<PAGE>
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-53721
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 27, 1998
$589,290,000
CATERPILLAR FINANCIAL ASSET TRUST 1998-A
$164,000,000 CLASS A-1 5.6375% ASSET BACKED NOTES
$218,000,000 CLASS A-2 5.75% ASSET BACKED NOTES
$183,114,000 CLASS A-3 5.85% ASSET BACKED NOTES
$24,176,000 CLASS B 5.85% ASSET BACKED NOTES
CATERPILLAR FINANCIAL FUNDING CORPORATION, SELLER
CATERPILLAR FINANCIAL SERVICES CORPORATION, SERVICER
-------------------
Interest on the Class A-1 5.6375% Asset Backed Notes (the "CLASS A-1
NOTES"), the Class A-2 5.75% Asset Backed Notes (the "CLASS A-2 NOTES") and the
Class A-3 5.85% 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
5.85% Asset Backed Notes (the "CLASS B NOTES"; together with the Class A Notes,
the "NOTES") issued by Caterpillar Financial Asset Trust 1998-A (the "TRUST" or
the "ISSUER") will be payable monthly on or about the 25th day of each month
(each, a "DISTRIBUTION DATE") commencing August 25, 1998. The Trust will also
issue $16,388,534 asset backed certificates (the "FIXED-RATE CERTIFICATES"),
interest only certificates (the "INTEREST ONLY CERTIFICATES") and one or more
residual certificates (collectively, the "RESIDUAL CERTIFICATE"; together with
the Fixed-Rate Certificates and the Interest Only Certificates, the
"CERTIFICATES") which Certificates are not offered hereby. Principal on the
Notes will be payable on each Distribution Date; PROVIDED,
(CONTINUED ON THE FOLLOWING PAGE)
---------------------------
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION SET
FORTH IN "RISK FACTORS" COMMENCING ON PAGE S-20 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 INSURED 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>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT THE SELLER(1)(2)
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Class A-1 Note..................... 100.000000% 0.110% 99.890000%
Per Class A-2 Note..................... 99.980241% 0.175% 99.805241%
Per Class A-3 Note..................... 99.931777% 0.220% 99.711777%
Per Class B Note....................... 99.614290% 0.400% 99.214290%
Total.................................. $589,028,750.27 $1,061,454.80 $587,967,295.47
</TABLE>
- -------------------
(1) Plus accrued interest, if any, from July 31, 1998, with respect to the Class
A-1 Notes, and from July 25, 1998, with respect to the Class A-2 Notes, the
Class A-3 Notes and the Class B Notes.
(2) Before deducting expenses, estimated to be $970,523.
---------------------
The Notes offered hereby are offered severally by the Underwriters, subject
to prior sale, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject orders in whole or in part. It is expected
that the Notes will be ready for delivery through the facilities of The
Depository Trust Company, or through Cedel Bank, societe anonyme or the
Euroclear System, on or about July 31, 1998 (the "CLOSING DATE") against payment
therefor in immediately available funds.
---------------------
UNDERWRITERS OF THE CLASS A NOTES
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
UNDERWRITER OF THE CLASS B NOTES
GOLDMAN, SACHS & CO.
----------------
The date of this Prospectus Supplement is July 27, 1998.
<PAGE>
(CONTINUED FROM PRECEDING PAGE)
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 July
1999 Distribution Date, the final scheduled Distribution Date for the Class A-2
Notes will be the September 2001 Distribution Date and the final scheduled
Distribution Date for the Class A-3 Notes will be the April 2003 Distribution
Date. The final scheduled Distribution Date for the Class B Notes will be the
July 2004 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. It is a condition
to the issuance of the Notes that the Class A-1 Notes be rated in the highest
short-term investment rating category and that the Class A-2 Notes and the Class
A-3 Notes be rated in the highest long-term investment rating category by each
of Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"), and
Moody's Investors Service, Inc. ("MOODY'S" and together 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.
The Fixed-Rate Certificates and the Interest Only Certificates will be
entitled to distributions as specified in the Transfer and Servicing Agreements
(as defined herein). The rights of the holders of the Fixed-Rate Certificates
and Interest Only Certificates to receive distributions with the respect to
their 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. It is not anticipated that the Residual Certificate will
receive distributions of interest or principal.
The Trust, a Delaware business trust, was formed by the Seller and Chase
Manhattan Bank Delaware, as owner trustee (the "OWNER TRUSTEE"), pursuant to the
Trust Agreement dated as of July 1, 1998 (the "TRUST AGREEMENT") between the
Seller and the Owner Trustee. The Notes will be issued by the Trust and secured
by the Receivables (as defined below) and other assets of the Trust pursuant to
an Indenture to be dated as of July 1, 1998 (the "INDENTURE"), between the
Issuer and The First National Bank of Chicago, as indenture trustee (the
"INDENTURE TRUSTEE"), and will represent indebtedness of the Trust.
The assets of the Trust will include a pool of fixed rate retail installment
sales contracts and finance leases (the "RECEIVABLES"), secured by new and used
machinery manufactured primarily by Caterpillar Inc. (the "FINANCED EQUIPMENT")
and certain monies due or received thereunder on or after July 1, 1998, 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 will generally be prohibited from incurring any indebtedness
other than the Notes and its assets will include the Receivables, the Collection
Account, the Certificate 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 PRICES 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.
S-2
<PAGE>
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, and will be publicly available through the Commission's web
site (http://www.sec.gov).
S-3
<PAGE>
SUMMARY OF TERMS
The following summary is qualified 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 1998-A (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 July 1, 1998 (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 5.6375% Asset Backed Notes (the "CLASS A-1 NOTES")
in the aggregate principal amount of $164,000,000.
Class A-2 5.75% Asset Backed Notes (the "CLASS A-2 NOTES")
in the aggregate principal amount of $218,000,000.
Class A-3 5.85% 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
$183,114,000.
Class B 5.85% Asset Backed Notes (the "CLASS B NOTES";
together with the Class A Notes, the "NOTES") in the
aggregate principal amount of $24,176,000.
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 July 1, 1998 (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 in the Prospectus. 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, holding
</TABLE>
S-4
<PAGE>
<TABLE>
<S> <C>
and managing the Receivables, issuing and making payments on
the 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) with respect to the Leases, any proceeds
of returned Financed Equipment, (x) interest earned on
short-term investments made by the Trust and (xi) any
proceeds of the foregoing.
In addition to the Notes, the Trust will also issue asset
backed certificates (the "FIXED-RATE CERTIFICATES") in the
aggregate principal amount of $16,388,534, interest only
certificates (the "INTEREST ONLY CERTIFICATES") and one or
more residual certificates (the "RESIDUAL CERTIFICATE";
together with the Fixed-Rate Certificates and the Interest
Only Certificates, the "CERTIFICATES"). The Seller will
initially purchase the entire principal amount of the
Fixed-Rate Certificates and the entire notional amount of
the Interest Only Certificates and expects to convey the
Residual Certificate to an unaffiliated holder. 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")
and finance leases ("LEASES") secured by new and used
machinery manufactured primarily by Caterpillar, including
rights to receive certain payments made with respect to such
Installment Sales Contracts and Leases (the "RECEIVABLES").
On or prior to the Closing Date, the Seller will purchase
Receivables having an aggregate Contract Balance of
approximately $605,678,534 (the "INITIAL POOL BALANCE") as
of July 1, 1998 (the "CUT-OFF DATE") from CFSC pursuant to a
Purchase Agreement to be dated as of July 1, 1998 (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 July 1, 1998
(the "SALE AND SERVICING AGREEMENT") among the Seller, the
Servicer and the Trust.
The Receivables arise from loans and leases originated in
connection with retail sales by Caterpillar 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
installment sales contracts and leases owned by CFSC based
on the criteria specified in the Purchase Agreement and de-
scribed herein. See "The Receivables Pool" herein. As of the
Cut-off
</TABLE>
S-5
<PAGE>
<TABLE>
<S> <C>
Date, the weighted average APR of the Receivables (based on
their respective Contract Balances (as defined below)) was
approximately 7.53% (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 41 months and the weighted average original
maturity of the Receivables was approximately 49 months. As
of the Cut-off Date, no Receivable had a scheduled maturity
later than the date which is 12 months prior to the July
2004 Distribution Date. As of the Cut-off Date,
approximately 68.96% (by Contract Balance) of the
Receivables were Installment Sales Contracts and the
remaining 31.04% (by Contract Balance) of the Receivables
were Leases.
The "POOL BALANCE" at any time will represent the aggregate
Contract 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, Liquidation Proceeds (not in
excess of the Contract Balance of any Liquidated Receivable)
received with respect to any Liquidated Receivables during
such Collection Period and to all Realized Losses on
Liquidated Receivables during such Collection Period. The
"CONTRACT BALANCE" of a Receivable at any time means its
original principal balance, in the case of an Installment
Sales Contract, or its original Net Investment, in the case
of a Lease, 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), in each case plus accrued interest
on delinquent Receivables, Variable Frequency Receivables
which did not make a payment in the preceding Collection
Period and, as to the initial Contract Balance only,
Receivables originated in June 1998 which as of the Cut-off
Date had not yet made a payment (as more fully described
herein under "The Receivables Pool"). The "NET INVESTMENT"
with respect to a Lease equals the present value of the
Lease Scheduled Payments due thereunder and the residual
payment amount at the end of the Lease term discounted at
the Implicit Interest Rate for such Lease. "REALIZED LOSSES"
means, with respect to any Collection Period, the excess of
the Contract Balance of the Liquidated Receivables over
Liquidation Proceeds for such Collection Period to the
extent allocable to principal.
