<PAGE>
PROSPECTUS SUPPLEMENT FILED PURSUANT TO RULE 424(b)(2)
(TO PROSPECTUS DATED MAY 19, 1997) REGISTRATION NO. 333-24373
$306,568,000
CATERPILLAR FINANCIAL ASSET TRUST 1997-B
$81,000,000 CLASS A-1 5.805% ASSET BACKED NOTES
$110,900,000 CLASS A-2 6.018% ASSET BACKED NOTES
$102,091,000 CLASS A-3 6.16% ASSET BACKED NOTES
$12,577,000 CLASS B 6.35% ASSET BACKED NOTES
CATERPILLAR FINANCIAL FUNDING CORPORATION, SELLER
CATERPILLAR FINANCIAL SERVICES CORPORATION, SERVICER
---------------------
Interest on the Class A-1 5.805% Asset Backed Notes (the "CLASS A-1 NOTES"),
the Class A-2 6.018% Asset Backed Notes (the "CLASS A-2 NOTES") and the Class
A-3 6.16% Asset Backed Notes (the "CLASS A-3 NOTES"; together with the Class A-1
Notes and the Class A-2 Notes, the "CLASS A NOTES") and the Class B 6.35% Asset
Backed Notes (the "CLASS B NOTES"; together with the Class A Notes, the "NOTES")
issued by Caterpillar Financial Asset Trust 1997-B (the "TRUST" or the "ISSUER")
will be payable monthly on or about the 25th day of each month (each, a
"DISTRIBUTION DATE") commencing December 26, 1997. The Trust will also issue
$7,861,558 6.35% Asset Backed Certificates (the "CERTIFICATES"), which
Certificates are not offered hereby. Principal on the Notes will be payable on
each Distribution Date; PROVIDED, HOWEVER, that no principal payments in respect
of (i) the Class A-2 Notes will be made until the Class A-1 Notes have been paid
in full, (ii) the Class A-3 Notes will be made until the Class A-2 Notes have
been paid in full and (iii) the Class B Notes will be made until the Class A-3
Notes have been paid in full. The final scheduled Distribution Date for the
Class A-1 Notes will be the November 1998 Distribution Date, the final scheduled
Distribution Date for the Class A-2 Notes will be the January 2001 Distribution
Date and the final scheduled Distribution Date for the Class A-3 Notes will be
the September 2003 Distribution Date.
(CONTINUED ON THE FOLLOWING PAGE)
------------------------------
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" COMMENCING ON PAGE S-21 HEREIN AND ON PAGE 13 IN THE
PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF THE ISSUER ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN CATERPILLAR FINANCIAL FUNDING CORPORATION,
CATERPILLAR FINANCIAL SERVICES CORPORATION, CATERPILLAR INC. OR ANY OF
THEIR RESPECTIVE AFFILIATES. NEITHER THE SECURITIES NOR THE
RECEIVABLES ARE ISSUED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY.
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 SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT ISSUER(1)(2)
<S> <C> <C> <C>
Per Class A-1 Note.............................. 100% .15% 99.85%
Per Class A-2 Note.............................. 100% .18% 99.82%
Per Class A-3 Note.............................. 99.9913597% .24% 99.7513597%
Per Class B Note................................ 99.9838777% .35% 99.6338777%
Total........................................... $306,557,151.33 $610,157.90 $305,946,993.43
</TABLE>
(1) Plus accrued interest, if any, from November 25, 1997.
(2) Before deducting expenses, estimated to be $718,300.
------------------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of the Notes will be
made in book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company, or through Cedel Bank, societe anonyme or the
Euroclear System, on or about November 25, 1997 (the "CLOSING DATE").
------------------------
UNDERWRITERS OF THE CLASS A NOTES
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
UNDERWRITER OF THE CLASS B NOTES
MERRILL LYNCH & CO.
---------------
The date of this Prospectus Supplement is November 19, 1997.
<PAGE>
(CONTINUED FROM PRECEDING PAGE)
The final scheduled Distribution Date for the Class B Notes will be the
September 2003 Distribution Date. The actual payment in full of any Class of the
Class A Notes or the Class B Notes could occur earlier than their respective
final scheduled Distribution Dates. The rights of Class B Noteholders to receive
distributions with respect to the Class B Notes will be subordinated to the
rights of the Class A Noteholders to receive payments of interest on and
principal of the Class A Notes to the extent described herein.
The Certificates will bear interest at a rate of 6.35% per annum. The rights
of the Certificateholders to receive distributions with the respect to the
Certificates will be subordinated to the right of the Noteholders to receive
payments of interest on and principal of the Notes to the extent described
herein.
The assets of the Trust will include a pool of fixed rate retail installment
sales contracts (the "RECEIVABLES") secured by new and used machinery
manufactured primarily by Caterpillar Inc. and certain monies due or received
thereunder on or after November 1, 1997, which will be purchased by the Trust
from the Seller on or prior to the date of the issuance of the Notes. The Seller
will purchase the Receivables from Caterpillar Financial Services Corporation
concurrently with the purchase by the Trust of the Receivables from the Seller.
The Notes will be secured by the assets of the Trust.
The Class A-3 Notes and the Class B Notes will be subject to prepayment in
whole, but not in part, on any Distribution Date on which the Servicer exercises
its option to purchase the Receivables when the Pool Balance is reduced to 10%
or less of the Initial Pool Balance.
The Issuer, a newly formed limited-purpose Delaware business trust, will
generally be prohibited from incurring any indebtedness other than the Notes and
its assets will include the Receivables, the Collection Account, the Class A
Note Distribution Account, the Class B Note Distribution Account, the Yield
Supplement Account and the Reserve Account, as described herein.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE NOTES. ADDITIONAL INFORMATION IS CONTAINED IN THE PROSPECTUS.
PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS IN FULL. SALES OF THE NOTES MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS. TO
THE EXTENT ANY STATEMENTS IN THIS PROSPECTUS SUPPLEMENT CONFLICT WITH STATEMENTS
IN THE PROSPECTUS, THE STATEMENTS IN THIS PROSPECTUS SUPPLEMENT SHALL CONTROL.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT TRANSACTIONS, STABILIZING TRANSACTIONS, SYNDICATE COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING" HEREIN.
Upon receipt of a request by an investor, or his or her representative,
within the period during which there is a prospectus delivery obligation, the
Underwriters will transmit or cause to be transmitted promptly, without charge
and in addition to any such delivery requirements, a paper copy of this
Prospectus Supplement and a Prospectus or this Prospectus Supplement and a
Prospectus encoded in an electronic format.
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, periodic and annual unaudited
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 the registered holder of
the Notes. See "Issuance of the Securities--Definitive Securities" and
"--Book-Entry Registration" and "Description of the Transfer and Servicing
Agreements--Reports to Securityholders" in the accompanying Prospectus. Such
reports will not constitute financial statements that have been examined and
reported upon by, with an opinion expressed by, an independent or certified
public accountant. The Trust will file with the Securities and Exchange
Commission (the "COMMISSION") such periodic reports as are required under the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules
and regulations 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-2
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere herein and in the Prospectus. Certain
capitalized terms used in the 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 meanings assigned to such terms in the Prospectus.
<TABLE>
<S> <C>
ISSUER....................... Caterpillar Financial Asset Trust 1997-B (the "TRUST" or the
"ISSUER"), a Delaware business trust formed by the Seller
and the Owner Trustee pursuant to the Trust Agreement dated
as of November 1, 1997 (the "TRUST AGREEMENT") between the
Seller and the Owner Trustee, acting thereunder not in its
individual capacity but solely as Owner Trustee.
SELLER....................... Caterpillar Financial Funding Corporation (the "SELLER"), a
Nevada corporation and a wholly-owned subsidiary of
Caterpillar Financial Services Corporation. The principal
executive offices of the Seller are located at Greenview
Plaza, 2950 East Flamingo Road, Suite C-3B, Las Vegas,
Nevada 89121 and its telephone number is (702) 735-2514.
SERVICER..................... Caterpillar Financial Services Corporation (the "SERVICER"
or "CFSC"), a Delaware corporation and a wholly-owned
finance subsidiary of Caterpillar Inc.
INDENTURE TRUSTEE............ The First National Bank of Chicago, a national banking
association, as indenture trustee under the Indenture (the
"INDENTURE TRUSTEE").
OWNER TRUSTEE................ Chase Manhattan Bank Delaware, a Delaware banking
corporation, as owner trustee under the Trust Agreement (the
"OWNER TRUSTEE").
THE NOTES.................... Class A-1 5.805% Asset Backed Notes (the "CLASS A-1 NOTES")
in the aggregate principal amount of $81,000,000.
Class A-2 6.018% Asset Backed Notes (the "CLASS A-2 NOTES")
in the aggregate principal amount of $110,900,000.
Class A-3 6.16% Asset Backed Notes (the "CLASS A-3 NOTES";
together with the Class A-1 Notes and the Class A-2 Notes,
the "CLASS A NOTES") in the aggregate principal amount of
$102,091,000.
Class B 6.35% Asset Backed Notes (the "CLASS B NOTES";
together with the Class A Notes, the "NOTES") in the
aggregate principal amount of $12,577,000.
The rights of Class B Noteholders to receive distributions
with respect to the Class B Notes will be subordinated to
the rights of the Class A Noteholders to receive
distributions with respect to the Class A Notes to the
extent described herein.
The Notes will be issued by the Trust pursuant to an
Indenture to be dated as of November 1, 1997 (the
"INDENTURE"), between the Issuer and the Indenture Trustee.
The Notes will be secured by the assets of the Trust.
The Notes will be available for purchase in book-entry form
only in minimum denominations of $1,000 and integral
multiples thereof. The Noteholders will not be entitled to
receive Definitive Notes except in the limited circumstances
described herein. See "Description of the Notes--General"
and "Issuance of the Securities--Definitive Securities" and
"--Book-Entry Registration" in the Prospectus.
THE TRUST.................... The Trust is a business trust established under the laws of
the State of Delaware pursuant to the Trust Agreement. The
activities of the Trust are limited by the terms of the
Trust Agreement to acquiring, owning and managing the
Receivables, issuing and making payments on the
</TABLE>
S-3
<PAGE>
<TABLE>
<S> <C>
Notes and the Certificates and other activities related
thereto. The Trust Property includes (i) the Receivables,
(ii) all monies (including accrued interest) due thereunder
on or after the Cut-off Date (as defined below), (iii) such
amounts as from time to time may be held in one or more
accounts established and maintained by the Servicer and the
Seller pursuant to the Sale and Servicing Agreement,
including the Reserve Account and the Yield Supplement
Account, as described below, (iv) the security interests in
the machinery financed by the Receivables (the "FINANCED
EQUIPMENT") and in certain other cross-collateralized
equipment, (v) the rights to proceeds from claims on
physical damage, credit life and disability insurance
policies, if any, covering Financed Equipment or Obligors,
as the case may be, (vi) any proceeds of repossessed
Financed Equipment (less any repossession expenses), (vii)
the rights of the Seller under the Purchase Agreement,
(viii) the interest of the Seller in any proceeds from
recourse to or other payments by Dealers with respect to
Receivables, (ix) interest earned on short-term investments
made by the Trust and (x) any proceeds of the foregoing.
In addition to the Notes, the Trust will also issue 6.35%
Asset Backed Certificates (the "CERTIFICATES") in the
aggregate principal amount of $7,861,558. The Seller will
purchase the entire principal amount of the Certificates.
The Certificates represent fractional undivided interests in
the Trust and will be issued pursuant to the Trust
Agreement. The Certificates are not offered hereby.
RECEIVABLES.................. The Receivables will consist of fixed rate retail
installment sales contracts ("INSTALLMENT SALES CONTRACTS")
secured by new and used machinery manufactured primarily by
Caterpillar, including rights to receive certain payments
made with respect to such Installment Sales Contracts (the
"RECEIVABLES"). On or prior to the Closing Date, the Seller
will purchase Receivables having an aggregate Principal
Balance of approximately $314,429,558 (the "INITIAL POOL
BALANCE") as of November 1, 1997 (the "CUT-OFF DATE") from
CFSC pursuant to a Purchase Agreement to be dated as of
November 1, 1997 (the "PURCHASE AGREEMENT"), between CFSC
and the Seller, and the Seller will sell the Receivables to
the Trust pursuant to a Sale and Servicing Agreement to be
dated as of November 1, 1997 (the "SALE AND SERVICING
AGREEMENT") among the Seller, the Servicer and the Trust.
The Receivables arise from loans originated in connection
with retail sales by dealers (the "DEALERS") of Financed
Equipment to retail purchasers (the "OBLIGORS") and are
either originated by CFSC, or acquired from such Dealers by
CFSC, in the ordinary course of CFSC's business. The
Receivables have been selected from the contracts owned by
CFSC based on the criteria specified in the Purchase
Agreement and described herein. See "The Receivables Pool"
herein. As of the Cut-off Date, the weighted average annual
percentage rate of interest (the "APR") of the Receivables
(based on their respective Principal Balances (as defined
herein)) was approximately 7.70% (the "CUT-OFF DATE APR"),
the weighted average remaining maturity (i.e., for each
Receivable, the period from but excluding the Cut-off Date
to and including such Receivable's maturity date) of the
Receivables was approximately
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
42 months and the weighted average original maturity of the
Receivables was approximately 47 months. As of the Cut-off
Date, no Receivable had a scheduled maturity later than the
date which is twelve months prior to the September 2003
Distribution Date.
The "POOL BALANCE" at any time will represent the aggregate
Principal Balance of the Receivables at the end of the
preceding Collection Period, after giving effect to all
payments received from Obligors and Purchase Amounts
remitted by the Seller or the Servicer, as the case may be,
for such Collection Period, and to all Realized Losses on
Liquidated Receivables during such Collection Period. The
"PRINCIPAL BALANCE" of a Receivable at any time means its
original principal balance, as reduced by principal payments
applied in accordance with the actuarial method, calculated
as of the Cut-off Date or as of the end of the preceding
Collection Period (as applicable).
TERMS OF THE NOTES........... The principal terms of the Notes will be as described below:
A. INTEREST PAYMENTS........ The Class A-1 Notes will bear interest at the rate of 5.805%
per annum (the "CLASS A-1 NOTE RATE"), the Class A-2 Notes
will bear interest at the rate of 6.018% per annum (the
"CLASS A-2 NOTE RATE"), the Class A-3 Notes will bear
interest at the rate of 6.16% per annum (the "CLASS A-3 NOTE
RATE") and the Class B Notes will bear interest at the rate
of 6.35% per annum (the "CLASS B NOTE RATE") (with respect
to the Class A-1 Notes, calculated on the basis of a 360-day
year and the actual number of days elapsed, and with respect
to the Class A-2 Notes, the Class A-3 Notes and the Class B
Notes, in each case calculated on the basis of a 360-day
year of twelve 30-day months). Interest on the outstanding
principal amount of the Notes will accrue from and includ-
ing the most recent Distribution Date on which interest has
been paid (or, in the case of the initial Distribution Date,
from and including the Closing Date) to but excluding the
following Distribution Date and will be payable on the 25th
day of each calendar month (or, if any such date is not a
business day, on the next succeeding business day) (each, a
"DISTRIBUTION DATE") commencing December 26, 1997, to the
holders of record of the Class A-1 Notes (the "CLASS A-1
NOTEHOLDERS"), the holders of record of the Class A-2 Notes
(the "CLASS A-2 NOTEHOLDERS"), the holders of record of the
Class A-3 Notes (the "CLASS A-3 NOTEHOLDERS"; together with
the Class A-1 Noteholders and the Class A-2 Noteholders, the
"CLASS A NOTEHOLDERS") as of the related Record Date.
Interest on the Class B Notes will not be paid on any
Distribution Date until interest payments on the Class A
Notes have been paid in full. Subject to the foregoing,
interest on the Class B Notes will be paid on each
Distribution Date to the holders of record of the Class B
Notes (the "CLASS B NOTEHOLDERS"; together with the Class A
Noteholders, the "NOTEHOLDERS") as of the Record Date for
such Distribution Date.
Interest payments on the Notes will be generally derived
from (i) the Total Distribution Amount remaining after the
payment of the Servicing Fee (if CFSC or an affiliate is not
the Servicer) and the Administration Fee, and in the case of
the Class B Notes, after the payments of interest on the
Class A Notes, and (ii) from the amount on deposit in the
Reserve Account. If the amount of interest on the principal
amounts of the Class A-1 Notes, the Class A-2 Notes and the
Class A-3
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Notes payable on any Distribution Date exceeds the sum of
such remaining portion of the Total Distribution Amount and
amounts on deposit in the Reserve Account, each of the Class
A-1 Noteholders, the Class A-2 Noteholders and the Class A-3
Noteholders will receive their ratable share (based upon the
total amount of interest due to such Class A Noteholders) of
the amount available to be distributed in respect of
interest on the Class A Notes.
With respect to any Distribution Date and the Notes, the
"RECORD DATE" is the calendar day immediately preceding each
Distribution Date (or, with respect to any Definitive Note,
the last calendar day of the month preceding the month in
which such Distribution Date occurs).
Interest on the Certificates will only be paid on any
Distribution Date generally to the extent funds are
available following payment of the Servicing Fee, the
Administration Fee, distributions in respect of the Notes
and any required deposit to the Reserve Account. See
"Description of the Transfer and Servicing
Agreements--Distributions--DEPOSITS TO THE DISTRIBUTION
ACCOUNTS."
B. PRINCIPAL PAYMENTS....... Principal on the Notes will be payable on each Distribution
Date in an amount generally equal to the Principal
Distribution Amount (as defined below) for such Distribution
Date (to the extent of funds available therefor as described
herein).
On each Distribution Date before the Distribution Date on
which the Class A-1 Notes have been paid in full, principal
of the Class A-1 Notes will be payable in an amount
generally equal to the Principal Distribution Amount. On
each Distribution Date on and after the Distribution Date on
which the Class A-1 Notes have been paid in full, principal
of the Class A-2 Notes will be payable, until the Class A-2
Notes have been paid in full, in an amount equal to the
difference between (i) the Principal Distribution Amount for
such Distribution Date, and (ii) the portion, if any, of the
Principal Distribution Amount applied on such Distribution
Date to reduce the outstanding principal amount of the Class
A-1 Notes to zero. On each Distribution Date on and after
the Distribution Date on which the Class A-1 Notes and the
Class A-2 Notes have been paid in full, principal of the
Class A-3 Notes will be payable, until the Class A-3 Notes
have been paid in full, in an amount equal to the difference
between (i) the Principal Distribution Amount for such
Distribution Date, and (ii) the portion, if any, of the
Principal Distribution Amount applied on such Distribution
Date to reduce the outstanding principal amounts of the
Class A-1 Notes and the Class A-2 Notes to zero.
On each Distribution Date on and after the Distribution Date
on which the Class A Notes have been paid in full, principal
of the Class B Notes will be payable, until the Class B
Notes have been paid in full, in an amount equal to the
difference between (i) the Principal Distribution Amount for
such Distribution Date, and (ii) the portion, if any, of the
Principal Distribution Amount applied on such Distribution
Date to reduce the outstanding principal amount of the Class
A Notes to zero.
In addition, on each Distribution Date, the amount on
deposit in the Reserve Account in excess of the Specified
Reserve Account Balance for such Distribution Date shall be
paid as principal of the Class A-1
</TABLE>
S-6
<PAGE>
<TABLE>
<S> <C>
Notes, until the Class A-1 Notes are paid in full, then paid
as principal of the Class A-2 Notes, until the Class A-2
Notes have been paid in full, then paid as principal of the
Class A-3 Notes, until the Class A-3 Notes have been paid in
full, and then paid as principal of the Class B Notes, until
the Class B Notes have been paid in full. See "Description
of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" herein.
No principal will be paid with respect to the Certificates
until the Notes have been paid in full.
The outstanding principal amount, if any, of the Class A-1
Notes will be payable in full on the November 1998
Distribution Date (the "CLASS A-1 NOTE FINAL SCHEDULED
DISTRIBUTION DATE"), the outstanding principal amount, if
any, of the Class A-2 Notes will be payable in full on the
January 2001 Distribution Date (the "CLASS A-2 NOTE FINAL
SCHEDULED DISTRIBUTION DATE"), the outstanding principal
amount, if any, of the Class A-3 Notes will be payable in
full on the September 2003 Distribution Date (the "CLASS A-3
NOTE FINAL SCHEDULED DISTRIBUTION DATE") and the outstanding
principal amount, if any, of the Class B Notes will be
payable in full on the September 2003 Distribution Date (the
"CLASS B NOTE FINAL SCHEDULED DISTRIBUTION DATE"), in each
case from funds available therefor (including amounts on
deposit in the Reserve Account). See "Description of the
Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" herein.
C. OPTIONAL PREPAYMENT...... The Class A-3 Notes and the Class B Notes will be prepaid in
whole, but not in part, at the Class A-3 Note Prepayment
Price and the Class B Note Prepayment Price, respectively,
on any Distribution Date after the Class A-1 Notes and the
Class A-2 Notes have been paid in full, if the Servicer
exercises its option to purchase the Receivables, which
option may be exercised when the Pool Balance has been
reduced to 10% or less of the Initial Pool Balance. The
prepayment price for the Class A-3 Notes (the "CLASS A-3
NOTE PREPAYMENT PRICE") will equal the unpaid principal
balance of the Class A-3 Notes plus accrued and unpaid
interest thereon. The prepayment price for the Class B Notes
(the "CLASS B NOTE PREPAYMENT PRICE") will equal the unpaid
principal balance of the Class B Notes plus accrued and
unpaid interest thereon. See "Description of the Notes--The
Class A-2 Notes, the Class A-3 Notes and the Class B
Notes--OPTIONAL PREPAYMENT" herein and "Description of the
Notes--Principal and Interest on the Notes" and "Description
of the Transfer and Servicing Agreements--Termination" in
the Prospectus.
LIMITED RIGHTS............... If an Event of Default occurs under the Indenture, the Class
B Noteholders will not have any right to direct or to
consent to any actions by the Indenture Trustee, including
the sale of Receivables, until the Class A Notes have been
paid in full, and if a Servicer Default occurs, the Class B
Noteholders will not have any right to direct or consent to
removal of the Servicer until the Class A Notes have been
paid in full. See "Risk Factors--SUBORDINATION; LIMITED
ASSETS," "Description of the Notes--The Indenture--EVENTS OF
DEFAULT; RIGHTS UPON EVENT OF DEFAULT" and "Description of
the Transfer and Servicing Agreements--Rights Upon Servicer
Default" and "--Waiver of Past Defaults" herein.
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
TERMS OF THE CERTIFICATES.... On the Closing Date, the Trust will issue Certificates in an
aggregate principal amount of $7,861,558. The Seller will
purchase the entire principal amount of the Certificates.
The Certificates will bear interest at the rate of 6.35% per
annum (the "CERTIFICATE RATE"). The rights of the
Certificateholders to receive distributions with respect to
the Certificates will be subordinated to the rights of the
Noteholders to receive distributions with respect to the
Notes to the extent described herein. See "Description of
the Certificates" herein.
PRIORITY OF DISTRIBUTIONS.... As more fully described in "Description of the Transfer and
Servicing Agreements--Distributions" herein, distributions
of the Total Distribution Amount shall be made on each
Distribution Date in the following order of priority (except
as described herein):
(i) to the Servicer (if CFSC or an affiliate is not the
Servicer), the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(ii) to the Administrator, the Administration Fee and all
unpaid Administration Fees from prior Collection Periods;
(iii) to the Class A Note Distribution Account, the Class A
Noteholders' Interest Distributable Amount;
(iv) to the Class B Note Distribution Account, the Class B
Noteholders' Interest Distributable Amount;
(v) to the Class A Note Distribution Account, the Class A-1
Noteholders' Principal Distributable Amount;
(vi) to the Class A Note Distribution Account, the Class A-2
Noteholders' Principal Distributable Amount;
(vii) to the Class A Note Distribution Account, the Class
A-3 Noteholders' Principal Distributable Amount;
(viii) to the Class B Note Distribution Account, the Class B
Noteholders' Principal Distributable Amount;
(ix) to the Servicer (if CFSC or an affiliate is the
Servicer), the Servicing Fee and all unpaid Servicing Fees
from prior Collection Periods;
(x) to the Reserve Account, an amount equal to the excess of
the Specified Reserve Account Balance (as defined below)
over the amount on deposit in the Reserve Account on such
Distribution Date;
(xi) to the Certificate Distribution Account, the
Certificateholders' Interest Distributable Amount;
(xii) to the Certificate Distribution Account, the
Certificateholders' Principal Distributable Amount; and
(xiii) to the Reserve Account, the remaining Total
Distribution Amount.
Notwithstanding the foregoing, if an Event of Default has
occurred and the maturity of the Notes has been accelerated,
the Class A Noteholders of each Class of Class A Notes will
be entitled to be paid principal pro rata on the basis of
the ratio of the principal amount of such Class A
Noteholder's Class A Note to the aggregate principal amount
of the Class A Notes, and the Class B Noteholders and the
Certificateholders will not be entitled to receive any
distributions of interest or principal until the Class A
Notes have been paid in full.
Funds will be withdrawn from amounts on deposit in the
Reserve Account to the extent that the Total Distribution
Amount (after the
</TABLE>
S-8
<PAGE>
<TABLE>
<S> <C>
payment of the Servicing Fee (if CFSC or an affiliate is not
the Servicer) and the Administration Fee) and the deposit of
the Class B Noteholders' Interest Distributable Amount in
the Class B Note Distribution Account with respect to any
Collection Period is less than the Class A Noteholders'
Distributable Amount, and funds in the amount of such
deficiency will be deposited in the Class A Note
Distribution Account. In addition, funds will be withdrawn
from amounts on deposit in the Reserve Account to the extent
that the portion of the Total Distribution Amount remaining
after the payment of the Servicing Fee (if CFSC or an
affiliate is not the Servicer) and the Administration Fee
and the deposit of the Class A Noteholders' Distributable
Amount in the Class A Note Distribution Account is less than
the Class B Noteholders' Distributable Amount, and funds in
the amount of such deficiency will be deposited in the Class
B Note Distribution Account.
"CERTIFICATE BALANCE" equals, on the Closing Date,
$7,861,558 and, thereafter, equals $7,861,558, reduced by
all amounts allocable to principal previously distributed to
Certificateholders. The Certificate Balance shall also be
reduced on any Distribution Date by the excess, if any, of
(i) the sum of (A) the Certificate Balance and (B) the
outstanding principal amount of the Notes (in each case
after giving effect to amounts in respect of principal to be
deposited in the Certificate Distribution Account, the Class
A Note Distribution Account and the Class B Note
Distribution Account on such Distribution Date), over (ii)
the sum of (A) the Pool Balance as of the close of business
on the last day of the preceding Collection Period and (B)
the amount on deposit in the Reserve Account after giving
effect to any distributions therefrom on such Distribution
Date. Thereafter, the Certificate Balance shall be increased
to the extent that any portion of the Total Distribution
Amount is available to pay the existing Certificateholders'
Principal Carryover Shortfall, but not by more than the
aggregate reductions in the Certificate Balance set forth in
the preceding sentence.
"CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the
Certificateholders' Principal Distributable Amount and (ii)
the Certificateholders' Interest Distributable Amount.
"CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL" means,
with respect to any Distribution Date, the sum of (i) the
excess, if any, of (A) the sum of (1) the
Certificateholders' Monthly Interest Distributable Amount
for the preceding Distribution Date and (2) any outstanding
Certificateholders' Interest Carryover Shortfall on such
preceding Distribution Date, over (B) the amount in respect
of interest that is actually deposited in the Certificate
Distribution Account on such preceding Distribution Date,
and (ii) interest on such excess, to the extent permitted by
law, at the Certificate Rate.
"CERTIFICATEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means,
with respect to any Distribution Date, the sum of the
Certificateholders' Monthly Interest Distributable Amount
for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"CERTIFICATEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date, an amount
equal to the aggregate interest accrued on the Certificates
at the Certificate Rate from
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and including the preceding Distribution Date (or from and
including the Closing Date in the case of the initial
Distribution Date) to but excluding such Distribution Date
(based on a 360-day year of twelve 30-day months).
"CERTIFICATEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date on or after the
Distribution Date on which the principal amounts of the
Class A Notes and the Class B Notes are reduced to zero, the
Principal Distribution Amount (less the portion thereof, if
any, applied on such Distribution Date to reduce the
principal amount of the Class A Notes and the Class B Notes
to zero, which shall be deposited into the Class A Note
Distribution Account and the Class B Note Distribution
Account, as applicable).
"CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means,
as of the close of any Distribution Date, the sum of (i) the
excess, if any, of (A) the sum of (1) the
Certificateholders' Monthly Principal Distributable Amount
and (2) any outstanding Certificateholders' Principal
Carryover Shortfall from the preceding Distribution Date,
over (B) the amount in respect of principal that is actually
deposited in the Certificate Distribution Account and (ii)
the unreimbursed portion of the amount by which the
Certificate Balance has been reduced as described in the
second sentence of the definition of "Certificate Balance"
above.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means,
with respect to any Distribution Date, the sum of (i) the
Certificateholders' Monthly Principal Distributable Amount
for such Distribution Date and (ii) the Certificateholders'
Principal Carryover Shortfall as of the close of the
preceding Distribution Date; PROVIDED, HOWEVER, that, until
an amount sufficient to reduce the outstanding principal
amounts of the Class A Notes and the Class B Notes to zero
has been deposited in the Class A Distribution Account and
the Class B Note Distribution Account, as applicable, the
Certificateholders' Principal Distributable Amount shall be
zero; PROVIDED, FURTHER, that the sum of clauses (i) and
(ii) shall not exceed the Certificate Balance, and on the
final scheduled Distribution Date with respect to the
Certificates, the Certificateholders' Principal
Distributable Amount will include the amount necessary
(after giving effect to the other amounts to be deposited in
the Certificate Distribution Account on such Distribution
Date and allocable to principal) to reduce the Certificate
Balance to zero.
"CLASS A NOTE DISTRIBUTION ACCOUNT" shall mean a Note
Distribution Account established for the benefit of the
Class A Noteholders.
"CLASS A NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the Class
A-1 Noteholders' Principal Distributable Amount, (ii) the
Class A-2 Noteholders' Principal Distributable Amount, (iii)
the Class A-3 Noteholders' Principal Distributable Amount
and (iv) the Class A Noteholders' Interest Distributable
Amount.
"CLASS A NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means,
with respect to any Distribution Date, the sum of (i) the
excess, if any, of (A) the sum of (1) the Class A
Noteholders' Monthly Interest Distributable Amount for the
preceding Distribution Date and (2) any outstanding Class A
Noteholders' Interest Carryover Shortfall on such preceding
Distribution Date, over (B) the amount in respect of
interest that is actually deposited in the Class A Note
Distribution Account on
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such preceding Distribution Date, and (ii) interest on the
amount of interest due but not paid to Class A Noteholders
on the preceding Distribution Date, to the extent permitted
by law, at the applicable interest rate or rates borne by
such Class A Notes from such preceding Distribution Date
through such current Distribution Date.
"CLASS A NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means,
with respect to any Distribution Date, the sum of the Class
A Noteholders' Monthly Interest Distributable Amount for
such Distribution Date and the Class A Noteholders' Interest
Carryover Shortfall for such Distribution Date.
"CLASS A NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date, an amount
equal to the aggregate amount of interest accrued on the
Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes
at their respective interest rates from and including the
preceding Distribution Date (or, in the case of the initial
Distribution Date, from and including the Closing Date), to
but excluding such Distribution Date (with respect to the
Class A-1 Notes, based on a 360-day year and the actual
number of days elapsed, and with respect to the Class A-2
Notes and the Class A-3 Notes, in each case based on a
360-day year of twelve 30-day months).
"CLASS A-1 NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE
AMOUNT" means, with respect to any Distribution Date until
the Distribution Date on which the outstanding principal
amount of the Class A-1 Notes has been reduced to zero, the
Principal Distribution Amount for such Distribution Date. In
addition, on each Distribution Date, amounts on deposit in
the Reserve Account in excess of the Specified Reserve
Account Balance shall be paid as principal of the Class A-1
Notes to the extent described under "--Reserve Account"
below.
"CLASS A-1 NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL"
means, as of the close of any Distribution Date, the excess,
if any, of (i) the sum of (A) the Class A-1 Noteholders'
Monthly Principal Distributable Amount for such Distribution
Date and (B) any outstanding Class A-1 Noteholders'
Principal Carryover Shortfall as of the close of the pre-
ceding Distribution Date over (ii) the amount in respect of
principal that is actually deposited in the Class A Note
Distribution Account in respect of the Class A-1 Notes.
"CLASS A-1 NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date, the sum of (i)
the Class A-1 Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and (ii) the Class A-1
Noteholders' Principal Carryover Shortfall as of the close
of the preceding Distribution Date; PROVIDED, HOWEVER, that
the sum of clauses (i) and (ii) above shall not exceed the
outstanding principal amount of the Class A-1 Notes, and on
the Class A-1 Note Final Scheduled Distribution Date, the
Class A-1 Noteholders' Principal Distributable Amount will
include the amount necessary (after giving effect to the
other amounts to be deposited in the Class A Note
Distribution Account on such Distribution Date and allocable
to principal) to reduce the outstanding principal amount of
the Class A-1 Notes to zero.
"CLASS A-2 NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE
AMOUNT" means, with respect to any Distribution Date on or
after the Distribution Date on which an amount sufficient to
reduce the outstanding
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principal amount of the Class A-1 Notes to zero has been
deposited in the Class A Note Distribution Account, the
excess, if any, of (i) the Principal Distribution Amount
over (ii) the portion of the Principal Distribution Amount,
if any, applied to reduce the outstanding principal amount
of the Class A-1 Notes to zero on such Distribution Date. In
addition, on each Distribution Date, amounts on deposit in
the Reserve Account in excess of the Specified Reserve
Account Balance for such Distribution Date shall be paid as
principal of the Class A-2 Notes to the extent described
under "--Reserve Account" below.
"CLASS A-2 NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL"
means, as of the close of any Distribution Date, the excess,
if any, of (i) the sum of (A) the Class A-2 Noteholders'
Monthly Principal Distributable Amount for such Distribution
Date and (B) any outstanding Class A-2 Noteholders'
Principal Carryover Shortfall as of the close of the pre-
ceding Distribution Date over (ii) the amount in respect of
principal that is actually deposited in the Class A Note
Distribution Account in respect of the Class A-2 Notes.
"CLASS A-2 NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date, the sum of (i)
the Class A-2 Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and (ii) the Class A-2
Noteholders' Principal Carryover Shortfall as of the close
of the preceding Distribution Date; PROVIDED, HOWEVER, that,
until an amount sufficient to reduce the outstanding
principal amount of the Class A-1 Notes to zero has been
deposited in the Class A Note Distribution Account, the
Class A-2 Noteholders' Principal Distributable Amount shall
be zero; PROVIDED, FURTHER, that the sum of clauses (i) and
(ii) shall not exceed the outstanding principal amount of
the Class A-2 Notes, and on the Class A-2 Note Final
Scheduled Distribution Date, the Class A-2 Noteholders'
Principal Distributable Amount will include the amount
necessary (after giving effect to the other amounts to be
deposited in the Class A Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the
outstanding principal amount of the Class A-2 Notes to zero.
"CLASS A-3 NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE
AMOUNT" means, with respect to any Distribution Date on or
after the Distribution Date on which an amount sufficient to
reduce the outstanding principal amount of the Class A-1
Notes and the Class A-2 Notes to zero has been deposited in
the Class A Note Distribution Account, the excess, if any,
of (i) the Principal Distribution Amount over (ii) the
portion of the Principal Distribution Amount, if any,
applied to reduce the outstanding principal amount of the
Class A-1 Notes and the Class A-2 Notes to zero on such
Distribution Date. In addition, on each Distribution Date,
amounts on deposit in the Reserve Account in excess of the
Specified Reserve Account Balance for such Distribution Date
shall be paid as principal of the Class A-3 Notes to the
extent described under "--Reserve Account" below.
"CLASS A-3 NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL"
means, as of the close of any Distribution Date, the excess,
if any, of (i) the sum of (A) the Class A-3 Noteholders'
Monthly Principal Distributable Amount for such Distribution
Date and (B) any outstanding Class A-3
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Noteholders' Principal Carryover Shortfall as of the close
of the preceding Distribution Date over (ii) the amount in
respect of principal that is actually deposited in the Class
A Note Distribution Account in respect of the Class A-3
Notes.
"CLASS A-3 NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date, the sum of (i)
the Class A-3 Noteholders' Monthly Principal Distributable
Amount for such Distribution Date and (ii) the Class A-3
Noteholders' Principal Carryover Shortfall as of the close
of the preceding Distribution Date; PROVIDED, HOWEVER, that,
until an amount sufficient to reduce the outstanding
principal amount of the Class A-1 Notes and the Class A-2
Notes to zero has been deposited in the Class A Note
Distribution Account, the Class A-3 Noteholders' Principal
Distributable Amount shall be zero; PROVIDED, FURTHER, that
the sum of clauses (i) and (ii) shall not exceed the
outstanding principal amount of the Class A-3 Notes, and on
the Class A-3 Note Final Scheduled Distribution Date, the
Class A-3 Noteholders' Principal Distributable Amount will
include the amount necessary (after giving effect to the
other amounts to be deposited in the Class A Note
Distribution Account on such Distribution Date and allocable
to principal) to reduce the outstanding principal amount of
the Class A-3 Notes to zero.
"CLASS B NOTE DISTRIBUTION ACCOUNT" shall mean a Note
Distribution Account established for the benefit of the
Class B Noteholders.
"CLASS B NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, the sum of (i) the Class B
Noteholders' Principal Distributable Amount and (ii) the
Class B Noteholders' Interest Distributable Amount.
"CLASS B NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means,
with respect to any Distribution Date, the sum of (i) the
excess, if any, of (A) the sum of (1) the Class B
Noteholders' Monthly Interest Distributable Amount for the
preceding Distribution Date and (2) any outstanding Class B
Noteholders' Interest Carryover Shortfall on such preceding
Distribution Date, over (B) the amount in respect of
interest that is actually deposited in the Class B Note
Distribution Account on such preceding Distribution Date,
and (ii) interest on such excess, to the extent permitted by
law, at the Class B Note Rate.
"CLASS B NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means,
with respect to any Distribution Date, the sum of the Class
B Noteholders' Monthly Interest Distributable Amount for
such Distribution Date and the Class B Noteholders' Interest
Carryover Shortfall for such Distribution Date.
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"CLASS B NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT"
means, with respect to any Distribution Date, an amount
equal to the aggregate interest accrued on the Class B Notes
at the Class B Note Rate from and including the preceding
Distribution Date (or from and including the Closing Date in
the case of the initial Distribution Date) to but excluding
such Distribution Date (based on a 360-day year of twelve
30-day months).
"CLASS B NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE
AMOUNT" means, with respect to any Distribution Date on or
after the Distribution Date on which the principal amounts
of the Class A Notes are reduced to zero, the excess, if
any, of (i) the Principal Distribution Amount over (ii) the
portion of the Principal Distribution Amount, if any,
applied on such Distribution Date to reduce the principal
amounts of the Class A Notes to zero on such Distribution
Date. In addition, on each Distribution Date, amounts on
deposit in the Reserve Account in excess of the Specified
Reserve Account Balance for such Distribution Date shall be
paid as principal of the Class B Notes to the extent under
"--Reserve Account" below.
"CLASS B NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means,
as of the close of any Distribution Date, the excess, if
any, of (i) the sum of (A) the Class B Noteholders' Monthly
Principal Distributable Amount for such Distribution Date
and (B) any outstanding Class B Noteholders' Principal
Carryover Shortfall from the preceding Distribution Date as
of the close of the preceding Distribution Date, over (ii)
the amount in respect of principal that is actually
deposited in the Class B Note Distribution Account.
"CLASS B NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means,
with respect to any Distribution Date, the sum of (i) the
Class B Noteholders' Monthly Principal Distributable Amount
for such Distribution Date and (ii) the Class B Noteholders'
Principal Carryover Shortfall as of the close of the
preceding Distribution Date; PROVIDED, HOWEVER, that, until
an amount sufficient to reduce the outstanding principal
amounts of the Class A Notes to zero has been deposited in
the Class A Note Distribution Account, the Class B
Noteholders' Principal Distributable Amount shall be zero;
PROVIDED, FURTHER, that the sum of clauses (i) and (ii)
shall not exceed the outstanding principal amount of the
Class B Notes, and on the Class B Note Final Scheduled
Distribution Date, the Class B Noteholders' Principal
Distributable Amount will include the amount necessary
(after giving effect to the other amounts to be deposited in
the Class B Note Distribution Account on such Distribution
Date and allocable to principal) to reduce the outstanding
principal amount of the Class B Notes to zero.
"COLLECTION PERIOD" means, with respect to the first
Distribution Date, the calendar month ending on November 30,
1997, and with respect to each subsequent Distribution Date,
the preceding calendar month. See "Description of the
Transfer and Servicing Agreements--Distributions" herein.
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the following amounts, without
duplication, with respect to the preceding Collection
Period: (i) that portion of all collections on the
Receivables (including any Liquidation Proceeds and any
amounts received from Dealers with respect to Receivables)
allocable
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to principal; (ii) the amount of Realized Losses for the
related Collection Period (except to the extent included in
(iii) below); and (iii) the Principal Balance of each
Receivable that the Servicer became obligated to purchase or
that the Seller became obligated to repurchase during the
related Collection Period (except to the extent included in
(i) above).
"REALIZED LOSSES" means, with respect to any Collection
Period, the excess of the Principal Balance of the
Liquidated Receivables over Liquidation Proceeds for such
Collection Period to the extent allocable to principal.
"TOTAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the aggregate collections
(including any Liquidation Proceeds, any Purchase Amounts
paid by the Seller and the Servicer and any amounts received
from Dealers with respect to Receivables) received in
respect of the Receivables during the related Collection
Period, the Yield Supplement Deposit Amount, if any, for
such Distribution Date and Investment Earnings on the Trust
Accounts during such Collection Period. The Total
Distribution Amount on any Distribution Date shall exclude
all payments and proceeds (including any Liquidation
Proceeds and any amounts received from Dealers with respect
to Receivables) of (i) any Receivables the Purchase Amount
of which has been included in the Total Distribution Amount
in a prior Collection Period, (ii) any Liquidated Receivable
after and to the extent of the reassignment of such
Liquidated Receivable by the Trust to the Seller and (iii)
any Servicer's Yield.
On each Distribution Date, all amounts on deposit in the
Class A Note Distribution Account will be distributed to the
Class A Noteholders, all amounts on deposit in the Class B
Note Distribution Account will be distributed to the Class B
Noteholders and all amounts on deposit in the Certificate
Distribution Account will be distributed to the Certifi-
cateholders. See "Description of the Transfer and Servicing
Agreements--Distributions" herein.
YIELD SUPPLEMENT ACCOUNT..... The Seller will establish and maintain in the name of the
Indenture Trustee a yield supplement account (the "YIELD
SUPPLEMENT ACCOUNT") into which funds will be deposited on
the Closing Date as described herein. The Yield Supplement
Account is designed solely to supplement the interest
collections on those Receivables (the "DISCOUNT RE-
CEIVABLES") that have APRs which are less than the sum of
(i) the Note Rate and (ii) the Servicing Fee Rate (the
"REQUIRED RATE"). The "NOTE RATE" means the weighted average
of the Class A-1 Note Rate, the Class A-2 Note Rate, the
Class A-3 Note Rate and the Class B Note Rate.
The Yield Supplement Account will be funded on or prior to
the Closing Date by the Seller in an amount (the "YIELD
SUPPLEMENT ACCOUNT DEPOSIT") to be specified in the Sale and
Servicing Agreement. The Yield Supplement Account Deposit
will equal the aggregate amount as of the Cut-off Date by
which interest on the Principal Balance of each Discount
Receivable for the remaining term of such Receivable
(assuming no prepayments or delinquencies) at a rate equal
to the Required Rate exceeds interest on such Principal
Balance at the
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APR of such Receivable; PROVIDED, that such aggregate amount
may be discounted at a rate to be specified in the Sale and
Servicing Agreement.
On or before the business day preceding each Distribution
Date, the Servicer shall withdraw from the amount on deposit
in the Yield Supplement Account, for deposit in the
Collection Account, the aggregate amount by which one
month's interest on the Principal Balance as of the first
day of the related Collection Period of each Discount
Receivable (other than a Discount Receivable that is a
Defaulted Receivable) at a rate equal to the Required Rate,
exceeds one month's interest on such Principal Balance at
the APR of each such Receivable (the "YIELD SUPPLEMENT
DEPOSIT AMOUNT").
Amounts on deposit on any Distribution Date in the Yield
Supplement Account in excess of the Maximum Yield Supplement
Amount, after giving effect to all distributions to be made
on such Distribution Date, will be paid to the Seller and
the Noteholders will have no further rights in, or claims
to, such amounts. The Maximum Yield Supplement Amount will
be calculated as described under "Description of the
Transfer and Servicing of the Transfer and Servicing
Agreements-- Yield Supplement Account" herein.
RESERVE ACCOUNT.............. The Seller will establish and maintain in the name of the
Indenture Trustee a reserve account (the "RESERVE ACCOUNT")
into which funds will be deposited from time to time as
described herein. Funds on deposit in the Reserve Account
will be available on each Distribution Date to cover
shortfalls in distributions of interest and principal on the
Notes to the extent described herein. The Reserve Account
will be created with an initial deposit by the Seller of
cash or Eligible Investments having a value of at least
$7,074,665. The amount initially deposited in the Reserve
Account is referred to as the "RESERVE ACCOUNT INITIAL
DEPOSIT." The Reserve Account Initial Deposit will be aug-
mented on each Distribution Date by the deposit therein of
the Total Distribution Amount remaining after payment of the
Servicing Fee and the Administration Fee and the deposit in
the Class A Note Distribution Account and the Class B Note
Distribution Account of amounts to be distributed to the
Noteholders on such Distribution Date up to an amount equal
to the excess of the Specified Reserve Account Balance over
the amount on deposit in the Reserve Account, and will be
further augmented on such Distribution Date by the deposit
therein of the Total Distribution Amount remaining after
payment of such amounts and the deposit in the Certificate
Distribution Account of amounts to be distributed to the
Certificateholders on such Distribution Date.
Amounts on deposit in the Reserve Account (after giving
effect to all distributions to be made from the Reserve
Account on such Distribution Date) in excess of the
Specified Reserve Account Balance for such Distribution Date
will be released from the Reserve Account to the Class A
Note Distribution Account and will be distributed first to
the Class A-1 Noteholders as a payment of principal (until
the Class A-1 Notes have been paid in full), then to the
Class A-2 Noteholders as a payment of principal (until the
Class A-2 Notes have been paid in full), then to the Class
A-3 Noteholders as a payment of principal (until the Class
A-3 Notes have been paid in full), and then such excess will
be released to the Class B Note Distribution Account to be
distributed to
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the Class B Noteholders as a payment of principal (until the
Class B Notes have been paid in full). The "SPECIFIED
RESERVE ACCOUNT BALANCE" with respect to any Distribution
Date will be equal to the lesser of (i) the outstanding
aggregate principal balance of the Notes and (ii) $7,074,665
(which is equal to 2.25% of the Initial Pool Balance). See
"Description of the Transfer and Servicing
Agreements--Reserve Account" herein.
