servicer shall have no liability for any actions
taken or omitted by the Servicer. The duties and obligations of the Standby
Servicer shall be determined solely by the express provisions of this Agreement
and no implied covenants or obligations shall be read into this Agreement
against the Standby Servicer.
(b) The Standby Servicer shall review each Servicer's Certificate
delivered pursuant to Section 4.13(a) and shall:
(i) confirm that such Servicer's Certificate is complete on
its face;
(ii) load the computer diskette (which shall be in a format
acceptable to the Standby Servicer) received from the Servicer pursuant
to Section 4.13(a) hereof, confirm that such computer diskette is in a
readable form and calculate and confirm the Principal Balance of each
Receivable for the most recent Payment Date;
-41-
<PAGE>
(iii) confirm that the Total Distribution Amount, the
Principal Distributable Amount, the Class A Noteholders' Principal
Distributable Amount, the Class A-1 Noteholders' Interest Distributable
Amount, the Class A-2 Noteholders' Interest Distributable Amount, the
Certificateholders' Principal Distributable Amount, the Standby Fee,
the Servicing Fee, the Trustee Fee, the Collateral Agent Fee, the
amount on deposit in the Spread Account, and the Premium in the
Servicer's Certificate are accurate based solely on the recalculation
of the Servicer's Certificate; and
(iv) confirm the calculation of the performance tests set
forth in the Spread Account Agreement.
SECTION 4.14. Retention and Termination of Servicer. The Servicer
hereby covenants and agrees to act as such under this Agreement for an initial
term commencing on the Closing Date and ending on [ ], which term shall be
extendible by the Note Insurer for successive quarterly terms ending on each
successive March 31, June 30, September 30 and December 31 (or, at the
discretion of the Note Insurer exercised pursuant to revocable written standing
instructions from time to time to the Servicer and the Trustee, for any
specified number of terms greater than one), until such time as the Notes have
been paid in full, all amounts due to the Certificateholders have been paid and
until the Termination of the Trust. Each such notice (including each notice
pursuant to standing instructions, which shall be deemed delivered at the end of
successive terms for so long as such instructions are in effect) (a "Servicer
Extension Notice") shall be delivered by the Note Insurer to the Trustee and the
Servicer. The Servicer hereby agrees that, upon its receipt of any such Servicer
Extension Notice, the Servicer shall become bound, for the duration of the term
covered by such Servicer Extension Notice, to continue as the Servicer subject
to and in accordance with the other provisions of this Agreement. If an Insurer
Default has occurred and is continuing, the term of the Servicer's appointment
hereunder shall be deemed to have been extended until such time, if any, as such
Insurer Default has been cured unless such appointment is terminated sooner in
accordance with the terms of this Agreement). Until such time as an Insurer
Default shall have occurred and be continuing, the Trustee agrees that if as of
the fifteenth day prior to the last day of any term of the Servicer, the Trustee
shall not have received any Servicer Extension Notice from the Note Insurer, the
Trustee shall, within five days thereafter, give written notice of such
non-receipt to the Note Insurer.
SECTION 4.15. Fidelity Bond. The Servicer shall maintain a fidelity
bond in such form and amount as is customary for entities acting as custodian of
funds and documents in respect of consumer contracts on behalf of institutional
investors.
-42-
<PAGE>
ARTICLE V
TRUST ACCOUNTS; DISTRIBUTIONS;
STATEMENTS TO SECURITYHOLDERS
SECTION 5.1. Establishment of Trust Accounts.
(a) (i) The Trustee, on behalf of the Securityholders and the Note
Insurer, shall establish and maintain in its own name an Eligible Account (the
"Collection Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Trustee on behalf of the
Securityholders and the Note Insurer.
(ii) The Trustee, on behalf of the Noteholders, shall
establish and maintain in its own name an Eligible Account (the "Note
Distribution Account"), bearing a designation clearly indicating that the funds
deposited therein are held for the benefit of the Trustee on behalf of the
Noteholders and the Note Insurer. The Note Distribution Account shall initially
be established with the Trustee.
(b) Funds on deposit in the Collection Account and the Note
Distribution Account (collectively, the "Trust Accounts") shall be invested by
the Trustee (or any custodian with respect to funds on deposit in any such
account) in Eligible Investments selected in writing by the Servicer (pursuant
to standing instructions or otherwise). All such Eligible Investments shall be
held by or on behalf of the Trustee for the benefit of the Noteholders and/or
the Certificateholders and the Note Insurer, as applicable. Other than as
permitted by the Rating Agencies and the Note Insurer, funds on deposit in any
Trust Account shall be invested in Eligible Investments that will mature so that
such funds will be available at the close of business on the Business Day
immediately preceding the following Payment Date. Funds deposited in a Trust
Account on the day immediately preceding a Payment Date upon the maturity of any
Eligible Investments are not required to be invested overnight. All Eligible
Investments will be held to maturity.
(c) All investment earnings of moneys deposited in the Trust Accounts
shall be deposited (or caused to be deposited) by the Trustee in the Collection
Account for distribution pursuant to Section 5.7(b), and any loss resulting from
such investments shall be charged to such account. The Servicer will not direct
the Trustee to make any investment of any funds held in any of the Trust
Accounts unless the security interest granted and perfected in such account will
continue to be perfected in such investment, in either case without any further
action by any Person, and, in connection with any direction to the Trustee to
make any such investment, if requested by the Trustee, the Servicer shall
deliver to the Trustee an Opinion of Counsel, acceptable to the Trustee, to such
effect.
(d) The Trustee shall not in any way be held liable by reason of any
insufficiency in any of the Trust Accounts resulting from any loss on any
Eligible Investment included therein except for losses attributable to the
Trustee's negligence or bad faith or its failure to make payments on
-43-
<PAGE>
such Eligible Investments issued by the Trustee, in its commercial capacity as
principal obligor and not as trustee, in accordance with their terms.
(e) If (i) the Servicer shall have failed to give investment directions
for any funds on deposit in the Trust Accounts to the Trustee by 2:00 p.m.
Eastern Time (or such other time as may be agreed by the Issuer and Trustee) on
any Business Day; or (ii) a Default or Event of Default shall have occurred and
be continuing with respect to the Notes but the Notes shall not have been
declared due and payable, or, if such Notes shall have been declared due and
payable following an Event of Default, amounts collected or receivable from the
Trust Property are being applied as if there had not been such a declaration;
then the Trustee shall, to the fullest extent practicable, invest and reinvest
funds in the Trust Accounts in one or more Eligible Investments.
(f) The Trustee shall possess all right, title and interest in all
funds on deposit from time to time in the Trust Accounts and in all proceeds
thereof (including all Investment Earnings on the Trust Accounts) and all such
funds, investments, proceeds and income shall be part of the Trust Property.
Except as otherwise provided herein, the Trust Accounts shall be under the sole
dominion and control of the Trustee for the benefit of the Noteholders and/or
the Certificateholders, as the case may be, and the Note Insurer. If at any time
any of the Trust Accounts ceases to be an Eligible Account, the Servicer with
the consent of the Note Insurer shall within five Business Days establish a new
Trust Account as an Eligible Account and shall transfer any cash and/or any
investments to such new Trust Account. The Servicer shall promptly notify the
Rating Agencies and the Owner Trustee of any change in the location of any of
the aforementioned accounts. In connection with the foregoing, the Servicer
agrees that, in the event that any of the Trust Accounts are not accounts with
the Trustee, the Servicer shall notify the Trustee in writing promptly upon any
of such Trust Accounts ceasing to be an Eligible Account.
(g) With respect to the Trust Account Property, the Trustee agrees
that:
(A) any Trust Account Property that is held in deposit
accounts shall be held solely in Eligible Accounts; and, except as
otherwise provided herein, each such Eligible Account shall be subject
to the exclusive custody and control of the Trustee and the Trustee
shall have sole signature authority with respect thereto;
(B) any Trust Account Property that constitutes Physical
Property or "certificated securities" shall be delivered to the Trustee
in accordance with paragraph (i)(a) or (ii)(b), as applicable, of the
definition of "Delivery" and shall be held, pending maturity or
disposition, solely by the Trustee or a financial intermediary (as such
term is defined in Section 8-313(4) of the UCC) acting solely for the
Trustee;
(C) any Trust Account Property that is a book-entry security
held through the Federal Reserve System pursuant to Federal book-entry
regulations shall be delivered in accordance with paragraph (i)(b) or
(ii)(c), as applicable, of the definition of "Delivery" and shall be
maintained by the Trustee, pending maturity or disposition, through
-44-
<PAGE>
continued book-entry registration of such Trust Account Property as
described in such paragraph; and
(D) any Trust Account Property that is an "uncertificated
security" under Article 8 of the UCC and that is not governed by clause
(C) above shall be delivered to the Trustee in accordance with
paragraph (i)(c) or (ii)(d), as applicable, of the definition of
"Delivery" and shall be maintained by the Trustee, pending maturity or
disposition, through continued registration of the Trustee's (or its
nominee's) ownership of such security.
(E) The Servicer shall have the power, revocable by the Note
Insurer or, with the consent of the Note Insurer by the Trustee or by
the Owner Trustee with the consent of the Trustee, to instruct the
Trustee to make withdrawals and payments from the Trust Accounts for
the purpose of permitting the Servicer and the Trustee to carry out its
respective duties hereunder.
SECTION 5.2. [RESERVED].
SECTION 5.3. Certain Reimbursements to the Servicer. The Servicer will
be entitled to be reimbursed from amounts on deposit in the Collection Account
with respect to a Collection Period for amounts previously deposited in the
Collection Account but later determined by the Servicer to have resulted from
mistaken deposits or postings or checks returned for insufficient funds. The
amount to be reimbursed hereunder shall be paid to the Servicer on the related
Payment Date pursuant to Section 5.7(b)(i) upon certification by the Servicer of
such amounts and the provision of such information to the Trustee and the Note
Insurer as may be necessary in the opinion of the Note Insurer to verify the
accuracy of such certification. In the event that the Note Insurer has not
received evidence satisfactory to it of the Servicer's entitlement to
reimbursement pursuant to this Section, the Note Insurer shall (unless an
Insurer Default shall have occurred and be continuing) give the Trustee notice
to such effect, following receipt of which the Trustee shall not make a
distribution to the Servicer in respect of such amount pursuant to Section 5.7,
or if the Servicer prior thereto has been reimbursed pursuant to Section 5.7,
the Trustee shall withhold such amounts from amounts otherwise distributable to
the Servicer on the next succeeding Payment Date.
SECTION 5.4. Application of Collections. All collections for each
Collection Period shall be applied by the Servicer as follows:
With respect to each Receivable (other than a Purchased Receivable),
payments by or on behalf of the Obligor shall be applied, in the case of a Rule
of 78's Receivable, first, to the Scheduled Receivable Payment of such Rule of
78's Receivable and, second, to any late fees accrued with respect to such Rule
of 78's Receivable and, in the case of a Simple Interest Receivable, to interest
and principal in accordance with the Simple Interest Method.
-45-
<PAGE>
SECTION 5.5. Withdrawals from Spread Account. (a) In the event that the
Servicer's Certificate with respect to any Determination Date shall state that
the Total Distribution Amount with respect to such Determination Date is
insufficient to make the payments required to be made on the related Payment
Date pursuant to Section 5.7(b)(i) through (viii) (such deficiency being a
"Deficiency Claim Amount"), then on the fourth Business Day immediately
preceding the related Payment Date, the Trustee shall deliver to the Collateral
Agent, the Owner Trustee, the Note Insurer, and the Servicer, by hand delivery,
telex or facsimile transmission, a written notice (a "Deficiency Notice")
specifying the Deficiency Claim Amount for such Payment Date. Such Deficiency
Notice shall direct the Collateral Agent to remit such Deficiency Claim Amount
(to the extent of the funds available to be distributed pursuant to the Spread
Account Agreement) to the Trustee for deposit in the Collection Account and
distribution pursuant to Sections 5.7(b)(i) through (viii), as applicable.
(b) Any Deficiency Notice shall be delivered by 10:00 a.m., New York
City time, on the fourth Business Day preceding such Payment Date. The amounts
distributed by the Collateral Agent to the Trustee pursuant to a Deficiency
Notice shall be deposited by the Trustee into the Collection Account pursuant to
Section 5.6.
SECTION 5.6. Additional Deposits.
(a) The Servicer or CPS, as the case may be, shall deposit or cause to
be deposited in the Collection Account the aggregate Purchase Amount with
respect to Purchased Receivables and the Servicer shall deposit or cause to be
deposited therein all amounts to be paid under Section 4.8(b) or 11.1. All such
deposits shall be made, in immediately available funds, on the Business Day
preceding the Determination Date. On or before the third Business Day preceding
each Payment Date, the Trustee shall remit to the Collection Account any amounts
delivered to the Trustee by the Collateral Agent pursuant to Section 5.5.
SECTION 5.7. Distributions.
(a) RESERVED
(b) On each Payment Date, the Trustee (based on the information
contained in the Servicer's Certificate delivered on the related Determination
Date) shall make the following distributions in the following order of priority:
[(i) to the Standby Servicer, from the Total Distribution
Amount, any amount deposited in the Collection Account pursuant to
Section 5.5(a) and any amount deposited in the Collection Amount
pursuant to Section 5.12(a) in respect of Standby Fees, so long as CPS
is the Servicer and Norwest Bank Minnesota, National Association is the
Standby Servicer, the Standby Fee and all unpaid Standby Fees from
prior Collection Periods;
(ii) to the Servicer, from the Total Distribution Amount (as
such Total Distribution Amount has been reduced by payments pursuant to
clause (i) above), any
-46-
<PAGE>
amount deposited in the Collection Account pursuant to Section 5.5(a)
and any amount deposited in the Collection Amount pursuant to Section
5.12(a) in respect of Servicing Fees, the Servicing Fee and all unpaid
Servicing Fees from prior Collection Periods;
(iii) 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 clauses (i) and (ii) above), any amount deposited in the
Collection Account pursuant to Section 5.5(a) and any amount deposited
in the Collection Account pursuant to Section 5.12(a) in respect of
Servicing Fees, to the extent not previously paid by the predecessor
Servicer pursuant to this Agreement, reasonable transition expenses (up
to a maximum of $[ ] for all such expenses) incurred in becoming the
successor Servicer;
(iv) to the Trustee and the Owner Trustee, pro rata, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) through (iii) above), any
amount deposited in the Collection Account pursuant to Section 5.5(a)
and any amount deposited in the Collection Account pursuant to Section
5.12(a) in respect of Trustee Fees, the Trustee Fees and reasonable
out-of-pocket expenses thereof (including counsel fees and expenses)
and all unpaid Trustee Fees and 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 and the
Owner Trustee pursuant to this clause (iv) and expenses payable to the
Collateral Agent pursuant to clause (v) below shall be limited to a
total of $[ ] per annum;
(v) to the Collateral Agent, from the Total Distribution
Amount (as such Total Distribution Amount has been reduced by payments
pursuant to clauses (i) through (iv) above), any amount deposited in
the Collection Account pursuant to Section 5.5(a) and any amount
deposited in the Collection Account pursuant to Section 5.12(a) in
respect of fees and expenses of the Collateral Agent, all fees and
expenses payable to the Collateral Agent with respect to such Payment
Date;
(vi) to the Note Distribution Account, from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (v) above) and any amount
deposited in the Collection Account pursuant to Section 5.5(a) and
Section 5.12(a)(iii), the Class A Noteholders' Interest Distributable
Amount for such Payment Date;
(vii) to the Note Distribution Account from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (vi) above) and any amount
deposited in the Collection Account pursuant to Section 5.5(a) and
Section 5.12(a)(ii) and (iii), the Class A Noteholders' Principal
Distributable Amount plus the Class A Noteholders' Principal Carryover
Shortfall, if any;
-47-
<PAGE>
(viii) to the Note Insurer, from the Total Distribution Amount
(as such Total Distribution Amount has been reduced by payments made
pursuant to clauses (i) through (vii) above) and any amount deposited
in the Collection Account pursuant to Section 5.5(a), any amounts owing
to the Note Insurer under this Agreement and the Insurance Agreement
and not paid;
(ix) on any Payment Date prior to the First Target Date, to
the Collateral Agent for deposit in the Spread Account, from the Total
Distribution Amount (as such Total Distribution Amount has been reduced
by payments pursuant to clauses (i) through (viii) above) the amount by
which the Initial Spread Account Deposit exceeds the amount in the
Spread Account on such Payment Date;
(x) on any Payment Date on which the principal balance of the
Notes (after giving effect to the payment described in (vii) above)
exceeds the Class A Target Amount for such Payment Date, to the
Noteholders, from the Total Distribution Amount (as such Total
Distribution Amount has been reduced by payments pursuant to clauses
(i) through (ix) above) and any amount deposited in the Collection
Account pursuant to Section 5.12(a)(ii), an amount equal to the lesser
of (a) the portion of the Total Distribution Amount remaining after
making the payments described in clauses (i) through (ix) above and (b)
the excess of the principal balance of the Notes (after giving effect
to the payment described in (vii) above) over the Class A Target
Amount;
(xi) in the event any Person other than the Standby Servicer
becomes the successor Servicer, to such successor Servicer, from the
Total Distribution Amount (as such Total Distribution Amount has been
reduced by payments pursuant to clauses (i) through (x) above) to the
extent not previously paid by the predecessor Servicer pursuant to this
Agreement, reasonable transition expenses (up to a maximum of $[ ] for
all such expenses) incurred in becoming the successor Servicer; and
(xii) to the Collateral Agent, for deposit into the Spread
Account, the remaining Total Distribution Amount, if any;]
provided, however, that, (A) following an acceleration of the Notes or, (B) if
an Insurer Default shall have occurred and be continuing and an Event of Default
pursuant to Section 5.1(i), 5.1(ii), 5.1(iv), 5.1(v) or 5.1(vi) of the Indenture
shall have occurred and be continuing, the Total Distribution Amount shall be
paid pursuant to Section 5.6(a) of the Indenture.
(c) In the event that the Collection Account is maintained with an
institution other than the Trustee, the Servicer shall instruct and cause such
institution to make all deposits and distributions pursuant to Section 5.7(b) on
the related Payment Date.
-48-
<PAGE>
SECTION 5.8. Note Distribution Account.
(a) On each Payment Date, the Trustee shall distribute all amounts on
deposit in the Note Distribution Account to Noteholders in respect of the Notes
to the extent of amounts due and unpaid on the Notes for principal and interest
in the following amounts and in the following order of priority:
(i) to the Holders of the Notes (pro rata to each class of
Notes on the basis of the accrued and unpaid interest thereon) the Class A
Interest Distributable Amount; provided that if there are not sufficient funds
in the Note Distribution Account to pay the entire amount then due on each Class
of Notes, the amount in the Note Distribution Account shall be applied to the
payment of such interest on each Class of Notes pro rata on the basis of the
amount of accrued and unpaid interest due on each Class of Notes;
(ii) to the Holders of the Class A-1 Notes, the Class A
Noteholders' Principal Distributable Amount until the outstanding principal
balance of the Class A-1 Notes is reduced to zero;
(iii) to the Holders of the Class A-2 Notes, the Class A
Noteholders' Principal Distributable Amount (as reduced by any distribution on
such Payment Date pursuant to clause (ii) above) until the outstanding principal
balance of the Class A-2 Notes is reduced to zero; and
[(iv) additional classes of Notes, if any]
(b) On each Payment Date, the Trustee shall send to each Noteholder the
statement provided to the Trustee by the Servicer pursuant to Section 5.11
hereof on such Payment Date.
(c) In the event that any withholding tax is imposed on the Trust's
payment (or allocations of income) to a Noteholder, such tax shall reduce the
amount otherwise distributable to the Noteholder in accordance with this Section
5.8. The Trustee is hereby authorized and directed to retain from amounts
otherwise distributable to the Noteholders sufficient funds for the payment of
any tax that is legally owed by the Trust (but such authorization shall not
prevent the Trustee from contesting any such tax in appropriate proceedings, and
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings). The amount of any withholding tax imposed with respect to a
Noteholder shall be treated as cash distributed to such Noteholder at the time
it is withheld by the Trust and remitted to the appropriate taxing authority.
If, after consultations with experienced counsel, the Trustee determines that
there is a reasonable likelihood that withholding tax is payable with respect to
a distribution (such as a distribution to a non-US Noteholder), the Trustee may
in its sole discretion withhold such amounts in accordance with this clause (c).
In the event that a Noteholder wishes to apply for a refund of any such
withholding tax, the Trustee shall reasonably cooperate with such Noteholder in
making such claim so long as such Noteholder agrees to reimburse the Trustee for
any out-of-pocket expenses incurred.
-49-
<PAGE>
(d) Distributions required to be made to Noteholders on any Payment
Date shall be made to each Noteholder of record on the preceding Record Date
either by wire transfer, in immediately available funds, to the account of such
Holder at a bank or other entity having appropriate facilities therefor, if (i)
such Noteholder shall have provided to the Note Registrar appropriate written
instructions at least five Business Days prior to such Payment Date and such
Holder's Notes in the aggregate evidence a denomination of not less than
$1,000,000 or (ii) such Noteholder is the Seller, or an Affiliate thereof, or,
if not, by check mailed to such Noteholder at the address of such holder
appearing in the Note Register; provided, however, that, unless Definitive Notes
have been issued pursuant to Section 2.12 of the Indenture, with respect to
Notes registered on the Record Date in the name of the nominee of the Clearing
Agency (initially, such nominee to be Cede & Co.), distributions will be made by
wire transfer in immediately available funds to the account designated by such
nominee. Notwithstanding the foregoing, the final distribution in respect of any
Note (whether on the Final Scheduled Payment Date or otherwise) will be payable
only upon presentation and surrender of such Note at the office or agency
maintained for that purpose by the Note Registrar pursuant to Section 2.4 of the
Indenture.
SECTION 5.9. [RESERVED].
SECTION 5.10. [RESERVED].
SECTION 5.11. Statements to Securityholders. On or prior to each
Payment Date, the Servicer shall provide to the Trustee and the Owner Trustee
(with a copy to the Note Insurer and the Rating Agencies) for the Trustee and
Owner Trustee to forward to each Securityholder of record a statement setting
forth at least the following information as to the Notes and the Certificates to
the extent applicable:
(i) the amount of such distribution allocable to principal of
each Class of Notes and the Certificates;
(ii) the amount of such distribution allocable to interest on
or with respect to each Class of Notes;
(iii) the amount of such distribution payable out of amounts
withdrawn from the Spread Account or pursuant to a claim on the Note Policy;
(iv) the Pool Balance as of the close of business on the last
day of the preceding Collection Period;
(v) the aggregate outstanding principal amount of each Class
of Notes and the Certificates, the Note Pool Factor for each such Class and the
Certificate Pool Factor after giving effect to payments allocated to principal
reported under clause (i) above;
-50-
<PAGE>
(vi) the amount of the Servicing Fee paid to the Servicer with
respect to the related Collection Period, and the amount of any unpaid Servicing
Fees and the change in such amount from that of the prior Payment Date;
(vii) the amount of each of the Standby Fee, the Trustee Fee
and the Collateral Agent Fee paid to the Standby Servicer, the Trustee and the
Collateral Agent, as applicable, with respect to the related Collection Period,
and the amount of any unpaid Standby Fees, Trustee Fees and Collateral Agent
Fees and the change in such amount from the prior Payment Date;
(viii) the Class A-1 Noteholders' Interest Carryover
Shortfall, the Class A-2 Noteholders' Interest Carryover Shortfall, the Class A
Noteholders' Principal Carryover Shortfall, and the Certificateholders'
Principal Carryover Shortfall;
(ix) 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 [
] and [ ] days and [ ] days or more;
(x) the amount of the aggregate Realized Losses, if any, for
the second preceding Collection Period;
(xi) the amount of any payments made with respect to the
related Payment Date pursuant to Section 5.12(a)(i), (ii) and (iii),
respectively;
(xii) the number and the aggregate Purchase Amounts for
Receivables, if any, that were repurchased in such period and summary
information as to losses and delinquencies with respect to the Receivables; and
(xiii) the cumulative amount of Realized Losses, since the
Cutoff Date to the last day of the related Collection Period.
Each amount set forth pursuant to paragraph (i), (ii), (iii), (vi), (vii),
(viii) and (xi) above shall be expressed as a dollar amount per $1,000 of the
initial principal balance of the Notes (or Class thereof) or Certificates, as
applicable.
SECTION 5.12. Optional Deposits by the Note Insurer; Notice of Waivers.
(a) The Note Insurer shall at any time, and from time to time, with respect to a
Payment Date, have the option (but shall not be required, except as provided in
Section 6.1(a)) to deliver amounts 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 Payment Date, (ii) to distribute as a component of
the Class A Noteholders' Principal Distributable Amount to the extent that the
principal balance of the Notes as of the Determination Date preceding such
Payment Date exceeds the Class A Noteholders' Percentage of the Pool Balance as
of such Determination Date, or (iii) to include such amount as part of the
-51-
<PAGE>
Total Distribution Amount for such Payment Date to the extent that without such
amount a draw would be required to be made on the Policy.
(b) If the Note Insurer waives the satisfaction of any of the events
that might trigger an event of default under the Insurance Agreement and so
notifies the Trustee in writing pursuant to Section 5.02(d) of the Insurance
Agreement, the Trustee shall notify Moody's of such waiver.
ARTICLE VI
THE NOTE POLICY
SECTION 6.1. [Claims Under Note Policy.
(a) In the event that the Trustee has delivered a Deficiency Notice
with respect to any Determination Date pursuant to Section 5.5 hereof, the
Trustee shall on the related Draw Date determine whether the application of
funds in accordance with Section 5.7(b), together with any Note Insurer Optional
Deposit pursuant to Section 5.12 and the application of any Deficiency Claim
Amount pursuant to Section 5.5 would result in a shortfall in amounts
distributable pursuant to Sections 5.7(b)(vi) and 5.7(b)(vii) on any Payment
Date (any such shortfall, a "Note Policy Claim Amount"). If the Note Policy
Claim Amount for such Payment Date is greater than zero, the Trustee shall
furnish to the Note Insurer no later than 12:00 noon New York City time on the
related Draw Date a completed Notice of Claim (as defined in clause (b) below)
in the amount of the Note Policy Claim Amount. Amounts paid by the Note Insurer
pursuant to a claim submitted under this Section 6.1. shall be deposited by the
Trustee into the Note Distribution Account for payment to Noteholders on the
related Payment Date.
(b) Any notice delivered by the Trustee to the Note Insurer pursuant to
Section 6.1(a) shall specify the Note Policy Claim Amount claimed under the Note
Policy and shall constitute a "Notice of Claim" (as defined in the Note Policy)
under the Note Policy. In accordance with the provisions of the Note Policy, the
Note Insurer is required to pay to the Trustee the Note Policy Claim Amount
properly claimed thereunder by 12:00 noon, New York City time, on the later of
(i) the third Business Day (as defined in the Note Policy) following receipt on
a Business Day of the Notice of Claim, and (ii) the applicable Payment Date. Any
payment made by the Note Insurer under the Note Policy shall be applied solely
to the payment of the Notes, and for no other purpose.
(c) The Trustee shall (i) receive as attorney-in-fact of each
Noteholder any Note Policy Claim Amount from the Note Insurer and (ii) deposit
the same in the Note Distribution Account for distribution to Noteholders. Any
and all Note Policy Claim Amounts disbursed by the Trustee from claims made
under the Note Policy shall not be considered payment by the Trust or from the
Series 199[ ] Spread Account with respect to such Notes, and shall not discharge
the obligations of the Trust with respect thereto. The Note Insurer shall, to
the extent it makes any payment with respect to the Notes, become subrogated to
the rights of the recipients of such
-52-
<PAGE>
payments to the extent of such payments. Subject to and conditioned upon any
payment with respect to the Notes by or on behalf of the Note Insurer, the
Trustee and the Noteholders shall assign to the Note Insurer all rights to the
payment of interest or principal with respect to the Notes which are then due
for payment to the extent of all payments made by the Note Insurer, and the Note
Insurer may exercise any option, vote, right, power or the like with respect to
the Notes to the extent that it has made payment pursuant to the Note Policy. To
evidence such subrogation, the Note Registrar (as defined in the Indenture)
shall note the Note Insurer's rights as subrogee upon the register of
Noteholders upon receipt from the Note Insurer of proof of payment by the Note
Insurer of any Noteholders' Interest Distributable Amount or Noteholders'
Principal Distributable Amount. The foregoing subrogation shall in all cases be
subject to the rights of the Noteholders to receive all Scheduled Payments (as
defined in the Note Policy) in respect of the Notes.
(d) The Trustee shall keep a complete and accurate record of all funds
deposited by the Note Insurer into the Note Distribution Account and the
allocation of such funds to payment of interest on and principal paid in respect
of any Note. The Note Insurer shall have the right to inspect such records at
reasonable times upon one Business Day's prior notice to the Trustee.
(e) The Trustee shall be entitled to enforce on behalf of the
Noteholders the obligations of the Note Insurer under the Note Policy.
Notwithstanding any other provision of this Agreement or any Basic Documents,
the Noteholders are not entitled to make any claims under the Note Policy or
institute proceedings directly against the Note Insurer.
SECTION 6.2. Preference Claims.
(a) In the event that the Trustee has received a certified copy of an
order of the appropriate court that any Scheduled Payment (as defined in the
Note Policy) paid on a Note has been avoided in whole or in part as a preference
payment under applicable bankruptcy law, the Trustee shall so notify the Note
Insurer, shall comply with the provisions of the Note Policy to obtain payment
by the Note Insurer of such avoided payment, and shall, at the time it provides
notice to the Note Insurer, notify Holders of the Notes by mail that, in the
event that any Noteholder's payment is so recoverable, such Noteholder will be
entitled to payment pursuant to the terms of the Note Policy. The Trustee shall
furnish to the Note Insurer its records evidencing the payments of principal of
and interest on Notes, if any, which have been made by the Trustee and
subsequently recovered from Noteholders, and the dates on which such payments
were made. Pursuant to the terms of the Note Policy, the Note Insurer will make
such payment on behalf of the Noteholder to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the order (as defined in
the Note Policy) and not to the Trustee or any Noteholder directly (unless a
Noteholder has previously paid such payment to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy, in which case the Note Insurer
will make such payment to the Trustee for distribution to such Noteholder upon
proof of such payment reasonably satisfactory to the Note Insurer).