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
5.6375% per annum (the "CLASS A-1 NOTE RATE"), the Class A-2
Notes will bear interest at the rate of 5.75% per annum (the
"CLASS A-2 NOTE RATE"), the Class A-3 Notes will bear
interest at the rate of 5.85% per annum (the "CLASS A-3 NOTE
RATE") and the Class B Notes will bear interest at the rate
of 5.85% 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,
with respect to the Class A-1 Notes, from and including the
Closing Date, and with respect
</TABLE>
S-6
<PAGE>
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<S> <C>
to the Class A-2 Notes, the Class A-3 Notes and the Class B
Notes, from and including July 25, 1998) 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 August 25, 1998, 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 (as
defined below).
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 and the First Priority
Principal Distribution Amount, if any, has been deposited
into the Principal Distribution Account. 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. Following the occurrence and during
the continuation of an Event of Default relating to default
in the payment of principal or default for five days or more
in the payment of interest on any Note which has resulted in
the acceleration of the Notes, the Class A Noteholders will
be entitled to be paid in full before any distributions of
interest or principal may be made to the Class B
Noteholders. Following the occurrence of any other Event of
Default which has resulted in an acceleration of the Notes,
interest on the Class A Notes and the Class B Notes must be
paid on each Distribution Date prior to the distribution of
principal on the Class A Notes on such Distribution Date.
Interest payments on the Notes will be generally derived
from (i) the Total Available Amount remaining after the
payment of the Servicing Fee (if CFSC or an affiliate is not
the Servicer), and in the case of the Class B Notes, after
the payments of interest on the Class A Notes and the
deposit of the First Priority Principal Distribution Amount
(as defined below) into the Principal Distribution Account,
and (ii) from the amounts on deposit in the Reserve Account
and the Yield Supplement 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 Notes payable on any
Distribution Date exceeds the Total Distribution Amount,
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 Fixed-Rate Certificates and Interest Only
Certificates will only be paid generally to the extent funds
are available following payment of the Servicing Fee,
distributions in respect of the Notes and
</TABLE>
S-7
<PAGE>
<TABLE>
<S> <C>
any required deposits to the Reserve Account and the Yield
Supplement Account. See "Description of the Transfer and
Servicing Agreements--Distributions--MONTHLY WITHDRAWALS
FROM COLLECTION ACCOUNT" herein.
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, the
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.
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 July 1999 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 September
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
April 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 July 2004 Distribution Date (the "CLASS B NOTE FINAL
SCHEDULED DISTRIBUTION DATE"), in each case from funds
available therefor (including any amounts on deposit in the
Reserve Account and the Yield Supplement Account). See
"Description of the Transfer and Servicing
Agreements--Distributions" and "--Reserve Account" herein.
</TABLE>
S-8
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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,
PROVIDED, THAT, the aggregate Purchase Amount for the
Receivables, after payment of the Servicing Fee, is an
amount at least equal to the unpaid principal amount of the
Notes plus accrued and unpaid interest thereon. 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" and "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.
TERMS OF THE CERTIFICATES.... On the Closing Date, the Trust will issue Fixed-Rate
Certificates in an aggregate principal amount of
$16,388,534, Interest Only Certificates and the Residual
Certificate. The Seller will initially purchase the entire
principal amount of the Fixed-Rate Certificates and the
entire notional amount of the Interest Only Certificates and
expects to convey the Residual Certificate to an
unaffiliated holder. The Fixed-Rate Certificates and the
Interest Only Certificates will be entitled to distribu-
tions as described in the Transfer and Servicing Agreements.
The rights of the holders of the Fixed-Rate Certificates and
Interest Only Certificates to receive distributions with
respect to their Certificates will be subordinated to the
rights of the Noteholders to receive distributions with
respect to the Notes to the extent described herein. It is
not anticipated that the Residual Certificate will receive
distributions of interest or principal. 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;
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(ii) to the Class A Noteholders, the Class A Noteholders'
Interest Distributable Amount;
(iii) to the Principal Distribution Account, the First
Priority Principal Distribution Amount, if any;
(iv) to the Class B Noteholders, the Class B Noteholders'
Interest Distributable Amount;
(v) to the Principal Distribution Account, the Second
Priority Principal Distribution Amount, if any;
(vi) to the Yield Supplement Account, the amount equal to
the excess of the Specified Yield Supplement Account Balance
over the amount on deposit in the Yield Supplement Account
on such Distribution Date;
(vii) 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;
(viii) if any Class of Notes is outstanding prior to giving
effect to distributions on such Distribution Date to the
Principal Distribution Account, the Regular Principal
Distribution 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; and
(x) to the Certificate Distribution Account, for application
in the manner set forth in the Trust Agreement, the
remaining Total Distribution Amount.
Notwithstanding the foregoing, following the occurrence and
during the continuance of an Event of Default relating to
default in the payment of principal or default for five days
or more in the payment of interest on any Note which has
resulted in the acceleration of the maturities of the Notes,
the Class A Noteholders will be entitled to be paid in full
before any distribution of interest or principal may be made
to the Class B Noteholders. Following the occurrence of any
other Event of Default which has resulted in an acceleration
of the Notes, interest on the Class A Notes and the Class B
Notes must be paid on each Distribution Date prior to
distribution of principal on the Class A Notes on such
Distribution Date. In either case, the Certificateholders
will not be entitled to receive any distributions of
interest or principal until the Notes have been paid in
full.
Funds will be withdrawn (to the extent available) from
amounts on deposit in the Reserve Account and deposited into
the Collection Account on any Distribution Date to the
extent that (a) the Total Required Payment exceeds (b) the
Total Available Amount. Additionally, funds will be
withdrawn (to the extent available) from amounts on deposit
in the Yield Supplement Account and deposited into the Col-
lection Account on any Distribution Date to the extent that
(i) the excess of (a) the Total Required Payment over the
(b) Total Available Amount exceeds (ii) the amount on
deposit in the Reserve Account (prior to giving effect to
the above withdrawals).
"CERTIFICATE BALANCE" equals, on the Closing Date,
$16,388,534 and, thereafter, equals $16,388,534, reduced by
all amounts allocable to principal previously distributed to
holders of the Fixed-Rate Certificates.
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"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 distributed to the Class A
Noteholders 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, with respect to the Class A-1 Notes, from
and including the Closing Date, and with respect to the
Class A-2 Notes and the Class A-3 Notes, from and including
July 25, 1998), 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 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 distributed to the Class B
Noteholders 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 July 25, 1998 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).
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"COLLECTION PERIOD" means, with respect to the first
Distribution Date, the calendar month ending on July 31,
1998, and with respect to each subsequent Distribution Date,
the preceding calendar month.
"FIRST PRIORITY PRINCIPAL DISTRIBUTION AMOUNT" means, for
any Distribution Date, an amount equal to the excess, if
any, of (i) the aggregate outstanding principal amount of
the Class A Notes as of the preceding Distribution Date
(after giving effect to any principal payments made on the
Class A Notes on such preceding Distribution Date) over (ii)
the Pool Balance at the end of the Collection Period
preceding such Distribution Date; PROVIDED, HOWEVER, that
the First Priority Principal Distribution Amount shall not
be less than the aggregate of (i) on and after the Class A-1
Note Final Scheduled Distribution Date, the amount that is
necessary to reduce the outstanding principal amount of the
Class A-1 Notes to zero, (ii) on and after the Class A-2
Note Final Scheduled Distribution Date, the amount that is
necessary to reduce the outstanding principal amount of the
Class A-2 Notes to zero, and (iii) on and after the Class
A-3 Note Final Scheduled Distribution Date, the amount that
is necessary to reduce the outstanding principal amount of
the Class A-3 Notes to zero.
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of the First Priority Principal
Distribution Amount, the Second Priority Principal
Distribution Amount and the Regular Principal Distribution
Amount for such Distribution Date.
"REGULAR PRINCIPAL DISTRIBUTION AMOUNT" means, with respect
to any Distribution Date, an amount not less than zero equal
to (i) the excess of (A) the sum of the aggregate
outstanding principal amount of the Notes and the
Certificate Balance as of the preceding Distribution Date
(in each case, after giving effect to any principal payments
made on the Notes and Certificates on such preceding
Distribution Date) over (B) the Pool Balance at the end of
the Collection Period preceding such Distribution Date,
minus (ii) the sum of (A) the First Priority Principal
Distribution Amount and (B) the Second Priority Principal
Distribution Amount for such Distribution Date.