Funds will be withdrawn from amounts on deposit in the
Reserve Account to the extent that the Total Distribution
Amount remaining after the payment of the Servicing Fee (if
CFSC or an affiliate is not the Servicer) and the
Administration Fee and the deposit of the Class B
Noteholders' Interest Distributable Amount in the Class B
Note Distribution Account with respect to any Collection
Period is less than the Class A Noteholders' Distributable
Amount, and funds in the amount of such deficiency up to the
amount on deposit in the Reserve Account will be deposited
in the Class A Note Distribution Account. In addition, funds
will be withdrawn from amounts on deposit in the Reserve
Account to the extent that the portion of the Total
Distribution Amount remaining after the payment of the
Servicing Fee (if CFSC or an affiliate is not the Servicer)
and the Administration Fee and the deposit of the Class A
Noteholders' Distributable Amount in the Class A Note
Distribution Account is less than the Class B Noteholders'
Distributable Amount, and funds in the amount of such
deficiency up to the amount on deposit in the Reserve
Account will be deposited in the Class B Note Distribution
Account.
If the amount required to be withdrawn from the Reserve
Account to cover shortfalls in collections on the
Receivables on any Distribution Date (after giving effect to
the Yield Supplement Deposit Amount, if any, for such
Distribution Date) exceeds the amount on deposit in the
Reserve Account on such date, a shortfall in the amounts
distributable to the Noteholders would result, which could,
in turn, increase the average life of the Notes, or result
in losses to Noteholders.
COLLECTION ACCOUNT........... The Servicer will be required to remit collections received
with respect to the Receivables during a Collection Period
on or before the business day preceding the related
Distribution Date to one or more accounts in the name of the
Indenture Trustee (collectively, the "COLLECTION ACCOUNT"),
except upon the occurrence of certain conditions described
herein (in which case such remittances will be required more
frequently). See "Description of the Transfer and Servicing
Agreements--Payments on Receivables" in the Prospectus.
Pursuant to the Sale and Servicing Agreement, the Servicer
will have the revocable power to instruct the Indenture
Trustee to withdraw the Total Distribution Amount on deposit
in the Collection Account and to apply such funds on each
Distribution Date in the priority set forth above under
"--Priority of Distributions."
MATURITY AND PREPAYMENT
CONSIDERATIONS.............. All of the Receivables are prepayable at any time. Each
prepayment will shorten the weighted average remaining term
of the Receivables and the weighted average life of the
Securities. Prepayments of principal will be included in the
Principal Distribution Amount and will be payable first to
the Class A-1 Noteholders until the Class A-1 Notes
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have been paid in full, then will be payable to the Class
A-2 Noteholders until the Class A-2 Notes have been paid in
full, then to the Class A-3 Noteholders until the Class A-3
Notes have been paid in full, and then to the Class B
Noteholders until the Class B Notes have been paid in full.
See "Description of the Transfer and Servicing Agreements--
Distributions" herein.
The rate of prepayments on the Receivables may be influenced
by a variety of economic, financial, climatic and other
factors, and under certain circumstances relating to
breaches of representations, warranties or covenants, the
Seller is obligated to repurchase Receivables from the
Trust. In addition, if the Servicer extends the final
scheduled payment date of a Receivable beyond August 31,
2003 (the "FINAL MATURITY DATE"), the Servicer will be
obligated to purchase such Receivable from the Trust. The
Servicer will be permitted to refinance an existing
Receivable for an Obligor, so long as (a) the proceeds of
such refinancing would be used to repay such existing
Receivable in full and (b) such Obligor executes a new
Installment Sales Contract with respect to such Receivable.
Any such new Installment Sales Contract would not be the
property of the Trust. The purchase or refinancing of a
Receivable by the Servicer will result in the prepayment of
the Principal Balance of such Receivable and the subsequent
prepayment of principal to the Noteholders to the extent
described above.
A higher than anticipated rate of prepayments will reduce
the aggregate Principal Balance of the Receivables more
quickly than expected and thereby reduce anticipated
aggregate interest payments on the Securities. Any
reinvestment risks resulting from a faster or slower
incidence of prepayment of Receivables will be borne
entirely by the Noteholders as set forth in the priority of
distributions herein. See "Descriptions of the Transfer and
Servicing Agreements--Distributions" herein. Such
reinvestment risks include the risk that interest rates may
be lower at the time such holders received payments from the
Trust than interest rates would otherwise have been had such
prepayments not been made or had such prepayments been made
at a different time.
Holders of Notes should consider, in the case of Notes
purchased at a discount, the risk that a slower than
anticipated rate of principal payments on the Receivables
could result in an actual yield that is less than the
anticipated yield and, in the case of any Notes purchased at
a premium, the risk that a faster than anticipated rate of
principal payments on the Receivables could result in an
actual yield that is less than the anticipated yield.
SERVICING FEE................ The Servicer shall receive a fee for each Collection Period
equal to 1.0% per annum (the "SERVICING FEE RATE") of the
Pool Balance as of the first day of such Collection Period
(the "SERVICING FEE") (in accordance with the priority of
distributions set forth herein), plus any Servicer's Yield
for such Collection Period. The Servicer's Yield represents
amounts actually collected by the Servicer on account of
late fees, taxes, and other charges, as described herein.
All collections from an Obligor will be applied first to any
overdue scheduled payment, then to the current scheduled
payment and then to late fees, taxes, and other charges. The
Servicing Fee with respect to each Collection Period will
decline over the term of the Notes as the Pool Balance
decreases. See
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
"Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses"
herein and in the Prospectus.
CUSTODIAL AGREEMENT.......... The First National Bank of Chicago, as custodian (the
"CUSTODIAN"), will be responsible for maintaining custody of
the Installment Sales Contracts and any related Dealer
Agreements pursuant to a custodial agreement, to be dated as
of November 1, 1997 (the "CUSTODIAL AGREEMENT"), among CFSC,
the Seller, the Issuer and The First National Bank of
Chicago, in its capacity as Indenture Trustee and as
Custodian. See "Risk Factors--PERFECTION OF INTERESTS IN
RECEIVABLES AND IN FINANCED EQUIPMENT" and "Certain Legal
Aspects of the Receivables--Sale and Transfer of
Receivables" herein and in the Prospectus.
ADMINISTRATION AGREEMENT..... CFSC, in its capacity as administrator (the
"ADMINISTRATOR"), will enter into an agreement (the
"ADMINISTRATION AGREEMENT") with the Trust and the Indenture
Trustee. As compensation for the performance of the
Administrator's obligations under the Administration
Agreement and as reimbursement for its expenses related
thereto, the Administrator will be entitled to a monthly
administration fee in an amount equal to $500 per month (the
"ADMINISTRATION FEE"). See "Description of the Transfer and
Servicing Agreements--Administration Agreement" in the
Prospectus.
CLEARANCE AND SETTLEMENT..... Noteholders may elect to hold their Notes through any of DTC
(in the United States) or Cedel or Euroclear (in Europe).
Transfers within DTC, Cedel or Euroclear, as the case may
be, will be in accordance with the usual rules and operating
procedures of the relevant system. Cross-market transfers
between persons holding directly or indirectly through DTC,
on the one hand, and counterparties holding directly or
indirectly through Cedel or Euroclear, on the other, will be
effected in DTC through the relevant Depositaries of Cedel
or Euroclear. See "Issuance of the Securities--Book-Entry
Registration" in the Prospectus.
CERTAIN LEGAL ASPECTS
OF THE RECEIVABLES.......... The transfer of ownership of the Receivables from CFSC to
the Seller and from the Seller to the Trust, and the
granting of a security interest in the Receivables by the
Trust to the Indenture Trustee, will in each case be
perfected by the Custodian, on behalf of the applicable
assignee, taking possession of the Installment Sales
Contracts and any related Dealer Agreements (the
"RECEIVABLES FILES") pursuant to the Custodial Agreement.
The Custodian will maintain possession of the Receivables
Files in a space leased by the Custodian proximate to the
principal executive office of the Seller. CFSC will indicate
on its computer records that the Receivables have been sold
to the Seller and by the Seller to the Trust. Each
Receivables File will contain the single original related
Installment Sales Contract (as represented by CFSC in the
Purchase Agreement). UCC financing statements will not be
filed to perfect these transfers of ownership or such grant
of a security interest, and CFSC will not stamp the physical
Receivables Files or the Installment Sales Contracts.
Although steps will be taken to ensure that the Seller (an
affiliate of CFSC) does not obtain possession or control of
the Installment Sales Contracts, should a court find that
the Seller did have possession or control of such
Installment Sales Contracts, the interests of the Trust and
the Indenture Trustee in the Receivables
</TABLE>
S-19
<PAGE>
<TABLE>
<S> <C>
would in all likelihood be unperfected. See "Risk
Factors--PERFECTION OF INTERESTS IN RECEIVABLES AND IN
FINANCED EQUIPMENT" and "Certain Legal Aspects of the
Receivables--Sale and Transfer of Receivables" herein and in
the Prospectus.
TAX STATUS................... In the opinion of Orrick, Herrington & Sutcliffe LLP
("SPECIAL 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. The Seller intends to
cause an election to be made under the Internal Revenue Code
of 1986, as amended (the "CODE"), whereby the Trust will
qualify as a "financial asset securitization investment
trust" or "FASIT" under the relevant provisions of the Code,
and the Notes will constitute "regular interests" in the
FASIT constituted by the Trust. Each Noteholder, by the
acceptance of a Note, will agree to treat the Notes as
indebtedness. See "Certain Federal Income Tax
Considerations" herein and in the Prospectus.
STATE TAX CONSIDERATIONS..... In the opinion of Tuke Yopp & Sweeney ("TENNESSEE TAX
COUNSEL"), with respect to corporate Noteholders, the same
tax characterizations should apply for purposes of Tennessee
income tax as for federal income tax purposes. Non-corporate
Noteholders who are residents of Tennessee will be subject
to taxation on income distributions with respect to the
Notes at the rate of six percent (6%). In the opinion of
Tennessee Tax Counsel, the Trust should not be subject to
taxation in Tennessee. See "Certain State Tax
Considerations" in the Prospectus for additional information
concerning the application of Tennessee tax laws to the
Trust and the Securities.
ERISA CONSIDERATIONS......... Subject to the considerations described in "ERISA
Considerations" herein and in the Prospectus, the Notes are
eligible for purchase with "plan assets" of any Plan (as
defined below) ("PLAN ASSETS"). A fiduciary or other person
contemplating purchasing the Notes on behalf of or with Plan
Assets of any employee benefit plan or other plan or
arrangement (including but not limited to an insurance
company general account) subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Code (collectively,
"PLANS") should carefully review with its legal advisors
whether the purchase or holding of the Notes could give rise
to a transaction prohibited or not otherwise permissible
under ERISA or Section 4975 of the Code.
LEGAL INVESTMENT............. The Class A-1 Notes will be eligible securities for purchase
by money market funds under paragraph (a)(9) of Rule 2a-7
under the Investment Company Act of 1940, as amended.
RATINGS OF THE NOTES......... It is a condition to the issuance of the Notes that the
Class A Notes be rated in the highest investment rating
category by each of Standard & Poor's Ratings Services
("S&P") and Moody's Investors Service ("MOODY'S" and with
S&P, each, a "RATING AGENCY") and that the Class B Notes be
rated at least "A" by S&P and at least "A2" by Moody's. See
"Risk Factors--RATINGS OF THE NOTES" herein and "Ratings" in
the Prospectus.
</TABLE>
S-20
<PAGE>
RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus and the following risk factors in connection
with the purchase of the Notes.
LIMITED LIQUIDITY. There is currently no secondary market for the Notes.
Each Underwriter currently intends to make a market in the Notes for which it is
an Underwriter, but is under no obligation to do so. There can be no assurance
that a secondary market will develop or, if a secondary market does develop,
that it will provide the Noteholders with liquidity of investment or that it
will continue for the life of the Notes.
PERFECTION OF INTERESTS IN RECEIVABLES AND IN FINANCED EQUIPMENT. The
transfer of ownership of the Receivables from CFSC to the Seller and from the
Seller to the Trust, and the granting of the security interest in the
Receivables by the Trust to the Indenture Trustee, will in each case be
perfected by the Custodian, on behalf of the applicable assignee, taking
possession of the Installment Sales Contracts and any related Dealer Agreements
(the "RECEIVABLES FILES") pursuant to the Custodial Agreement. The Custodian
will maintain possession of the Receivables Files in a space leased by the
Custodian proximate to the principal executive office of the Seller. CFSC will
indicate on its computer records that the Receivables have been sold to the
Seller and by the Seller to the Trust. Each Receivables File will contain the
single original Installment Sales Contract related to a Receivable (as
represented by CFSC in the Purchase Agreement). UCC financing statements will
not be filed to perfect these transfers of ownership or such grant of a security
interest in the Receivables, and CFSC will not stamp the physical Receivables
Files or the Installment Sales Contracts. Although steps will be taken to ensure
that the Seller does not obtain possession or control of the Installment Sales
Contracts, should a court find that the Seller did have possession or control of
such Installment Sales Contracts, the interests of the Trust and the Indenture
Trustee in the Receivables would in all likelihood be unperfected, and
distributions to Noteholders may be adversely affected.
Should the related Indenture Trustee's security interest and/or the Trust's
ownership interest in the Receivables be found to be unperfected, such interests
may be inferior to the interests of (i) the Seller or CFSC, (ii) any creditors
of the Trust, the Seller or CFSC, or (iii) a subsequent purchaser of
Receivables, in the event the Trust, the Seller or CFSC fraudulently or
inadvertently sells a Receivable to such purchaser who had no notice of the
prior transfers thereof to such Indenture Trustee, the Trust or the Seller and
such purchaser takes possession of the related physical contract evidencing such
Receivable. As a result of such lack of perfection, the Seller, the Trust and
the holders of Securities may not be entitled to receive all or a portion of the
distributions relating to, or have any other rights with respect to, the
Receivables.
SUBORDINATION; LIMITED ASSETS. Distributions of interest on the Class B
Notes will be subordinated in priority of payment to interest on the Class A
Notes. In addition, the Class B Noteholders will not receive any distributions
of principal until the Class A Notes have been paid in full.
The Trust does not have, nor is it permitted or expected to have, any
significant assets or sources of funds other than the Receivables, the Reserve
Account and the Yield Supplement Account. Holders of the Notes must rely for
repayment upon payments on the Receivables and, if and to the extent available,
amounts on deposit in the Reserve Account and the Yield Supplement Account.
Amounts to be deposited in the Reserve Account and the Yield Supplement Account
and the overcollateralization represented by the Certificates are limited in
amount. In addition, funds in the Reserve Account will be available on each
Distribution Date to cover shortfalls in distributions of interest and principal
on the Class A Notes prior to the application thereof to cover shortfalls on the
Class B Notes. If the Reserve Account is depleted, the Trust will depend solely
on current distributions on the Receivables and, if and to the extent available,
amounts on deposit in the Yield Supplement Account to make payments on the
Notes.
If an Event of Default under the Indenture occurs and the maturity of the
Notes is accelerated, the Indenture Trustee will have the right or be required
in certain circumstances to sell the Receivables to pay the principal of, and
accrued interest on, the Notes. Upon the occurrence of an Event of Default, the
Class B Noteholders will not have any right to direct or to consent to any
actions by the Indenture Trustee until the Class A Notes have been paid in full.
There is no assurance that the proceeds of such sale will be equal to or greater
than the aggregate outstanding principal balance of the Notes plus accrued
interest. Because neither
S-21
<PAGE>
interest nor principal is distributed to Class B Noteholders upon sale of the
Receivables following an Event of Default and acceleration of the Notes under
the Indenture until the Class A Notes have been paid in full, the interest of
the Class B Noteholders and the Class A Noteholders may conflict, and the
exercise by the Indenture Trustee of its right to sell the Receivables or
exercise other remedies may cause the Class B Noteholders to suffer a loss of
all or part of their investment. See "Description of the Notes--The
Indenture--EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT" herein and in the
Prospectus.
In the event a Servicer Default occurs, the Indenture Trustee or the Class A
Noteholders evidencing not less than 25% of the outstanding principal amount of
the Class A Notes, as described under "Description of the Transfer and Servicing
Agreements--Rights Upon Servicer Default" herein and in the Prospectus, may
remove the Servicer without the consent of the Owner Trustee or any of the Class
B Noteholders. The Owner Trustee or the Class B Noteholders will not have the
ability to remove the Servicer if a Servicer Default occurs until the Class A
Notes have been paid in full. In addition, the Class A Noteholders evidencing
more than 50% of the outstanding principal amount of the Class A Notes have the
ability, with certain specified exceptions, to waive defaults by the Servicer
without the consent of the Owner Trustee or any of the Class B Noteholders,
including defaults that could materially and adversely affect the Class B
Noteholders. If CFSC or an affiliate is no longer the Servicer, payment of the
Servicing Fee will be made prior to distributions to Class A Noteholders and
Class B Noteholders. See "Description of the Transfer and Servicing
Agreements--Waiver of Past Defaults" herein and in the Prospectus.
RATINGS OF THE NOTES. It is a condition to the issuance of the Notes that
the Class A Notes be rated in the highest investment rating category by each of
S&P and Moody's and that the Class B Notes be rated at least "A" by S&P and at
least "A2" by Moody's. A rating is not a recommendation to purchase, hold or
sell securities, inasmuch as such rating does not comment as to market price or
suitability for a particular investor. The ratings of the Notes address the
likelihood of the timely payment of interest on and the ultimate payment of
principal of the Notes pursuant to their terms. There can be 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.
FORMATION OF THE TRUST
THE TRUST
The Issuer, Caterpillar Financial Asset Trust 1997-B, is a business trust
formed under the laws of the State of Delaware pursuant to the Trust Agreement
for the transactions described in this Prospectus Supplement. After its
formation, the Trust will not engage in any activity other than (i) acquiring,
owning and managing the Receivables and the other assets of the Trust and
proceeds therefrom, (ii) issuing and making payments on the Notes, (iii) issuing
and making payments on the Certificates and (iv) engaging in other activities
that are necessary, suitable or convenient to accomplish the foregoing or are
incidental thereto or connected therewith.
The Trust will initially be capitalized with equity of $7,861,558 (excluding
amounts deposited in the Reserve Account), which represents the initial
principal balance of the Certificates which will be sold to the Seller. The
proceeds from the initial sale of the Certificates, together with the proceeds
from the initial sale of the Notes, will be used by the Trust to purchase the
Receivables from the Seller pursuant to the Sale and Servicing Agreement. 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 Transfer and Servicing Agreements--Servicing Compensation
and Payment of Expenses" herein and in the Prospectus. Each Receivables File
will contain the single original related Installment Sales Contract (as
represented by CFSC in the Purchase Agreement). The Custodian will act as
custodian for the Receivables Files for the Seller, the Owner Trustee and the
Indenture Trustee and will take possession of the Receivables Files at a
location leased by the Custodian proximate to the principal executive office of
the Seller. CFSC will indicate on its computer records that the Receivables have
been sold to the Seller and by the Seller to the Trust. UCC financing statements
will not be filed to evidence these transfers, and CFSC will not stamp the
physical Receivables Files to reflect the sale and assignment of the Receivables
to the Trust. See "Risk Factors--
S-22
<PAGE>
PERFECTION OF INTERESTS IN RECEIVABLES AND IN FINANCED EQUIPMENT" herein and in
the Prospectus and "Certain Legal Aspects of the Receivables--Sale and Transfer
of Receivables" herein and in the Prospectus and "Certain Legal Aspects of the
Receivables--Security Interest in Equipment" in the Prospectus.
If the protections provided to Class A Noteholders in the Trust by the
subordination of the Class B Notes and the Certificates, the protection provided
to the Class B Noteholders in the Trust by the subordination of the
Certificates, and the protection provided to the holders of the Notes by the
availability of the funds in the Reserve Account and the Yield Supplement
Account are insufficient, the Trust must rely solely on the payments from the
Obligors on the Receivables, and the proceeds from the repossession and sale of
Financed Equipment and certain other cross-collateralized equipment which secure
defaulted Receivables. In such event, certain factors, such as the Trust's not
having first priority perfected security interests in some of the Receivables or
Financed Equipment as a result of occurrences after the Closing Date, and the
risk of fraud or negligence of CFSC or (under certain circumstances) the related
Dealer, may affect the Trust's ability to realize on the collateral securing the
Receivables, and thus the proceeds to be distributed to Noteholders with respect
to the Notes may be reduced. See "Risk Factors--PERFECTION OF INTERESTS IN
RECEIVABLES AND IN FINANCED EQUIPMENT" herein and in the Prospectus, and
"Certain Legal Aspects of the Receivables" in the Prospectus.
CAPITALIZATION OF THE TRUST
The following table illustrates the capitalization of the Trust as of the
Cut-off Date, as if the issuance and sale of the Notes offered hereby and the
Certificates had taken place on such date:
<TABLE>
<S> <C>
Class A-1 5.805% Asset Backed Notes................................... $81,000,000
Class A-2 6.018% Asset Backed Notes................................... 110,900,000
Class A-3 6.16% Asset Backed Notes.................................... 102,091,000
Class B 6.35% Asset Backed Notes...................................... 12,577,000
6.35% Asset Backed Certificates....................................... 7,861,558
-----------
Total............................................................... $314,429,558
-----------
-----------
</TABLE>
THE OWNER TRUSTEE
Chase Manhattan Bank Delaware is the Owner Trustee under the Trust
Agreement. Chase Manhattan Bank Delaware is a Delaware banking corporation and
its principal offices are located at 1201 Market Street, Wilmington, Delaware
19801. The Seller shall pay the fees of the Owner Trustee and shall reimburse it
for certain liabilities and expenses. In the ordinary course of its business,
the Owner Trustee and its affiliates have engaged and may in the future engage
in commercial banking or financial advisory transactions with CFSC and its
affiliates.
THE RECEIVABLES POOL
The pool of Receivables (the "RECEIVABLES POOL") will include the
Receivables purchased pursuant to the Purchase Agreement with an aggregate
Principal Balance of $314,429,558 as of November 1, 1997 (the "CUT-OFF DATE").
The Receivables were selected from the entire U.S. ISC Portfolio (other than
receivables previously sold to trusts under prior asset-backed securitizations
which CFSC continues to service which are otherwise included in the U.S. ISC
Portfolio) using several criteria, some of which are set forth in the Prospectus
under "The Receivables Pools," as well as that each Receivable (i) has a stated
maturity of not earlier than April 1998 or later than October 2002, (ii) has an
annual percentage rate of interest (based on its Principal Balance) ("APR") of
at least 6.47% and (iii) is not more than 31 days past due as of the Cut-off
Date. As of the Cut-off Date, no Obligor on any Receivable was noted in the
related records of the Servicer as being in default under the related
Installment Sales Contract or as being the subject of a bankruptcy proceeding.
No selection procedures believed by CFSC or the Seller to be adverse to the
Noteholders were used in selecting the Receivables.
S-23
<PAGE>
The composition of the Receivables and the distribution of the Receivables
by APR, new and used equipment, equipment type, industry application, payment
frequency, remaining Principal Balance and geographic distribution as of the
Cut-off Date are set forth in the following tables. Amounts and percentages are
based on the Principal Balance of the Receivables as of the Cut-off Date. The
"PRINCIPAL BALANCE" of a Receivable means its original principal balance, as
reduced by principal payments applied in accordance with the actuarial method.
As of the Cut-off Date, the aggregate Principal Balance of the Receivables
equalled the Initial Pool Balance.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
AVERAGE APR ORIGINAL REMAINING TERM
OF NUMBER OF TERM (RANGE) (RANGE) (IN AVERAGE
RECEIVABLES POOL BALANCE RECEIVABLES (IN MONTHS) MONTHS) (1) PRINCIPAL BALANCE (RANGE)
- ------------- ----------------- ------------- ------------ -------------- --------------------------------
<S> <C> <C> <C> <C> <C>
7.70% $ 314,429,558.18 3,568 47(12-60) 42(6-60) $88,125 ($5,107-$3,200,014)
</TABLE>
- ------------------------
(1) Based on scheduled payments and assuming no prepayments of the Receivables.
DISTRIBUTION BY APR OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
APR RANGE (1) RECEIVABLES PRINCIPAL BALANCE BALANCE
- ----------------------------------------------------------- ------------- ----------------- -----------
<S> <C> <C> <C>
6.47 - 6.99............................................. 1,371 $ 135,097,664.77 42.97%
7.00 - 7.99............................................. 716 70,292,028.58 22.36
8.00 - 8.99............................................. 590 58,754,289.51 18.69
9.00 - 9.99.............................................. 706 44,526,081.92 14.16
10.00 - 10.99............................................. 172 5,366,191.48 1.71
11.00 and over ............................................ 13 393,301.92 0.13
----- ----------------- -----------
Total.................................................... 3,568 $ 314,429,558.18 100.00%
----- ----------------- -----------
----- ----------------- -----------
</TABLE>
- ------------------------
(1) CFSC, in conjunction with Caterpillar and its subsidiaries, periodically
offers below market rate financing to Obligors under merchandising programs.
Caterpillar, at the outset of a subsidized transaction, remits to CFSC an
amount equal to the interest differential, which amount is recognized as
income over the term of the related contract. The APR of any Receivable does
not take into account, and the Trust does not have an interest in, any of
such amounts remitted to CFSC by Caterpillar with respect to these
Receivables.
DISTRIBUTION BY NEW AND USED FINANCED EQUIPMENT
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF PRINCIPAL PRINCIPAL
RECEIVABLES BALANCE BALANCE
------------- ----------------- -----------
<S> <C> <C> <C>
New Equipment (1).......................................... 2,507 $ 242,044,715.76 76.98%
Used Equipment............................................. 1,061 72,384,842.42 23.02
----- ----------------- -----------
Total.................................................... 3,568 $ 314,429,558.18 100.00%
----- ----------------- -----------
----- ----------------- -----------
</TABLE>
- ------------------------
(1) Units not previously delivered or sold; rental units of less than 12 months
and 1,000 service meter hours; and units of the current or previous model
year and serial number.
S-24
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY TYPE OF FINANCED EQUIPMENT
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
TYPE RECEIVABLES PRINCIPAL BALANCE BALANCE
- ----------------------------------------------------------- ------------- ----------------- -----------
<S> <C> <C> <C>
Construction Equipment..................................... 3,228 $ 301,315,962.87 95.83%
Lift Trucks................................................ 257 5,177,436.48 1.65
Paving Equipment........................................... 83 7,963,158.83 2.52
----- ----------------- -----------
Total.................................................... 3,568 $ 314,429,558.18 100.00%
----- ----------------- -----------
----- ----------------- -----------
</TABLE>
DISTRIBUTION BY INDUSTRY APPLICATION OF FINANCED EQUIPMENT
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
INDUSTRY RECEIVABLES PRINCIPAL BALANCE BALANCE
- ----------------------------------------------------------- ------------- ----------------- -----------
<S> <C> <C> <C>
Agriculture, Forestry and Fishing.......................... 222 $ 12,561,714.14 4.00%
Construction............................................... 2,360 209,554,955.77 66.65
Mining..................................................... 108 21,056,048.94 6.70
Manufacturing.............................................. 331 25,638,710.44 8.15
Transportation/Public Utilities............................ 119 7,864,869.12 2.50
Wholesale Trade............................................ 134 12,050,197.41 3.83
Other (1).................................................. 294 25,703,062.36 8.17
----- ----------------- -----------
Total.................................................... 3,568 $ 314,429,558.18 100.00%
----- ----------------- -----------
----- ----------------- -----------
</TABLE>
- ------------------------
(1) Other includes retail, financial, insurance and real estate, services, and
public administration.
DISTRIBUTION OF THE RECEIVABLES BY PAYMENT FREQUENCY
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
TYPE RECEIVABLES PRINCIPAL BALANCE BALANCE
- ----------------------------------------------------------- ------------- ----------------- -----------
<S> <C> <C> <C>
Monthly.................................................... 3,045 $ 257,710,885.35 81.96%
Variable Frequency (1)..................................... 523 56,718,672.83 18.04
----- ----------------- -----------
Total.................................................... 3,568 $ 314,429,558.18 100.00%
----- ----------------- -----------
----- ----------------- -----------
</TABLE>
- ------------------------
(1) "VARIABLE FREQUENCY RECEIVABLES" have monthly payment schedules but permit
the Obligors thereon to skip or reduce payments during certain specified
months which are predetermined at origination. The majority of skip or
reduced payments take place during months coinciding with the cash flow
patterns of the related Obligors. Although there can be no assurance that
the experience on the Variable Frequency Receivables will be comparable,
CFSC has not identified any cash flow pattern resulting from the existence
of Variable Frequency Receivables in the U.S. ISC Portfolio. The Seller
believes that the pattern of principal payments on the Notes will not be
materially affected by the inclusion of Variable Frequency Receivables in
the Trust. See "The Receivables Pools--The Retail Equipment Financing
Business--INSTALLMENT SALES CONTRACTS--CONTRACT TERMS" in the Prospectus.
S-25
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY REMAINING PRINCIPAL BALANCE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
NUMBER OF AGGREGATE PRINCIPAL
REMAINING PRINCIPAL BALANCE RANGE RECEIVABLES PRINCIPAL BALANCE BALANCE
- ----------------------------------------------------------- ------------- ----------------- -----------
<S> <C> <C> <C>
Up to $25,000.............................................. 502 $ 7,707,960.30 2.45%
$ 25,001-$ 50,000......................................... 968 37,090,783.09 11.80
$ 50,001-$ 75,000......................................... 674 41,263,601.68 13.12
$ 75,001-$ 100,000......................................... 429 37,265,291.97 11.85
$100,001-$ 125,000......................................... 291 32,588,089.72 10.36
$125,001-$ 150,000......................................... 227 31,108,659.65 9.89
$150,001-$ 175,000......................................... 143 23,280,637.85 7.40
$175,001-$ 200,000......................................... 97 18,166,261.57 5.78
$200,001-$ 250,000......................................... 86 18,897,134.07 6.01
$250,001-$ 300,000......................................... 52 14,234,954.70 4.53
$300,001-$ 350,000......................................... 21 6,747,123.88 2.15
$350,001-$ 400,000......................................... 22 8,253,289.54 2.62
$400,001-$ 450,000......................................... 13 5,469,902.41 1.74
$450,001-$ 500,000......................................... 9 4,312,304.16 1.37
$500,001-$ 550,000......................................... 6 3,185,840.05 1.01
$550,001-$ 600,000......................................... 7 4,032,909.94 1.28
$600,001-$1,000,000........................................ 16 12,054,073.69 3.83
Over $1,000,000............................................ 5 8,770,739.91 2.79
----- ----------------- -----------
Total.................................................... 3,568 $ 314,429,558.18 100.00%
----- ----------------- -----------
----- ----------------- -----------
</TABLE>
S-26
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE PRINCIPAL AGGREGATE
STATE (1) RECEIVABLES BALANCE PRINCIPAL BALANCE
- ------------------------------------------------------------- ------------- -------------------- -----------------
<S> <C> <C> <C>
Alabama...................................................... 163 $ 14,777,274.96 4.70%
Alaska....................................................... 27 2,007,876.16 0.64
Arizona...................................................... 87 7,165,070.58 2.28
Arkansas..................................................... 44 3,159,077.96 1.00
California................................................... 249 18,959,359.03 6.03
Colorado..................................................... 35 3,003,539.30 0.96
Connecticut.................................................. 14 1,093,800.18 0.35
Delaware..................................................... 8 480,640.41 0.15
Florida...................................................... 217 17,047,764.94 5.42
Georgia...................................................... 140 14,357,259.17 4.57
Hawaii....................................................... 7 375,907.25 0.12
Idaho........................................................ 28 1,652,141.93 0.53
Illinois..................................................... 86 8,063,913.51 2.56
Indiana...................................................... 43 3,479,504.02 1.11
Iowa......................................................... 13 627,134.04 0.20
Kansas....................................................... 18 1,389,257.30 0.44
Kentucky..................................................... 64 10,081,084.11 3.21
Louisiana.................................................... 77 6,526,628.59 2.08
Maryland..................................................... 8 821,865.77 0.26
Massachusetts................................................ 5 336,748.00 0.11
Michigan..................................................... 207 14,650,900.76 4.66
Minnesota.................................................... 7 432,952.53 0.14
Mississippi.................................................. 44 2,557,472.30 0.81
Missouri..................................................... 44 5,513,964.48 1.75
Montana...................................................... 26 2,071,520.19 0.66
Nebraska..................................................... 20 1,581,370.77 0.50
Nevada....................................................... 78 8,790,916.28 2.80
New Jersey................................................... 166 14,780,522.51 4.70
New Mexico................................................... 39 3,628,821.77 1.15
New York..................................................... 88 5,817,612.87 1.85
North Carolina............................................... 146 12,686,570.29 4.03
North Dakota................................................. 8 1,214,087.71 0.39
Ohio......................................................... 168 14,150,623.82 4.50
Oklahoma..................................................... 29 2,783,317.95 0.89
Oregon....................................................... 88 7,496,422.84 2.38
Pennsylvania................................................. 207 18,560,708.67 5.90
Rhode Island................................................. 1 15,153.82 0.00
South Carolina............................................... 123 10,575,647.00 3.36
South Dakota................................................. 6 518,833.72 0.17
Tennessee.................................................... 74 6,401,433.84 2.04
Texas........................................................ 287 28,658,942.86 9.11
Utah......................................................... 44 3,478,463.55 1.11
Vermont...................................................... 2 46,107.43 0.01
Virginia..................................................... 98 9,615,409.93 3.06
Washington................................................... 116 11,082,272.89 3.52
West Virginia................................................ 34 3,734,604.72 1.19
Wisconsin.................................................... 63 5,251,885.10 1.67
Wyoming...................................................... 22 2,927,170.37 0.93
----- -------------------- ------
Total...................................................... 3,568 $ 314,429,558.18 100.00%
----- -------------------- ------
----- -------------------- ------
</TABLE>
- ------------------------
(1) Based on billing addresses of Obligors.
Unless otherwise specified herein, references herein to percentages of the
Receivables refer in each case to the approximate percentage of the Initial Pool
Balance, based on the Principal Balances of the Receivables as of the Cut-off
Date, and after giving effect to all payments received prior to the Cut-off
Date.
S-27
<PAGE>
All of the Receivables were Installment Sales Contracts. 5.76% of the
Receivables were originated or arranged by Darr Equipment Co., a dealer in
Dallas, Texas, and in the aggregate 22.88% of the Receivables were originated or
arranged by the five largest Dealers. No other Dealer originated or arranged
more than 5.15% of the Receivables. 3.42% of the Receivables were originated or
arranged by Carter Machinery Company, Inc., a Dealer in Salem, Virginia and the
only Dealer owned by Caterpillar.
No single Obligor accounted for more than 1.05% of the Receivables, and the
five largest Obligors accounted for approximately 3.72% of the Receivables.
Approximately 95.95% of the Receivables have related Financed Equipment
manufactured by Caterpillar and the remaining approximately 4.05% of the
Receivables have related Financed Equipment manufactured by a variety of other
sources.
At origination CFSC confirms the applicable loan-to-value ratios of its
receivables. Because of the depreciating nature of the Financed Equipment, and
in light of CFSC's credit loss experience set forth herein with respect to the
U.S. ISC Portfolio, the Seller believes that statistical information relating to
original loan-to-value ratios of the Receivables is not material to investors in
the Notes.
Certain Receivables may be cross-collateralized, being secured by junior
liens on other items of equipment (which may or may not be Financed Equipment)
in addition to first priority liens on the related Financed Equipment, and
certain items of Financed Equipment may secure other receivables of CFSC on a
junior basis (which may or may not be Receivables). See "Certain Legal Aspects
of the Receivables--Cross-Collateralization" herein.
DELINQUENCIES, REPOSSESSIONS AND NET LOSSES
Set forth below is certain information concerning CFSC's experience
pertaining to delinquencies, repossessions and net losses on the entire United
States portfolio of installment sales contracts serviced by CFSC (including
receivables sold which CFSC continues to service) (the "U.S. ISC PORTFOLIO").
Generally, when an account becomes 120 days delinquent, accrual of finance
income is suspended, the collateral is repossessed and the account is designated
for litigation.
Delinquencies, repossessions and net losses on installment sales contracts
are affected by economic conditions generally. Total delinquencies had decreased
from 1992 to 1993 due to an improving U.S. economy and to CFSC's expansion of
its service center and regional office collection staff and enhanced collection
trading systems. Fluctuations in the level of repossessions and net losses from
1992 to 1996 reflect changes in economic conditions generally and in economic
conditions of industries which CFSC's customers serve.
Although the Seller believes that the composition of the Receivables in the
aggregate is representative of the U.S. ISC Portfolio there can be no assurance
that the delinquency, repossession and net loss experience on the Receivables
will be comparable to that set forth below or that delinquencies, repossessions
and net losses in the future will be comparable to those in the past.
S-28
<PAGE>
DELINQUENCY EXPERIENCE FOR THE U.S. ISC PORTFOLIO(1)(2)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------------------------
1992 1993 1994 1995
-------------------------- ------------------------ ------------------------ -----------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Portfolio.................. 9,833 $ 529.0 11,139 $ 638.4 13,692 $ 882.5 17,354
Unadjusted System Delinquency (3)
31-60 Days..................... 418 $ 28.5 407 $ 25.8 548 $ 27.8 665
over 60 Days................... 994 $ 26.7 418 $ 19.9 406 $ 20.2 504
Total Unadjusted System
Delinquencies.................. 1,412 $ 55.2 825 $ 45.7 954 $ 48.0 1,169
Total Unadjusted System
Delinquencies as a Percent of
the Gross Portfolio............. 14.36% 10.43 % 7.41 % 7.16 % 6.97 % 5.44 % 6.74%
Adjusted Delinquency (4)
31-60 Days..................... N/A N/A 225 $ 9.8 275 $ 12.0 396
over 60 Days................... N/A N/A 308 $ 10.7 271 $ 13.1 387
Total Adjusted Delinquencies..... N/A N/A 533 $ 20.5 546 $ 25.1 783
Total Adjusted Delinquencies as a
Percent of the Gross
Portfolio....................... N/A N/A 4.78 % 3.21 % 3.99 % 2.84 % 4.51%
<CAPTION>
AMOUNT
---------
<S> <C>
Gross Portfolio.................. $ 1,198.8
Unadjusted System Delinquency (3)
31-60 Days..................... $ 38.0
over 60 Days................... $ 38.3
Total Unadjusted System
Delinquencies.................. $ 76.3
Total Unadjusted System
Delinquencies as a Percent of
the Gross Portfolio............. 6.36%
Adjusted Delinquency (4)
31-60 Days..................... $ 17.1
over 60 Days................... $ 32.7
Total Adjusted Delinquencies..... $ 49.8
Total Adjusted Delinquencies as a
Percent of the Gross
Portfolio....................... 4.15%
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 AT SEPTEMBER 30, 1996 AT SEPTEMBER 30, 1997
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gross Portfolio................................ 20,653 $ 1,269.4 19,796 $ 1,195.3 23,599 $ 1,504.7
Unadjusted System Delinquency (3)
31-60 Days................................... 633 $ 33.5 687 $ 40.2 606 $ 42.2
over 60 Days................................. 555 $ 25.6 575 $ 26.7 389 $ 26.3
Total Unadjusted System
Delinquencies................................. 1,188 $ 59.1 1,262 $ 66.9 995 $ 68.5
Total Unadjusted System
Delinquencies as a Percent of the
Gross Portfolio............................... 5.75% 4.66% 6.38 % 5.60% 4.22 % 4.55%
Adjusted Delinquency (4)
31-60 Days................................... 445 $ 20.3 422 $ 19.7 354 $ 17.4
over 60 Days................................. 457 $ 19.8 439 $ 16.4 365 $ 16.5
Total Adjusted Delinquencies................... 902 $ 40.1 861 $ 36.1 719 $ 33.9
Total Adjusted Delinquencies
as a Percent of the Gross Portfolio........... 4.37 % 3.16% 4.35 % 3.02% 3.05 % 2.25%
</TABLE>
- ------------------------------
(1) Amounts and percentages are based on the gross amount of all unpaid
installments of principal and unearned finance charges scheduled to be paid
on each contract.
(2) Delinquent contracts that have been modified in accordance with CFSC's
credit policies may not be considered to be "delinquent" for purposes of
this table. Such modifications include extensions, restructurings with skip
payments, refinancings, changes of installment due dates, reductions of
interest rates, and partial buyouts. See "The Receivables Pools--The Retail
Equipment Financing Business--EXTENSION/REVISION PROCEDURES" in the
Prospectus. In addition, a contract is no longer considered delinquent and
is no longer included in the U.S. ISC Portfolio upon the repossession of
its related financed equipment. See "The Receivables Pools--The Retail
Equipment--Financing Business--REPOSSESSION/WRITEOFF PROCEDURES" in the
Prospectus.
(3) A monthly contract is deemed to be "31-60" or "over 60" days past due if
the amount due is not collected by the last day of the succeeding or next
succeeding month, respectively (I.E., a payment due any time in January is
not considered "31-60" days past due unless the amount due remains
uncollected on February 28).
(4) Adjustments result primarily from the application of payments made but not
allocated by CFSC to the amount then outstanding under delinquent
contracts. Increases or decreases in the contract number or dollar amount
of contracts in a particular delinquency category result from either the
removal of contracts from a particular delinquent status or the shifting of
contracts from one delinquency category to another as a result of the
adjustment process.
S-29
<PAGE>
CREDIT LOSS/REPOSSESSION EXPERIENCE FOR THE U.S. ISC PORTFOLIO(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -------------------
1992 1993 1994 1995 1996 1996(5) 1997(5)
------ ------ ------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Average Gross Portfolio Outstanding During the Period....... $574.6 $568.4 $738.5 $1,024.5 $1,214.6 1$,206.2 $1,388.3
Repossessions as a Percent of Average Gross Portfolio
Outstanding (2)............................................ 3.64% 2.66% 0.97% 0.98% 1.02% 1.08% 1.08 %
Net Losses as a Percent of Liquidations (3)(4).............. 1.46% 1.22% 0.42% 0.86% 0.51% 0.45% 0.37 %
Net Losses as a Percent of Average Gross Portfolio
Outstanding (4)............................................ 1.11% 0.79% 0.23% 0.45% 0.30% 0.27% 0.22 %
</TABLE>
- ------------------------------
(1) Except as indicated, all amounts and percentages are based on the gross
amount of all unpaid installments of principal and unearned finance charges
scheduled to be paid on each contract.
(2) Repossessions until the third quarter of 1993 represented all unpaid
principal and finance charges accrued but not collected for contracts
repossessed and terminated during the period, and subsequent to the third
quarter of 1993 represented all unpaid principal and finance charges
accrued but not collected for contracts repossessed and either terminated
or in inventory.
(3) Liquidations represent a reduction in the outstanding balances of the
contracts as a result of cash payments and charge-offs.
(4) Net Losses are equal to the aggregate amount of principal and finance
charges accrued on all contracts which are determined to be uncollectible
plus repossession expenses less (i) in the case of repossessed (but not
liquidated) financed equipment, the estimated proceeds of liquidation of
such equipment, and (ii) in the case of liquidated financed equipment, the
actual proceeds of liquidation of such equipment. With respect to Financed
Equipment which is repossessed in one calendar year and sold in another,
the Net Loss figures for the year of repossession include CFSC's estimate
of loss after giving effect to its estimate of the liquidation proceeds,
and the Net Loss figures in the subsequent calendar year are increased to
reflect the amount by which actual liquidation proceeds are less than such
estimate or are decreased to reflect the amount by which actual liquidation
proceeds exceed such estimate. The Trust receives proceeds of liquidations
but will not have the benefit of subsequent amounts received from Obligors
or others (except for recourse payments from Dealers) with respect to a
contract after the related financed equipment is sold and the related
contract is terminated. The Net Loss figures above give effect to payments
by Dealers on a limited number of the contracts which provide for recourse
to the related Dealers. See "The Receivables Pools--The Retail Equipment
Financing Business--DEALER AGREEMENTS" in the Prospectus and "Certain Legal
Aspects of the Receivables--Dealer Recourse Receivables" herein.
(5) Rates have been annualized.
WEIGHTED AVERAGE LIFE OF THE NOTES
Information regarding certain maturity and prepayment considerations with
respect to the Securities is set forth under "Weighted Average Life of the
Securities" in the Prospectus. The Class A-2 Noteholders will not receive any
principal payments until the Class A-1 Notes are paid in full, the Class A-3
Noteholders will not receive any principal payments until the Class A-2 Notes
are paid in full and the Class B Noteholders will not receive any principal
payments until the Class A-3 Notes are paid in full. See "Description of the
Notes-- The Class A-2 Notes, the Class A-3 Notes and the Class B Notes--PAYMENTS
OF PRINCIPAL" herein. In addition, on each Distribution Date, the Class A-1
Noteholders until paid in full, then the Class A-2 Noteholders until paid in
full, then the Class A-3 Noteholders until paid in full, and then the Class B
Noteholders until paid in full, are entitled to receive amounts on deposit in
the Reserve Account in excess of the Specified Reserve Account Balance for such
Distribution Date as an accelerated payment of principal.
No principal payments on the Class B Notes will be made prior to the
Distribution Date on which the principal amounts of the Class A Notes have been
reduced to zero. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account" herein. If an Event of
Default has occurred and the maturities of the Class A Notes has been
accelerated, the Class B Noteholders will not be entitled to receive any
distributions of interest or principal until the Class A Notes have been paid in
full.
S-30
<PAGE>
As the rate of payment of principal of the Notes depends primarily on the
rate of payment (including prepayments) of the aggregate Principal Balance of
the Receivables, final payment of each Class of the Notes could occur
significantly earlier than their respective final scheduled Distribution Dates.
The Servicer will be permitted to extend the final scheduled payment date of a
Receivable; PROVIDED, HOWEVER, if the Servicer extends the final scheduled
payment date of a Receivable beyond the Final Maturity Date, the Servicer will
be obligated to purchase such Receivable from the Trust. Further, the Servicer
will be permitted to refinance an existing Receivable for an Obligor, so long as
(a) the proceeds of such refinancing would be used to repay such existing
Receivable in full and (b) such Obligor executes a new Installment Sales
Contract with respect to such Receivable. The purchase or refinancing of a
Receivable by the Servicer will result in the prepayment of the Principal
Balance of such Receivable to the Trust and may result in the reduction of the
weighted average life of the Notes. Any extensions of Receivables which do not
result in the purchase by the Servicer of such Receivables may lengthen the
weighted average remaining term of the Receivables and the weighted average life
of the Notes. See "Description of the Transfer and Servicing Agreements--Sale
and Assignment of Receivables" herein and in the Prospectus and "The Receivables
Pools--The Retail Equipment Financing Business--EXTENSION/REVISION PROCEDURES"
in the Prospectus. Noteholders will bear the risk of being able to reinvest
principal payments of the Notes at yields at least equal to the yield on their
respective Notes.