-53-
<PAGE>
(b) The Trustee shall promptly notify the Note Insurer of any
proceeding or the institution of any action (of which the Trustee has actual
knowledge) seeking the avoidance as a preferential transfer under applicable
bankruptcy, insolvency, receivership, rehabilitation or similar law (a
"Preference Claim") of any distribution made with respect to the Notes. Each
Holder, by its purchase of Notes, and the Trustee hereby agree that so long as
an Insurer Default shall not have occurred and be continuing, the Note Insurer
may at any time during the continuation of any proceeding relating to a
Preference Claim direct all matters relating to such Preference Claim including,
without limitation, (i) the direction of any appeal of any order relating to any
Preference Claim and (ii) the posting of any surety, supersedeas or performance
bond pending any such appeal at the expense of the Note Insurer, but subject to
reimbursement as provided in the Insurance Agreement. In addition, and without
limitation of the foregoing, as set forth in Section 6.1(c), the Note Insurer
shall be subrogated to, and each Noteholder and the Trustee hereby delegate and
assign, to the fullest extent permitted by law, the rights of the trustee and
each Noteholder in the conduct of any proceeding with respect to a Preference
Claim, including, without limitation, all rights of any party to an adversary
proceeding action with respect to any court order issued in connection with any
such Preference Claim.
SECTION 6.3. Surrender of Note Policy. The Trustee shall surrender the
Note Policy to the Note Insurer for cancellation upon the expiration of such
policy in accordance with the terms thereof.]
ARTICLE VII
[RESERVED]
ARTICLE VIII
THE SELLER
SECTION 8.1. Representations of Seller. The Seller makes the following
representations on which the Note Insurer shall be deemed to have relied in
executing and delivering the Note Policy and on which the Issuer is deemed to
have relied in acquiring the Receivables. The representations speak as of the
execution and delivery of this Agreement and as of the Closing Date, and shall
survive the sale of the Receivables to the Issuer and the pledge thereof to the
Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of California, with power and authority to
own its properties and to conduct its business as such properties are
currently owned and such business is currently conducted, and had at
all relevant times, and now has, power, authority and legal right to
acquire, own and sell the Receivables and the Other Conveyed Property
transferred to the Trust.
-54-
<PAGE>
(b) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business shall
require such qualifications.
(c) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and the Basic Documents
to which it is a party and to carry out its terms and their terms,
respectively; the Seller has full power and authority to sell and
assign the Receivables and the Other Conveyed Property to be sold and
assigned to and deposited with the Trust by it and has duly authorized
such sale and assignment to the Trust by all necessary corporate
action; and the execution, delivery and performance of this Agreement
and the Basic Documents to which the Seller is a party have been duly
authorized by the Seller by all necessary corporate action.
(d) Valid Sale, Binding Obligations. This Agreement effects a
valid sale, transfer and assignment of the Receivables and the Other
Conveyed Property, enforceable against the Seller and creditors of and
purchasers from the Seller; and this Agreement and the Basic Documents
to which the Seller is a party, when duly executed and delivered, shall
constitute legal, valid and binding obligations of the Seller
enforceable in accordance with their respective terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and by equitable limitations on the availability of specific
remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the Basic Documents and the
fulfillment of the terms of this Agreement and the Basic Documents
shall not conflict with, result in any breach of any of the terms and
provisions of or constitute (with or without notice, lapse of time or
both) a default under the certificate of incorporation or by-laws of
the Seller, or any indenture, agreement, mortgage, deed of trust or
other instrument to which the Seller is a party or by which it is
bound, or result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture, agreement,
mortgage, deed of trust or other instrument, other than the Basic
Documents, or violate any law, order, rule or regulation applicable to
the Seller of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having
jurisdiction over the Seller or any of its properties.
(f) No Proceedings. There are no proceedings or investigations
pending or, to the Seller's knowledge, threatened against the Seller,
before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality having jurisdiction over the
Seller or its properties (A) asserting the invalidity of this
Agreement, the Securities or any of the Basic Documents, (B) seeking to
prevent the issuance of the Securities or the consummation of any of
the transactions contemplated by this
-55-
<PAGE>
Agreement or any of the Basic Documents, (C) seeking any determination
or ruling that might materially and adversely affect the performance by
the Seller of its obligations under, or the validity or enforceability
of, this Agreement or any of the Basic Documents, or (D) relating to
the Seller and which might adversely affect the federal or state
income, excise, franchise or similar tax attributes of the Securities.
(g) No Consents. No consent, approval, authorization or order
of or declaration or filing with any governmental authority is required
for the issuance or sale of the Securities or the consummation of the
other transactions contemplated by this Agreement, except such as have
been duly made or obtained.
(h) Tax Returns. The Seller has filed on a timely basis all
tax returns required to be filed by it and paid all taxes, to the
extent that such taxes have become due.
(i) Chief Executive Office. The chief executive office of the
Seller is at 2 Ada, Irvine, California 92718.
SECTION 8.2. [RESERVED].
SECTION 8.3. Liability of Seller; Indemnities. The Seller shall be
liable in accordance herewith only to the extent of the obligations specifically
undertaken by the Seller under this Agreement.
(a) The Seller shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee, the Note Insurer, the Standby Servicer and the Trustee from
and against any taxes that may at any time be asserted against any such Person
with respect to the transactions contemplated in this Agreement and any of the
Basic Documents (except any income taxes arising out of fees paid to the Owner
Trustee, the Trustee, the Standby Servicer and the Note Insurer and except any
taxes to which the Owner Trustee, or the Trustee may otherwise be subject),
including any sales, gross receipts, general corporation, tangible personal
property, privilege or license taxes (but, in the case of the Issuer, not
including any taxes asserted with respect to federal or other income taxes
arising out of distributions on the Notes and the Certificates) and costs and
expenses in defending against the same.
(b) The Seller shall indemnify, defend and hold harmless the Issuer,
the Owner Trustee, the Trustee, the Note Insurer and the Securityholders from
and against any loss, liability or expense incurred by reason of (i) the
Seller's willful misfeasance, bad faith or negligence in the performance of its
duties under this Agreement, or by reason of reckless disregard of its
obligations and duties under this Agreement and (ii) the Seller's or the
Issuer's violation of Federal or state securities laws in connection with the
offering and sale of the Notes and the Certificates.
(c) The Seller shall indemnify, defend and hold harmless the Owner
Trustee, the Trustee, and the Standby Servicer and its officers, directors,
employees and agents from and against any
-56-
<PAGE>
and all costs, expenses, losses, claims, damages and liabilities arising out of,
or incurred in connection with the acceptance or performance of the trusts and
duties set forth herein and in the Basic Documents except to the extent that
such cost, expense, loss, claim, damage or liability shall be due to the willful
misfeasance, bad faith or negligence (except for errors in judgment) of the
Owner Trustee.
Indemnification under this Section shall survive the resignation or
removal of the Owner Trustee or the Trustee and the termination of this
Agreement or the Indenture or the Trust Agreement, as applicable, and shall
include reasonable fees and expenses of counsel and other expenses of
litigation. If the Seller shall have made any indemnity payments pursuant to
this Section and the Person to or on behalf of whom such payments are made
thereafter shall collect any of such amounts from others, such Person shall
promptly repay such amounts to the Seller, without interest.
SECTION 8.4. Merger or Consolidation of, or Assumption of the
Obligations of, Seller. Any Person (a) into which the Seller may be merged or
consolidated, (b) which may result from any merger or consolidation to which the
Seller shall be a party or (c) which may succeed to the properties and assets of
the Seller substantially as a whole, which Person in any of the foregoing cases
executes an agreement of assumption to perform every obligation of the Seller
under this Agreement, shall be the successor to the Seller hereunder without the
execution or filing of any document or any further act by any of the parties to
this Agreement; provided, however, that (i) the Seller shall have received the
written consent of the Note Insurer prior to entering into any such transaction,
(ii) immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 3.1 shall have been breached and no Servicer
Termination Event, and no event which, after notice or lapse of time, or both,
would become a Servicer Termination Event shall have occurred and be continuing,
(iii) the Seller shall have delivered to the Owner Trustee, the Trustee and the
Note Insurer an Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger or succession and such agreement of assumption
comply with this Section and that all conditions precedent, if any, provided for
in this Agreement relating to such transaction have been complied with, (iv) the
Rating Agency Condition shall have been satisfied with respect to such
transaction and (v) the Seller shall have delivered to the Owner Trustee, the
Trustee and the Note Insurer an Opinion of Counsel stating that, in the opinion
of such counsel, either (A) all financing statements and continuation statements
and amendments thereto have been executed and filed that are necessary fully to
preserve and protect the interest of the Owner Trustee and the Trustee,
respectively, in the Receivables and the Other Conveyed Property and reciting
the details of such filings or (B) no such action shall be necessary to preserve
and protect such interest. Notwithstanding anything herein to the contrary, the
execution of the foregoing agreement of assumption and compliance with clauses
(i), (ii), (iii), (iv) and (v) above shall be conditions to the consummation of
the transactions referred to in clause (a), (b) or (c) above.
SECTION 8.5. Limitation on Liability of Seller and Others. The Seller
and any director or officer or employee or agent of the Seller may rely in good
faith on the advice of counsel or on any document of any kind, prima facie
properly executed and submitted by any Person
-57-
<PAGE>
respecting any matters arising under any Basic Document. The Seller shall not be
under any obligation to appear in, prosecute or defend any legal action that
shall not be incidental to its obligations under this Agreement, and that in its
opinion may involve it in any expense or liability.
SECTION 8.6. Seller May Own Certificates or Notes. The Seller and any
Affiliate thereof may in its individual or any other capacity become the owner
or pledgee of Certificates or Notes with the same rights as it would have if it
were not the Seller or an Affiliate thereof, except as expressly provided herein
or in any Basic Document. Notes or Certificates so owned by the Seller or such
Affiliate shall have an equal and proportionate benefit under the provisions of
the Basic Documents, without preference, priority or distinction as among all of
the Notes or Certificates; provided, however, that any Notes owned by the Seller
or any Affiliate thereof, during the time such Notes are so owned by them, shall
be without voting rights for any purpose set forth in the Basic Documents and
the Notes shall not be entitled to the benefits of the Note Policy. The Seller
shall notify the Owner Trustee, the Trustee and the Note Insurer promptly after
it or any of its Affiliates become the owner of a Certificate or a Note.
ARTICLE IX
THE SERVICER
SECTION 9.1. Representations of Servicer. The Servicer makes the
following representations on which the Note Insurer shall be deemed to have
relied in executing and delivering the Note Policy and on which the Issuer is
deemed to have relied in acquiring the Receivables. The representations speak as
of the execution and delivery of this Agreement and as of the Closing Date and
shall survive the sale of the Receivables to the Issuer and the pledge thereof
to the Trustee pursuant to the Indenture.
(a) Organization and Good Standing. The Servicer has been duly
organized and is validly existing as a corporation and in good standing
under the laws of the State of California, with power, authority and
legal right to own its properties and to conduct its business as such
properties are currently owned and such business is presently
conducted, and had at all relevant times, and shall have, power,
authority and legal right to acquire, own and service the Receivables;
(b) Due Qualification. The Servicer is duly qualified to do
business as a foreign corporation in good standing and has obtained all
necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of property or the conduct of its business
(including the servicing of the Receivables as required by this
Agreement) requires or shall require such qualification;
(c) Power and Authority. The Servicer has the power and
authority to execute and deliver this Agreement and the Basic Documents
to which it is a party and to carry
-58-
<PAGE>
out its terms and their terms, respectively, and the execution,
delivery and performance of this Agreement and the Basic Documents to
which it is a party have been duly authorized by the Servicer by all
necessary corporate action;
(d) Binding Obligation. This Agreement and the Basic Documents
to which the Servicer is a party shall constitute legal, valid and
binding obligations of the Servicer enforceable in accordance with
their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws affecting
the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies, regardless of
whether such enforceability is considered in a proceeding in equity or
at law;
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the Basic Documents to which to the
Servicer is a party, and the fulfillment of the terms of this Agreement
and the Basic Documents to which the Servicer is a party, shall not
conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time) a default
under, the articles of incorporation or bylaws of the Servicer, or any
indenture, agreement, mortgage, deed of trust or other instrument to
which the Servicer is a party or by which it is bound or any of its
properties are subject, or result in the creation or imposition of any
Lien upon any of its properties pursuant to the terms of any such
indenture, agreement, mortgage, deed of trust or other instrument,
other than the Basic Documents, or violate any law, order, rule or
regulation applicable to the Servicer of any court or of any federal or
state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Servicer or any of its
properties;
(f) No Proceedings. There are no proceedings or investigations
pending or, to the Servicer's knowledge, threatened against the
Servicer, before any court, regulatory body, administrative agency or
other tribunal or governmental instrumentality having jurisdiction over
the Servicer or its properties (A) asserting the invalidity of this
Agreement or any of the Basic Documents, (B) seeking to prevent the
issuance of the Securities or the consummation of any of the
transactions contemplated by this Agreement or any of the Basic
Documents, or (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Servicer of its
obligations under, or the validity or enforceability of, this
Agreement, the Securities or any of the Basic Documents or (D) relating
to the Servicer and which might adversely affect the federal or state
income, excise, franchise or similar tax attributes of the Securities;
(g) No Consents. No consent, approval, authorization or order
of or declaration or filing with any governmental authority is required
for the issuance or sale of the Securities or the consummation of the
other transactions contemplated by this Agreement, except such as have
been duly made or obtained.
-59-
<PAGE>
(h) Taxes. The Servicer has filed on a timely basis all tax
returns required to be filed by it and paid all taxes, to the extent
that such taxes have become due.
(i) Chief Executive Office. The Servicer hereby represents and
warrants to the Trustee that the Servicer's principal place of business
and chief executive office is, and for the four months preceding the
date of this Agreement has been, located at: 2 Ada, Irvine, California
92718.
(j) Year 2000 Compliance. The Servicer covenants that its
computer and other systems used in servicing the Receivables will be
modified to operate in a manner such that on and after January 1, 2000
(i) the Servicer can service the Receivables in accordance with the
terms of this Agreement and (ii) the Servicer can operate its business
in substantially the same manner as it is operating on the date hereof.
The Servicer shall certify in writing to the Standby Servicer no later
than June 30, 1999 that it is in compliance with this Section 9.1(j).
SECTION 9.2. Liability of Servicer; Indemnities.
(a) The Servicer (in its capacity as such) shall be liable hereunder
only to the extent of the obligations in this Agreement specifically undertaken
by the Servicer and the representations made by the Servicer.
(i) The Servicer shall defend, indemnify and hold harmless the
Trust, the Trustee, the Owner Trustee, the Standby Servicer, the Note Insurer,
and the Securityholders from and against any and all costs, expenses, losses,
damages, claims and liabilities, arising out of or resulting from the use,
ownership, repossession or operation by the Servicer or any Affiliate thereof of
any Financed Vehicle;
(ii) The Servicer shall indemnify, defend and hold harmless
the Trust, the Trustee, the Owner Trustee, the Standby Servicer, the Note
Insurer, and the Securityholders from and against any taxes that may at any time
be asserted against any of such parties with respect to the transactions
contemplated in this Agreement, including, without limitation, any sales, gross
receipts, general corporation, tangible personal property, privilege or license
taxes (but not including any federal or other income taxes, including franchise
taxes asserted with respect to, and as of the date of, the sale of the
Receivables and the Other Conveyed Property to the Trust or the issuance and
original sale of the Securities) and costs and expenses in defending against the
same;
(iii) The Servicer shall indemnify, defend and hold harmless
the Trust, the Trustee, the Owner Trustee, the Standby Servicer, the Note
Insurer, their respective officers, directors, agents and employees and the
Securityholders from and against any and all costs, expenses, losses, claims,
damages, and liabilities to the extent that such cost, expense, loss, claim,
damage, or liability arose out of, or was imposed upon the Trust, the Trustee,
the Owner Trustee, the Standby Servicer, the Note Insurer or the Securityholders
through the negligence,
-60-
<PAGE>
willful misfeasance or bad faith of the Servicer in the performance of its
duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement.
(iv) The Servicer shall indemnify, defend, and hold harmless
the Trustee, the Owner Trustee, the Standby Servicer and the Collateral Agent
from and against all costs, expenses, losses, claims, damages, and liabilities
arising out of or incurred in connection with the acceptance or performance of
the trusts and duties herein contained or in the Trust Agreement, if any, except
to the extent that such cost, expense, loss, claim, damage or liability: (A)
shall be due to the willful misfeasance, bad faith, or negligence (except for
errors in judgment) of the Trustee, the Owner Trustee, the Standby Servicer or
the Collateral Agent, as applicable or (B) relates to any tax other than the
taxes with respect to which the Servicer shall be required to indemnify the
Trustee, the Owner Trustee, the Standby Servicer or the Collateral Agent.
(b) Notwithstanding the foregoing, the Servicer shall not be obligated
to defend, indemnify, and hold harmless any Securityholders for any losses,
claims, damages or liabilities incurred by any Securityholders arising out of
claims, complaints, actions and allegations relating to Section 406 of ERISA or
Section 4975 of the Code as a result of the purchase or holding of a Security by
such Securityholder with the assets of a plan subject to such provisions of
ERISA or the Code or the servicing, management and operation of the Trust.
(c) For purposes of this Section 9.2, in the event of the termination
of the rights and obligations of the Servicer (or any successor thereto pursuant
to Section 9.3) as Servicer pursuant to Section 10.1, or a resignation by such
Servicer pursuant to this Agreement, such Servicer shall be deemed to be the
Servicer pending appointment of a successor Servicer pursuant to Section 10.2.
The provisions of this Section 9.2(c) shall in no way affect the survival
pursuant to Section 9.2(d) of the indemnification by the Servicer provided by
Section 9.2(a).
(d) Indemnification under this Section 9.2 shall survive the
termination of this Agreement and any resignation or removal of CPS as Servicer
and shall include reasonable fees and expenses of counsel and expenses of
litigation. If the Servicer shall have made any indemnity payments pursuant to
this Section and the recipient thereafter collects any of such amounts from
others, the recipient shall promptly repay such amounts to the Servicer, without
interest.
SECTION 9.3. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Standby Servicer.
(a) CPS shall not merge or consolidate with any other person, convey,
transfer or lease substantially all its assets as an entirety to another Person,
or permit any other Person to become the successor to CPS's business unless,
after the merger, consolidation, conveyance, transfer, lease or succession, the
successor or surviving entity shall be capable of fulfilling the duties of CPS
contained in this Agreement. Any corporation (i) into which CPS may be merged or
consolidated, (ii) resulting from any merger or consolidation to which CPS shall
be a party, (iii) which acquires by conveyance, transfer, or lease substantially
all of the assets of CPS, or (iv)
-61-
<PAGE>
succeeding to the business of CPS, in any of the foregoing cases shall execute
an agreement of assumption to perform every obligation of CPS under this
Agreement and, whether or not such assumption agreement is executed, shall be
the successor to CPS under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties to this Agreement,
anything in this Agreement to the contrary notwithstanding; provided, however,
that nothing contained herein shall be deemed to release CPS from any
obligation. CPS shall provide notice of any merger, consolidation or succession
pursuant to this Section to the Owner Trustee, the Trustee, the Securityholders,
the Note Insurer and each Rating Agency. Notwithstanding the foregoing, CPS
shall not merge or consolidate with any other Person or permit any other Person
to become a successor to CPS's business, unless (x) immediately after giving
effect to such transaction, no representation or warranty made pursuant to
Section 9.1 shall have been breached (for purposes hereof, such representations
and warranties shall be deemed made as of the date of the consummation of such
transaction) and no event that, after notice or lapse of time, or both, would
become an Insurance Agreement Event of Default shall have occurred and be
continuing, (y) CPS shall have delivered to the Owner Trustee, the Trustee, the
Rating Agencies and the Note Insurer an Officer's Certificate and an Opinion of
Counsel each stating that such consolidation, merger or succession and such
agreement of assumption comply with this Section and that all conditions
precedent, if any, provided for in this Agreement relating to such transaction
have been complied with, and (z) CPS shall have delivered to the Owner Trustee,
the Trustee, the Rating Agencies and the Note Insurer an Opinion of Counsel,
stating in the opinion of such counsel, either (A) all financing statements and
continuation statements and amendments thereto have been executed and filed that
are necessary to preserve and protect the interest of the Owner Trustee and the
Trustee, respectively, in the Receivables and the Other Conveyed Property and
reciting the details of the filings or (B) no such action shall be necessary to
preserve and protect such interest.
(b) Any corporation (i) into which the Standby Servicer may be merged
or consolidated, (ii) resulting from any merger or consolidation to which the
Standby Servicer shall be a party, (iii) which acquires by conveyance, transfer
or lease substantially all of the assets of the Standby Servicer, or (iv)
succeeding to the business of the Standby Servicer, in any of the foregoing
cases shall execute an agreement of assumption to perform every obligation of
the Standby Servicer under this Agreement and, whether or not such assumption
agreement is executed, shall be the successor to the Standby Servicer under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties to this Agreement, anything in this Agreement to the
contrary notwithstanding; provided, however, that nothing contained herein shall
be deemed to release the Standby Servicer from any obligation.
SECTION 9.4. Limitation on Liability of Servicer, Standby Servicer and
Others.
Neither the Servicer, the Standby Servicer nor any of the directors or
officers or employees or agents of the Servicer or Standby Servicer shall be
under any liability to the Trust or the Securityholders, except as provided in
this Agreement, for any action taken or for refraining from the taking of any
action pursuant to this Agreement; provided, however, that this provision shall
not protect the Servicer, the Standby Servicer or any such person against any
-62-
<PAGE>
liability that would otherwise be imposed by reason of a breach of this
Agreement or willful misfeasance, bad faith or negligence in the performance of
duties. CPS, the Standby Servicer and any director, officer, employee or agent
of CPS or the Standby Servicer may rely in good faith on the written advice of
counsel or on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising under this Agreement.
SECTION 9.5. Delegation of Duties. The Servicer may at any time
delegate duties under this Agreement to sub-contractors who are in the business
of servicing automotive receivables with the prior written consent of the
Controlling Party as determined pursuant to Section 13.15; provided, however,
that no such delegation or sub-contracting of duties by the Servicer shall
relieve the Servicer of its responsibility with respect to such duties.
SECTION 9.6. Servicer and Standby Servicer Not to Resign. Subject to
the provisions of Section 9.3, neither the Servicer nor the Standby Servicer
shall resign from the obligations and duties imposed on it by this Agreement as
Servicer or Standby Servicer except upon a determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would have a material adverse effect on the Servicer or the Standby Servicer, as
the case may be, and the Note Insurer (so long as an Insurer Default shall not
have occurred and be continuing) or a Security Majority (if an Insurer Default
shall have occurred and be continuing) does not elect to waive the obligations
of the Servicer or the Standby Servicer, as the case may be, to perform the
duties which render it legally unable to act or to delegate those duties to
another Person. Any such determination permitting the resignation of the
Servicer or Standby Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered and acceptable to the Trustee, the Owner Trustee and the Note
Insurer (unless an Insurer Default shall have occurred and be continuing). No
resignation of the Servicer shall become effective until, so long as no Insurer
Default shall have occurred and be continuing, the Standby Servicer or an entity
acceptable to the Note Insurer shall have assumed the responsibilities and
obligations of the Servicer or, if an Insurer Default shall have occurred and be
continuing, the Standby Servicer or a successor Servicer that is an Eligible
Servicer shall have assumed the responsibilities and obligations of the Standby
Servicer. No resignation of the Standby Servicer shall become effective until,
so long as no Insurer Default shall have occurred and be continuing, an entity
acceptable to the Note Insurer shall have assumed the responsibilities and
obligations of the Standby Servicer or, if an Insurer Default shall have
occurred and be continuing a Person that is an Eligible Servicer shall have
assumed the responsibilities and obligations of the Standby Servicer; provided,
however, that in the event a successor Standby Servicer is not appointed within
60 days after the Standby Servicer has given notice of its resignation and has
provided the Opinion of Counsel required by this Section 9.6, the Standby
Servicer may petition a court for its removal.
-63-
<PAGE>
ARTICLE X
DEFAULT
SECTION 10.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by the Servicer to deliver to the Trustee for
distribution to Securityholders any proceeds or payment required to be so
delivered under the terms of this Agreement that continues unremedied for a
period of two Business Days (one Business Day with respect to payment of
Purchase Amounts) after written notice is received by the Servicer from the
Trustee or the Note Insurer (unless an Insurer Default shall have occurred and
be continuing) or after discovery of such failure by a Responsible officer of
the Servicer;
(b) Failure by the Servicer to deliver to the Trustee and the Note
Insurer (so long as an Insurer Default shall not have occurred and be
continuing), the Servicer's Certificate within five days after the date on which
such Servicer's Certificate is required to be delivered, or failure on the part
of the Servicer to observe its covenants and agreements set forth in Section
9.3(a);
(c) Failure on the part of the Servicer duly to observe or perform any
other covenants or agreements of the Servicer set forth in this Agreement, which
failure (i) materially and adversely affects the rights of Securityholders
(determined without regard to the availability of funds under the Policy), or of
the Note Insurer (unless an Insurer Default shall have occurred and be
continuing), and (ii) continues unremedied for a period of 30 days after the
date on which written notice of such failure, requiring the same to be remedied,
shall have been given (1) to the Servicer by the Trustee or the Note Insurer or
(2) to the Servicer and to the Trustee and the Note Insurer by the Holders of
Class A Notes evidencing not less than [ ]% of the outstanding principal balance
of the Notes or, after the Class A Notes have been paid in full and all
outstanding Reimbursement Obligations and other amounts due to the Note Insurer
have been paid in full, by the Holders of Certificates evidencing not less than
[ ]% of the outstanding principal balance of the Certificates;
(d) The entry of a decree or order by a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver, or liquidator for the Servicer or the Seller (or, so long
as CPS is Servicer, any of the Servicer's Affiliates) in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities, or
similar proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; or
(e) The consent by the Servicer or the Seller (or, so long as CPS is
Servicer, any of the Servicer's Affiliates) to the appointment of a conservator,
trustee, receiver or liquidator in any bankruptcy, insolvency, readjustment of
debt, marshalling of assets and liabilities, or similar proceedings of or
relating to the Servicer or the Seller (or, so long as CPS is Servicer, any of
the Servicer's Affiliates) of or relating to substantially all of its property;
or the Servicer or the
-64-
<PAGE>
Seller (or, so long as CPS is Servicer, any of the Servicer's Affiliates) or the
Seller shall admit in writing its inability to pay its debts generally as they
become due, file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(f) Any representation, warranty or statement of the Servicer made in
this Agreement or any certificate, report or other writing delivered pursuant
hereto shall prove to be incorrect in any material respect as of the time when
the same shall have been made, and the incorrectness of such representation,
warranty or statement has a material adverse effect on the Trust or the
Securityholders and, within 30 days after written notice thereof shall have been
given (1) to the Servicer by the Trustee or the Note Insurer or (2) to the
Servicer and to the Trustee and the Note Insurer by the Holders of Notes
evidencing not less than [ ]% of the outstanding principal balance of the Notes
or, after the Class A Notes have been paid in full and all outstanding
Reimbursement Obligations and other amounts due to the Note Insurer have been
paid in full, by the Holders of Certificates evidencing not less than [ ]% of
the outstanding principal balance of the Certificates, the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured; or
[(g) So long as an Insurer Default shall not have occurred and be
continuing, the Note Insurer shall not have delivered a Servicer Extension
Notice pursuant to Section 4.14; or]
[(h) So long as an Insurer Default shall not have occurred and be
continuing, an Insurance Agreement Event of Default shall have occurred; or]
[(i) A claim is made under the Note Policy.]
SECTION 10.2. Consequences of a Servicer Termination Event. If a
Servicer Termination Event shall occur and be continuing, the Note Insurer (or,
if an Insurer Default shall have occurred and be continuing either the Trustee
(to the extent it has knowledge thereof) or Holders of Notes evidencing not less
than [ ]% of the outstanding principal amount of the Notes, by notice given in
writing to the Servicer (and to the Trustee if given by the Note Insurer or the
Securityholders) or by non-extension of the term of the Servicer as referred to
in Section 4.14 may terminate all of the rights and obligations of the Servicer
under this Agreement. The Servicer shall be entitled to its pro rata share of
the Servicing Fee for the number of days in the Collection Period prior to the
effective date of its termination. On or after the receipt by the Servicer of
such written notice or upon termination of the term of the Servicer, all
authority, power, obligations and responsibilities of the Servicer under this
Agreement, whether with respect to the Notes, the Certificates or the Other
Conveyed Property or otherwise, automatically shall pass to, be vested in and
become obligations and responsibilities of the Standby Servicer (or such other
successor Servicer appointed by the Controlling Party under Section 10.3);
provided, however, that the successor Servicer shall have no liability with
respect to any obligation which was required to be performed by the terminated
Servicer prior to the date that the successor Servicer becomes the Servicer or
any claim of a third party based on any alleged action or inaction of the
terminated Servicer. The successor Servicer is authorized and
-65-
<PAGE>
empowered by this Agreement to execute and deliver, on behalf of the terminated
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement of the Receivables and the Other Conveyed
Property and related documents to show the Trust as lienholder or secured party
on the related Lien Certificates, or otherwise. The terminated Servicer agrees
to cooperate with the successor Servicer in effecting the termination of the
responsibilities and rights of the terminated Servicer under this Agreement,
including, without limitation, the transfer to the successor Servicer for
administration by it of all cash amounts that shall at the time be held by the
terminated Servicer for deposit, or have been deposited by the terminated
Servicer, in the Collection Account or thereafter received with respect to the
Receivables and the delivery to the successor Servicer of all Receivable Files
and a computer tape in readable form as of the most recent Business Day
containing all information necessary to enable the successor Servicer or a
successor Servicer to service the Receivables and the Other Conveyed Property.