"SECOND PRIORITY PRINCIPAL DISTRIBUTION AMOUNT" means, for
any Distribution Date, an amount not less than zero, equal
to (i) the excess, if any, of (A) the aggregate outstanding
principal amount of the Notes as of the preceding
Distribution Date (after giving effect to any principal
payments made on the Notes on such preceding Distribution
Date) over (B) the Pool Balance at the end of the Collection
Period preceding such Distribution Date, minus (ii) the
First Priority Principal Distribution Amount for such
Distribution Date; PROVIDED, HOWEVER, that on and after the
Class B Note Final Scheduled Distribution Date, the Second
Priority Principal Distribution Amount shall not be less
than the amount that is necessary to reduce the outstanding
principal amount of the Class B Notes to zero.
"TOTAL AVAILABLE 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
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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 Available
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 Available 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.
"TOTAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, the sum of (i) the Total Available Amount
for such Distribution Date, (ii) the amount, if any,
withdrawn from the Reserve Account and deposited into the
Collection Account on such Distribution Date, and (iii) the
amount, if any, withdrawn from the Yield Supplement Account
and deposited into the Collection Account on such
Distribution Date (excluding any Yield Supplement Deposit
Amount included in the Total Available Amount).
"TOTAL REQUIRED PAYMENT" means, with respect to any
Distribution Date, the sum of (i) if CFSC or an affiliate is
not the Servicer, the Servicing Fee, (ii) the Class A
Noteholders' Interest Distributable Amount, (iii) the First
Priority Principal Distribution Amount, (iv) the Class B
Noteholders' Interest Distributable Amount, and (v) the Sec-
ond Priority Principal Distribution Amount.
On each Distribution Date, all amounts on deposit in the
Principal Distribution Account will be paid in the following
order of priority:
(i) to the Class A-1 Noteholders in reduction of
principal until the principal amount of the Class A-1
Notes has been paid in full;
(ii) to the Class A-2 Noteholders in reduction of
principal until the principal amount of the Class A-2
Notes has been paid in full;
(iii) to the Class A-3 Noteholders in reduction of
principal until the principal amount of the Class A-3
Notes has been paid in full;
(iv) to the Class B Noteholders in reduction of
principal until the principal amount of the Class B Notes
has been paid in full; and
(v) to the Certificate Distribution Account, for
application in the manner set forth in the Trust
Agreement, any funds remaining on deposit in the Principal
Distribution Account.
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 to supplement the interest collections
on those Receivables (the "DISCOUNT RECEIVABLES") that have
APRs which are less than the sum of (i) the Maximum Note
Rate and (ii) the Servicing Fee Rate (the "REQUIRED RATE").
The "MAXIMUM NOTE RATE" means the maximum of the Class A-1
Note Rate, the Class A-2 Note Rate, the Class A-3 Note Rate
and the Class B Note
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Rate. In addition, funds on deposit in the Yield Supplement
Account will be available on each Distribution Date to cover
shortfalls in distributions on the Notes to the extent
described herein.
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 (i) interest on the Contract 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 (ii) interest on such Contract
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. The Yield Supplement
Account will be augmented on each Distribution Date to the
extent described herein by the deposit of the Total
Distribution Amount remaining after payment of the Servicing
Fee (if CFSC or an affiliate is not the Servicer),
distributions of interest to the Class A Noteholders, the
deposit of the First Priority Principal Distribution Amount
into the Principal Distribution Account, distributions of
interest to the Class B Noteholders, and the deposit of the
Second Priority Principal Distribution Amount into the
Principal Distribution Account, up to an amount equal to the
excess of the Specified Yield Supplement Account Balance
over the amount on deposit in the Yield Supplement Account.
On or before the business day preceding each Distribution
Date, the Servicer shall cause to be withdrawn from the
amount on deposit in the Yield Supplement Account, for
deposit in the Collection Account, certain amounts intended
to compensate for differences between the interest rates
borne by the Notes and the APR's of the Receivables, as
described herein under "Description of the Transfer and
Servicing Agreements--Yield Supplement Account." In
addition, funds will be withdrawn (to the extent available)
from amounts on deposit in the Yield Supplement Account and
deposited into the Collection Account to the extent that (i)
the excess of (a) the Total Required Payment over (b) the
Total Available Amount exceeds (ii) the amount on deposit in
the Reserve Account (prior to giving effect to any
withdrawals).
If on any Distribution Date amounts on deposit in the
Reserve Account are at least equal to the Specified Reserve
Account Balance and amounts on deposit in the Yield
Supplement Account are in excess of the Specified Yield
Supplement Account Balance after giving effect to all
distributions to be made on such Distribution Date, such
excess will generally be paid to the Seller or its designee
and the Noteholders will have no further rights in, or
claims to, such amounts. The Specified Yield Supplement
Account Balance will be calculated as described under
"Description of the Transfer and Servicing Agreements--Yield
Supplement Account" herein. Additionally, upon notification
in writing by each Rating Agency that such action will not
result in a reduction or withdrawal by such Rating Agency of
the rating of any Class of Notes rated by such Rating Agency
(the "RATING AGENCY CONDITION") and satisfaction of certain
other conditions, the Seller may eliminate the
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Yield Supplement Account and replace it with an alternative
arrangement, in which case funds on deposit in the Yield
Supplement Account generally would be released to the Seller
or its designee and no further funds would be deposited in
the Yield Supplement Account.
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
$7,570,982. 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 to the extent described
herein by the deposit of the Total Distribution Amount
remaining after payment of the Servicing Fee (if CFSC or an
affiliate is not the Servicer), distributions of interest to
the Class A Noteholders, the deposit of the First Priority
Principal Distribution Amount into the Principal
Distribution Account, distributions of interest to the Class
B Noteholders, the deposit of the Second Priority Principal
Distribution Amount into the Principal Distribution Account,
and deposit of an amount sufficient to restore the amount on
deposit in the Yield Supplement Account to the Specified
Yield Supplement Account Balance, up to an amount equal to
the excess of the Specified Reserve Account Balance over the
amount on deposit in the Reserve Account.
The "SPECIFIED RESERVE ACCOUNT BALANCE" with respect to any
Distribution Date will be equal to the lesser of (i) the
outstanding principal balance of the Notes and (ii)
$7,570,982 (which is equal to 1.25% of the Initial Pool
Balance). See "Description of the Transfer and Servicing
Agreements--Reserve Account" herein.
Funds will be withdrawn (to the extent available) from
amounts on deposit in the Reserve Account and deposited into
the Collection Account on any Distribution Date to the
extent that (i) the Total Required Payment exceeds (ii) the
Total Available Amount.
If the amount required to be withdrawn from the Reserve
Account and the Yield Supplement Account to cover shortfalls
in collections on the Receivables on any Distribution Date
exceeds the amount on deposit in the Reserve Account and the
Yield Supplement 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. Upon satisfaction of the
Rating Agency Condition and certain other conditions, the
Seller may eliminate the Reserve Account and replace it with
an alternative arrangement, in which case funds on deposit
in the Reserve Account generally would be released to the
Seller or its designee and no further funds would be
deposited in the Reserve Account.
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
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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 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 June 30, 2004
(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 prepay such existing Receivable in full and
(b) such Obligor executes a new Installment Sales Contract
or Lease with respect to such Receivable. Any such new
Installment Sales Contract or Lease 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 Contract 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 Contract 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 "Description 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.
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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 and, to the extent described in
the Transfer and Servicing Agreements, Investment Earnings
on certain Trust Accounts and Liquidation Proceeds in excess
of the outstanding Contract Balance of any Receivable
received during 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. Payments by or on behalf of Obligors will be
allocated first to any overdue scheduled payment (including
taxes and miscellaneous billables), second to the current
scheduled payment (including taxes and miscellaneous
billables) and third to late fees. The Servicing Fee with
respect to each Collection Period will decline over the term
of the Notes as the Pool Balance decreases. See "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, the Leases and any related
Dealer Agreements pursuant to a custodial agreement, to be
dated as of July 1, 1998 (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--RISK OF UNPERFECTED SECURITY
INTERESTS IN RECEIVABLES " 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 Seller will pay the Administrator 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
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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 Leases 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 offices 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 or Lease (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 and Leases. 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 and
Leases, should a court find that the Seller did have
possession or control of such Installment Sales Contracts
and Leases, the interests of the Trust and the Indenture
Trustee in the Receivables would in all likelihood be
unperfected. See "Risk Factors--RISK OF UNPERFECTED SECURITY
INTERESTS IN RECEIVABLES" 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 one or more "financial asset securitization
investment trusts" or "FASITS" under the relevant provisions
of the Code and the Notes will constitute "regular
interests" in a FASIT, and Special Tax Counsel is of the
opinion that the Trust and the Notes will be so treated.
Noteholders will be required to report taxable income with
respect to a Note under an accrual method, and accordingly
may be required to report taxable income prior to receipt of
cash paid in respect of a Note. See "Federal Income Tax
Consequences and Treatment of Trust as a FASIT" herein and
"Federal Income Tax Consequences" in the Prospectus.