POOL FACTORS AND TRADING INFORMATION
Each of the "CLASS A-1 NOTE POOL FACTOR," the "CLASS A-2 NOTE POOL FACTOR"
and the "CLASS A-3 NOTE POOL FACTOR" is a seven-digit decimal which the Servicer
will compute each month, indicating the remaining outstanding principal amount
of the Class A-1 Notes, the Class A-2 Notes or the Class A-3 Notes as of the
related Distribution Date, as a fraction of the initial outstanding principal
amount of the Class A-1 Notes, the Class A-2 Notes or the Class A-3 Notes, as
applicable. Each of the Class A-1 Note Pool Factor, the Class A-2 Note Pool
Factor and the Class A-3 Note Pool Factor will be 1.0000000 as of the Closing
Date, and thereafter will decline to reflect reductions in the outstanding
principal amount of the Class A-1 Notes, the Class A-2 Notes or the Class A-3
Notes, as the case may be. A Class A-1 Noteholder's portion of the aggregate
outstanding principal amount of the Class A-1 Notes is the product of (i) the
original denomination of the Class A-1 Noteholder's Note and (ii) the Class A-1
Note Pool Factor, a Class A-2 Noteholder's portion of the aggregate outstanding
principal amount of the Class A-2 Notes is the product of (i) the original
denomination of the Class A-2 Noteholder's Note and (ii) the Class A-2 Note Pool
Factor and a Class A-3 Noteholder's portion of the aggregate outstanding
principal amount of the Class A-3 Notes is the product of (i) the original
denomination of the Class A-3 Noteholder's Note and (ii) the Class A-3 Note Pool
Factor.
The "CLASS B NOTE POOL FACTOR" is a seven-digit decimal which the Servicer
will compute each month, indicating the remaining outstanding principal amount
of the Class B Notes as of the related Distribution Date, as a fraction of the
initial outstanding principal amount of the Class B Notes. The Class B Note Pool
Factor will be 1.0000000 as of the Closing Date, and thereafter will decline to
reflect reductions in the outstanding principal amount of the Class B Notes. A
Class B Noteholder's portion of the outstanding principal amount of the Class B
Notes is the product of (i) the original denomination of the Class B
Noteholder's Class B Note and (ii) the Class B Note Pool Factor.
Pursuant to the Indenture, the Noteholders of record will receive monthly
reports concerning the payments received on the Receivables, the Pool Balance,
the Class A-1 Note Pool Factor, the Class A-2 Note Pool Factor, the Class A-3
Note Pool Factor and the Class B Note Pool Factor 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 Transfer and Servicing Agreements--Reports to
Securityholders" in the Prospectus.
S-31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SOURCES OF CAPITAL AND LIQUIDITY
The Trust's primary sources of capital will be the net proceeds of the
offering of the Notes. See "Formation of the Trust--Capitalization of the Trust"
herein.
The Trust's primary sources of liquidity will be payments on the Receivables
and amounts on deposit in the Reserve Account. For a discussion of CFSC's
experience pertaining to delinquencies, repossessions and net losses. See "The
Receivables Pool--Delinquencies, Repossessions and Net Losses" and "Description
of the Transfer and Servicing Agreements--Reserve Account" herein.
RESULTS OF OPERATIONS
The Trust is newly formed and, accordingly, has no results of operations as
of the date of this Prospectus Supplement. Because the Trust does not have any
operating history, there has not been included in this Prospectus Supplement any
historical or pro forma ratio of earnings to fixed charges. The earnings on the
Receivables and other assets owned by the Trust, the interest costs of the Notes
and the related operating expenses will determine the Trust's results of
operations in the future. The income generated from the Trust's assets will be
used to pay principal and interest on the Notes, related operating costs and
expenses of the Trust (to the extent not paid by the Servicer) and distributions
to the Certificateholders. The principal operating expenses of the Trust are
expected to be the Servicing Fee and the Administration Fee.
USE OF PROCEEDS
The net proceeds from the sale of Notes and the Certificates will be applied
to the purchase of the Receivables from the Seller and to make the Seller's
initial deposits to the Reserve Account and the Yield Supplement Account. The
Seller will apply its net proceeds to the purchase of the Receivables from CFSC.
THE SELLER, CATERPILLAR AND THE SERVICER
For a general discussion of the Seller, Caterpillar and the Servicer, see
"The Seller, Caterpillar and the Servicer" in the Prospectus.
CATERPILLAR INC.
Caterpillar reported profits of $1,361 million on sales and revenues of
$16.5 billion for the year ended December 31, 1996 as compared with profits of
$1,136 million on sales and revenues of $16.1 billion for the year ended
December 31, 1995. As used herein, the term "CATERPILLAR" means Caterpillar Inc.
and its consolidated subsidiary companies, unless the context otherwise
requires.
CATERPILLAR FINANCIAL SERVICES CORPORATION
CFSC currently offers the following types of retail financing plans: (1)
non-tax oriented (financing) leases; (2) installment sales contracts; (3)
tax-oriented leases; (4) customer loans; (5) dealer loans; and (6) governmental
lease-purchase contracts. CFSC also currently offers wholesale financing to
Caterpillar Dealers. At December 31, 1996, the percentages of total value of
CFSC's portfolio represented by these financing plans were as follows: non-tax
(financing) leases, 26%; installment sales contracts, 20%; tax-oriented leases,
19%; customer loans, 19%; wholesale financing, 7%; dealer loans, 6%; and
governmental lease-purchase contracts, 3%.
At December 31, 1996, CFSC had 576 full-time employees and serviced 36,683
accounts, including approximately $6.4 billion in gross finance receivables. In
the United States, as of December 31, 1996, there were 64 independently owned
Dealers and one Dealer that is owned by Caterpillar.
S-32
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture, a form of
which has been filed as an exhibit to the Registration Statement. A copy of the
Indenture will be filed with the Commission following the issuance of the
Securities. The following, as well as other pertinent information included
elsewhere in this Prospectus Supplement and in the Prospectus, summarizes the
material terms of the Notes and the Indenture. The summary does not purport to
be complete and is qualified in its entirety by reference to the provisions of
the Notes and the Indenture. The following summary supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of the Notes of any given series and the related Indenture set forth
in the Prospectus, to which description reference is hereby made.
THE CLASS A-1 NOTES
PAYMENTS OF INTEREST. The Class A-1 Notes will constitute Fixed Rate
Securities, as such term is defined under "Certain Information Regarding the
Securities--Fixed Rate Securities" in the Prospectus. Interest on the principal
amount of the Class A-1 Notes will accrue at the rate of 5.805% per annum (the
"CLASS A-1 NOTE RATE") (calculated on the basis of a 360-day year and the actual
number of days elapsed). Interest on the outstanding principal amount of the
Class A-1 Notes will accrue from and including the most recent Distribution Date
on which interest has been paid (or, in the case of the initial Distribution
Date, from and including the Closing Date) to but excluding the following
Distribution Date and will be payable to the Class A-1 Noteholders monthly on
each Distribution Date commencing December 26, 1997. "DISTRIBUTION DATE" shall
mean the 25th day of each month or, if any such date is not a business day, on
the next succeeding business day. Interest accrued as of any Distribution Date
but not paid on such Distribution Date will be due on the next Distribution
Date, together with interest, to the extent permitted by law, on such amount at
the Class A-1 Note Rate. Interest payments on the Class A-1 Notes will be
generally derived from the Total Distribution Amount remaining after the payment
of the Servicing Fee (if CFSC or an affiliate is not the Servicer) and the
Administration Fee, and from amounts on deposit in the Reserve Account. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" herein. If the amount of interest on the principal amounts
of the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes payable on
any Distribution Date exceeds the sum of such remaining portion of the Total
Distribution Amount and the amounts on deposit in the Reserve Account, the Class
A-1 Noteholders will receive their ratable share (based upon the total amount of
interest due to the Class A-1 Noteholders, the Class A-2 Noteholders and the
Class A-3 Noteholders) of the amount available to be distributed in respect of
interest on the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes,
and each Class A-1 Noteholder will receive its ratable share (based on the
principal amount of its Class A-1 Note and the total amount distributable to the
Class A-1 Noteholders) of such amount.
PAYMENTS OF PRINCIPAL. Principal payments will be made to the Class A-1
Noteholders on each Distribution Date in an amount generally equal to the
Principal Distribution Amount until the principal balance of the Class A-1 Notes
is reduced to zero. Principal payments on the Class A-1 Notes will generally be
derived from the Total Distribution Amount remaining after the payment of the
Servicing Fee (if CFSC or an affiliate is not the Servicer), the Administration
Fee and the Noteholders' Interest Distributable Amount, and from the amount on
deposit in the Reserve Account remaining after the payment of the Noteholders'
Interest Distributable Amount. See "Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account" herein. Distributions with
respect to principal on the Class A-1 Notes will not be made until all interest
due on the Notes is paid in full. The outstanding principal amount, if any, of
the Class A-1 Notes will be payable in full on the Class A-1 Note Final
Scheduled Distribution Date from funds available therefor (including amounts on
deposit in the Reserve Account).
In addition, on each Distribution Date, amounts on deposit in the Reserve
Account in excess of the Specified Reserve Account Balance for such Distribution
Date shall be paid as principal of the Class A-1 Notes to the extent described
under "--The Class A-2 Notes, the Class A-3 Notes and the Class B Notes--
PAYMENTS OF PRINCIPAL" below.
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THE CLASS A-2 NOTES, THE CLASS A-3 NOTES AND THE CLASS B NOTES
PAYMENTS OF INTEREST. The Class A-2 Notes, the Class A-3 Notes and the
Class B Notes will constitute Fixed Rate Securities, as such term is defined
under "Certain Information Regarding the Securities--Fixed Rate Securities" in
the Prospectus. Interest on the principal amount of the Class A-2 Notes will
accrue at the rate of 6.018% per annum (the "CLASS A-2 NOTE RATE"), interest on
the principal amount of the Class A-3 Notes will accrue at the rate of 6.16% per
annum (the "CLASS A-3 NOTE RATE"), and interest on the principal amount of the
Class B Notes will accrue at the rate of 6.35% per annum (the "CLASS B NOTE
RATE") (in each case, calculated on the basis of a 360-day year of twelve 30-day
months). Interest on the outstanding principal amount of the Class A-2 Notes,
the Class A-3 Notes and the Class B Notes will in each case accrue from and
including the most recent Distribution Date on which interest has been paid (or,
in the case of the initial Distribution Date, from and including the Closing
Date) to but excluding the following Distribution Date and will be payable to
the Class A-2 Noteholders, the Class A-3 Noteholders and the Class B Noteholders
monthly on each Distribution Date commencing December 26, 1997. Interest accrued
on any Class of Notes as of any Distribution Date but not paid on such
Distribution Date will be due on the next Distribution Date together with
interest, to the extent permitted by law, on such amount at the interest rate
applicable to such Class of Notes. Interest on the Class B Notes will not be
paid on any Distribution Date until interest payments on the Class A Notes have
been paid in full. Interest payments on the Class A-2 Notes, the Class A-3
Notes, and the Class B Notes will generally be derived from the Total
Distribution Amount remaining after the payment of the Servicing Fee (if CFSC or
an affiliate is not the Servicer) and the Administration Fee and, in the case of
the Class B Notes, payments of the Class A Noteholders' Interest Distributable
Amount, and in each case from amounts on deposit in the Reserve Account. See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" herein. If the amount of interest on the principal amounts
of the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes payable on
any Distribution Date exceeds the sum of such remaining portion of the Total
Distribution Amount and the amounts on deposit in the Reserve Account, each of
the Class A-1 Noteholders, the Class A-2 Noteholders and the Class A-3
Noteholders will receive their ratable share (based upon the total amount of
interest due to the Class A-1 Noteholders, the Class A-2 Noteholders and the
Class A-3 Noteholders) of the amount available to be distributed in respect of
interest on the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes,
and each Class A-2 Noteholder and each Class A-3 Noteholder will receive its
ratable share (based on the principal amount of its Class A-2 Note or its Class
A-3 Note and the total amount distributable to the Class A-2 Noteholders or the
Class A-3 Noteholders) of such amount. In such event, the Class B Noteholders
will not receive any payments of interest on such Distribution Date.
In addition, if an Event of Default has occurred and the maturities of the
Notes have been accelerated, the Class B Noteholders will not be entitled to any
payment of interest or principal until the Class A Notes have been paid in full.
PAYMENTS OF PRINCIPAL. Principal payments will be made to the Class A-2
Noteholders on each Distribution Date on and after the Distribution Date on
which the Class A-1 Notes have been paid in full in an amount equal to the
difference between (i) the Principal Distribution Amount and (ii) the portion,
if any, of the Principal Distribution Amount paid in respect of the Class A-1
Notes on such Distribution Date. Principal payments will be made to the Class
A-3 Noteholders on each Distribution Date on and after the Distribution Date on
which the Class A-1 Notes and the Class A-2 Notes have been paid in full in an
amount equal to the difference between (i) the Principal Distribution Amount and
(ii) the portion, if any, of the Principal Distribution Amount paid in respect
of the Class A-1 Notes and the Class A-2 Notes on such Distribution Date.
Principal payments on the Class A-2 Notes and the Class A-3 Notes will be
generally derived from the Total Distribution Amount remaining after the payment
of the Servicing Fee (if CFSC or an affiliate is not the Servicer), the
Administration Fee and the Noteholders' Interest Distributable Amount, and from
amounts on deposit in the Reserve Account. Principal payments will be made to
the Class B Noteholders on each Distribution Date on or after the Distribution
Date on which the Class A Notes are paid in full in an amount equal to the
difference between (i) the Principal Distribution Amount and (ii) the portion,
if any, of the Principal Distribution Amount paid in respect to the Class A
Notes on such Distribution Date. Principal payments on the Class B Notes will be
generally derived from the Total
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Distribution Amount remaining after the payment of the Servicing Fee (if CFSC or
an affiliate is not the Servicer), the Administration Fee, the Class B
Noteholders' Interest Distributable Amount and the Class A Noteholders'
Distributable Amount, and from amounts on deposit in the Reserve Account. The
Class B Noteholders will not receive any principal payments until the Class A
Notes have been paid in full.
In addition, on each Distribution Date, amounts on deposit in the Reserve
Account (after giving effect to all distributions to be made from the Reserve
Account on such Distribution Date) in excess of the Specified Reserve Account
Balance for such Distribution Date will be released from the Reserve Account and
will be distributed first to the Class A-1 Noteholders as a payment of principal
(until the Class A-1 Notes have been paid in full), then to the Class A-2
Noteholders as a payment of principal (until the Class A-2 Notes have been paid
in full), then to the Class A-3 Noteholders as a payment of principal (until the
Class A-3 Notes have been paid in full) and then to the Class B Notes as a
payment of principal (until the Class B Notes have been paid in full). See
"Description of the Transfer and Servicing Agreements--Distributions" and
"--Reserve Account" herein.
The outstanding principal amount, if any, of the Class A-2 Notes will be
payable in full on the Class A-2 Note Final Scheduled Distribution Date from
funds available therefor (including any amounts on deposit in the Reserve
Account), the outstanding principal amount, if any, of the Class A-3 Notes will
be payable in full on the Class A-3 Note Final Scheduled Distribution Date from
available funds therefor (including any amounts on deposit in the Reserve
Account) and the outstanding principal amount, if any, of the Class B Notes will
be payable in full on the Class B Note Final Scheduled Distribution Date from
available funds therefore (including in each case any amounts on deposit in the
Reserve Account).
In addition, if an Event of Default has occurred and the maturities of the
Notes have been accelerated, the Class A Noteholders of each Class of Class A
Notes will be entitled to be paid principal pro rata on the basis of the ratio
of the principal amount of such Class A Noteholder's Class A Note to the
aggregate principal amount of the Class A Notes, and the Class B Noteholders
will not be entitled to receive any distributions of interest or principal until
the Class A Notes have been paid in full.
OPTIONAL PREPAYMENT. The Class A-3 Notes and the Class B Notes will be
prepaid in whole, but not in part, at the Class A-3 Note Prepayment Price and
the Class B Note Prepayment Price, respectively, on any Distribution Date after
the Class A-1 Notes and the Class A-2 Notes have been paid in full, if the
Servicer exercises its option to purchase the Receivables for a purchase price
equal to the sum of the Class A-3 Note Prepayment Price and the Class B Note
Prepayment Price, which option may be exercised when the Pool Balance has been
reduced to 10% or less of the Initial Pool Balance. The prepayment price for the
Class A-3 Notes (the "CLASS A-3 NOTE PREPAYMENT PRICE") will be equal to the
unpaid principal balance of the Class A-3 Notes, plus accrued and unpaid
interest thereon at the Class A-3 Note Rate plus, to the extent permitted by
law, interest on any past due interest at the Class A-3 Note Rate. The
prepayment price for the Class B Notes (the "CLASS B NOTE PREPAYMENT PRICE")
will be equal to the unpaid principal balance of the Class B Notes, plus accrued
and unpaid interest thereon at the Class B Note Rate plus, to the extent
permitted by law, interest on any past due interest at the Class B Note Rate.
See "Description of the Transfer and Servicing Agreements--Termination" in the
Prospectus.
THE INDENTURE TRUSTEE. The First National Bank of Chicago is the Indenture
Trustee under the Indenture. The First National Bank of Chicago is a national
banking association and its corporate trust offices are located at One First
National Plaza, Chicago, Illinois 60603. In the ordinary course of their
business, the Indenture Trustee and its affiliates have engaged and may in the
future engage in commercial banking or financial advisory transactions with CFSC
and its affiliates.
THE INDENTURE
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. Pursuant to the Trust
Indenture Act of 1939, as amended, the Indenture Trustee may be deemed to have a
conflict of interest and be required to resign as trustee for either the Class A
Notes or the Class B Notes if a default occurs under the Indenture. In these
circumstances, the Indenture will provide for a successor trustee to be
appointed for one or both of the Class A Notes and Class B Notes in order that
there be separate trustees for each of the Class A Notes and the
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Class B Notes. So long as any amounts remain unpaid with respect to the Class A
Notes, only the indenture trustee for the Class A Noteholders will have the
right to exercise remedies under the Indenture (but the Class B Noteholders will
be entitled to their share of any proceeds of enforcement, subject to the
subordination of the Class B Notes to the Class A Notes as described herein),
and only the Class A Noteholders will have the right to direct or consent to any
action to be taken, including sale of the Receivables, until the Class A Notes
are paid in full. Upon repayment of the Class A Notes in full, all rights to
exercise remedies under the Indenture will transfer to the trustee for the Class
B Notes. Any resignation of the original Indenture Trustee as described above
with respect to any Class of Notes will become effective only upon the
appointment of a successor trustee for such Class of Notes and such successor's
acceptance of such appointment.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued by the Trust pursuant to the Trust
Agreement. The Seller will initially purchase the entire principal amount of the
Certificates. The Certificates will bear interest at the rate of % per annum
(the "CERTIFICATE RATE").
Distributions of interest and principal on the Certificates will be
subordinate in priority of payment to interest and principal due on the Notes to
the extent described herein. Funds on deposit in the Reserve Account will not be
available to cover scheduled payments with respect to the Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following, as well as other information included elsewhere in this
Prospectus Supplement and in the Prospectus, summarizes the material terms of
the Sale and Servicing Agreement, the Purchase Agreement, the Administration
Agreement, and the Trust Agreement (collectively, the "TRANSFER AND SERVICING
AGREEMENTS," forms of which have been filed as exhibits to the Registration
Statement). Copies of the Transfer and Servicing Agreements will be filed with
the Commission following the issuance of the Securities. The following summary
does not purport to be complete and is subject to, and qualified in its entirety
by reference to, the provisions of the Transfer and Servicing Agreements. The
following summary supplements, and to the extent inconsistent therewith
replaces, the description of the general terms and provisions of the Transfer
and Servicing Agreements set forth under the heading "Description of the
Transfer and Servicing Agreements" in the Prospectus, to which description
reference is hereby made.
SALE AND ASSIGNMENT OF RECEIVABLES
Certain information with respect to the conveyances on the Closing Date of
the Receivables from CFSC to the Seller pursuant to the Purchase Agreement and
from the Seller to the Trust pursuant to the Sale and Servicing Agreement is set
forth under "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Receivables" in the Prospectus. Under certain circumstances
relating to breaches of representations and warranties, CFSC will be required to
purchase Receivables from the Trust. See "Weighted Average Life of the Notes"
herein and "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Receivables" in the Prospectus.
ACCOUNTS
In addition to the Trust Accounts referred to in the Prospectus under
"Description of the Transfer and Servicing Agreements--Accounts," the Seller
will establish and maintain the Reserve Account in the name of the Indenture
Trustee on behalf of the Noteholders and the Certificateholders. See "--Reserve
Account" below.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicing Fee Rate with respect to the Servicing Fee to be paid to the
Servicer with respect to each Collection Period will be 1.0% per annum of the
Pool Balance as of the first day of such Collection Period. The Servicing Fee
(together with any portion of the Servicing Fee that remains unpaid from prior
Distribution Dates) will be paid solely to the extent of the Total Distribution
Amount. If CFSC or an affiliate is no longer the Servicer, the Servicing Fee
will be paid prior to the distribution of any portion of the Total Distribution
Amount to the Administrator and the Class A Noteholders or the Class B
Noteholders, and
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except under certain circumstances, deposits into the Collection Account shall
be made net of such amounts. The Servicer shall also be entitled to any
Servicer's Yield, and deposits into the Collection Account shall be made net of
such amounts. See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of Expenses" in the Prospectus
and "Description of the Transfer and Servicing Agreements--Net Deposits" herein
and in the Prospectus.
RIGHTS UPON SERVICER DEFAULT
In the event a Servicer Default occurs, the Indenture Trustee or the Class A
Noteholders evidencing not less than 25% of the outstanding principal amount of
the Class A Notes may remove the Servicer without the consent of the Owner
Trustee or any of the Class B Noteholders. The Owner Trustee or the Class B
Noteholders will not have the ability to remove the Servicer if a Servicer
Default occurs until the Class A Notes have been paid in full.
WAIVER OF PAST DEFAULTS
In the event a Servicer Default occurs, the Class A Noteholders evidencing
more than 50% of the outstanding principal amount of the Class A Notes may, with
certain specified exceptions, waive any Servicer Defaults, without the consent
of the Owner Trustee or any of the Class B Noteholders. The related Owner
Trustee or the Class B Noteholders will not have the right to determine whether
any Servicer Default should be waived until the Class A Notes have been paid in
full.
DISTRIBUTIONS
DEPOSITS TO COLLECTION ACCOUNT. By the fifth business day prior to a
Distribution Date (each, a "DETERMINATION DATE"), the Servicer will provide the
Indenture Trustee with certain information, including the amount of aggregate
collections on the Receivables and the aggregate Purchase Amount of Receivables
required to be repurchased by the Seller or required to be purchased by the
Servicer with respect to the related Collection Period and the Yield Supplement
Deposit Amount, if any, for such Distribution Date.
Unless the Servicer has been making deposits of collections throughout the
related Collection Period, on or before the business day preceding each
Distribution Date the Servicer will cause the Total Distribution Amount to be
deposited into the Collection Account.
The "TOTAL DISTRIBUTION AMOUNT" for a Distribution Date shall be the sum of
the aggregate collections (including any Liquidation Proceeds, any Purchase
Amounts paid by the Seller and the Servicer and any amounts received from
Dealers with respect to Receivables) received in respect of the Receivables
during the related Collection Period, the Yield Supplement Deposit Amount, if
any, for such Distribution Date and Investment Earnings on the Trust Accounts
during such Collection Period. The Total Distribution Amount on any Distribution
Date shall exclude all payments and proceeds (including any Liquidation Proceeds
and any amounts received from Dealers with respect to Receivables) of (i) any
Receivables the Purchase Amount of which has been included in the Total
Distribution Amount in a prior Collection Period, (ii) any Liquidated Receivable
after and to the extent of the reassignment of such Liquidated Receivable by the
Trust to the Seller and (iii) any Servicer's Yield.
"LIQUIDATED RECEIVABLES" means defaulted Receivables in respect of which the
Financed Equipment has been sold or otherwise disposed of, and "LIQUIDATION
PROCEEDS" means all proceeds relating to the Liquidated Receivables (including
proceeds of sale of the Financed Equipment), net of 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 Receivables.
The "PRINCIPAL DISTRIBUTION AMOUNT" for a Distribution Date shall be the sum
of the following amounts, without duplication, with respect to the preceding
Collection Period: (i) that portion of all collections on the Receivables
(including any Liquidation Proceeds and any amounts received from Dealers with
respect to Receivables) allocable to principal; (ii) the amount of Realized
Losses for the related Collection Period (except to the extent included in (iii)
below); and (iii) the Principal Balance of each Receivable that the Servicer
became obligated to purchase or that the Seller became obligated to repurchase
during the related Collection Period (except to the extent included in (i)
above).
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DEPOSITS TO THE DISTRIBUTION ACCOUNTS. Prior to each Distribution Date, the
Servicer shall instruct the Indenture Trustee to make deposits and distributions
for receipt by the Servicer or Administrator or for deposit in the applicable
Trust Account on the following Distribution Date.
Distributions of the Total Distribution Amount shall be made in the
following order of priority (except as described herein):
(i) to the Servicer (if CFSC or an affiliate is not the Servicer), the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
(ii) to the Administrator, the Administration Fee and all unpaid
Administration Fees from prior Collection Periods;
(iii) to the Class A Note Distribution Account, the Class A Noteholders'
Interest Distributable Amount;
(iv) to the Class B Note Distribution Account, the Class B Noteholders'
Interest Distributable Amount;
(v) to the Class A Note Distribution Account, the Class A-1 Noteholders'
Principal Distributable Amount;
(vi) to the Class A Note Distribution Account, the Class A-2
Noteholders' Principal Distributable Amount;
(vii) to the Class A Note Distribution Account, the Class A-3
Noteholders' Principal Distributable Amount;
(viii) to the Class B Note Distribution Account, the Class B Noteholders'
Principal Distributable Amount;
(ix) to the Servicer (if CFSC or an affiliate is the Servicer), the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
(x) to the Reserve Account, an amount equal to the excess of the
Specified Reserve Account Balance over the amount on deposit in the Reserve
Account on such Distribution Date;
(xi) to the Certificate Distribution Account, the Certificateholders'
Interest Distributable Amount;
(xii) to the Certificate Distribution Account, the Certificateholders'
Principal Distributable Amount; and
(xiii) to the Reserve Account, the remaining Total Distribution Amount.
Notwithstanding the foregoing, if an Event of Default has occurred and the
maturity of the Notes has been accelerated, the Class A Noteholders of each
Class of Class A Notes will be entitled to be paid principal pro rata on the
basis of the ratio of the principal amount of such Class A Noteholder's Class A
Note to the aggregate principal amount of the Class A Notes of all Classes and
the Class B Noteholders and the Certificateholders will not be entitled to
receive any distributions of interest or principal until the Class A Notes have
been paid in full.
Funds will be withdrawn from amounts on deposit in the Reserve Account to
the extent that the Total Distribution Amount (after the payment of the
Servicing Fee (if CFSC or an affiliate is not the Servicer) and the
Administration Fee) and the deposit of the Class B Noteholders' Interest
Distributable Amount in the Class B Note Distribution Account with respect to
any Collection Period is less than the Class A Noteholders' Distributable
Amount, and funds in the amount of such deficiency up to the amount on deposit
in the Reserve Account will be deposited in the Class A Note Distribution
Account. In addition, funds will be withdrawn from amounts on deposit in the
Reserve Account to the extent that the portion of the Total Distribution Amount
remaining after the payment of the Servicing Fee (if CFSC or an affiliate is not
the Servicer) and the Administration Fee and the deposit of the Class A
Noteholders' Distributable Amount in the Class A Note Distribution Account is
less than the Class B Noteholders' Distributable Amount, and funds in the amount
of such deficiency up to the amount on deposit in the Reserve Account will be
deposited in the Class B Note Distribution Account.
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"APR" means, with respect to any Receivable, the annual percentage rate of
interest represented by such Receivable, based on its Principal Balance. The APR
of any subsidized Receivable does not take into account any amounts paid to CFSC
by Caterpillar with respect thereto at its origination.
"CERTIFICATE BALANCE" equals, on the Closing Date, $7,861,558 and,
thereafter, equals $7,861,558, reduced by all amounts allocable to principal
previously distributed to Certificateholders. The Certificate Balance shall also
be reduced on any Distribution Date by the excess, if any, of (i) the sum of (A)
the Certificate Balance and (B) the outstanding principal amount of the Notes
(in each case after giving effect to amounts in respect of principal to be
deposited in the Certificate Distribution Account, the Class A Note Distribution
Account and the Class B Note Distribution Account on such Distribution Date),
over (ii) the sum of (A) the Pool Balance as of the close of business on the
last day of the preceding Collection Period and (B) the amount on deposit in the
Reserve Account after giving effect to any distributions therefrom on such
Distribution Date. Thereafter, the Certificate Balance shall be increased to the
extent that any portion of the Total Distribution Amount is available to pay the
existing Certificateholders' Principal Carryover Shortfall, but not by more than
the aggregate reductions in the Certificate Balance set forth in the preceding
sentence.
"CERTIFICATEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Certificateholders' Principal
Distributable Amount and (ii) the Certificateholders' Interest Distributable
Amount.
"CERTIFICATEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to
any Distribution Date, the sum of (i) the excess, if any, of (A) the sum of (1)
the Certificateholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and (2) any outstanding Certificateholders' Interest Carryover
Shortfall on such preceding Distribution Date, over (B) the amount in respect of
interest that is actually deposited in the Certificate Distribution Account on
such preceding Distribution Date, and (ii) interest on such excess, to the
extent permitted by law, at the Certificate Rate.
"CERTIFICATEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of the Certificateholders' Monthly Interest
Distributable Amount for such Distribution Date and the Certificateholders'
Interest Carryover Shortfall for such Distribution Date.
"CERTIFICATEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, an amount equal to the aggregate interest
accrued on the Certificates at the Certificate Rate from and including the
preceding Distribution Date (or from and including the Closing Date in the case
of the initial Distribution Date) to but excluding such Distribution Date (based
on a 360-day year of twelve 30-day months).
"CERTIFICATEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date on or after the Distribution Date on which the
principal amounts of the Class A Notes and Class B Notes are reduced to zero,
the Principal Distribution Amount (less the portion thereof, if any, applied on
such Distribution Date to reduce the principal amount of the Class A Notes and
the Class B Notes to zero, which shall be deposited into the Class A Note
Distribution Account and the Class B Note Distribution Account, as applicable).
"CERTIFICATEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close
of any Distribution Date, the sum of (i) the excess, if any, of (A) the sum of
(1) the Certificateholders' Monthly Principal Distributable Amount and (2) any
outstanding Certificateholders' Principal Carryover Shortfall from the preceding
Distribution Date, over (B) the amount in respect of principal that is actually
deposited in the Certificate Distribution Account and (ii) the unreimbursed
portion of the amount by which the Certificate Balance has been reduced as
described in the second sentence of the definition of "Certificate Balance"
above.
"CERTIFICATEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) the Certificateholders' Monthly Principal
Distributable Amount for such Distribution Date and (ii) the Certificateholders'
Principal Carryover Shortfall as of the close of the preceding Distribution
Date; PROVIDED, HOWEVER, that, until an amount sufficient to reduce the
outstanding principal amounts of the Class A Notes and the Class B Notes to zero
has been deposited into the Class A Note Distribution Account and the Class B
Note Distribution Account, as applicable, the Certificateholders' Principal
Distributable
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Amount shall be zero; PROVIDED, FURTHER, that the sum of clauses (i) and (ii)
shall not exceed the Certificate Balance, and on the final scheduled
Distribution Date with respect to the Certificates, the Certificateholders'
Principal Distributable Amount will include the amount necessary (after giving
effect to the other amounts to be deposited in the Certificate Distribution
Account on such Distribution Date and allocable to principal) to reduce the
Certificate Balance to zero.
"CLASS A NOTE DISTRIBUTION ACCOUNT" shall mean a Note Distribution Account
established for the benefit of the Class A Noteholders.
"CLASS A NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Class A-1 Noteholders' Principal
Distributable Amount, (ii) the Class A-2 Noteholders' Principal Distributable
Amount, (iii) the Class A-3 Noteholders' Principal Distributable Amount and (iv)
the Class A Noteholders' Interest Distributable Amount.
"CLASS A NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to
any Distribution Date, the sum of (i) the excess, if any, of (A) the sum of (1)
the Class A Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and (2) any outstanding Class A Noteholders' Interest
Carryover Shortfall on such preceding Distribution Date, over (B) the amount in
respect of interest that is actually deposited in the Class A Note Distribution
Account on such preceding Distribution Date, and (ii) interest on the amount of
interest due but not paid to Class A Noteholders on the preceding Distribution
Date, to the extent permitted by law, at the applicable interest rate or rates
borne by such Class A Notes from such preceding Distribution Date through such
current Distribution Date.
"CLASS A NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of the Class A Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Class A Noteholders'
Interest Carryover Shortfall for such Distribution Date.
"CLASS A NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, an amount equal to the aggregate amount of
interest accrued on the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes at their respective interest rates from and including the preceding
Distribution Date (or, in the case of the initial Distribution Date, from and
including the Closing Date), to but excluding such Distribution Date (with
respect to the Class A-1 Notes, based on a 360-day year and the actual number of
days elapsed, and with respect to the Class A-2 Notes and the Class A-3 Notes,
in each case based on a 360-day year of twelve 30-day months).
"CLASS A-1 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the November 1998
Distribution Date.
"CLASS A-1 NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date until the Distribution Date on which the
outstanding principal amount of the Class A-1 Notes has been reduced to zero,
the Principal Distribution Amount for such Distribution Date. In addition, on
each Distribution Date, amounts on deposit in the Reserve Account in excess of
the Specified Reserve Account Balance shall be paid as principal of the Class
A-1 Notes to the extent described under "--Reserve Account" below.
"CLASS A-1 NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the
close of any Distribution Date, the excess, if any, of (i) the sum of (A) the
Class A-1 Noteholders' Monthly Principal Distributable Amount for such
Distribution Date and (B) any outstanding Class A-1 Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date over (ii)
the amount in respect of principal that is actually deposited in the Class A
Note Distribution Account in respect of the Class A-1 Notes.
"CLASS A-1 NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the sum of (i) the Class A-1 Noteholders' Monthly
Principal Distributable Amount for such Distribution Date and (ii) the Class A-1
Noteholders' Principal Carryover Shortfall as of the close of the preceding
Distribution Date; PROVIDED, HOWEVER, that the sum of clauses (i) and (ii) above
shall not exceed the outstanding principal amount of the Class A-1 Notes, and on
the Class A-1 Note Final Scheduled Distribution Date, the Class A-1 Noteholders'
Principal Distributable Amount will include the amount necessary
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(after giving effect to the other amounts to be deposited in the Class A Note
Distribution Account on such Distribution Date and allocable to principal) to
reduce the outstanding principal amount of the Class A-1 Notes to zero.
"CLASS A-2 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the January 2001
Distribution Date.
"CLASS A-2 NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date on or after the Distribution Date on which an
amount sufficient to reduce the outstanding principal amount of the Class A-1
Notes to zero has been deposited in the Class A Note Distribution Account, the
excess, if any, of (i) the Principal Distribution Amount over (ii) the portion
of the Principal Distribution Amount, if any, applied to reduce the outstanding
principal amount of the Class A-1 Notes to zero on such Distribution Date. In
addition, on each Distribution Date, amounts on deposit in the Reserve Account
in excess of the Specified Reserve Account Balance for such Distribution Date
shall be paid as principal of the Class A-2 Notes to the extent described under
"--Reserve Account" below.
"CLASS A-2 NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the
close of any Distribution Date, the excess, if any, of (i) the sum of (A) the
Class A-2 Noteholders' Monthly Principal Distributable Amount for such
Distribution Date and (B) any outstanding Class A-2 Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date over (ii)
the amount in respect of principal that is actually deposited in the Class A
Note Distribution Account in respect of the Class A-2 Notes.
"CLASS A-2 NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the sum of (i) the Class A-2 Noteholders' Monthly
Principal Distributable Amount for such Distribution Date and (ii) the Class A-2
Noteholders' Principal Carryover Shortfall as of the close of the preceding
Distribution Date; PROVIDED, HOWEVER, that, until an amount sufficient to reduce
the outstanding principal amount of the Class A-1 Notes to zero has been
deposited in the Class A Note Distribution Account, the Class A-2 Noteholders'
Principal Distributable Amount shall be zero; PROVIDED, FURTHER, that the sum of
clauses (i) and (ii) shall not exceed the outstanding principal amount of the
Class A-2 Notes, and on the Class A-2 Note Final Scheduled Distribution Date,
the Class A-2 Noteholders' Principal Distributable Amount will include the
amount necessary (after giving effect to the other amounts to be deposited in
the Class A Note Distribution Account on such Distribution Date and allocable to
principal) to reduce the outstanding principal amount of the Class A-2 Notes to
zero.
"CLASS A-3 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the September 2003
Distribution Date.
"CLASS A-3 NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date on or after the Distribution Date on which an
amount sufficient to reduce the outstanding principal amount of the Class A-1
Notes and the Class A-2 Notes to zero has been deposited in the Class A Note
Distribution Account, the excess, if any, of (i) the Principal Distribution
Amount over (ii) the portion of the Principal Distribution Amount, if any,
applied to reduce the outstanding principal amount of the Class A-1 Notes and
the Class A-2 Notes to zero on such Distribution Date. In addition, on each
Distribution Date, amounts on deposit in the Reserve Account in excess of the
Specified Reserve Account Balance for such Distribution Date shall be paid as
principal of the Class A-3 Notes to the extent described under "-- Reserve
Account" below.
"CLASS A-3 NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the
close of any Distribution Date, the excess, if any, of (i) the sum of (A) the
Class A-3 Noteholders' Monthly Principal Distributable Amount for such
Distribution Date and (B) any outstanding Class A-3 Noteholders' Principal
Carryover Shortfall as of the close of the preceding Distribution Date over (ii)
the amount in respect of principal that is actually deposited in the Class A
Note Distribution Account in respect of the Class A-3 Notes.
"CLASS A-3 NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect
to any Distribution Date, the sum of (i) the Class A-3 Noteholders' Monthly
Principal Distributable Amount for such Distribution Date and (ii) the Class A-3
Noteholders' Principal Carryover Shortfall as of the close of the preceding
Distribution Date; PROVIDED, HOWEVER, that, until an amount sufficient to reduce
the outstanding principal amount of the Class A-1 Notes and the Class A-2 Notes
to zero has been deposited in the Class A Note Distribution Account, the Class
A-3 Noteholders' Principal Distributable Amount shall be zero; PROVIDED,
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FURTHER, that the sum of clauses (i) and (ii) shall not exceed the outstanding
principal amount of the Class A-3 Notes, and on the Class A-3 Note Final
Scheduled Distribution Date, the Class A-3 Noteholders' Principal Distributable
Amount will include the amount necessary (after giving effect to the other
amounts to be deposited in the Class A Note Distribution Account on such
Distribution Date and allocable to principal) to reduce the outstanding
principal amount of the Class A-3 Notes to zero.
"CLASS B NOTE DISTRIBUTION ACCOUNT" shall mean a Note Distribution Account
established for the benefit of the Class B Noteholders.
"CLASS B NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the September 2003
Distribution Date.
"CLASS B NOTEHOLDERS' DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Class B Noteholders' Principal
Distributable Amount and (ii) the Class B Noteholders' Interest Distributable
Amount.
"CLASS B NOTEHOLDERS' INTEREST CARRYOVER SHORTFALL" means, with respect to
any Distribution Date, the sum of (i) the excess, if any, of (A) the sum of (1)
the Class B Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and (2) any outstanding Class B Noteholders' Interest
Carryover Shortfall on such preceding Distribution Date, over (B) the amount in
respect of interest that is actually deposited in the Class B Note Distribution
Account on such preceding Distribution Date, and (ii) interest on such excess,
to the extent permitted by law, at the Class B Note Rate.
"CLASS B NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of the Class B Noteholders' Monthly Interest
Distributable Amount for such Distribution Date and the Class B Noteholders'
Interest Carryover Shortfall for such Distribution Date.
"CLASS B NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, an amount equal to the aggregate interest
accrued on the Class B Notes at the Class B Note Rate from and including the
preceding Distribution Date (or from and including the Closing Date in the case
of the initial Distribution Date) to but excluding such Distribution Date (based
on a 360-day year of twelve 30-day months).
"CLASS B NOTEHOLDERS' MONTHLY PRINCIPAL DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date on or after the Distribution Date on which the
principal amounts of the Class A Notes are reduced to zero, the excess, if any,
of (i) the Principal Distribution Amount over (ii) the portion of the Principal
Distribution Amount, if any, applied on such Distribution Date to reduce the
principal amounts of the Class A Notes to zero. In addition, on each
Distribution Date, amounts on deposit in the Reserve Account in excess of the
Specified Reserve Account Balance for such Distribution Date shall be paid as
principal of the Class B Notes to the extent described under "--Reserve Account"
below.
"CLASS B NOTEHOLDERS' PRINCIPAL CARRYOVER SHORTFALL" means, as of the close
of any Distribution Date, the excess, if any, of (i) the sum of (A) the Class B
Noteholders' Monthly Principal Distributable Amount and (B) any outstanding
Class B Noteholders' Principal Carryover Shortfall from the preceding
Distribution Date, over (ii) the amount in respect of principal that is actually
deposited in the Class B Note Distribution Account.
"CLASS B NOTEHOLDERS' PRINCIPAL DISTRIBUTABLE AMOUNT" means, with respect to
any Distribution Date, the sum of (i) the Class B Noteholders' Monthly Principal
Distributable Amount for such Distribution Date and (ii) the Class B
Noteholders' Principal Carryover Shortfall as of the close of the preceding
Distribution Date; PROVIDED, HOWEVER, that, until an amount sufficient to reduce
the outstanding principal amounts of the Class A Notes to zero has been
deposited in the Class A Note Distribution Account, the Class B Noteholders'
Principal Distributable Amount shall be zero; PROVIDED, FURTHER, that the sum of
clauses (i) and (ii) shall not exceed the outstanding principal amount of the
Class B Notes, and on the Class B Note Final Scheduled Distribution Date, the
Class B Noteholders' Principal Distributable Amount will include the amount
necessary (after giving effect to the other amounts to be deposited in the Class
B Note Distribution Account on such Distribution Date and allocable to
principal) to reduce the outstanding principal amount of the Class B Notes to
zero.
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"COLLECTION PERIOD" means, with respect to the first Distribution Date, the
calendar month ending on November 30, 1997, and with respect to each subsequent
Distribution Date, the preceding calendar month.
"NOTEHOLDERS' INTEREST DISTRIBUTABLE AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Class A Noteholders' Interest
Distributable Amount for such Distribution Date and (ii) the Class B
Noteholders' Interest Distributable Amount for such Distribution Date.
"CUT-OFF DATE APR" is 7.70%, which is the weighted average APR of the
Receivables as of the Cut-off Date.
"INITIAL POOL BALANCE" means $314,429,558, which is the sum of the Principal
Balances of each Receivable as of the Cut-off Date.
"POOL BALANCE" means, at any time, the aggregate Principal Balance of the
Receivables at the end of the preceding Collection Period, after giving effect
to all payments received from Obligors and Purchase Amounts remitted by the
Seller or the Servicer, as the case may be, for such Collection Period, and to
all Realized Losses on Liquidated Receivables during such Collection Period.
"REALIZED LOSSES" means, with respect to any Collection Period, the excess
of the Principal Balance of the Liquidated Receivables over Liquidation Proceeds
for such Collection Period to the extent allocable to principal.
On each Distribution Date, all amounts on deposit in the Class A Note
Distribution Account will be distributed to the Class A Noteholders, all amounts
on deposit in the Class B Note Distribution Account will be distributed to the
Class B Noteholders and all amounts on deposit in the Certificate Distribution
Account will be distributed to the Certificateholders.
YIELD SUPPLEMENT ACCOUNT
The Seller will establish and maintain in the name of the Indenture Trustee
a yield supplement account (the "YIELD SUPPLEMENT ACCOUNT") into which funds
will be deposited on the Closing Date as described herein. The Yield Supplement
Account is designed solely to supplement the interest collections on those
Receivables (the "DISCOUNT RECEIVABLES") that have APR's which are less than the
sum of (i) the Note Rate and (ii) the Servicing Fee Rate (the "REQUIRED RATE").
The "NOTE RATE" means the weighted average of the Class A-1 Note Rate, the Class
A-2 Note Rate, the Class A-3 Note Rate and the Class B Note Rate.
The Yield Supplement Account will be funded on or prior to the Closing Date
by the Seller in an amount (the "YIELD SUPPLEMENT ACCOUNT DEPOSIT") to be
specified in the Sale and Servicing Agreement. The Yield Supplement Account
Deposit will equal the aggregate amount as of the Cut-off Date by which interest
on the Principal Balance of each Discount Receivable for the remaining term of
such Receivable (assuming no prepayments or delinquencies) at a rate equal to
the Required Rate exceeds interest on such Principal Balance at the APR of such
Receivable; PROVIDED, that such aggregate amount may be discounted at a rate to
be specified in the Sale and Servicing Agreement.
On or before the business day preceding each Distribution Date, the Servicer
shall withdraw from the amount on deposit in the Yield Supplement Account, for
deposit in the Collection Account, the aggregate amount by which one month's
interest on the Principal Balance as of the first day of the related Collection
Period of each Discount Receivable (other than a Discount Receivable that is a
Defaulted Receivable) at a rate equal to the Required Rate, exceeds one month's
interest on such Principal Balance at the APR of each such Receivable (the
"YIELD SUPPLEMENT DEPOSIT AMOUNT"). See "--Distributions" herein.
All or a portion of the amount on deposit in the Yield Supplement Account
may be invested in Eligible Investments. All income and gain realized on such
investments shall be deposited in the Yield Supplement Account and shall be
remitted to the Collection Account or released to the Seller as described
herein. Amounts on deposit on any Distribution Date in the Yield Supplement
Account in excess of the Maximum Yield Supplement Amount, after giving effect to
all distributions to be made on such Distribution Date, will be paid to the
Seller and the Noteholders will have no further rights in, or claims to, such
amounts. The "MAXIMUM YIELD SUPPLEMENT AMOUNT" for any Distribution Date will
equal the aggregate amount, as of the
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last day of the related Collection Period, by which interest on the Principal
Balance of each Discount Receivable (other than any such Receivable that is a
Defaulted Receivable) for the remaining term of such Receivable (assuming no
prepayments or delinquencies) at the Required Rate exceeds interest on such
Principal Balance at the APR for each such Receivable; PROVIDED, that such
amount may be discounted at a rate to be specified in the Sale and Servicing
Agreement. Any amount on deposit in the Yield Supplement Account upon the
termination of the Trust pursuant to its terms will be paid to the Seller.