All reasonable costs and expenses (including attorneys' fees) incurred in
connection with transferring the Receivable Files to the successor Servicer and
amending this Agreement to reflect such succession as Servicer pursuant to this
Section 10.1 shall be paid by the predecessor Servicer upon presentation of
reasonable documentation of such costs and expenses. In addition, any successor
Servicer shall be entitled to payment from the immediate predecessor Servicer
for reasonable transition expenses incurred in connection with acting as
successor Servicer, and to the extent not so paid, such payment shall be made
pursuant to Section 5.7(b) hereof. Upon receipt of notice of the occurrence of
Servicer Termination Event, the Trustee shall give notice thereof to the Rating
Agencies. If requested by the Controlling Party, the successor Servicer shall
terminate the Lockbox Agreement and direct the Obligors to make all payments
under the Receivables directly to the successor Servicer (in which event the
successor Servicer shall process such payments in accordance with Section
4.2(e)), or to a lockbox established by the successor Servicer at the direction
of the Controlling Party, at the successor Servicer's expense. The terminated
Servicer shall grant the Trustee, the successor Servicer and the Controlling
Party reasonable access to the terminated Servicer's premises at the terminated
Servicer's expense.
SECTION 10.3. Appointment of Successor.
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 10.2, upon non-extension of the servicing term as referred
to in Section 4.14, or upon the resignation of the Servicer pursuant to Section
9.6, the predecessor Servicer shall continue to perform its functions as
Servicer under this Agreement, in the case of termination, only until the date
specified in such termination notice or, if no such date is specified in a
notice of termination, until receipt of such notice and, in the case of
expiration and non-renewal of the term of the Servicer upon the expiration of
such term, and, in the case of resignation, until the later of (x) the date 45
days from the delivery to the Trustee of written notice of such resignation (or
written confirmation of such notice) in accordance with the terms of this
Agreement and (y) the date upon which the predecessor Servicer shall become
unable to act as Servicer, as specified in the notice of resignation and
accompanying Opinion of Counsel. In the event of termination of the Servicer, [
], as Standby Servicer, shall
-66-
<PAGE>
assume the obligations of Servicer hereunder on the date specified in such
written notice (the "Assumption Date") pursuant to the Servicing Assumption
Agreement or, in the event that the Note Insurer shall have determined that a
Person other than the Standby Servicer shall be the successor Servicer in
accordance with Section 10.2, on the date of the execution of a written
assumption agreement by such Person to serve as successor Servicer.
Notwithstanding the Standby Servicer's assumption of, and its agreement to
perform and observe, all duties, responsibilities and obligations of CPS as
Servicer under this Agreement arising on and after the Assumption Date, the
Standby Servicer shall not be deemed to have assumed or to become liable for, or
otherwise have any liability for, any duties, responsibilities, obligations or
liabilities of CPS or any predecessor Servicer arising on or before the
Assumption Date, whether provided for by the terms of this Agreement, arising by
operation of law or otherwise, including, without limitation, any liability for,
any duties, responsibilities, obligations or liabilities of CPS or any
predecessor Servicer arising on or before the Assumption Date under Section 4.7
or 9.2 of this Agreement, regardless of when the liability, duty, responsibility
or obligation of CPS or any predecessor Servicer therefore arose, whether
provided by the terms of this Agreement, arising by operation of law or
otherwise. Notwithstanding the above, if the Standby Servicer shall be legally
unable or unwilling to act as Servicer, and an Insurer Default shall have
occurred and be continuing, the Standby Servicer, the Trustee or a Security
Majority may petition a court of competent jurisdiction to appoint any Eligible
Servicer as the successor to the Servicer. Pending appointment pursuant to the
preceding sentence, the Standby Servicer shall act as successor Servicer unless
it is legally unable to do so, in which event the outgoing Servicer shall
continue to act as Servicer until a successor has been appointed and accepted
such appointment. Subject to Section 9.6, no provision of this Agreement shall
be construed as relieving the Standby Servicer of its obligation to succeed as
successor Servicer upon the termination of the Servicer pursuant to Section
10.2, the resignation of the Servicer pursuant to Section 9.6 or the
non-extension of the servicing term of the Servicer, as referred to in Section
4.14. If upon the termination of the Servicer pursuant to Section 10.2 or the
resignation of the Servicer pursuant to Section 9.6, the Controlling Party
appoints a successor Servicer other than the Standby Servicer, the Standby
Servicer shall not be relieved of its duties as Standby Servicer hereunder.
(b) Any successor Servicer shall be entitled to such compensation
(whether payable out of the Collection Account or otherwise) as the Servicer
would have been entitled to under this Agreement if the Servicer had not
resigned or been terminated hereunder.
SECTION 10.4. Notification to Noteholders and Certificateholders. Upon
any termination of, or appointment of a successor to, the Servicer, the Trustee
shall give prompt written notice thereof to each Securityholder, the Owner
Trustee and to the Rating Agencies.
SECTION 10.5. Waiver of Past Defaults. Subject to the approval of the
Note Insurer (unless an Insurer Default shall have occurred and be continuing),
the Holders of Notes evidencing more than [ ]% of the outstanding principal
balance of the Notes, may on behalf of all the Noteholders and
Certificateholders, waive any default be the Servicer in the performance of its
obligations under this Agreement and the consequences thereof (except a default
in making any required deposits to or payments from any of the Trust Accounts in
accordance with the
-67-
<PAGE>
terms of this Agreement. Upon any such waiver of a past default, such default
shall cease to exist, and any Servicer Termination Event arising therefrom shall
be deemed to have been remedied for every purpose of this Agreement. No such
waiver shall extend to any subsequent or other default or impair any right
consequent thereto.
SECTION 10.6. Action Upon Certain Failures of the Servicer. In the
event that the Trustee shall have knowledge of any failure of the Servicer
specified in Section 10.1 which would give rise to a right of termination under
such Section upon the Servicer's failure to remedy the same after notice, the
Trustee shall give notice thereof to the Servicer and the Note Insurer. For all
purposes of this Agreement (including, without limitation, Section 6.2(b) and
this Section 10.6), the Trustee shall not be deemed to have knowledge of any
failure of the Servicer as specified in Section 10.1(c) though (i) unless
notified thereof in writing by the Servicer, the Note Insurer or by a
Securityholder. The Trustee shall be under no duty or obligation to investigate
or inquire as to any potential failure of the Servicer specified in Section
10.1.
ARTICLE XI
TERMINATION
SECTION 11.1. Optional Purchase of All Receivables.
(a) (i) On the last day of any Collection Period as of which the Pool
Balance shall be less than or equal to [ ]% of the Original Pool Balance, the
Servicer shall have the option to purchase the Owner Trust Estate, other than
the Trust Accounts (with the consent of the Note Insurer if such purchase would
result in a claim on the Note Policy or would result in any amount owing to the
Note Insurer under the Insurance Agreement remaining unpaid). To exercise such
option, the Servicer or the Seller, as the case may be, shall (subject to the
proviso below deposit pursuant to Section 5.6 in the Collection Account an
amount equal to the aggregate Purchase Amount for the Receivables (including
Liquidated Receivables), plus the appraised value of any other property held by
the Trust, such value to be determined by an appraiser mutually agreed upon by
the Servicer, the Note Insurer and the Trustee, and shall succeed to all
interests in and to the Trust provided, however, that the amount to be paid for
such purchase (as set forth in the following sentence) shall be sufficient to
pay the full amount of principal and interest, if any, then due and payable on
the Securities.
(b) Notice of any termination of the Trust shall be given by the
Servicer, which notice shall include, among other things, the items specified in
Section 9.1(c) of the Trust Agreement, to the Owner Trustee, the Trustee, the
Note Insurer and the Rating Agencies as soon as practicable after the Servicer
has received notice thereof.
(c) Following the satisfaction and discharge of the Indenture and the
payment in full of the principal of and interest on the Notes, the
Certificateholders will succeed to the rights of the
-68-
<PAGE>
Noteholders hereunder and the Owner Trustee will succeed to the rights of, and
assume the obligations of, the Trustee to this Agreement.
ARTICLE XII
ADMINISTRATIVE DUTIES OF THE SERVICER
SECTION 12.1. Administrative Duties.
(a) Duties with Respect to the Indenture. The Servicer shall perform
all its duties and the duties of the Issuer under the Indenture. In addition,
the Servicer shall consult with the Owner Trustee as the Servicer deems
appropriate regarding the duties of the Issuer under the Indenture. The Servicer
shall monitor the performance of the Issuer and shall advise the Owner Trustee
when action is necessary to comply with the Issuer's duties under the Indenture.
The Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture, including, without limitation,
pursuant to Sections 2.7, 3.5, 3.6, 3.7, 3.9, 3.10, 3.17, 5.1(b), 7.3, 8.3, 9.2,
9.3, 11.1 and 11.15 of the Indenture.
(b) Duties with Respect to the Issuer.
(i) In addition to the duties of the Servicer set forth in
this Agreement or any of the Basic Documents, the Servicer shall perform such
calculations and shall prepare for execution by the Issuer or the Owner Trustee
or shall cause the preparation by other appropriate Persons of all such
documents, reports, filings, instruments, certificates and opinions as it shall
be the duty of the Issuer or the Owner Trustee to prepare, file or deliver
pursuant to this Agreement or any of the Basic Documents or under state and
federal tax and securities laws, and at the request of the Owner Trustee shall
take all appropriate action that it is the duty of the Issuer to take pursuant
to this Agreement or any of the Basic Documents, including, without limitation,
pursuant to Sections 2.6 and 2.11 of the Trust Agreement. In accordance with the
directions of the Issuer or the Owner Trustee, the Servicer shall administer,
perform or supervise the performance of such other activities in connection with
the Collateral (including the Basic Documents) as are not covered by any of the
foregoing provisions and as are expressly requested by the Issuer or the Owner
Trustee and are reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Servicer shall be responsible for promptly
notifying the Owner Trustee and the Trustee in the event that any withholding
tax is imposed on the Issuer's payments (or allocations of income) to a
Noteholder as contemplated this Agreement. Any such notice shall be in writing
and specify the amount of any withholding tax required to be withheld by the
Owner Trustee or the Trustee pursuant to such provision.
-69-
<PAGE>
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for performance of
the duties of the Issuer or the Seller set forth in Section 5.1 of the Trust
Agreement with respect to, among other things, accounting and reports to
Certificateholders; provided, however, that once prepared by the Servicer the
Owner Trustee shall retain responsibility for the distribution of the Schedule
K-1s necessary to enable each Certificateholder to prepare its federal and state
income tax returns.
(iv) The Servicer shall perform the duties of the Servicer
specified in Section 10.2 of the Trust Agreement required to be performed in
connection with the resignation or removal of the Owner Trustee, and any other
duties expressly required to be performed by the Servicer under this Agreement
or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into transactions with
or otherwise deal with any of its Affiliates; provided, however, that the terms
of any such transactions or dealings shall be in accordance with any directions
received from the Issuer and shall be, in the Servicer's opinion, no less
favorable to the Issuer in any material respect.
(c) Tax Matters. The Servicer shall prepare and file, on behalf of the
Seller, all tax returns, tax elections, financial statements and such annual or
other reports of the Issuer as are necessary for preparation of tax reports as
provided in Article V of the Trust Agreement, including without limitation forms
1099 and 1066. All tax returns will be signed by the Seller.
(d) Non-Ministerial Matters. With respect to matters that in the
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article XII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Trustee of the proposed action and the Owner Trustee and, with
respect to items (i), (ii), (iii) and (iv) below, the Trustee shall not have
withheld consent or provided an alternative direction. For the purpose of the
preceding sentence, "non-ministerial matters" shall include:
(i) the amendment of or any supplement to the Indenture;
(ii) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against the Issuer
(other than in connection with the collection of the Receivables);
(iii) the amendment, change or modification of this Agreement
or any of the Basic Documents;
(iv) the appointment of successor Note Registrars, successor
Paying Agents and successor Trustees pursuant to the Indenture or the
appointment of Successor Servicers or the consent to the assignment by the Note
Registrar, Paying Agent or Trustee of its obligations under the Indenture; and
-70-
<PAGE>
(v) the removal of the Trustee.
(e) Exceptions. Notwithstanding anything to the contrary in this
Agreement except as expressly provided herein or in the other Basic Documents,
the Servicer, in its capacity hereunder, shall not be obligated to, and shall
not, (1) make any payments to the Noteholders or Certificateholders under the
Basic Documents, (2) sell the Indenture Trust Property pursuant to Section 5.5
of the Indenture, (3) take any other action that the Issuer directs the Servicer
not to take on its behalf or (4) in connection with its duties hereunder assume
any indemnification obligation of any other Person.
(f) Limitation of Standby Servicer's Obligations. The Standby Servicer
or any successor Servicer shall not be responsible for any obligations or duties
of the Servicer under Section 12.1.
SECTION 12.2. Records. The Servicer shall maintain appropriate books of
account and records relating to services performed under this Agreement, which
books of account and records shall be accessible for inspection by the Issuer,
the Trustee and the Note Insurer at any time during normal business hours.
SECTION 12.3. Additional Information to be Furnished to the Issuer. The
Servicer shall furnish to the Issuer from time to time such additional
information regarding the Collateral as the Issuer shall reasonably request.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1. Amendment.
(a) This Agreement may be amended from time to time by the parties
hereto, with the consent of the Trustee (which consent may not be unreasonably
withheld), with the prior written consent of the Note Insurer (so long as no
Insurer Default has occurred and is continuing) but without the consent of any
of the Noteholders or the Certificateholders, to cure any ambiguity, to correct
or supplement any provisions in this Agreement, to comply with any changes in
the Code, or to make any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with the provisions
of this Agreement or the Insurance Agreement; provided, however, that such
action shall not, as evidenced by an Opinion of Counsel delivered to the Owner
Trustee and the Trustee, adversely affect in any material respect the interests
of any Noteholder or Certificateholder; provided further that if an Insurer
Default has occurred and is continuing, such action shall not materially
adversely affect the interests of the Note Insurer.
This Agreement may also be amended from time to time by the parties
hereto, with the consent of the Note Insurer, the consent of the Trustee, the
consent of the Holders of Notes
-71-
<PAGE>
evidencing not less than [ ] of the outstanding principal amount of the Notes
and the consent of the Holders (as defined in the Trust Agreement) of
Certificates evidencing not less than a majority of the Certificate Balance for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any manner the rights
of the Noteholders or the Certificateholders; provided, however, that no such
amendment shall (a) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Receivables or
distributions that shall be required to be made for the benefit of the
Noteholders or the Certificateholders or (b) reduce the aforesaid percentage of
the outstanding principal amount of each Class of Notes or the Certificates, the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all the outstanding Notes and the Holders (as defined
in the Trust Agreement) of all the outstanding Certificates, of each Class
affected thereby; provided further, that if an Insurer Default has occurred and
is continuing, such action shall not materially adversely affect the interest of
the Note Insurer.
Promptly after the execution of any such amendment or consent, the
Trustee shall furnish written notification of the substance of such amendment or
consent to each Securityholder and the Rating Agencies.
It shall not be necessary for the consent of Certificateholders or
Noteholders pursuant to this Section to approve the particular form of any
proposed amendment or consent, but it shall be sufficient if such consent shall
approve the substance thereof. The manner of obtaining such consents (and any
other consents of Noteholders or Certificateholders provided for in this
Agreement) and of evidencing the authorization of any action by Noteholders or
Certificateholders shall be subject to such reasonable requirements as the
Trustee or the Owner Trustee, as applicable, may prescribe.
Prior to the execution of any amendment to this Agreement, the Owner
Trustee and the Trustee shall be entitled to receive and rely upon an Opinion of
Counsel stating that the execution of such amendment is authorized or permitted
by this Agreement and the Opinion of Counsel referred to in Section 13.2(i)(1)
has been delivered. The Owner Trustee, the Standby Servicer and the Trustee may,
but shall not be obligated to, enter into any such amendment which affects the
Issuer's, the Owner Trustee's, the Standby Servicer's or the Trustee's, as
applicable, own rights, duties or immunities under this Agreement or otherwise.
(b) Notwithstanding anything to the contrary contained in Section
13.1(a) above, the provisions of this Agreement relating to (i) the Spread
Account Supplement, the Spread Account, the Requisite Amount (as defined in the
Master Spread Account Agreement), a Trigger Event or any component definition of
a Trigger Event and (ii) any additional sources of funds which may be added to
the Spread Account or uses of funds on deposit in the Spread Account may be
amended in any respect by the Seller, the Servicer, the Note Insurer and the
Collateral Agent (the consent of which shall not be withheld or delayed with
respect to any amendment that does not adversely affect the Collateral Agent)
without the consent of, or notice to, the Noteholders or the Certificateholders.
-72-
<PAGE>
SECTION 13.2. Protection of Title to Trust.
(a) The Seller or Servicer or both shall execute and file such
financing statements and cause to be executed and filed such continuation
statements, all in such manner and in such places as may be required by law
fully to preserve, maintain and protect the interest of the Issuer and the
interests of the Trustee in the Receivables and in the proceeds thereof. The
Seller shall deliver (or cause to be delivered) to the Note Insurer, the Owner
Trustee and the Trustee file-stamped copies of, or filing receipts for, any
document filed as provided above, as soon as available following such filing.
(b) Neither the Seller nor the Servicer shall change its name, identity
or corporate structure in any manner that would, could or might make any
financing statement or continuation statement filed in accordance with paragraph
(a) above seriously misleading within the meaning of section 9-402(7) of the
UCC, unless it shall have given the Note Insurer, the Owner Trustee and the
Trustee at least five days' prior written notice thereof and shall have promptly
filed appropriate amendments to all previously filed financing statements or
continuation statements. Promptly upon such filing, the Seller or the Servicer,
as the case may be, shall deliver an Opinion of Counsel to the Issuer, the Owner
Trustee, the Trustee and the Note Insurer, in form and substance reasonably
satisfactory to the Note Insurer, stating either (A) all financing statements
and continuation statements have been executed and filed that are necessary
fully to preserve and protect the interest of the Trust and the Trustee in the
Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest.
(c) Each of the Seller and the Servicer shall have an obligation to
give the Note Insurer, the Owner Trustee and the Trustee at least 60 days' prior
written notice of any relocation of its principal executive office if, as a
result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall promptly file any such
amendment. The Servicer shall at all times maintain each office from which it
shall service Receivables, and its principal executive office, within the United
States of America.
(d) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each) and (ii)
reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Collection Account
in respect of such Receivable.
(e) The Servicer shall maintain its computer systems so that, from and
after the time of sale under this Agreement of the Receivables to the Issuer,
the Servicer's master computer records (including any backup archives) that
refer to a Receivable shall indicate clearly the interest of the Trust in such
Receivable and that such Receivable is owned by the Trust. Indication of the
Trust's interest in a Receivable shall be deleted from or modified on the
-73-
<PAGE>
Servicer's computer systems when, and only when, the related Receivable shall
have been paid in full or repurchased.
(f) If at any time the Seller or the Servicer shall propose to sell,
grant a security interest in or otherwise transfer any interest in automotive
receivables to any prospective purchaser, lender or other transferee, the
Servicer shall give to such prospective purchaser, lender or other transferee
computer tapes, records or printouts (including any restored from backup
archives) that, if they shall refer in any manner whatsoever to any Receivable,
shall indicate clearly that such Receivable has been sold and is owned by the
Trust.
(g) The Servicer shall permit the Trustee, the Standby Servicer and the
Note Insurer and its agents at any time during normal business hours to inspect,
audit, and make copies of and abstracts from the Servicer's records regarding
any Receivable.
(h) Upon request, the Servicer shall furnish to the Note Insurer, the
Owner Trustee or to the Trustee, within five Business Days, a list of all
Receivables (by contract number and name of Obligor) then held as part of the
Trust, together with a reconciliation of such list to the Schedule of
Receivables and to each of the Servicer's Certificates furnished before such
request indicating removal of Receivables from the Trust.
(i) The Servicer shall deliver to the Note Insurer, the Owner Trustee
and the Trustee:
(i) promptly after the execution and delivery of the Agreement
and, if required pursuant to Section 13.1, of each amendment, an Opinion of
Counsel stating that, in the opinion of such counsel, in form and substance
reasonably satisfactory to the Note Insurer, either (A) all financing statements
and continuation statements have been executed and filed that are necessary
fully to preserve and protect the interest of the Trust and the Trustee in the
Receivables, and reciting the details of such filings or referring to prior
Opinions of Counsel in which such details are given, or (B) no such action shall
be necessary to preserve and protect such interest; and
(ii) within 90 days after the beginning of each calendar year
beginning with the first calendar year beginning more than three months after
the Cutoff Date, an Opinion of Counsel, dated as of a date during such 90-day
period, stating that, in the opinion of such counsel, either (A) all financing
statements and continuation statements have been executed and filed that are
necessary fully to preserve and protect the interest of the Trust and the
Trustee in the Receivables, and reciting the details of such filings or
referring to prior Opinions of Counsel in which such details are given, or (B)
no such action shall be necessary to preserve and protect such interest.
Each Opinion of Counsel referred to in clause (i) or (ii) above shall
specify any action necessary (as of the date of such opinion) to be taken in the
following year to preserve and protect such interest.
-74-
<PAGE>
SECTION 13.3. Notices. All demands, notices and communications upon or
to the Seller, the Servicer, the Owner Trustee, the Trustee or the Rating
Agencies under this Agreement shall be in writing, personally delivered, or
mailed by certified mail, return receipt requested, and shall be deemed to have
been duly given upon receipt (a) in the case of the Seller to CPS Receivables
Funding Corp., 2 Ada, Irvine, California 92718, (b) in the case of the Servicer
to Consumer Portfolio Services, Inc., 2 Ada, Irvine, California 92718,
Attention: Chief Financial officer, (c) in the case of the Issuer or the Owner
Trustee, at the Corporate Trust Office of the Owner Trustee, (d) in the case of
the Trustee or the Collateral Agent, at the Corporate Trust Office, (e) in the
case of the Note Insurer, to 350 Park Avenue, New York, New York 10022
Attention: Senior Vice President, Surveillance (Telecopy: (212) 339-3547); (f)
in the case of Moody's, to Moody's Investors Service, Inc., ABS Monitoring
Department, 99 Church Street, New York, New York 10007; and (g) in the case of
Standard & Poor's Ratings Group, to Standard & Poor's, a Division of The McGraw
Hill Companies, 25 Broadway, 15th Floor, New York, New York 10004, Attention:
Asset Backed Surveillance Department. Any notice required or permitted to be
mailed to a Noteholder or Certificateholder shall be given by first class mail,
postage prepaid, at the address of such Holder as shown in the Certificate
Register or Note Register, as applicable. Any notice so mailed within the time
prescribed in the Agreement shall be conclusively presumed to have been duly
given, whether or not the Certificateholder or Noteholder shall receive such
notice.
SECTION 13.4. Assignment. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Notwithstanding anything to the contrary contained herein,
except as provided ln Sections 8.4 and 9.3 and as provided in the provisions of
this Agreement concerning the resignation of the Servicer, this Agreement may
not be assigned by the Seller or the Servicer without the prior written consent
of the Owner Trustee, the Trustee, the Standby Servicer, the Trustee and the
Note Insurer (or if an Insurer Default shall have occurred and be continuing the
Holders of Notes evidencing not less than [ ]% of the principal amount of the
outstanding Notes and the Holders of Certificates, the aggregate Certificate
Balance of which is not less than [ ]%.
SECTION 13.5. Limitations on Rights of Others. The provisions of this
Agreement are solely for the benefit of the parties hereto and for the benefit
of the Owner Trustee and the Certificateholders (including the Seller), the
Trustee and the Noteholders, as third-party beneficiaries. The Note Insurer and
its successors and assigns shall be a third-party beneficiary to the provisions
of this Agreement, and shall be entitled to rely upon and directly enforce such
provisions of this Agreement so long as no Insurer Default shall have occurred
and be continuing. Except as expressly stated otherwise, any right of the Note
Insurer to direct, appoint, consent to, approve of, or take any action under
this Agreement, shall be a right exercised by the Note Insurer in its sole and
absolute discretion. The Note Insurer may disclaim any of its rights and powers
under this Agreement (but not its duties and obligations under the Note Policy)
upon delivery of a written notice to the Owner Trustee and the Trustee. Nothing
in this Agreement, whether express or implied, shall be construed to give to any
other Person any legal or equitable right, remedy or claim in the Owner Trust
Estate or under or in respect of this Agreement or any covenants, conditions or
provisions contained herein.
-75-
<PAGE>
SECTION 13.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
SECTION 13.7. Separate Counterparts. This Agreement may be executed by
the parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
SECTION 13.8. Headings. The headings of the various Articles and
Sections herein are for convenience of reference only and shall not define or
limit any of the terms or provisions hereof.
SECTION 13.9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 13.10. Assignment to Trustee. The Seller hereby acknowledges
and consents to any mortgage, pledge, assignment and grant of a security
interest by the Issuer to the Trustee pursuant to the Indenture for the benefit
of the Noteholders of all right, title and interest of the Issuer in, to and
under the Receivables and/or the assignment of any or all of the Issuer's rights
and obligations hereunder to the Trustee.
SECTION 13.11. Nonpetition Covenants.
(a) Notwithstanding any prior termination of this Agreement, the
Servicer and the Seller shall not, prior to the date which is one year and one
day after the termination of this Agreement with respect to the Issuer,
acquiesce, petition or otherwise invoke or cause the Issuer to invoke the
process of any court or government authority for the purpose of commencing or
sustaining a case against the Issuer under any federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official of the Issuer or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Issuer.
(b) Notwithstanding any prior termination of this Agreement, the
Servicer shall not, prior to the date that is one year and one day after the
termination of this Agreement with respect to the Seller, acquiesce to, petition
or otherwise invoke or cause the Seller to invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Seller under any federal or state bankruptcy, insolvency or similar law,
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator,
or other similar official of the Seller or any
-76-
<PAGE>
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Seller.
SECTION 13.12. Limitation of Liability of Owner Trustee and Trustee.
(a) Notwithstanding anything contained herein to the contrary, this
Agreement has been countersigned by Bankers Trust (Delaware) not in its
individual capacity but solely in its capacity as Owner Trustee of the Issuer
and in no event shall Bankers Trust (Delaware) in its individual capacity or,
except as expressly provided in the Trust Agreement, as Owner Trustee have any
liability for the representations, warranties, covenants, agreements or other
obligations of the Issuer hereunder or in any of the certificates, notices or
agreements delivered pursuant hereto, as to all of which recourse shall be had
solely to the assets of the Issuer. For all purposes of this Agreement, in the
performance of its duties or obligations hereunder or in the performance of any
duties or obligations of the Issuer hereunder, the Owner Trustee shall be
subject to, and entitled to the benefits of, the terms and provisions of
Articles VI, VII and VIII of the Trust Agreement.
(b) Notwithstanding anything contained herein to the contrary, this
Agreement has been executed and delivered by Norwest Bank Minnesota, National
Association, not in its individual capacity but solely as Trustee and Standby
Servicer and in no event shall Norwest Bank Minnesota, National Association,
have any liability for the representations, warranties, covenants, agreements or
other obligations of the Issuer hereunder or in any of the certificates, notices
or agreements delivered pursuant hereto, as to all of which recourse shall be
had solely to the assets of the Issuer.
(c) In no event shall [ ], in any of its capacities hereunder, be
deemed to have assumed any duties of the Owner Trustee under the Delaware
Business Trust Statute, common law, or the Trust Agreement.
SECTION 13.13. Independence of the Servicer. For all purposes of this
Agreement, the Servicer shall be an independent contractor and shall not be
subject to the supervision of the Issuer, the Trustee and Standby Servicer or
the Owner Trustee with respect to the manner in which it accomplishes the
performance of its obligations hereunder. Unless expressly authorized by this
Agreement, the Servicer shall have no authority to act for or represent the
Issuer or the Owner Trustee in any way and shall not otherwise be deemed an
agent of the Issuer or the Owner Trustee.
SECTION 13.14. No Joint Venture. Nothing contained in this Agreement
(i) shall constitute the Servicer and either of the Issuer or the Owner Trustee
as members of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, (ii) shall be construed to
impose any liability as such on any of them or (iii) shall be deemed to confer
on any of them any express, implied or apparent authority to incur any
obligation or liability on behalf of the others.
-77-
<PAGE>
SECTION 13.15. [Note Insurer as Controlling Party. Each Noteholder by
purchase of the Notes held by it acknowledges that the Trustee, as partial
consideration of the issuance of the Note Policy, has agreed that the Note
Insurer shall have certain rights hereunder for so long as no Insurer Default
shall have occurred and be continuing. So long as an Insurer Default has
occurred and is continuing, any provision giving the Note Insurer the right to
direct, appoint or consent to, approve of, or take any action under this
Agreement shall be inoperative during the period of such Insurer Default and
such right shall instead vest in the Trustee acting at the direction of the
holders of Notes evidencing, unless otherwise specified, more than [ ]% of the
principal balance of the Notes. From and after such time as the Notes have been
paid in full, any provision giving the Note Insurer or the Noteholders the right
to direct, appoint or consent to, approve of, or take any action under this
Agreement shall be inoperative and such right shall instead vest in the Trustee
acting at the direction of the holders of the Certificates evidencing more than
[ ]% of the Certificate Balance, unless otherwise specified. The Note Insurer
may disclaim any of its rights and powers under this Agreement (but not its
duties and obligations under the Policy) upon delivery of a written notice to
the Trustee. The Note Insurer may give or withhold any consent hereunder in its
sole and absolute discretion.]
-78-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective duly authorized officers as of
the day and the year first above written.
CPS AUTO RECEIVABLES
TRUST 199[ ]
by
[ ],
not in its individual capacity, but solely as
Owner Trustee on behalf of the Trust
By: /s/
Title:
CPS RECEIVABLES CORP., as Seller
By /s/
Title:
CONSUMER PORTFOLIO SERVICES, INC., as
Servicer
By /s/
Title:
[ ],
not in its individual capacity, but solely as
Standby Servicer and Trustee
By /s/
Title:
-79-
<PAGE>
SCHEDULE A
SCHEDULE OF RECEIVABLES
<PAGE>
EXHIBIT A
SERVICER'S CERTIFICATE
-2-
<PAGE>
EXHIBIT B
TRUST RECEIPT
PURSUANT TO SECTION 3.5 OF
THE SALE AND SERVICING AGREEMENT
Consumer Portfolio Services, Inc., as Servicer (the "Servicer") of the
CPS Auto Receivables Trust 199[ ] (the "Trust") under the Sale and Servicing
Agreement (the "Sale and Servicing Agreement"), dated as of [ ], among CPS Auto
Receivables Trust 199[ ], CPS Receivables Corp., as Seller, Consumer Portfolio
Services, Inc., as Servicer, and [ ], as Trustee and Standby Servicer, does
hereby acknowledge receipt of the documents relating to the Receivables, each of
which documents and the Receivables to which they are related are listed on the
attached Schedule 1 hereto. The Servicer furthermore agrees to return such
documents to the Trustee in accordance with the terms of the Sale and Servicing
Agreement.