STATE TAX CONSIDERATIONS..... In the opinion of Tuke Yopp & Sweeney, PLC ("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
</TABLE>
S-18
<PAGE>
<TABLE>
<S> <C>
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-1 Notes be rated in the highest short-term
investment rating category and that the Class A-2 Notes and
the Class A-3 Notes be rated in the highest long-term
investment rating category by each of Standard & Poor's, a
division of The McGraw-Hill Companies, Inc. ("S&P"), and
Moody's Investors Service, Inc. ("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 LIMITATIONS" herein and "Ratings" in the
Prospectus.
CUSIP NUMBERS................ Class A-1 Notes: 149114AV2
Class A-2 Notes: 149114AW0
Class A-3 Notes: 149114AX8
Class B Notes: 149114AY6
</TABLE>
S-19
<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.
SUBORDINATION. Distributions of interest on the Class B Notes will be
subordinated in priority of payment to interest on the Class A Notes and payment
of the First Priority Principal Distribution Amount, if any, to the Class A
Noteholders. In addition, the Class B Noteholders will not receive any
distributions of principal until the Class A Notes have been paid in full.
LIMITED ASSETS. The Trust does not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the Receivables, 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 maturities of the
Notes are 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 (i) following the occurrence and during the continuation of an
Event of Default relating to default in the payment of principal or default for
five days or more in the payment of interest on any Note which has resulted in
the acceleration of the Notes, neither interest nor principal is distributed to
Class B Noteholders upon sale of the Receivables until the Class A Notes have
been paid in full, and (ii) following the occurrence and during the continuation
of any other Event of Default which has resulted in the acceleration of the
Notes, no principal is distributed to Class B Noteholders upon sale of the
Receivables 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
right 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.
S-20
<PAGE>
RISK OF UNPERFECTED SECURITY INTERESTS IN 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 Leases 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 offices 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 or Lease 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 and Leases. 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 and Leases, should a court find that the Seller did have
possession or control of such Installment Sales Contracts and Leases, 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 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 the Indenture Trustee, the 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. 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.
RATINGS LIMITATIONS. It is a condition to the issuance of the Notes that
the Class A-1 Notes be rated in the highest short-term investment rating
category and that the Class A-2 Notes and the Class A-3 Notes be rated in the
highest long-term 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 1998-A, 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 $16,388,534
(excluding amounts deposited in the Reserve Account and the Yield Supplement
Account), which represents the initial principal balance of the Fixed-Rate
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
S-21
<PAGE>
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 or Lease (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 offices 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--RISK OF
UNPERFECTED SECURITY INTERESTS IN RECEIVABLES" herein and in the Prospectus,
"Risk Factors--RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED EQUIPMENT" in
the Prospectus, "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--RISK OF UNPERFECTED SECURITY
INTERESTS IN RECEIVABLES" and "Certain Legal Aspects of the Receivables" herein
and in the Prospectus and "Risk Factors--Risk of Unperfected Security Interests
in Financed Equipment" 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 5.6375% Asset Backed Notes.................................. $164,000,000
Class A-2 5.75% Asset Backed Notes.................................... 218,000,000
Class A-3 5.85% Asset Backed Notes.................................... 183,114,000
Class B 5.85% Asset Backed Notes...................................... 24,176,000
Fixed-Rate Certificates............................................... 16,388,534
-----------
Total............................................................... $605,678,534
-----------
-----------
</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
Contract Balance of $605,678,534 as of July 1, 1998 (the "CUT-OFF DATE").
S-22
<PAGE>
The Receivables were selected from the entire U.S. 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.
Portfolio) using criteria set forth in the Prospectus under "The Receivables
Pools," as well as that each Receivable (i) has a stated maturity of not earlier
than December 1998 or later than June 2003, (ii) has an APR of at least 6.00%
and (iii) is not more than 31 days past due as of the Cut-off Date. In addition,
each Lease requires a mandatory final payment equal to the residual amount
payable by the lessee or has a guaranteed residual payment amount of $100 or
less. The "APR" for any Lease will be its Implicit Interest Rate (as defined in
the Prospectus). 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.
The composition of the Receivables and the distribution of the Receivables
by APR, new and used equipment, equipment type, industry application, payment
frequency, remaining Contract Balance, residual type of the Leases and
geographic distribution as of the Cut-off Date are set forth in the following
tables. Amounts and percentages are based on the Contract Balance of the
Receivables as of the Cut-off Date. The "CONTRACT BALANCE" of a Receivable means
its original principal balance, in the case of an Installment Sales Contract, or
its original Net Investment, in the case of a Lease, 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), in each case plus accrued interest on delinquent Receivables,
Variable Frequency Receivables which did not make a payment in the preceding
Collection Period and, as to the initial Contract Balance only, Receivables
originated in June 1998 which as of the Cut-off Date had not yet made a payment.
The initial amount of accrued interest included in the aggregate Contract
Balance is not expected to exceed approximately 0.21% of the initial aggregate
Contract Balance. The "NET INVESTMENT" with respect to a Lease equals the
present value of the Lease Scheduled Payments due thereunder and the residual
payment amount at the end of the Lease term discounted at the Implicit Interest
Rate for such Lease. As of the Cut-off Date, the aggregate Contract Balance of
the Receivables equalled the Initial Pool Balance.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
ORIGINAL REMAINING
TERM TERM
(RANGE) (RANGE)
POOL RESIDUAL NUMBER OF WEIGHTED AVERAGE APR (IN (IN AVERAGE
BALANCE BALANCE RECEIVABLES (RANGE) MONTHS) MONTHS)(1) CONTRACT BALANCE (RANGE)
----------- --------- ------------- --------------------- --------- ---------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Installment
Sales 48 $96,044
Contracts.. $417,696,786 $ 0 4,349 7.32% (6.00%-12.30%) (12-60) 43 (6-60) ($5,095-$2,739,485)
51 48,587
Leases..... 187,981,748 7,572,561 3,869 8.00% (6.00%-19.43%) (12-60) 38 (6-60) ($5,007-$1,930,615)
----------- --------- ----- --------------------- --------- ---------- ------------------------
Total...... $605,678,534 $7,572,561 8,218 7.53% 49 41 $73,701
----------- --------- -----
----------- --------- -----
</TABLE>
- ------------------------
(1) Based on scheduled payments and assuming no prepayments of the Receivables.
S-23
<PAGE>
DISTRIBUTION BY APR OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF CONTRACT CONTRACT
APR RANGE (1) RECEIVABLES BALANCE BALANCE
- --------------------------------------------------------------- ------------- -------------- -----------
<S> <C> <C> <C>
6.00 - 6.49................................................. 1,413 $ 143,930,906 23.76%
6.50 - 6.99................................................. 1,180 116,337,407 19.21
7.00 - 7.49................................................. 897 78,070,649 12.89
7.50 - 7.99................................................. 536 49,583,016 8.19
8.00 - 8.49................................................. 792 63,312,661 10.45
8.50 - 8.99................................................. 1,631 98,032,478 16.19
9.00 - 9.49.................................................. 591 31,273,625 5.16
9.50 - 9.99................................................. 480 14,700,743 2.43
10.00 and over................................................. 698 10,437,049 1.72
----- -------------- -----------
Total........................................................ 8,218 $ 605,678,534 100.00%
----- -------------- -----------
----- -------------- -----------
</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 or lease. 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 CONTRACT CONTRACT
RECEIVABLES BALANCE BALANCE
------------- -------------- -----------
<S> <C> <C> <C>
New Equipment (1).............................................. 5,660 $ 454,362,819 75.02%
Used Equipment................................................. 2,558 151,315,715 24.98
----- -------------- -----------
Total........................................................ 8,218 $ 605,678,534 100.00%
----- -------------- -----------
----- -------------- -----------
</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.
DISTRIBUTION OF THE RECEIVABLES BY TYPE OF FINANCED EQUIPMENT
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF CONTRACT CONTRACT
TYPE RECEIVABLES BALANCE BALANCE
- --------------------------------------------------------------- ------------- -------------- -----------
<S> <C> <C> <C>
Construction Equipment......................................... 5,320 $ 543,630,196 89.75%
Lift Trucks.................................................... 2,791 52,366,209 8.65
Paving Equipment............................................... 107 9,682,129 1.60
----- -------------- -----------
Total........................................................ 8,218 $ 605,678,534 100.00%
----- -------------- -----------
----- -------------- -----------
</TABLE>
S-24
<PAGE>
DISTRIBUTION BY INDUSTRY APPLICATION OF FINANCED EQUIPMENT
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF CONTRACT CONTRACT
INDUSTRY RECEIVABLES BALANCE BALANCE
- --------------------------------------------------------------- ------------- -------------- -----------
<S> <C> <C> <C>
Agriculture, Forestry and Fishing.............................. 354 $ 19,459,546 3.21%
Construction................................................... 3,799 351,264,643 58.00
Mining......................................................... 231 42,779,871 7.06
Manufacturing.................................................. 1,499 63,003,131 10.40
Transportation/Public Utilities................................ 524 28,817,139 4.76
Wholesale Trade................................................ 755 30,564,954 5.05
Other (1)...................................................... 1,056 69,789,250 11.52
----- -------------- -----------
Total........................................................ 8,218 $ 605,678,534 100.00%
----- -------------- -----------
----- -------------- -----------
</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 AGGREGATE
NUMBER OF CONTRACT CONTRACT
TYPE RECEIVABLES BALANCE BALANCE
- --------------------------------------------------------------- ------------- -------------- -----------
<S> <C> <C> <C>
Monthly........................................................ 7,032 $ 474,809,438 78.39%
Variable Frequency (1)......................................... 1,186 130,869,096 21.61
----- -------------- -----------
Total........................................................ 8,218 $ 605,678,534 100.00%
----- -------------- -----------
----- -------------- -----------
</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. 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" and "--LEASES--CONTRACT TERMS"
in the Prospectus.