RESERVE ACCOUNT
The rights of the Class B Noteholders to receive distributions with respect
to the Receivables generally will be subordinated to the rights of the Class A
Noteholders in the event of defaults and delinquencies on the Receivables, as
provided in the Indenture, the Trust Agreement and the Sale and Servicing
Agreement. The protection afforded to the Class A Noteholders through
subordination will be effected by the preferential right of the Class A
Noteholders to receive both current distributions with respect to the
Receivables and withdrawals from the Reserve Account. The Reserve Account will
be created with an initial deposit by the Seller on the Closing Date of at least
$7,074,665 (the "RESERVE ACCOUNT INITIAL DEPOSIT") and will be augmented on each
Distribution Date by the deposit therein of the Total Distribution Amount
remaining after the payment of the Servicing Fee (in the priority described
herein), the Administration Fee, the deposit of the Class A Noteholders'
Interest Distributable Amount and the Class A Noteholders' Principal
Distributable Amount in the Class A Note Distribution Account and the deposit of
the Class B Noteholders' Distributable Amount in the Class B Note Distribution
Account up to an amount equal to the excess of the Specified Reserve Account
Balance over the amount on deposit in the Reserve Account, and will be further
augmented on such Distribution Date by the deposit therein of the Total
Distribution Amount remaining after payment of such amounts and the deposit in
the Certificate Distribution Account of amounts to be distributed to the
Certificateholders on such Distribution Date, in each case as described above
under "-- Distributions." Amounts on deposit in the Reserve Account will be
released on each Distribution Date to the Class A-1 Noteholders, the Class A-2
Noteholders, the Class A-3 Noteholders and/or the Class B Noteholders on account
of their respective principal amounts, as described herein, to the extent that
the amount on deposit in the Reserve Account (after giving effect to withdrawals
made on such Distribution Date) exceeds the Specified Reserve Account Balance on
such Distribution Date.
The "SPECIFIED RESERVE ACCOUNT BALANCE," with respect to any Distribution
Date, will be equal to the lesser of (a) the outstanding principal balance of
the Notes and (b) $7,074,665 (which is equal to 2.25% of the Initial Pool
Balance).
On each Distribution Date, if the amount on deposit in the Reserve Account
(after giving effect to all deposits or withdrawals therefrom on such
Distribution Date, other than withdrawals described in this sentence) is greater
than the Specified Reserve Account Balance for such Distribution Date, the
Servicer shall instruct the Indenture Trustee to deposit all of the amount of
the excess in the Class A Note Distribution Account for distribution first to
the Class A-1 Noteholders as a payment of principal on such Distribution Date
(until the Class A-1 Notes are paid in full), then to the Class A-2 Noteholders
as a payment of principal on such Distribution Date (until the Class A-2 Notes
have been paid in full), and then to the Class A-3 Noteholders as a payment of
principal (until the Class A-3 Notes have been paid in full), and then the
Servicer shall instruct the Indenture Trustee to deposit all or the amount of
the excess in the Class B Note Distribution Account for distribution to the
Class B Noteholders as payment of principal (until the Class B Notes have been
paid in full). Upon the Class B Note Final Scheduled Distribution Date or the
date of the optional purchase of the Receivables by the Servicer (but only after
payment of all interest and principal of the Notes and Certificates), the
Servicer shall instruct the Indenture Trustee to distribute the Reserve Account
balance to the Seller. Upon any distribution to the Seller of amounts from the
Reserve Account, the Noteholders will not have any rights in, or claims to, such
amounts.
Funds will be withdrawn from the amounts on deposit in the Reserve Account
to the extent that the Total Distribution Amount remaining after the payment of
the Servicing Fee (if CFSC or an affiliate is not the Servicer) and the
Administration Fee and the deposit of the Class B Noteholders' Interest
Distributable Amount in the Class B Note Distribution Account with respect to
any Collection Period is less than the
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Class A Noteholders' Distributable Amount, and funds in the amount of such
deficiency up to the amount on deposit in the Reserve Account will be deposited
in the Class A Note Distribution Account. In addition, funds will be withdrawn
from amounts on deposit in the Reserve Account to the extent that the portion of
the Total Distribution Amount remaining after the payment of the Servicing Fee
(if CFSC or an affiliate is not the Servicer) and the Administration Fee and the
deposit of the Class A Noteholders' Distributable Amount in the Class A Note
Distribution Account is less than the Class B Noteholders' Distributable Amount,
and funds in the amount of such deficiency up to the amount on deposit in the
Reserve Account will be deposited in the Class B Note Distribution Account.
If on any Distribution Date the entire Class A Noteholders' Interest
Distributable Amount for such Distribution Date (after giving effect to any
amounts withdrawn from the Reserve Account) is not deposited in the Class A Note
Distribution Account, the Class B Noteholders will not receive any distributions
on account of interest. The Class B Noteholders will not receive any principal
payments until the Class A Notes have been paid in full.
The availability of funds in the Reserve Account and the Yield Supplement
Account and the overcollateralization provided by the Certificates is intended
to enhance the likelihood of receipt by the Noteholders of the full amount of
principal and interest due them and to decrease the likelihood that the
Noteholders will experience losses. In addition, the subordination of the Class
B Notes to the Class A Notes is intended to provide the Class A Noteholders with
these same protections. However, because in certain circumstances the Reserve
Account could be depleted and/or the aggregate amount of Realized Losses could
exceed the outstanding principal amount of the Class B Notes and the
overcollateralization provided by the Certificates, these protections are
limited.
NET DEPOSITS
As an administrative convenience, the Servicer will be permitted to make the
deposit of collections and Purchase Amounts required to be remitted by the
Servicer for or with respect to each Collection Period net of distributions to
be made to the Servicer (including any Servicer's Yield and the Servicing Fee to
the extent of amounts available for the payment thereof) with respect to such
Collection Period; PROVIDED, that if the Servicer is required to remit
collections daily, deposits of such amounts may only be made net of the
Servicer's Yield and may not be made net of the Servicing Fee. See "Description
of the Transfer and Servicing Agreements--Net Deposits" in the Prospectus. The
Servicer, however, will account to the Indenture Trustee, the Owner Trustee, the
Noteholders and the Certificateholders as if the Servicing Fees were distributed
individually.
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SALE AND TRANSFER OF RECEIVABLES
The transfer of ownership of the Receivables from CFSC to the Seller and
from the Seller to the Trust, and the granting of the security interest in the
Receivables by the Trust to the Indenture Trustee, will in each case be
perfected by the Custodian, on behalf of the applicable assignee, taking
possession of the Installment Sales Contracts and any related Dealer Agreements
pursuant to the Custodial Agreement. The Custodian will maintain possession of
the Receivables Files in a space leased by the Custodian proximate to the
principal executive office of the Seller. CFSC will indicate on its computer
records that the Receivables have been sold to the Seller and by the Seller to
the Trust. Each Receivables File will contain the single original related
Installment Sales Contract (as represented by CFSC in the Purchase Agreement).
UCC financing statements will not be filed to perfect these transfers of
ownership or such grant of a security interest in the Receivables, and CFSC will
not stamp the physical Receivables Files or the Installment Sales Contracts. See
"Risk Factors--PERFECTION OF INTERESTS IN RECEIVABLES AND IN FINANCED EQUIPMENT"
herein and in the Prospectus. Although steps will be taken to ensure that the
Seller (an affiliate of CFSC) does not obtain possession or control of the
Installment Sales Contracts, should a court find that the Seller did have
possession or control of such Installment Sales Contracts, the interests of the
Trust and the Indenture Trustee in the Receivables would in all likelihood be
unperfected.
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DEALER RECOURSE RECEIVABLES
The terms of a limited number of Receivables provide that CFSC has recourse
to the related Dealer for all or a portion of the losses CFSC may incur.
However, in the event of a Dealer's bankruptcy, a bankruptcy trustee, a creditor
or the Dealer as debtor in possession might attempt to characterize recourse
sales of Receivables to CFSC as loans to the Dealer from CFSC secured by the
Receivables; such an attempt, if successful, could result in payment delays or
losses on the affected Receivables. This right of recourse has been assigned to
the Seller, the Trust and the Indenture Trustee.
CROSS-COLLATERALIZATION
Because CFSC on occasion cross-collateralizes its installment sales
contracts (whether at origination or pursuant to an adjustment to such
installment sales contract) with a particular Obligor with other equipment of
such Obligor financed by CFSC, it is possible that (i) an item of Financed
Equipment may secure more than one contract with such Obligor, and each of those
contracts may not be included in the Trust as a Receivable and (ii) a Receivable
may be secured by a first priority lien on the related Financed Equipment and a
lien on financed equipment unencumbered or related to contracts with such
Obligor not included in the Trust. In any event, the aggregate principal amount
of CFSC's cross-collateralized installment sales contracts with respect to any
one Obligor, whether or not all are included in the Trust as Receivables, will
not, at the time of origination of any such cross-collateralized contracts,
exceed the aggregate current appraised value of all the financed equipment
serving as security for such contracts, and the Trust will either have a first
priority lien in the related Financed Equipment or CFSC may be required to
repurchase the related Receivable under certain circumstances. See "Description
of the Transfer and Servicing Agreements--Sale and Assignment of Receivables" in
the Prospectus.
Pursuant to the Purchase Agreement, CFSC, as holder of a junior lien on an
item of Financed Equipment, will agree not to exercise its right to foreclose
upon such junior lien until (i) the related Receivable has been paid in full or
(ii) the related first priority lien on the Financed Equipment has been
foreclosed upon or released. Therefore, there is no risk to the Trust that CFSC,
as junior lienholder, would foreclose upon Financed Equipment, possibly
resulting in a substitution of the related Obligor.
The Trust shall have the right to foreclose upon all liens, junior or
otherwise, that it holds with respect to any Receivable, whether on the related
Financed Equipment or on equipment the first priority lien on which has not been
assigned to the Trust. If the Trust forecloses on a junior lien on any equipment
in which it does not have a first priority lien, such foreclosure would be
subject to the senior liens not held by the Trust. In addition, any junior liens
held by the Trust may be eliminated should any more senior liens not held by the
Trust foreclose upon the related equipment.
CFSC does not maintain statistical data with respect to the portion of each
retail installment sales contract secured by related Financed Equipment and the
portion of such contract secured by the cross-collateralized liens. However,
because the existence of such cross-collateralized liens will not place the
Trust in a different credit position than that of CFSC should CFSC retain the
Receivables, and in light of CFSC's credit loss experience with respect to the
U.S. ISC Portfolio, the Seller believes that such statistical data with respect
to the cross-collateralization of the Receivables is not material to investors
in the Securities.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase by money market
funds under paragraph (a)(9) of Rule 2a-7 under the Investment Company Act of
1940, as amended.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TREATMENT OF THE TRUST AND THE NOTES. The Seller intends to cause an
election to be made under the Code whereby the Trust will qualify as a
"financial asset securitization investment trust" or "FASIT" under the relevant
provisions of the Code (the "FASIT PROVISIONS"). Under the FASIT Provisions, a
FASIT generally avoids federal income taxation and can issue "regular
interests," which are treated as debt for federal income tax purposes. See
"Certain Federal Income Tax Considerations--Tax Consequences to
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Holders of the Notes--TREATMENT OF THE NOTES AS INDEBTEDNESS" in the Prospectus.
Further, the Seller will receive an opinion from Special Tax Counsel generally
to the effect that, under current law as in effect on the Closing Date, the
Trust will constitute a FASIT for federal income tax purposes and the Notes will
constitute "regular interests" in the FASIT constituted by the Trust.
More specifically, Noteholders should also be aware that, under the Code,
amounts includible with respect to regular interests in a FASIT are required to
be determined under the accrual method of accounting. Additionally, investors
which are "pass-thru entities" under the FASIT Provisions (generally including
regulated investment companies, real estate investment trusts, partnerships and
certain other entities) which issue securities "supported" by Notes having
yields generally exceeding the sum of the "applicable Federal rate" and 5% could
be subject to tax with respect to their income from Notes. The Seller and the
Trustee will treat the Notes as debt of the Seller for purposes of determining
the applicability of exemption from federal income tax withholding (in
particular the rules regarding related parties). See "Certain Federal Income Tax
Considerations--Tax Consequences to Holders of the Notes--FOREIGN HOLDERS" in
the Prospectus. No guidance has yet been issued by the U.S. Treasury Department
under the FASIT Provisions, and accordingly various issues remain unresolved.
Prospective Noteholders should consult their tax advisors with regard to the
effects of investing in the Notes in their particular circumstances.
NEW WITHHOLDING REGULATIONS. The Treasury Department has issued new
regulations (the "NEW REGULATIONS") which make certain modifications to the
withholding, backup withholding and information reporting rules described in the
Prospectus. The New Regulations attempt to unify certification requirements and
modify reliance standards. The New Regulations will generally be effective for
payments made after December 31, 1998, subject to certain transition rules.
Prospective Noteholders are urged to consult their own tax advisors regarding
the New Regulations.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and certain collective investment funds or
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and/or Section 4975 of the Code
(collectively, "PLANS"), and on persons who are fiduciaries with respect to
Plans, in connection with the investment of assets that are treated as "plan
assets" of any Plan for purposes of applying Title I of ERISA and Section 4975
of the Code ("PLAN ASSETS"). ERISA generally imposes on Plan fiduciaries certain
general fiduciary requirements, including those of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Generally, any person who has
discretionary authority or control respecting the management or disposition of
Plan Assets, and any person who provides investment advice with respect to such
assets for a fee, is a fiduciary with respect to such Plan Assets.
Subject to the considerations described below, the Notes are eligible for
purchase with Plan Assets of any Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons ("PARTIES IN INTEREST" under ERISA and
"DISQUALIFIED PERSONS" under the Code) who have certain specified relationships
to a Plan or its Plan Assets, unless a statutory or administrative exemption is
available. Parties in Interest or Disqualified Persons that participate in a
prohibited transaction may be subject to a penalty imposed under ERISA and/or an
excise tax imposed pursuant to Section 4975 of the Code, unless a statutory or
administrative exemption is available. These prohibited transactions generally
are set forth in Section 406 of ERISA and Section 4975 of the Code.
Any fiduciary or other Plan investor considering whether to purchase the
Notes with Plan Assets of any Plan should determine whether such purchase is
consistent with its fiduciary duties and whether such purchase would constitute
or result in a non-exempt prohibited transaction under ERISA and/or Section 4975
of the Code because any of the Seller, the Servicer, the Indenture Trustee, the
Owner Trustee, any
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Certificateholder or any other parties may be deemed to be benefiting from the
issuance of the Notes and are Parties in Interest or Disqualified Persons with
respect to the investing Plan. In particular, the Notes may not be purchased
with Plan Assets of any Plan if any of the Seller, the Servicer, the Indenture
Trustee, the Owner Trustee, any Certificateholder or any of their respective
affiliates (a) has investment or administrative discretion with respect to the
Plan Assets used to effect such purchase; (b) has authority or responsibility to
give, or regularly gives, investment advice with respect to such Plan Assets,
for a fee and pursuant to an agreement or understanding that such advice (1)
will serve as a primary basis for investment decisions with respect to such Plan
Assets, and (2) will be based on the particular investment needs of such Plan;
or (c) is an employer maintaining or contributing to such Plan. Each purchaser
of the Notes will be deemed to have represented and warranted that its purchase
of the Notes or any interest therein does not violate the foregoing limitations.
Any such fiduciary or other Plan investor should also consult with its
counsel regarding the applicability of the fiduciary responsibility and
prohibited transaction provisions of ERISA and Section 4975 of the Code to such
investment and the availability of any prohibited transaction exemption, E.G.,
U.S. Department of Labor (the "DOL") Prohibited Transaction Exemptions 96-23
(Class Exemption for Plan Asset Transactions Determined by In-House Investment
Managers), 95-60 (Class Exemption for Certain Transactions Involving Insurance
Company General Accounts), 91-38 (Class Exemption for Certain Transactions
Involving Bank Collective Investment Funds), 90-1 (Class Exemption for Certain
Transactions Involving Insurance Company Pooled Separate Accounts) and 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers). A purchaser of the Notes should be aware, however,
that even if the conditions specified in one or more of the above exemptions are
met, the scope of the relief provided by the exemption might not cover all acts
which might be construed as prohibited transactions. In addition, investors
other than Plan investors should be aware that a prohibited transaction could be
deemed to occur if any holder of the Certificates or any of its respective
affiliates is or becomes a Party in Interest or a Disqualified Person with
respect to any Plan that purchases and holds the Notes without being covered by
one or more of the above exemptions.
In addition, under Section 2510.3-101 of the regulations of the DOL (the
"PLAN ASSET REGULATION"), the purchase with Plan Assets of equity interests in
the Trust could, in certain circumstances, cause the Receivables and other
assets of the Trust to be deemed Plan Assets of the investing Plan which, in
turn, would subject the Trust and its assets to the fiduciary responsibility
provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code. Nevertheless, because the Notes (a) should be treated
as indebtedness under local law and debt, rather than equity, for tax purposes
(without regard to the FASIT election to be made as described herein under
"Certain Federal Income Tax Considerations-- TREATMENT OF THE TRUST AND THE
NOTES), and (b) should not be deemed to have any "substantial equity features,"
purchases of the Notes with Plan Assets should not be treated as equity
investments and, therefore, the Receivables and other assets included as assets
of the Trust should not be deemed to be Plan Assets of the investing Plans.
Those conclusions are based, in part, upon the traditional debt features of the
Notes, including the reasonable expectation of purchasers of Notes that the
Notes (which are highly rated by the Rating Agencies) will be repaid when due,
as well as the absence of conversion rights, warrants and other typical equity
features. Before purchasing the Notes, a fiduciary or other Plan investor should
itself confirm that the Notes constitute indebtedness, and have no substantial
equity features, for purposes of the Plan Asset Regulation.
For further information see "ERISA Considerations" in the Prospectus.
S-48
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "CLASS A NOTE UNDERWRITING AGREEMENT"), the Seller has agreed to cause the
Trust to sell to the underwriters named below (the "CLASS A NOTE UNDERWRITERS"),
and each of the Class A Note Underwriters has severally agreed to purchase, the
principal amount of Class A Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3
UNDERWRITERS NOTES NOTES NOTES
-------------- -------------- --------------
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................ $ 27,000,000 $ 37,000,000 $ 34,091,000
Chase Securities Inc.................................. 27,000,000 36,950,000 34,000,000
Citicorp Securities, Inc.............................. 27,000,000 36,950,000 34,000,000
-------------- -------------- --------------
Total....................................... $ 81,000,000 $110,900,000 $102,091,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
In the Class A Note Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions therein, to purchase all of the
Class A Notes offered hereby if any of such Class A Notes are purchased. The
Seller has been advised by the Class A Note Underwriters that they propose
initially to offer the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes to the public at the prices set forth herein, and to certain dealers at
such prices less a concession not in excess of .10% per Class A-1 Note, .12% per
Class A-2 Note and .17% per Class A-3 Note. The Underwriters may allow and such
dealers may reallow a concession not in excess of .07% per Class A-1 Note, .09%
per Class A-2 Note and .12% per Class A-3 Note to certain other dealers. After
the initial public offering, such prices and such concessions may be changed.
Subject to the terms and conditions set forth in an underwriting agreement
(the "CLASS B NOTE UNDERWRITING AGREEMENT" and, together with the Class A Note
Underwriting Agreement, the "UNDERWRITING AGREEMENTS"), the Seller has agreed to
cause the Trust to sell to Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "CLASS B NOTE UNDERWRITER" and, together with the Class A Note
Underwriters, the "UNDERWRITERS"), and the Class B Note Underwriter has agreed
to purchase, the entire principal amount of the Class B Notes.
In the Class B Note Underwriting Agreement, the Class B Note Underwriter has
agreed, subject to the terms and conditions therein, to purchase all of the
Class B Notes offered hereby if any of such Class B Notes are purchased. The
Seller has been advised by the Class B Note Underwriter that it proposes to
initially offer the Class B Notes to the public at the price set forth herein,
and to certain dealers at such price less a concession not in excess of .25% per
Class B Note. The Class B Note Underwriter may allow and such dealers may
reallow a concession not in excess of .17% per Class B Note to certain other
dealers. After the initial public offering, such prices and such concessions may
be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Securities. As an exception to these rules,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MERRILL LYNCH"), on behalf
of the Underwriters, is permitted to engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and penalty bids with
respect to the Notes in accordance with Regulation M under the Exchange Act.
Over-allotment transactions involve syndicate sales in excess of the
offering size, which create syndicate short positions. Stabilizing transactions
permit bids to purchase the Notes so long as the stabilizing bids do not exceed
a specified maximum. Syndicate covering transactions involve purchases of the
Notes in the open market after the distribution has been completed in order to
cover syndicate short positions. Penalty bids permit Merrill Lynch to reclaim a
selling concession from a syndicate member when the Notes originally sold by
such syndicate member are purchased in a syndicate covering transaction.
S-49
<PAGE>
Such over-allotment transactions, stabilizing transactions, syndicate
covering transactions and penalty bids may cause the prices of the Notes to be
higher than they would otherwise be in the absence of such transactions. Neither
the Issuer, the Seller, CFSC, nor any of the Underwriters make any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Notes. In
addition, neither the Issuer, the Seller, CFSC nor any of the Underwriters
represent that the Underwriters will engage in any such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The Underwriting Agreements provide that the Seller and CFSC will indemnify
the Underwriters against certain civil liabilities, including liabilities under
the Securities Act, or contribute to payments the several Underwriters may be
required to make in respect thereof. The Underwriters have agreed to reimburse
the Seller for certain expenses of the issuance and distribution of the Notes.
The Indenture Trustee and the Owner Trustee (on behalf of the Trust) may,
from time to time, invest the funds in the Trust Accounts in Eligible
Investments acquired from the Underwriters.
The closings of the sale of the Notes and Certificates are conditioned on
the closing of the sale of each other.
LEGAL OPINIONS
Certain legal matters relating to the Notes and the Certificates will be
passed upon for the Trust, the Seller and the Servicer by Orrick, Herrington &
Sutcliffe LLP, San Francisco, California, and by Richards Layton & Finger,
Wilmington, Delaware, and for the Underwriters by Skadden, Arps, Slate, Meagher
& Flom LLP, New York, New York. Certain federal income tax and other matters
will be passed upon for the Trust and the Seller by Orrick, Herrington &
Sutcliffe LLP. Certain Tennessee state tax matters will be passed upon for the
Trust and the Seller by Tuke Yopp & Sweeney, Nashville, Tennessee.
S-50
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Caterpillar
Financial Asset Trust 1997-B Class A-1 5.805% Asset Backed Notes, Class A-2
6.018% Asset Backed Notes, Class A-3 6.16% Asset Backed Notes and the Class B
6.35% Asset Backed Notes (collectively, the "GLOBAL SECURITIES") will be
available only in book-entry form. Investors in the Global Securities may hold
such Global Securities through any of The Depository Trust Company ("DTC"),
Cedel Bank, societe anonyme ("CEDEL") or the Euroclear System ("EUROCLEAR"). The
Global Securities will be tradeable as home market instruments in both the
European and U.S. domestic markets. Initial settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors holding Global Securities through
Cedel and Euroclear will be conducted in the ordinary way in accordance with
their normal rules and operating procedures and in accordance with conventional
eurobond practice (I.E., seven calendar day settlement).
Secondary market trading between investors holding Global Securities through
DTC will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery against payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be subject
to U.S. withholding taxes unless such holders meet certain requirements and
deliver appropriate U.S. tax documents to the securities clearing organizations
or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Cedel and Euroclear will hold
positions on behalf of their participants through their respective Depositaries,
which in turn will hold such positions in accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to U.S. corporate debt obligations. Investor
securities custody accounts will be credited with their holdings against payment
in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to U.S. corporate
debt obligations in same-day funds.
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear
A-1
<PAGE>
Participant, the purchaser will send instructions to Cedel or Euroclear through
a Cedel Participant or Euroclear Participant at least one business day prior to
settlement. Cedel or Euroclear will instruct the respective Depositary to
receive the Global Securities against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, calculated on the basis of a year of 360
days, in each case for the actual number of days occurring in the period for
which such interest is payable. Payment will then be made by the respective
Depositary to the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Cedel Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (I.E., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available to
the respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to pre-position funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-position
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they cleared the
overdraft when the Global Securities were credited to their accounts. However,
interest on the Global Securities would accrue from the value date. Therefore,
in many cases the investment income on the Global Securities earned during that
one-day period may substantially reduce or offset the amount of such overdraft
charges, although this result will depend on each Cedel Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing system, through the
respective Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the respective Depositary, as appropriate, to deliver the bonds to
the DTC Participant's account against payment. Payment will include interest
accrued on the Global Securities from and including the last coupon payment date
to and excluding the settlement date, calculated on the basis of a year of 360
days, in each case for the actual number of days occurring in the period for
which such interest is payable. The payment will then be reflected in the
account of the Cedel Participant or Euroclear Participant the following day, and
receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would be back-valued to the value date (which would be the
preceding day, when settlement occurred in New York). Should the Cedel
Participant or Euroclear Participant have a line of credit with its respective
clearing system and elect to be in debit in anticipation of receipt of the sale
proceeds in its account, the back-valuation will extinguish any overdraft
charges incurred over the one-day period. If settlement is not completed on the
intended value date (I.E., the trade fails), receipt of the cash proceeds in the
Cedel Participant's or Euroclear Participant's account would instead be valued
as of the actual settlement date.
A-2
<PAGE>
Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel Participants or Euroclear
Participants should note that these trades would automatically fail on the sale
side unless affirmative action was taken. At least three techniques should be
readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
EXEMPTION FOR NON-U.S. PERSONS (FORM W-8). Beneficial owners of Notes that
are non-U.S. Persons can obtain a complete exemption from the withholding tax by
filing a signed Form W-8 (Certificate of Foreign Status). If the information
shown on Form W-8 changes, a new Form W-8 must be filed within 30 days of such
change.
EXEMPTION FOR NON-U.S. PERSONS WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY COUNTRIES
(FORM 1001). Non-U.S. Persons that are Noteholders residing in a country that
has a tax treaty with the United States can obtain an exemption or reduced tax
rate (depending on the treaty terms) by filing Form 1001 (Ownership, Exemption
or Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by the Noteholder or his agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The holder of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
by submitting the appropriate form to the person through whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years
and Form 4224 is effective for one calendar year.
The term "U.S. PERSON" means (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized in or under the laws of the United
States or any political subdivision thereof or (iii) an estate, the income of
which is includible in gross income for United States tax purposes, regardless
of its source, or any trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States fiduciaries have the authority to control all substantial
decisions of the trust. This summary does not deal with all aspects of U.S.
federal income tax withholding that may be relevant to foreign holders of the
Global Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
A-3
<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus
Supplement and defined herein and the pages on which the definitions of such
terms may be found herein. Certain defined terms used in this Prospectus
Supplement are defined in the Prospectus. See "Index of Terms" in the
Prospectus.
<TABLE>
<S> <C>
Administration Agreement....................................................... S-19
Administration Fee............................................................. S-19
Administrator.................................................................. S-19
S-4, S-23,
APR............................................................................ S-39
Caterpillar.................................................................... S-32
Cede........................................................................... S-2
Cedel.......................................................................... A-1
Certificate Balance............................................................ S-9, S-39
Certificate Rate............................................................... S-8, S-36
Certificateholders' Distributable Amount....................................... S-9, S-39
Certificateholders' Interest Carryover Shortfall............................... S-9, S-39
Certificateholders' Interest Distributable Amount.............................. S-9, S-39
Certificateholders' Monthly Interest Distributable Amount...................... S-9, S-39
Certificateholders' Monthly Principal Distributable Amount..................... S-10, S-39
Certificateholders' Principal Carryover Shortfall.............................. S-10, S-39
Certificateholders' Principal Distributable Amount............................. S-10, S-39
Certificates................................................................... S-1, S-4
CFSC........................................................................... S-3
Class A Note Distribution Account.............................................. S-10, S-40
Class A Note Underwriters...................................................... S-49
Class A Note Underwriting Agreement............................................ S-49
Class A Noteholders............................................................ S-5
Class A Noteholders' Distributable Amount...................................... S-10, S-40
Class A Noteholders' Interest Carryover Shortfall.............................. S-10, S-40
Class A Noteholders' Interest Distributable Amount............................. S-11, S-40
Class A Noteholders' Monthly Interest Distributable Amount..................... S-11, S-40
Class A Notes.................................................................. S-1, S-3
Class A-1 Note Final Scheduled Distribution Date............................... S-7, S-40
Class A-1 Note Pool Factor..................................................... S-31
Class A-1 Note Rate............................................................ S-5, S-33
Class A-1 Noteholders.......................................................... S-5
Class A-1 Noteholders' Monthly Principal Distributable Amount.................. S-11, S-40
Class A-1 Noteholders' Principal Carryover Shortfall........................... S-11, S-40
Class A-1 Noteholders' Principal Distributable Amount.......................... S-11, S-40
Class A-1 Notes................................................................ S-1, S-3
Class A-2 Note Final Scheduled Distribution Date............................... S-7, S-41
Class A-2 Note Pool Factor..................................................... S-31
Class A-2 Note Rate............................................................ S-5, S-34
Class A-2 Noteholders.......................................................... S-5
Class A-2 Noteholders' Monthly Principal Distributable Amount.................. S-11, S-41
Class A-2 Noteholders' Principal Carryover Shortfall........................... S-12, S-41
Class A-2 Noteholders' Principal Distributable Amount.......................... S-12, S-41
Class A-2 Notes................................................................ S-1, S-3
Class A-3 Note Final Scheduled Distribution Date............................... S-7, S-41
Class A-3 Note Pool Factor..................................................... S-31
Class A-3 Note Prepayment Price................................................ S-7, S-35
Class A-3 Note Rate............................................................ S-5, S-34
Class A-3 Noteholders.......................................................... S-5
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
Class A-3 Noteholders' Monthly Principal Distributable Amount.................. S-12, S-41
Class A-3 Noteholders' Principal Carryover Shortfall........................... S-12, S-41
Class A-3 Noteholders' Principal Distributable Amount.......................... S-13, S-41
Class A-3 Notes................................................................ S-1, S-3
Class B Note Distribution Account.............................................. S-13, S-42
Class B Note Final Scheduled Distribution Date................................. S-7, S-42
Class B Note Pool Factor....................................................... S-31
Class B Note Prepayment Price.................................................. S-7, S-35
Class B Note Rate.............................................................. S-5, S-34
Class B Note Underwriter....................................................... S-49
Class B Note Underwriting Agreement............................................ S-49
Class B Noteholders............................................................ S-5
Class B Noteholders' Distributable Amount...................................... S-13, S-42
Class B Noteholders' Interest Carryover Shortfall.............................. S-13, S-42
Class B Noteholders' Interest Distributable Amount............................. S-13, S-42
Class B Noteholders' Monthly Interest Distributable Amount..................... S-14, S-42
Class B Noteholders' Monthly Principal Distributable Amount.................... S-14, S-42
Class B Noteholders' Principal Carryover Shortfall............................. S-14, S-42
Class B Noteholders' Principal Distributable Amount............................ S-14, S-42
Class B Notes.................................................................. S-1, S-3
Closing Date................................................................... S-1
Code........................................................................... S-20
Collection Account............................................................. S-17
Collection Period.............................................................. S-14, S-43
Commission..................................................................... S-2
Custodial Agreement............................................................ S-19
Custodian...................................................................... S-19
Cut-off Date................................................................... S-4, S-23
Cut-off Date APR............................................................... S-4, S-43
Dealers........................................................................ S-4
Determination Date............................................................. S-33
Discount Receivables........................................................... S-15, S-34
Disqualified Persons........................................................... S-47
S-1, S-5,
Distribution Date.............................................................. S-33
DOL............................................................................ S-48
DTC............................................................................ S-2, A-1
ERISA.......................................................................... S-20, S-47
Euroclear...................................................................... A-1
Exchange Act................................................................... S-2
FASIT.......................................................................... S-20, S-46
FASIT Provisions............................................................... S-46
Final Maturity Date............................................................ S-18
Financed Equipment............................................................. S-4
Global Securities.............................................................. A-1
Indenture...................................................................... S-3
Indenture Trustee.............................................................. S-3
Initial Pool Balance........................................................... S-4, S-43
Installment Sales Contracts.................................................... S-4
Issuer......................................................................... S-1, S-3
Liquidated Receivables......................................................... S-37
Liquidation Proceeds........................................................... S-37
Maximum Yield Supplement Amount................................................ S-43
Merrill Lynch.................................................................. S-49
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
Moody's........................................................................ S-20
New Regulations................................................................ S-47
Note Rate...................................................................... S-15, S-43
Noteholders.................................................................... S-5
Noteholders' Interest Distributable Amount..................................... S-43
Notes.......................................................................... S-1, S-3
Obligors....................................................................... S-4
Owner Trustee.................................................................. S-3
Parties in Interest............................................................ S-47
Plan Asset Regulation.......................................................... S-48
Plan Assets.................................................................... S-20, S-47
Plans.......................................................................... S-20, S-47
Pool Balance................................................................... S-5, S-43
Principal Balance.............................................................. S-5, S-24
Principal Distribution Amount.................................................. S-14, S-37
Purchase Agreement............................................................. S-4
Rating Agency.................................................................. S-20
Realized Losses................................................................ S-15, S-43
Receivables.................................................................... S-2, S-4
Receivables Files.............................................................. S-19, S-21
Receivables Pool............................................................... S-23
Record Date.................................................................... S-6
Required Rate.................................................................. S-15, S-43
Reserve Account................................................................ S-16
Reserve Account Initial Deposit................................................ S-16, S-44
S&P............................................................................ S-20
Sale and Servicing Agreement................................................... S-4
Seller......................................................................... S-3
Servicer....................................................................... S-3
Servicing Fee.................................................................. S-18
Servicing Fee Rate............................................................. S-18
Special Tax Counsel............................................................ S-20
Specified Reserve Account Balance.............................................. S-17, S-44
Tennessee Tax Counsel.......................................................... S-20
Total Distribution Amount...................................................... S-15, S-36
Transfer and Servicing Agreements.............................................. S-37
Trust.......................................................................... S-1, S-3
Trust Agreement................................................................ S-3
U.S. ISC Portfolio............................................................. S-28
U.S. Person.................................................................... A-3
Underwriters................................................................... S-49
Underwriting Agreements........................................................ S-49
Variable Frequency Receivables................................................. S-25
Yield Supplement Account....................................................... S-15, S-43
Yield Supplement Account Deposit............................................... S-15, S-43
Yield Supplement Deposit Amount................................................ S-16, S-43
</TABLE>
A-6
<PAGE>
PROSPECTUS
CATERPILLAR FINANCIAL ASSET TRUSTS
ASSET BACKED NOTES
ASSET BACKED CERTIFICATES
CATERPILLAR FINANCIAL FUNDING CORPORATION, SELLER
CATERPILLAR FINANCIAL SERVICES CORPORATION, SERVICER
--------------
The Asset Backed Notes (the "NOTES") and the Asset Backed Certificates (the
"CERTIFICATES" and, together with the Notes, the "SECURITIES") described herein
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 (a "PROSPECTUS SUPPLEMENT"). Each
Series of Securities, which will include one or more classes of Notes and may
include one or more classes of Certificates (each, a "CLASS"), will be issued by
a limited purpose Delaware business trust to be formed with respect to such
Series (each, a "TRUST"). Each Trust will be formed pursuant to a Trust
Agreement to be entered into between Caterpillar Financial Funding Corporation,
as seller (the "SELLER"), and the owner trustee specified in the related
Prospectus Supplement (the "OWNER TRUSTEE"). The Notes of each Series will be
issued and secured pursuant to an Indenture between a Trust and the indenture
trustee specified in the related Prospectus Supplement (the "INDENTURE TRUSTEE")
and will represent indebtedness of the related Trust. The Certificates of each
Series, if any, will represent fractional undivided beneficial equity interests
in the related Trust. The property of each Trust will include a pool of retail
installment sales contracts and/or equipment finance lease contracts, including
the rights to receive certain payments made with respect to such contracts
(collectively, the "RECEIVABLES") secured by new and/or used machinery
manufactured primarily by Caterpillar Inc. or its affiliate Mitsubishi
Caterpillar Forklift America Inc. (the "FINANCED EQUIPMENT"), certain monies due
or received thereunder on and after the applicable Cut-off Date set forth in the
related Prospectus Supplement, security interests in such Financed Equipment and
certain other property, all as described herein and in the related Prospectus
Supplement. In addition, if so specified in the related Prospectus Supplement,
the property of a Trust will include monies on deposit in a trust account (the
"PRE-FUNDING ACCOUNT") to be established in the name of the Indenture Trustee on
behalf of the related Securityholders, which will be used to purchase additional
Receivables (the "SUBSEQUENT RECEIVABLES") from the Seller from time to time
during the Funding Period specified in the related Prospectus Supplement.
Except as otherwise provided in the related Prospectus Supplement, each
Class of Securities of any Series will represent the right to receive a
specified amount of payments of principal and interest on the related
Receivables, at the rates, on the dates, on the terms and in the manner
described herein and in the related Prospectus Supplement. The right of each
Class of Securities to receive payments may be senior or
(CONTINUED ON FOLLOWING PAGE)
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" COMMENCING ON PAGE 13 HEREIN AND 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.
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of Securities offered hereby unless accompanied by a
Prospectus Supplement.
-------------------
The date of this Prospectus is May 19, 1997
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
subordinate to the rights of one or more of the other Classes of such Series to
the extent described herein and in the related Prospectus Supplement. A Series
may include one or more Classes of Notes and may include Certificates which
differ as to the timing and priority of payments, allocations of losses,
interest rate or amount of distributions in respect of principal or interest or
both. A Series may also include one or more Classes of Notes or Certificates
entitled to distributions in respect of principal, with disproportionate,
nominal or no interest distributions, or to distributions in respect of
interest, with disproportionate, nominal or no principal distributions. The rate
of payment in respect of principal of the Notes and distributions in respect of
the Certificate Balance (as defined herein) of the Certificates of any Class
will depend on the priority of payment of such Class and the rate and timing of
payments (including prepayments, defaults, liquidations and repurchases of
Receivables) on the related Receivables. A rate of payment on the related
Receivables 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.
The Notes of a given Series will represent obligations of, and the
Certificates of such Series will represent undivided beneficial equity interests
in, the related Trust only and will not represent obligations of or interests
in, and will not be guaranteed or insured by, Caterpillar Financial Funding
Corporation, Caterpillar Financial Services Corporation, Caterpillar Inc. or any
of their respective affiliates. Prospective investors should consider the
factors set forth under "Risk Factors" herein and in the related Prospectus
Supplement.
Each Series of Notes or Class offered hereby will be rated in one of the
four highest rating categories by at least one nationally recognized statistical
rating organization.
2
<PAGE>
REPORTS TO NOTEHOLDERS AND CERTIFICATEHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
periodic and annual unaudited reports containing information concerning the
Receivables of the related Trust will be prepared by the Servicer and sent on
behalf of such Trust to Cede & Co. ("CEDE"), as nominee of The Depository Trust
Company ("DTC") and registered holder of the related Securities. To the extent
specified in the related Prospectus Supplement, such periodic and annual
unaudited reports will also be sent on behalf of any such Trust to any
registered holders of the Securities. See "Issuance of the
Securities--Book-Entry Registration" and "Description of the Transfer and
Servicing Agreements--Reports to Securityholders" herein. Such reports will not
constitute financial statements that have been examined and reported upon by,
with an opinion expressed by, an independent public accountant or certified
public accountant. Each Trust will file with the Securities and Exchange
Commission (the "COMMISSION") such periodic reports as are required under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder (the "EXCHANGE ACT") or 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.
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has 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, and the rules and regulations of the Commission thereunder
(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 prescribed rates, at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; at the Commission's Midwest Regional Office at 500 West
Madison Street, Chicago, Illinois 60661-2511; and at the Commission's Northeast
Regional Office at 7 World Trade Center, 13th Floor, New York, New York 10048.
In addition, the Commission maintains a public access site on the Internet
through the World Wide Web at which site reports, information statements and
other information, including all electronic filings, regarding the Seller and
each Trust may be viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with the Commission by the Seller, as originator of any
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of any offering of the
Securities made by this Prospectus 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.
The Servicer on behalf of any Trust will provide without charge to each
person to whom this Prospectus 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, other than exhibits
to such documents unless such exhibits are specifically requested. Such written
or oral requests should be directed to the Servicer at: Caterpillar Financial
Services Corporation, 3322 West End Avenue, Nashville, Tennessee 37203-1071,
Attention: Treasurer (Telephone: (615) 386-5800).
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."
<TABLE>
<S> <C>
Issuer............................ With respect to each Series of Securities, the Delaware
business trust formed by the Seller and the Owner
Trustee specified in the related Prospectus Supplement
pursuant to a Trust Agreement (as amended and
supplemented from time to time, a "TRUST AGREEMENT")
between the Seller and such Owner Trustee, acting
thereunder not in its individual capacity but solely as
Owner Trustee for such trust (the "TRUST" or the
"ISSUER").
Seller............................ Caterpillar Financial Funding Corporation (the
"SELLER"), a Nevada corporation and a wholly-owned
subsidiary of Caterpillar Financial Services
Corporation. The principal executive offices of the
Seller are located at Greenview Plaza, 2950 East
Flamingo Road, Suite C-3B, Las Vegas, Nevada 89121 and
its telephone number is (702)735-2514.
Servicer.......................... Caterpillar Financial Services Corporation (the
"SERVICER" or "CFSC"), a Delaware corporation and a
wholly-owned subsidiary of Caterpillar Inc.
Indenture Trustee................. With respect to each Series of Securities, the Indenture
Trustee specified in the related Prospectus Supplement.
Owner Trustee..................... With respect to each Series of Securities, the Owner
Trustee specified in the related Prospectus Supplement.
The Notes......................... Each Series of Securities will include one or more
Classes of Notes, which will be issued pursuant to an
indenture between the related Trust and Indenture
Trustee (as amended and supplemented from time to time,
an "INDENTURE").
Unless otherwise specified in the related Prospectus
Supplement, Notes will be available for purchase in
denominations of $1,000 and integral multiples thereof
and will be available in book-entry form only. Unless
otherwise specified in the related Prospectus
Supplement, holders of Notes ("NOTEHOLDERS") will be
able to receive Definitive Notes only under the limited
circumstances described herein or in the related
Prospectus Supplement. See "Issuance of the
Securities--Definitive Securities."
Unless otherwise specified in the related Prospectus
Supplement, each Class of Notes will have a stated
principal amount specified in the related Prospectus
Supplement and will bear interest at a rate or at rates
(with respect to each Class of Notes, the "INTEREST
RATE") specified in the related Prospectus Supplement.
Each Class of Notes 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 Supplement will specify the Interest Rate for
each Class of Notes, or the method for determining the
Interest Rate.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
With respect to a Series that includes two or more
Classes of Notes, each Class may differ as to the timing
and priority of payments, seniority, allocations of
losses, Interest Rate or amount of or method of
determining payments of principal or interest as
described in the related Prospectus Supplement. Pay-
ments 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 Receivables
in the related Trust. In addition, a Series may include
one or more Classes of Notes ("STRIP NOTES") entitled to
(i) principal payments with disproportionate, nominal or
no interest payments or (ii) interest payments with
disproportionate, nominal or no principal payments.
If the Servicer exercises its option to purchase the
Receivables of a Trust in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing
Agreements--Termination," the related outstanding Notes
will be prepaid on the terms specified 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, the
outstanding Notes may be subject to partial prepayment
on or immediately following the end of the related
Funding Period (as such term is defined in the related
Prospectus Supplement, the "FUNDING PERIOD") in an
amount and manner specified in the related Prospectus
Supplement. In the event of a partial prepayment, the
Noteholders may, but will not necessarily, be entitled
to receive a prepayment premium from the related Trust,
in the amount and to the extent provided in the related
Prospectus Supplement.
The Certificates.................. Each Series of Securities may include one or more
Classes of Certificates, which, if issued, will be
issued pursuant to a Trust Agreement.
The Prospectus Supplement related to each Series will
specify whether the related Certificates, if any, will
be issued in fully registered, certificated form to
holders of Certificates ("CERTIFICATEHOLDERS" and,
together with the Noteholders, "SECURITYHOLDERS") or
their nominee, or if such Certificates will be avail-
able in book-entry form only. See "Issuance of the
Securities-- Definitive Securities" and "--Book-Entry
Registration" herein.
Unless otherwise specified in the related Prospectus
Supplement, each Class of Certificates, if any, will
have a stated Certificate Balance specified in the
related Prospectus Supplement (the "CERTIFICATE
BALANCE") and will accrue interest on such Certificate
Balance at the rate (with respect to each Class of
Certificates, the "PASS-THROUGH RATE") specified in the
related Prospectus Supplement. Each Class of
Certificates may have a different Pass-Through Rate,
which may be a fixed, variable or adjustable
Pass-Through Rate, or any combination of the foregoing.
The related Prospectus Supplement will specify the
Pass-Through Rate for each Class of Certificates or the
method for determining the Pass-Through Rate.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
With respect to a Series that includes two or more
Classes of Certificates, each Class may differ as to
timing and priority of distributions, seniority,
allocations of losses, Pass-Through Rates or amount of
or method of determining distributions in respect of
principal or interest. Distributions 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 Receivables in the related Trust. In addition, a
Series may include one or more Classes of Certificates
("STRIP CERTIFICATES") entitled to (i) distributions in
respect of principal with disproportionate, nominal or
no interest distributions or (ii) distributions in
respect of interest with disproportionate, nominal or no
principal distributions.
To the extent specified in the related Prospectus
Supplement, distributions in respect of the Certificates
may be subordinated in priority of payment to payments
on the Notes.
If the Servicer exercises its option to purchase the
Receivables of a Trust, in the manner and on the
respective terms and conditions described under
"Description of the Transfer and Servicing
Agreements--Termination" herein, the related
Certificateholders will receive as a prepayment an
amount in respect of the Certificates as specified 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, Certifi-
cateholders may receive a partial prepayment of
principal on or immediately following the end of the
Funding Period in an amount and manner specified in the
related Prospectus Supplement. In the event of such
partial prepayment, such Certificateholders may, but
will not necessarily, be entitled to receive a
prepayment premium from such Trust, in the amount and to
the extent provided in the related Prospectus
Supplement.