IN WITNESS WHEREOF I have hereunto set my hand this __ day of ____,
19__.
CONSUMER PORTFOLIO SERVICES, INC.,
as Servicer
By:
Name:
Title:
Acknowledged By:
[ ],
as Trustee
By:
Name:
Title:
-3-
<PAGE>
EXHIBIT C
SERVICING OFFICER'S CERTIFICATE
PURSUANT TO SECTION 3.5
OF THE SALE AND SERVICING AGREEMENT
The undersigned, ______________, hereby certifies that (s)he is a duly
elected and qualified officer of the Servicer, and hereby further certifies as
follows:
The Receivable described below has been fully liquidated and all
amounts required to be deposited in the Collection Account with respect to the
Receivable and the Obligor described below have been so deposited.
Servicer
Loan No.:
Obligor's Name:
Capitalized terms used herein which are not defined herein shall have
the meanings ascribed to them in the Sale and Servicing Agreement dated as of [
] among CPS Auto Receivables Trust 199[ ]-[ ], Consumer Portfolio Services,
Inc., as servicer, CPS Receivables Corp., as seller, and [ ], as trustee and
Standby Servicer.
IN WITNESS WHEREOF, I have hereunto set my hand on and as of this ___
day of ______________, 19___.
---------------------------
Name:
Title:
-4-
<PAGE>
EXHIBIT D
FORM OF MONTHLY SECURITYHOLDER STATEMENT
-5-
<PAGE>
EXHIBIT E-1
TRUSTEE'S CERTIFICATE
PURSUANT TO SECTIONS 3.2 OR 3.4 OF
THE SALE AND SERVICING AGREEMENT
Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") of the CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust") under the
Sale and Servicing Agreement (the "Sale and Servicing Agreement"), dated as of [
], among the Trust, CPS Receivables Corp., as Seller, Consumer Portfolio
Services, Inc., as Servicer, and Norwest Bank Minnesota, National Association,
as Trustee and Standby Servicer, does hereby sell, transfer, assign, and
otherwise convey to Consumer Portfolio Services, Inc., without recourse,
representation, or warranty, all of the Trustee's right, title, and interest in
and to all of the Receivables (as defined in the Sale and Servicing Agreement)
identified in the attached Servicer's Certificate as "Purchased Receivables,"
which are to be repurchased by Consumer Portfolio Services, Inc. pursuant to
Section 3.2 or Section 3.4 of the Sale and Servicing Agreement and all security
and documents relating thereto.
IN WITNESS WHEREOF I have hereunto set my hand this __ day of ____,
19__.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:
Name:
Title:
-6-
<PAGE>
Exhibit E-2
TRUSTEE'S CERTIFICATE
PURSUANT TO SECTIONS 4.7 OR 11.1 OF
THE SALE AND SERVICING AGREEMENT
Norwest Bank Minnesota, National Association, as trustee (the
"Trustee") of the CPS Auto Receivables Trust 199[ ]-[ ] (the "Trust") under the
Sale and Servicing Agreement (the "Sale and Servicing Agreement"), dated as of [
], among the Trust, CPS Receivables Corp., as Seller, Consumer Portfolio
Services, Inc., as Servicer (the "Servicer"), and Norwest Bank Minnesota,
National Association, as Trustee and Standby Servicer, does hereby sell,
transfer, assign, and otherwise convey to the Servicer, without recourse,
representation, or warranty, all of the Trustee's right, title, and interest in
and to all of the Receivables (as defined in the Sale and Servicing Agreement)
identified in the attached Servicer's Certificate as "Purchased Receivables,"
which are to be repurchased by the Servicer pursuant to Section 4.7 or Section
11.1 of the Sale and Servicing Agreement and all security and documents relating
thereto.
IN WITNESS WHEREOF I have hereunto set my hand this __ day of ____,
19__.
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee
By:
Name:
Title:
-7-
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.................................................1
SECTION 1.2. Other Definitional Provisions..............................21
ARTICLE II
CONVEYANCE OF RECEIVABLES
SECTION 2.1. Conveyance of Receivables..................................22
SECTION 2.2. [RESERVED].................................................24
SECTION 2.3. Further Encumbrance of Trust Property......................24
ARTICLE III
THE RECEIVABLES
SECTION 3.1. Representations and Warranties of Seller...................24
SECTION 3.2. Repurchase upon Breach.....................................30
SECTION 3.3. Custody of Receivables Files...............................31
SECTION 3.4. Acceptance of Receivable Files by Trustee..................32
SECTION 3.5. Access to Receivable Files.................................33
ARTICLE IV
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 4.1. Duties of the Servicer.....................................33
SECTION 4.2. Collection of Receivable Payments; Modifications of
Receivables; Lockbox Agreements..........................34
SECTION 4.3. Realization Upon Receivables...............................36
SECTION 4.4. Insurance..................................................36
SECTION 4.5. Maintenance of Security Interests in Vehicles..............37
SECTION 4.6. Additional Covenants of Servicer...........................38
SECTION 4.7. Purchase of Receivables Upon Breach of Covenant............38
SECTION 4.8. Servicing Fee..............................................38
SECTION 4.9. Servicer's Certificate.....................................39
SECTION 4.10. Annual Statement as to Compliance, Notice of Servicer
Termination Event........................................39
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
SECTION 4.11. Annual Independent Accountants' Report......................40
SECTION 4.12. Access to Certain Documentation and Information
Regarding Receivables.....................................40
SECTION 4.13. Verification of Servicer's Certificate......................41
SECTION 4.14. Retention and Termination of Servicer.......................42
SECTION 4.15. Fidelity Bond...............................................42
ARTICLE V
TRUST ACCOUNTS; DISTRIBUTIONS;
STATEMENTS TO SECURITYHOLDERS
SECTION 5.1. Establishment of Trust Accounts.............................42
SECTION 5.2. [RESERVED]..................................................45
SECTION 5.3. Certain Reimbursements to the Servicer......................45
SECTION 5.4. Application of Collections..................................45
SECTION 5.5. Withdrawals from Spread Account.............................45
SECTION 5.6. Additional Deposits.........................................46
SECTION 5.7. Distributions...............................................46
SECTION 5.8. Note Distribution Account...................................48
SECTION 5.9. [RESERVED]..................................................50
SECTION 5.10. [RESERVED]..................................................50
SECTION 5.11. Statements to Securityholders...............................50
SECTION 5.12. Optional Deposits by the Note Insurer; Notice of Waivers....51
ARTICLE VI
THE NOTE POLICY
SECTION 6.1. Claims Under Note Policy....................................52
SECTION 6.2. Preference Claims...........................................53
SECTION 6.3. Surrender of Note Policy....................................54
ARTICLE VII
[RESERVED]
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
ARTICLE VIII
THE SELLER
SECTION 8.1. Representations of Seller...................................54
(a) Organization and Good Standing.....................54
(b) Due Qualification..................................54
(c) Power and Authority................................54
(d) Valid Sale, Binding Obligations....................55
(e) No Violation.......................................55
(f) No Proceedings.....................................55
(g) No Consents........................................55
(h) Tax Returns........................................56
(i) Chief Executive Office.............................56
SECTION 8.2. [RESERVED]..................................................56
SECTION 8.3. Liability of Seller; Indemnities............................56
SECTION 8.4. Merger or Consolidation of, or Assumption of the
Obligations of, Seller....................................57
SECTION 8.5. Limitation on Liability of Seller and Others................57
SECTION 8.6. Seller May Own Certificates or Notes........................57
ARTICLE IX
THE SERVICER
SECTION 9.1. Representations of Servicer.................................58
(a) Organization and Good Standing.....................58
(b) Due Qualification..................................58
(c) Power and Authority................................58
(d) Binding Obligation.................................58
(e) No Violation.......................................59
(f) No Proceedings.....................................59
(g) No Consents........................................59
(h) Taxes..............................................59
(i) Chief Executive Office.............................59
SECTION 9.2. Liability of Servicer; Indemnities..........................60
SECTION 9.3. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer or Standby Servicer..........61
SECTION 9.4. Limitation on Liability of Servicer, Standby Servicer
and Others................................................62
SECTION 9.5. Delegation of Duties........................................62
SECTION 9.6. Servicer and Standby Servicer Not to Resign.................63
-iii-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
ARTICLE X
DEFAULT
SECTION 10.1. Servicer Termination Event..................................63
SECTION 10.2. Consequences of a Servicer Termination Event................65
SECTION 10.3. Appointment of Successor....................................66
SECTION 10.4. Notification to Noteholders and Certificateholders..........67
SECTION 10.5. Waiver of Past Defaults.....................................67
SECTION 10.6. Action Upon Certain Failures of the Servicer................67
ARTICLE XI
TERMINATION
SECTION 11.1. Optional Purchase of All Receivables........................68
ARTICLE XII
ADMINISTRATIVE DUTIES OF THE SERVICER
SECTION 12.1. Administrative Duties.......................................69
(a) Duties with Respect to the Indenture...............69
(b) Duties with Respect to the Issuer..................69
(c) Tax Matters........................................70
(d) Non-Ministerial Matters............................70
(e) Exceptions.........................................71
(f)Limitation of Standby Servicer's Obligations...........71
SECTION 12.2. Records.....................................................71
SECTION 12.3. Additional Information to be Furnished to the Issuer........71
ARTICLE XIII
MISCELLANEOUS PROVISIONS
SECTION 13.1. Amendment...................................................71
SECTION 13.2. Protection of Title to Trust................................73
SECTION 13.3. Notices.....................................................75
SECTION 13.4. Assignment..................................................75
SECTION 13.5. Limitations on Rights of Others.............................75
SECTION 13.6. Severability................................................76
SECTION 13.7. Separate Counterparts.......................................76
-iv-
<PAGE>
TABLE OF CONTENTS
(continued)
Page
SECTION 13.8. Headings....................................................76
SECTION 13.9. Governing Law...............................................76
SECTION 13.10. Assignment to Trustee.......................................76
SECTION 13.11. Nonpetition Covenants.......................................76
SECTION 13.12. Limitation of Liability of Owner Trustee and Trustee........77
SECTION 13.13. Independence of the Servicer................................77
SECTION 13.14. No Joint Venture............................................77
SECTION 13.15. Note Insurer as Controlling Party.......................... 78
-v-
<PAGE>
TABLE OF CONTENTS
SCHEDULES
Schedule A - Schedule of Receivables
EXHIBITS
Exhibit A - Form of Servicer's Certificate
Exhibit B - Form of Trust Receipt
Exhibit C - Form of Servicing Officer's Certificate
Exhibit D - Form of Monthly Securityholder Statement
Exhibit E - Form of Trustee's Certificate
-vi-
Exhibit 10.2
[FORM OF CPS PURCHASE AGREEMENT]
PURCHASE AGREEMENT dated as of this [ ], by and between CONSUMER
PORTFOLIO SERVICES, INC., a California corporation (the "Seller"), having its
principal executive office at 2 Ada, Irvine, California 92718, and CPS
RECEIVABLES CORP., a California corporation (the "Purchaser"), having its
principal executive office at 2 Ada, Irvine, California 92718.
WHEREAS, in the regular course of its business, the Seller purchases
and services through its auto loan programs certain motor vehicle retail
installment sale contracts secured by new and used automobiles, light trucks,
vans or minivans acquired from motor vehicle dealers.
WHEREAS, the Seller and the Purchaser wish to set forth the terms
pursuant to which the CPS Receivables (as hereinafter defined), are to be sold
by the Seller to the Purchaser, which CPS Receivables together with the Samco
Receivables and the Linc Receivables will be transferred by the Purchaser,
pursuant to the Sale and Servicing Agreement (as hereinafter defined), to CPS
Auto Receivables Trust 199[ ]-[ ]which Trust will issue notes under the
Indenture (as hereinafter defined) representing indebtedness of the Trust (the
"Notes") and certificates under the Trust Agreement (as hereinafter defined)
representing beneficial interests in the Trust (the "Certificates" and, together
with the Notes, the "Securities").
NOW, THEREFORE, in consideration of the foregoing, other good and
valuable consideration, and the mutual terms and covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Terms not defined in this Agreement shall have the meaning set forth in
the Sale and Servicing Agreement and if not defined therein, shall have the
meanings set forth in the Indenture. As used in this Agreement, the following
terms shall, unless the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms of the
terms defined):
"Agreement" means this Purchase Agreement and the CPS Assignment.
"Assignment" means the CPS Assignment, Linc Assignment and/or the Samco
Assignment.
<PAGE>
"Base Prospectus" means the Prospectus dated [ ], with respect to CPS
Auto Receivables Trusts and any amendment or supplement thereto.
"Closing Date" means [ ].
"CPS" means Consumer Portfolio Services, Inc., a California corporation
and its successors and assigns.
"CPS Assignment" means the assignment dated [ ], by the Seller to the
Purchaser, relating to the purchase of the CPS Receivables and certain other
property related thereto by the Purchaser from the Seller pursuant to this
Agreement, which shall be in substantially the form attached hereto as Exhibit
A.
"CPS Receivables" means each retail installment sale contract for a
Financed Vehicle that appears on the Schedule of CPS Receivables and all rights
thereunder.
"Indenture" means the Indenture dated as of [ ], between CPS Auto
Receivables Trust 199[ ]-[ ], as issuer, and [ ], as trustee.
"Linc" means Linc Acceptance Company, LLC, a Delaware limited liability
company, and its successors and assigns.
"Linc Assignment" means the assignment substantially in the form of
Exhibit A to the Linc Purchase Agreement.
"Linc Purchase Agreement" means the Purchase Agreement dated as of [ ]
between Linc Acceptance Company, LLC, as Seller, and CPS Receivables Corp., as
purchaser, as such agreement may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Linc Receivable" shall have the meaning specified in the Linc Purchase
Agreement.
"Obligor(s)" means the purchaser or co-purchasers of a Financed Vehicle
or any other Person who owes or may be liable for payments under a Receivable.
"Offering Documents" means the Prospectus Supplement and the Base
Prospectus.
"Prospectus Supplement" means the Prospectus Supplement dated [ ],
relating to the public offering of the Notes and any amendment or supplement
thereto.
"Purchase Agreement" means this Purchase Agreement, as this agreement
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
-2-
<PAGE>
"Purchaser" means CPS Receivables Corp., a California corporation, and
its successors and assigns.
"Receivables" means, collectively, the CPS Receivables, the Linc
Receivables and the Samco Receivables.
"Receivables Purchase Price" means $______________.
"Repurchase Event" shall have the meaning specified in Section 6.2
hereof.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of [ ], among CPS Auto Receivables Trust 199[ ]-[ ], as issuer, CPS
Receivables Corp., as seller, Consumer Portfolio Services, Inc., as servicer,
and Norwest Bank Minnesota, National Association, as trustee and standby
servicer, as such agreement may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Samco" means Samco Acceptance Corp., a Delaware corporation, and its
successors and assigns.
"Samco Assignment" means the assignment substantially in the form of
Exhibit A to the Samco Purchase Agreement.
"Samco Purchase Agreement" means the Purchase Agreement dated as of [
], between Samco Acceptance Corp., as seller, and CPS Receivables Corp., as
purchaser, as such agreement may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Samco Receivable" shall have the meaning specified in the Samco
Purchase Agreement.
"Schedule of CPS Receivables" means the list of CPS Receivables annexed
hereto as Exhibit B.
"Schedule of Linc Receivables" means the list of Linc Receivables
annexed as Exhibit B to the Linc Purchase Agreement.
"Schedule of Receivables" means, collectively, the Schedule of CPS
Receivables, the Schedule of Linc Receivables and the Schedule of Samco
Receivables.
"Schedule of Samco Receivables" means the list of Samco Receivables
annexed as Exhibit B to the Samco Purchase Agreement.
-3-
<PAGE>
"Seller" means Consumer Portfolio Services, Inc., a California
corporation, in its capacity as seller of the CPS Receivables and the other CPS
Transferred Property relating thereto, and its successors and assigns.
"Servicer" means Consumer Portfolio Services, Inc., a California
corporation, in its capacity as Servicer of the Receivables, and its successors
and assigns.
"Transferred CPS Property" shall have the meaning specified in Section
2.1(a) hereof.
"Transferred Linc Property" shall have the meaning specified in the
Linc Purchase Agreement.
"Transferred Property" means the Transferred CPS Property, the
Transferred Linc Property and the Transferred Samco Property.
"Transferred Samco Property" shall have the meaning specified in the
Samco Purchase Agreement.
"Trust" means the CPS Auto Receivables Trust 199[ ]-[ ] created by the
Trust Agreement.
"Trust Agreement" means the Trust Agreement dated as of [ ], between
CPS Receivables Corp. and [ ], as Owner Trustee, as amended and restated as of [
].
"UCC" means the Uniform Commercial Code, as in effect from time to time
in the relevant jurisdictions.
"Underwriter" means [ ].
"Underwriting Agreement" means the Underwriting Agreement, dated [ ],
among the Underwriter, CPS, Samco, Linc and the Purchaser relating to the Notes.
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1. Purchase and Sale of Receivables. On the Closing Date, subject to
the terms and conditions of this Purchase Agreement, the Seller agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, without
recourse (subject to the obligations in this Purchase Agreement and the Sale and
Servicing Agreement), all of the Seller's right, title and interest in, to and
under the CPS Receivables and the other Transferred CPS
-4-
<PAGE>
Property relating thereto. The conveyance to the Purchaser of the CPS
Receivables and other Transferred CPS Property relating thereto is intended as a
sale free and clear of all liens and it is intended that the Transferred CPS
Property and other property of the Purchaser shall not be part of the Seller's
estate in the event of the filing of a bankruptcy petition by or against the
Seller under any bankruptcy law.
(a) Transfer of Receivables. On the Closing Date and
simultaneously with the transactions to be consummated pursuant to the Trust
Agreement, the Indenture and the Sale and Servicing Agreement, the Seller shall
sell, transfer, assign, grant, set over and otherwise convey to the Purchaser,
without recourse (subject to the obligations herein and in the Sale and
Servicing Agreement), all right, title and interest of the Seller in and to (i)
the CPS Receivables listed in the Schedule of CPS Receivables, all monies
received thereon after the Cutoff Date and all Net Liquidation Proceeds received
with respect thereto after the Cutoff Date; (ii) the security interests in the
Financed Vehicles granted by Obligors pursuant to the CPS Receivables and any
other interest of the Seller in such Financed Vehicles, including, without
limitation, the certificates of title or, with respect to Financed Vehicles in
the State of Michigan, other evidence of ownership with respect to such Financed
Vehicles; (iii) any proceeds from claims on any physical damage, credit life and
credit accident and health insurance policies or certificates relating to the
Financed Vehicles securing the CPS Receivables or the Obligors thereunder; (iv)
refunds for the costs of extended service contracts with respect to Financed
Vehicles securing the CPS Receivables, refunds of unearned premiums with respect
to credit life and credit accident and health insurance policies or certificates
covering an Obligor under a CPS Receivable or Financed Vehicle securing a CPS
Receivable or his or her obligations with respect to a Financed Vehicle and any
recourse to Dealers for any of the foregoing; (v) the Receivable File related to
each CPS Receivable; and (vi) the proceeds of any and all of the foregoing
(collectively, the "Transferred CPS Property" and together with the Transferred
Samco Property and the Transferred Linc Property, the "Transferred Property").
(b) Receivables Purchase Price. In consideration for the CPS
Receivables and other Transferred Property described in Section 2.1(a), the
Purchaser shall, on the Closing Date, pay to the Seller the Receivables Purchase
Price. An amount equal to $[ ] of the Receivables Purchase Price shall be paid
to the Seller in cash. The remaining $[ ] of the Receivables Purchase Price
shall be deemed paid and returned to the Purchaser and be considered a
contribution to Purchaser's capital. The portion of the Receivables Purchase
Price to be paid in cash shall be by federal wire transfer (same day) funds.
2.2. The Closing. The sale and purchase of the CPS Receivables shall
take place at a closing (the "Closing") at the offices of Mayer, Brown & Platt,
1675 Broadway, New York, New York 10019-5820 on the Closing Date, simultaneously
with the closings under: (a) the Samco Purchase Agreement pursuant to which
Samco will sell the Samco Receivables to CPS Receivables Corp., (b) the Linc
Purchase Agreement pursuant to which Linc will sell the Linc Receivables to CPS
Receivables Corp., (c) the Sale and Servicing Agreement
-5-
<PAGE>
pursuant to which the Purchaser will assign all of its right, title and interest
in and to the Receivables and the other Transferred Property to the Trust for
the benefit of the Securityholders, (d) the Trust Agreement pursuant to which
the Trust shall be formed and the Certificates issued, (e) the Indenture
pursuant to which the Trust will issue the Notes, and (f) the Underwriting
Agreement pursuant to which the Purchaser shall sell the Notes to the
Underwriter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Seller as of the date hereof and as of the
Closing Date (which representations and warranties shall survive the Closing
Date):
(a) Organization and Good Standing. The Purchaser has been
duly organized and is validly existing as a corporation in good standing under
the laws of the State of California, with power and authority to own its
properties and to conduct its business as such properties shall be currently
owned and such business is presently conducted, and had at all relevant times,
and shall have, power, authority and legal right to acquire and own the
Receivables.
(b) Due Qualification. The Purchaser is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(c) Power and Authority. The Purchaser has the power and
authority to execute and deliver the Agreements and to carry out its terms and
the execution, delivery and performance of the Agreements have been duly
authorized by the Purchaser by all necessary corporate action.
(d) Binding Obligation. This Agreement shall constitute a
legal, valid and binding obligation of the Purchaser enforceable in accordance
with its terms.
(e) No Violation. The execution, delivery and performance by
the Purchaser of the Agreements and the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof do not conflict
with, result in a breach of any of the terms and provisions of, nor constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of the Purchaser, or any indenture, agreement,
mortgage, deed of trust, or other instrument to which the Purchaser is a party
or by which it is bound or to which any of its properties are subject; nor
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any indenture, agreement,
-6-
<PAGE>
mortgage, deed of trust, or other instrument (other than the Basic Documents);
nor violate any law, order, rule or regulation applicable to the Purchaser of
any court or of any Federal or State regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Purchaser or its
properties.
(f) No Proceedings. There are no proceedings or investigations
pending, or to the Purchaser's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Purchaser or its properties: (A) asserting the
invalidity of the Agreements or the Securities; (B) seeking to prevent the
issuance of the Securities or the consummation of any of the transactions
contemplated by the Agreements; (C) seeking any determination or ruling that
might materially and adversely affect the performance by the Purchaser of its
obligations under, or the validity or enforceability of, the Agreements or the
Securities; or (D) relating to the Purchaser and which might adversely affect
the Federal or State income, excise, franchise or similar tax attributes of the
Securities.
(g) No Consents. No consent, approval, authorization or order
of or declaration or filing with any governmental authority is required to be
obtained by the Purchaser for the issuance or sale of the Securities or the
consummation of the other transactions contemplated by the Agreements, the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, except such as
have been duly made or obtained.
3.2. Representations and Warranties of the Seller. (a) The Seller
hereby represents and warrants to the Purchaser as of the date hereof and as of
the Closing Date (which representations and warranties shall survive the Closing
Date):
(i) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of California, with power and authority to
own its properties and to conduct its business as such properties shall
be currently owned and such business is presently conducted and had at
all relevant times, and shall have, power, authority and legal right to
acquire, own and service the Receivables.
(ii) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business
(including the origination and the servicing of the Receivables as
required by the Sale and Servicing Agreement) shall require such
qualifications.
(iii) Power and Authority. The Seller has the power and
authority to execute and deliver the Agreements and to carry out their
terms; the Seller has full power and authority to sell and assign the
property sold and assigned to the Purchaser and has duly authorized
such sale and assignment to the Purchaser by all necessary
-7-
<PAGE>
corporate action; and the execution, delivery and performance of the
Agreements have been duly authorized by the Seller by all necessary
corporate action.
(iv) Valid Sale; Binding Obligation. This Purchase Agreement
effects a valid sale, transfer and assignment of the CPS Receivables
and the other Transferred CPS Property conveyed to the Purchaser
pursuant to Section 2.1, enforceable against creditors of and
purchasers from the Seller; and this Agreement shall constitute a
legal, valid and binding obligation of the Seller enforceable in
accordance with its terms.
(v) No Violation. The execution, delivery and performance by
the Seller of the Agreements and the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, nor constitute (with or without notice or lapse of time) a default
under, the articles of incorporation, as amended, or by-laws of the
Seller, or any indenture, agreement, mortgage, deed of trust, or other
instrument to which the Seller is a party or by which it is bound or to
which any of its properties are subject; nor result in the creation or
imposition of any lien upon any of its properties pursuant to the terms
of any such indenture, agreement, mortgage, deed of trust, or other
instrument (other than the Basic Documents); nor violate any law,
order, rule or regulation applicable to the Seller of any court or of
any Federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties.
(vi) No Proceedings. There are no proceedings or
investigations pending, or to the Seller's best knowledge, threatened,
before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (A) asserting the invalidity of the Agreements or the
Securities; (B) seeking to prevent the issuance of the Securities or
the consummation of any of the transactions contemplated by the
Agreements; (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, the Agreements
or the Securities; or (D) relating to the Seller and which might
adversely affect the Federal or State income, excise, franchise or
similar tax attributes of the Securities.
(vii) No Consents. No consent, approval, authorization or
order of or declaration or filing with any governmental authority is
required for the issuance or sale of the Securities or the consummation
of the other transactions contemplated by the Agreements, the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, except
such as have been duly made or obtained.
(viii) Financial Condition. The Seller has a positive net
worth and is able to and does pay its liabilities as they mature. The
Seller is not in default under any obligation to pay money to any
Person except for matters being disputed in good
-8-
<PAGE>
faith which do not involve an obligation of the Seller on a promissory
note. The Seller will not use the proceeds from the transactions
contemplated by the Agreements to give any preference to any creditor
or class of creditors, and this transaction will not leave the Seller
with remaining assets which are unreasonably small compared to its
ongoing operations.
(ix) Fraudulent Conveyance. The Seller is not selling the CPS
Receivables to the Purchaser with any intent to hinder, delay or
defraud any of its creditors; the Seller will not be rendered insolvent
as a result of the sale of the CPS Receivables to the Purchaser.
(b) The Seller makes the following representations and
warranties as to the Receivables (including the Samco Receivables and the Linc
Receivables) and the other Transferred Property relating thereto on which the
Purchaser relies in accepting the Receivables and the other Transferred Property
relating thereto. Such representations and warranties speak with respect to each
Receivable as of the Closing Date and shall survive the sale, transfer, and
assignment of the Receivables and the other Transferred Property relating
thereto to the Purchaser and the subsequent assignments and transfers pursuant
to the Sale and Servicing Agreement and the Indenture:
(i) Origination Date. Each Receivable has an origination date
on or after [ ].
(ii) Principal Balance/Number of Contracts. As of the Cutoff
Date, the total aggregate principal balance of the Receivables was $[
]. The Receivables are evidenced by [ ] Contracts.
(iii) Maturity of Receivables. Each Receivable has an original
term to maturity of not more than [ ] months; the weighted average
original term to maturity of the Receivables was [ ] months as of the
Cutoff Date; the remaining term to maturity of each Receivable was [ ]
months or less as of the Cutoff Date; the weighted average remaining
term to maturity of the Receivables was [ ] months as of the Cutoff
Date.
(iv) Characteristics of Receivables. (a) Each Receivable (1)
has been originated in the United States of America by a Dealer for the
retail sale of a Financed Vehicle in the ordinary course of such
Dealer's business, has been fully and properly executed by the parties
thereto and has been purchased by the Seller (or, with respect to the
Samco Receivables, Samco and, with respect to the Linc Receivables,
Linc) in connection with the sale of Financed Vehicles by the Dealers,
(2) has created a valid, subsisting, and enforceable first priority
security interest in favor of the Seller (or, with respect to the Samco
Receivables, Samco and, with respect to the Linc Receivables, Linc) in
the Financed Vehicle, which security interest has been assigned by the
Seller (or, with respect to the Samco Receivables, Samco
-9-
<PAGE>
and, with respect to the Linc Receivables, Linc) to the Purchaser,
which in turn has assigned such security interest to the Trust pursuant
to the Sale and Servicing Agreement which will in turn assign such
security interest to the Trustee, (3) contains customary and
enforceable provisions such that the rights and remedies of the holder
or assignee thereof shall be adequate for realization against the
collateral of the benefits of the security, (4) provides for level
monthly payments that fully amortize the Amount Financed over the
original term (except for the last payment, which may be different from
the level payment) and yield interest at the Annual Percentage Rate,
(5) has an Annual Percentage Rate of not less than [ ]%, (6) that is a
Rule of 78's Receivable provides for, in the event that such Receivable
is prepaid, a prepayment that fully pays the Principal Balance and
includes a full month's interest, in the month of prepayment, at the
Annual Percentage Rate, (7) is a Rule of 78's Receivable or a Simple
Interest Receivable, and (8) was originated by a Dealer and was sold by
the Dealer without any fraud or misrepresentation on the part of such
Dealer.
(v) Approximately [ ]% of the aggregate Principal Balance of
the Receivables, constituting [ ]% of the number of Receivables, as of
the Cutoff Date, represents financing of used automobiles, light
trucks, vans or minivans; the remainder of the Receivables represent
financing of new automobiles, light trucks, vans or minivans;
approximately [ ]% the aggregate Principal Balance of the Receivables
as of the Cutoff Date were originated under the Delta program;
approximately [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date were originated under the Alpha
program; approximately [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date were originated under the First Time
Buyer Program; approximately [ ]% of the aggregate Principal Balance of
the Receivables as of the Cutoff Date were originated under the
Standard program; approximately [ ]% of the aggregate Principal Balance
of the Receivables as of the Cutoff Date were originated under the Linc
program; and approximately [ ]% of the aggregate Principal Balance of
the Receivables as of the Cutoff Date were originated under the Super
Alpha program; approximately [ ]% of the aggregate Principal Balance of
the Receivables as of the Cutoff Date are Linc Receivables;
approximately [ ]% of the Receivables as of the Cutoff Date are Samco
Receivables; no Receivable shall have a payment that is more than 30
days overdue as of the Cutoff Date; [ ]% of the aggregate Principal
Balance of the Receivables as of the Cutoff Date are Rule of 78's
Receivables and [ ]% of the aggregate Principal Balance of the
Receivables as of the Cutoff Date are Simple Interest Receivables; each
Receivable shall have a final scheduled payment due no later than [ ];
and each Receivable was originated on or before the Cutoff Date.