S-25
<PAGE>
DISTRIBUTION OF THE RECEIVABLES BY REMAINING CONTRACT BALANCE
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF CONTRACT CONTRACT
REMAINING CONTRACT BALANCE RANGE RECEIVABLES BALANCE BALANCE
- --------------------------------------------------------------- ------------- -------------- -----------
<S> <C> <C> <C>
Up to $25,000.................................................. 2,902 $ 40,171,815 6.63%
$ 25,001-$ 50,000............................................. 1,739 64,746,804 10.69
$ 50,001-$ 75,000............................................. 1,128 68,559,073 11.32
$ 75,001-$ 100,000............................................. 677 58,926,866 9.73
$100,001-$ 125,000............................................. 533 60,018,372 9.91
$125,001-$ 150,000............................................. 347 47,415,701 7.83
$150,001-$ 175,000............................................. 236 38,009,517 6.28
$175,001-$ 200,000............................................. 171 31,928,694 5.27
$200,001-$ 250,000............................................. 164 36,740,051 6.07
$250,001-$ 300,000............................................. 95 25,772,360 4.26
$300,001-$ 350,000............................................. 65 21,217,648 3.50
$350,001-$ 400,000............................................. 34 12,610,516 2.08
$400,001-$ 450,000............................................. 24 10,254,673 1.69
$450,001-$ 500,000............................................. 14 6,565,586 1.08
$500,001-$ 550,000............................................. 13 6,831,032 1.13
$550,001-$ 600,000............................................. 11 6,255,291 1.03
$600,001-$1,000,000............................................ 38 27,952,061 4.61
Over $1,000,000................................................ 27 41,702,474 6.89
----- -------------- -----------
Total........................................................ 8,218 $ 605,678,534 100.00%
----- -------------- -----------
----- -------------- -----------
</TABLE>
DISTRIBUTION OF LEASES BY RESIDUAL TYPE
<TABLE>
<CAPTION>
RESIDUAL AMOUNT RESIDUAL AMOUNT
PERCENT OF AS A PERCENT OF AS A PERCENT OF
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE
TYPE OF NUMBER OF ORIGINAL CONTRACT CONTRACT RESIDUAL ORIGINAL CONTRACT
CUSTOMER OBLIGATION RECEIVABLES EQUIPMENT COST BALANCE BALANCE AMOUNT EQUIPMENT COST BALANCE
- ------------------------ ------------- -------------- -------------- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mandatory Final Payment
(1).................... 3,844 $ 263,819,777 $ 185,145,677 98.49% $ 7,572,529 2.87% 4.09%
Not Mandatory Final
Payment................ 25 4,293,846 2,836,071 1.51% 32 0.00% 0.00%
----- -------------- -------------- ----------- ------------
Total................. 3,869 $ 268,113,623 $ 187,981,748 100.00% $ 7,572,561
----- -------------- -------------- ----------- ------------
----- -------------- -------------- ----------- ------------
</TABLE>
- ------------------------
(1) Lessee is required under the terms of the Lease to make a payment equal to
the residual amount at the termination of the Lease.
S-26
<PAGE>
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF AGGREGATE CONTRACT AGGREGATE
STATE (1) RECEIVABLES BALANCE CONTRACT BALANCE
- ------------------------------------------------------------- ------------- -------------------- -----------------
<S> <C> <C> <C>
Alabama...................................................... 262 $ 16,287,183 2.69%
Alaska....................................................... 25 2,113,539 0.35
Arizona...................................................... 194 13,008,141 2.15
Arkansas..................................................... 128 7,013,817 1.16
California................................................... 533 42,377,203 7.00
Colorado..................................................... 62 7,088,478 1.17
Connecticut.................................................. 20 947,491 0.16
Delaware..................................................... 14 1,148,192 0.19
District of Columbia......................................... 3 83,226 0.01
Florida...................................................... 385 24,675,728 4.07
Georgia...................................................... 346 24,565,805 4.06
Hawaii....................................................... 12 550,654 0.09
Idaho........................................................ 58 4,229,943 0.70
Illinois..................................................... 255 18,915,848 3.12
Indiana...................................................... 182 10,049,803 1.66
Iowa......................................................... 72 2,725,716 0.45
Kansas....................................................... 109 11,112,925 1.83
Kentucky..................................................... 161 15,518,434 2.56
Louisiana.................................................... 157 10,152,718 1.68
Maine........................................................ 10 331,833 0.05
Maryland..................................................... 49 3,297,861 0.54
Massachusetts................................................ 25 1,631,305 0.27
Michigan..................................................... 531 35,651,148 5.89
Minnesota.................................................... 87 3,036,624 0.50
Mississippi.................................................. 160 10,540,215 1.74
Missouri..................................................... 159 14,886,331 2.46
Montana...................................................... 54 4,840,847 0.80
Nebraska..................................................... 63 3,787,267 0.63
Nevada....................................................... 74 9,170,261 1.51
New Hampshire................................................ 5 410,806 0.07
New Jersey................................................... 256 17,485,181 2.89
New Mexico................................................... 83 5,894,380 0.97
New York..................................................... 149 8,976,777 1.48
North Carolina............................................... 326 24,089,513 3.98
North Dakota................................................. 37 4,188,138 0.69
Ohio......................................................... 487 29,846,325 4.93
Oklahoma..................................................... 88 6,612,357 1.09
Oregon....................................................... 157 13,283,793 2.19
Pennsylvania................................................. 327 31,670,635 5.23
Rhode Island................................................. 3 159,148 0.03
South Carolina............................................... 204 16,466,085 2.72
South Dakota................................................. 63 5,228,070 0.86
Tennessee.................................................... 279 22,393,009 3.70
Texas........................................................ 738 57,623,593 9.51
Utah......................................................... 86 7,096,928 1.17
Vermont...................................................... 1 99,071 0.02
Virginia..................................................... 232 16,370,728 2.70
Washington................................................... 161 14,608,569 2.41
West Virginia................................................ 73 6,007,735 0.99
Wisconsin.................................................... 231 13,545,808 2.24
Wyoming...................................................... 42 3,883,349 0.64
----- -------------------- ------
Total...................................................... 8,218 $ 605,678,534 100.00%
----- -------------------- ------
----- -------------------- ------
</TABLE>
- ------------------------
(1) Based on billing addresses of Obligors.
S-27
<PAGE>
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 Contract Balances of the Receivables as of the Cut-off
Date, and after giving effect to all payments received prior to the Cut-off
Date.
Approximately 68.96% of the Receivables were Installment Sales Contracts and
the remaining 31.04% of the Receivables were Leases. 5.16% of the Receivables
were originated or arranged by Michigan Cat, a dealer in Novi, Michigan, and in
the aggregate 18.99% of the Receivables were originated or arranged by the five
largest Dealers. No other Dealer originated or arranged more than 4.99% of the
Receivables. 2.55% 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 1.56% of the Receivables, and the
five largest Obligors accounted for approximately 3.96% of the Receivables.
Approximately 94.55% of the Receivables have related Financed Equipment
manufactured by Caterpillar and the remaining approximately 5.45% of the
Receivables have related Financed Equipment manufactured by a variety of other
sources.
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, and the maximum amount
financed is 100%. 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. 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 and finance leases serviced by
CFSC (including receivables sold which CFSC continues to service) (the "U.S. ISC
PORTFOLIO" and the "U.S. LEASE PORTFOLIO", collectively, the "U.S. PORTFOLIO").
Generally, before 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
and leases are affected by economic conditions generally. The level of
repossessions and net losses set forth below reflect economic conditions
generally and the 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 and the U.S. Lease
Portfolio, respectively, 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)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------------------
1995 1996 1997
---------------------- ---------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gross Portfolio (2)................................ 17,354 $ 1,198.8 20,653 $ 1,269.4 25,066 $ 1,634.9
Delinquency (3)
31-60 Days....................................... 396 $ 17.1 445 $ 20.3 410 $ 17.6
over 60 Days..................................... 387 $ 32.7 457 $ 19.8 309 $ 13.4
Total Delinquencies................................ 783 $ 49.8 902 $ 40.1 719 $ 31.0
Total Delinquencies as a Percent of the Gross
Portfolio......................................... 4.51% 4.15% 4.37% 3.16% 2.87% 1.90%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT MARCH 31, 1998
---------------------- ----------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Gross Portfolio (2)................................................... 21,342 $ 1,337.4 26,098 $ 1,726.6
Delinquency (3)
31-60 Days.......................................................... 480 $ 26.0 260 $ 10.7
over 60 Days........................................................ 499 $ 20.8 270 $ 11.7
Total Delinquencies................................................... 979 $ 46.8 530 $ 22.4
Total Delinquencies
as a Percent of the Gross Portfolio.................................. 4.59% 3.50% 2.03 % 1.29%
</TABLE>
- ------------------------------
(1) 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.