The Trust Property................ The property of each Trust will include a pool of
Receivables which may consist of (i) fixed or variable
rate retail installment sales contracts (each, an
"INSTALLMENT SALES CONTRACT") and/or equipment finance
lease contracts (each, a "LEASE") secured by new and/or
used machinery manufactured primarily by Caterpillar
Inc. ("CATERPILLAR") or its affiliate Mitsubishi
Caterpillar Forklift America Inc. (the "FINANCED
EQUIPMENT"), including rights to receive certain
payments made with respect to such contracts
(collectively, the "RECEIVABLES") and all monies
(including accrued interest) due or received thereunder
on or after the applicable Cut-off Date and (ii)
security interests in the Financed Equipment and in
certain other cross-collateralized equipment. With
respect to each Trust as to which the related Trust
Property includes both Installment Sales Contracts and
Leases, the related Prospectus Supplement will set forth
the percentages of the related Receivables constituting
Installment Sales Contracts and Leases. CFSC and the
Seller will represent that all Leases are "net leases"
and contain provisions which unconditionally obligate
each Obligor thereunder to make all payments scheduled
under its Lease without any right of setoff. No Lease
contract requires any additional performance obligations
by CFSC.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
The property of each Trust will also include (i) amounts
on deposit in certain trust accounts, including a
related Collection Account, any Reserve Account, any
Pre-Funding Account and any other account identified in
the related Prospectus Supplement, and the proceeds
thereof, (ii) the rights to proceeds from claims on
physical damage, credit life, liability, and disability
insurance policies, if any, covering Financed Equipment
or Obligors, as the case may be, (iii) any proceeds of
repossessed Financed Equipment, (iv) the rights of the
Seller under the related Purchase Agreement (as defined
below), (v) the interest of the Seller in any proceeds
from recourse to Dealers on such Receivables, (vi) the
interest earned on short-term investments made by such
Trust and (vii) any proceeds of the foregoing. On or
prior to the Closing Date specified in the Prospectus
Supplement with respect to a Trust, the Seller will
purchase Receivables from CFSC pursuant to a Purchase
Agreement (the "PURCHASE AGREEMENT"), between CFSC and
the Seller, and the Seller will sell the Receivables to
the related Trust pursuant to a Sale and Servicing
Agreement (the "SALE AND SERVICING AGREEMENT") among the
Seller, the Servicer and such Trust. Such Receivables
(the "INITIAL RECEIVABLES") shall have an aggregate
principal balance specified in the related Prospectus
Supplement as of a date specified therein (such date,
the "INITIAL CUT-OFF DATE").
If and to the extent provided in the related Prospectus
Supplement, the Seller will be obligated to sell, and
the related Trust will be obligated to purchase (subject
to the availability of Receivables, and to the
satisfaction of certain conditions described in the
related Sale and Servicing Agreement), the Subsequent
Receivables from time to time during the Funding Period
specified in the related Prospectus Supplement, which
Subsequent Receivables will have an aggregate principal
balance as of the date determined therein (each, a
"SUBSEQUENT CUT-OFF DATE", and together with the Initial
Cut-off Date, a "CUT-OFF DATE") not in excess of the
amount on deposit in the Pre-Funding Account (the
"PRE-FUNDED AMOUNT") on the related Closing Date. If the
related Prospectus Supplement so provides for a
Pre-Funding Account, the funds on deposit in such
Pre-Funding Account on the related Closing Date will not
exceed 25% of the related Trust Property, and the
related Pre-Funding Period shall not exceed three months
from the related Closing Date.
The Receivables will arise from loans and/or leases
originated in connection with retail sales and leases by
dealers (the "DEALERS") of Financed Equipment to retail
purchasers (the "OBLIGORS") and will be either
originated by CFSC, or acquired from such Dealers by
CFSC, in the ordinary course of its business. The
Receivables sold to a Trust will be selected from the
portfolio of installment sales contracts and finance
leases owned by CFSC based on the criteria specified in
the related Purchase Agreement and described herein and
in the related Prospectus Supplement.
Credit and Cash Flow Enhancement.. If and to the extent provided in the related Prospectus
Supplement, credit enhancement with respect to a Trust
or any Class or
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Classes of Securities may include any one or more of the
following: subordination of one or more Classes of
Securities to other Classes of Securities, Reserve
Accounts, over-collateralization, letters of credit,
credit or liquidity facilities, surety bonds, guaran-
teed 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. Any form
of credit enhancement may have certain limitations and
exclusions from coverage thereunder, which will be
described in the related Prospectus Supplement, and may
be replaced with another form of credit enhancement,
provided that the Rating Agencies confirm in writing
that such substitution will not result in a reduction or
withdrawal of the rating of any Class of Securities. See
"Description of the Transfer and Servicing
Agreements--Credit and Cash Flow Enhancement" herein.
Reserve Account................... Unless otherwise specified in the related Prospectus
Supplement, a Reserve Account will be established and
maintained by the Seller for each Trust in the name of
the Indenture Trustee with an initial deposit, if any,
by the Seller of cash or certain investments having a
value equal to the amount specified in the related Pro-
spectus Supplement. To the extent specified in the
related Prospectus Supplement, funds in the Reserve
Account will thereafter be supplemented by the deposit
of amounts remaining on any Distribution Date after
making all other distributions required on such date
and, if applicable, any amounts deposited from time to
time from the Pre-Funding Account in connection with the
purchase of Subsequent Receivables. Amounts in the
Reserve Account may be available to cover shortfalls in
amounts due to the holders of those Classes of
Securities specified in the related Prospectus
Supplement in the manner and under the circumstances
specified therein. The related Prospectus Supplement
will also specify to whom and the manner and
circumstances under which amounts on deposit in the
Reserve Account (after giving effect to all other
required distributions to be made by the related Trust)
in excess of the "SPECIFIED RESERVE ACCOUNT BALANCE" (as
defined in the related Prospectus Supplement) will be
distributed.
Principal and Interest Funding If the Distribution Dates for a Series or Class occur
Accounts.......................... less frequently than monthly, collections or other
amounts (or the portion thereof) allocable to such
Series or Class may be deposited on a monthly basis in
one or more trust accounts established for the benefit
of Securityholders and used to make interest payments
and principal payments to Securityholders of such Series
or Class on a following Distribution Date.
Pre-Funding Account............... If so specified in the related Prospectus Supplement,
the related Trust Property may include monies on deposit
in a trust account (the "PRE-FUNDING ACCOUNT") to be
established by the Seller in the name of the Indenture
Trustee on behalf of the related Securityholders, which
monies will be used to purchase Subsequent Receivables
from the Seller from time to time during the Funding
Period specified in the related Prospectus Supplement.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
The amount that may be initially deposited into a
Pre-Funding Account, and the length of a Pre-Funding
Period, shall be limited as described herein.
Transfer and Servicing With respect to each Trust, pursuant to a Purchase
Agreements........................ Agreement, the Seller will purchase Receivables from
CFSC and, pursuant to the Sale and Servicing Agreement,
the Seller will sell the related Receivables, together
with its rights under the Purchase Agreement, to such
Trust. In addition, the Servicer will agree with such
Trust to be responsible for servicing, managing and
making collections on the Receivables. The rights and
benefits of the Seller under the Purchase Agreement and
of such Trust under the Sale and Servicing Agreement
will be assigned to the related Indenture Trustee as
collateral for the Notes. The obligations of the Seller
and the Servicer under such Transfer and Servicing
Agreements include those specified below. With respect
to each Trust, unless the related Prospectus Supplement
provides for the filing of Uniform Commercial Code
("UCC") financing statements to perfect the interests
described herein, a custodian (the "CUSTODIAN") will be
responsible for maintaining custody of the related
Receivables Files (as defined herein) pursuant to a
Custodial Agreement (the "CUSTODIAL AGREEMENT") among
CFSC, the Seller, the Issuer, the Indenture Trustee and
such Custodian. See "Risk Factors--Perfection of
Interests in Receivables and in Financed Equipment"
herein.
Unless otherwise specified in the related Prospectus
Supplement, the Seller will be obligated to repurchase
any Receivable if (i) the interest of the related Trust
therein is materially adversely affected by a breach of
any representation or warranty made by the Seller or
CFSC with respect to such Receivable (other than cer-
tain specified representations and warranties) and (ii)
such breach has not been cured within the time period
specified herein following the discovery by or notice to
the Seller of the breach. See "Description of Transfer
and Servicing Agreements--Sale and Assignment of
Receivables" herein. If such breach arises from a
representation or warranty made by CFSC in the Purchase
Agreement, CFSC will be obligated to repurchase such
Receivable from the Seller pursuant to the related
Purchase Agreement contemporaneously with the Seller's
repurchase from such Trust. The obligation of the Seller
to repurchase any Receivable with respect to which CFSC
has breached a representation or warranty is subject to
CFSC's repurchase of such Receivable.
Consistent with its normal servicing procedures, the
Servicer may, in its discretion, arrange with the
Obligor on a Receivable to extend or modify its payment
schedule; provided, however, that unless otherwise
specified in the related Prospectus Supplement, no such
modifications may reduce the underlying APR or Princi-
pal Balance of such Receivable, reduce the aggregate
amount of scheduled payments or the amount of any
scheduled payment due under such Receivable, release or
modify CFSC's security interest in the Financed
Equipment securing such Receivable or otherwise amend or
modify such Receivable in a manner that
</TABLE>
9
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<TABLE>
<S> <C>
would have a material adverse effect on the interests of
the related Securityholders. To the extent provided in
the related Prospectus Supplement, some of such
extensions may not be permitted or may result in the
Servicer's repurchasing such Receivable.
Unless otherwise specified in the related Prospectus
Supplement, the Servicer shall receive a servicing fee
for each Collection Period (the "SERVICING FEE"), which
Servicing Fee shall equal (a) a fixed percentage per
annum to be specified in the related Prospectus
Supplement (the "SERVICING FEE RATE") of the Pool Bal-
ance as of the first day of such Collection Period, plus
(b) any late fees, extension fees, property and sales
taxes (with respect to Leases) and other administrative
fees or similar charges allowed by applicable law with
respect to such Receivables (collectively, the
"SERVICER'S YIELD"). With respect to each Trust, the
Servicing Fee for each Collection Period will decline
over the term of the related Securities as the aggregate
principal balance of the related Receivables decreases.
See "Description of the Transfer and Servicing
Agreements--Servicing Compensation and Payment of
Expenses" herein and in the related Prospectus
Supplement.
Administration Agreement.......... With respect to each Trust, CFSC, in its capacity as
administrator (the "ADMINISTRATOR"), will enter into an
agreement (an "ADMINISTRATION AGREEMENT") with such
Trust and the related Indenture Trustee pursuant to
which the Administrator will agree, to the extent
provided in such Administration Agreement, to provide
the notices and to perform certain other administrative
obligations required by the related Indenture. As
compensation for the performance of the Administrator's
obligations under its Administration Agreement and as
reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly admin-
istration fee in an amount to be set forth in the
related Prospectus Supplement (the "ADMINISTRATION
FEE").
Certain Legal Aspects of the With respect to any Trust, unless the related Prospectus
Receivables; Repurchase Supplement provides that such interests will be
Obligations....................... perfected by filing UCC financing statements, the
transfer of ownership of the Receivables of any Trust
from CFSC to the Seller and from the Seller to such
Trust, and the granting of the security interest in such
Receivables by such Trust to the related Indenture
Trustee, will, in each case, be perfected by the related
Custodian, on behalf of the applicable assignee, taking
possession of the Installment Sales Contracts and/or
Leases and any related Dealer Agreements (the
"RECEIVABLES FILES"). The related Custodian will
maintain possession of such Receivables Files in a space
leased by such Custodian, which space may, if so
specified in the related Prospectus Supplement, be
proximate to the principal executive offices of the
Seller. Although steps will be taken to ensure that the
Seller does not obtain possession or control of any
Receivables Files, should a court find that the Seller
did have possession or control of such Receivables
Files, the interests of such Trust and the related
Indenture Trustee in such Receivables may be unperfected
under certain circumstances, and distributions to
Securityholders may be adversely affected. Unless the
related Prospectus Supplement otherwise specifies, UCC
financing statements will not be filed to perfect such
transfers of ownership or such grant of a security
interest.
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If UCC financing statements are filed to perfect such
transfers of ownership or such grants of security
interests, to facilitate servicing and reduce
administrative costs, the Receivables Files will be
retained by the Servicer and will not be physically
segregated from other similar documents that are in the
Servicer's possession or otherwise stamped or marked to
reflect the transfer to the related Trust so long as
CFSC is servicing the Receivables. However, UCC
financing statements will be filed reflecting the sale
and assignment of the Receivables by CFSC to the Seller,
and by the Seller to the related Trust, and the
Servicer's accounting records and computer files will be
marked to reflect such sales and assignments. Because
the Receivables Files will remain in the Servicer's
possession and will not be stamped or otherwise marked
to reflect the assignment to the Indenture Trustee, if a
subsequent purchaser were able to take physical
possession of the Receivables Files without knowledge of
such assignment, the Indenture Trustee's interest in the
Receivables could be defeated. In such event,
distributions to Securityholders may be adversely
affected. See "Risk Factors--Perfection of Interests in
Receivables and in Financed Equipment" herein.
With respect to each Series of Securities, in connection
with the sale of the Receivables to the related Trust,
security interests in the Financed Equipment and certain
other cross-collateralized equipment securing the
Receivables will be assigned by CFSC to the Seller and
by the Seller to such Trust. Unless otherwise specified
in the related Prospectus Supplement, the Seller will be
obligated to repurchase any Receivable sold to the
related Trust (subject to CFSC's repurchase thereof) in
the event it is determined that a first perfected
security interest in the name of CFSC in the Financed
Equipment securing such Receivable did not exist as of
the related Closing Date or, if applicable, any related
Subsequent Closing Date, if (i) such breach shall
materially adversely affect the interest of such Trust
in such Receivable and (ii) such failure or breach shall
not have been cured by the last day of the second (or,
if the Seller elects, the first) month following the
discovery by or notice to the Seller of such breach, and
CFSC will be obligated to repurchase such Receivable
from the Seller contemporaneously with the Seller's
repurchase from such Trust. To the extent the security
interest of CFSC in the related Financed Equipment is
perfected, subject to the exceptions set forth in the
following sentence, such Trust will have a prior claim
over subsequent purchasers of such Financed Equipment
and holders of subsequently perfected security
interests. However, as against liens for repairs
("MECHANICS' LIENS") on an item of Financed Equipment or
for taxes unpaid by an Obligor under a Receivable, or
through fraud or negligence of CFSC or (in certain
circumstances) the related Dealer, such Trust could lose
the priority of its security interest or its security
interest in the related Financed Equipment. Neither the
Seller nor the Servicer will have any obligation to
repurchase a Receivable if liens for repairs or taxes
unpaid by an Obligor result in such Trust losing the
priority of its security interest or its security
interest in such Financed Equipment after the related
Closing Date or, if applicable, any related Subsequent
Closing Date. Federal and state consumer protection laws
impose requirements upon creditors in
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connection with extensions of credit and collections
relating to retail installment sales contracts and
leases, and certain of these laws make an assignee of
such a contract liable to the obligor thereon for any
violation by the lender. Unless otherwise specified in
the related Prospectus Supplement, under certain circum-
stances the Seller will be obligated to repurchase any
Receivable (subject to CFSC's repurchase thereof) which
fails to comply with such requirements, and CFSC will be
obligated to repurchase such Receivable from the Seller
contemporaneously with the Seller's repurchase from such
Trust.
Tax Status........................ Upon the issuance of each Series of Securities, unless
otherwise specified in the related Prospectus
Supplement, Orrick, Herrington & Sutcliffe LLP, as
special tax counsel to the related Trust, will deliver
its opinion to the effect that, for federal income tax
purposes: (i) the Notes of such Series will be
characterized as debt and (ii) such Trust will not be
characterized as an association (or a 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 the related Certificateholders
are partners for federal income purposes. Alternative
characterizations of such Trust and such Certificates
are possible, but should not result in materially
adverse tax consequences to Certificateholders. See
"Certain Federal Income Tax Considerations" for
additional information concerning the application of
federal tax laws.
Upon the issuance of each Series of Securities, unless
otherwise specified in the related Prospectus
Supplement, Tuke Yopp & Sweeney, as Tennessee tax
counsel to the related Trust ("TENNESSEE TAX COUNSEL"),
will deliver its opinion that, with respect to corporate
Certificateholders and Noteholders, the same tax char-
acterizations should apply for purposes of Tennessee
income tax as for federal income tax purposes.
Non-corporate Certificateholders and Noteholders who are
residents of Tennessee will be subject to taxation on
income distributions with respect to the Certificates
and the Notes of a given Series at the rate of six
percent (6%). In the opinion of Tennessee Tax Counsel,
the related Trust should not be subject to taxation in
Tennessee. See "Certain State Tax Considerations" herein
for additional information concerning the application of
Tennessee tax laws to any Trust and the related
Securities.
ERISA Considerations.............. A fiduciary of any employee benefit plan or other plan
or arrangement subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or Section
4975 of the Internal Revenue Code of 1986, as amended
(the "CODE"), should carefully review with its legal
advisors whether the purchase or holding of any Class of
Securities could give rise to a transaction prohibited
or not otherwise permissible under ERISA or the Code.
See "ERISA Considerations" herein and in the related
Prospectus Supplement.
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RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus Supplement and the following risk factors in
connection with the purchase of the Securities of any Series.
PERFECTION OF INTERESTS IN RECEIVABLES AND IN FINANCED EQUIPMENT. With
respect to any Trust, unless the related Prospectus Supplement provides that
such interests will be perfected by filing Uniform Commercial Code ("UCC")
financing statements, the transfer of ownership of the Receivables from CFSC to
the Seller and from the Seller to such Trust, and the granting of the security
interest in the related Receivables by such Trust to the related Indenture
Trustee, will in each case be perfected by the Custodian, on behalf of the
applicable assignee, taking possession of the Installment Sales Contracts and/or
Leases and any related Dealer Agreements (the "RECEIVABLES FILES") pursuant to
the related Custodial Agreement. The related Custodian will maintain possession
of such Receivables Files in a space leased by the Custodian which may, if so
specified in the related Prospectus Supplement, be proximate to the principal
executive offices of the Seller. Although steps will be taken to ensure that the
Seller does not obtain possession or control of the Receivables Files, should a
court find that the Seller did have possession or control of such Receivables
Files, the interests of the related Trust and the related Indenture Trustee in
such Receivables may be unperfected under certain circumstances, and
distributions to Securityholders may be adversely affected. Unless the related
Prospectus Supplement otherwise specifies, UCC financing statements will not be
filed to perfect these transfers of ownership or such grant of a security
interest.
Should the related Indenture Trustee's security interest and/or the related
Trust's or the Seller's ownership interest in the Receivables be found to be
unperfected, such interests may potentially be inferior to the interests of (i)
the Seller or CFSC, (ii) any creditors of such Trust, the Seller or CFSC, or
(iii) in the event such Trust, the Seller or CFSC fraudulently or inadvertently
sells a Receivable to a purchaser who had no notice of the prior transfers
thereof to such Indenture Trustee, such Trust or the Seller and such purchaser
takes possession of all of the originals of the related installment sales
contract or lease evidencing such Receivable, such purchaser. As a result of
such lack of perfection, the Seller, such Trust and the related Securityholders
may not be entitled to receive all or a portion of the distributions relating
to, or have any other rights with respect to, such Receivables.
If UCC financing statements are filed to perfect such transfers of ownership
or grants of security interests, to facilitate servicing and reduce
administrative costs, the Receivables Files will be retained by the Servicer and
will not be physically segregated from other similar documents that are in the
Servicer's possession or otherwise stamped or marked to reflect the transfer to
the related Trust so long as CFSC is servicing the Receivables. However, UCC
financing statements will be filed reflecting the sale and assignment of the
Receivables by CFSC to the Seller, and by the Seller to the Trust, and the
Servicer's accounting records and computer files will be marked to reflect such
sales and assignments. Because the Receivables Files will remain in the
Servicer's possession and will not be stamped or otherwise marked to reflect the
assignment to the Indenture Trustee, if a subsequent purchaser were able to take
physical possession of the Receivables Files without knowledge of such
assignment, the Indenture Trustee's interest in the Receivables could be
defeated. In such event, distributions to Securityholders may be adversely
affected.
In connection with the sale of the Receivables of any Trust, CFSC's security
interests in Financed Equipment, together with security interests in certain
other cross-collateralized equipment securing the Receivables, will be assigned
by CFSC to the Seller and by the Seller to such Trust. The Seller will be
obligated to repurchase any Receivable sold to any Trust (subject to CFSC's
repurchase thereof) in the event it is determined that a first perfected
security interest in the name of CFSC in the Financed Equipment securing such
Receivable did not exist as of the related Closing Date or, if applicable, any
related Subsequent Closing Date if (i) such breach shall materially adversely
affect the interest of such Trust in such Receivable and (ii) such failure or
breach shall not have been cured by the last day of the second (or, if the
Seller elects, the first) month following the discovery by or notice to the
Seller of such breach, and CFSC will be obligated to repurchase such Receivable
from the Seller contemporaneously with the Seller's repurchase from such Trust.
If there is any Financed Equipment as to which CFSC failed to perfect its
security interest, CFSC's
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security interest, and the security interests of the Seller and the related
Trust, would be subordinate to, among others, subsequent purchasers of the
Financed Equipment and holders of perfected security interests with respect
thereto. To the extent the security interest of CFSC in the related Financed
Equipment is perfected, subject to the exceptions set forth in the following
sentence, the related Trust will have a prior claim over subsequent purchasers
from the Obligor of such Financed Equipment and holders of subsequently
perfected security interests granted by Obligors. However, as against Mechanics'
Liens or liens for taxes unpaid by an Obligor under a Receivable, or in the
event of fraud or negligence of CFSC or (in certain circumstances) the related
Dealer, such Trust could lose the priority of its security interest or its
security interest in such Financed Equipment following the pledge of the related
Receivable. Neither the Seller nor the Servicer will have any obligation to
repurchase a Receivable if any of the occurrences described in the foregoing
sentence (other than fraud or negligence of CFSC) result in such Trust's losing
the priority of its security interest or its security interest in such Financed
Equipment after the related Closing Date or, if applicable, any Subsequent
Closing Date.
COMPLIANCE WITH LENDING LAWS. Federal and state consumer protection laws
impose requirements upon creditors in connection with extensions of credit and
in respect of collections on retail installment sales contracts and leases, and
certain of these laws make an assignee of such a contract liable to the obligor
thereon for any violation by the lender. Unless otherwise specified in the
related Prospectus Supplement, under certain circumstances the Seller will be
obligated to repurchase any Receivable (subject to CFSC's repurchase thereof)
which fails to comply with such requirements, and CFSC will be obligated to
repurchase such Receivable from the Seller contemporaneously with the Seller's
repurchase from the related Trust.
SUBSTANTIVE CONSOLIDATION OF CFSC AND THE SELLER. The Seller has taken and
will take steps in structuring the transactions contemplated hereby and in any
related Prospectus Supplement that are intended to ensure that a voluntary or
involuntary petition for relief by or against CFSC under the United States
Bankruptcy Code or similar applicable state laws ("INSOLVENCY LAWS") will not
result in the substantive consolidation of the assets and liabilities of the
Seller with those of CFSC. These steps will include the creation of the Seller
as a separate, limited-purpose entity pursuant to Articles of Incorporation
containing (i) 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 its directors) and (ii) a requirement that at
least one of the Seller's directors be independent of CFSC and its affiliates.
However, there can be no assurance that the activities of the Seller would not
result in a court's concluding that the assets and liabilities of the Seller
should be substantively consolidated with those of CFSC in a proceeding under
any Insolvency Law.
TRUE SALE RISKS. With respect to any Trust, CFSC will warrant to the Seller
in the related Purchase Agreement that the sale of the related Receivables by it
to the Seller is an absolute sale of such Receivables to the Seller. In
addition, CFSC and the Seller will treat the transactions described herein and
in the related Prospectus Supplement as a sale of such Receivables to the
Seller, and the Seller has taken and will take all actions that are required to
perfect the Seller's ownership interest in such Receivables by the Seller taking
possession of the related Receivables Files through a custodian (unless the
related Prospectus Supplement provides that such interests will be perfected by
filing UCC financing statements). Notwithstanding the foregoing, if CFSC were to
become a debtor in a bankruptcy case, and a creditor or trustee-in-bankruptcy of
CFSC or CFSC 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 CFSC, 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, or a reduction in
the amount of Receivables securing such a borrowing, could result. If the
transactions contemplated herein and in the related Prospectus Supplement are
treated as a sale, the related Receivables would not be part of CFSC's
bankruptcy estate and would not be available to CFSC's creditors.
The U.S. Court of Appeals for the Tenth Circuit issued an 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" (as defined under the UCC) sold by the
debtor
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prior to the filing for bankruptcy remain property of the debtor's bankruptcy
estate. Although the Receivables relating to any Series are likely to be viewed
as "chattel paper," as defined under the UCC, rather than as accounts, the
rationale behind the OCTAGON ruling could be applied 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 by other courts or
outside of the Tenth Circuit, if at all, is not certain. If the holding in the
OCTAGON case were applied in a CFSC bankruptcy, however, even if the transfers
of Receivables to the Seller and to a Trust were treated as sales, the
Receivables could be considered part of CFSC's bankruptcy estate and would be
subject to claims of certain creditors and delays and reductions in payments to
the Seller and holders of the related Securities, or a reduction in the amount
of Receivables supporting such Securities, could result. The Seller will warrant
in each Sale and Servicing Agreement that the sale of the Receivables to the
related Trust is an absolute sale of such Receivables to such Trust. For a
further discussion of certain consequences of characterization of the
transaction as a sale or a pledge, see "Certain Legal Aspects of the
Receivables--Bankruptcy" herein.
RISK OF COMMINGLING. With respect to each Trust, unless the related
Prospectus Supplement provides for more frequent deposits (as described below),
then for so long as CFSC is the Servicer and provided that (i) there exists no
Servicer Default (as defined herein) and (ii) each other condition to making
monthly or less frequent deposits as may be specified by the Rating Agencies and
described in the related Prospectus Supplement is satisfied, the Servicer will
not be required to deposit payments on the related Receivables (from whatever
source) and all proceeds of such Receivables collected during each Collection
Period into the related Collection Account until on or before the business day
preceding each related Distribution Date. If the related Prospectus Supplement
so provides, or if the above described conditions are not met, the Servicer will
deposit all such amounts collected during each Collection Period into the
related Collection Account within two business days of receipt and
identification thereof. Normally, collections are identified within one day of
receipt. The Servicer will also deposit any Purchase Amounts (as defined herein)
when due. Pending deposit into such Collection Account, the Servicer will be
under no obligation to segregate collections from its funds and such collections
may be invested by the Servicer at its own risk, for its own benefit and without
being subject to any investment restrictions and will not be segregated from the
funds of the Servicer. If the Servicer were unable to remit such funds, or if
the Servicer became insolvent, the holders of Securities might incur a loss with
respect to collections not deposited in the Collection Account. To the extent
set forth in the related Prospectus Supplement, the Servicer may, in order to
satisfy the requirements for monthly remittances described above, obtain a
letter of credit or other security for the benefit of the related Trust to
secure timely remittances of collections on the related Receivables and payment
of the aggregate Purchase Amount with respect to Receivables purchased by the
Servicer.
SERVICER DEFAULT. Unless otherwise provided in the related Prospectus
Supplement, in the event a Servicer Default occurs, the related Indenture
Trustee or Noteholders of the related Series evidencing not less than 25% of the
outstanding principal amount of the Notes with respect to such Series (without
the consent of the related Indenture Trustee), as described under "Description
of the Transfer and Servicing Agreements--Rights Upon Servicer Default" herein,
may remove the Servicer without the consent of the related Owner Trustee or any
of the related Certificateholders. Neither the related Owner Trustee nor the
related Certificateholders will have the ability to remove the Servicer if a
Servicer Default occurs. In addition, Noteholders of such Series evidencing not
less than a majority of the outstanding principal amount of the related Notes
will have the ability (without the consent of the related Indenture Trustee),
with certain specified exceptions, to waive defaults by the Servicer, including
defaults that could materially adversely affect the Certificateholders. See
"Description of the Transfer and Servicing Agreements--Waiver of Past Defaults"
herein.
TRUSTS' RELATIONSHIP TO THE SELLER AND CFSC; FINANCIAL CONDITION OF
CATERPILLAR INC. None of the Seller, CFSC or Caterpillar will generally be
obligated to make any payments in respect of the Notes, the Certificates, if
any, or the Receivables of a given Trust. However, if CFSC were to cease acting
as Servicer, delays in processing payments on the Receivables of the related
Trust and information in respect thereof could occur and result in delays in
payments and distribution of reports to the Noteholders and the
Certificateholders of
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such Trust. In addition, under certain circumstances the Servicer may be
required to purchase Receivables, and therefore if CFSC were to cease acting as
Servicer, delays in repurchases and consequently the receipt by such Trust of
funds respecting such Receivables could result.
In connection with the sale of Receivables by CFSC to the Seller, CFSC will
make representations and warranties with respect to the characteristics of such
Receivables. In certain circumstances, CFSC and the Seller will be required to
repurchase Receivables with respect to which such representations and warranties
have been breached. See "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables."
If the related Prospectus Supplement provides for a Pre-Funding Account, the
Seller will be required to sell to the related Trust Subsequent Receivables in
an amount up to the amount then on deposit in the Pre-Funding Account (the
"PRE-FUNDED AMOUNT"). The ability of the Seller to convey Subsequent Receivables
on Subsequent Closing Dates will be completely dependent on the generation of
additional receivables by CFSC. The ability of CFSC to generate receivables in
turn will depend on the sales of equipment manufactured or distributed by
Caterpillar and/or Mitsubishi Caterpillar Forklift America Inc., as applicable.
If, during the related Funding Period, Caterpillar were temporarily or
permanently no longer manufacturing or distributing equipment, the rate of sales
of equipment manufactured or distributed by Caterpillar would decrease,
adversely affecting the ability of the Seller to sell Subsequent Receivables to
the related Trust. The use of incentive programs (e.g., manufacturer's rebate
programs) may also affect retail sales. There can be no assurance, therefore,
that CFSC will continue to generate receivables at the same rate as in prior
years or that Subsequent Receivables will be generated in an amount up to the
original Pre-Funded Amount. If the related Prospectus Supplement provides for a
Pre-Funding Account, the funds on deposit in such Pre-Funding Account on the
related Closing Date will not exceed 25% of the related Trust Property, and the
related Pre-Funding Period shall not exceed three months from the related
Closing Date.
For additional information regarding Caterpillar and CFSC, see "The Seller,
Caterpillar and the Servicer" herein and in the related Prospectus Supplement.
Caterpillar and CFSC are subject to the information requirements of the Exchange
Act and in accordance therewith file reports and other information with 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.
SUBORDINATION OF SECURITIES. To the extent specified in the related
Prospectus Supplement, distributions of interest and principal on the Securities
of any Class of a Series may be subordinated in priority of payment to interest
and principal due on one or more other Classes of Securities of such Series. For
such Series, the related Securityholders will not receive any distributions with
respect to a Distribution Date until the full amount of interest on and/or
principal of the related senior Securities for such Distribution Date has been
deposited in the related Note Distribution Account or Certificate Distribution
Account.
LIMITED ASSETS. No Trust will have, nor will any Trust be permitted or
expected to have, any significant assets or sources of funds other than the
related Receivables and, to the extent set forth in the related Prospectus
Supplement, the Trust Accounts. The Notes of a Series will represent obligations
solely of, and the Certificates of such Series will represent undivided
beneficial equity interests solely in, the related Trust, and neither the Notes
nor the Certificates of any such Series will be insured or guaranteed by
Caterpillar, CFSC, the Seller, the Servicer, the related Owner Trustee, the
related Indenture Trustee or any other person or entity. Consequently, holders
of the Securities of a Series must rely for repayment upon payments received by
the Servicer relating to the related Receivables and, if and to the extent
available, amounts on deposit in the Reserve Account (if any), the Pre-Funding
Account (if any) and any other credit enhancement, all as specified in the
related Prospectus Supplement. Amounts to be deposited in any Reserve Account
with respect to any Trust will be limited in amount, and the amount required to
be on deposit in such Reserve Account will be reduced as the Pool Balance is
reduced. In addition, funds in any such Reserve Account will be available on
each Distribution Date to cover shortfalls in distributions of interest and
principal on the related Securities. If such Reserve Account is depleted, the
related Trust will depend solely on current payments on its Receivables to make
payments on the related Securities. Although each Trust will covenant to sell
the Receivables if directed to do so by the related Indenture Trustee in
accordance with the
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related Indenture following an acceleration of the related Notes upon an Event
of Default, there is no assurance that the market value of such Receivables will
at any time be equal to or greater than the aggregate principal amount of such
outstanding Notes. Therefore, upon an Event of Default with respect to the Notes
of any Series, there can be no assurance that sufficient funds will be available
to repay the related Noteholders, particularly any junior Noteholders, in full.
In addition, the amount of principal required to be distributed to Noteholders
under each Indenture will generally be limited to amounts available therefor in
the related Note Distribution Account, and the failure to pay principal on the
Notes of any Series may not result in the occurrence of an Event of Default
until the Final Scheduled Distribution Date of such Notes. To the extent
specified in the related Prospectus Supplement, the Securities of any Class of
any Series may be subordinated to one or more other Classes of Securities of
such Series, and any such Class may not be entitled to exercise any or all of
its rights under the circumstances described herein. See "--SUBORDINATION OF
SECURITIES" herein.
MATURITY AND PREPAYMENT CONSIDERATIONS. All the Receivables relating to
Installment Sales Contracts will be prepayable at any time by their terms.
Although the Receivables relating to Leases are generally not optionally
prepayable by their terms, Lessees generally are permitted to prepay a Lease
upon payment of the aggregate remaining Lease Scheduled Payments due (which
amount would include an implicit interest amount). Each prepayment will shorten
the weighted average remaining term of the Receivables of any Trust and the
weighted average life of the related Securities. If the related Prospectus
Supplement provides for the distribution to Noteholders and/or
Certificateholders of amounts on account of principal in excess of the Principal
Distribution Amount on any Distribution Date (as defined in the related
Prospectus Supplement), this effect would be greater upon the prepayment of a
Lease, since the amount prepaid would be greater than the related Principal
Balance. (For this purpose the term "prepayments" includes voluntary
prepayments, liquidations due to default, receipts of proceeds from insurance
policies and Receivables purchased for administrative or other reasons, and the
term "weighted average life" means the average amount of time in which each
dollar of principal is repaid.) With respect to any Trust, the related
Prospectus Supplement will set forth the allocations of prepayments of principal
among the related Noteholders and Certificateholders. See "Description of the
Transfer and Servicing Agreements--Distributions" in the related Prospectus
Supplement.
The rate of prepayments on the Receivables may be influenced by a variety of
economic, financial, climatic and other factors. In addition, under certain
circumstances, CFSC will be obligated to repurchase Receivables pursuant to the
Purchase Agreement, and the Seller will be obligated to repurchase Receivables
pursuant to the Sale and Servicing Agreement, in each case as a result of
breaches of representations and warranties, and under the certain circumstances
specified in the related Prospectus Supplement, the Servicer will be obligated
to purchase Receivables pursuant to the Sale and Servicing Agreement as a result
of breaches of certain covenants. The rate of prepayment on the Receivables may
also be influenced by programs offered by providers of financing (including
CFSC) that solicit or make available credit that may be used to prepay
Receivables. Consistent with its normal procedures, the Servicer may, in its
discretion and on a case-by-case basis, arrange with the Obligor respecting a
Receivable to extend or modify the related payment schedule to the extent
specified in the Prospectus Supplement. Any such extensions or modifications may
increase the weighted average remaining term of the Receivables and the weighted
average life of the related Securities. Although each Sale and Servicing
Agreement will restrict the ability of the Servicer to otherwise modify a
Receivable as described herein and in the related Prospectus Supplement, the
Servicer will be permitted to refinance an existing Receivable for an Obligor,
so long as the proceeds of such refinanced receivable would be used to prepay
such existing Receivable in full and any such refinanced receivable is evidenced
by a new Lease or Installment Sales Contract. Any such new receivable resulting
from a refinancing would not be the property of the related Trust. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables" and "--Servicing Procedures" herein. A higher than anticipated rate
of prepayments will reduce the aggregate principal balance of the Receivables
more quickly than expected and thereby reduce anticipated aggregate interest
payments respecting the related Securities. Any reinvestment risks resulting
from a faster or slower incidence of prepayment of Receivables will be borne
entirely by the related Securityholders as set forth in the priority of
distributions in the related Prospectus Supplement. Such reinvestment risks may
include the risk that interest rates are lower
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at the time such holders receive payments from the related Trust than interest
rates would otherwise have been had such prepayments not been made or had such
prepayments been made at a different time. See "Description of the Transfer and
Servicing Agreements--Termination" herein regarding the Servicer's option to
purchase the Receivables of a Trust.
If the related Prospectus Supplement provides for a Reserve Account, and if
the amount required to be withdrawn from such Reserve Account to cover
shortfalls in collections on the Receivables exceeds the amount of cash in such
Reserve Account, a temporary shortfall in the amounts distributed to the
Securityholders of the related Series could result, which could, in turn,
increase the average life of such Securities.
Securityholders of any Series should consider, in the case of Securities
purchased at a discount, the risk that a slower than anticipated rate of
principal payments on the related 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
principal payments on the related Receivables could result in an actual yield
that is less than the anticipated yield.
CERTAIN UCC CONSIDERATIONS. Certain states have adopted a version of
Article 2A of the UCC ("ARTICLE 2A"). Article 2A purports to codify many
provisions of existing common law. Although there is little precedent regarding
how Article 2A will be interpreted, it may, among other things, limit
enforceability of any "unconscionable" lease or "unconscionable" provision in a
lease, provide a lessee with remedies, including the right to cancel the lease
contract, for certain lessor breaches or defaults, and may add to or modify the
terms of "consumer leases" and leases where the lessee is a "merchant lessee."
However, with respect to each Lease conveyed to a Trust, CFSC will represent
that (i) such Lease is not a "consumer lease" and (ii) to the best of its
knowledge, the related Obligor has accepted the related Financed Equipment
leased to it and, after reasonable opportunity to inspect and test, has not
notified CFSC of any defects therein. Article 2A also recognizes typical
commercial lease "hell or high water" rental payment clauses and validates
reasonable liquidated damages provisions in the event of lessor or lessee
defaults. Moreover, Article 2A recognizes the concept of freedom of contract and
permits the parties in a commercial context a wide degree of latitude to vary
provisions of the law.
BOOK-ENTRY REGISTRATION. As may be set forth in the related Prospectus
Supplement, certain of the Notes and Certificates may be initially represented
by one or more physical notes and certificates registered in the name of Cede or
any successor nominee for DTC and will not be registered in the names of the
beneficial owners of such Notes and Certificates or their nominees. Accordingly,
unless and until Definitive Notes or Definitive Certificates are issued for such
Securities, holders of beneficial interests in such Notes and Certificates will
not be recognized by the applicable Trustees as Noteholders and
Certificateholders and will only be able to exercise the rights of Noteholders
and Certificateholders indirectly through DTC and its Participants. See
"Issuance of the Securities--Book-Entry Registration" herein.
THE TRUSTS
GENERAL
With respect to each Series of Securities, the Seller will establish a
separate Trust for the transactions described herein and in the related
Prospectus Supplement. After its formation, each Trust will not engage in any
activity other than (i) acquiring, holding and managing the Receivables and the
other assets of such Trust and proceeds therefrom, (ii) issuing and making
payments on the related Notes, (iii) issuing and making payments on the related
Certificates representing undivided beneficial equity interests in such Trust
and (iv) engaging in other activities that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith. On
the related Closing Date, simultaneously with the issuance of the Notes and the
Certificates of a given Series, the Seller will sell the Initial Receivables and
its security interests in any Financed Equipment to the related Trust. To the
extent so provided in the related Prospectus Supplement, Subsequent Receivables
may, if at all, be conveyed to the related Trust as frequently as daily during
the related Funding Period. Any Subsequent Receivables so conveyed also will be
assets of the related
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Trust, subject to the prior rights of the related Indenture Trustee and
Noteholders therein. The amount that may be initially deposited into a
Pre-Funding Account, and the length of a Pre-Funding Period, shall be limited as
described herein.
The Servicer will continue to service the Receivables held by each Trust and
will receive fees for such services. See "Description of the Transfer and
Servicing Agreements--Servicing Compensation and Payment of Expenses" herein and
in the related Prospectus Supplement. The related Prospectus Supplement will
specify whether CFSC, the Seller, the Servicer, the related Trust and the
related Indenture Trustee will enter a Custodial Agreement to appoint a
Custodian to maintain physical possession of the related Receivables Files and
other documents related thereto, or if UCC financing statements are to be filed
to perfect such interests. If UCC financing statements are filed, to facilitate
servicing and to minimize administrative burden and expense the Servicer will
maintain possession of the related Receivables Files as custodian on behalf of
such Trust and the related Indenture Trustee, but the Servicer will not stamp
the related Installment Sales Contracts and/or Leases to reflect the ultimate
assignment of the Receivables to such Trust. Regardless of whether UCC financing
statements are filed, financing statements previously filed to perfect the
security interests in the Financed Equipment in favor of CFSC will not be
assigned to such Trust or amended. See "Certain Legal Aspects of the
Receivables" and "Description of the Transfer and Servicing Agreements--Sale and
Assignment of Receivables" herein.
If the credit enhancement provided to the investment of the Noteholders of a
given Series by the subordination of the related Certificates and the protection
provided to the holders of the Securities by the availability of the funds in
the related Reserve Account or any other credit enhancement is insufficient, the
related Trust and such Securityholders must rely solely on the payments from the
Obligors on the related Receivables, and the proceeds from the repossession and
sale of Financed Equipment and certain other cross-collateralized equipment
which secure defaulted Receivables. In such event, certain factors, such as such
Trust's not having first perfected security interests in some of the Financed
Equipment and the risk of fraud or negligence of CFSC or (under certain
circumstances) the related Dealer, may affect such Trust's ability to realize on
the collateral securing the Receivables, and thus the proceeds to be distributed
to Securityholders with respect to the Securities, may be reduced. See
"Description of the Transfer and Servicing Agreements--Distributions", "--Credit
and Cash Flow Enhancement" and "Certain Legal Aspects of the Receivables" herein
and "Description of the Transfer and Servicing Agreements--Distributions" in the
related Prospectus Supplement.
The principal offices of each Trust and of the related Owner Trustee will be
specified in the related Prospectus Supplement.
THE OWNER TRUSTEE
The Owner Trustee for each Trust will be specified in the related Prospectus
Supplement. An Owner Trustee's liability in connection with the issuance and
sale of the Securities of the related Series will be limited solely to the
express obligations of such Owner Trustee set forth in the related Trust
Agreement and the related Sale and Servicing Agreement. An Owner Trustee may
resign at any time, in which event the Servicer will be obligated to appoint a
successor owner trustee. The Administrator of a Trust may also remove the Owner
Trustee if the Owner Trustee ceases to be eligible to continue as Owner Trustee
under the related Trust Agreement or if the Owner Trustee becomes insolvent. In
such circumstances, the Administrator will be obligated to appoint a successor
owner trustee. Any resignation or removal of an Owner Trustee and appointment of
a successor owner trustee will not become effective until acceptance of the
appointment by the successor owner trustee.
THE TRUST PROPERTY
The Notes of any Series will be collateralized by the assets of the related
Trust (the "TRUST PROPERTY") and each Certificate will represent a fractional
undivided beneficial equity interest in such Trust. The Trust Property of any
Trust will include (i) the Receivables, (ii) all monies (including accrued
interest) due or received thereunder on or after the applicable Cut-off Date,
(iii) such amounts as from time to time may be held in one or more accounts
established and maintained by the Servicer pursuant to the related Sale and
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Servicing Agreement, as described below and in the related Prospectus
Supplement, (iv) security interests in the Financed Equipment and in certain
other cross-collateralized equipment, (v) the rights to proceeds from claims on
physical damage, credit life, liability and disability insurance policies, if
any, covering such Financed Equipment or Obligors, as the case may be, (vi) the
proceeds of any repossessed Financed Equipment, (vii) the rights of the Seller
under the related Purchase Agreement, (viii) the interest of the Seller in any
proceeds from recourse to Dealers with respect to Receivables, (ix) interest
earned on short-term investments made by such Trust and (x) any proceeds of the
foregoing. The Receivables will either be originated by the Dealers and
purchased by CFSC pursuant to agreements with the Dealers ("DEALER AGREEMENTS")
or originated directly by CFSC in connection with retail sales by the Dealers.
Subject to the provisions of the related Sales and Servicing Agreement, the
related Receivables will continue to be serviced by the Servicer and will
evidence direct or indirect financing made available by CFSC to the Obligors.
Unless otherwise specified in the related Prospectus Supplement, the related
Reserve Account, if any, and any other Trust Accounts, shall be maintained in
the name of the Indenture Trustee on behalf of the Securityholders of the
related Series.
THE RECEIVABLES POOLS
The Receivables of any Trust will either be purchased by CFSC from the
Dealers which originated the Receivables in the ordinary course of business in
connection with retail sales or leases by them, or will be originated by CFSC in
the ordinary course of its and the Dealers' sale or leasing business. CFSC
purchases or originates contracts in accordance with its credit standards which
are based upon the Obligor's ability to repay the obligation, the Obligor's
credit history and, as described below, the equity position, if any, with
respect to the related Financed Equipment.
The Receivables to be held by each Trust will be selected from the U.S.
Portfolio of Installment Sales Contracts and/or Leases not previously sold
meeting several criteria. As of the applicable Cut-off Date, among the criteria
to be met (except as described under "Certain Legal Aspects of the Receivables"
herein) are that each Receivable: (i) will be secured by a first priority
perfected security interest in the related Financed Equipment (which Financed
Equipment is located in the United States), (ii) will have been originated in
the United States, (iii) will have an Obligor which has a United States billing
address, (iv) in the case of an Installment Sales Contract, will provide for
scheduled payments that fully amortize the amount financed over its original
term to maturity, (v) will not be more than 31 days past due, and (vi) will
satisfy the other criteria, if any, set forth in the related Prospectus
Supplement. As of the applicable Cut-off Date, no Obligor on any related
Receivable will be noted on the related records of the Servicer as being in
default under the related Installment Sales Contract or Lease or as being the
subject of a bankruptcy proceeding. No selection procedures believed by the
Seller to be adverse to the Securityholders of any Series will be used in
selecting the related Receivables.
Information with respect to each pool of Receivables will be set forth in
the related Prospectus Supplement, including, to the extent appropriate, the
composition of the Receivables, the distribution by annual percentage rate
("APR") (as such term is defined in the related Prospectus Supplement), type of
equipment, Principal Balance of the Receivables and the geographic location of
each Obligor of the Receivables, and percentages of new and used equipment,
industry application and payment frequency. See "The Receivables Pool" in the
related Prospectus Supplement.