(vi) Scheduled Payments. Each Receivable had an original
principal balance of not less than $[ ] nor more than $[ ] has an
outstanding
-10-
<PAGE>
principal balance as of the Cutoff Date of not less than $[ ] and not
more than $[ ].
(vii) Characteristics of Obligors. As of the date of each
Obligor's application for the loan from which the related Receivable
arises, each Obligor on any Receivable (a) did not have any material
past due credit obligations or any personal or real property
repossessed or wages garnished within one year prior to the date of
such application, unless such amounts have been repaid or discharged
through bankruptcy, (b) was not the subject of any Federal, State or
other bankruptcy, insolvency or similar proceeding pending on the date
of application that is not discharged, (c) had not been the subject of
more than one Federal, State or other bankruptcy, insolvency or similar
proceeding, and (d) was domiciled in the United States.
(viii) Origination of Receivables. Based on the billing
address of the Obligors and the Principal Balances as of the Cutoff
Date, approximately [ ]% of the Receivables were originated in
California.
(ix) Post-Office Box. On or prior to the next billing period
after the Cutoff Date, the Seller will notify each Obligor to make
payments with respect to its respective Receivables after the Cutoff
Date directly to the Post-Office Box, and will provide each Obligor
with a monthly statement in order to enable such Obligors to make
payments directly to the Post-Office Box.
(x) Location of Receivable Files; One Original. A complete
Receivable File with respect to each Receivable has been or prior to
the Closing Date will be delivered to the Trustee at the location
listed in Schedule B to the Sale and Servicing Agreement. There is only
one original executed copy of each Receivable.
(xi) Schedule of Receivables; Selection Procedures. The
information with respect to the Receivables set forth in the Schedule
of CPS Receivables, the Schedule of Linc Receivables and the Schedule
of Samco Receivables is true and correct in all material respects as of
the close of business on the Cutoff Date, and no selection procedures
adverse to the Securityholders have been utilized in selecting the
Receivables.
(xii) Compliance with Law. Each Receivable, the sale of the
Financed Vehicle and the sale of any physical damage, credit life and
credit accident and health insurance and any extended service contracts
complied at the time the related Receivable was originated or made and
at the execution of this Agreement complies in all material respects
with all requirements of applicable Federal, State and local laws, and
regulations thereunder including, without limitation, usury laws, the
Federal Truth-in-Lending Act, the Equal Credit Opportunity Act, the
Fair Credit Reporting Act, the Fair Debt Collection Practices Act, the
Federal Trade Commission Act, the Magnuson-Moss Warranty Act, the
Federal Reserve Board's Regulations B and Z, the
-11-
<PAGE>
Soldiers' and Sailors' Civil Relief Act of 1940, the Texas Consumer
Credit Code, the California Automobile Sales Finance Act, and state
adaptations of the National Consumer Act and of the Uniform Consumer
Credit Code, and other consumer credit laws and equal credit
opportunity and disclosure laws.
(xiii) Binding Obligation. Each Receivable represents the
genuine, legal, valid and binding payment obligation in writing of the
Obligor, enforceable by the holder thereof in accordance with its
terms, except only as such enforcement may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally, and all parties to such contract had full legal
capacity to execute and deliver such contract and all other documents
related thereto and to grant the security interest purported to be
granted thereby.
(xiv) No Government Obligor. None of the Receivables are due
from the United States of America or any State or from any agency,
department, or instrumentality of the United States of America or any
State.
(xv) Security Interest in Financed Vehicle. Immediately prior
to the sale, assignment, and transfer thereof, each Receivable shall be
secured by a validly perfected first priority security interest in the
Financed Vehicle in favor of the Seller (or, with respect to the Samco
Receivables, Samco and, with respect to the Linc Receivables, Linc) as
secured party, and such security interest is prior to all other liens
upon and security interests in such Financed Vehicle which now exist or
may hereafter arise or be created (except, as to priority, for any tax
liens or mechanics' liens which may arise after the Closing Date).
(xvi) Receivables in Force. No Receivable has been satisfied,
subordinated or rescinded, nor has any Financed Vehicle been released
from the lien granted by the related Receivable in whole or in part.
(xvii) No Waiver. No provision of a Receivable has been
waived.
(xviii) No Amendments. No Receivable has been amended, except
as such Receivable may have been amended to grant extensions which
shall not have numbered more than (a) one extension of one calendar
month in any calendar year or (b) three such extensions in the
aggregate.
(xix) No Defenses. No right of rescission, setoff,
counterclaim or defense exists or has been asserted or threatened with
respect to any Receivable. The operation of the terms of any Receivable
or the exercise of any right thereunder will not render such Receivable
unenforceable in whole or in part or subject to any such right of
rescission, setoff, counterclaim, or defense.
-12-
<PAGE>
(xx) No Liens. As of the Cutoff Date, there are no liens or
claims existing or which have been filed for work, labor, storage or
materials relating to a Financed Vehicle that shall be liens prior to,
or equal or coordinate with, the security interest in the Financed
Vehicle granted by the Receivable.
(xxi) No Default; Repossession. Except for payment
delinquencies continuing for a period of not more than thirty days as
of the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Receivable has occurred; and no
continuing condition that with notice or the lapse of time would
constitute a default, breach, violation, or event permitting
acceleration under the terms of any Receivable has arisen; and none of
the Seller, Samco or Linc shall waive and none of the three has waived
any of the foregoing; and no Financed Vehicle shall have been
repossessed as of the Cutoff Date.
(xxii) Insurance; Other. (A) Each Obligor has obtained
insurance covering the Financed Vehicle as of the execution of the
Receivable insuring against loss and damage due to fire, theft,
transportation, collision and other risks generally covered by
comprehensive and collision coverage and each Receivable requires the
Obligor to obtain and maintain such insurance naming the Seller (or,
with respect to the Samco Receivables, Samco and, with respect to the
Linc Receivables, Linc) and its successors and assigns as an additional
insured, (B) each Receivable that finances the cost of premiums for
credit life and credit accident or health insurance is covered by an
insurance policy and certificate of insurance naming the Seller (or,
with respect to the Samco Receivables, Samco and, with respect to the
Linc Receivables, Linc) as policyholder (creditor) under each such
insurance policy and certificate of insurance and (C) as to each
Receivable that finances the cost of an extended service contract, the
respective Financed Vehicle which secures the Receivable is covered by
an extended service contract.
(xxiii) Title. It is the intention of the Seller that the
transfer and assignment herein contemplated constitute a sale of the
CPS Receivables and other Transferred CPS Property from the Seller to
the Purchaser and that the beneficial interest in and title to such CPS
Receivables and other Transferred CPS Property not be part of the
debtor's estate in the event of the filing of a bankruptcy petition by
or against the Seller under any bankruptcy law. No CPS Receivable or
other Transferred CPS Property has been sold, transferred, assigned, or
pledged by the Seller to any Person other than the Purchaser or any
such pledge has been released on or prior to the Closing Date.
Immediately prior to the transfer and assignment herein contemplated,
the Seller had good and marketable title to each CPS Receivable and
other Transferred CPS Property, and was the sole owner thereof, free
and clear of all liens, claims, encumbrances, security interests, and
rights of others and, immediately upon the transfer thereof, the
Purchaser shall have good and marketable title to each such CPS
Receivable and other Transferred CPS Property, and will be the sole
owner
-13-
<PAGE>
thereof, free and clear of all liens, encumbrances, security interests,
and rights of others, and the transfer has been perfected under the
UCC.
(xxiv) Lawful Assignment. No Receivable has been originated
in, or is subject to the laws of, any jurisdiction under which the
sale, transfer, and assignment of such Receivable under this Agreement,
the Linc Purchase Agreement or the Samco Purchase Agreement shall be
unlawful, void, or voidable. None of the Seller, Samco nor Linc has
entered into any agreement with any account debtor that prohibits,
restricts or conditions the assignment of any portion of the
Receivables.
(xxv) All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Purchaser a first priority perfected ownership interest in the
Receivables and the other Transferred CPS Property have been made,
taken or performed.
(xxvi) Chattel Paper. Each Receivable constitutes "chattel
paper" under the UCC.
(xxvii) Valid and Binding Obligation of Obligor. Each
Receivable is the legal, valid and binding obligation of the Obligor
thereunder and is enforceable in accordance with its terms, except only
as such enforcement may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally, and all
parties to such contract had full legal capacity to execute and deliver
such contract and all other documents related thereto and to grant the
security interest purported to be granted thereby; the terms of such
Receivable have not been waived or modified in any respect.
(xxviii) Tax Liens. As of the Cutoff Date, there is no lien
against any Financed Vehicle for delinquent taxes.
(xxix) Title Documents. (A) If the Receivable was originated
in a State in which notation of a security interest on the title
document of the related Financed Vehicle is required or permitted to
perfect such security interest, the title document for such Receivable
shows, or if a new or replacement title document is being applied for
with respect to such Financed Vehicle the title document (or, with
respect to Receivables originated in the State of Michigan, all other
evidence of ownership with respect to such Financed Vehicle) will be
received within 180 days and will show, the Seller (or, with respect to
the Samco Receivables, Samco and, with respect to the Linc Receivables,
Linc) named as the original secured party under the related Receivable
as the holder of a first priority security interest in such Financed
Vehicle, and (B) if the Receivable was originated in a State in which
the filing of a financing statement under the UCC is required to
perfect a security interest in motor vehicles, such filings or
recordings have been duly made and show the Seller (or, with respect to
the Samco Receivables, Samco and, with respect to the Linc
-14-
<PAGE>
Receivables, Linc) named as the original secured party under the
related Receivable, and in either case, the Trustee has the same rights
as such secured party has or would have (if such secured party were
still the owner of the Receivable) against all parties claiming an
interest in such Financed Vehicle. With respect to each Receivable for
which the title document of the related Financed Vehicle has not yet
been returned from the Registrar of Titles, the Seller has received
written evidence from the related Dealer that such title document
showing the Seller (or, with respect to the Samco Receivables, Samco
and, with respect to the Linc Receivables, Linc) and received written
evidence from the related Dealer that such title document showing the
Seller as first lienholder has been applied for.
(xxx) Casualty. No Financed Vehicle related to a Receivable
has suffered a Casualty.
(xxxi) Obligation to Dealers or Others. The Purchaser and its
assignees will assume no obligation to Dealers or other originators or
holders of the Receivables (including, but not limited to under dealer
reserves) as a result of the purchase of the Receivables.
(xxxii) Full Amount Advanced. The full amount of each
Receivable has been advanced to each Obligor, and there are no
requirements for future advances thereunder. No Obligor has any option
under a Receivable to borrow from any Person additional funds secured
by the related Financed Vehicle.
(c) The representations and warranties contained in this Agreement
shall not be construed as a warranty or guaranty by the Seller as to the future
payments by any Obligor. The sale of the CPS Receivables pursuant to this
Agreement shall be "without recourse" except for the representations, warranties
and covenants made by the Seller in this Agreement or the Sale and Servicing
Agreement.
ARTICLE IV
CONDITIONS
4.1. Conditions to Obligation of the Purchaser. On the Closing Date,
the obligation of the Purchaser to purchase the CPS Receivables is subject to
the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Seller hereunder shall be true and correct on the Closing Date
with the same effect as if then made, and the Seller shall have performed all
obligations to be performed by it hereunder on or prior to the Closing Date.
-15-
<PAGE>
(b) Computer Files Marked. The Seller shall, at its own expense, on or
prior to the Closing Date, indicate in its computer files that the CPS
Receivables have been sold to the Purchaser pursuant to this Purchase Agreement
and shall deliver to the Purchaser the Schedule of CPS Receivables certified by
the Chairman, the President, the Vice President or the Treasurer of the Seller
to be true, correct and complete.
(c) Receivable Files Delivered. The Seller shall, at its own expense,
deliver the related Receivable Files to the Trustee at the offices specified in
Schedule B to the Sale and Servicing Agreement on or prior to the Closing Date.
(d) Documents to be delivered by the Seller at the Closing.
(i) The Assignment. On the Closing Date, the Seller will
execute and deliver the Assignment which shall be substantially in the
form of Exhibit A hereto.
(ii) Evidence of UCC-1 Filing. On or prior to the Closing
Date, the Seller shall record and file, at its own expense, a UCC-1
financing statement in each jurisdiction in which required by
applicable law, executed by the Seller, as seller or debtor, and naming
the Purchaser, as purchaser or secured party, naming the CPS
Receivables and the other Transferred CPS Property conveyed hereafter
as collateral, meeting the requirements of the laws of each such
jurisdiction and in such manner as is necessary to perfect the sale,
transfer, assignment and conveyance of such CPS Receivables to the
Purchaser. The Seller shall deliver a file-stamped copy, or other
evidence satisfactory to the Purchaser of such filing, to the Purchaser
on or prior to the Closing Date.
(iii) Evidence of UCC-2 Filing. On or prior to the Closing
Date, the Seller shall cause to be recorded and filed, at its own
expense, appropriate UCC-2 termination statements (or UCC-3 termination
statements, as applicable in the relevant UCC jurisdiction) executed by
General Electric Capital Corporation ("GECC") or First Union National
Bank ("First Union") in each jurisdiction in which required by
applicable law, meeting the requirements of the laws of each such
jurisdiction and in such manner as is necessary to release the interest
of GECC or First Union, as applicable interest in the Receivables,
including without limitation, the security interests in the Financed
Vehicles securing the Receivables and any proceeds of such security
interests or the Receivables. The Seller shall deliver a file-stamped
copy, or other evidence satisfactory to the Purchaser of such filing,
to the Purchaser on or prior to the Closing Date.
(iv) Other Documents. On or prior to the Closing Date, the
Seller shall deliver such other documents as the Purchaser may
reasonably request.
-16-
<PAGE>
(e) Other Transactions. The transactions contemplated by the Trust
Agreement, the Indenture, the Sale and Servicing Agreement, the Samco Purchase
Agreement, the Linc Purchase Agreement, and the Underwriting Agreement shall be
consummated on the Closing Date.
4.2. Conditions to Obligation of the Seller. The obligation of the
Seller to sell the Receivables to the Purchaser is subject to the satisfaction
of the following conditions:
(a) Representations and Warranties True. The representations
and warranties of the Purchaser hereunder shall be true and correct on the
Closing Date with the same effect as if then made, and the Seller shall have
performed all obligations to be performed by it hereunder on or prior to the
Closing Date.
(b) Receivables Purchase Price. At the Closing Date, the
Purchaser will deliver to the Seller the CPS Receivables Purchase Price as
provided in Section 2.1(b). The Seller hereby directs the Purchaser to wire such
purchase price pursuant to wire instructions to be delivered to the Purchaser on
or prior to the Closing Date.
ARTICLE V
COVENANTS OF THE SELLER
The Seller agrees with the Purchaser as follows; provided, however,
that to the extent that any provision of this ARTICLE V conflicts with any
provision of the Sale and Servicing Agreement, the Sale and Servicing Agreement
shall govern:
5.1. Protection of Right, Title and Interest.
(a) Filings. The Seller shall cause all financing statements
and continuation statements and any other necessary documents covering the
right, title and interest of the Purchaser in and to the Receivables and the
other Transferred Property to be promptly filed, and at all times to be kept
recorded, registered and filed, all in such manner and in such places as may be
required by law fully to preserve and protect the right, title and interest of
the Purchaser hereunder to the Receivables and the other Transferred Property.
The Seller shall deliver to the Purchaser file stamped copies of, or filing
receipts for, any document recorded, registered or filed as provided above, as
soon as available following such recordation, registration or filing. The
Purchaser shall cooperate fully with the Seller in connection with the
obligations set forth above and will execute any and all documents reasonably
required to fulfill the intent of this Section 5.1(a). In the event the Seller
fails to perform its obligations under this subsection, the Purchaser or the
Trustee may do so at the expense of the Seller.
-17-
<PAGE>
(b) Name and Other Changes. At least 60 days prior to the date
the Seller makes any change in its name, identity or corporate structure which
would make any financing statement or continuation statement filed in accordance
with paragraph (a) above seriously misleading within the applicable provisions
of the UCC or any title statute, the Seller shall give the Trustee, the Insurer
(so long as an Insurer Default shall not have occurred and be continuing) and
the Purchaser written notice of any such change and no later than five days
after the effective date thereof, shall file appropriate amendments to all
previously filed financing statements or continuation statements. At least 60
days prior to the date of any relocation of its principal executive office, the
Seller shall give the Trustee, the Insurer (so long as an Insurer Default shall
not have occurred and be continuing) and the Purchaser written notice thereof
if, as a result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and the Seller shall
within five days after the effective date thereof, file any such amendment or
new financing statement. The Seller shall at all times maintain each office from
which it shall service Receivables, and its principal executive office, within
the United States of America.
(c) Accounts and Records. The Seller shall maintain accounts
and records as to each CPS Receivable accurately and in sufficient detail to
permit the reader thereof to know at any time the status of such CPS Receivable,
including payments and recoveries made and payments owing (and the nature of
each).
(d) Maintenance of Computer Systems. The Seller shall maintain
its computer systems so that, from and after the time of sale hereunder of the
CPS Receivables to the Purchaser, the Seller's master computer records
(including any back-up archives) that refer to a CPS Receivable shall indicate
clearly the interest of the Purchaser in such CPS Receivable and that such CPS
Receivable is owned by the Purchaser. Indication of the Purchaser's ownership of
a CPS Receivable shall be deleted from or modified on the Seller's computer
systems when, and only when, the CPS Receivable shall have been paid in full or
repurchased.
(e) Sale of Other Receivables. If at any time the Seller shall
propose to sell, grant a security interest in, or otherwise transfer any
interest in any automobile or light-duty truck receivables (other than the CPS
Receivables) to any prospective purchaser, lender, or other transferee, the
Seller shall give to such prospective purchaser, lender, or other transferee
computer tapes, records, or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any CPS
Receivable, shall indicate clearly that such CPS Receivable has been sold and is
owned by the Purchaser unless such CPS Receivable has been paid in full or
repurchased.
(f) Access to Records. The Seller shall permit the Purchaser
and its agents at any time during normal business hours to inspect, audit, and
make copies of and abstracts from the Seller's records regarding any Receivable.
-18-
<PAGE>
(g) List of Receivables. Upon request, the Seller shall
furnish to the Purchaser, within five Business Days, a list of all CPS
Receivables (by contract number and name of Obligor) then owned by the
Purchaser, together with a reconciliation of such list to the Schedule of CPS
Receivables.
5.2. Other Liens or Interests. Except for the conveyances hereunder and
pursuant to the Sale and Servicing Agreement, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any lien on any interest therein, and the Seller shall defend
the right, title, and interest of the Purchaser in, to and under the Receivables
against all claims of third parties claiming through or under the Seller (or,
with respect to the Samco Receivables, Samco and, with respect to the Linc
Receivables, Linc).
5.3. Chief Executive Office. During the term of the Receivables, the
Seller will maintain its chief executive office in one of the United States,
except Louisiana or Vermont.
5.4. Costs and Expenses. The Seller agrees to pay all reasonable costs
and disbursements in connection with the perfection, as against all third
parties, of the Purchaser's right, title and interest in and to the CPS
Receivables.
5.5. Delivery of Receivable Files. On or prior to the Closing Date, the
Seller shall deliver the Receivable Files to the Trustee at the location
specified in Schedule B to the Sale and Servicing Agreement. The Seller shall
have until the last day of the second Collection Period following receipt from
the Trustee of notification, pursuant to Section 3.4 of the Sale and Servicing
Agreement, that there has been a failure to deliver a file with respect to a
Receivable (including a Samco Receivable or a Linc Receivable) or that a file is
unrelated to the Receivables identified in Schedule A to the Sale and Servicing
Agreement or that any of the documents referred to in Section 3.3 of the Sale
and Servicing Agreement are not contained in a Receivable File, to deliver such
file or any of the aforementioned documents required to be included in such
Receivable File to the Trustee. Unless such defect with respect to such
Receivable File shall have been cured by the last day of the second Collection
Period following discovery thereof by the Trustee, the Seller hereby agrees to
repurchase any such Receivable from the Trust as of such last day. In
consideration of the purchase of the Receivable, the Seller shall remit the
Purchase Amount in the manner specified in Section 4.5 of the Sale and Servicing
Agreement. The sole remedy hereunder of the Trustee, the Trust or the
Securityholders with respect to a breach of this Section 5.5, shall be to
require the Seller to repurchase the Receivable pursuant to this Section 5.5.
Upon receipt of the Purchase Amount, the Trustee shall release to the Seller or
its designee the related Receivable File and shall execute and deliver all
instruments of transfer or assignment, without recourse, as are prepared by the
Seller and delivered to the Trustee and are necessary to vest in the Seller or
such designee title to the Receivable.
5.6. Indemnification. (a) Subject to the limitation of remedies set
forth in Section 6.2 hereof with respect to a breach of any representations and
warranties contained in Section
-19-
<PAGE>
3.2(b) hereof, the Seller shall indemnify the Purchaser for any liability as a
result of the failure of a Receivable to be originated in compliance with all
requirements of law and for any breach of any of its representations and
warranties contained herein.
(b) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against any and all costs, expenses, losses, damages, claims,
and liabilities, arising out of or resulting from the use, ownership, or
operation by the Seller or any Affiliate thereof of a Financed Vehicle.
(c) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against any and all taxes, except for taxes on the net income
of the Purchaser, that may at any time be asserted against the Purchaser with
respect to the transactions contemplated herein, including, without limitation,
any sales, gross receipts, general corporation, tangible personal property,
privilege, or license taxes and costs and expenses in defending against the
same.
(d) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against any and all costs, expenses, losses, damages, claims
and liabilities to the extent that such cost, expense, loss, damage, claim or
liability arose out of, or was imposed upon the Purchaser through, the
negligence, willful misfeasance, or bad faith of the Seller in the performance
of its duties under the Agreement, or by reason of reckless disregard of the
Seller's obligations and duties under the Agreement.
(e) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against all costs, expenses, losses, damages, claims and
liabilities arising out of or incurred in connection with the acceptance or
performance of the Seller's trusts and duties as Servicer under the Sale and
Servicing Agreement, except to the extent that such cost, expense, loss, damage,
claim or liability shall be due to the willful misfeasance, bad faith, or
negligence (except for errors in judgment) of the Purchaser.
Indemnification under this Section 5.6 shall include reasonable fees
and expenses of litigation and shall survive payment of the Notes and
Certificates. These indemnity obligations shall be in addition to any obligation
that the Seller may otherwise have.
5.7. Sale. The Seller agrees to treat this conveyance for all purposes
(including without limitation tax and financial accounting purposes) as a sale
on all relevant books, records, tax returns, financial statements and other
applicable documents.
5.8. Non-Petition. In the event of any breach of a representation and
warranty made by the Purchaser hereunder, the Seller covenants and agrees that
it will not take any action to pursue any remedy that it may have hereunder, in
law, in equity or otherwise, until a year and a day have passed since the date
on which all securities issued by the Trust or a similar trust formed by the
Purchaser have been paid in full. The Purchaser and the Seller
-20-
<PAGE>
agree that damages will not be an adequate remedy for such breach and that this
covenant may be specifically enforced by the Purchaser or by the Trust.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. Obligations of Seller. The obligations of the Seller under this
Agreement shall not be affected by reason of any invalidity, illegality or
irregularity of any Receivable.
6.2. Repurchase Events. The Seller hereby covenants and agrees with the
Purchaser for the benefit of the Purchaser, the Trustee, the Insurer and the
Securityholders, that (i) the occurrence of a breach of any of the Seller's
representations and warranties contained in Section 3.2(b) hereof (without
regard to any limitations regarding the Seller's knowledge) and (ii) the failure
of the Seller to timely comply with its obligations pursuant to Section 5.5
hereof, shall constitute events obligating the Seller to repurchase the affected
Receivables (including any affected Samco Receivables or Linc Receivables)
hereunder ("Repurchase Events"), at the Purchase Amount from the Trust. Unless
the breach of any of the Seller's representations and warranties shall have been
cured by the last day of the second Collection Period following the discovery
thereof by or notice to the Purchaser and the Seller of such breach, the Seller
shall repurchase any Receivable if such Receivable is materially and adversely
affected by the breach as of the last day of such second Collection Period (or,
at the Seller's option, the last day of the first Collection Period following
the discovery) and, in the event that the breach relates to a characteristic of
the Receivables in the aggregate, and if the Trust is materially and adversely
affected by such breach, unless the breach shall have been cured by such second
Collection Period, the Seller shall purchase such aggregate Principal Balance of
Receivables, such that following such purchase such representation shall be true
and correct with respect to the remainder of the Receivables in the aggregate.
The provisions of this Section 6.2 are intended to grant the Trustee a direct
right against the Seller to demand performance hereunder, and in connection
therewith the Seller waives any requirement of prior demand against the
Purchaser and waives any defaults it would have against the Purchaser with
respect to such repurchase obligation. Any such purchase shall take place in the
manner specified in Section 4.7 of the Sale and Servicing Agreement. For
purposes of this Section 6.2, the Purchase Amount of a Receivable which is not
consistent with the warranty pursuant to Section 3.2(b)(iv)(a)(5) or (iv)(a)(6)
shall include such additional amount as shall be necessary to provide the full
amount of interest as contemplated therein. The sole remedy hereunder of the
Securityholders, the Trust, the Insurer, the Trustee or the Purchaser against
the Seller with respect to any Repurchase Event shall be to enforce the Seller's
obligation to repurchase such Receivables pursuant to this Agreement; provided,
however, that the Seller shall indemnify the Trustee, the Insurer, the Trust and
the Securityholders against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them, as a result of third party claims
arising out of the events or facts giving rise to such
-21-
<PAGE>
breach. Upon receipt of the Purchase Amount, the Purchaser shall cause the
Trustee to release the related Receivables File to the Seller and to execute and
deliver all instruments of transfer or assignment, without recourse, as are
necessary to vest in the Seller title to the Receivable. Notwithstanding the
foregoing, if it is determined that consummation of the transactions
contemplated by the Sale and Servicing Agreement, the Indentures and the other
transaction documents referenced in such Agreement, servicing and operation of
the Trust pursuant to Trust Agreement and such other documents, or the ownership
of a Security by a Holder constitutes a violation of the prohibited transaction
rules of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the Internal Revenue Code of 1986, as amended ("Code") for which
no statutory exception or administrative exemption applies, such violation shall
not be treated as a Repurchase Event.
6.3. Seller's Assignment of Purchased Receivables. With respect to all
Receivables repurchased by the Seller pursuant to this Agreement, the Purchaser
shall assign, without recourse except as provided herein, representation or
warranty, to the Seller all the Purchaser's right, title and interest in and to
such Receivables, and all security and documents relating thereto.
6.4. Conveyance as Sale of Receivables Not Financing. The parties
hereto intend that the conveyance hereunder be a sale of the CPS Receivables and
the other Transferred CPS Property from the Seller to the Purchaser and not a
financing secured by such assets; and the beneficial interest in and title to
the CPS Receivables and the other Transferred CPS Property shall not be part of
the Seller's estate in the event of the filing of a bankruptcy petition by or
against the Seller under any bankruptcy law. In the event that any conveyance
hereunder is for any reason not considered a sale, the parties intend that this
Agreement constitute a security agreement under the UCC (as defined in the UCC
as in effect in the State of California) and applicable law, and the Seller
hereby grants to the Purchaser a first priority perfected security interest in,
to and under the CPS Receivables and the other Transferred CPS Property being
delivered to the Purchaser on the Closing Date, and other property conveyed
hereunder and all proceeds of any of the foregoing for the purpose of securing
payment and performance of the Securities and the repayment of amounts owed to
the Purchaser from the Seller.
6.5. Trust. The Seller acknowledges that the Purchaser will, pursuant
to the Sale and Servicing Agreement, sell the Receivables to the Trust and
assign its rights under this Purchase Agreement, the Linc Purchase Agreement and
the Samco Purchase Agreement to the Trust, and that the representations and
warranties contained in this Agreement and the rights of the Purchaser under
this Purchase Agreement, including under Sections 6.2 and 6.4 hereof are
intended to benefit such Trust and the Securityholders. The Seller also
acknowledges that the Trustee on behalf of the Securityholders as assignee of
the Purchaser's rights hereunder may directly enforce, without making any prior
demand on the Purchaser, all the rights of the Purchaser hereunder including the
rights under Section 6.2 and 6.4 hereof. The Seller hereby consents to such sale
and assignment.
-22-
<PAGE>
6.6. Amendment. This Purchase Agreement may be amended from time to
time by a written amendment duly executed and delivered by the Seller and the
Purchaser with the consent of the Insurer; provided, however, that (i) any such
amendment that materially adversely affects the rights of the Noteholders under
the Sale and Servicing Agreement must be consented to by the holders of Notes
representing more than [ ]% of the outstanding principal amount of Notes and
(ii) any such amendment that materially adversely affects the rights of the
Certificateholders under the Sale and Servicing Agreement must be consented to
by the holders of Certificates representing more than [ ]% of the Certificate
Balance.
6.7. Accountants' Letters. (a) [ ] will review the characteristics of
the Receivables and will compare those characteristics to the information with
respect to the Receivables contained in the Offering Documents; (b) The Seller
will cooperate with the Purchaser and [ ] in making available all information
and taking all steps reasonably necessary to permit such accountants to complete
the review set forth in Section 6.7(a) above and to deliver the letters required
of them under the Underwriting Agreement; and (c) [ ] will deliver to the
Purchaser a letter, dated the Closing Date, in the form previously agreed to by
the Seller and the Purchaser, with respect to the financial and statistical
information contained in the Offering Documents under the captions "CPS's
Automobile Contract Portfolio --Delinquency and Loss Experience" and "The
Receivables Pool", certain information relating to the Receivables on magnetic
tape obtained from the Seller and the Purchaser and with respect to such other
information as may be agreed in the form of letter.
6.8. Waivers. No failure or delay on the part of the Purchaser in
exercising any power, right or remedy under the Agreements shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or the exercise
of any other power, right or remedy.