(2) The amount of the gross portfolio is based on the aggregate Contract
Balance of the U.S. ISC Portfolio.
(3) 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. 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).
S-29
<PAGE>
DELINQUENCY EXPERIENCE FOR THE U.S. LEASE PORTFOLIO(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------------
1995 1996 1997
------------------ ------------------ ------------------
NUMBER OF NUMBER OF NUMBER OF
LEASES AMOUNT LEASES AMOUNT LEASES AMOUNT
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Gross Portfolio (2)..................... 14,343 $608.0 15,772 $803.9 17,434 $983.5
Delinquency (3)
31-60 Days............................ 293 $ 9.7 249 $ 6.9 199 $10.0
over 60 Days.......................... 291 $ 8.1 430 $ 9.1 223 $ 5.1
Total Delinquencies..................... 584 $17.8 679 $16.0 422 $15.1
Total Delinquencies as a Percent of the
Gross Portfolio........................ 4.07% 2.93 % 4.31% 1.99 % 2.41% 1.54 %
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1997 AT MARCH 31, 1998
------------------------ ----------------------
NUMBER OF NUMBER OF
LEASES AMOUNT LEASES AMOUNT
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Gross Portfolio (2)................................................... 15,943 $ 831.7 17,593 $ 1,000.3
Delinquency (3)
31-60 Days.......................................................... 263 $ 8.7 128 $ 5.9
over 60 Days........................................................ 396 $ 9.2 191 $ 4.3
Total Delinquencies................................................... 659 $ 17.9 319 $ 10.2
Total Delinquencies
as a Percent of the Gross Portfolio.................................. 4.13% 2.16 % 1.81 % 1.02%
</TABLE>
- ------------------------------
(1) Delinquent leases 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 lease due dates, reductions of lease
payments, and partial buyouts. See "The Receivables Pools--The Retail
Equipment Financing Business--EXTENSION/REVISION PROCEDURES" in the
Prospectus. In addition, a lease is no longer considered delinquent and is
no longer included in the U.S. Lease Portfolio upon the repossession of its
related financed equipment. See "The Receivables Pools--The Retail
Equipment Financing Business--REPOSSESSION/WRITEOFF PROCEDURES" in the
Prospectus.
(2) The amount of the gross portfolio is based on the aggregate Contract
Balance of the U.S. Lease Portfolio less the residual amount.
(3) Amounts and percentages are based on the gross amount of all unpaid
scheduled lease payments on each lease. A monthly lease 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).
S-30
<PAGE>
CREDIT LOSS/REPOSSESSION EXPERIENCE FOR THE U.S. ISC PORTFOLIO(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ------------------
1995 1996 1997 1997(5) 1998(5)
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Gross Portfolio Outstanding During the Period $1,024.5 $1,214.6 $1,434.4 $1,308.7 $1,683.5
Repossessions as a Percent of Average Gross Portfolio
Outstanding (2)............................................ 0.98% 1.02% 1.17% 1.25 % 1.05 %
Net Losses as a Percent of Liquidations (3)(4).............. 0.86% 0.51% 0.55% 0.27 % 0.20 %
Net Losses as a Percent of Average Gross Portfolio
Outstanding (4)............................................ 0.45% 0.30% 0.33% 0.15 % 0.12 %
</TABLE>
- ------------------------------
(1) Except as indicated, all amounts and percentages are based on the Contract
Balance.
(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.
CREDIT LOSS/REPOSSESSION EXPERIENCE FOR THE U.S. LEASE PORTFOLIO(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -------------------
1995 1996 1997 1997(4) 1998(4)
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average Gross Portfolio Outstanding During the Period....... $735.3 $941.0 $1,211.7 $1,101.1 $1,361.8
Repossessions as a Percent of Average Gross Portfolio
Outstanding................................................ 0.84% 0.85% 1.03% 0.80% 0.82%
Net Losses as a Percent of Liquidations (2)(3).............. 0.33% 0.36% 0.56% 0.15% 0.12%
Net Losses as a Percent of Average Gross Portfolio
Outstanding (3)............................................ 0.16% 0.18% 0.26% 0.07% 0.06%
</TABLE>
- ------------------------------
(1) Except as indicated, all amounts and percentages are based on the Contract
Balance.
(2) Liquidations represent a reduction in the outstanding balances of the
leases as a result of cash payments and charge-offs.
(3) Net losses are equal to the aggregate amount of principal and finance
charges accrued on all leases 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
lease after the related financed equipment is sold and the related lease is
terminated. The net loss figures above give effect to payments by Dealers
on a limited number of the leases 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.
(4) Rates have been annualized.
S-31
<PAGE>
RESIDUAL VALUE AND EQUIPMENT RETURN EXPERIENCE
Set forth below is certain information concerning the residual values and
CFSC's experience pertaining to returns of leased equipment relating to the U.S.
Lease Portfolio at or for the periods indicated. There can be no assurance that
CFSC's experience pertaining to returns of leased Financed Equipment relating to
the Receivables will be comparable to that set forth below or that CFSC's
experience with returns of leased equipment in the future will be comparable to
those in the past.
RESIDUAL VALUES AND EQUIPMENT RETURN EXPERIENCE FOR THE U.S. LEASE PORTFOLIO(1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -------------------
1995 1996 1997 1997 1998
------ ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Terminated Leases (2)....................................... 3,513 4,004 4,990 1,187 1,402
Units of Returned Equipment (3)............................. 0 7 1 0 2
Full Term Ratio (4)......................................... 0.00% 0.17% 0.02% 0.00% 0.14%
Residual Value of Equipment Relating to Terminated Leases... $47,348,544 $49,652,850 $80,405,946 1$7,113,205 $25,528,131
Residual Value of Equipment Relating to Terminated Leases as
a Percent of Cost of such Equipment........................ 16.69% 15.25% 19.09% 17.92% 18.54%
Aggregate Residual Losses (Gains) on Returned Equipment
(5)........................................................ $ 0 $2,368 $ 200 $ 0 $(7,584)
Aggregate Residual Losses (Gains) per Lease with Returned
Equipment (5).............................................. $ 0 $ 338 $ 200 $ 0 $(3,792)
</TABLE>
- ------------------------------
(1) Residual value is the option purchase price under the lease.
(2) The total number of leases which terminated for any reason during the
period.
(3) Units of equipment relating to a terminated lease which were returned to
CFSC to be sold.
(4) The ratio of units of returned equipment to terminated leases.
(5) Aggregate residual losses (gains) are calculated as the residual value of
the returned equipment less the proceeds from the sale of such equipment
plus any expenses incurred from such sale.
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.
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. Following the
occurrence and during the continuation of an Event of Default relating to
default in the payment of principal or default for five days or more in the
payment of interest on any Note which has resulted in the acceleration of the
Notes, the Class A Noteholders will be entitled to be paid in full before any
distributions of interest or principal may be made to the Class B Noteholders.
Following the occurrence of any other Event of Default which has resulted in an
acceleration of the Notes, interest on the Class A Notes and the Class B Notes
must be paid on each Distribution Date prior to the distribution of principal on
the Class A Notes on such Distribution Date.
As the rate of payment of principal of the Notes depends primarily on the
rate of payment (including prepayments) of the aggregate Contract 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 prepay such existing Receivable in full and
(b) such Obligor executes a new Installment Sales Contract or Lease with respect
to such Receivable. The purchase or refinancing of a Receivable by the Servicer
will result in the prepayment of the Contract 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.
S-32
<PAGE>
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 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.
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 and the Yield Supplement 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 expense of the Trust is
expected to be the Servicing Fee.
S-33
<PAGE>
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 $1,665 million on sales and revenues of
$18.9 billion for the year ended December 31, 1997 as compared with profits of
$1,361 million on sales and revenues of $16.5 billion for the year ended
December 31, 1996. 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, 1997, the percentages of total value of
CFSC's portfolio represented by these financing plans were as follows: non-tax
(financing) leases, 29%; installment sales contracts, 19%; tax-oriented leases,
18%; customer loans, 18%; wholesale financing, 7%; dealer loans, 7%; and
governmental lease-purchase contracts, 2%.
At December 31, 1997, CFSC had 684 full-time employees and serviced 40,374
accounts, including approximately $7.3 billion in gross finance receivables. In
the United States, as of December 31, 1997, there were 64 independently owned
Dealers and one Dealer that is owned by Caterpillar.
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 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 5.6375% 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 August 25, 1998. "DISTRIBUTION DATE" shall
mean the 25th day of each calendar 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 Available Amount remaining after the
payment of the Servicing Fee (if CFSC or an affiliate is not the Servicer) and
from amounts on deposit in the Reserve Account and the Yield Supplement Account.