If the related Prospectus Supplement provides for a Pre-Funding Account,
each Subsequent Receivable of the related Trust must satisfy the eligibility
criteria specified in the related Sale and Servicing Agreement at the time of
its addition. However, except for such criteria, there will be no required
characteristics of such Subsequent Receivables. Therefore, following the
transfer of Subsequent Receivables to the related Trust, the characteristics of
the entire Receivables Pool (as defined in the related Prospectus Supplement)
included in such Trust may vary from those of the Initial Receivables.
THE RETAIL EQUIPMENT FINANCING BUSINESS
GENERAL. CFSC purchases installment sales contracts and leases
(collectively, "RECEIVABLES") from Dealers and originates receivables directly
with users of Caterpillar products. References herein to the
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financing of equipment, unless otherwise specified, shall also include the
leasing of equipment pursuant to finance leases. The construction equipment
financed by CFSC is used for the building of housing, industrial buildings and
warehouses, as well as for the construction of highways, bridges, water and
sewer systems and other heavy applications. In the mining industry, CFSC
finances equipment used to mine coal, metals, non-metals and oil and gas. CFSC
also finances engines manufactured by Caterpillar and turbines manufactured by
Solar Turbines, a subsidiary of Caterpillar. These engines and turbines are used
in various applications including equipment manufactured by other manufacturers,
marine (including both commercial and pleasure craft), in the generation of
electric power, and in the production of petroleum and natural gas. Machinery
financed by CFSC is manufactured primarily by Caterpillar, except for lift
trucks, which are manufactured primarily by Mitsubishi Caterpillar Forklift
America Inc., an affiliate of Caterpillar. CFSC finances both new and used
equipment, with used equipment financings generally having shorter terms and
higher interest rates and requiring higher down payments.
ORIGINATION PROCESS. CFSC provides Dealers with printed retail forms of
installment sales contracts and leases which generally are used by the Dealers
to arrange transactions and originate receivables. In addition to receivables it
originates directly, CFSC acquires individual receivables from Dealers which
generally meet the following criteria: (i) are current in payment, (ii) have no
payment thereon that has been past due more than 60 days since such receivable
was originated, (iii) have not been extended for more than one month in the last
six months or for more than two months in the last twelve months, and (iv) have
a remaining financed value of at least $10,000 and a remaining term to maturity
of at least 12 months. Acquisitions of finance leases from Dealers take place in
conjunction with CFSC's acquisition of the related financed equipment. A credit
application containing basic obligor information is required for each receivable
financed by CFSC, which application may be submitted verbally to CFSC by the
Dealer or in writing completed by the Dealer, obligor or applicable CFSC
territory manager. The application is processed by one of CFSC's regional
offices in the United States, and additional information is obtained in order to
evaluate the prospective obligor's creditworthiness. The extent of the
additional information required varies based on the amount of financing
requested and the extent of information available. In most cases, CFSC obtains a
credit bureau report on the obligor from an independent credit bureau and credit
references provided by the obligor. The credit references provided by the
obligor, which are typically banks, finance companies or suppliers that have
furnished credit to such obligor, are checked. Whenever possible, audited or
certified financial statements of the obligor are obtained when the aggregate
amount of such obligor's financed contracts exceed $100,000. Individual finance
leases for lift trucks generally do not exceed $100,000 in aggregate Lease
Scheduled Payments (as defined below). CFSC also maintains payment histories on
many past and present CFSC customers which, if available, are reviewed before
any financing is approved.
Creditworthiness of an obligor is evaluated based on criteria established by
CFSC's management. The same credit criteria are applied regardless of which of
CFSC's regional offices reviews the application and regardless of whether CFSC
originates the receivable directly or acquires the receivable from a Dealer
after origination. In the event that the aggregate amount of receivables of any
obligor financed by CFSC exceeds the approval limits of the regional office
staff, a credit narrative is forwarded to CFSC headquarters for review and
concurrence. In assessing the credit quality of a potential receivable, where
the obligor's equity position in the related financed equipment is not
significant, CFSC's credit decision relies more on its evaluation of the
creditworthiness of the prospective obligor, rather than the collateral value of
the financed equipment. Finance leases generally do not require trade-ins or
down payments, and thus may not have significant equity positions in the related
financed equipment. Installment sales contracts also may be originated without
trade-ins or with low or no down payments.
DEALER AGREEMENTS. In the case of receivables not originated directly by
CFSC, at the time CFSC approves an application for credit and fully executed
copies of all required agreements and instruments are delivered by the Dealer to
CFSC, the related receivable is sold by the Dealer to CFSC pursuant to an
assignment agreement between CFSC and such Dealer (a "DEALER AGREEMENT"). With
respect to any Trust, the Seller will assign to such Trust all of its rights
under the Dealer Agreements for the related receivables (including its right to
recourse against the Dealers, if any, for losses due to defaults or prepayments
or for unearned prepaid finance charges). The level of recourse to Dealers
varies and may be subject to certain
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conditions. In order to compensate the related Dealer for negotiating a
favorable interest rate on a receivable, the amount paid by CFSC to a Dealer for
a receivable may sometimes be greater than such receivable's stated principal
balance. Neither the Seller nor the Servicer makes any representation as to the
financial condition of any of the Dealers, and there can be no assurances as to
the ability of any Dealer to perform its obligations under any Dealer Agreement.
See "Certain Legal Aspects of the Receivables-- Dealer Recourse Receivables" in
the related Prospectus Supplement.
INSTALLMENT SALES CONTRACTS--CONTRACT TERMS. CFSC offers installment sales
contracts with a variety of repayment schedules tailored to the obligor's
anticipated cash flows, such as annual, semi-annual, quarterly and monthly
payments. However, a "skip payments" schedule, under which payments, generally
up to three predetermined consecutive months, are "skipped" to coincide with an
obligor's cash flow patterns, can be selected by a qualifying obligor at the
time the installment sales contract is originated. CFSC will take into account
the related obligor's equity position in its financed equipment at origination
before approving a "skip payments" schedule.
The maximum amount that CFSC will finance under an installment sales
contract varies based on the obligor's credit history, the type of equipment
financed, whether the equipment is new or used, the payment schedule and the
length of the contract (which generally ranges at origination from 12 to 72
months). The amount financed is calculated as a percentage of the value of the
related financed equipment, which percentage ranges generally from 75% to 90%
for new equipment and from 65% to 80% for used equipment. These percentages,
however, may vary, depending on the obligor's credit history and the type of
financed equipment. The value of new equipment is based on its original list
price, and the value of used equipment is generally based on its "as is" value
as derived from appropriate market references. At origination or acquisition
from a Dealer of a receivable, CFSC confirms the applicable loan-to-value ratio.
Obligors are required to obtain and maintain physical damage insurance
covering the financed equipment under installment sales contracts naming CFSC as
loss payee. The regional offices are responsible for verifying insurance
coverage on the equipment at the time the receivable is originated or acquired.
Subsequent follow-up on insurance coverage during the term of financing is
provided by an independent supplier of this service. Also, at the time the
receivable is originated, physical damage insurance and term life insurance that
can be financed under the contract may be made available.
The installment sales contracts provide for allocation of payments according
to the actuarial method and commence accruing interest on their origination
date. As such, an installment sales contract provides for amortization of the
amount financed over a series of fixed level payment installments. Each
installment, other than the installment representing the final scheduled payment
on such an installment sales contract, consists of an amount of interest equal
to one-twelfth of the annual percentage rate stated on an installment sales
contract (or a larger fraction based on the number of months since the last
payment if a "skip payments" schedule is in place) multiplied by the unpaid
principal balance of such an installment sales contract, and an amount of
principal equal to the remainder of the installment. The obligor pays a fixed
monthly installment until the final scheduled payment date of such an
installment sales contract, at which time the amount of the final installment is
increased or decreased as necessary to repay the then outstanding principal
balance thereof plus accrued interest thereon.
If such an installment sales contract is prepaid in part, unless CFSC and
the related obligor agree to an amendment of the payment schedule, prepayments
are held for application to the next succeeding scheduled payment or payments,
and the unpaid principal balance (and the interest accrued thereon) is not
adjusted downward until the actual date of the scheduled payment. If an
installment sales contract is prepaid in full, the obligor receives a rebate of
any unearned portion of interest thereon computed on an actuarial basis.
LEASES--CONTRACT TERMS. CFSC offers finance leases with a variety of
payment schedules designed to meet an obligor's needs. The initial term of a
finance lease generally ranges from one to six years. Generally, each finance
lease provides for the monthly payment of rent in advance. Such periodic
payments are referred to herein as "LEASE SCHEDULED PAYMENTS." Lease Scheduled
Payments represent the amortization, generally on a level basis, of the total
amount that a lessee is required to pay throughout the term of a finance lease.
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Lease Scheduled Payments are separated by CFSC for its internal records into
interest and principal components based on the Implicit Interest Rate for such
finance leases. The "IMPLICIT INTEREST RATE" for each finance lease is
determined by CFSC.
Finance leases are recorded by CFSC under generally accepted accounting
principles ("GAAP") as direct financing leases. As direct financing leases, the
finance leases to be included as Receivables in the Trusts are "net leases" and
the related Obligor assumes responsibility for the financed items, including
delivery, installation, operation, maintenance and return of the related
financed equipment. Except for the accommodation billing program described
below, no finance lease imposes any affirmative obligation on CFSC, and such
finance leases are non-cancelable by the lessees. The related Obligor further
agrees to indemnify CFSC for any liabilities arising out of the finance lease.
CFSC is also authorized to perform the related Obligor's obligations under each
finance lease, at the related Obligor's expense, if it so elects in cases where
the related Obligor has failed to perform. In addition, finance leases contain
clauses unconditionally obligating the related Obligor to make periodic
payments, without any right of setoff, at the times and on the dates specified
in the finance lease. Other than a warranty of quiet enjoyment, CFSC makes no
express or implied warranties with respect to the Financed Equipment.
Obligors under any finance lease are required to obtain and maintain
physical damage insurance and comprehensive public liability insurance covering
the financed equipment in the name of CFSC for not less than $500,000 combined
coverage. All such insurance must be in a form and with companies as CFSC shall
approve and shall be primary, without right of contribution from any other
insurance carried by CFSC. The regional offices are responsible for verifying
insurance coverage on the equipment at the time the receivable is originated or
acquired. Subsequent follow-up on insurance coverage during the term of
financing is provided by an independent supplier of this service. Also, at the
time the receivable is originated, physical damage insurance and term life
insurance that can be financed under the receivable may be made available.
Under an accommodation billing system, obligors may aggregate with their
Lease Scheduled Payment the periodic payment for a maintenance contract, which
maintenance would be performed by a Dealer or other service provider and not by
CFSC. Upon receipt of funds by CFSC, CFSC would then forward the appropriate
amount to the service provider; provided, that CFSC will not forward any such
amount until it has received the Lease Scheduled Payment in full. As described
above, failure to perform by a Dealer or any such service provider is not a
defense to payment by such obligor under the related finance lease.
If CFSC receives a payment or payments in advance for a finance lease, such
advance payments are held for application to the next succeeding payment or
payments, and no adjustment in the Lease Scheduled Payments outstanding takes
place until the due date of each such payment. Although finance leases are not
prepayable by their terms, CFSC will generally agree to terminate a finance
lease upon payment by the related obligor of the aggregate Lease Scheduled
Payments outstanding thereunder.
The Leases included as Receivables of any Trust will constitute only leases
intended for security as defined in Section 1-201(37) of the UCC. As leases
intended for security, the Dealer or CFSC, as applicable, in effect finances the
"purchase" of the Financed Equipment by the related Obligor and retains a
security interest in the Financed Equipment. The related Obligor retains the
Financed Equipment for substantially all its economic life and CFSC retains no
significant residual interest. These leases are considered conditional
sales-type leases for federal tax purposes, and, accordingly, CFSC does not take
any federal tax benefits. End of lease options for such finance leases generally
provide for purchase of the Financed Equipment at a prestated price intended to
be significantly below market value.
Obligors under any finance lease may alter or modify the Financed Equipment
relating to CFSC's finance lease only if such alteration or modification does
not impair its originally intended function or use or reduce its value. In
addition, the related Obligor shall not make any "non-reversible" addition (as
defined for federal income tax purposes) to an item of Financed Equipment
without the prior written consent of CFSC. Upon the prior written consent of
CFSC, the related Obligor may sublease or relocate the Financed Equipment. The
right to receive such notice and to grant or deny such consent will be exercised
by the
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Servicer pursuant to the authority delegated to it in the related Sale and
Servicing Agreement. Finance leases generally do not permit the related obligor
to assign its rights in the finance lease without the prior written consent of
CFSC.
CROSS-COLLATERALIZATION. In the course of its business of financing
machinery, receivables are occasionally "cross-collateralized," with CFSC taking
first, second or more junior liens on units in addition to the principal
financed equipment, and obligors of receivables granting first, second or more
junior liens to CFSC on previously financed equipment to finance purchases of
additional machinery. See "Certain Legal Aspects of the
Receivables--Cross-Collateralization" in the related Prospectus Supplement. CFSC
takes the value of these liens into account when calculating the amount it will
finance under a receivable.
EXTENSION/REVISION PROCEDURES. Receivables may be extended or modified when
payment delinquencies result from temporary interruptions in an obligor's cash
flow. An extension provides for one or more payments to be moved to a future
date either within the original maturity or lease term of the receivable or
beyond the original maturity or lease term. A modification is a restructuring of
the entire receivable normally with lower payments and a longer term. A
receivable modification with respect to an installment sales contract can also
involve institution of a "skip payments" schedule if CFSC determines that "skip
payments" are appropriate given the obligor's yearly cash flow pattern. CFSC
charges the obligor a nominal extension fee, which is payable at the time a
receivable is extended. In addition, the obligor is required to pay to CFSC an
extension charge equal to interest accrued on the unpaid balance of the
receivable during the period that payments are not required to be made as a
result of the extension. The length of an extension generally does not exceed
six months. In determining whether a receivable should be extended or modified,
CFSC will consider (i) the obligor's equity in the financed equipment, (ii) the
obligor's financial status and prospects and (iii) the reason for the obligor's
deferral. CFSC, as Servicer, to the extent specified in the related Prospectus
Supplement, is not permitted to make certain revisions to a Receivable assigned
to a Trust, and if CFSC, as servicer, extends, modifies or revises a receivable
it may be required to repurchase the related Receivable from the related Trust.
In addition, CFSC in the ordinary course of business may refinance a receivable
for an obligor. The proceeds of such refinancing would be used to prepay such
existing receivable in full. Any such new receivable resulting from a
refinancing would not be the property of a Trust. See "Description of the
Transfer and Servicing Agreements--Servicing Procedures" herein.
While the terms and conditions of the finance leases do not permit
cancellation by the related Obligor, it is not uncommon for finance leases to be
modified or terminated before the end of the lease term. Modifications generally
involve repricing a finance lease or modification of the lease term.
Modifications to a finance lease term and early lease terminations often are
permitted by CFSC because they are generally associated with additional
financing opportunities from the same Obligor. Unless otherwise specified in the
related Prospectus Supplement, CFSC expects, as Servicer, to continue to allow
these modifications and terminations with respect to the Leases included in the
Trusts pursuant to the authority delegated to it in the related Sale and
Servicing Agreement, subject to certain conditions and covenants of the Servicer
described under "Description of the Transfer and Servicing Agreements--Servicing
Procedures" herein.
BILLING AND COLLECTION PROCEDURES. Payments received more than 10 days
after their due date may be assessed a late fee where permitted by law. A
monthly payment is deemed to be "31-60" days past due if it is not collected by
the last day of the succeeding month (I.E., a payment due any time in January is
not considered "31-60" days past due unless it remains uncollected as of
February 28). 60, 90 and 120 day accounts are similarly defined. Receivables
over 14 days delinquent are considered "delinquent," and collection activity
commences at such time.
REPOSSESSION/WRITEOFF PROCEDURES. The applicable regional offices make the
determination as to whether to repossess the financed equipment related to a
delinquent receivable. After such determination is made, the obligor and any
guarantor are sent "default letters."
Within 20 days of repossession, the regional office submits an appraisal and
inspection report of the related financed equipment to CFSC's headquarters. It
is at that time that the related receivable is written down to its appraised
value, and if necessary, a write-off or loss is taken. Financed equipment put up
for sale is advertised or sold through a variety of means.
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DELINQUENCIES, REPOSSESSIONS AND NET LOSSES. Certain information concerning
the experience of CFSC pertaining to delinquencies, repossessions and net losses
with respect to its entire United States portfolio of installment sales
contracts and/or its entire United States portfolio of finance leases, as
applicable, serviced by CFSC (including receivables previously sold which CFSC
continues to service) (respectively, the "U.S. ISC PORTFOLIO" and the "U.S.
LEASE PORTFOLIO," and collectively, the "U.S. PORTFOLIO") will be set forth in
each Prospectus Supplement. There can be no assurance that the delinquency,
repossession and net loss experience on any Receivables will be comparable to
prior experience or to such information.
WEIGHTED AVERAGE LIFE OF THE SECURITIES
The weighted average life of the Securities of any Series will generally be
influenced by the rate at which the principal balances of the related
Receivables are paid, which payment may be in the form of scheduled amortization
or prepayments. (For this purpose, the term "prepayments" includes prepayments
in full, partial prepayments (including those related to rebates of insurance
premiums), liquidations due to default, and receipts of proceeds from physical
damage and term life insurance policies and the repurchase of Receivables by the
Seller or the Servicer pursuant to the Seller's option to purchase the
Receivables or for other administrative reasons set forth herein). Installment
Sales Contracts are prepayable at any time without penalty by their terms.
Although Leases are generally not optionally prepayable by their terms, Obligors
generally are permitted to prepay a Lease upon payment of the aggregate
remaining Lease Scheduled Payments due (which amount would include an implicit
interest amount). Each prepayment will shorten the weighted average remaining
term of the Receivables and the weighted average life of the related Securities.
If the related Prospectus Supplement provides for the distribution to
Noteholders and/or Certificateholders of amounts on account of principal in
excess of the Principal Distribution Amount on any Distribution Date, this
effect would be greater upon the prepayment of a Lease, since the amount prepaid
would be greater than the related Principal Balance. The related Prospectus
Supplement will set forth the allocation of prepayments among the various
Classes of Securities of the related Series. See "Description of the Transfer
and Servicing Agreements--Distributions" in the related Prospectus Supplement.
The rate of prepayments on the Receivables is influenced by a variety of
economic, financial, climatic and other factors. However, CFSC does not maintain
historical prepayment data with respect to its portfolio of retail installment
sales contracts and finance leases. In addition, under certain circumstances,
the Seller will be obligated to repurchase Receivables from a Trust pursuant to
the related Sale and Servicing Agreement, as a result of breaches of
representations and warranties, and under the certain circumstances specified in
the related Prospectus Supplement, the Servicer will be obligated to purchase
Receivables from a Trust pursuant to the related Sale and Servicing Agreement as
a result of breaches of certain covenants. See "Description of the Transfer and
Servicing Agreements--Termination" herein regarding the Servicer's option to
purchase the Receivables from a Trust. Consistent with its normal servicing
procedures, the Servicer may, in its discretion and on a case-by-case basis,
arrange with the Obligor respecting a Receivable to extend or modify the related
payment schedule to the extent specified in the related Prospectus Supplement.
Although each Sale and Servicing Agreement will restrict the ability of the
Servicer to otherwise modify a Receivable as described herein and in the related
Prospectus Supplement, the Servicer will be permitted to refinance an existing
Receivable for an Obligor, so long as the proceeds of such refinanced receivable
would be used to repay such existing Receivable in full and any such refinanced
receivable is evidenced by a new Lease or Installment Sales Contract. Any such
new receivable resulting from a refinancing would not be property of the related
Trust. Any such extensions or modifications may lengthen the weighted average
remaining term of the Receivables and the weighted average life of the related
Securities. See "The Receivables Pools--The Retail Equipment Financing
Business--EXTENSION/REVISION PROCEDURES" and "Description of the Transfer and
Servicing Agreements--Sale and Assignment of Receivables" and "--Servicing
Procedures" herein.
In light of the above considerations, there can be no assurance as to the
amount of principal payments to be made on the Securities on a given Series on
each Distribution Date, since such amount will depend, in part, on the amount of
principal collected on the related Receivables during the applicable Collection
Period. Any reinvestment risks resulting from a faster or slower incidence of
prepayment of Receivables will be borne entirely by the Securityholders of a
given Series, as set forth in the related Prospectus Supplement.
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Such reinvestment risks may include the risk that interest rates are lower at
the time such holders receive payments from the related Trust than interest
rates would otherwise have been had such prepayments not been made or had such
prepayments been made at a different time.
The related Prospectus Supplement may set forth certain additional
information with respect to the maturity and prepayment considerations
applicable to the particular Receivables and any Class of Securities of the
related Series.
POOL FACTORS AND TRADING INFORMATION
Unless otherwise provided in the related Prospectus Supplement with respect
to each Series, the Noteholders of record will receive reports on or about each
Distribution Date concerning the Receivables, the "POOL BALANCE" (as such term
is defined in the related Prospectus Supplement), each Note Pool Factor and
various other items of information, and the Certificateholders of record will
receive reports on or about each Distribution Date concerning the Receivables,
the Pool Balance, each Certificate Pool Factor and various other items of
information. In addition, Securityholders of record during any calendar year
will be furnished information for tax reporting purposes not later than the
latest date permitted by law. See "Issuance of the Securities--Reports to
Securityholders" herein.
With respect to each Series of Securities, the related Prospectus Supplement
will set forth the calculation of each "NOTE POOL FACTOR" and each "CERTIFICATE
POOL FACTOR", as applicable, with respect to each Class of related Securities.
USE OF PROCEEDS
Unless otherwise provided in the related Prospectus Supplement, the net
proceeds from the sale of the Securities of a given Series will be applied by
the related Trust (i) to the purchase of the Receivables from the Seller, (ii)
to make the initial deposit into the Reserve Account, if any, and (iii) to make
the deposit of the Pre-Funded Amount into the Pre-Funding Account, if any. The
amount that may be initially deposited into a Pre-Funding Account, and the
length of a Pre-Funding Period, are limited as described herein. Unless
otherwise specified in the related Prospectus Supplement, the Seller will use
that portion of such net proceeds paid to it with respect to any such Trust to
purchase the related Receivables from CFSC.
THE SELLER, CATERPILLAR AND THE SERVICER
CATERPILLAR FINANCIAL FUNDING CORPORATION
The Seller is a wholly-owned subsidiary of CFSC. The Seller was incorporated
in the State of Nevada on July 20, 1995. The Seller is organized for the limited
purpose of purchasing wholesale and retail receivables from CFSC, transferring
such receivables to third parties and any activities incidental to and necessary
or convenient for the accomplishment of the foregoing purposes. The principal
executive offices of the Seller are located at Greenview Plaza, 2950 East
Flamingo Road, Suite C-3B, Las Vegas, Nevada 89121 and its telephone number is
(702) 735-2514.
The Seller has taken and will take steps in structuring the transactions
contemplated hereby that are intended to ensure that a voluntary or involuntary
petition for relief by or against CFSC under any Insolvency Law will not result
in the substantive consolidation of the assets and liabilities of the Seller
with those of CFSC. These steps include the creation of the Seller as a
separate, limited-purpose entity pursuant to Articles of Incorporation
containing (i) 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) and (ii) a requirement that
at least one of the Seller's directors be independent of CFSC and its
affiliates. However, there can be no assurance that the activities of the Seller
would not result in a court's concluding that the assets and liabilities of the
Seller should be substantively consolidated with those of CFSC in a proceeding
under any Insolvency Law. See "Risk Factors--Substantive Consolidation of CFSC
and the Seller" herein.
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In addition, the Owner Trustee, the Indenture Trustee, all Noteholders and
all Certificateholders of each Series will covenant that they will not at any
time institute against the Seller any bankruptcy, reorganization or other
proceeding under any federal or state bankruptcy or similar law.
CFSC will warrant to the Seller in each Purchase Agreement that the sale of
the related Receivables by it to the Seller is an absolute sale of such
Receivables to the Seller. In addition, CFSC and the Seller will treat the
transactions described herein and in the related Prospectus Supplement as a sale
of the related Receivables to the Seller, and the Seller will take all actions
that are required to perfect and maintain perfection of the Seller's ownership
interest in the Receivables by the Seller's taking possession of the related
Receivables Files through a custodian (unless the related Prospectus Supplement
provides that such interests will be perfected by filing UCC financing
statements). Notwithstanding the foregoing, if CFSC were to become a debtor in a
bankruptcy case, and a creditor or trustee-in-bankruptcy of CFSC or CFSC 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 CFSC,
then delays in payments of collections of Receivables to the Seller could occur
or, should the court rule in favor of such trustee, debtor or creditor,
reductions in the amount of such payments or a reduction in the amount of
Receivables securing such a borrowing, could result. If the transactions
contemplated herein and in the related Prospectus Supplement are treated as a
sale, the related Receivables would not be part of CFSC's bankruptcy estate and
would not be available to CFSC's creditors. See "Risk Factors--True Sale Risks"
herein.
CATERPILLAR INC.
Caterpillar, together with its consolidated subsidiary companies, operates
in three principal business segments: (a) Machinery--design, manufacture, and
marketing of earthmoving, construction, and materials handling machinery, (b)
Engines--design, manufacture, and marketing of engines, and (c) Financial
Products--providing through CFSC financing alternatives for Caterpillar and
non-competitive related equipment sold through Caterpillar dealers, extending
loans to Caterpillar customers and dealers, and providing various forms of
insurance for Caterpillar dealers, suppliers and end-users. The principal
executive office of Caterpillar is located at 100 NE Adams Street, Peoria,
Illinois 61629. As used herein, the term "CATERPILLAR" means Caterpillar Inc.
and its consolidated subsidiary companies, unless the context otherwise
requires.
Caterpillar is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports and other information with the
Commission. For further information regarding Caterpillar, reference is made to
such reports and other information which are available as described under
"Available Information" herein. Certain current information regarding
Caterpillar will be set forth in the related Prospectus Supplement.
CATERPILLAR FINANCIAL SERVICES CORPORATION
CFSC is a wholly-owned finance subsidiary of Caterpillar. CFSC and its
wholly-owned subsidiaries are principally engaged in the business of financing
sales and leases of Caterpillar products and non-competitive related equipment
through Caterpillar Dealers and are also engaged in extending loans to
Caterpillar customers and Dealers.
CFSC's business is largely dependent upon the ability of Caterpillar Dealers
to generate sales and leasing activity, the willingness of the customers and the
Dealers to enter into financing transactions with CFSC, and the availability of
funds to CFSC to finance such transactions.
CFSC currently offers the following types of retail financing plans: (1)
installment sales contracts; (2) non-tax (financing) leases; (3) tax-oriented
leases; (4) customer loans; (5) dealer loans; and (6) governmental
lease-purchase contracts. CFSC also currently offers wholesale financing to
Caterpillar Dealers for their inventory and rental fleets.
CFSC is a Delaware corporation which was incorporated in 1981 and is the
successor to a company formed in 1954. CFSC has wholly-owned finance
subsidiaries in Canada, Australia, Germany, France, the
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United Kingdom, Spain, Sweden, Ireland, Mexico, Chile, Singapore and Poland.
Unless the context otherwise requires, the term "CFSC" includes its predecessor
and subsidiary companies (other than the Seller). The principal executive office
of CFSC is located at 3322 West End Avenue, Nashville, Tennessee 37203-1071, and
its telephone number is (615) 386-5800.
Certain current information regarding CFSC will be set forth in the related
Prospectus Supplement.
DESCRIPTION OF THE NOTES
GENERAL
With respect to each Trust, one or more Classes of Notes of a given Series
will be issued pursuant to the terms of an indenture between the related Trust
and the related indenture trustee (the "INDENTURE TRUSTEE"), which Indenture
will be substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The following summary, as well
as other pertinent information included elsewhere in this Prospectus and in the
related Prospectus Supplement, describes the material terms generally applicable
to the Notes, but does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the provisions of the Notes and the
Indenture.
Unless otherwise specified in the related Prospectus Supplement, each Class
of Notes will initially be represented by one or more Notes registered in the
name of the nominee of DTC (together with any successor depository selected by
the related Trust, the "DEPOSITORY") except as set forth below. Unless otherwise
specified in the related Prospectus Supplement, the Notes will be available for
purchase in denominations of $1,000 and integral multiples thereof and will be
available in book-entry form only. See "Issuance of the Securities--Definitive
Securities" and "--Book-Entry Registration" herein.
PRINCIPAL AND INTEREST ON THE NOTES
The timing and priority of payments, seniority, allocations of losses,
Interest Rate and amount of or method of determining payments of principal and
interest on each Class of Notes of a given Series will be as described in the
related Prospectus Supplement. The rights of Noteholders to receive payments of
principal and interest may be senior or subordinate to the rights of Noteholders
of another Class or Series, as described in the related Prospectus Supplement.
Unless otherwise provided in the related Prospectus Supplement, payments of
interest on the Notes of such Series will be made prior to payments of principal
thereon. To the extent provided in the related Prospectus Supplement, a Series
may include one or more Classes of Strip Notes entitled to (i) principal
payments with disproportionate, nominal or no interest payments or (ii) interest
payments with disproportionate, nominal or no principal payments. Each Class of
Notes may have a different Interest Rate, which may be a fixed, variable or
adjustable Interest Rate (and which may be zero for certain Classes of Strip
Notes), or any combination of the foregoing. The related Prospectus Supplement
will specify the Interest Rate for each Class of Notes of a given Series or the
method for determining such Interest Rate. See also "Certain Information
Regarding the Securities--Fixed Rate Securities" and "--Floating Rate
Securities." One or more Classes of Notes of a Series may be prepayable in whole
or in part under the circumstances specified in the related Prospectus
Supplement, including at the end of the Funding Period (if any) or as a result
of the Servicer's exercising its option to purchase the Receivables of the
related Trust in the manner and on the respective terms and conditions described
under "Description of the Transfer and Servicing Agreements--Termination"
herein.
To the extent specified in any Prospectus Supplement, one or more Classes of
Notes of a given Series may have fixed principal payment schedules. Noteholders
of such Notes would be entitled to receive as payments of principal on any given
Distribution Date the applicable amounts set forth on such schedule with respect
to such Notes, in the manner and to the extent set forth in the related
Prospectus Supplement.
Under certain circumstances, the amount available for payments to
Noteholders in respect of interest could be less than the amount of interest
payable on the Notes on any of the dates specified for payments on Notes and
Certificates in the related Prospectus Supplement (each, a "DISTRIBUTION DATE"),
in which case, unless otherwise provided in the related Prospectus Supplement,
each Class of Noteholders will receive its
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ratable share (based upon the aggregate amount of interest due to such Class of
Noteholders) of the aggregate amount available to be distributed in respect of
interest on the Notes of such Series. See "Description of the Transfer and
Servicing Agreements--Distributions" in the related Prospectus Supplement.
In the case of a Series of Notes which includes two or more Classes of
Notes, the sequential order and priority of payment in respect of principal and
interest, and any schedule or formula or other provisions applicable to the
determination thereof, of each such Class will be set forth in the related
Prospectus Supplement. Payments in respect of principal and interest of any
Class of Notes will be made on a pro rata basis among all the Noteholders of
such Class.
If the Servicer exercises its option to purchase the Receivables of a Trust
in the manner and on the respective terms and conditions described under
"Description of the Transfer and Servicing Agreements-- Termination" herein, the
related outstanding Notes 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, the related outstanding
Notes may be subject to partial prepayment on or immediately following the end
of the related Funding Period in an amount and manner specified in the related
Prospectus Supplement. In the event of such partial prepayment, the Noteholders
of the related Series may be entitled to receive a prepayment premium from the
related Trust, in the amount and to the extent provided in the related
Prospectus Supplement. See "Weighted Average Life of the Securities" herein.
THE INDENTURE
MODIFICATION OF INDENTURE. With respect to each Trust, with the consent of
the holders of a majority of the outstanding principal amount of the Notes of
the related Series, the related Indenture Trustee and the related Trust may
execute a supplemental indenture to add provisions to, or change in any manner
or eliminate any provisions of, the Indenture with respect to the Notes, or to
modify (except as provided below) in any manner the rights of the Noteholders.
Notwithstanding the foregoing, unless otherwise specified in the related
Prospectus Supplement, without the consent of the holder of each outstanding
Note of the related Series affected thereby, no supplemental indenture shall (i)
change the due date of any installment of principal of or interest on any Note
of such Series or reduce the principal amount thereof, the interest rate
specified thereon or the prepayment price with respect thereto or change any
place of payment where, or the coin or currency in which, any Note or any
interest thereon is payable, (ii) impair the right to institute suit for the
enforcement of certain provisions of the related Indenture regarding payment,
(iii) reduce the percentage of the aggregate amount of the outstanding Notes of
such Series 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 the related Indenture or of
certain defaults thereunder and their consequences as provided for in such
Indenture, (iv) modify or alter the provisions of the related Indenture
regarding the voting of Notes held by the related Trust, the Seller, an
affiliate of either of them or any obligor on such Notes, (v) reduce the
percentage of the aggregate outstanding amount of the Notes of such Series the
consent of the holders of which is required to direct the related Indenture
Trustee to sell or liquidate the related Receivables if the proceeds of such
sale would be insufficient to pay the principal amount and accrued but unpaid
interest on the outstanding Notes of such Series, (vi) decrease the percentage
of the aggregate principal amount of such Notes required to amend the sections
of the related Indenture which specify the applicable percentage of the
aggregate principal amount of the Notes of such Series necessary to amend the
related Indenture or certain of the other Transfer and Servicing Agreements or
(vii) permit the creation of any lien ranking prior to or on a parity with the
lien of the related Indenture with respect to any of the collateral for such
Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the related Indenture on any such collateral or deprive
the holder of any such Note of the security afforded by the lien of such
Indenture.
Unless otherwise provided in the related Prospectus Supplement, the related
Trust and the related Indenture Trustee may also enter into supplemental
indentures, without obtaining the consent of Noteholders of the related Series,
for the purpose of, among other things, adding any provisions to or changing in
any
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manner or eliminating any of the provisions of the related Indenture or of
modifying in any manner the rights of such Noteholders, including curing any
ambiguity or correcting or supplementing any inconsistent provision therein;
PROVIDED, HOWEVER, that such action will not, in the opinion of counsel
satisfactory to the Indenture Trustee, materially and adversely affect the
interest of any such Noteholder.
In addition, unless otherwise provided in the related Prospectus Supplement,
the related Trust and the related Indenture Trustee may enter into supplemental
indentures, without obtaining the consent of the Noteholders of the related
Series, to substitute credit enhancement for any Class of Notes, provided the
Rating Agencies confirm in writing that such substitution will not result in the
reduction or withdrawal of the rating for such Class of Notes or any other Class
of Securities of the related Series.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT. With respect to the Notes
of a given Class and Series, unless otherwise specified in the related
Prospectus Supplement, an "EVENT OF DEFAULT" with respect to such Notes will be
defined in the related Indenture as being: (i) a default for five days or more
in the payment of any interest on any such Note; (ii) a default in the payment
of the principal of or any installment of the principal of any such Note when
the same becomes due and payable; (iii) a default in the observance or
performance of any covenant or agreement of the related Trust made in the
related Indenture and the continuation of any such default for a period of 30
days after notice thereof is given to such Trust by the related Indenture
Trustee or to such Trust and such Indenture Trustee by the holders of at least
25% in principal amount of such Notes then outstanding; (iv) any representation
or warranty made by such Trust in the related Indenture or in any certificate
delivered pursuant thereto or in connection therewith having been incorrect in a
material respect as of the time made, and such breach not having been cured
within 30 days after notice thereof is given to such Trust by such Indenture
Trustee or to such Trust and such Indenture Trustee by the holders of at least
25% in principal amount of such Notes then outstanding; or (v) certain events of
bankruptcy, insolvency, receivership or liquidation of the related Trust.
However, the amount of principal required to be distributed to the Noteholders
of such Series under the related Indenture will be generally limited to amounts
available therefor in the related Note Distribution Account absent acceleration
of such Notes, and will be distributed to the Noteholders of each Class in the
manner set forth in the related Prospectus Supplement. Therefore, unless
otherwise specified in the related Prospectus Supplement, the failure to pay
principal on such Notes may not result in the occurrence of an Event of Default
until the applicable Final Scheduled Distribution Date.
If an Event of Default should occur and be continuing with respect to the
Notes of any Series or any Class thereof, the related Indenture Trustee or
holders of a majority in principal amount of such Notes of such Series then
outstanding may declare the principal of the Notes of such Series to be
immediately due and payable. Unless otherwise specified in the related
Prospectus Supplement, such declaration may, under certain circumstances, be
rescinded by the holders of a majority in principal amount of such Notes then
outstanding.
Subject to the conditions specified below, if the Notes of any Series have
been declared to be due and payable following an Event of Default with respect
thereto, the related Indenture Trustee may, in its discretion, to the extent
permitted by applicable law, either sell the related Receivables or elect to
have the related Trust maintain possession of such Receivables and continue to
apply distributions on such Receivables as if there had been no declaration of
acceleration. Unless otherwise specified in the related Prospectus Supplement,
the related Indenture Trustee is prohibited from selling the related Receivables
following an Event of Default, other than a default in the payment of any
principal or a default for five days or more in the payment of any interest on
any such Note, unless (i) all the holders of the outstanding Notes of such
Series consent to such sale, (ii) the proceeds of such sale are sufficient to
pay in full the principal of and the accrued interest on the outstanding Notes
of such Series at the date of such sale or (iii) such Indenture Trustee
determines that the proceeds of the related Receivables would not be sufficient
on an ongoing basis to make all payments on such Notes as such payments would
have become due if such obligations had not been declared due and payable, and
such Indenture Trustee obtains the consent of the holders of 66 2/3% of the
aggregate outstanding amount of such Notes.
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Subject to the provisions of the related Indenture relating to the duties of
the related Indenture Trustee, in case an Event of Default shall occur and be
continuing with respect to a Series of Notes, such Indenture Trustee shall be
under no obligation to exercise any of the rights or powers under such Indenture
if requested or directed by any of the holders of such Notes if such Indenture
Trustee reasonably believes it will not be adequately indemnified against the
costs, expenses and liabilities which might be incurred by it in complying with
such request. Subject to such provisions for indemnification and certain
limitations contained in the related Indenture, the holders of a majority (or
66 2/3% if an Event of Default has occurred and is continuing) in principal
amount of the outstanding Notes of a Series will have the right to direct the
time, method and place of conducting any proceeding or any remedy available to
the related Indenture Trustee, and the holders of a majority in principal amount
of such Notes then outstanding may, in certain cases, waive any default with
respect thereto, except a default in the payment of principal or interest or a
default in respect of a covenant or provision of such Indenture that cannot be
modified without the waiver or consent of all of the holders of such outstanding
Notes.
Unless otherwise specified in the related Prospectus Supplement, no
Noteholder of any Series will have the right to institute any proceeding with
respect to the related Indenture, unless (i) such Noteholder previously has
given to the related Indenture Trustee written notice of a continuing Event of
Default, (ii) the holders of not less than 25% in principal amount of the
outstanding Notes of such Series have made written request of such Indenture
Trustee to institute such proceeding in its own name as Indenture Trustee, (iii)
such Noteholder or Noteholders have offered such Indenture Trustee reasonable
indemnity, (iv) such Indenture Trustee has for 60 days failed to institute such
proceeding and (v) no direction inconsistent with such written request has been
given to such Indenture Trustee during such 60-day period by the holders of a
majority in principal amount of the outstanding Notes.
Notwithstanding anything herein to the contrary, if junior Notes of a Series
are issued, the rights of the junior Noteholders of any Class of such Series to
consent to or direct any action may be limited as set forth in the related
Indenture and as described in the related Prospectus Supplement.
In addition, with respect to any Trust, the related Indenture Trustee and
the related Noteholders will covenant that they will not at any time institute
against such Trust any bankruptcy, reorganization or other proceeding under any
federal or state bankruptcy or similar law.
With respect to any Trust, neither the related Indenture Trustee nor the
related Owner Trustee in its individual capacity, nor any holder of a
Certificate representing an ownership interest in such Trust, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
successors or assigns shall, in the absence of an express agreement to the
contrary, be personally liable for the payment of the principal of or interest
on the Notes or for the agreements of such Trust contained in the related
Indenture.
CERTAIN COVENANTS. With respect to any Trust, the related Indenture will
provide that such Trust may not consolidate with or merge into any other entity,
unless (i) the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States, any state thereof or the District
of Columbia, (ii) such entity expressly assumes such Trust's obligation to make
due and punctual payments upon the Notes of the related Series and the
performance or observance of every agreement and covenant of such Trust under
the related Indenture, (iii) no Event of Default shall have occurred and be
continuing immediately after such merger or consolidation, (iv) such Trust has
been advised that the ratings of neither the Notes nor the Certificates of such
Series would be reduced or withdrawn by the applicable Rating Agencies as a
result of such merger or consolidation, (v) such Trust has received an opinion
of counsel to the effect that such consolidation or merger would have no
material adverse tax consequence to such Trust or to any related Noteholder or
Certificateholder, (vi) any action as is necessary to maintain the lien and
security interest created by the related Indenture shall have been taken and
(vii) such Trust has received an opinion of counsel and officer's certificate
each stating that such consolidation or merger satisfies all requirements under
the related Indenture.
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Each Trust will not, among other things, (i) except as expressly permitted
by the related Indenture, the related Transfer and Servicing Agreements or
certain related documents (collectively, the "RELATED DOCUMENTS"), sell,
transfer, exchange or otherwise dispose of any of the assets of such Trust, (ii)
claim any credit on or make any deduction from the principal and interest
payable in respect of the Notes of the related Series (other than amounts
withheld under the Code or applicable state law) or assert any claim against any
present or former holder of Notes because of the payment of taxes levied or
assessed upon such Trust, (iii) except as contemplated by the Related Documents,
dissolve or liquidate in whole or in part or (iv) (y) permit the validity or
effectiveness of the related Indenture to be impaired or permit any person to be
released from any covenants or obligations with respect to such Notes under such
Indenture except as may be expressly permitted thereby or (z) permit any lien,
charge, excise, claim, security interest, mortgage or other encumbrance to be
created on or extend to or otherwise arise upon or burden the assets of such
Trust or any part thereof, or any interest therein or the proceeds thereof,
except as may be created by the terms of the related Indenture.
No Trust may engage in any activity other than as specified under the
section of the related Prospectus Supplement entitled "Formation of the
Trust--The Trust." No Trust will incur, assume or guarantee any indebtedness
other than indebtedness incurred pursuant to the related Notes and the related
Indenture or otherwise in accordance with the Related Documents.
If so specified in the related Prospectus Supplement, the related Trust will
not make any payments, distributions or dividends to Certificateholders in
respect of their Certificates for any Collection Period unless the conditions
set forth in such Prospectus Supplement have been satisfied.
Each Trust will or will cause the Servicer to deliver to the related
Indenture Trustee on each Determination Date the Servicer's Certificate as
required by the related Sale and Servicing Agreement.
LIST OF NOTEHOLDERS. Three or more holders of the Notes of any Series (each
of whom has owned a Note for at least six months) may, by written request to the
related Indenture Trustee, obtain access to the list of all Noteholders of such
Series maintained by such Indenture Trustee for the purpose of communicating
with other Noteholders of such Series with respect to their rights under such
Indenture or such Notes. Such Indenture Trustee may elect not to afford the
requesting Noteholders access to the list of such Noteholders if it agrees to
mail the desired communication or proxy, on behalf and at the expense of the
requesting Noteholders, to all Noteholders of record.
ANNUAL COMPLIANCE STATEMENT. The Administrator on behalf of each Trust will
be required to file annually with the related Indenture Trustee a written
statement as to the fulfillment of its obligations under the related Indenture.
INDENTURE TRUSTEE'S ANNUAL REPORT. If required by law, the Indenture
Trustee for each Trust will mail each year to all related Noteholders a brief
report relating to its eligibility and qualification to continue as the
Indenture Trustee under the related Indenture, any amounts advanced by it under
such Indenture, the amount, interest rate and maturity date of certain
indebtedness owing by such Trust to such Indenture Trustee in its individual
capacity, the property and funds physically held by such Indenture Trustee as
such and any action taken by it that materially affects such Notes and that has
not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE. An Indenture will be discharged
with respect to the Trust Property securing the related Notes upon the delivery
to such Indenture Trustee for cancellation of all such Notes or, with certain
limitations, upon deposit with such Indenture Trustee of funds sufficient for
the payment in full of all of such Notes.
THE INDENTURE TRUSTEE. The Indenture Trustee for a Series of Notes will be
specified in the related Prospectus Supplement. The Indenture Trustee for any
Series may resign at any time, in which event the related Trust will be
obligated to appoint a successor Indenture Trustee for such Series. A Trust may
also remove the related Indenture Trustee if such Indenture Trustee ceases to be
eligible to continue as such under the related Indenture or if such Indenture
Trustee becomes insolvent. In such circumstances, such Trust will be obligated
to appoint a successor Indenture Trustee for the related Series of Notes. If the
related Prospectus
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Supplement provides that a given Class of Notes is junior in priority to one or
more other Classes of Notes, pursuant to the Trust Indenture Act, as amended,
the related Indenture Trustee may be deemed to have a conflict of interest and
be required to resign as trustee for one or more of such Classes if an Event of
Default occurs under the Indenture. In such cases, the related Indenture will
provide for a successor trustee to be appointed for one or more of such Classes
of Notes. In these circumstances, the related Indenture will set forth the
rights of senior Noteholders and junior Noteholders, which may be different, to
consent to or direct actions by the related Indenture Trustee. Any resignation
or removal of an Indenture Trustee and appointment of a successor Indenture
Trustee for any Series of Notes does not become effective until acceptance of
the appointment by the successor Indenture Trustee for such Series.
DESCRIPTION OF THE CERTIFICATES
GENERAL
With respect to each Trust, one or more Classes of Certificates of a given
Series may be issued pursuant to the terms of a Trust Agreement between the
Seller and the related Owner Trustee, a form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part. The
following summary, as well as other pertinent information included elsewhere in
this Prospectus and in the related Prospectus Supplement, describes the material
terms of the Certificates and each Trust Agreement, but does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the related Certificates and the related Trust
Agreement.
With respect to any Series of Certificates, the related Prospectus
Supplement will specify whether each Class of Certificates will be represented
by one or more Certificates in fully registered, certificated form or registered
in the name of the Depository (except as set forth below); provided, that any
Certificates purchased by the Seller will be issued in fully registered,
certificated form.
With respect to a Class of Certificates issued in fully registered,
certificated form, such Certificates will be available for purchase in the
minimum and integral denominations specified in the related Prospectus
Supplement. See "Issuance of the Securities--Definitive Securities" and
"--Book-Entry Registration" herein.