6.9. Notices. All communications and notices pursuant hereto to either
party shall be in writing or by telegraph or telex and addressed or delivered to
it at its address (or in case of telex, at its telex number at such address)
shown in the opening portion of this Purchase Agreement or at such other address
as may be designated by it by notice to the other party and, if mailed or sent
by telegraph or telex, shall be deemed given when mailed, communicated to the
telegraph office or transmitted by telex.
6.10. Costs and Expenses. The Seller will pay all expenses incident to
the performance of its obligations under this Purchase Agreement and the Seller
agrees to pay all reasonable out-of-pocket costs and expenses of the Purchaser,
excluding fees and expenses of counsel, in connection with the perfection as
against third parties of the Purchaser's right, title and interest in and to the
CPS Receivables and security interests in the Financed Vehicles and the
enforcement of any obligation of the Seller hereunder.
6.11. Representations of the Seller and the Purchaser. The respective
agreements, representations, warranties and other statements by the Seller and
the Purchaser set forth in
-23-
<PAGE>
or made pursuant to this Purchase Agreement shall remain in full force and
effect and will survive the closing under Section 2.2 hereof.
6.12. Confidential Information. The Purchaser agrees that it will
neither use nor disclose to any Person the names and addresses of the Obligors,
except in connection with the enforcement of the Purchaser's rights hereunder,
under the CPS Receivables, under the Sale and Servicing Agreement or as required
by law.
6.13. Headings and Cross-References. The various headings in this
Agreement are included for convenience only and shall not affect the meaning or
interpretation of any provision of this Purchase Agreement. References in this
Purchase Agreement to Section names or numbers are to such Sections of this
Purchase Agreement.
6.14. Third Party Beneficiaries. The parties hereto hereby expressly
agree that each of the Trustee for the benefit of the Securityholders and the
Note Insurer shall be third party beneficiaries with respect to this Purchase
Agreement, provided, however, that no third party other than the Trustee for the
benefit of the Securityholders and the Note Insurer shall be deemed a third
party beneficiary of this Purchase Agreement.
6.15. Governing Law. THIS PURCHASE AGREEMENT AND THE ASSIGNMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
6.16. Counterparts. This Purchase Agreement may be executed in two or
more counterparts and by different parties on separate counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
[Rest of page intentionally left blank.]
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Purchase
Agreement to be executed by their respective officers thereunto duly authorized
as of the date and year first above written.
CPS RECEIVABLES CORP.
By
Title:
CONSUMER PORTFOLIO SERVICES, INC.
By
Title:
<PAGE>
Exhibit A
ASSIGNMENT
For value received, on this [ ]th day of [ ], in accordance with the
Purchase Agreement dated as of [ ], between the undersigned (the "Seller") and
CPS Receivables Corp. (the "Purchaser") (the "CPS Purchase Agreement"), the
undersigned does hereby sell, transfer, assign and otherwise convey unto the
Purchaser, without recourse (subject to the obligations in the CPS Purchase
Agreement and the Sale and Servicing Agreement), all right, title and interest
of the Seller in and to (i) the CPS Receivables listed in the Schedule of CPS
Receivables, all monies received thereon after the Cutoff Date and all Net
Liquidation Proceeds received with respect thereto after the Cutoff Date; (ii)
the security interests in the Financed Vehicles granted by Obligors pursuant to
the CPS Receivables and any other interest of the Seller in such Financed
Vehicles, including, without limitation, the certificates of title or, with
respect to Financed Vehicles in the State of Michigan, other evidence of
ownership with respect to such Financed Vehicles; (iii) any proceeds from claims
on any physical damage, credit life and credit accident and health insurance
policies or certificates relating to the Financed Vehicles securing the CPS
Receivables; (iv) refunds for the costs of extended service contracts with
respect to Financed Vehicles securing the CPS Receivables, refunds of unearned
premiums with respect to credit life and credit accident and health insurance
policies or certificates covering an Obligor or Financed Vehicle or his or her
obligations with respect to a Financed Vehicle related to a CPS Receivable and
any recourse to Dealers for any of the foregoing; (v) the Receivable File
related to each CPS Receivable; and (vi) the proceeds of any and all of the
foregoing. The foregoing sale does not constitute and is not intended to result
in any assumption by the Purchaser of any obligation of the undersigned to the
Obligors, insurers or any other Person in connection with the CPS Receivables,
the related Receivable Files, any insurance policies or any agreement or
instrument relating to any of them.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the CPS
Purchase Agreement and is to be governed by the CPS Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the CPS Purchase Agreement.
THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be
duly executed as of the day and year first above written.
A-1
<PAGE>
CONSUMER PORTFOLIO SERVICES, INC.
By:
Name:
Title:
A-2
<PAGE>
Exhibit B
Schedule of CPS Receivables
See Following Page
A-1
Exhibit 10.3
[FORM OF SAMCO PURCHASE AGREEMENT]
PURCHASE AGREEMENT dated as of this [ ], by and between SAMCO
ACCEPTANCE CORP., a Delaware corporation (the "Seller"), having its principal
executive office at 8150 North Central Expressway, Dallas, Texas, 75206 and CPS
RECEIVABLES CORP., a California corporation (the "Purchaser"), having its
principal executive office at 2 Ada, Irvine, California 92718.
WHEREAS, in the regular course of its business, the Seller purchases
and services through its auto loan programs certain motor vehicle retail
installment sale contracts secured by new and used automobiles, light trucks,
vans or minivans acquired from motor vehicle dealers.
WHEREAS, the Seller and the Purchaser wish to set forth the terms
pursuant to which the Samco Receivables (as hereinafter defined), are to be sold
by the Seller to the Purchaser, which Samco Receivables together with the CPS
Receivables and Linc Receivables will be transferred by the Purchaser, pursuant
to the Sale and Servicing Agreement (as hereinafter defined), to CPS Auto
Receivables Trust 199[ ]-[ ], which Trust will issue notes under the Indenture
(as hereinafter defined) representing indebtedness of the Trust (the "Notes")
and certificates under the Trust Agreement (as hereinafter defined) representing
beneficial interests in the Trust (the "Certificates" and, together with the
Notes, the "Securities").
NOW, THEREFORE, in consideration of the foregoing, other good and
valuable consideration, and the mutual terms and covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Terms not defined in this Purchase Agreement shall have the meaning set
forth in the Sale and Servicing Agreement and, if not defined therein, shall
have the meaning set forth in the Indenture. As used in this Purchase Agreement,
the following terms shall, unless the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular and
plural forms of the terms defined):
"Agreement" means this Purchase Agreement and the Samco Assignment.
"Base Prospectus" means the Prospectus dated [ ], with respect to CPS
Auto Receivables Trusts and any amendment or supplement thereto.
<PAGE>
"Closing Date" means [ ].
"CPS" means Consumer Portfolio Services, Inc., a California
corporation, and its successors and assigns.
"CPS Purchase Agreement" means the purchase agreement dated as of [ ],
between Consumer Portfolio Services, Inc., as seller, and CPS Receivables Corp.,
as purchaser, as such agreement may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"CPS Receivable" shall have the meaning specified in the CPS Purchase
Agreement.
"Indenture" means the Indenture dated as of [ ], between CPS Auto
Receivables Trust 199[ ], as issuer and Norwest Bank Minnesota, National
Association, as trustee.
"Linc" means Linc Acceptance Company LLC, a Delaware limited liability
company, and its successors and assigns.
"Linc Purchase Agreement" means the purchase agreement dated as of [ ],
between Linc, as seller, and CPS Receivables Corp., as purchaser, as such
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms thereof.
"Linc Receivable" shall have the meaning specified in the Linc Purchase
Agreement.
"Obligor(s)" means the purchaser or co-purchasers of a Financed Vehicle
or any other Person who owes or may be liable for payments under a Receivable.
"Offering Documents" means the Prospectus Supplement and the Base
Prospectus.
"Prospectus Supplement" means the Prospectus Supplement dated [ ],
relating to the public offering of the Notes and any amendment or supplement
thereto.
"Purchase Agreement" means this Purchase Agreement, as this agreement
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"Purchaser" means CPS Receivables Corp., a California corporation, and
its successors and assigns.
"Receivable" means, collectively, the CPS Receivables, the Linc
Receivables and the Samco Receivables.
-2-
<PAGE>
"Receivables Purchase Price" means $[ ].
"Repurchase Event" shall have the meaning specified in Section 6.2
hereof.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of [ ], among CPS Auto Receivables Trust 199[ ]-[ ], CPS Receivables
Corp., as seller, Consumer Portfolio Services, Inc., as servicer, and [ ], as
Trustee and standby servicer, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Samco" means Samco Acceptance Corp., a Delaware corporation, and its
successors and assigns.
"Samco Assignment" means the assignment dated [ ], by the Seller to the
Purchaser, relating to the purchase of the Samco Receivables and certain other
property related thereto by the Purchaser from the Seller pursuant to this
Purchase Agreement which shall be substantially in the form of Exhibit A to this
Purchase Agreement.
"Samco Purchase Agreement" means this Purchase Agreement, as this
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms hereof.
"Samco Receivable" means each retail installment sale contract for a
Financed Vehicle that appears on the Schedule of Samco Receivables and all
rights thereunder.
"Schedule of CPS Receivables" means the list of CPS Receivables annexed
as Exhibit B to the CPS Purchase Agreement.
"Schedule of Receivables" means the Schedule of Samco Receivables
and/or the CPS Schedule of Receivables.
"Schedule of Samco Receivables" means the list of Samco Receivables
annexed hereto as Exhibit B.
"Seller" means Samco Acceptance Corp., a Delaware corporation, in its
capacity as seller of the Samco Receivables and the other Transferred Samco
Property relating thereto, and its successors and assigns.
"Servicer" means Consumer Portfolio Services, Inc., a California
corporation, in its capacity as Servicer of the Receivables, and its successors
and assigns.
"Transferred CPS Property" shall have the meaning specified in the CPS
Purchase Agreement.
-3-
<PAGE>
"Transferred Linc Property" shall have the meaning specified in the
Linc Purchase Agreement.
"Transferred Property" shall have the meaning specified in Section
2.1(a) hereof.
"Transferred Samco Property" shall have the meaning specified in
Section 2.1(a) hereof.
"Trust" means the CPS Auto Receivables Trust 199[ ] - [ ] created by
the Trust Agreement.
"Trust Agreement" means the Trust Agreement between CPS Receivables
Corp. and [ ], as Owner Trustee dated as of [ ].
"UCC" means the Uniform Commercial Code, as in effect from time to time
in the relevant jurisdictions.
"Underwriter" means [ ].
"Underwriting Agreement" means the Underwriting Agreement, dated [ ],
among the Underwriter, CPS, Samco, Linc and the Purchaser relating to the Notes.
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1. Purchase and Sale of Receivables. On the Closing Date, subject to
the terms and conditions of this Purchase Agreement, the Seller agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, without
recourse (subject to the obligations in this Purchase Agreement and the Sale and
Servicing Agreement), all of the Seller's right, title and interest in, to and
under the Samco Receivables and the other Transferred Samco Property relating
thereto. The conveyance to the Purchaser of the Samco Receivables and other
Transferred Samco Property relating thereto is intended as a sale free and clear
of all liens and it is intended that the Transferred Samco Property and other
property of the Purchaser shall not be part of the Seller's estate in the event
of the filing of a bankruptcy petition by or against the Seller under any
bankruptcy law.
(a) Transfer of Receivables. On the Closing Date and
simultaneously with the transactions to be consummated pursuant to the Trust
Agreement, the Indenture and the Sale and Servicing Agreement, the Seller shall
sell, transfer, assign, grant, set over and otherwise convey to the Purchaser,
without recourse (subject to the obligations herein and in the Sale and
Servicing Agreement), all right, title and interest of the Seller in and to (i)
the Samco Receivables listed in the Schedule of Samco Receivables, all monies
received thereon after
-4-
<PAGE>
the Cutoff Date and all Net Liquidation Proceeds received with respect thereto
after the Cutoff Date; (ii) the security interests in the Financed Vehicles
granted by Obligors pursuant to the Samco Receivables and any other interest of
the Seller in such Financed Vehicles, including, without limitation, the
certificates of title or, with respect to Financed Vehicles in the State of
Michigan, other evidence of ownership with respect to Financed Vehicles; (iii)
any proceeds from claims on any physical damage, credit life and credit accident
and health insurance policies or certificates relating to the Financed Vehicles
securing the Samco Receivables or the Obligors thereunder; (iv) refunds for the
costs of extended service contracts with respect to Financed Vehicles securing
the Samco Receivables, refunds of unearned premiums with respect to credit life
and credit accident and health insurance policies or certificates covering an
Obligor or Financed Vehicle securing the Samco Receivables or his or her
obligations with respect to such a Financed Vehicle and any recourse to Dealers
for any of the foregoing; (v) the Receivable File related to each Samco
Receivable; and (vi) the proceeds of any and all of the foregoing (collectively,
the "Transferred Samco Property" and together with the Transferred CPS Property
and the Transferred Linc Property, the "Transferred Property").
(b) Receivables Purchase Price. In consideration for the Samco
Receivables and other Transferred Samco Property described in Section 2.1(a),
the Purchaser shall, on the Closing Date, pay to the Seller the Receivables
Purchase Price by federal wire transfer (same day) funds.
2.2. The Closing. The sale and purchase of the Samco Receivables shall
take place at a closing (the "Closing") at the offices of Mayer, Brown & Platt,
1675 Broadway, New York, New York 10019-5820 on the Closing Date, simultaneously
with the closings under: (a) the CPS Purchase Agreement pursuant to which CPS
will sell the CPS Receivables to CPS Receivables Corp. (b) the Linc Purchase
Agreement pursuant to which Linc will sell the Linc Receivables to CPS
Receivables Corp., (c) the Sale and Servicing Agreement pursuant to which the
Purchaser will assign all of its right, title and interest in and to the
Receivables and the other Transferred Property to the Trust for the benefit of
the Securityholders, (d) the Trust Agreement pursuant to which the Trust shall
be formed and the Certificates issued, (e) the Indenture pursuant to which the
Trust will issue the Notes, and (f) the Underwriting Agreement pursuant to which
the Purchaser shall sell the Notes to the Underwriter.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Seller as of the date hereof and as of the
Closing Date (which representations and warranties shall survive the Closing
Date):
-5-
<PAGE>
(a) Organization and Good Standing. The Purchaser has been
duly organized and is validly existing as a corporation in good standing under
the laws of the State of California, with power and authority to own its
properties and to conduct its business as such properties shall be currently
owned and such business is presently conducted, and had at all relevant times,
and shall have, power, authority and legal right to acquire and own the Samco
Receivables.
(b) Due Qualification. The Purchaser is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(c) Power and Authority. The Purchaser has the power and
authority to execute and deliver the Agreements and to carry out its terms and
the execution, delivery and performance of the Agreements has been duly
authorized by the Purchaser by all necessary corporate action.
(d) Binding Obligation. This Agreement shall constitute a
legal, valid and binding obligation of the Purchaser enforceable in accordance
with its terms.
(e) No Violation. The execution, delivery and performance by
the Purchaser of the Agreements and the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof do not conflict
with, result in a breach of any of the terms and provisions of, nor constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of the Purchaser, or any indenture, agreement,
mortgage, deed of trust, or other instrument to which the Purchaser is a party
or by which it is bound or to which any of its properties are subject; nor
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any indenture, agreement, mortgage, deed of trust, or
other instrument (other than the Basic Documents); nor violate any law, order,
rule or regulation applicable to the Purchaser of any court or of any Federal or
State regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Purchaser or its properties.
(f) No Proceedings. There are no proceedings or investigations
pending, or to the Purchaser's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the Purchaser or its properties: (A) asserting the
invalidity of the Agreements or the Securities; (B) seeking to prevent the
issuance of the Securities or the consummation of any of the transactions
contemplated by the Agreements; (C) seeking any determination or ruling that
might materially and adversely affect the performance by the Purchaser of its
obligations under, or the validity or enforceability of, the Agreements or the
Securities; or (D) relating to the Purchaser and which might adversely affect
the Federal or State income, excise, franchise or similar tax attributes of the
Securities.
-6-
<PAGE>
(g) No Consents. No consent, approval, authorization or order
of or declaration or filing with any governmental authority is required to be
obtained by the Purchaser for the issuance or sale of the Securities or the
consummation of the other transactions contemplated by the Agreements, the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, except such as
have been duly made or obtained.
3.2. Representations and Warranties of the Seller. (a) The Seller
hereby represents and warrants to the Purchaser as of the date hereof and as of
the Closing Date (which representations and warranties shall survive the Closing
Date):
(i) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with power and authority to
own its properties and to conduct its business as such properties shall
be currently owned and such business is presently conducted and had at
all relevant times, and shall have, power, authority and legal right to
acquire, and own the Samco Receivables.
(ii) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business
(including the origination of the Samco Receivables as required by the
Sale and Servicing Agreement) shall require such qualifications.
(iii) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full power and authority to sell and assign the
property sold and assigned to the Purchaser and has duly authorized
such sale and assignment to the Purchaser by all necessary corporate
action; and the execution, delivery and performance of the Agreements
has been duly authorized by the Seller by all necessary corporate
action.
(iv) Valid Sale; Binding Obligation. This Agreement effects a
valid sale, transfer and assignment of the Samco Receivables and the
other Transferred Samco Property conveyed to the Purchaser pursuant to
Section 2.1, enforceable against creditors of and purchasers from the
Seller; and this Agreement shall constitute a legal, valid and binding
obligation of the Seller enforceable in accordance with its terms.
(v) No Violation. The execution, delivery and performance by
the Seller of the Agreements and the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, nor constitute (with or without notice or lapse of time) a default
under, the articles of incorporation, as amended, or by-laws of the
Seller, or any indenture, agreement, mortgage, deed of trust, or other
instrument to which the Seller is a party or by which it is bound or to
which any of
-7-
<PAGE>
its properties are subject; nor result in the creation or imposition of
any lien upon any of its properties pursuant to the terms of any such
indenture, agreement, mortgage, deed of trust, or other instrument
(other than the Basic Documents); nor violate any law, order, rule or
regulation applicable to the Seller of any court or of any Federal or
State regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Seller or its properties.
(vi) No Proceedings. There are no proceedings or
investigations pending, or to the Seller's best knowledge, threatened,
before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (A) asserting the invalidity of the Agreements or the
Securities; (B) seeking to prevent the issuance of the Securities or
the consummation of any of the transactions contemplated by the
Agreements; (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, the Agreements
or the Securities; or (D) relating to the Seller and which might
adversely affect the Federal or State income, excise, franchise or
similar tax attributes of the Securities.
(vii) No Consents. No consent, approval, authorization or
order of or declaration or filing with any governmental authority is
required for the issuance or sale of the Securities or the consummation
of the other transactions contemplated by the Agreements, the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, except
such as have been duly made or obtained.
(viii) Financial Condition. The Seller has a positive net
worth and is able to and does pay its liabilities as they mature. The
Seller is not in default under any obligation to pay money to any
Person except for matters being disputed in good faith which do not
involve an obligation of the Seller on a promissory note. The Seller
will not use the proceeds from the transactions contemplated by this
Agreement to give any preference to any creditor or class of creditors,
and this transaction will not leave the Seller with remaining assets
which are unreasonably small compared to its ongoing operations.
(ix) Fraudulent Conveyance. The Seller is not selling the
Samco Receivables to the Purchaser with any intent to hinder, delay or
defraud any of its creditors; the Seller will not be rendered insolvent
as a result of the sale of the Samco Receivables to the Purchaser.
(b) The Seller makes the following representations and
warranties as to the Samco Receivables and the other Transferred Samco Property
relating thereto on which the Purchaser relies in accepting the Samco
Receivables and the other Transferred Samco Property relating thereto. Such
representations and warranties speak with respect to each Samco Receivable as of
the Closing Date and shall survive the sale, transfer, and assignment of the
Samco Receivables and the other Transferred Samco Property relating thereto to
the
-8-
<PAGE>
Purchaser and the subsequent assignments and transfers pursuant to the Sale and
Servicing Agreement and the Indenture:
(i) Location of Receivable Files; One Original. A complete
Receivable File with respect to each Samco Receivable has been or prior
to the Closing Date will be delivered to the Trustee at the location
listed in Schedule B to the Sale and Servicing Agreement. There is only
one original executed copy of each Samco Receivable.
(ii) Schedule of Receivables; Selection Procedures. The
information with respect to the Samco Receivables set forth in the
Schedule of Samco Receivables is true and correct in all material
respects as of the close of business on the related Cutoff Date, and no
selection procedures adverse to the Securityholders have been utilized
in selecting the Samco Receivables.
(iii) Security Interest in Financed Vehicle. Immediately prior
to the sale, assignment, and transfer thereof, each Samco Receivable
shall be secured by a validly perfected first priority security
interest in the related Financed Vehicle in favor of the Seller as
secured party, and such security interest is prior to all other liens
upon and security interests in such Financed Vehicle which now exist or
may hereafter arise or be created (except, as to priority, for any tax
liens or mechanics' liens which may arise after the Closing Date).
(iv) Samco Receivables in Force. No Samco Receivable has been
satisfied, subordinated or rescinded, nor has any Financed Vehicle been
released from the lien granted by the related Samco Receivable in whole
or in part.
(v) No Waiver. No provision of a Samco Receivable has been
waived.
(vi) No Amendments. No Samco Receivable has been amended,
except as such Samco Receivable may have been amended to grant
extensions which shall not have numbered more than (a) one extension of
one calendar month in any calendar year or (b) three such extensions in
the aggregate.
(vii) No Default; Repossession. Except for payment
delinquencies continuing for a period of not more than thirty days as
of the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Samco Receivable has occurred; and
no continuing condition that with notice or the lapse of time would
constitute a default, breach, violation, or event permitting
acceleration under the terms of any Samco Receivable has arisen; and
the Seller shall not waive and has not waived any of the foregoing; and
no Financed Vehicle securing a Samco Receivable shall have been
repossessed as of the Cutoff Date.
-9-
<PAGE>
(viii) Title. It is the intention of the Seller that the
transfer and assignment herein contemplated constitute a sale of the
Samco Receivables and other Transferred Samco Property from the Seller
to the Purchaser and that the beneficial interest in and title to such
Samco Receivables and other Transferred Samco Property not be part of
the debtor's estate in the event of the filing of a bankruptcy petition
by or against the Seller under any bankruptcy law. No Samco Receivable
or other Transferred Samco Property has been sold, transferred,
assigned, or pledged by the Seller to any Person other than the
Purchaser or any such pledge has been released on or prior to the
Closing Date. Immediately prior to any transfer and assignment herein
contemplated, the Seller had good and marketable title to each Samco
Receivable and other Transferred Samco Property, and was the sole owner
thereof, free and clear of all liens, claims, encumbrances, security
interests, and rights of others and, immediately upon the transfer
thereof, the Purchaser shall have good and marketable title to each
such Samco Receivable and other Transferred Samco Property, and will be
the sole owner thereof, free and clear of all liens, encumbrances,
security interests, and rights of others, and the transfer has been
perfected under the UCC.
(ix) Lawful Assignment. No Samco Receivable has been
originated in, or is subject to the laws of, any jurisdiction under
which the sale, transfer, and assignment of such Samco Receivable under
the Agreements shall be unlawful, void, or voidable. The Seller has not
entered into any agreement with any account debtor that prohibits,
restricts or conditions the assignment of any portion of the Samco
Receivables.
(x) All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Purchaser a first priority perfected ownership interest in the Samco
Receivables and the other Transferred Samco Property have been made,
taken or performed.
(xi) Casualty. No Financed Vehicle related to a Samco
Receivable has suffered a Casualty.
(xii) Obligation to Dealers or Others. The Purchaser and its
assignees will assume no obligation to Dealers or other originators or
holders of the Samco Receivables (including, but not limited to under
dealer reserves) as a result of the purchase of the Samco Receivables.
(xiii) Full Amount Advanced. The full amount of each Samco
Receivable has been advanced to each Obligor, and there are no
requirements for future advances thereunder. No Obligor with respect to
a Samco Receivable has any option under the Samco Receivable to borrow
from any Person additional funds secured by the related Financed
Vehicle.
-10-
<PAGE>
(c) The representations and warranties contained in this Agreement
shall not be construed as a warranty or guaranty by the Seller as to the future
payments by any Obligor. The sale of the Samco Receivables pursuant to this
Agreement shall be "without recourse" to the Seller except for the
representations, warranties and covenants made by the Seller in this Purchase
Agreement.
ARTICLE IV
CONDITIONS
4.1. Conditions to Obligation of the Purchaser. On the Closing Date,
the obligation of the Purchaser to purchase the Samco Receivables is subject to
the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations
and warranties of the Seller hereunder shall be true and correct on the Closing
Date with the same effect as if then made, and the Seller shall have performed
all obligations to be performed by it hereunder on or prior to the Closing Date.
(b) Computer Files Marked. The Seller shall, at its own
expense, on or prior to the Closing Date, indicate in its computer files that
the Samco Receivables have been sold to the Purchaser pursuant to the Agreements
and shall deliver to the Purchaser the Schedule of Samco Receivables certified
by the Chairman, the President, the Vice President or the Treasurer of the
Seller to be true, correct and complete.
(c) Receivable Files Delivered. The Seller shall, at its own
expense, deliver the related Receivable Files to the Trustee at the offices
specified in Schedule B to the Sale and Servicing Agreement on or prior to the
Closing Date.
(d) Documents to be delivered by the Seller on the Closing
Date.
(i) The Assignment. On the Closing Date, the Seller will
execute and deliver the applicable Assignment. The Assignment shall be
substantially in the form of Exhibit A hereto.
(ii) Evidence of UCC-1 Filing. On or prior to the Closing
Date, the Seller shall record and file, at its own expense, a UCC-1
financing statement in each jurisdiction in which required by
applicable law, executed by the Seller, as seller or debtor, and naming
the Purchaser, as purchaser or secured party, naming the Samco
Receivables and the other Transferred Samco Property conveyed hereafter
as collateral, meeting the requirements of the laws of each such
jurisdiction and in such manner as is necessary to perfect the sale,
transfer, assignment and conveyance of such Samco Receivables to the
Purchaser. The Seller shall deliver a file-stamped
-11-
<PAGE>
copy, or other evidence satisfactory to the Purchaser of such filing,
to the Purchaser on or prior to the Closing Date.
(iii) Other Documents. On or prior to the Closing Date, the
Seller shall deliver such other documents as the Purchaser may
reasonably request.
(e) Other Transactions. The transactions contemplated by the
Trust Agreement, the Indenture, the Sale and Servicing Agreement, the CPS
Purchase Agreement, the Linc Purchase Agreement, the Underwriting Agreement and
the Certificate Purchase Agreement shall be consummated on the Closing Date.
4.2. Conditions to Obligation of the Seller. The obligation of the
Seller to sell the Samco Receivables to the Purchaser is subject to the
satisfaction of the following conditions on the Closing Date:
(a) Representations and Warranties True. The representations
and warranties of the Purchaser hereunder shall be true and correct on the
Closing Date with the same effect as if then made, and the Seller shall have
performed all obligations to be performed by it hereunder on or prior to the
Closing Date.
(b) Receivables Purchase Price. The Purchaser will deliver to
the Seller the purchase price for the related Samco Receivables (on the Closing
Date as provided in Section 2.1(b)). The Seller hereby directs the Purchaser to
wire such purchase price pursuant to wire instructions to be delivered to the
Purchaser on or prior to the Closing Date.
ARTICLE V
COVENANTS OF THE SELLER
The Seller agrees with the Purchaser as follows:
5.1. Protection of Right, Title and Interest.
(a) Filings. The Seller shall cause all financing statements
and continuation statements and any other necessary documents covering the
right, title and interest of the Purchaser in and to the Samco Receivables and
the other Transferred Samco Property to be promptly filed, and at all times to
be kept recorded, registered and filed, all in such manner and in such places as
may be required by law fully to preserve and protect the right, title and
interest of the Purchaser hereunder to the Samco Receivables and the other
Transferred Samco Property. The Seller shall cause to be delivered to the
Purchaser file stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recordation, registration or filing. The Purchaser shall cooperate fully with
the Seller in connection with the obligations set forth
-12-
<PAGE>
above and will execute any and all documents reasonably required to fulfill the
intent of this Section 5.1(a). In the event the Seller fails to perform its
obligations under this subsection, the Purchaser or the Trustee may do so at the
expense of the Seller.
(b) Name and Other Changes. At least 60 days prior to the date
the Seller makes any change in its name, identity or corporate structure which
would make any financing statement or continuation statement filed in accordance
with paragraph (a) above seriously misleading within the applicable provisions
of the UCC or any title statute, the Seller shall give the Trustee, the Insurer
(so long as an Insurer Default shall not have occurred and be continuing) and
the Purchaser written notice of any such change and no later than five days
after the effective date thereof, shall file appropriate amendments to all
previously filed financing statements or continuation statements. At least 60
days prior to the date of any relocation of its principal executive office, the
Seller shall give the Trustee, the Insurer (so long as an Insurer Default shall
not have occurred and be continuing) and the Purchaser written notice thereof
if, as a result of such relocation, the applicable provisions of the UCC would
require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and the Seller shall
within five days after the effective date thereof, file any such amendment or
new financing statement. The Seller shall at all times maintain each office from
which it shall service Receivables, and its principal executive office, within
the United States of America.
(c) Maintenance of Computer Systems. The Seller shall maintain
its computer systems so that, from and after the time of sale to the Purchaser
of the Samco Receivables hereunder, the Seller's master computer records
(including any back-up archives) that refer to a Samco Receivable shall indicate
clearly the interest of the Purchaser in such Samco Receivable and that such
Samco Receivable is owned by the Purchaser. Indication of the Purchaser's
ownership of a Samco Receivable shall be deleted from or modified on the
Seller's computer systems when, and only when, the Samco Receivable shall have
been paid in full or repurchased.
(d) Sale of Other Receivables. If at any time the Seller shall
propose to sell, grant a security interest in, or otherwise transfer any
interest in any automobile or light-duty truck receivables (other than the Samco
Receivables) to any prospective purchaser, lender, or other transferee, the
Seller shall give to such prospective purchaser, lender, or other transferee
computer tapes, records, or print-outs (including any restored from back-up
archives) that, if they shall refer in any manner whatsoever to any Samco
Receivable, shall indicate clearly that such Samco Receivable has been sold and
is owned by the Purchaser unless such Samco Receivable has been paid in full or
repurchased.