See
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"Description of the Transfer and Servicing Agreements--Distributions," "--Yield
Supplement Account" and "--Reserve Account" herein. If the amount of interest on
the principal amounts of all Classes of Notes payable on any Distribution Date
exceeds the Total Distribution Amount, 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 Available Amount remaining after the payment of the
Servicing Fee (if CFSC or an affiliate is not the Servicer) and the Noteholders'
Interest Distributable Amount, and, solely on the Class A-1 Note Final Scheduled
Distribution Date, from the amount on deposit in the Reserve Account and the
Yield Supplement Account remaining after the payment of the Noteholders'
Interest Distributable Amount. See "Description of the Transfer and Servicing
Agreements--Distributions," "--Reserve Account" and "--Yield Supplement Account"
herein. Other than distributions of the First Priority Principal Distribution
Amount, if any, and the Second Priority Principal Distribution Amount, if any,
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 and the Yield Supplement Account).
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 5.75% 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 5.85% 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 5.85% 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 July 25, 1998)
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 August 25, 1998. 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 and the First Priority Principal Distribution Amount, if any,
has been deposited in the Principal Distribution Account. 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 Available Amount remaining after the payment of the
Servicing Fee (if CFSC or an affiliate is not the Servicer) and, in the case of
the Class B Notes, payments of the Class A Noteholders' Interest Distributable
Amount and the deposit of the First Priority Principal Distribution Amount into
the Principal Distribution Account, and in each case from amounts on deposit in
the Reserve Account and the Yield Supplement Account. See "Description of the
Transfer and Servicing Agreements--Distributions," "--Yield Supplement Account"
and "--Reserve Account" herein. If the amount of interest on the principal
amounts of all Classes of Notes payable on any Distribution Date exceeds the sum
of such remaining portion of the Total Available Amount and the amounts on
deposit in the Reserve Account and the Yield Supplement 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
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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, following the occurrence and during the continuation of an
Event of Default relating to default in the payment of principal or default for
five days or more in the payment of interest on any Note which has resulted in
the acceleration of the Notes, the Class A Noteholders will be entitled to be
paid in full before any distributions of interest or principal may be made to
the Class B Noteholders. Following the occurrence of any other Event of Default
which has resulted in an acceleration of the Notes, interest on the Class A
Notes and the Class B Notes must be paid on each Distribution Date prior to the
distribution of principal on the Class A Notes on such Distribution Date.
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 Available Amount remaining after the payment of
the Servicing Fee (if CFSC or an affiliate is not the Servicer) and the
Noteholders' Interest Distributable Amount, and, solely on the Class A-2 Note
Final Scheduled Distribution Date and Class A-3 Note Final Scheduled
Distribution Date, respectively, from amounts on deposit in the Reserve Account
and the Yield Supplement 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 Distribution Amount remaining after the payment of the
Servicing Fee (if CFSC or an affiliate is not the Servicer), the Class B
Noteholders' Interest Distributable Amount and the portion of the Principal
Distribution Amount paid in respect of the Class A Notes on such Distribution
Date, and, solely on the Class B Note Final Scheduled Distribution Date, from
amounts on deposit in the Reserve Account and the Yield Supplement Account. The
Class B Noteholders will not receive any principal payments until the Class A
Notes have been paid in full.
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 and the Yield Supplement 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 Yield Supplement 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
therefor (including any amounts on deposit in the Reserve Account and the Yield
Supplement Account).
In addition, following the occurrence and during the continuation of an
Event of Default relating to default in the payment of principal or default for
five days or more in the payment of interest on any Note which has resulted in
the acceleration of the Notes, the Class A Noteholders will be entitled to be
paid in full before any distributions of interest or principal may be made to
the Class B Noteholders. Following the occurrence of any other Event of Default
which has resulted in an acceleration of the Notes, interest on the Class A
Notes and the Class B Notes must be paid on each Distribution Date prior to the
distribution of principal on the Class A Notes on such Distribution Date.
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
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exercises its option to purchase the Receivables for a purchase price at least
equal to the sum of the Class A-3 Note Prepayment Price and the Class B Note
Prepayment Price. Such option may be exercised when the Pool Balance has been
reduced to 10% or less of the Initial Pool Balance and the aggregate Purchase
Amount for the Receivables, after payment of the Servicing Fee, is an amount at
least equal to the unpaid principal amount of the Notes plus accrued and unpaid
interest thereon. 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 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
Fixed-Rate Certificates and the entire notional amount of the Interest Only
Certificates and expects to convey the Residual Certificate to an unaffiliated
holder. The Fixed-Rate Certificates and the Interest Only Certificates will be
entitled to distributions as described in the Transfer and Servicing Agreements
(as defined below).
Distributions on the Fixed-Rate Certificates and Interest Only Certificates
will be subordinate in priority of payment to interest and principal due on the
Notes. Funds on deposit in the Reserve Account and the Yield Supplement Account
will not be available to cover scheduled payments with respect to the Fixed-Rate
Certificates and Interest Only Certificates while the Notes are outstanding,
except as specified in the Transfer and Servicing Agreement. It is not
anticipated that the Residual Certificate will receive distributions of interest
or principal.
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
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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 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," (i) the
Indenture Trustee will create an administrative subaccount within the Collection
Account for the benefit of the Noteholders and Certificateholders entitled the
Principal Distribution Account (such subaccount, the "PRINCIPAL DISTRIBUTION
ACCOUNT"), (ii) the Seller will establish and will maintain with the Indenture
Trustee the Reserve Account, in the name of the Indenture Trustee on behalf of
the Noteholders and Certificateholders and (iii) the Seller will establish and
will maintain with the Indenture Trustee the Yield Supplement Account, in the
name of the Indenture Trustee on behalf of the Noteholders and
Certificateholders.
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 Class A Noteholders or the Class B Noteholders, and 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. Payments
by or on behalf of Obligors will be allocated first to any overdue scheduled
payments (including taxes and miscellaneous billables), second to the current
scheduled payments (including taxes and miscellaneous billables) and third to
late fees. In addition, to the extent described in the Transfer and Servicing
Agreements, the Servicer shall be entitled to certain Investment Earnings on the
Trust Accounts and Liquidation Proceeds in excess of the outstanding Contract
Balance of any Receivable received during the related Collection Period. 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 right 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.
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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 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 Available Amount to be
deposited into the Collection Account.
The "TOTAL AVAILABLE 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 Available 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
Available 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.
MONTHLY WITHDRAWALS FROM COLLECTION ACCOUNT. 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 Class A Noteholders, the Class A Noteholders' Interest
Distributable Amount;
(iii)
to the Principal Distribution Account, the First Priority Principal
Distribution Amount, if any;
(iv)
to the Class B Noteholders, the Class B Noteholders' Interest
Distributable Amount;
(v)
to the Principal Distribution Account, the Second Priority Principal
Distribution Amount, if any;
(vi)
to the Yield Supplement Account, the amount equal to the excess of
the Specified Yield Supplement Account Balance over the amount on
deposit in the Yield Supplement Account on such Distribution Date;
(vii)
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;
(viii)
if any Class of Notes is outstanding prior to giving effect to
distributions on such Distribution Date to the Principal Distribution
Account, the Regular Principal Distribution 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; and
(x)
to the Certificate Distribution Account, for application in the
manner set forth in the Trust Agreement, the remaining Total
Distribution Amount.
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Notwithstanding the foregoing, following the occurrence and during the
continuation of an Event of Default relating to default in the payment of
principal or default for five days or more in the payment of interest on any
Note which has resulted in the acceleration of the Notes, the Class A
Noteholders will be entitled to be paid in full before any distributions of
interest or principal may be made to the Class B Noteholders. Following the
occurrence of any other Event of Default which has resulted in an acceleration
of the Notes, interest on the Class A Notes and the Class B Notes must be paid
on each Distribution Date prior to the distribution of principal on the Class A
Notes on such Distribution Date.
Funds will be withdrawn (to the extent available) from amounts on deposit in
the Reserve Account and deposited into the Collection Account on any
Distribution Date to the extent that (i) the Total Required Payment exceeds (ii)
the Total Available Amount. Additionally, funds will be withdrawn (to the extent
available) from amounts on deposit in the Yield Supplement Account and deposited
into the Collection Account on any Distribution Date to the extent that (i) the
excess of (a) the Total Required Payment over (b) the Total Available Amount
exceeds (ii) the amount on deposit in the Reserve Account (prior to giving
effect to the above withdrawals).
"APR" means, with respect to any Receivable related to an Installment Sales
Contract, the annual percentage rate of interest borne by such Receivable, and
with respect to any Receivable related to a Lease, the Implicit Interest Rate
for such Lease. 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, $16,388,534 and,
thereafter, equals $16,388,534, reduced by all amounts allocable to principal
previously distributed to holders of the Fixed-Rate Certificates.
"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 distributed to the Class A Noteholders 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, with
respect to the Class A-1 Notes, from and including the Closing Date, and with
respect to the Class A-2 Notes and the Class A-3 Notes, from and including July
25, 1998), 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 July 1999
Distribution Date.
"CLASS A-2 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the September 2001
Distribution Date.
"CLASS A-3 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the April 2003
Distribution Date.
"CLASS B NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the July 2004
Distribution Date.