DISTRIBUTIONS OF PRINCIPAL AND INTEREST
The timing and priority of distributions, seniority, allocations of losses,
Pass-Through Rate and amount of or method of determining distributions with
respect to principal and interest of each Class of Certificates of a given
Series will be described in the related Prospectus Supplement. Distributions of
interest on such Certificates will be made on the Distribution Dates specified
in the related Prospectus Supplement and will be made prior to distributions
with respect to principal of such Certificates. To the extent provided in the
related Prospectus Supplement, a Series may include one or more Classes of Strip
Certificates entitled to (i) distributions in respect of principal with
disproportionate, nominal or no interest distributions or (ii) distributions in
respect of interest with disproportionate, nominal or no principal
distributions. Each Class of Certificates may have a different Pass-Through
Rate, which may be a fixed, variable or adjustable Pass-Through Rate (and which
may be zero for certain Classes of Strip Certificates), or any combination of
the foregoing. The related Prospectus Supplement will specify the Pass-Through
Rate for each Class of Certificates of a given Series or the method for
determining such Pass-Through Rate. See also "Certain Information Regarding the
Securities--Fixed Rate Securities" and "--Floating Rate Securities" herein.
Unless otherwise provided in the related Prospectus Supplement, distributions in
respect of the Certificates of a given Series will be subordinate to payments in
respect of the Notes of such Series as more fully described in the related
Prospectus Supplement. Distributions in respect of interest on and principal of
any Class of Certificates will be made on a pro rata basis among all the
Certificateholders of such Class.
In the case of a Series of Certificates which includes two or more Classes
of Certificates, the timing, sequential order, priority of payment or amount of
distributions in respect of interest and principal, and any schedule or formula
or other provisions applicable to the determination thereof, of each such Class
shall be as set forth in the related Prospectus Supplement.
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If the Servicer exercises its option to purchase the Receivables of a Trust
in the manner and on the respective terms and conditions described under
"Description of the Transfer and Servicing Agreements-- Termination" herein,
related Certificateholders will receive as prepayment an amount in respect of
such Certificates as specified 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, related Certificateholders may receive
a partial prepayment of principal on or immediately following the end of the
Funding Period in an amount and manner specified in the related Prospectus
Supplement. In the event of such partial prepayment, the Certificateholders may
be entitled to receive a prepayment premium from the related Trust, in the
amount and to the extent provided in the related Prospectus Supplement.
LIST OF CERTIFICATEHOLDERS
Three or more Certificateholders of any Series or one or more
Certificateholders evidencing not less than 25% of the Certificate Balance of
such Series may, by written request to the related Owner Trustee, obtain access
to the list of all Certificateholders of such Series for the purpose of
communicating with such Certificateholders with respect to their rights under
the related Trust Agreement or under such Certificates.
CERTAIN INFORMATION REGARDING THE SECURITIES
FIXED RATE SECURITIES
Each Class of Securities (other than certain Classes of Strip Notes or Strip
Certificates) may bear interest at a fixed rate per annum ("FIXED RATE
SECURITIES") or at a variable or adjustable rate per annum ("FLOATING RATE
SECURITIES"), as more fully described below and in the related Prospectus
Supplement. Each Class of Fixed Rate Securities will bear interest at the
applicable per annum Interest Rate or Pass-Through Rate, as the case may be,
specified in the related Prospectus Supplement. Unless otherwise set forth in
the related Prospectus Supplement, interest on each Class of Fixed Rate
Securities will be computed on the basis of a 360-day year of twelve 30-day
months. See "Description of the Notes--Principal and Interest on the Notes" and
"Description of the Certificates--Distributions of Principal and Interest"
herein.
FLOATING RATE SECURITIES
Each Class of Floating Rate Securities will bear interest for each
applicable Interest Reset Period (with respect to a Class of Floating Rate
Securities, the "INTEREST RESET PERIOD") at a rate per annum determined by
reference to an interest rate basis (the "BASE RATE"), plus or minus the Spread,
if any, or multiplied by the Spread Multiplier, if any, in each case as
specified in the related Prospectus Supplement. The "SPREAD" is the number of
basis points (one basis point equals one one-hundredth of a percentage point)
that may be specified in the related Prospectus Supplement as being applicable
to such Class, and the "SPREAD MULTIPLIER" is the percentage that may be
specified in the related Prospectus Supplement as being applicable to such
Class.
The related Prospectus Supplement will designate a Base Rate for a given
Floating Rate Security based on LIBOR, commercial paper rates, federal funds
rates, U.S. Government treasury securities rates, negotiable certificates of
deposit rates or another rate as set forth in such Prospectus Supplement.
As specified in the related Prospectus Supplement, Floating Rate Securities
of a given Class may also have either or both of the following (in each case
expressed as a rate per annum): (i) a maximum limitation, or ceiling, on the
rate at which interest may accrue during any interest period and (ii) a minimum
limitation, or floor, on the rate at which interest may accrue during any
interest period. In addition to any maximum interest rate that may be applicable
to any Class of Floating Rate Securities, the interest rate applicable to any
Class of Floating Rate Securities will in no event be higher than the maximum
rate permitted by applicable law, as the same may be modified by United States
law of general application.
Each Trust with respect to which a Class of Floating Rate Securities will be
issued will appoint, and enter into agreements with, a calculation agent (each,
a "CALCULATION AGENT") to calculate interest rates on each such Class of
Floating Rate Securities issued with respect thereto. The related Prospectus
Supplement will set forth the identity of the Calculation Agent for each such
Class of Floating Rate Securities of a given Series, which may be either the
Owner Trustee or Indenture Trustee with respect to such Series. All
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determinations of interest by the Calculation Agent shall, in the absence of
manifest error, be conclusive for all purposes and binding on the holders of
Floating Rate Securities of a given Class. Unless otherwise specified in the
related Prospectus Supplement, all percentages resulting from any calculation of
the rate of interest on a Floating Rate Security will be rounded, if necessary,
to the nearest 1/100,000 of 1% (.0000001), with five one-millionths of a
percentage point rounded upward.
INDEXED SECURITIES
To the extent so specified in the related Prospectus Supplement, any Class
of Securities of a given Series may consist of Securities ("INDEXED SECURITIES")
in which the principal amount payable at the Final Scheduled Distribution Date
for such Class (the "INDEXED PRINCIPAL AMOUNT") is determined by reference to a
measure (the "INDEX") which will be related to (i) the difference in the rate of
exchange between United States dollars and a currency or composite currency (the
"INDEXED CURRENCY") specified in the related Prospectus Supplement (such Indexed
Securities, the "CURRENCY INDEXED SECURITIES"); (ii) the difference in the price
of a specified commodity (the "INDEXED COMMODITY") on specified dates (such
Indexed Securities, "COMMODITY INDEXED SECURITIES"); (iii) the difference in the
level of a specified stock index (the "STOCK INDEX"), which may be based on U.S.
or foreign stocks on specified dates (such Indexed Securities, "STOCK INDEXED
SECURITIES"); or (iv) such other objective price or economic measures as are
described in the related Prospectus Supplement. The manner of determining the
Indexed Principal Amount of an Indexed Security and historical and other
information concerning the Indexed Currency, the Indexed Commodity, the Stock
Index or other price or economic measures used in such determination will be set
forth in the related Prospectus Supplement, together with information concerning
tax consequences to the holders of such Indexed Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the related Prospectus Supplement), then such
Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the related Prospectus Supplement on the
same basis, and subject to the same conditions and controls, as applied to the
original third party. If for any reason such Index cannot be calculated on the
same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the related Prospectus
Supplement. Any determination of such independent calculation agent shall, in
the absence of manifest error, be binding on all parties.
Unless otherwise specified in the related Prospectus Supplement, interest on
an Indexed Security will be payable based on the amount designated in the
related Prospectus Supplement as the "FACE AMOUNT" of such Indexed Security. The
related Prospectus Supplement will describe whether the principal amount of the
related Indexed Security, if any, that would be payable upon redemption or
repayment prior to the applicable Final Scheduled Distribution Date will be the
Face Amount of such Indexed Security, the Indexed Principal Amount of such
Indexed Security at the time of redemption or repayment or another amount
described in such Prospectus Supplement.
ISSUANCE OF THE SECURITIES
DEFINITIVE SECURITIES
The Prospectus Supplement related to a given Series will specify whether the
Notes or the Certificates of such Series will be issued in fully registered,
certificated form ("DEFINITIVE NOTES" or "DEFINITIVE CERTIFICATES",
respectively, and collectively referred to herein as "DEFINITIVE SECURITIES") to
the Noteholders or Certificateholders or their respective nominees.
Distributions of principal of and interest on such Definitive Securities
will be made by the Indenture Trustee or Owner Trustee, as applicable (each, a
"TRUSTEE") in accordance with the procedures set forth in the related Indenture
or the related Trust Agreement, as applicable, directly to holders of Definitive
Securities in whose names the Definitive Securities were registered at the close
of business on the applicable
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"RECORD DATE" (as defined in the related Prospectus Supplement) 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 Definitive
Security, however, will be made only upon presentation and surrender of such
Definitive Security at the office or agency specified in the notice of final
distribution to the applicable Securityholders.
Definitive 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 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.
BOOK-ENTRY REGISTRATION
The Prospectus Supplement related to a given Series will specify whether the
holders of the Notes or Certificates of such Series may hold their respective
Securities through DTC (in the United States) or Cedel Bank, societe anonyme
("CEDEL") or Euroclear (as defined below) (in Europe) if they are participants
of such systems, or indirectly through organizations that are participants in
such systems ("BOOK-ENTRY NOTES" or "BOOK-ENTRY CERTIFICATES," respectively, and
collectively referred to herein as "BOOK-ENTRY SECURITIES").
The Seller has been informed by DTC that DTC's nominee will be Cede, unless
another nominee is specified in the related Prospectus Supplement. Accordingly,
such nominee is expected to be the holder of record of the Securities of any
Series held through DTC. Cede, as nominee for DTC, or such other nominee
specified in the related Prospectus Supplement, will hold the global Securities.
Cedel and Euroclear will hold omnibus positions on behalf of the Cedel
Participants and the Euroclear 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 ("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
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
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settled during such processing will be reported to the relevant Cedel
Participant or Euroclear Participant on such business day. Cash received by
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 that are not Participants or Indirect Participants but
who desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Notes may do so only through Participants and Indirect
Participants. In addition, Securityholders will receive all distributions of
principal and interest from the applicable Trustee through the Participants who
in turn will receive them from DTC. Under a book-entry format, Securityholders
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 Securityholders. To the extent the related Prospectus
Supplement provides that Book-Entry Securities will be issued, the only
"NOTEHOLDER" or "CERTIFICATEHOLDER," as applicable, will be Cede, as nominee of
DTC. Securityholders will not be recognized by the applicable Trustee as
"NOTEHOLDERS" or "CERTIFICATEHOLDERS," as such term is used in the related
Indenture or Trust Agreement, as applicable, and Securityholders will be
permitted to exercise the rights of Securityholders 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 among Participants on whose behalf it acts with respect to the
Securities and to receive and transmit distributions of principal of, and
interest on, the Securities. Participants and Indirect Participants with which
the Securityholders have accounts with respect to their respective Securities
similarly are required to make book-entry transfers and receive and transmit
such payments on behalf of their respective Securityholders. Accordingly,
although the Securityholders will not possess their respective 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 to pledge Securities 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 Administrator in respect of each Trust that it will take
any action permitted to be taken by a Securityholder under the related Indenture
or Trust Agreement, as applicable, only at the direction of one or more
Participants to whose accounts with DTC such Securities 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 36
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 and may include the Underwriters with respect to any Series of
Securities. 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.
The Euroclear System ("EUROCLEAR" or the "EUROCLEAR SYSTEM") was created in
1968 to hold securities for its participants ("EUROCLEAR PARTICIPANTS") and to
clear and settle transactions between Euroclear
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Participants through simultaneous electronic book-entry delivery against
payment, thereby eliminating the need for physical movement of certificates and
the risk from transfers of securities and cash that are not simultaneous.
The Euroclear System has subsequently been extended to clear and settle
transactions between Euroclear Participants and counterparties both in Cedel and
in many domestic securities markets. Transactions may be settled in any of 34
settlement currencies. In addition to safekeeping (custody) and securities
clearance and settlement, the Euroclear System includes securities lending and
borrowing and money transfer services. The Euroclear System is operated by the
Brussels, Belgium office of Morgan Guaranty Trust Company of New York (the
"EUROCLEAR OPERATOR"), under contract with Euroclear Clearance System S.C., a
Belgian cooperative corporation that establishes policy on behalf of Euroclear
Participants. 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.
All operations are conducted by the Euroclear Operator and all Euroclear
securities clearance accounts and cash accounts are accounts with the Euroclear
Operator. They 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 all transfers of securities and cash, both within the
Euroclear System and receipts and withdrawals of securities and cash. All
securities in the Euroclear System are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
Euroclear Participants include banks (including central banks), securities
brokers and dealers and other professional financial intermediaries and may
include any of the Underwriters of any Series of Securities. Indirect access to
the Euroclear System is also available to other firms that clear through or
maintain a custodial relationship with a Euroclear Participant, either directly
or indirectly. The Euroclear Operator acts under the Terms and Conditions only
on behalf of Euroclear Participants, and has no record of or relationship with
persons holding through Euroclear Participants.
Unless and until Definitive Securities are issued under the limited
circumstances described herein or in the related Prospectus Supplement, no
Securityholder will be entitled to receive a physical certificate representing a
Book-Entry Security. All references herein and in the related Prospectus
Supplement to actions by Securityholders shall refer to actions taken by DTC
upon instructions from its Participants, and all references herein and in the
related Prospectus Supplement to distributions, notices, reports and statements
to Securityholders shall refer to distributions, notices, reports and statements
to DTC or its nominee as the registered holder of the Book-Entry Securities, as
the case may be, for distribution to Book-Entry Securityholders in accordance
with DTC's procedures with respect thereto.
If (i) (A) the Administrator advises the applicable Trustee in writing that
DTC is no longer willing or able to discharge properly its responsibilities as
depository with respect to such Securities and (B) the Administrator is unable
to locate a qualified successor, (ii) the Administrator, at its option, elects
to terminate the book-entry system through DTC or (iii) after the occurrence of
an Event of Default or a Servicer Default, Securityholders representing at least
a majority of the outstanding principal amount of the Notes or the Certificates,
as the case may be, of such Series 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 the best interest of such Securityholders of such
Series, then any Securities held in book-entry form will be issued as Definitive
Securities to the applicable Securityholders or their respective nominees.
Upon the occurrence of any event described in the immediately preceding
paragraph, the applicable Trustee will be required to notify all applicable
Securityholders through Participants of the availability of Definitive
Securities. Upon surrender by DTC of the definitive certificates representing
the corresponding Securities and receipt of instructions for re-registration,
the applicable Trustee will reissue such Securities as Definitive Securities to
such Securityholders.
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Except as required by law, neither the Administrator nor the applicable
Trustee with respect to any Trust will have any liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Securities held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary, as well as other pertinent information included
elsewhere in this Prospectus and the related Prospectus Supplement, describes
the material terms with respect to each Series of Securities relating to each of
(i) the Sale and Servicing Agreement pursuant to which a Trust will purchase
Receivables from the Seller and the Servicer will undertake to service such
Receivables, (ii) the Purchase Agreement pursuant to which the Seller will
purchase such Receivables from CFSC, (iii) the Administration Agreement pursuant
to which CFSC will undertake certain administrative duties with respect to such
Trust, (iv) the Trust Agreement pursuant to which such Trust will be created and
the related Certificates will be issued and (v) the Custodial Agreement pursuant
to which the related Custodian will maintain custody of the related Receivables
Files on behalf of such Trust and the related Indenture Trustee (if UCC
financing statements are not filed) (collectively, the "TRANSFER AND SERVICING
AGREEMENTS"). Forms of the Transfer and Servicing Agreements have been filed as
exhibits to the Registration Statement of which this Prospectus forms a part.
This summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the applicable provisions of the related
Transfer and Servicing Agreements.
SALE AND ASSIGNMENT OF RECEIVABLES
On the initial Closing Date specified in the related Prospectus Supplement
with respect to a Trust (the "CLOSING DATE"), CFSC will sell and assign to the
Seller, without recourse, its entire interest in the related Receivables (the
"INITIAL RECEIVABLES"), including its security interests in the related Financed
Equipment and in certain other cross-collateralized equipment, pursuant to a
Purchase Agreement (the "PURCHASE AGREEMENT"). On such Closing Date, the Seller
will sell and assign to the related Trust, without recourse, its entire interest
in such Receivables, including its security interests in the related Financed
Equipment and in such cross-collateralized equipment, pursuant to the related
Sale and Servicing Agreement. Each such Receivable will be identified in a
schedule appearing as an exhibit to the Sale and Servicing Agreement (a
"SCHEDULE OF RECEIVABLES"). The related Owner Trustee, on behalf of such Trust,
will, concurrently with such sale and assignment on the related Closing Date,
execute, authenticate and deliver the related Certificates and execute the
related Notes, and the Indenture Trustee will authenticate and deliver the
related Notes. The net proceeds received from the sale of such Notes and the
Certificates will be applied to the purchase of the related Initial Receivables
and, if so specified in the Prospectus Supplement, to the deposit of the Pre-
Funded Amount into the Pre-Funding Account. If applicable, the related
Prospectus Supplement for a given Trust will specify the terms, conditions and
manner under which subsequent Receivables ("SUBSEQUENT RECEIVABLES") will be
sold by the Seller to the related Trust from time to time during the Funding
Period on each date specified as a transfer date in the related Prospectus
Supplement (each, a "SUBSEQUENT CLOSING DATE"). If the related Prospectus
Supplement so provides for a Pre-Funding Account, the funds on deposit in such
Pre-Funding Account on the related Closing Date will not exceed 25% of the
related Trust Property, and the related Pre-Funding Period shall not exceed
three months from the related Closing Date.
In each Purchase Agreement, CFSC will represent and warrant to the Seller,
among other things, that (i) the information provided with respect to the
related Receivables is correct in all material respects; (ii) the Obligor on
each Receivable is required to maintain physical damage insurance and/or
liability insurance, as applicable, covering the Financed Equipment in
accordance with CFSC's normal requirements; (iii) as of the related Closing Date
or related Subsequent Closing Date, if any, the related Receivables are free and
clear of all security interests, liens, charges and encumbrances and no offsets,
defenses, or counterclaims have been asserted or threatened; (iv) as of the
related Closing Date or related Subsequent Closing Date, if any, each of such
Receivables is secured by a first perfected security interest in the Financed
Equipment in favor of CFSC; (v) each Receivable, at the time it was originated,
complied and, as of the related Closing Date or related Subsequent Closing Date,
if any, complies in all material respects with applicable federal and state laws
including, without limitation, consumer credit, truth in lending, equal credit
opportunity and
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disclosure laws; and (vi) each Lease, if any, (A) is a "lease intended as
security" under the UCC, (B) is not a "consumer lease" within the meaning of
Article 2A of the UCC in any jurisdiction where said Article 2A has been adopted
and governs the construction thereof, and (C) constitutes "chattel paper", as
defined under the UCC. If the related Prospectus Supplement specifies that the
interests of the related Seller, Trust and Indenture Trustee will be perfected
by possession of the related Receivables Files by a custodian, CFSC will also
represent that there is only one original of each related Installment Sales
Contract and/or Lease. Unless otherwise specified in the related Prospectus
Supplement, if the Seller breaches any of its representations and warranties
made in the related Sale and Servicing Agreement, and such breach has not been
cured by the last day of the second (or, if the Seller elects, the first) month
following the discovery by or notice to the Seller of such breach, the Seller
will repurchase any Receivable materially and adversely affected by such breach
from the related Trust, and if such breach arises from the breach of a
representation and warranty by CFSC in the related Purchase Agreement, CFSC will
repurchase such Receivable from the Seller, in each case at a price (the
"PURCHASE AMOUNT") at least equal to the "PRINCIPAL BALANCE" (as such term is
defined in the related Prospectus Supplement) plus interest thereon at the
respective "CUT-OFF DATE APR" (as such term is defined in the related Prospectus
Supplement). The obligation of the Seller to repurchase any Receivable with
respect to which any such representation or warranty of CFSC has been breached
is subject to CFSC's repurchase of such Receivable for the Purchase Amount. The
repurchase obligation will constitute the sole remedy available to the
Noteholders, the Indenture Trustee, the Certificateholders or the Owner Trustee
in respect of such Trust for any such uncured breach.
Pursuant to the related Sale and Servicing Agreement and Custodial
Agreement, unless the related Prospectus Supplement specifies that the interests
of the Seller, the related Trust and the related Indenture Trustee will be
perfected by filing UCC financing statements, the Seller, the related Trust and
the related Indenture Trustee will appoint the Custodian as custodian of the
related Receivables, and the ownership and security interests of the Seller,
such Trust and such Indenture Trustee, as applicable, will be perfected by the
Custodian's possession of the related physical Installment Sales Contracts and
Leases on behalf of such parties. CFSC's accounting records and computer systems
will reflect the sale and assignment of the Receivables to the Seller and the
sale and assignment by the Seller to each Trust, but the Installment Sales
Contracts and/or Leases will not be stamped to reflect the sale and assignment
of the Receivables to such Trust.
If UCC financing statements are filed to perfect the interests of the
Seller, the related Trust and the related Indenture Trustee, CFSC's accounting
records and computer systems will reflect the sales and assignments described
above, and the Servicer will maintain possession of the related Installment
Sales Contracts and/or Leases to facilitate servicing and to minimize
administrative burden and expense. The Servicer will not stamp the Installment
Sales Contracts and/or Leases to reflect the sale and assignment of the
Receivables to the related Trust or Indenture Trustee.
ACCOUNTS
With respect to each Trust, the Servicer will establish and maintain at the
office of the related Indenture Trustee one or more accounts, in the name of
such Indenture Trustee on behalf of the related Securityholders, into which all
payments made on or with respect to the related Receivables will be deposited
(collectively, the "COLLECTION ACCOUNT"). The Servicer will also establish and
maintain at the office of such Indenture Trustee one or more accounts, in the
name of such Indenture Trustee on behalf of the related Noteholders, in which
amounts released from the Collection Account and the Reserve Account, if any, or
any other credit enhancement for payment to Noteholders will be deposited and
from which all payments to Noteholders will be made (each, a "NOTE DISTRIBUTION
ACCOUNT"). The Servicer will also establish and maintain at the office of the
related Owner Trustee an account, in the name of such Owner Trustee, on behalf
of the related Certificateholders, in which amounts released from the related
Collection Account and the Reserve Account, if any, or any other credit
enhancement for distribution to Certificateholders will be deposited and from
which all distributions to Certificateholders will be made (the "CERTIFICATE
DISTRIBUTION ACCOUNT"). If so specified in the related Prospectus Supplement,
the Seller may also establish and maintain a Pre-Funding Account, in the name of
such Indenture Trustee on behalf of the related Securityholders, which
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will be used to purchase Subsequent Receivables from the Seller from time to
time during the Funding Period. The amount that may be initially deposited into
the Pre-Funding Account, and the length of a Pre-Funding Period, shall be
limited as described herein.
Any other accounts to be established with respect to a Trust will be
described in the related Prospectus Supplement.
With respect to any Series of Securities, funds in the Collection Account,
the Note Distribution Account, the Certificate Distribution Account, any Reserve
Account, any Pre-Funding Account and in any accounts identified as such in the
related Prospectus Supplement (collectively, the "TRUST ACCOUNTS") shall be
invested as provided in the related Sale and Servicing Agreement in Eligible
Investments. "ELIGIBLE INVESTMENTS" are generally limited to investments
acceptable to the Rating Agencies as being consistent with the ratings of such
Securities (and shall be defined in the related Sale and Servicing Agreement).
Except as described below or in the related Prospectus Supplement, Eligible
Investments are limited to obligations or securities that mature on or before
the business day preceding the day of the next distribution. However, to the
extent permitted by the Rating Agencies and provided in the related Sale and
Servicing Agreement, funds in any Reserve Account may be invested in securities
that will not mature prior to the next Distribution Date and will not be sold to
meet any shortfalls. Thus, the amount of cash in any Reserve Account at any time
available for withdrawal may be less than the balance of the Reserve Account at
such time. If the amount required to be withdrawn from any Reserve Account to
cover shortfalls in collections on the related Receivables (as provided in the
related Prospectus Supplement) exceeds the amount of cash in such Reserve
Account, a temporary shortfall in the amounts distributed to the related
Noteholders or Certificateholders, as applicable, could result, which could, in
turn, increase the average life of the related Securities. Except as otherwise
specified in the related Prospectus Supplement, investment earnings on funds
deposited in the Trust Accounts, net of losses and investment expenses
(collectively, "INVESTMENT EARNINGS"), shall be deposited in the related
Collection Account on each Distribution Date and shall be treated as collections
of interest on the related Receivables.
The Trust Accounts of all Series 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 have a credit rating from each
Rating Agency in one of its generic rating categories which signifies investment
grade. "ELIGIBLE INSTITUTION" means, with respect to any Series, (a) the
corporate trust department of the related Indenture Trustee, the related Owner
Trustee or such other institution acceptable to the Rating Agencies as being
consistent with the ratings of the Securities, 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), (i) (A) which has either a long-term or short-term unsecured debt rating
acceptable to the Rating Agencies and (B) whose deposits are insured by the
Federal Deposit Insurance Corporation or (ii) (A) the parent corporation of
which has either a long-term or short-term unsecured debt rating acceptable to
the Rating Agencies and (B) whose deposits are insured by the Federal Deposit
Insurance Corporation.
SERVICING PROCEDURES
The Servicer will make reasonable efforts to collect all payments due with
respect to the Receivables held by any Trust and, in a manner consistent with
the related Sale and Servicing Agreement, will continue such collection
procedures as the Servicer follows with respect to machinery retail installment
sales contracts and leases it services for itself and others. Consistent with
its normal procedures, the Servicer may, in its discretion and on a case-by-case
basis, arrange with the Obligor on a Receivable to extend or modify the payment
schedule; provided, however, that unless otherwise specified in the related
Prospectus Supplement, no such modifications may reduce the underlying APR of
such Receivable, reduce the aggregate amount of scheduled payments or the amount
of any scheduled payment due under such Receivable, release or modify CFSC's
security interest in the Financed Equipment securing such Receivable or
otherwise amend or modify such Receivable in a manner that would have a material
adverse effect on the interests of the related
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Securityholders. To the extent provided in the related Prospectus Supplement,
some of such extensions may not be permitted or may result in the Servicer's
repurchasing such Receivable. Although each Sale and Servicing Agreement will
restrict the ability of the Servicer to otherwise modify a Receivable as
described herein, the Servicer will be permitted to refinance an existing
Receivable for an Obligor, so long as the proceeds of such refinanced receivable
would be used to prepay such existing Receivable in full and any such refinanced
receivable is evidenced by a new Lease or Installment Sales Contract. Any such
new receivable resulting from a refinancing would not be the property of the
related Trust. The Servicer may sell the Financed Equipment securing the
respective Receivable at a public or private sale, or take any other action
permitted by applicable law. See "The Receivables Pools--The Retail Equipment
Financing Business-- EXTENSION/REVISION PROCEDURES" and "Certain Legal Aspects
of the Receivables" herein.
PAYMENTS ON RECEIVABLES
With respect to each Trust, the Servicer will deposit all payments on the
related Receivables (from whatever source, but subject to net deposits by the
Servicer as described under "--Net Deposits" herein) and all proceeds of such
Receivables collected during each Collection Period specified in the related
Prospectus Supplement into the related Collection Account; PROVIDED, HOWEVER,
that when a Receivable becomes a Liquidated Receivable (as defined in the
related Prospectus Supplement), the Receivable will be reassigned to the Seller
(to the extent of receipt by the holders of Securities on the related
Distribution Date of an amount representing the principal balance with respect
to such Liquidated Receivable), and any proceeds after such date (deficiency
proceeds) would not be proceeds of Receivables in the related Trust. Unless the
related Prospectus Supplement provides for more frequent deposits (as described
below), if (i) CFSC is the Servicer, (ii) each other condition to making
deposits less frequently than daily as may be specified by the Rating Agencies
or set forth in the related Prospectus Supplement is satisfied, and (iii) a
Servicer Default (as described below) does not exist, CFSC as Servicer will be
permitted to deposit all collections of Receivables into the related Collection
Account on or before the business day preceding the related Distribution Date.
If the related Prospectus Supplement so provides, or if the above described
conditions are not met, the deposit of collections for a Collection Period will
be made within two business days of receipt and identification thereof, and any
Purchase Amounts will be deposited in the related Collection Account when due.
Normally, collections are identified within one day of receipt. Pending deposit
into the Collection Account, regardless of frequency of deposit, collections may
be invested by the Servicer at its own risk, for its own benefit and without
being subject to any investment restrictions, and will not be segregated from
funds of the Servicer. If the Servicer were unable to remit such funds, or if
the Servicer were to become insolvent, the Securityholders might incur a loss.
To the extent set forth in the related Prospectus Supplement, the Servicer, in
order to satisfy the requirements described above for monthly remittances, may
obtain a letter of credit or other security for the benefit of the related Trust
to secure the timely remittances of collections on the related Receivables and
the payment of the aggregate Purchase Amount with respect to such Receivables
purchased by the Servicer.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the Prospectus Supplement with respect to any
Trust, the Servicer will be entitled to receive a Servicing Fee for each
Collection Period in an amount equal to a specified percentage per annum (as set
forth in the related Prospectus Supplement, the "SERVICING FEE RATE") of the
Pool Balance as of the first day of the related Collection Period (the
"SERVICING FEE"). The Servicing Fee with respect to any Trust (together with any
portion of such Servicing Fee that remains unpaid from prior Distribution Dates)
will be paid solely to the extent of the funds available therefor as set forth
in the related Prospectus Supplement under "Description of the Transfer and
Servicing Agreements--Distributions." However, the Servicing Fee will be paid
prior to the distribution of any portion of the "TOTAL DISTRIBUTION AMOUNT" (as
such term is defined in the related Prospectus Supplement) to the related
Noteholders or the related Certificateholders and prior to payment of the
related Administration Fee. The Servicing Fee with respect to each Collection
Period will decline over the life of the Securities as the Pool Balance
decreases.
Unless otherwise specified in the Prospectus Supplement with respect to any
Trust, the Servicer will also collect any late fees, extension fees, property
and sales taxes (with respect to Leases) and other administrative fees or
similar charges allowed by applicable law with respect to the related
Receivables (collectively, the "SERVICER'S YIELD"), and will be entitled to
amounts of Servicer's Yield collected as such amounts are
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received. Payments by or on behalf of Obligors will be allocated first to
scheduled payments, second to other charges (except for late fees) and third, to
late fees, all in accordance with the Servicer's normal practices and
procedures.
The Servicing Fee with respect to any Trust will compensate the Servicer for
performing the functions of a third party servicer of machinery receivables as
an agent for their beneficial owner, including collecting and posting all
payments, responding to inquiries of Obligors on the related Receivables,
investigating delinquencies, sending payment coupons to Obligors, reporting tax
information to Obligors, paying costs of disposition of defaults, and policing
the collateral. Such Servicing Fee also will compensate the Servicer for
administering the related Receivables, accounting for collections and furnishing
monthly and annual statements to the Seller, the related Owner Trustee and the
related Indenture Trustee with respect to distributions and retaining the
Custodian to hold custody of the related Receivables. Such 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 of each Trust.
Under certain circumstances, the Servicer will be permitted to make deposits
of collections into the Collection Account net of the Servicing Fee and the
Servicer's Yield, as described herein under "--Net Deposits."
DISTRIBUTIONS
With respect to each Series of Securities, beginning on the Distribution
Date specified in the related Prospectus Supplement, distributions of principal
and interest (or, where applicable, of principal or interest only) on each Class
of such Securities entitled thereto will be made by the applicable Trustee to
the Noteholders and the Certificateholders of such Series. The timing,
calculation, allocation, order, source, priorities of and requirements for all
payments to 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 Trust, on each Distribution Date, collections on the
related Receivables will be transferred from the related Collection Account to
the related Note Distribution Account and the related Certificate Distribution
Account for distribution to Noteholders and Certificateholders of the related
Series to the extent provided in the related Prospectus Supplement. Credit
enhancement, such as a Reserve Account, will 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 otherwise specified therein,
distributions in respect of principal of a Class of Securities of a given Series
will be subordinate to distributions in respect of interest on such Class, and
distributions in respect of the Certificates of such Series may be subordinate
to payments in respect of the Notes of such Series.
CREDIT AND CASH FLOW ENHANCEMENT
The amounts and types of credit enhancement arrangements and the provider
thereof, if applicable, with respect to each Class of Securities of a given
Series, if any, 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 subordination of one or more Classes of Securities,
Reserve Accounts, over-collateralization, letters of credit, credit or liquidity
facilities, surety bonds, 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 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 related
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. In addition, if specified in the related Prospectus Supplement,
credit enhancement for one or more Classes of Securities of a Series may cover
all or a portion of the outstanding amount of such Classes or may cover losses
incurred from all or a portion of the related Receivables.
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The presence of a Reserve Account and other forms of credit enhancement for
the benefit of all or any portion of any Class or Series of Securities is
intended to enhance the likelihood of receipt by the Securityholders of 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. Unless
otherwise specified in the related Prospectus Supplement, the credit enhancement
for all or any portion of a Class or Series of Securities will not provide
protection against all risks of loss and will not guarantee repayment of the
entire principal balance and interest thereon. If losses occur which exceed the
amount covered by any credit enhancement or which are not covered by any credit
enhancement, 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.
Unless otherwise provided in the related Prospectus Supplement, the Seller
may replace the credit enhancement for any Class of Securities with another form
of credit enhancement without the consent of Securityholders, provided the
applicable Rating Agencies confirm in writing that substitution will not result
in the reduction or withdrawal of the rating of such Class of Securities or any
other Class of Securities of the related Series.
RESERVE ACCOUNT. If so provided in the related Prospectus Supplement,
pursuant to the related Sale and Servicing Agreement, the Seller will establish
for a Series or Class of Securities an account, as specified in the related
Prospectus Supplement (the "RESERVE ACCOUNT"), which will be maintained in the
name of the related Indenture Trustee. Unless otherwise provided in the related
Prospectus Supplement, the Reserve Account will be funded by an initial deposit,
if any, by the Seller on the related Closing Date in the amount set forth in the
related Prospectus Supplement. As further described in the related Prospectus
Supplement, the amount on deposit in the Reserve Account will be increased on
each Distribution Date thereafter up to the "SPECIFIED RESERVE ACCOUNT BALANCE"
(as such term is defined in the related Prospectus Supplement) by the deposit
therein of the amount of collections on the related Receivables remaining on
each such Distribution Date after the payment of all other required payments and
distributions on such date and, if applicable, any amounts deposited from time
to time from the Pre-Funding Account in connection with the purchase of
Subsequent Receivables. The related Prospectus Supplement will describe the
circumstances and manner under which distributions may be made out of the
Reserve Account, either to holders of the Securities covered thereby, to the
Seller or to any transferee or assignee of the Seller.
The Seller may at any time, without consent of the Securityholders, sell,
transfer, convey or assign in any manner its rights to and interests in
distributions from the Reserve Account, including interest earnings thereon,
provided that (i) the Rating Agencies confirm in writing that such action will
not result in a reduction or withdrawal of the rating of any Class of
Securities, (ii) the Seller provides to the related Owner Trustee and the
related Indenture Trustee an opinion of counsel from independent counsel that
such action will not cause the related Trust to be treated as an association (or
publicly traded partnership) taxable as a corporation for federal income tax
purposes and (iii) such transferee or assignee agrees in writing to take
positions for tax purposes consistent with the tax positions agreed to be taken
by the Seller.
NET DEPOSITS
As an administrative convenience, the Servicer will be permitted to make the
deposit of collections and Purchase Amounts for any Trust for or with respect to
the related Collection Period net of distributions to be made to the Servicer
for such Trust with respect to such Collection Period (including the Servicing
Fee and any Servicer's Yield); PROVIDED, that if the Servicer is required to
remit collections daily (see "--Payments on Receivables" above), deposits of
such amounts may only be made net of the Servicer's Yield and may not be made
net of the Servicing Fee. The Servicer, however, will account to the Indenture
Trustee, the Owner Trustee, the Noteholders and the Certificateholders with
respect to each Trust as if all deposits, distributions and transfers were made
individually.
REPORTS TO SECURITYHOLDERS
With respect to each Series of Securities, on or prior to each Distribution
Date, the Servicer will prepare and provide (a) to the related Indenture Trustee
a statement to be delivered to the related Noteholders on
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such Distribution Date and (b) to the related Owner Trustee a statement to be
delivered to the related Certificateholders on such Distribution Date. With
respect to each Series of Securities, each such statement to be delivered to
Noteholders will include (to the extent applicable) the following information
(and any other information so specified in the related Prospectus Supplement) as
to the Notes of such Series with respect to such Distribution Date or the period
since the previous Distribution Date, as applicable, and each such statement to
be delivered to Certificateholders will include (to the extent applicable) the
following information (and any other information so specified in the related
Prospectus Supplement) as to the Certificates of such Series with respect to
such Distribution Date or the period since the previous Distribution Date, as
applicable.
(i)
the amount of the distribution allocable to principal of each Class
of Securities of such Series;
(ii)
the amount of the distribution allocable to interest on or with
respect to each Class of Securities of such Series;
(iii)
the Pool Balance as of the close of business on the last day of the
preceding Collection Period;
(iv)
the aggregate outstanding principal balance and the Note Pool Factor
for each Class of such Notes, and the Certificate Balance and the
Certificate Pool Factor for each Class of such Certificates, each after
giving effect to all payments reported under clause (i) above on such date;
(v)
the amount of the Servicing Fee paid to the Servicer with respect to
the related Collection Period;
(vi)
the Interest Rate or Pass-Through Rate for the next period for any
Class of Notes or Certificates of such Series with variable or
adjustable rates;
(vii)
the amount of the Administration Fee paid to the Administrator in
respect of the related Collection Period;
(viii)
the amount of the aggregate "REALIZED LOSSES" (as defined in the
related Prospectus Supplement), if any, for such Collection Period;
(ix)
the aggregate Purchase Amounts for Receivables, if any, that were
repurchased or purchased in such Collection Period;
(x)
the balance of the Reserve Account (if any) on such Distribution
Date, after giving effect to withdrawals therefrom and deposits
thereto on such Distribution Date, and the Specified Reserve Account Balance
on such date;
(xi)
for each such date during the Funding Period (if any), the remaining
Pre-Funded Amount; and
(xii)
for the first such date that is on or immediately following the end
of the Funding Period (if any), the amount of any remaining
Pre-Funded Amount that has not been used to fund the purchase of Subsequent
Receivables and is being passed through as payments of principal on the
Securities of such Series.
Each amount set forth pursuant to subclauses (i), (ii), (v) and (vii) with
respect to the Notes or the Certificates of any Series will be expressed as a
dollar amount per $1,000 of the initial principal balance of such Notes or the
initial Certificate Balance of such Certificates, as applicable.
Within the prescribed period of times for tax reporting purposes after the
end of each calendar year during the term of each Trust, the applicable Trustee
will mail to each person who at any time during such calendar year has been a
Securityholder with respect to such Trust and received any payment thereon, a
statement containing certain information for the purposes of such
Securityholder's preparation of federal income tax returns. See "Certain Federal
Income Tax Considerations" herein.
STATEMENTS TO TRUSTEES AND TRUST
Prior to each Distribution Date with respect to each Series of Securities,
the Servicer will provide to the related Indenture Trustee and the related Owner
Trustee as of the close of business on the last day of the
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preceding 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 "--Reports to Securityholders"
above.
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 Indenture Trustee
annually a statement as to compliance by the Servicer during the preceding 12
months ended December 31 (or, in the case of the first such certificate, the
period from the related Closing Date to December 31 of the same year) with
certain standards relating to the servicing of the related Receivables, the
Servicer's accounting records with respect thereto (including, if necessary, any
computer files) and certain other matters.
Each Sale and Servicing Agreement will also provide for delivery to the
related Trust and Indenture Trustee, substantially simultaneously with the
delivery of the accountants' statement referred to above, 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 ended December 31 (or, in
the case of the first such certificate, the period from the related Closing Date
to December 31 of the same year) or, if there has been a default in the
fulfillment of any such obligation in any material respect, describing each such
default. The Servicer will agree to give each Indenture Trustee and each Owner
Trustee notice of certain Servicer Defaults 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 Trustee.
CERTAIN MATTERS REGARDING THE SERVICER
Each Sale and Servicing Agreement will provide that CFSC may not resign from
its obligations and duties as Servicer thereunder, except upon determination
that CFSC's performance of such duties is no longer permissible under applicable
law. No such resignation will become effective until the related Indenture
Trustee or a successor servicer has assumed CFSC's servicing obligations and
duties under such Sale and Servicing Agreement.
Each Sale and Servicing Agreement will further provide that neither the
Servicer nor any of its directors, officers, employees and agents shall be under
any liability to the related Trust, the related Noteholders or the related
Certificateholders 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,
such 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 such Sale and Servicing
Agreement and that, in its opinion, may cause it to incur any expense or
liability.
Under the circumstances specified in such Sale and Servicing Agreement
(including confirmation by the Rating Agencies that such succession will not
result in the reduction or withdrawal of the rating of any Class of Securities
of the related Series), (a) any entity into which the Servicer may be merged or
consolidated, (b) any entity resulting from any merger or consolidation to which
the Servicer is a party, (c) any entity succeeding to the business of the
Servicer or (d) any corporation 50% or more of the voting stock of which is
owned, directly or indirectly, by Caterpillar, 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 such Sale and Servicing Agreement.
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SERVICER DEFAULT
With respect to each Trust, "SERVICER DEFAULT" under each Sale and Servicing
Agreement will consist of (i) any failure by the Servicer (A) to deliver to the
related Indenture Trustee for deposit in any of the related Trust Accounts any
required payment or (B) to direct the related Indenture Trustee to make any
required distributions therefrom, in either case which failure continues
unremedied for three business days after written notice from such Indenture
Trustee or the related Owner Trustee is received by the Servicer or after
discovery by the Servicer; (ii) any failure by the Servicer or the Seller, as
the case may be, duly to observe or perform in any material respect any other
covenant or agreement in any Transfer and Servicing Agreement, which failure
materially and adversely affects the rights of Noteholders or Certificateholders
of the related Series and which continues unremedied for 60 days after the
giving of written notice of such failure (A) to the Servicer or the Seller, as
the case may be, by such Indenture Trustee or such Owner Trustee or (B) to the
Servicer or the Seller, as the case may be, and to such Indenture Trustee and
such Owner Trustee by holders of Notes or Certificates of such Series, as
applicable, evidencing not less than 25% in aggregate principal amount of the
outstanding Notes or Certificates of the related Series; (iii) certain events of
insolvency, readjustment of debt, marshalling 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 (each, an "INSOLVENCY EVENT");
and (iv) with respect to any Trust, the additional event or events, if any,
specified in the related Prospectus Supplement.
RIGHTS UPON SERVICER DEFAULT
Unless otherwise provided in the related Prospectus Supplement, as long as a
Servicer Default under a Sale and Servicing Agreement remains unremedied, the
related Indenture Trustee or the Noteholders of the related Series (without the
consent of the related Indenture Trustee) evidencing not less than 25% of the
outstanding principal amount of such Notes (or such Class or Classes of Notes
specified in the related Prospectus Supplement) may terminate all the rights and
obligations of the Servicer under such Sale and Servicing Agreement, whereupon a
successor servicer appointed by such Indenture Trustee or such Indenture Trustee
will succeed to all the responsibilities, duties and liabilities of the Servicer
under such Sale and Servicing Agreement 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 Default other than such
appointment has occurred, such trustee or official may have the power to prevent
such Indenture Trustee or such Noteholders from effecting a transfer of
servicing. In the event that the Indenture Trustee is unwilling or unable to so
act, it may appoint, or petition a court of competent jurisdiction for the
appointment of, a successor with a net worth of at least $50,000,000 and whose
regular business includes the servicing of receivables similar to the related
Receivables. Such Indenture Trustee may make such arrangements for compensation
to be paid, which in no event may be greater than the servicing compensation
payable to the Servicer under such Sale and Servicing Agreement. Neither an
Owner Trustee nor the related Certificateholders have the right to remove the
Servicer if a Servicer Default occurs.
WAIVER OF PAST DEFAULTS
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, the holders of Notes evidencing not less than a majority
of the outstanding principal amount of the then outstanding Notes of the related
Series (or such Class or Classes of Notes specified in the related Prospectus
Supplement) (or, if no Notes are outstanding the holders of Certificates
evidencing not less than a majority of the outstanding Certificate Balance) may,
on behalf of all such Noteholders and Certificateholders, waive any default by
the Servicer in the performance of its obligations under the related 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 such Sale and Servicing Agreement. Therefore, all or some of the
Noteholders of any Series have the ability, as limited above, to waive defaults
by the Servicer which could materially and adversely affect the other related
Noteholders and the related Certificateholders. With respect to any Series, no
such waiver shall impair the Noteholders' or the Certificateholders' rights with
respect to subsequent defaults.
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AMENDMENT
Unless otherwise provided in the related Prospectus Supplement, each of the
Transfer and Servicing Agreements (other than any Custodial Agreement) may be
amended by the parties thereto, without the consent of the related Noteholders
or Certificateholders, for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of any such Transfer and
Servicing Agreement or of modifying in any manner the rights of such Noteholders
or Certificateholders; PROVIDED, HOWEVER, that such action will not, in the
opinion of counsel satisfactory to the related Indenture Trustee and the related
Owner Trustee, materially and adversely affect the interest of any such
Noteholder or Certificateholder or the tax characterization of the Notes or the
Certificates. In addition, unless otherwise provided in the related Prospectus
Supplement, each of the Transfer and Servicing Agreements (other than any
Custodial Agreement) may be amended by the parties thereto, without the consent
of the related Noteholders or Certificateholders, to substitute credit
enhancement for any Class of Securities, provided the applicable Rating Agencies
confirm in writing that such amendment will not result in a reduction or
withdrawal of the rating of such Class of Securities or any Class of Securities
of the related Series and an opinion of counsel satisfactory to the related
Indenture Trustee and the related Owner Trustee is provided to the effect that
such change will not adversely affect the tax characterization of the Notes or
the Certificates. In addition, unless otherwise provided in the related
Prospectus Supplement, each of the Transfer and Servicing Agreements (other than
any Custodial Agreement) may be amended by the Seller, the Servicer, the related
Owner Trustee and the related Indenture Trustee with the consent of the holders
of Notes evidencing at least a majority in the then outstanding principal amount
of such Notes and the holders of Certificates evidencing at least a majority of
the related Certificate Balance for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of such Agreements
or of modifying in any manner the rights of Noteholders or Certificateholders of
the related Series; PROVIDED, HOWEVER, that no such amendment may (i) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Receivables or payments or distributions that are
required to be made for the benefit of the Noteholders or the Certificateholders
or (ii) reduce the aforesaid percentage of the Notes and Certificates of such
Series which are required to consent to any such amendment, without the consent
of the holders of all the outstanding Notes or Certificates, as the case may be,
of such Series. A Custodial Agreement may be amended by the parties thereto,
provided the applicable Rating Agencies confirm in writing that such amendment
will not result in a reduction or withdrawal of the rating of any related Class
of Securities.