(e) Access to Records. The Seller shall permit the Purchaser
and its agents at any time during normal business hours to inspect, audit, and
make copies of and abstracts from the Seller's records regarding any Samco
Receivable.
-13-
<PAGE>
(f) List of Receivables. Upon request, the Seller shall
furnish to the Purchaser, within five Business Days, a list of all Samco
Receivables (by contract number and name of Obligor) then owned by the
Purchaser, together with a reconciliation of such list to the Schedule of Samco
Receivables.
5.2. Other Liens or Interests. Except for the conveyances hereunder and
pursuant to the Sale and Servicing Agreement, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any lien on any interest therein, and the Seller shall defend
the right, title, and interest of the Purchaser in, to and under the Samco
Receivables against all claims of third parties claiming through or under the
Seller.
5.3. Chief Executive Office. During the term of the Samco Receivables,
the Seller will maintain its chief executive office in one of the United States,
except Louisiana or Vermont.
5.4. Costs and Expenses. The Seller agrees to pay all reasonable costs
and disbursements in connection with the perfection, as against all third
parties, of the Purchaser's right, title and interest in and to the Samco
Receivables.
5.5. Delivery of Receivable Files. On or prior to the Closing Date, the
Seller shall cause to be delivered to the Trustee at the location specified in
Schedule B to the Sale and Servicing Agreement the Receivables Files relating to
the Samco Receivables. The Seller shall have until the last day of the second
Collection Period following receipt of notification that there has been a
failure to deliver a file with respect to a Samco Receivable or that a file is
unrelated to the Receivables identified in Schedule A to the Sale and Servicing
Agreement or that any of the documents referred to in Section 3.3 of the Sale
and Servicing Agreement are not contained in a Receivable File, to deliver such
file or any of the aforementioned documents required to be included in such
Receivable File to the Trustee. Unless such defect with respect to such
Receivable File shall have been cured by the last day of the second Collection
Period following discovery thereof by the Trustee and notice thereof to Samco,
the Seller hereby agrees to repurchase any such Receivable from the Trust as of
such last day. In consideration of the purchase of the Receivable, the Seller
shall remit the Purchase Amount in the manner specified in Section 4.7 of the
Sale and Servicing Agreement. The sole remedy hereunder of the Trustee, the
Trust or the Securityholders with respect to a breach of this Section 5.5, shall
be to require the Seller to repurchase the Receivable pursuant to this Section
5.5. Upon receipt of the Purchase Amount, the Trustee shall release to the
Seller or its designee the related Receivable File and shall execute and deliver
all instruments of transfer or assignment, without recourse, as are prepared by
the Seller and delivered to the Trustee and are necessary to vest in the Seller
or such designee title to the Receivable.
5.6. Indemnification. (a) Subject to the limitation of remedies set
forth in Section 6.2 hereof with respect to a breach of any representations and
warranties contained in Section 3.2(b) hereof, the Seller shall indemnify the
Purchaser for any liability as a result of the
-14-
<PAGE>
failure of a Samco Receivable to be originated in compliance with all
requirements of law and for any breach of any of its representations and
warranties contained herein.
(b) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against any and all costs, expenses, losses, damages, claims,
and liabilities, arising out of or resulting from the use, ownership, or
operation by the Seller or any Affiliate thereof of a Financed Vehicle related
to a Samco Receivable.
(c) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against any and all taxes, except for taxes on the net income
of the Purchaser, that may at any time be asserted against the Purchaser with
respect to the transactions contemplated herein, including, without limitation,
any sales, gross receipts, general corporation, tangible personal property,
privilege, or license taxes and costs and expenses in defending against the
same.
(d) The Seller shall defend, indemnify, and hold harmless the
Purchaser from and against any and all costs, expenses, losses, damages, claims
and liabilities to the extent that such cost, expense, loss, damage, claim or
liability arose out of, or was imposed upon the Purchaser through, the
negligence, willful misfeasance, or bad faith of the Seller in the performance
of its duties under the Agreements, or by reason of reckless disregard of the
Seller's obligations and duties under the Agreements.
Indemnification under this Section 5.6 shall include reasonable fees
and expenses of litigation and shall survive payment of the Notes and
Certificates. These indemnity obligations shall be in addition to any obligation
that the Seller may otherwise have.
5.7. Sale. The Seller agrees to treat this conveyance for all purposes
(including without limitation tax and financial accounting purposes) as a sale
on all relevant books, records, tax returns, financial statements and other
applicable documents.
5.8. Non-Petition. In the event of any breach of a representation and
warranty made by the Purchaser hereunder, the Seller covenants and agrees that
it will not take any action to pursue any remedy that it may have hereunder, in
law, in equity or otherwise, until a year and a day have passed since the date
on which all securities issued by the Trust or a similar trust formed by the
Purchaser have been paid in full. The Purchaser and the Seller agree that
damages will not be an adequate remedy for such breach and that this covenant
may be specifically enforced by the Purchaser or by the Trust.
-15-
<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. Obligations of Seller. The obligations of the Seller under the
Agreements shall not be affected by reason of any invalidity, illegality or
irregularity of any Samco Receivable.
6.2. Repurchase Events. The Seller hereby covenants and agrees with the
Purchaser for the benefit of the Purchaser, the Trustee, the Insurer and the
Securityholders, that (i) the occurrence of a breach of any of the Seller's
representations and warranties contained in Section 3.2(b) hereof (without
regard to any limitations regarding the Seller's knowledge) and (ii) the failure
of the Seller to timely comply with its obligations pursuant to Section 5.5
hereof, shall constitute events obligating the Seller to repurchase the affected
Samco Receivables hereunder ("Repurchase Events"), at the Purchase Amount from
the Trust. Unless the breach of any of the Seller's representations and
warranties shall have been cured by the last day of the second Collection Period
following the discovery thereof by or notice to the Purchaser and the Seller of
such breach, the Seller shall repurchase any Samco Receivable if such Samco
Receivable is materially and adversely affected by the breach as of the last day
of such second Collection Period (or, at the Seller's option, the last day of
the first Collection Period following the discovery) and, in the event that the
breach relates to a characteristic of the Samco Receivables in the aggregate,
and if the Trust is materially and adversely affected by such breach, unless the
breach shall have been cured by such second Collection Period, the Seller shall
purchase such aggregate Principal Balance of Samco Receivables, such that
following such purchase such representation shall be true and correct with
respect to the remainder of the Samco Receivables in the aggregate. The
provisions of this Section 6.2 are intended to grant the Trustee a direct right
against the Seller to demand performance hereunder, and in connection therewith
the Seller waives any requirement of prior demand against the Purchaser and
waives any defaults it would have against the Purchaser with respect to such
repurchase obligation. Any such purchase shall take place in the manner
specified with respect to CPS in Section 4.7 of the Sale and Servicing
Agreement. The sole remedy hereunder of the Securityholders, the Trust, the
Insurer, the Trustee or the Purchaser against the Seller with respect to any
Repurchase Event shall be to enforce the Seller's obligation to repurchase such
Samco Receivables pursuant to this Agreement; provided, however, that the Seller
shall indemnify the Trustee, the Insurer, the Trust and the Securityholders
against all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
incurred by any of them, as a result of third party claims arising out of the
events or facts giving rise to such breach. Upon receipt of the Purchase Amount,
the Purchaser shall cause the Trustee to release the related Receivables File to
the Seller and to execute and deliver all instruments of transfer or assignment,
without recourse, as are necessary to vest in the Seller title to the Samco
Receivable. Notwithstanding the foregoing, if it is determined that consummation
of the transactions contemplated by the Sale and Servicing Agreement and the
other transaction documents referenced in such Agreement, servicing and
operation of the
-16-
<PAGE>
Trust pursuant to such Agreement and such other documents, or the ownership of a
Security by a Holder constitutes a violation of the prohibited transaction rules
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
the Internal Revenue Code of 1986, as amended ("Code") for which no statutory
exception or administrative exemption applies, such violation shall not be
treated as a Repurchase Event.
6.3. Seller's Assignment of Purchased Receivables. With respect to all
Samco Receivables repurchased by the Seller pursuant to the Agreements, the
Purchaser shall assign, without recourse except as provided herein,
representation or warranty, to the Seller all the Purchaser's right, title and
interest in and to such Samco Receivables, and all security and documents
relating thereto.
6.4. Conveyance as Sale of Receivables Not Financing. The parties
hereto intend that the conveyance under this Agreement be a sale of the Samco
Receivables and the other Transferred Samco Property from the Seller to the
Purchaser and not a financing secured by such assets; and the beneficial
interest in and title to the Samco Receivables and the other Transferred Samco
Property shall not be part of the Seller's estate in the event of the filing of
a bankruptcy petition by or against the Seller under any bankruptcy law. In the
event that any conveyance hereunder is for any reason not considered a sale, the
parties intend that this Agreement constitute a security agreement under the UCC
(as defined in the UCC as in effect in the State of Texas) and applicable law,
and the Seller hereby grants to the Purchaser a first priority perfected
security interest in, to and under the Samco Receivables and the other
Transferred Samco Property being delivered to the Purchaser on the Closing Date,
and other property conveyed hereunder and all proceeds of any of the foregoing
for the purpose of securing payment and performance of the Securities and the
repayment of amounts owed to the Purchaser from the Seller. In the event that
the assignment of a Samco Receivable to the Purchaser is insufficient, without a
notation on the related Financed Vehicle's certificate of title, or without
fulfilling any additional administrative requirements under the laws of the
state in which the Financed Vehicle is located, to perfect a security interest
in the related Financed Vehicle in favor of the Purchaser, the Seller and
Purchaser hereby agree that the Seller's designation as the secured party on the
certificate of title is in its capacity as agent of the Purchaser and the
Purchaser's transferees.
6.5. Trust. The Seller acknowledges that the Purchaser will, pursuant
to the Sale and Servicing Agreement, sell the Receivables to the Trust and
assign its rights under this Purchase Agreement, the Linc Purchase Agreement and
the CPS Purchase Agreement to the Trustee for the benefit of the
Securityholders, and that the representations and warranties contained in this
Agreement and the rights of the Purchaser under this Purchase Agreement,
including under Sections 6.2 and 6.4 hereof are intended to benefit such Trust
and the Securityholders. The Seller also acknowledges that the Trustee on behalf
of the Securityholders as assignee of the Purchaser's rights hereunder may
directly enforce, without making any prior demand on the Purchaser, all the
rights of the Purchaser hereunder including the rights under Section 6.2 and 6.4
hereof. The Seller hereby consents to such sale and assignment.
-17-
<PAGE>
6.6. Amendment. This Agreement may be amended from time to time by a
written amendment duly executed and delivered by the Seller and the Purchaser
with the consent of the Insurer; provided, however, that (i) any such amendment
that materially adversely affects the rights of the Noteholders under the Sale
and Servicing Agreement must be consented to by the holders of Notes
representing more than [ ]% of the outstanding principal amount of Notes and
(ii) any such amendment that materially adversely affects the rights of the
Certificateholders under the Sale and Servicing Agreement must be consented to
by the holders of Certificates representing more than [ ]% of the Certificate
Balance.
6.7. Waivers. No failure or delay on the part of the Purchaser in
exercising any power, right or remedy under the Agreements shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or the exercise
of any other power, right or remedy.
6.8. Notices. All communications and notices pursuant hereto to either
party shall be in writing or by telegraph or telex and addressed or delivered to
it at its address (or in case of telex, at its telex number at such address)
shown in the opening portion of this Agreement or at such other address as may
be designated by it by notice to the other party and, if mailed or sent by
telegraph or telex, shall be deemed given when mailed, communicated to the
telegraph office or transmitted by telex.
6.9. Costs and Expenses. The Seller will pay all expenses incident to
the performance of its obligations under this Purchase Agreement.
6.10. Representations of the Seller and the Purchaser. The respective
agreements, representations, warranties and other statements by the Seller and
the Purchaser set forth in or made pursuant to this Purchase Agreement shall
remain in full force and effect and will survive each closing hereunder.
6.11. Confidential Information. The Purchaser agrees that it will
neither use nor disclose to any Person the names and addresses of the Obligors,
except in connection with the enforcement of the Purchaser's rights hereunder,
under the Samco Receivables, under the Sale and Servicing Agreement or as
required by law.
6.12. Headings and Cross-References. The various headings in this
Purchase Agreement are included for convenience only and shall not affect the
meaning or interpretation of any provision of this Purchase Agreement.
References in this Purchase Agreement to Section names or numbers are to such
Sections of this Purchase Agreement.
6.13. Third Party Beneficiaries. The parties hereto hereby expressly
agree that each of the Trustee for the benefit of the Securityholders and the
Note Insurer shall be third party beneficiaries with respect to this Purchase
Agreement, provided, however, that no third party other than the Trustee for the
benefit of the Securityholders and the Note Insurer shall be deemed a third
party beneficiary of this Purchase Agreement.
-18-
<PAGE>
6.14. Governing Law. THIS PURCHASE AGREEMENT AND THE ASSIGNMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
6.15. Counterparts. This Agreement may be executed in two or more
counterparts and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
[Rest of page intentionally left blank.]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
and year first above written.
CPS RECEIVABLES CORP.
By
Title:
SAMCO ACCEPTANCE CORP.
By:
Title:
-20-
<PAGE>
Exhibit A
ASSIGNMENT
For value received, on this [ ] day [ ], in accordance with the
Purchase Agreement dated as of [ ], between the undersigned (the "Seller") and
CPS Receivables Corp. (the "Purchaser") (the "Samco Purchase Agreement"), the
undersigned does hereby sell, transfer, assign and otherwise convey unto the
Purchaser, without recourse (subject to the obligations in the Samco Purchase
Agreement and the Sale and Servicing Agreement), all right, title and interest
of the Seller in and to (i) the Samco Receivables listed in the Schedule of
Samco Receivables, all monies received thereon after the Cutoff Date and all Net
Liquidation Proceeds received with respect thereto after the Cutoff Date; (ii)
the security interests in the Financed Vehicles granted by Obligors pursuant to
the Samco Receivables and any other interest of the Seller in such Financed
Vehicles, including, without limitation, the certificates of title or, with
respect to Financed Vehicles in the State of Michigan, other evidence of
ownership with respect to Financed Vehicles; (iii) any proceeds from claims on
any physical damage, credit life and credit accident and health insurance
policies or certificates relating to the Financed Vehicles securing the Samco
Receivables; (iv) refunds for the costs of extended service contracts with
respect to Financed Vehicles securing the Samco Receivables, refunds of unearned
premiums with respect to credit life and credit accident and health insurance
policies or certificates covering an Obligor or Financed Vehicle securing the
Samco Receivables or his or her obligations with respect to such a Financed
Vehicle and any recourse to Dealers for any of the foregoing; (v) the Receivable
File related to each Samco Receivable; and (vi) the proceeds of any and all of
the foregoing. The foregoing sale does not constitute and is not intended to
result in any assumption by the Purchaser of any obligation of the undersigned
to the Obligors, insurers or any other Person in connection with the Samco
Receivables, the Receivable Files, any insurance policies or any agreement or
instrument relating to any of them.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the Samco
Purchase Agreement and is to be governed by the Samco Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Samco Purchase Agreement.
THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be
duly executed as of day and year first above written.
SAMCO ACCEPTANCE CORP.
By:
-2-
<PAGE>
Exhibit B
Schedule of Samco Receivables
See Following Page
Exhibit 10.4
[FORM OF LINK PURCHASE
AGREEMENT]
PURCHASE AGREEMENT dated as of this [ ] by and between LINC ACCEPTANCE
COMPANY LLC, a Delaware limited liability company (the "Seller"), having its
principal executive office at One Selleck Street, Norwalk, Connecticut 06855,
and CPS RECEIVABLES CORP., a California corporation (the "Purchaser"), having
its principal executive office at 2 Ada, Irvine, California 92718.
WHEREAS, in the regular course of its business, the Seller purchases
and services through its auto loan programs certain motor vehicle retail
installment sale contracts secured by new and used automobiles, light trucks,
vans or minivans acquired from motor vehicle dealers.
WHEREAS, the Seller and the Purchaser wish to set forth the terms
pursuant to which the Linc Receivables (as hereinafter defined), are to be sold
by the Seller to the Purchaser, which Linc Receivables together with the CPS
Receivables and Samco Receivables will be transferred by the Purchaser, pursuant
to the Sale and Servicing Agreement (as hereinafter defined), to CPS Auto
Receivables Trust 199[ ]-[ ], which Trustwill issue notes under the Indenture
(as hereinafter defined) representing indebtedness of the Trust (the "Notes")
and certificates under the Trust Agreement (as hereinafter defined) representing
beneficial interests in the Trust (the "Certificates" and, together with the
Notes, the "Securities").
NOW, THEREFORE, in consideration of the foregoing, other good and
valuable consideration, and the mutual terms and covenants contained herein, the
parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Terms not defined in this Purchase Agreement shall have the meaning set
forth in the Sale and Servicing Agreement and, if not defined therein, shall
have the meaning set forth in the Indenture. As used in this Purchase Agreement,
the following terms shall, unless the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular and
plural forms of the terms defined):
"Agreement" means this Purchase Agreement and the Linc Assignment.
"Base Prospectus" means the Prospectus dated [ ] with respect to CPS
Auto Receivables Trusts and any amendment or supplement thereto.
<PAGE>
"Closing Date" means [ ].
"CPS" means Consumer Portfolio Services, Inc., a California
corporation, and its successors and assigns.
"CPS Purchase Agreement" means the purchase agreement dated as of [ ],
between Consumer Portfolio Services, Inc., as seller, and CPS Receivables Corp.,
as purchaser, as such agreement may be amended, supplemented or otherwise
modified from time to time in accordance with the terms thereof.
"CPS Receivable" shall have the meaning specified in the CPS Purchase
Agreement.
"CPS Transferred Property" shall have the meaning specified in the CPS
Purchase Agreement
"Indenture" means the Indenture dated as of [ ], between CPS Auto
Receivables Trust 199[ ]-[ ], as issuer and Norwest Bank Minnesota, National
Association, as trustee.
"Linc" means Linc Acceptance Company, LLC, a Delaware limited liability
company, and its successors and assigns.
"Linc Assignment" means the assignment dated [ ], by the Seller to the
Purchaser, relating to the purchase of the Linc Receivables and certain other
property related thereto by the Purchaser from the Seller pursuant to this
Purchase Agreement which shall be substantially in the form of Exhibit A to this
Purchase Agreement.
"Linc Purchase Agreement" means this Purchase Agreement, as this
agreement may be amended, supplemented or otherwise modified from time to time
in accordance with the terms hereof.
"Linc Receivable" means each retail installment sale contract for a
Financed Vehicle that appears on the Schedule of Linc Receivables and all rights
thereunder.
"Obligor(s)" means the purchaser or co-purchasers of a Financed Vehicle
or any other Person who owes or may be liable for payments under a Receivable.
"Offering Documents" means the Prospectus Supplement and the Base
Prospectus.
"Prospectus Supplement" means the Prospectus Supplement dated [ ],
relating to the public offering of the Notes and any amendment or supplement
thereto.
-2-
<PAGE>
"Purchase Agreement" means this Purchase Agreement, as this agreement
may be amended, supplemented or otherwise modified from time to time in
accordance with the terms hereof.
"Purchaser" means CPS Receivables Corp., a California corporation, and
its successors and assigns.
"Receivable" means, collectively, the CPS Receivables, the Linc
Receivables and the Samco Receivables.
"Receivables Purchase Price" means $[ ].
"Repurchase Event" shall have the meaning specified in Section 6.2
hereof.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
dated as of [ ], among CPS Auto Receivables Trust 199[ ]-[ ], CPS Receivables
Corp., as seller, Consumer Portfolio Services, Inc., as servicer, and [ ], as
Trustee and standby servicer, as such agreement may be amended, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"Samco Purchase Agreement" means the purchase agreement dated as of [
], between Samco Acceptance Corp., as seller, and CPS Receivables Corp., as
purchaser, as such agreement may be amended, supplemented or otherwise modified
from time to time in accordance with the terms thereof.
"Samco Receivable" shall have the meaning specified in the Samco
Purchase Agreement.
"Schedule of CPS Receivables" means the list of CPS Receivables annexed
as Exhibit B to the CPS Purchase Agreement.
"Schedule of Linc Receivables" means the list of Linc Receivables
annexed hereto as Exhibit B.
"Schedule of Receivables" means the Schedule of Linc Receivables and/or
the CPS Schedule of Receivables.
"Seller" means Linc Acceptance Corp., a Delaware corporation, in its
capacity as seller of the Linc Receivables and the other Transferred Linc
Property relating thereto, and its successors and assigns.
"Servicer" means Consumer Portfolio Services, Inc., a California
corporation, in its capacity as Servicer of the Receivables, and its successors
and assigns.
-3-
<PAGE>
"Transferred CPS Property" shall have the meaning specified in the CPS
Purchase Agreement.
"Transferred Linc Property" shall have the meaning specified in Section
2.1(a) hereof.
"Transferred Property" shall have the meaning specified in Section
2.1(a) hereof.
"Transferred Samco Property" shall have the meaning specified in the
Samco Purchase Agreement.
"Trust" means the CPS Auto Receivables Trust 199[ ]-[ ] created by the
Trust Agreement.
"Trust Agreement" means the Trust Agreement between CPS Receivables
Corp. and Bankers Trust (Delaware), as Owner Trustee dated as of [ ].
"UCC" means the Uniform Commercial Code, as in effect from time to time
in the relevant jurisdictions.
"Underwriter" means [ ].
"Underwriting Agreement" means the Underwriting Agreement, dated [ ],
among the Underwriter, CPS, Linc, Samco and the Purchaser relating to the Notes.
ARTICLE II
PURCHASE AND SALE OF RECEIVABLES
2.1. Purchase and Sale of Receivables. On the Closing Date, subject to
the terms and conditions of this Purchase Agreement, the Seller agrees to sell
to the Purchaser, and the Purchaser agrees to purchase from the Seller, without
recourse (subject to the obligations in this Purchase Agreement and the Sale and
Servicing Agreement), all of the Seller's right, title and interest in, to and
under the Linc Receivables and the other Transferred Linc Property relating
thereto. The conveyance to the Purchaser of the Linc Receivables and other
Transferred Linc Property relating thereto is intended as a sale free and clear
of all liens and it is intended that the Transferred Linc Property and other
property of the Purchaser shall not be part of the Seller's estate in the event
of the filing of a bankruptcy petition by or against the Seller under any
bankruptcy law.
(a) Transfer of Receivables. On the Closing Date and
simultaneously with the transactions to be consummated pursuant to the Trust
Agreement, the Indenture and the Sale and Servicing Agreement, the Seller shall
sell, transfer, assign, grant, set over and otherwise
-4-
<PAGE>
convey to the Purchaser, without recourse (subject to the obligations herein and
in the Sale and Servicing Agreement), all right, title and interest of the
Seller in and to (i) the Linc Receivables listed in the Schedule of Linc
Receivables, all monies received thereon after the Cutoff Date and all Net
Liquidation Proceeds received with respect thereto after the Cutoff Date; (ii)
the security interests in the Financed Vehicles granted by Obligors pursuant to
the Linc Receivables and any other interest of the Seller in such Financed
Vehicles, including, without limitation, the certificates of title or, with
respect to Financed Vehicles in the State of Michigan, other evidence of
ownership with respect to Financed Vehicles; (iii) any proceeds from claims on
any physical damage, credit life and credit accident and health insurance
policies or certificates relating to the Financed Vehicles securing the Linc
Receivables or the Obligors thereunder; (iv) refunds for the costs of extended
service contracts with respect to Financed Vehicles securing the Linc
Receivables, refunds of unearned premiums with respect to credit life and credit
accident and health insurance policies or certificates covering an Obligor or
Financed Vehicle securing the Linc Receivables or his or her obligations with
respect to such a Financed Vehicle and any recourse to Dealers for any of the
foregoing; (v) the Receivable File related to each Linc Receivable; and (vi) the
proceeds of any and all of the foregoing (collectively, the "Transferred Linc
Property" and together with the Transferred CPS Property and the Transferred
Samco Property, the "Transferred Property").
(b) Receivables Purchase Price. In consideration for the Linc
Receivables and other Transferred Linc Property described in Section 2.1(a), the
Purchaser shall, on the Closing Date, pay to the Seller the Receivables Purchase
Price by federal wire transfer (same day) funds.
2.2. The Closing. The sale and purchase of the Linc Receivables shall
take place at a closing (the "Closing") at the offices of Mayer, Brown & Platt,
1675 Broadway, New York, New York 10019-5820 on the Closing Date, simultaneously
with the closings under: (a) the CPS Purchase Agreement pursuant to which CPS
will sell the CPS Receivables to CPS Receivables Corp., (b) the Samco Purchase
Agreement pursuant to which Samco will sell the Samco Receivables to CPS
Receivables Corp., (c) the Sale and Servicing Agreement pursuant to which the
Purchaser will assign all of its right, title and interest in and to the
Receivables and the other Transferred Property to the Trust for the benefit of
the Securityholders, (d) the Trust Agreement pursuant to which the Trust shall
be formed and the Certificates issued, (e) the Indenture pursuant to which the
Trust will issue the Notes, and (f) the Underwriting Agreement pursuant to which
the Purchaser shall sell the Notes to the Underwriter.
-5-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Seller as of the date hereof and as of the
Closing Date (which representations and warranties shall survive the Closing
Date):
(a) Organization and Good Standing. The Purchaser has been
duly organized and is validly existing as a corporation in good standing under
the laws of the State of California, with power and authority to own its
properties and to conduct its business as such properties shall be currently
owned and such business is presently conducted, and had at all relevant times,
and shall have, power, authority and legal right to acquire and own the Linc
Receivables.
(b) Due Qualification. The Purchaser is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals in all jurisdictions in which the ownership or
lease of property or the conduct of its business shall require such
qualifications.
(c) Power and Authority. The Purchaser has the power and
authority to execute and deliver the Agreements and to carry out its terms and
the execution, delivery and performance of the Agreements has been duly
authorized by the Purchaser by all necessary corporate action.
(d) Binding Obligation. This Agreement shall constitute a
legal, valid and binding obligation of the Purchaser enforceable in accordance
with its terms.
(e) No Violation. The execution, delivery and performance by
the Purchaser of the Agreements and the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof do not conflict
with, result in a breach of any of the terms and provisions of, nor constitute
(with or without notice or lapse of time) a default under, the articles of
incorporation or by-laws of the Purchaser, or any indenture, agreement,
mortgage, deed of trust, or other instrument to which the Purchaser is a party
or by which it is bound or to which any of its properties are subject; nor
result in the creation or imposition of any lien upon any of its properties
pursuant to the terms of any indenture, agreement, mortgage, deed of trust, or
other instrument (other than the Basic Documents); nor violate any law, order,
rule or regulation applicable to the Purchaser of any court or of any Federal or
State regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Purchaser or its properties.
(f) No Proceedings. There are no proceedings or investigations
pending, or to the Purchaser's best knowledge, threatened, before any court,
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over the
-6-
<PAGE>
Purchaser or its properties: (A) asserting the invalidity of the Agreements or
the Securities; (B) seeking to prevent the issuance of the Securities or the
consummation of any of the transactions contemplated by the Agreements; (C)
seeking any determination or ruling that might materially and adversely affect
the performance by the Purchaser of its obligations under, or the validity or
enforceability of, the Agreements or the Securities; or (D) relating to the
Purchaser and which might adversely affect the Federal or State income, excise,
franchise or similar tax attributes of the Securities.
(g) No Consents. No consent, approval, authorization or order
of or declaration or filing with any governmental authority is required to be
obtained by the Purchaser for the issuance or sale of the Securities or the
consummation of the other transactions contemplated by the Agreements, the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, except such as
have been duly made or obtained.
3.2. Representations and Warranties of the Seller. (a) The Seller
hereby represents and warrants to the Purchaser as of the date hereof and as of
the Closing Date (which representations and warranties shall survive the Closing
Date):
(i) Organization and Good Standing. The Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with power and authority to
own its properties and to conduct its business as such properties shall
be currently owned and such business is presently conducted and had at
all relevant times, and shall have, power, authority and legal right to
acquire, and own the Linc Receivables.
(ii) Due Qualification. The Seller is duly qualified to do
business as a foreign corporation in good standing, and has obtained
all necessary licenses and approvals in all jurisdictions in which the
ownership or lease of property or the conduct of its business
(including the origination of the Linc Receivables as required by the
Sale and Servicing Agreement) shall require such qualifications.
(iii) Power and Authority. The Seller has the power and
authority to execute and deliver this Agreement and to carry out its
terms; the Seller has full power and authority to sell and assign the
property sold and assigned to the Purchaser and has duly authorized
such sale and assignment to the Purchaser by all necessary corporate
action; and the execution, delivery and performance of the Agreements
has been duly authorized by the Seller by all necessary corporate
action.
(iv) Valid Sale; Binding Obligation. This Agreement effects a
valid sale, transfer and assignment of the Linc Receivables and the
other Transferred Linc Property conveyed to the Purchaser pursuant to
Section 2.1, enforceable against creditors of and purchasers from the
Seller; and this Agreement shall constitute a legal, valid and binding
obligation of the Seller enforceable in accordance with its terms.
-7-
<PAGE>
(v) No Violation. The execution, delivery and performance by
the Seller of the Agreements and the consummation of the transactions
contemplated hereby and the fulfillment of the terms hereof do not
conflict with, result in any breach of any of the terms and provisions
of, nor constitute (with or without notice or lapse of time) a default
under, the articles of incorporation, as amended, or by-laws of the
Seller, or any indenture, agreement, mortgage, deed of trust, or other
instrument to which the Seller is a party or by which it is bound or to
which any of its properties are subject; nor result in the creation or
imposition of any lien upon any of its properties pursuant to the terms
of any such indenture, agreement, mortgage, deed of trust, or other
instrument (other than the Basic Documents); nor violate any law,
order, rule or regulation applicable to the Seller of any court or of
any Federal or State regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Seller or its
properties.
(vi) No Proceedings. There are no proceedings or
investigations pending, or to the Seller's best knowledge, threatened,
before any court, regulatory body, administrative agency, or other
governmental instrumentality having jurisdiction over the Seller or its
properties: (A) asserting the invalidity of the Agreements or the
Securities; (B) seeking to prevent the issuance of the Securities or
the consummation of any of the transactions contemplated by the
Agreements; (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Seller of its
obligations under, or the validity or enforceability of, the Agreements
or the Securities; or (D) relating to the Seller and which might
adversely affect the Federal or State income, excise, franchise or
similar tax attributes of the Securities.
(vii) No Consents. No consent, approval, authorization or
order of or declaration or filing with any governmental authority is
required for the issuance or sale of the Securities or the consummation
of the other transactions contemplated by the Agreements, the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, except
such as have been duly made or obtained.
(viii) Financial Condition. The Seller has a positive net
worth and is able to and does pay its liabilities as they mature. The
Seller is not in default under any obligation to pay money to any
Person except for matters being disputed in good faith which do not
involve an obligation of the Seller on a promissory note. The Seller
will not use the proceeds from the transactions contemplated by this
Agreement to give any preference to any creditor or class of creditors,
and this transaction will not leave the Seller with remaining assets
which are unreasonably small compared to its ongoing operations.
(ix) Fraudulent Conveyance. The Seller is not selling the Linc
Receivables to the Purchaser with any intent to hinder, delay or
defraud any of its creditors; the Seller will not be rendered insolvent
as a result of the sale of the Linc Receivables to the Purchaser.
-8-
<PAGE>
(b) The Seller makes the following representations and warranties as to
the Linc Receivables and the other Transferred Linc Property relating thereto on
which the Purchaser relies in accepting the Linc Receivables and the other
Transferred Linc Property relating thereto. Such representations and warranties
speak with respect to each Linc Receivable as of the Closing Date and shall
survive the sale, transfer, and assignment of the Linc Receivables and the other
Transferred Linc Property relating thereto to the Purchaser and the subsequent
assignments and transfers pursuant to the Sale and Servicing Agreement and the
Indenture:
(i) Location of Receivable Files; One Original. A complete
Receivable File with respect to each Linc Receivable has been or prior
to the Closing Date will be delivered to the Trustee at the location
listed in Schedule B to the Sale and Servicing Agreement. There is only
one original executed copy of each Linc Receivable.
(ii) Schedule of Receivables; Selection Procedures. The
information with respect to the Linc Receivables set forth in the
Schedule of Linc Receivables is true and correct in all material
respects as of the close of business on the related Cutoff Date, and no
selection procedures adverse to the Securityholders have been utilized
in selecting the Linc Receivables.
(iii) Security Interest in Financed Vehicle. Immediately prior
to the sale, assignment, and transfer thereof, each Linc Receivable
shall be secured by a validly perfected first priority security
interest in the related Financed Vehicle in favor of the Seller as
secured party, and such security interest is prior to all other liens
upon and security interests in such Financed Vehicle which now exist or
may hereafter arise or be created (except, as to priority, for any tax
liens or mechanics' liens which may arise after the Closing Date).
(iv) Linc Receivables in Force. No Linc Receivable has been
satisfied, subordinated or rescinded, nor has any Financed Vehicle been
released from the lien granted by the related Linc Receivable in whole
or in part.
(v) No Waiver. No provision of a Linc Receivable has been
waived.
(vi) No Amendments. No Linc Receivable has been amended,
except as such Linc Receivable may have been amended to grant
extensions which shall not have numbered more than (a) one extension of
one calendar month in any calendar year or (b) three such extensions in
the aggregate.
(vii) No Default; Repossession. Except for payment
delinquencies continuing for a period of not more than thirty days as
of the Cutoff Date, no default, breach, violation or event permitting
acceleration under the terms of any Linc
-9-
<PAGE>
Receivable has occurred; and no continuing condition that with notice
or the lapse of time would constitute a default, breach, violation, or
event permitting acceleration under the terms of any Linc Receivable
has arisen; and the Seller shall not waive and has not waived any of
the foregoing; and no Financed Vehicle securing a Linc Receivable shall
have been repossessed as of the Cutoff Date.
(viii) Title. It is the intention of the Seller that the
transfer and assignment herein contemplated constitute a sale of the
Linc Receivables and other Transferred Linc Property from the Seller to
the Purchaser and that the beneficial interest in and title to such
Linc Receivables and other Transferred Linc Property not be part of the
debtor's estate in the event of the filing of a bankruptcy petition by
or against the Seller under any bankruptcy law. No Linc Receivable or
other Transferred Linc Property has been sold, transferred, assigned,
or pledged by the Seller to any Person other than the Purchaser or any
such pledge has been released on or prior to the Closing Date.
Immediately prior to any transfer and assignment herein contemplated,
the Seller had good and marketable title to each Linc Receivable and
other Transferred Linc Property, and was the sole owner thereof, free
and clear of all liens, claims, encumbrances, security interests, and
rights of others and, immediately upon the transfer thereof, the
Purchaser shall have good and marketable title to each such Linc
Receivable and other Transferred Linc Property, and will be the sole
owner thereof, free and clear of all liens, encumbrances, security
interests, and rights of others, and the transfer has been perfected
under the UCC.
(ix) Lawful Assignment. No Linc Receivable has been originated
in, or is subject to the laws of, any jurisdiction under which the
sale, transfer, and assignment of such Linc Receivable under the
Agreements shall be unlawful, void, or voidable. The Seller has not
entered into any agreement with any account debtor that prohibits,
restricts or conditions the assignment of any portion of the Linc
Receivables.
(x) All Filings Made. All filings (including, without
limitation, UCC filings) necessary in any jurisdiction to give the
Purchaser a first priority perfected ownership interest in the Linc
Receivables and the other Transferred Linc Property have been made,
taken or performed.
(xi) Casualty. No Financed Vehicle related to a Receivable has
suffered a Casualty.
(xii) Obligation to Dealers or Others. The Purchaser and its
assignees will assume no obligation to Dealers or other originators or
holders of the Linc Receivables (including, but not limited to under
dealer reserves) as a result of the purchase of the Linc Receivables.
-10-
<PAGE>
(xiii) Full Amount Advanced. The full amount of each Linc
Receivable has been advanced to each Obligor, and there are no
requirements for future advances thereunder. No Obligor with respect to
a Linc Receivable has any option under the Linc Receivable to borrow
from any Person additional funds secured by the related Financed
Vehicle.
(c) The representations and warranties contained in this Agreement
shall not be construed as a warranty or guaranty by the Seller as to the future
payments by any Obligor. The sale of the Linc Receivables pursuant to this
Agreement shall be "without recourse" to the Seller except for the
representations, warranties and covenants made by the Seller in this Purchase
Agreement.
ARTICLE IV
CONDITIONS
4.1. Conditions to Obligation of the Purchaser. On the Closing Date,
the obligation of the Purchaser to purchase the Linc Receivables is subject to
the satisfaction of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of the Seller hereunder shall be true and correct on the Closing Date
with the same effect as if then made, and the Seller shall have performed all
obligations to be performed by it hereunder on or prior to the Closing Date.
(b) Computer Files Marked. The Seller shall, at its own expense, on or
prior to the Closing Date, indicate in its computer files that the Linc
Receivables have been sold to the Purchaser pursuant to the Agreements and shall
deliver to the Purchaser the Schedule of Linc Receivables certified by the
Chairman, the President, the Vice President or the Treasurer of the Seller to be
true, correct and complete.
(c) Receivable Files Delivered. The Seller shall, at its own expense,
deliver the related Receivable Files to the Trustee at the offices specified in
Schedule B to the Sale and Servicing Agreement on or prior to the Closing Date.
(d) Documents to be delivered by the Seller on the Closing Date.
(i) The Assignment. On the Closing Date, the Seller will
execute and deliver the applicable Assignment. The Assignment shall be
substantially in the form of Exhibit A hereto.
(ii) Evidence of UCC-1 Filing. On or prior to the Closing
Date, the Seller shall record and file, at its own expense, a UCC-1
financing statement in
-11-
<PAGE>
each jurisdiction in which required by applicable law, executed by the
Seller, as seller or debtor, and naming the Purchaser, as purchaser or
secured party, naming the Linc Receivables and the other Transferred
Linc Property conveyed hereafter as collateral, meeting the
requirements of the laws of each such jurisdiction and in such manner
as is necessary to perfect the sale, transfer, assignment and
conveyance of such Linc Receivables to the Purchaser. The Seller shall
deliver a file-stamped copy, or other evidence satisfactory to the
Purchaser of such filing, to the Purchaser on or prior to the Closing
Date.
(iii) Other Documents. On or prior to the Closing Date, the
Seller shall deliver such other documents as the Purchaser may
reasonably request.
(e) Other Transactions. The transactions contemplated by the Trust
Agreement, the Indenture, the Sale and Servicing Agreement, the CPS Purchase
Agreement, the Samco Purchase Agreement, the Underwriting Agreement and the
Certificate Purchase Agreement shall be consummated on the Closing Date.
4.2. Conditions to Obligation of the Seller. The obligation of the
Seller to sell the Linc Receivables to the Purchaser is subject to the
satisfaction of the following conditions on the Closing Date:
(a) Representations and Warranties True. The representations and
warranties of the Purchaser hereunder shall be true and correct on the Closing
Date with the same effect as if then made, and the Seller shall have performed
all obligations to be performed by it hereunder on or prior to the Closing Date.
(b) Receivables Purchase Price. The Purchaser will deliver to the
Seller the purchase price for the related Linc Receivables (on the Closing Date
as provided in Section 2.1(b)). The Seller hereby directs the Purchaser to wire
such purchase price pursuant to wire instructions to be delivered to the
Purchaser on or prior to the Closing Date.
ARTICLE V
COVENANTS OF THE SELLER
The Seller agrees with the Purchaser as follows:
5.1. Protection of Right, Title and Interest.
(a) Filings. The Seller shall cause all financing statements and
continuation statements and any other necessary documents covering the right,
title and interest of the Purchaser in and to the Linc Receivables and the other
Transferred Linc Property to be promptly filed, and at all times to be kept
recorded, registered and filed, all in
-12-
<PAGE>
such manner and in such places as may be required by law fully to preserve and
protect the right, title and interest of the Purchaser hereunder to the Linc
Receivables and the other Transferred Linc Property. The Seller shall cause to
be delivered to the Purchaser file stamped copies of, or filing receipts for,
any document recorded, registered or filed as provided above, as soon as
available following such recordation, registration or filing. The Purchaser
shall cooperate fully with the Seller in connection with the obligations set
forth above and will execute any and all documents reasonably required to
fulfill the intent of this Section 5.1(a). In the event the Seller fails to
perform its obligations under this subsection, the Purchaser or the Trustee may
do so at the expense of the Seller.
(b) Name and Other Changes. At least 60 days prior to the date the
Seller makes any change in its name, identity or corporate structure which would
make any financing statement or continuation statement filed in accordance with
paragraph (a) above seriously misleading within the applicable provisions of the
UCC or any title statute, the Seller shall give the Trustee, the Insurer (so
long as an Insurer Default shall not have occurred and be continuing) and the
Purchaser written notice of any such change and no later than five days after
the effective date thereof, shall file appropriate amendments to all previously
filed financing statements or continuation statements. At least 60 days prior to
the date of any relocation of its principal executive office, the Seller shall
give the Trustee, the Insurer (so long as an Insurer Default shall not have
occurred and be continuing) and the Purchaser written notice thereof if, as a
result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and the Seller shall within five
days after the effective date thereof, file any such amendment or new financing
statement. The Seller shall at all times maintain each office from which it
shall service Receivables, and its principal executive office, within the United
States of America.
(c) Maintenance of Computer Systems. The Seller shall maintain its
computer systems so that, from and after the time of sale to the Purchaser of
the Linc Receivables hereunder, the Seller's master computer records (including
any back-up archives) that refer to a Linc Receivable shall indicate clearly the
interest of the Purchaser in such Linc Receivable and that such Linc Receivable
is owned by the Purchaser. Indication of the Purchaser's ownership of a Linc
Receivable shall be deleted from or modified on the Seller's computer systems
when, and only when, the Linc Receivable shall have been paid in full or
repurchased.
(d) Sale of Other Receivables. If at any time the Seller shall propose
to sell, grant a security interest in, or otherwise transfer any interest in any
automobile or light-duty truck receivables (other than the Linc Receivables) to
any prospective purchaser, lender, or other transferee, the Seller shall give to
such prospective purchaser, lender, or other transferee computer tapes, records,
or print-outs (including any restored from back-up archives) that, if they shall
refer in any manner whatsoever to any Linc Receivable, shall indicate clearly
that such Linc Receivable has been sold and is owned by the Purchaser unless
such Linc Receivable has been paid in full or repurchased.
-13-
<PAGE>
(e) Access to Records. The Seller shall permit the Purchaser and its
agents at any time during normal business hours to inspect, audit, and make
copies of and abstracts from the Seller's records regarding any Linc Receivable.
(f) List of Receivables. Upon request, the Seller shall furnish to the
Purchaser, within five Business Days, a list of all Linc Receivables (by
contract number and name of Obligor) then owned by the Purchaser, together with
a reconciliation of such list to the Schedule of Linc Receivables.
5.2. Other Liens or Interests. Except for the conveyances hereunder and
pursuant to the Sale and Servicing Agreement, the Seller will not sell, pledge,
assign or transfer to any other Person, or grant, create, incur, assume or
suffer to exist any lien on any interest therein, and the Seller shall defend
the right, title, and interest of the Purchaser in, to and under the Linc
Receivables against all claims of third parties claiming through or under the
Seller.
5.3. Chief Executive Office. During the term of the Linc Receivables,
the Seller will maintain its chief executive office in one of the United States,
except Louisiana or Vermont.
5.4. Costs and Expenses. The Seller agrees to pay all reasonable costs
and disbursements in connection with the perfection, as against all third
parties, of the Purchaser's right, title and interest in and to the Linc
Receivables.
5.5. Delivery of Receivable Files. On or prior to the Closing Date, the
Seller shall cause to be delivered to the Trustee at the location specified in
Schedule B to the Sale and Servicing Agreement the Receivables Files relating to
the Linc Receivables. The Seller shall have until the last day of the second
Collection Period following receipt of notification that there has been a
failure to deliver a file with respect to a Linc Receivable or that a file is
unrelated to the Receivables identified in Schedule A to the Sale and Servicing
Agreement or that any of the documents referred to in Section 3.3 of the Sale
and Servicing Agreement are not contained in a Receivable File, to deliver such
file or any of the aforementioned documents required to be included in such
Receivable File to the Trustee. Unless such defect with respect to such
Receivable File shall have been cured by the last day of the second Collection
Period following discovery thereof by the Trustee and notice thereof to Linc,
the Seller hereby agrees to repurchase any such Receivable from the Trust as of
such last day. In consideration of the purchase of the Receivable, the Seller
shall remit the Purchase Amount in the manner specified in Section 4.7 of the
Sale and Servicing Agreement. The sole remedy hereunder of the Trustee, the
Trust or the Securityholders with respect to a breach of this Section 5.5, shall
be to require the Seller to repurchase the Receivable pursuant to this Section
5.5. Upon receipt of the Purchase Amount, the Trustee shall release to the
Seller or its designee the related Receivable File and shall execute and deliver
all instruments of transfer or assignment, without recourse, as are prepared by
the Seller and delivered to the Trustee and are necessary to vest in the Seller
or such designee title to the Receivable.
-14-
<PAGE>
5.6. Indemnification. (a) Subject to the limitation of remedies set
forth in Section 6.2 hereof with respect to a breach of any representations and
warranties contained in Section 3.2(b) hereof, the Seller shall indemnify the
Purchaser for any liability as a result of the failure of a Linc Receivable to
be originated in compliance with all requirements of law and for any breach of
any of its representations and warranties contained herein.
(b) The Seller shall defend, indemnify, and hold harmless the Purchaser
from and against any and all costs, expenses, losses, damages, claims, and
liabilities, arising out of or resulting from the use, ownership, or operation
by the Seller or any Affiliate thereof of a Financed Vehicle related to a Linc
Receivable.
(c) The Seller shall defend, indemnify, and hold harmless the Purchaser
from and against any and all taxes, except for taxes on the net income of the
Purchaser, that may at any time be asserted against the Purchaser with respect
to the transactions contemplated herein, including, without limitation, any
sales, gross receipts, general corporation, tangible personal property,
privilege, or license taxes and costs and expenses in defending against the
same.
(d) The Seller shall defend, indemnify, and hold harmless the Purchaser
from and against any and all costs, expenses, losses, damages, claims and
liabilities to the extent that such cost, expense, loss, damage, claim or
liability arose out of, or was imposed upon the Purchaser through, the
negligence, willful misfeasance, or bad faith of the Seller in the performance
of its duties under the Agreements, or by reason of reckless disregard of the
Seller's obligations and duties under the Agreements.
Indemnification under this Section 5.6 shall include reasonable fees
and expenses of litigation and shall survive payment of the Notes and
Certificates. These indemnity obligations shall be in addition to any obligation
that the Seller may otherwise have.
5.7. Sale. The Seller agrees to treat this conveyance for all purposes
(including without limitation tax and financial accounting purposes) as a sale
on all relevant books, records, tax returns, financial statements and other
applicable documents.
5.8. Non-Petition. In the event of any breach of a representation and
warranty made by the Purchaser hereunder, the Seller covenants and agrees that
it will not take any action to pursue any remedy that it may have hereunder, in
law, in equity or otherwise, until a year and a day have passed since the date
on which all securities issued by the Trust or a similar trust formed by the
Purchaser have been paid in full. The Purchaser and the Seller agree that
damages will not be an adequate remedy for such breach and that this covenant
may be specifically enforced by the Purchaser or by the Trust.
-15-
<PAGE>
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1. Obligations of Seller. The obligations of the Seller under the
Agreements shall not be affected by reason of any invalidity, illegality or
irregularity of any Linc Receivable.
6.2. Repurchase Events. The Seller hereby covenants and agrees with the
Purchaser for the benefit of the Purchaser, the Trustee, the Insurer and the
Securityholders, that (i) the occurrence of a breach of any of the Seller's
representations and warranties contained in Section 3.2(b) hereof (without
regard to any limitations regarding the Seller's knowledge) and (ii) the failure
of the Seller to timely comply with its obligations pursuant to Section 5.5
hereof, shall constitute events obligating the Seller to repurchase the affected
Linc Receivables hereunder ("Repurchase Events"), at the Purchase Amount from
the Trust. Unless the breach of any of the Seller's representations and
warranties shall have been cured by the last day of the second Collection Period
following the discovery thereof by or notice to the Purchaser and the Seller of
such breach, the Seller shall repurchase any Linc Receivable if such Linc
Receivable is materially and adversely affected by the breach as of the last day
of such second Collection Period (or, at the Seller's option, the last day of
the first Collection Period following the discovery) and, in the event that the
breach relates to a characteristic of the Linc Receivables in the aggregate, and
if the Trust is materially and adversely affected by such breach, unless the
breach shall have been cured by such second Collection Period, the Seller shall
purchase such aggregate Principal Balance of Linc Receivables, such that
following such purchase such representation shall be true and correct with
respect to the remainder of the Linc Receivables in the aggregate. The
provisions of this Section 6.2 are intended to grant the Trustee a direct right
against the Seller to demand performance hereunder, and in connection therewith
the Seller waives any requirement of prior demand against the Purchaser and
waives any defaults it would have against the Purchaser with respect to such
repurchase obligation. Any such purchase shall take place in the manner
specified with respect to CPS in Section 4.7 of the Sale and Servicing
Agreement. The sole remedy hereunder of the Securityholders, the Trust, the
Insurer, the Trustee or the Purchaser against the Seller with respect to any
Repurchase Event shall be to enforce the Seller's obligation to repurchase such
Linc Receivables pursuant to this Agreement; provided, however, that the Seller
shall indemnify the Trustee, the Insurer, the Trust and the Securityholders
against all costs, expenses, losses, damages, claims and liabilities, including
reasonable fees and expenses of counsel, which may be asserted against or
incurred by any of them, as a result of third party claims arising out of the
events or facts giving rise to such breach. Upon receipt of the Purchase Amount,
the Purchaser shall cause the Trustee to release the related Receivables File to
the Seller and to execute and deliver all instruments of transfer or assignment,
without recourse, as are necessary to vest in the Seller title to the Linc
Receivable. Notwithstanding the foregoing, if it is determined that consummation
of the transactions contemplated by the Sale and Servicing Agreement and the
other transaction documents referenced in such Agreement, servicing and
operation of the Trust pursuant to such Agreement and such other documents, or
the ownership of a Security
-16-
<PAGE>
by a Holder constitutes a violation of the prohibited transaction rules of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the
Internal Revenue Code of 1986, as amended ("Code") for which no statutory
exception or administrative exemption applies, such violation shall not be
treated as a Repurchase Event.
6.3. Seller's Assignment of Purchased Receivables. With respect to all
Linc Receivables repurchased by the Seller pursuant to the Agreements, the
Purchaser shall assign, without recourse except as provided herein,
representation or warranty, to the Seller all the Purchaser's right, title and
interest in and to such Linc Receivables, and all security and documents
relating thereto.
6.4. Conveyance as Sale of Receivables Not Financing. The parties
hereto intend that the conveyance under this Agreement be a sale of the Linc
Receivables and the other Transferred Linc Property from the Seller to the
Purchaser and not a financing secured by such assets; and the beneficial
interest in and title to the Linc Receivables and the other Transferred Linc
Property shall not be part of the Seller's estate in the event of the filing of
a bankruptcy petition by or against the Seller under any bankruptcy law. In the
event that any conveyance hereunder is for any reason not considered a sale, the
parties intend that this Agreement constitute a security agreement under the UCC
(as defined in the UCC as in effect in the State of Connecticut) and applicable
law, and the Seller hereby grants to the Purchaser a first priority perfected
security interest in, to and under the Linc Receivables and the other
Transferred Linc Property being delivered to the Purchaser on the Closing Date,
and other property conveyed hereunder and all proceeds of any of the foregoing
for the purpose of securing payment and performance of the Securities and the
repayment of amounts owed to the Purchaser from the Seller. In the event that
the assignment of a Linc Receivable to the Purchaser is insufficient, without a
notation on the related Financed Vehicle's certificate of title, or without
fulfilling any additional administrative requirements under the laws of the
state in which the Financed Vehicle is located, to perfect a security interest
in the related Financed Vehicle in favor of the Purchaser, the Seller and
Purchaser hereby agree that the Seller's designation as the secured party on the
certificate of title is in its capacity as agent of the Purchaser and the
Purchaser's transferees.
6.5. Trust. The Seller acknowledges that the Purchaser will, pursuant
to the Sale and Servicing Agreement, sell the Receivables to the Trust and
assign its rights under this Purchase Agreement, the Samco Purchase Agreement
and the CPS Purchase Agreement to the Trustee for the benefit of the
Securityholders, and that the representations and warranties contained in this
Agreement and the rights of the Purchaser under this Purchase Agreement,
including under Sections 6.2 and 6.4 hereof are intended to benefit such Trust
and the Securityholders. The Seller also acknowledges that the Trustee on behalf
of the Securityholders as assignee of the Purchaser's rights hereunder may
directly enforce, without making any prior demand on the Purchaser, all the
rights of the Purchaser hereunder including the rights under Section 6.2 and 6.4
hereof. The Seller hereby consents to such sale and assignment.
-17-
<PAGE>
6.6. Amendment. This Agreement may be amended from time to time by a
written amendment duly executed and delivered by the Seller and the Purchaser
with the consent of the Insurer; provided, however, that (i) any such amendment
that materially adversely affects the rights of the Noteholders under the Sale
and Servicing Agreement must be consented to by the holders of Notes
representing more than [ ]% of the outstanding principal amount of Notes and
(ii) any such amendment that materially adversely affects the rights of the
Certificateholders under the Sale and Servicing Agreement must be consented to
by the holders of Certificates representing more than [ ]% of the Certificate
Balance.
6.7. Waivers. No failure or delay on the part of the Purchaser in
exercising any power, right or remedy under the Agreements shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or remedy preclude any other or further exercise thereof or the exercise
of any other power, right or remedy.
6.8. Notices. All communications and notices pursuant hereto to either
party shall be in writing or by telegraph or telex and addressed or delivered to
it at its address (or in case of telex, at its telex number at such address)
shown in the opening portion of this Agreement or at such other address as may
be designated by it by notice to the other party and, if mailed or sent by
telegraph or telex, shall be deemed given when mailed, communicated to the
telegraph office or transmitted by telex.
6.9. Costs and Expenses. The Seller will pay all expenses incident to
the performance of its obligations under this Purchase Agreement.
6.10. Representations of the Seller and the Purchaser. The respective
agreements, representations, warranties and other statements by the Seller and
the Purchaser set forth in or made pursuant to this Purchase Agreement shall
remain in full force and effect and will survive each closing hereunder.
6.11. Confidential Information. The Purchaser agrees that it will
neither use nor disclose to any Person the names and addresses of the Obligors,
except in connection with the enforcement of the Purchaser's rights hereunder,
under the Linc Receivables, under the Sale and Servicing Agreement or as
required by law.
6.12. Headings and Cross-References. The various headings in this
Purchase Agreement are included for convenience only and shall not affect the
meaning or interpretation of any provision of this Purchase Agreement.
References in this Purchase Agreement to Section names or numbers are to such
Sections of this Purchase Agreement.
6.13. Third Party Beneficiaries. The parties hereto hereby expressly
agree that each of the Trustee for the benefit of the Securityholders and the
Note Insurer shall be third party beneficiaries with respect to this Purchase
Agreement, provided, however, that no third party other than the Trustee for the
benefit of the Securityholders and the Note Insurer shall be deemed a third
party beneficiary of this Purchase Agreement.
-18-
<PAGE>
6.14. Governing Law. THIS PURCHASE AGREEMENT AND THE ASSIGNMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
6.15. Counterparts. This Agreement may be executed in two or more
counterparts and by different parties on separate counterparts, each of which
shall be an original, but all of which together shall constitute one and the
same instrument.
[Rest of page intentionally left blank.]
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
and year first above written.
CPS RECEIVABLES CORP.
By:
Title:
LINC ACCEPTANCE COMPANY LLC
By:
Title:
-20-
<PAGE>
Exhibit A
ASSIGNMENT
For value received, on this [ ] day of [ ], in accordance with the
Purchase Agreement dated as of [ ], between the undersigned (the "Seller") and
CPS Receivables Corp. (the "Purchaser") (the "Linc Purchase Agreement"), the
undersigned does hereby sell, transfer, assign and otherwise convey unto the
Purchaser, without recourse (subject to the obligations in the Linc Purchase
Agreement and the Sale and Servicing Agreement), all right, title and interest
of the Seller in and to (i) the Linc Receivables listed in the Schedule of Linc
Receivables, all monies received thereon after the Cutoff Date and all Net
Liquidation Proceeds received with respect thereto after the Cutoff Date; (ii)
the security interests in the Financed Vehicles granted by Obligors pursuant to
the Linc Receivables and any other interest of the Seller in such Financed
Vehicles, including, without limitation, the certificates of title or, with
respect to Financed Vehicles in the State of Michigan, other evidence of
ownership with respect to Financed Vehicles; (iii) any proceeds from claims on
any physical damage, credit life and credit accident and health insurance
policies or certificates relating to the Financed Vehicles securing the Linc
Receivables; (iv) refunds for the costs of extended service contracts with
respect to Financed Vehicles securing the Linc Receivables, refunds of unearned
premiums with respect to credit life and credit accident and health insurance
policies or certificates covering an Obligor or Financed Vehicle securing the
Linc Receivables or his or her obligations with respect to such a Financed
Vehicle and any recourse to Dealers for any of the foregoing; (v) the Receivable
File related to each Linc Receivable; and (vi) the proceeds of any and all of
the foregoing. The foregoing sale does not constitute and is not intended to
result in any assumption by the Purchaser of any obligation of the undersigned
to the Obligors, insurers or any other Person in connection with the Linc
Receivables, the Receivable Files, any insurance policies or any agreement or
instrument relating to any of them.
This Assignment is made pursuant to and upon the representations,
warranties and agreements on the part of the undersigned contained in the Linc
Purchase Agreement and is to be governed by the Linc Purchase Agreement.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Linc Purchase Agreement.
THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW
PRINCIPLES.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Assignment to be
duly executed as of the day and year first above written.
LINC ACCEPTANCE COMPANY LLC
By:
Name:
Title:
-2-
<PAGE>
Exhibit B
Schedule of Linc Receivables
See Following Page
Exhibit 24.1
Power of Attorney
CONSUMER PORTFOLIO SERVICES, INC.
Power of Attorney
Each of the undersigned persons, in his or her capacity as an officer
or director, or both, of Consumer Portfolio Services, Inc. ("CPS"), hereby
appoints Jeffrey P. Fritz as his or her attorney-in-fact and agent for the
following purposes:
1. To sign for him or her, in his or her name and in his or
her capacity as an officer or director, or both, of the Bank, a
Registration Statement on Form S-3 and any amendments and
post-effective amendments thereto (collectively, the "Registration
Statement"), for the registration under the Securities Act of 1933, as
amended (the "Act"), of asset backed notes (the "Notes") representing
debt of, and certificates (the "Certificates" and, together with the
Notes, the "Securities") representing undivided interests in, a trust,
the property of which includes automobile receivables originated or
acquired by CPS;
2. To file or cause to be filed such Registration Statement
with the Securities and Exchange Commission;
3. To take all such other action as any such attorney-in-fact,
or his or her substitute, may deem necessary or desirable in order to
effect and maintain the registration of the Certificates; and
4. To sign for him or her, in his or her name and in his or
her capacity as an officer or director, or both, of CPS, all such
documents and instruments as any such attorney-in-fact, or his or her
substitute, may deem necessary or advisable in connection with the
registration, qualification or exemption of the Securities under the
securities laws of any state or other jurisdiction.
<PAGE>
This power of attorney shall be effective as of September 17, 1998 and
shall continue in full force and effect until revoked by the undersigned in a
writing filed with the Secretary of CPS.
/s/ Charles E. Bradley, Sr.
Charles E. Bradley, Sr.
/s/ Charles E. Bradley, Jr.
Charles E. Bradley, Jr.
/s/ William B. Roberts
William B. Roberts
/s/ John G. Poole
John G. Poole
/s/ Thomas L. Chrystie
Thomas L. Chrystie
/s/ Robert A. Simms
Robert A. Simms