PAYMENT OF NOTES
Upon the payment in full of all outstanding Notes of a given Series and the
satisfaction and discharge of the related Indenture, the related Owner Trustee
will succeed to all the rights of the related Indenture Trustee, and the
Certificateholders of such Series will succeed to all the rights of the
Noteholders of such Series, in each case under the related Sale and Servicing
Agreement, except as otherwise provided therein.
TERMINATION
With respect to each Trust, the obligations of the Servicer, the Seller, the
related Owner Trustee and the related Indenture Trustee pursuant to the related
Transfer and Servicing Agreements will terminate upon (i) the maturity or other
liquidation of the last related Receivables and the disposition of any amounts
received upon liquidation of any such remaining Receivables and (ii) the payment
to Noteholders and Certificateholders of the related Series of all amounts
required to be paid to them pursuant to such Transfer and Servicing Agreements.
With respect to each Trust, unless otherwise provided in the related
Prospectus Supplement, in order to avoid excessive administrative expense, if as
of the last day of any Collection Period, the then outstanding Pool Balance with
respect to the Receivables held by such Trust is 10% or less of the "INITIAL
POOL BALANCE" (as such term is defined in the related Prospectus Supplement),
the Servicer shall have the option to purchase all remaining related Receivables
as of such last day at a price equal to the aggregate Purchase Amount for the
Receivables (including defaulted Receivables but not including liquidated
Receivables).
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As more fully described in the related Prospectus Supplement, any
outstanding Notes of the related Series will be prepaid concurrently upon either
of the events specified above and the subsequent distribution to the related
Certificateholders of all amounts required to be distributed to them pursuant to
the related Trust Agreement will effect early retirement of the Certificates of
such Series.
ADMINISTRATION AGREEMENT
CFSC, in its capacity as administrator (the "ADMINISTRATOR"), will enter
into an agreement (as amended and supplemented from time to time, the
"ADMINISTRATION AGREEMENT") with each Trust and the related Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in such
Administration Agreement, to provide the notices and to perform on behalf of the
related Trust certain other administrative obligations required by the related
Indenture. As compensation for the performance of the Administrator's
obligations under the Administration Agreement and as reimbursement for its
expenses related thereto, the Administrator will be entitled to a monthly
administration fee in an amount to be set forth in the related Prospectus
Supplement (the "ADMINISTRATION FEE").
CERTAIN LEGAL ASPECTS OF THE RECEIVABLES
SALE AND TRANSFER OF RECEIVABLES
Unless the related Prospectus Supplement provides that such transfers and
grant will be perfected by filing UCC financing statements, the transfer of
ownership of the Receivables of each Trust from CFSC to the Seller and from the
Seller to such Trust, and the granting of the security interest in such
Receivables by such Trust to the related Indenture Trustee, will in each case be
perfected by the Custodian, on behalf of the applicable assignee, taking
possession of the related Receivables Files. The Custodian will maintain its
possession of the Receivables Files in a space leased by the Custodian which
space may, if the related Prospectus Supplement so provides, be proximate to the
principal executive offices of the Seller. Although steps will be taken to
ensure that the Seller does not obtain possession or control of the Receivables
Files, should a court find that the Seller did have possession or control of
such Receivables Files, the interests of the related Trust and the related
Indenture Trustee in such Receivables may be unperfected under certain
circumstances and distributions to Securityholders may be adversely affected.
CFSC will indicate on its computer records that such Receivables have been sold,
but, unless otherwise specified in the related Prospectus Supplement, UCC
financing statements will not be filed to perfect such transfers of ownership or
such grant of a security interest in such Receivables. If UCC financing
statements are filed to perfect such transfers of ownership or grants of
security interests, to facilitate servicing and reduce administrative costs, the
Receivables Files will be retained by the Servicer and will not be physically
segregated from other similar documents that are in the Servicer's possession or
otherwise stamped or marked to reflect the transfer to the related Trust so long
as CFSC is servicing the Receivables. However, UCC financing statements will be
filed reflecting the sale and assignment of the Receivables by CFSC to the
Seller, and by the Seller to such Trust, and the Servicer's accounting records
and computer files will be marked to reflect such sales and assignments. Because
the Receivables Files will remain in the Servicer's possession and will not be
stamped or otherwise marked to reflect the assignment to the Indenture Trustee,
if a subsequent purchaser were able to take physical possession of the
Receivables Files without knowledge of such assignment, the Indenture Trustee's
interest in the Receivables could be defeated. In such event, distributions to
Securityholders may be adversely affected.
BANKRUPTCY
The Seller has taken and will take steps in structuring the transactions
contemplated hereby that are intended to ensure that a voluntary or involuntary
petition for relief by or against CFSC under any Insolvency Law will not result
in the substantive consolidation of the assets and liabilities of the Seller
with those of CFSC. These steps include the creation of the Seller as a
separate, limited-purpose entity pursuant to Articles of Incorporation
containing (i) 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) and (ii) a requirement that
at least one of the Seller's directors be independent of CFSC and its
affiliates. However, there can
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be no assurance that the activities of the Seller would not result in a court's
concluding that the assets and liabilities of the Seller should be substantively
consolidated with those of CFSC in a proceeding under any Insolvency Law.
CFSC will warrant to the Seller in each Purchase Agreement that the sale of
the related Receivables by it to the Seller is an absolute sale of such
Receivables to the Seller. In addition, CFSC and the Seller will treat the
transactions described herein and in the related Prospectus Supplement as a sale
of the related Receivables to the Seller, and the Seller has taken and will take
all actions that are required to perfect the Seller's ownership interest in the
related Receivables by the Seller taking possession of the related Receivables
Files through the Custodian or, if so specified in the related Prospectus
Supplement, by the Seller filing UCC financing statements. Notwithstanding the
foregoing, if CFSC were to become a debtor in a bankruptcy case, and a creditor
or trustee-in-bankruptcy of CFSC or CFSC itself were to take the position that a
sale of Receivables to the Seller should be recharacterized as a pledge of such
Receivables to secure a borrowing of CFSC, then delays in payments of
collections of such 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, or a reduction in the amount of Receivables securing such a
borrowing, could result. If the transactions contemplated herein and in the
related Prospectus Supplement are treated as a sale, the related Receivables
would not be part of CFSC's bankruptcy estate and would not be available to
CFSC's creditors.
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 UCC, rather than as accounts, the rationale behind the OCTAGON ruling
could be applied 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 CFSC bankruptcy,
however, even if the transfers of Receivables to the Seller and to a Trust were
treated as sales, the related Receivables would be part of CFSC's bankruptcy
estate and would be subject to claims of certain creditors and delays and
reductions in payments to the Seller and holders of the related Securities, or a
reduction in the amount of Receivables supporting such Securities, could result.
The Seller will warrant in each Sale and Servicing Agreement that the sale of
the related Receivables to the related Trust is an absolute sale of such
Receivables to such Trust.
SECURITY INTEREST IN EQUIPMENT
The documents contained in the Receivables Files will constitute personal
property security agreements and will include or constitute grants of security
interests in the related Financed Equipment and certain other
cross-collateralized equipment under the applicable UCC. Perfection of security
interests in the equipment is generally governed by the laws of the state in
which such equipment (or the Obligor, if the equipment constitutes mobile goods
under the UCC) is located. The UCC generally governs the perfection of such
interests.
All of such Installment Sales Contracts and Leases originated or acquired by
CFSC will name CFSC as obligee or assignee and as the secured party of a first
priority security interest in the related Financed Equipment. Pursuant to the
Transfer and Servicing Agreements, CFSC will contractually agree to take all
actions necessary under the laws of the state in which the Financed Equipment is
located to perfect its security interests in the Financed Equipment in its name,
including the filing of UCC financing statements in the appropriate offices.
Obligors will generally be notified of the sale of Receivables from the Dealers
to CFSC. However, because the Servicer continues to service the Installment
Sales Contracts and Leases, the Obligors will not be notified of the sale from
CFSC to the Seller and, in the ordinary course, no action will be taken to
record the transfer of the security interest from CFSC to the Seller by
amendment or assignments of the UCC financing statements or otherwise.
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Pursuant to each Purchase Agreement, CFSC will sell and assign its security
interests in the Financed Equipment and certain other cross-collateralized
equipment securing Receivables to the Seller and, pursuant to each Sale and
Servicing Agreement, the Seller will assign its security interests in the
Financed Equipment and such cross-collateralized equipment to the related Trust.
However, because of the administrative burden and expense, none of the Seller,
the Servicer, CFSC or the related Owner Trustee will amend or file any UCC
financing statement to identify the related Trust as the new secured party on
the financing statement relating to the Financed Equipment or such
cross-collateralized equipment. See "Description of the Transfer and Servicing
Agreements--Sale and Assignment of Receivables" herein. There are certain
limited circumstances under the UCC and applicable federal law in which prior or
subsequent transferees of Receivables could have an interest in such Receivables
with priority over the related Trust's interest. In addition, while CFSC is the
Servicer, cash collections on the Receivables of any Trust will, under certain
circumstances, be commingled with the funds of CFSC prior to deposit into the
related Collection Account and, in the event of the bankruptcy of CFSC, such
Trust may not have a perfected interest in such collections.
In most states, an assignment of a security interest in Financed Equipment
such as that under a Purchase Agreement and a Sale and Servicing Agreement is an
effective conveyance of a security interest without amendment of any UCC
financing statement relating to such Financed Equipment, and the assignee
succeeds thereby to the assignor's rights as secured party. By not identifying a
Trust as the secured party on the financing statement, the security interest of
such Trust in the related Financed Equipment could be defeated through fraud or
negligence by CFSC or (under certain circumstances) the related Dealer. In the
absence of error, fraud or forgery by the related Obligor or administrative
error by state or local agencies, the proper initial filing of the financing
statement relating to such Financed Equipment will be sufficient to protect a
Trust against the rights of subsequent purchasers of such Financed Equipment or
subsequent lenders who take a security interest in the Financed Equipment
related to a Receivable. If there is any Financed Equipment as to which the
original secured party, if any, failed to obtain and assign to CFSC a perfected
security interest, the security interest of CFSC would be subordinated to, among
others, subsequent purchasers of the equipment and holders of perfected security
interests. Such a failure, however, would constitute a breach of the warranties
of CFSC under each Purchase Agreement and would create an obligation of CFSC to
repurchase the related Receivables unless the breach is cured. The Seller will
assign its rights pursuant to each Purchase Agreement to the related Trust. See
"Description of the Transfer and Servicing Agreements--Sale and Assignment of
Receivables" herein.
Under each Sale and Servicing Agreement, the Servicer will be obligated to
take appropriate steps, at its own expense, to maintain perfection of security
interests in each item of Financed Equipment and is obligated to repurchase the
related Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on the equipment
and liens for unpaid taxes may take priority over even a perfected security
interest in such goods. The Servicer will represent that, as of the related
Closing Date or Subsequent Closing Date, as applicable, each security interest
in Financed Equipment is prior to all other present liens upon and security
interests in such Financed Equipment. However, liens for repairs or taxes unpaid
by an Obligor could arise at any time during the term of a Receivable. Neither
the Seller nor the Servicer will have any obligation to repurchase a Receivable
if any such lien results in a Trust losing the priority of its security interest
or its security interest in any Financed Equipment after the related Closing
Date, or, if applicable, any related Subsequent Closing Date. No notice will be
given to the related Owner Trustee, Indenture Trustee, Noteholders or
Certificateholders of any Series in the event such a lien arises.
REPOSSESSION
In the event of default by the obligor, the holder of the retail installment
sales contract or finance lease 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. Self-help is the method
employed by the Servicer in most cases and is accomplished simply by retaking
possession of the financed equipment. 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
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within which he may cure the default prior to repossession. 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 equipment must then be repossessed in accordance with that order.
NOTICE OF SALE; REDEMPTION RIGHTS
The UCC and other state laws generally 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 generally 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. In some states, the obligor may cure the default or
reinstate the retail installment sales contract or finance lease by payment of
delinquent installments or the unpaid balance.
DEFICIENCY JUDGMENTS AND EXCESS PROCEEDS
The proceeds of resale of any Financed Equipment 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 the equipment and payment of all expenses and
all indebtedness, there is a surplus of funds. In that case, the UCC requires
the lender to remit the surplus to any holder of a junior lien with respect to
the equipment or, if no such lienholder exists or there are remaining funds, the
UCC requires the lender to remit the surplus to the obligor.
Courts have applied general equitable principles to secured parties pursuing
repossession or 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 consumers.
CFSC will warrant under each Purchase Agreement that each Receivable
complies with all requirements of applicable 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 CFSC
under the related Purchase Agreement and would create an obligation of CFSC to
repurchase such Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements--Sale and Assignment of Receivables" herein.
LEASES
Certain states have adopted a version of Article 2A of the UCC ("ARTICLE
2A"). Article 2A purports to codify many provisions of existing common law.
Although there is little precedent regarding how Article 2A will be interpreted,
it may, among other things, limit enforceability of any "unconscionable" lease
or "unconscionable" provision in a lease, provide a lessee with remedies,
including the right to cancel the lease, for certain lessor breaches or
defaults, and may add to or modify the terms of "consumer leases" and leases
where the lessee is a "merchant lessee." However, with respect to any Lease
conveyed to a Trust, CFSC will represent in the related Purchase Agreement that
(i) such Lease contract is not a "consumer lease" and (ii) to the best of its
knowledge, the related Obligor has accepted the related Financed Equipment
leased to it and, after reasonable opportunity to inspect and test, has not
notified CFSC of any defects therein.
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Article 2A also recognizes typical commercial lease "hell or high water" rental
payment clauses and validates reasonable liquidated damages provisions in the
event of lessor or lessee defaults. Moreover, Article 2A recognizes the concept
of freedom of contract and permits the parties in a commercial context a wide
degree of latitude to vary provisions of the law.
OTHER
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 lender to
realize upon collateral or enforce a deficiency judgment. For example, in a case
under the federal bankruptcy law, a court may prevent a lender from repossessing
the equipment, and, as part of the rehabilitation plan, reduce the amount of the
secured indebtedness to the market value of the equipment at the time of
bankruptcy (as determined by the court), leaving the party providing financing
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. For a
discussion of other legal aspects relating to Receivables of a Trust, see
"Certain Legal Aspects of the Receivables" in the related Prospectus Supplement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of an investment in the Notes and Certificates as of the date
hereof. The summary is based on the Internal Revenue Code of 1986, as amended
(the "CODE"), and existing final, temporary and proposed Treasury Regulations,
Revenue Rulings and judicial decisions, all of which are subject to prospective
and retroactive changes. The summary is addressed only to original purchasers of
the Notes and the Certificates and deals only with Notes and Certificates held
as capital assets within the meaning of Section 1221 of the Code and does not
address tax consequences of holding Notes and Certificates that may be relevant
to investors in special tax situations, such as certain financial institutions,
tax-exempt organizations, life insurance companies, dealers in securities or
currencies, or investors holding the Notes or the Certificates as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes. The summary is further addressed only
to original purchasers of the Certificates who are "UNITED STATES PERSONS" (as
defined in Code Section 7701(a)(30)). Each Trust will be provided with an
opinion of counsel to each Trust specified in the related Prospectus Supplement
("SPECIAL TAX COUNSEL") regarding certain federal income tax matters discussed
below. An opinion of Special Tax Counsel, however, is not binding on the
Internal Revenue Service ("IRS") or the courts, and no ruling on any of the
issues discussed below will be sought from the IRS. Moreover, there are no
authorities on similar transactions involving both debt and equity interests
issued by a trust with terms similar to those of the Notes and the Certificates
described herein and in the related Prospectus Supplement. Accordingly, persons
considering the purchase of Notes or Certificates should consult their own tax
advisors with regard to the United States federal income tax consequences of an
investment in the Notes or Certificates and the application of United States
federal income tax laws, as well as the laws of any state, local or foreign
taxing jurisdictions, to their particular situations.
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.
TAX CHARACTERIZATION OF THE TRUST
Special Tax Counsel will deliver its opinion that the Trust will not be
classified as an association (or publicly traded partnership) taxable as a
corporation for United States federal income tax purposes. This opinion is based
on the assumption that the terms of the Trust Agreement and related documents
will be complied with, and on Special Tax 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.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
TREATMENT OF THE NOTES AS INDEBTEDNESS. The Seller and the Trust will
agree, and the Noteholders will agree by their purchase of Notes, to treat the
Notes as debt for United States federal income tax purposes.
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Special Tax Counsel will, except as otherwise provided in the related Prospectus
Supplement, advise the Trust that the Notes will be classified as debt for
United States federal income tax purposes. The discussion below assumes that the
characterization of the Notes as debt is correct.
OID, INDEXED SECURITIES, ETC. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and the Notes are not
Indexed Securities or Strip Notes. 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
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) does not exceed a
DE MINIMIS amount (I.E., 1/4% of their principal amount multiplied by their
weighted average life, calculated using the prepayment assumption used in
pricing the Notes and weighting each payment by reference to the number of
complete years from the issue date to the day of such payment, 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 related Prospectus Supplement.
INTEREST INCOME ON THE NOTES. Based on the above assumptions, except as
discussed below, the Notes will not be considered to have been issued with
original issue discount. Accordingly, the stated interest on a Note will be
taxable to a Noteholder as ordinary interest income at the time it accrues or is
received in accordance with the Noteholder's regular method of accounting for
tax purposes. 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.
However, because a failure to pay interest currently on the Notes is not a
default and does not give rise to a penalty, under recently issued Treasury
Regulations relating to the treatment of debt instruments issued at an original
issue discount, the Notes might be viewed as having been issued with original
issue discount. Holders of the Notes would be required to include the original
issue discount in gross income for federal income tax purposes as it accrues, in
accordance with a constant interest method based on a compounding of interest,
in advance of receipt of the cash payments attributable to such income.
SALE OF THE NOTES. Upon the sale of a Note, the Noteholder will recognize
taxable gain or loss in an amount equal to the difference between the amount
realized on the sale (other than amounts attributable to accrued interest) and
the Noteholder's adjusted tax basis in the Note. The Noteholder's adjusted tax
basis in the Note will equal the cost of the Note to such Noteholder, increased
by any market discount previously included in income by such Noteholder with
respect to the Note, and decreased by the amount of any bond premium previously
amortized and any principal payments previously received by such Noteholder with
respect to such Note. Any such gain or loss will be capital gain or loss, except
to the extent of accrued market discount not previously included in income (or,
in the case of a prepayment or redemption, any OID not yet accrued), and will be
long term capital gain or loss if at the time of sale the Note has been held for
more than one year.
FOREIGN HOLDERS. Under United States federal income tax law now in effect,
payments of interest by the Trust to a Noteholder who, as to the United States,
is a nonresident alien individual, a foreign corporation or other non-United
States person (a "FOREIGN PERSON") generally will be considered "portfolio
interest," and generally will not be subject to United States federal income tax
and withholding tax, provided 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), is not for United States federal income tax purposes
a "controlled foreign corporation" with respect to which the Trust or the Seller
is a "related person" within the meaning of the Code, or is not a bank extending
credit pursuant to a loan agreement entered into in the ordinary course of its
trade or business, and (ii) provides the person who is otherwise required to
withhold United States tax with respect to the Notes with an appropriate
statement (on IRS Form W-8 or a substitute 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 a Note is held through a
securities clearing organization or certain other financial institutions (as is
expected to be the case unless
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Definitive Notes are issued), 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 an IRS 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 or such interest is effectively connected with the conduct
of a trade or business within the United States and, in either case, the
appropriate statement has been provided.
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 tax 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.
If the interest, gain or income on a Note held by a foreign person is
effectively connected with the conduct of a trade or business in the United
States by the foreign person, the holder (although exempt from the withholding
tax previously discussed if a duly executed Form 4224 is furnished) generally
will be subject to United States federal tax on the interest, gain or income at
regular federal income tax rates.
BACKUP WITHHOLDING. Payments of principal and interest, as well as payments
of proceeds from the sale, retirement or disposition of a Note, may be subject
to "backup withholding" tax under Section 3406 of the Code at a rate of 31% if a
recipient of such payments fails to furnish to the payor certain identifying
information. Any amounts deducted and withheld would be allowed as a credit
against such recipient's United States federal income tax, provided appropriate
proof is provided under rules established by the IRS. Furthermore, certain
penalties may be imposed by the IRS on a recipient of payments that is required
to supply information but that does not do so in the proper manner. Backup
withholding will not apply with respect to payments made to certain exempt
recipients, such as corporations and financial institutions. Noteholders should
consult their tax advisors regarding their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption.
POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES. If, contrary to the opinion
of Special Tax Counsel, the IRS successfully asserted that one or more Classes
of the Notes did not represent debt for United States federal income tax
purposes, the Notes might be treated as equity interests in the Trust. If so
treated, the Trust might be taxable as a corporation with the adverse
consequences that the taxable corporation would not be able to reduce its
taxable income by deductions for interest expense on Notes recharacterized as
equity. Alternatively, and most likely in the view of Special Tax Counsel, the
Trust might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income tests.
Nonetheless, treatment of the Notes as equity interests in such a publicly
traded partnership could have adverse tax consequences to certain holders. For
example, income to foreign persons generally would be subject to United States
tax and United States tax return filing and withholding requirements, and
individual holders 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. As indicated above, Special Tax
Counsel will deliver an opinion that the Trust will not be classified as an
association (or publicly traded partnership) taxable as a corporation for United
States federal income tax purposes. 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 United States federal income tax,
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 any Reserve 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 have certain features characteristic of debt, the
Certificates might be considered debt of the Seller or the Trust.
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Any such characterization would 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 related 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 allocated share of income, gains,
losses, deductions and credits of the Trust. The Trust's income will consist
primarily of interest and finance charges earned on the Receivables (including
appropriate adjustments for market discount, OID and bond 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, servicing and
other fees and losses or deductions upon collection or disposition of
Receivables.
The tax items of a partnership are allocable to the partners in accordance
with the Code, Treasury Regulations and the partnership agreement (here, the
Trust Agreement and related documents). The Trust Agreement will provide, in
general, that the Certificateholders will be allocated gross income of the Trust
for each Collection Period equal to the sum of (i) the interest that accrues on
the Certificates in accordance with their terms for such month, including
interest accruing at the Pass-Through Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) 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; (iii) prepayment premium payable to the Certificateholders for such
month; and (iv) 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 taxable income of the
Trust will be allocated to the Seller. It is not expected that losses will be
allocated to Certificateholders unless the Reserve Account (if any) is depleted
and in such case losses would be allocated to the Certificateholders only to the
extent that they are expected to bear the economic burden of such losses unless
otherwise provided in the related Supplement. Based on the economic arrangement
of the parties, this approach for 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 allocated income equal to the entire Pass-Through Rate
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. If
a Certificateholder is allocated income in excess of cash distributions, the
Certificateholder's basis in the Certificates will be increased by the amount of
such excess, which will reduce any gain or increase any loss upon a sale or
other disposition of the Certificates, as discussed below under "--Sale of
Certificates." If the Reserve Account becomes depleted and losses are allocated
to the Certificates, such losses could be treated as capital losses, whereas any
income allocated to the Certificates in respect of later payments to
Certificateholders in repayment of those losses could be treated as ordinary
income. In this regard, if a Certificateholder were allocated items of loss or
deduction that are characterized as capital losses (including losses that are
recognized upon the sale, extension, revision or, in certain circumstances,
default of a Receivable), such losses would generally be deductible by such
Certificateholder only against capital gain income (whether from the Trust or
other sources). 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.
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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. Further, individual Certificateholders may be subject to other
limitations on their ability to deduct losses and other deductions, including
limitations applicable to investment interest, and should consult their own tax
advisors regarding such limitations.
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.
In lieu of the allocations described above, it is possible that the IRS
would require the Trust to allocate to Certificateholders net income (instead of
gross income) equal to the foregoing amounts, which allocations would comprise
items of gross income and losses and deductions of the Trust. If the Trust were
to allocate net income to Certificateholders, a Certificateholder's taxable
income could exceed the amount of net income allocated because of limitations on
the deductibility of capital losses and "miscellaneous itemized deductions" as
discussed above. Alternatively, the IRS might treat Certificateholders as
receiving guaranteed payments from the Trust, in which event the payments would
be treated as ordinary income but not as interest income. The Seller is
authorized to adjust the allocations described above to reflect the economic
income, gain or loss to the Certificateholders (including the Seller) or as
otherwise required by the Code.
DISCOUNT AND PREMIUM. It is believed that the Receivables were (i) not
issued with original issue discount and (ii) not subject to the "imputed
interest" rules of the Code, and, therefore, the Trust should not have original
issue discount income. However, 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 market 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.)
DISTRIBUTIONS TO CERTIFICATEHOLDERS. Certificateholders generally will not
recognize gain or loss with respect to distributions from the Trust. A
Certificateholder will recognize gain, however, to the extent that any money
distributed exceeds the Certificateholder's adjusted basis (as described below
under "--Sale of Certificates") in the Certificates immediately before the
distribution. A Certificateholder will recognize loss upon termination of the
Trust or termination of the Certificateholder's interest in the Trust if the
Trust only distributes money to the Certificateholder and the amount distributed
is less than the Certificateholder's adjusted basis in the Certificates. Any
gain or loss generally will be long-term capital gain or loss if the
Certificateholder's holding period of the Certificates is more than one year.
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.
SECTION 708 TERMINATION. Under Section 708 of the Code, a Trust will be
deemed to terminate for United States federal income tax purposes if 50% or more
of the capital and profits interests in the Trust are sold or exchanged within a
12-month period. If such a termination occurs, the Trust will be considered to
distribute its assets to the partners (i.e. the Certificateholders and any other
equity holder in the Trust), who would then be treated as recontributing those
assets to the Trust, as a new partnership. The Trust will not comply with
certain technical requirements that might apply when such a constructive
termination occurs. As a result, a Trust may be subject to certain tax penalties
and may incur additional expenses if it is required to comply with those
requirements. Furthermore, the Trust might not be able to comply due to lack of
data. Such deemed distribution and recontribution resulting from a Section 708
termination generally should not result in material adverse tax consequences to
Certificateholders (although it may accelerate the recognition
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of income from the Trust for Certificateholders whose taxable year is different
than the Trust's taxable year and result in a shorter holding period for
Certificateholders in their Certificates to the extent the amount distributed to
them in the deemed termination consists of money).
SALE 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 (includable in income) and
decreased by any distributions received with respect to such Certificate. In
addition, both the tax basis in the Certificate 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 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, if any, 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 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 (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 Certificateholder's interest), taxable income
or losses of the Trust might be reallocated among the Certificateholders. The
Seller 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 (or loss), the purchasing Certificateholder will have a
higher (or lower) basis in the Certificates than that of the selling
Certificateholder. 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, unless otherwise
provided in the related Prospectus Supplement, the Trust will not make such
election. As a result, Certificateholders might be allocated a greater or lesser
amount of Trust income than would be appropriate based on their own purchase
price for Certificates.
ADMINISTRATIVE MATTERS. The Owner 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 Owner Trustee will file a partnership
information return (IRS Form 1065) with the IRS for each taxable year of the
Trust and will report each Certificateholder's allocable share of items of Trust
income and expense to such holders and the IRS on Schedule K-l. The Trust will
provide the Schedule K-l information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such
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information to the beneficial owners of the Certificates. Generally,
Certificateholders must file tax returns that are consistent with the
information return filed by the Trust or be subject to penalties unless the
Certificateholder 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 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 related
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. Ownership of Certificates
by foreign persons (as defined above) raises tax issues unique to such persons
which may have adverse tax consequences to them, and which may subject the Trust
to United States withholding tax and reporting requirements. For this reason,
purchasers (including nominees of beneficial owners) of Certificates and their
assignees must represent that the beneficial owners are United States persons
(as defined above), and each purchaser must provide a certification of
non-foreign status signed under penalties of perjury.
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% under Section 3406 of the Code if, in general, the Certificateholder
fails to comply with certain identification procedures, unless the
Certificateholder is an exempt recipient under applicable provisions of the
Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES OR THE CERTIFICATES, AS
APPLICABLE, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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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% under Section 3406 of the Code if, in general, the Certificateholder
fails to comply with certain identification procedures, unless the
Certificateholder is an exempt recipient under applicable provisions of the
Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A NOTEHOLDER'S OR
CERTIFICATEHOLDER'S PARTICULAR TAX SITUATION. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES OR THE CERTIFICATES, AS
APPLICABLE, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CERTAIN STATE TAX CONSIDERATIONS
The following is a discussion of certain Tennessee state tax considerations.
Unless otherwise specified in the related Prospectus Supplement, Tuke Yopp &
Sweeney of Nashville, Tennessee will act as special Tennessee tax counsel for
the Trust regarding the state tax matters discussed below. In rendering their
opinion, Tuke Yopp & Sweeney will rely upon Tennessee Revenue Ruling #92-06 (the
"RULING"), issued by the Tennessee Department of Revenue (the "TDOR"). The
Ruling involved the applicability of the Tennessee income tax (the "HALL TAX")
and the Tennessee Franchise and Excise Tax (the "F&E TAX") to the securitization
of finance leases. Except for the Ruling, there are no other rulings or reported
cases involving Tennessee taxation with respect to similar transactions. The
statutes and regulations regarding Tennessee taxation are subject to change
(which change may be retroactive) and further interpretation by the TDOR and the
courts. No formal ruling on any of the issues discussed below will be sought
from the TDOR with respect to any Trust.
FOR PURPOSES OF THE FOLLOWING SUMMARY, REFERENCES TO THE TRUST, THE NOTES
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.
TENNESSEE TAX LAW GENERALLY. The State of Tennessee has two general tax
laws which may affect the Trust, the Certificates or the Notes. The first of
these is the Hall Tax, which generally imposes a tax of six percent (6%) upon
individuals, partnerships, trusts and estates that are residents of Tennessee
on: (1) income they receive by way of "dividends" from "stock;" and (2)
"interest" on "bonds." The second is the F&E Tax, which imposes an Excise Tax of
six percent (6%) on the net income apportioned to Tennessee of a taxpayer which
is not an individual "doing business" in Tennessee and a Franchise Tax of
one-quarter of 1% on each $100 of the apportioned Franchise Tax base (the
greater of adjusted net worth or tangible property) of a taxpayer "doing
business" in Tennessee.
APPLICABILITY TO CERTIFICATES AND NOTES. In the opinion of Tuke Yopp &
Sweeney (1) the Certificates of each Series will be treated as "stock" and
interim distributions by the Trust to the Certificateholders (other than
distributions in liquidiation) will be taxable as "dividends" under the Hall
Tax, (2) the Notes of each Series will be treated as "bonds" and the interest
paid by such Trust to such Noteholders will be taxable under the Hall Tax.
Liquidation distributions are exempt from the Hall Tax. Noteholders who are not
residents of Tennessee are not subject to the Hall Tax.
With respect to Certificateholders or Noteholders that are corporations
subject to Tennessee taxation, the tax characterization of the Certificates or
Notes and the distributions thereon will be the same as for federal income tax
purposes.
APPLICABILITY TO A TRUST. Each Trust will be a Delaware business trust. The
activities to be undertaken by the Servicer, on behalf of each such Trust, in
servicing and collecting the Receivables, will take place in Nevada and
Tennessee. If a Trust were "doing business" in Tennessee, the Trust would be
subject to the F&E Tax. In addition, if a Trust were a "resident" of Tennessee,
a literal interpretation of the Hall Tax would
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subject such Trust to taxation thereunder. In the opinion of Tuke Yopp &
Sweeney, based upon existing legal precedent, neither the activities of the
Servicer on behalf of the Trust in Tennessee nor the location of the physical
evidence of the Receivables (I.E., the Leases and/or the Installment Sales
Contracts) should cause a Trust to be deemed either a "resident" of or "doing
business" in Tennessee. Furthermore, in the opinion of Tuke Yopp & Sweeney, the
Hall Tax would not be applied to such Trust (even if "doing business" in
Tennessee) because of federal constitutional limitations on unapportioned income
taxes.
If a Trust were subject to either the F&E Tax or the Hall Tax, such taxes
would reduce the amounts otherwise available for distribution to the related
Certificateholders. In the case of the F&E Tax, unless the related Prospectus
Supplement otherwise specifies, the amount of tax (and the resulting reduction
in amounts available for distribution) would be DE MINIMIS because of the
minimal amount of tax base that would be apportioned to Tennessee.
BECAUSE EACH STATE'S INCOME TAX LAWS VARY, IT IS IMPOSSIBLE TO PREDICT THE
INCOME TAX CONSEQUENCES TO THE HOLDERS OF THE CERTIFICATES AND THE NOTES IN ALL
OF THE STATE TAXING JURISDICTIONS IN WHICH SUCH HOLDERS WILL BE SUBJECT TO TAX.
FURTHER, IT IS IMPOSSIBLE TO PREDICT THE INCOME TAX CONSEQUENCES TO THE TRUST IN
ALL TAXING JURISDICTIONS. NOTEHOLDERS AND CERTIFICATEHOLDERS ARE ENCOURAGED TO
CONSULT THEIR OWN TAX AND OTHER ADVISORS.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and certain collective investment funds or
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and/ or Section 4975 of the Code
(collectively, "PLANS"), and on persons who are fiduciaries with respect to
Plans, in connection with the investment of "plan assets" of any Plan for
purposes of applying Title I of ERISA and Section 4975 of the Code ("PLAN
ASSETS"). ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. Generally, any person who has discretionary authority or
control respecting the management or disposition of Plan Assets, and any person
who provides investment advice with respect to Plan Assets for a fee, is a
fiduciary with respect to such Plan Assets.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons ("PARTIES IN INTEREST" under ERISA and
"DISQUALIFIED PERSONS" under the Code) who have certain specified relationships
to a Plan or its Plan Assets, unless a statutory or administrative exemption is
available. Parties in Interest or Disqualified Persons that participate in a
prohibited transaction may be subject to a penalty imposed under ERISA and/or an
excise tax imposed pursuant to Section 4975 of the Code, unless a statutory or
administrative exemption is available. These prohibited transactions generally
are set forth in Section 406 of ERISA and Section 4975 of the Code.
ANY FIDUCIARY OR OTHER PLAN INVESTOR CONSIDERING WHETHER TO PURCHASE ANY
SECURITIES ON BEHALF OF OR WITH PLAN ASSETS OF ANY PLAN SHOULD CONSULT WITH ITS
COUNSEL AND REFER TO THE RELATED PROSPECTUS SUPPLEMENT FOR GUIDANCE REGARDING
THE ERISA CONSIDERATIONS APPLICABLE TO THE SECURITIES OFFERED THEREBY.
Certain employee benefit plans, such as 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 the requirements of ERISA or Section 4975 of the
Code. Accordingly, except as provided in the applicable Prospectus Supplement,
assets of such plans may be invested in the Securities of any Series without
regard to the ERISA considerations described herein, subject to the provisions
of other applicable federal and state law. However, any such plan that is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
is subject to the prohibited transaction rules set forth in Section 503 of the
Code.
61
<PAGE>
PLAN OF DISTRIBUTION
The Securities of each Series may be sold to or through underwriters (the
"UNDERWRITERS") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters or such other underwriting arrangement as may be
specified in the related Prospectus Supplement or may be placed either directly
or through agents. The Seller intends that the Securities will be offered
through such various methods from time to time and that offerings may be made
concurrently through more than one of such methods or that an offering of a
particular Series of Securities may be made through a combination of such
methods.
Each Prospectus Supplement will either (i) set forth the price at which each
Class of Notes and Certificates, as the case may be, being offered thereby will
be offered to the public and any concessions that may be offered to certain
dealers participating in the offering of such Notes and Certificates, as the
case may be, or (ii) specify that the related Notes and Certificates, as the
case may be, are to be resold by the underwriters in negotiated transactions at
varying prices to be determined at the time of such sale. After the initial
public offering of any such Notes and Certificates, as the case may be, such
public offering prices and such concessions may be changed.
Each Underwriting Agreement (as defined in the related Prospectus
Supplement) will provide that the Seller and CFSC will indemnify the related
Underwriters against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the several underwriters may be
required to make in respect thereof.
Each Trust may, from time to time, invest the funds in its Trust Accounts in
Eligible Investments acquired from such underwriters.
Pursuant to each of the Underwriting Agreements with respect to a given
Series of Securities, the closing of the sale of each Class of Securities will
be contingent on the closing of the sale of all other such Classes. The place
and time of delivery for the Securities in respect of which this Prospectus is
delivered will be set forth in the related Prospectus Supplement.
RATINGS
Each Class of Securities of a Series offered pursuant to this Prospectus and
a related Prospectus Supplement will be rated at its initial issuance in one of
the four highest categories by at least one nationally recognized statistical
rating organization (each, a "RATING AGENCY").
A security rating is not a recommendation to buy, sell or hold Securities
and may be subject to revision or withdrawal at any time by the assigning Rating
Agency. No person is obligated to maintain the rating on any Security, and,
accordingly, there can be no assurance that the ratings assigned to a Security
upon initial issuance will not be lowered or withdrawn by a Rating Agency at any
time thereafter. In general, ratings address credit risk and do not represent
any assessment of the likelihood of rate of principal prepayments.
LEGAL OPINIONS
Certain legal matters relating to the Securities will be passed upon for
each Trust, the Seller and the Servicer by Orrick, Herrington & Sutcliffe LLP,
San Francisco, California.
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<PAGE>
INDEX OF TERMS
Set forth below is a list of the defined terms used in this Prospectus and
the pages on which the definitions of such terms may be found herein:
<TABLE>
<S> <C>
Administration Agreement........................................................... 10, 49
Administration Fee................................................................. 10, 49
Administrator...................................................................... 10, 49
APR................................................................................ 20
Article 2A......................................................................... 18, 52
Base Rate.......................................................................... 34
Book-Entry Certificates............................................................ 36
Book-Entry Notes................................................................... 36
Book-Entry Securities.............................................................. 36
Calculation Agent.................................................................. 36
Caterpillar........................................................................ 6, 27
Cede............................................................................... 3
Cedel.............................................................................. 36
Cedel Participants................................................................. 37
Certificate Balance................................................................ 5
Certificate Distribution Account................................................... 40
Certificate Pool Factor............................................................ 26
Certificateholder.................................................................. 37
Certificateholders................................................................. 5, 37
Certificates....................................................................... 1
CFSC............................................................................... 4, 28
Class.............................................................................. 1
Closing Date....................................................................... 39
Code............................................................................... 12, 53
Collection Account................................................................. 40
Commission......................................................................... 3
Commodity Indexed Securities....................................................... 35
Currency Indexed Securities........................................................ 35
Custodial Agreement................................................................ 9
Custodian.......................................................................... 9
Cut-off Date....................................................................... 7
Cut-off Date APR................................................................... 40
Dealer Agreement................................................................... 21
Dealer Agreements.................................................................. 20
Dealers............................................................................ 7
Definitive Certificates............................................................ 35
Definitive Notes................................................................... 35
Definitive Securities.............................................................. 35
Depositaries....................................................................... 36
Depository......................................................................... 28
Disqualified Persons............................................................... 61
Distribution Date.................................................................. 28
DTC................................................................................ 3
Eligible Deposit Account........................................................... 41
Eligible Institution............................................................... 41
Eligible Investments............................................................... 41
ERISA.............................................................................. 12, 61
Euroclear.......................................................................... 37
Euroclear Operator................................................................. 38
Euroclear Participants............................................................. 37
</TABLE>
63
<PAGE>
<TABLE>
<S> <C>
Euroclear System................................................................... 37
Event of Default................................................................... 30
Exchange Act....................................................................... 3
F&E Tax............................................................................ 60
Face Amount........................................................................ 35
Financed Equipment................................................................. 1, 6
Fixed Rate Securities.............................................................. 34
Floating Rate Securities........................................................... 34
foreign person..................................................................... 54
Funding Period..................................................................... 5
GAAP............................................................................... 23
Hall Tax........................................................................... 60
Implicit Interest Rate............................................................. 23
Indenture.......................................................................... 4
Indenture Trustee.................................................................. 1, 28
Index.............................................................................. 35
Indexed Commodity.................................................................. 35
Indexed Currency................................................................... 35
Indexed Principal Amount........................................................... 35
Indexed Securities................................................................. 35
Indirect Participants.............................................................. 36
Initial Cut-off Date............................................................... 7
Initial Pool Balance............................................................... 48
Initial Receivables................................................................ 7, 39
Insolvency Event................................................................... 47
Insolvency Laws.................................................................... 14
Installment Sales Contract......................................................... 6
Interest Rate...................................................................... 4
Interest Reset Period.............................................................. 34
Investment Earnings................................................................ 41
IRS................................................................................ 53
Issuer............................................................................. 4
Lease.............................................................................. 6
Lease Scheduled Payments........................................................... 22
Mechanics' Liens................................................................... 11
Note Distribution Account.......................................................... 40
Note Pool Factor................................................................... 26
Noteholder......................................................................... 37
Noteholders........................................................................ 4, 37
Notes.............................................................................. 1
Obligors........................................................................... 7
OID................................................................................ 54
OID Regulations.................................................................... 54
Owner Trustee...................................................................... 1
Participants....................................................................... 36
Parties in Interest................................................................ 61
Pass-Through Rate.................................................................. 5
Plan Assets........................................................................ 61
Plans.............................................................................. 61
Pool Balance....................................................................... 26
Pre-Funded Amount.................................................................. 7, 16
Pre-Funding Account................................................................ 1, 8
Principal Balance.................................................................. 40
Prospectus Supplement.............................................................. 1
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
Purchase Agreement................................................................. 7, 39
Purchase Amount.................................................................... 40
Rating Agency...................................................................... 62
Realized Losses.................................................................... 45
receivables........................................................................ 20
Receivables........................................................................ 1, 6
Receivables Files.................................................................. 10, 13
Record Date........................................................................ 36
Registration Statement............................................................. 3
Related Documents.................................................................. 32
Reserve Account.................................................................... 44
Rules.............................................................................. 37
Ruling............................................................................. 60
Sale and Servicing Agreement....................................................... 7
Schedule of Receivables............................................................ 39
Securities......................................................................... 1
Securities Act..................................................................... 3
Securityholders.................................................................... 5
Seller............................................................................. 1, 4
Series............................................................................. 1
Servicer........................................................................... 4
Servicer Default................................................................... 47
Servicer's Yield................................................................... 10, 42
Servicing Fee...................................................................... 10, 42
Servicing Fee Rate................................................................. 10, 42
Special Tax Counsel................................................................ 53
Specified Reserve Account Balance.................................................. 8, 44
Spread............................................................................. 34
Spread Multiplier.................................................................. 34
Stock Index........................................................................ 35
Stock Indexed Securities........................................................... 35
Strip Certificates................................................................. 6
Strip Notes........................................................................ 5
Subsequent Closing Date............................................................ 39
Subsequent Cut-off Date............................................................ 7
Subsequent Receivables............................................................. 1, 39
TDOR............................................................................... 60
Tennessee Tax Counsel.............................................................. 12
Terms and Conditions............................................................... 38
Total Distribution Amount.......................................................... 42
Transfer and Servicing Agreements.................................................. 39
Trust.............................................................................. 1, 4
Trust Accounts..................................................................... 41
Trust Agreement.................................................................... 4
Trust Property..................................................................... 19
Trustee............................................................................ 35
U.S. ISC Portfolio................................................................. 25
U.S. Lease Portfolio............................................................... 25
U.S. Portfolio..................................................................... 25
UCC................................................................................ 9, 13
Underwriters....................................................................... 62
United States Persons.............................................................. 53
</TABLE>
65
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE SELLER, THE SERVICER OR THE
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS, NOR ANY SALE MADE HEREUNDER OR
THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE SELLER OR THE RECEIVABLES SINCE THE DATE
HEREOF OR THEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<S> <C>
Reports to Noteholders................................ S-2
Summary of Terms...................................... S-3
Risk Factors.......................................... S-21
Formation of the Trust................................ S-22
The Receivables Pool.................................. S-23
Weighted Average Life of the Notes.................... S-30
Pool Factors and Trading Information.................. S-31
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................. S-32
Use of Proceeds....................................... S-32
The Seller, Caterpillar and the Servicer.............. S-32
Description of the Notes.............................. S-33
Description of the Certificates....................... S-36
Description of the Transfer and Servicing
Agreements........................................... S-36
Certain Legal Aspects of the Receivables.............. S-45
Legal Investment...................................... S-46
Certain Federal Income Tax Considerations............. S-46
ERISA Considerations.................................. S-47
Underwriting.......................................... S-49
Legal Opinions........................................ S-50
Annex I -- Global Clearance, Settlement and Tax
Documentation Procedures............................. A-1
Index of Terms........................................ A-4
<CAPTION>
PROSPECTUS
<S> <C>
Reports to Noteholders and Certificateholders......... 3
Available Information................................. 3
Incorporation of Certain Documents by Reference....... 3
Summary of Terms...................................... 4
Risk Factors.......................................... 13
The Trusts............................................ 18
The Trust Property.................................... 19
The Receivables Pools................................. 20
Weighted Average Life of the Securities............... 25
Pool Factors and Trading Information.................. 26
Use of Proceeds....................................... 26
The Seller, Caterpillar and the Servicer.............. 26
Description of the Notes.............................. 28
Description of the Certificates....................... 33
Certain Information Regarding the Securities.......... 34
Issuance of the Securities............................ 35
Description of the Transfer and Servicing
Agreements........................................... 39
Certain Legal Aspects of the Receivables.............. 49
Certain Federal Income Tax Considerations............. 53
Certain State Tax Considerations...................... 60
ERISA Considerations.................................. 61
Plan of Distribution.................................. 62
Ratings............................................... 62
Legal Opinions........................................ 62
Index of Terms........................................ 63
</TABLE>
UNTIL FEBRUARY 17, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS
SUPPLEMENT), ALL DEALERS EFFECTING TRANSACTIONS IN THE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
CATERPILLAR
FINANCIAL ASSET
TRUST 1997-B
$81,000,000
CLASS A-1 5.805%
ASSET BACKED NOTES
$110,900,000
CLASS A-2 6.018%
ASSET BACKED NOTES
$102,091,000
CLASS A-3 6.16%
ASSET BACKED NOTES
$12,577,000
CLASS B 6.35%
ASSET BACKED NOTES
CATERPILLAR FINANCIAL
FUNDING CORPORATION
SELLER
CATERPILLAR FINANCIAL
SERVICES CORPORATION
SERVICER
-----------------
PROSPECTUS SUPPLEMENT
-----------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
NOVEMBER 19, 1997
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