"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
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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 distributed to the
Class B Noteholders 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 July 25, 1998 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).
"COLLECTION PERIOD" means, with respect to the first Distribution Date, the
calendar month ending on July 31, 1998, and with respect to each subsequent
Distribution Date, the preceding calendar month.
"CUT-OFF DATE APR" is 7.53%, which is the weighted average APR of the
Receivables (based on their respective Contract Balances) as of the Cut-off
Date.
"FINAL SCHEDULED DISTRIBUTION DATE" means the Class A-1 Note Final Scheduled
Distribution Date, the Class A-2 Note Final Scheduled Distribution Date and the
Class A-3 Note Final Scheduled Distribution Date, as applicable.
"FIRST PRIORITY PRINCIPAL DISTRIBUTION AMOUNT" means, for any Distribution
Date, an amount equal to the excess, if any, of (i) the aggregate outstanding
principal amount of the Class A Notes as of the preceding Distribution Date
(after giving effect to any principal payments made on the Class A Notes on such
preceding Distribution Date) over (ii) the Pool Balance at the end of the
Collection Period preceding such Distribution Date; PROVIDED, HOWEVER, that the
First Priority Principal Distribution Amount shall not be less than the
aggregate of (i) on and after the Class A-1 Note Final Scheduled Distribution
Date, the amount that is necessary to reduce the outstanding principal amount of
the Class A-1 Notes to zero, (ii) on and after the Class A-2 Note Final
Scheduled Distribution Date, the amount that is necessary to reduce the
outstanding principal amount of the Class A-2 Notes to zero, and (iii) on and
after the Class A-3 Note Final Scheduled Distribution Date, the amount that is
necessary to reduce the outstanding principal amount of the Class A-3 Notes to
zero.
"INITIAL POOL BALANCE" means $605,678,534, which is the sum of the Contract
Balances of each Receivable as of the Cut-off Date.
"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.
"POOL BALANCE" means, at any time, the aggregate Contract 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,
Liquidation Proceeds (not in excess of the Contract Balance of any Liquidated
Receivable) received with respect to any Liquidated Receivable during such
Collection Period and to all Realized Losses on Liquidated Receivables during
such Collection Period.
"PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any Distribution
Date, the sum of the First Priority Principal Distribution Amount, the Second
Priority Principal Distribution Amount and the Regular Principal Distribution
Amount for such Distribution Date.
"REALIZED LOSSES" means, with respect to any Collection Period, the excess
of the Contract Balance of the Liquidated Receivables over Liquidation Proceeds
for such Collection Period to the extent allocable to principal.
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<PAGE>
"REGULAR PRINCIPAL DISTRIBUTION AMOUNT" means, with respect to any
Distribution Date, an amount not less than zero equal to (i) the excess of (A)
the sum of the aggregate outstanding principal amount of the Notes and the
Certificate Balance as of the preceding Distribution Date (in each case, after
giving effect to any principal payments made on the Notes and Certificates on
such preceding Distribution Date) over (B) the Pool Balance at the end of the
Collection Period preceding such Distribution Date, minus (ii) the sum of (A)
the First Priority Principal Distribution Amount and (B) the Second Priority
Principal Distribution Amount for such Distribution Date.
"SECOND PRIORITY PRINCIPAL DISTRIBUTION AMOUNT" means, for any Distribution
Date, an amount not less than zero, equal to (i) the excess, if any, of (A) the
aggregate outstanding principal amount of the Notes as of the preceding
Distribution Date (after giving effect to any principal payments made on the
Notes on such preceding Distribution Date) over (B) the Pool Balance at the end
of the Collection Period preceding such Distribution Date, minus (ii) the First
Priority Principal Distribution Amount for such Distribution Date; PROVIDED,
HOWEVER, that on and after the Class B Note Final Scheduled Distribution Date,
the Second Priority Principal Distribution Amount shall not be less than the
amount that is necessary to reduce the outstanding principal amount of the Class
B Notes to zero.
"TOTAL DISTRIBUTION AMOUNT" means, with respect to any Distribution Date,
the sum of (i) the Total Available Amount for such Distribution Date, (ii) the
amount, if any, withdrawn from the Reserve Account and deposited into the
Collection Amount on such Distribution Date, and (iii) the amount, if any,
withdrawn from the Yield Supplement Account and deposited into the Collection
Account on such Distribution Date (excluding any Yield Supplement Deposit Amount
included in the Total Available Amount).
"TOTAL REQUIRED PAYMENT" means, with respect to any Distribution Date, the
sum of (i) if CFSC or an affiliate is not the Servicer, the Servicing Fee, (ii)
the Class A Noteholders' Interest Distributable Amount, (iii) the First Priority
Principal Distribution Amount, (iv) the Class B Noteholders' Interest
Distributable Amount, and (v) the Second Priority Principal Distribution Amount.
On each Distribution Date, all amounts on deposit in the Principal
Distribution Account will be paid in the following order of priority:
(i)
to the Class A-1 Noteholders in reduction of principal until the
principal amount of the Class A-1 Notes has been paid in full;
(ii)
to the Class A-2 Noteholders in reduction of principal until the
principal amount of the Class A-2 Notes has been paid in full;
(iii)
to the Class A-3 Noteholders in reduction of principal until the
principal amount of the Class A-3 Notes has been paid in full;
(iv)
to the Class B Noteholders in reduction of principal until the
principal amount of the Class B Notes has been paid in full; and
(v)
to the Certificate Distribution Account, for application in the
manner set forth in the Trust Agreement, any funds remaining on
deposit in the Principal Distribution Account.
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 to supplement the interest collections on those Receivables
(the "DISCOUNT RECEIVABLES") that have APRs which are less than the sum of (i)
the Maximum Note Rate and (ii) the Servicing Fee Rate (the "REQUIRED RATE"). The
"MAXIMUM NOTE RATE" means the maximum 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
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(i) interest on the Contract 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 (ii) interest on such Contract 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. The
Yield Supplement Account will be augmented on each Distribution Date to the
extent described herein by the deposit of the Total Distribution Amount
remaining after payment of the Servicing Fee (if CFSC or an affiliate is not the
Servicer), distributions of interest to the Class A Noteholders, the deposit of
the First Priority Principal Distribution Amount into the Principal Distribution
Account, distributions of interest to the Class B Noteholders, and the deposit
of the Second Priority Principal Distribution Amount into the Principal
Distribution Account, up to an amount equal to the excess of the Specified Yield
Supplement Account Balance over the amount on deposit in the Yield Supplement
Account.
On or before the business day preceding each Distribution Date, the Servicer
shall cause to be withdrawn from the amount on deposit in the Yield Supplement
Account, for deposit in the Collection Account, the sum of (i) the amount by
which one month's interest on each Class of Notes at a rate equal to the
applicable interest rate borne by such Class of Notes, exceeds one month's
interest on such Class computed based on a rate equal to the weighted average
APR of the Receivables reduced by the Servicing Fee Rate and (ii) certain other
amounts as specified in the Transfer and Servicing Agreements (the "YIELD
SUPPLEMENT DEPOSIT AMOUNT"). In addition, funds will be withdrawn (to the extent
available) from amounts on deposit in the Yield Supplement Account and deposited
into the Collection Account to the extent that the excess of (a) the Total
Required Payment over (b) the Total Available Amount exceeds the amount on
deposit in the Reserve Account (prior to giving effect to any withdrawals). 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, generally, released to the Seller or its
designee or otherwise applied as described herein. If on any Distribution Date
amounts on deposit in the Reserve Account are at least equal to the Specified
Reserve Account Balance and amounts on deposit in the Yield Supplement Account
are in excess of the Specified Yield Supplement Account Balance after giving
effect to all distributions to be made on such Distribution Date, such excess
will generally be paid to the Seller or its designee and the Noteholders will
have no further rights in, or claims to, such amounts. The "SPECIFIED YIELD
SUPPLEMENT ACCOUNT BALANCE" for any Distribution Date will equal the aggregate
amount, as of the last day of the related Collection Period, by which (i)
interest on the Contract 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 (ii) interest on such Contract 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
generally will be paid to the Seller or its designee. Additionally, upon
notification in writing by each Rating Agency that such action will not result
in a reduction or withdrawal by such Rating Agency of the rating of any Class of
Notes rated by such Rating Agency (the "RATING AGENCY CONDITION") and
satisfaction of certain other conditions, the Seller may eliminate the Yield
Supplement Account and replace it with an alternative arrangement, in which case
funds on deposit in the Yield Supplement Account generally would be released to
the Seller or its designee and no further funds would be deposited in the Yield
Supplement Account.
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
$7,570,982 (the "RESERVE ACCOUNT INITIAL DEPOSIT") and will be augmented on each
Distribution Date to the extent described herein by the deposit of the Total
Distribution
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<PAGE>
Amount remaining after the payment of the Servicing Fee (if CFSC or an affiliate
is not the Servicer), distributions of interest to the Class A Noteholders, the
deposit of the First Priority Principal Distribution Amount into the Principal
Distribution Account, distributions of interest to the Class B Noteholders, the
deposit of the Second Priority Principal Distribution Amount into the Principal
Distribution Account and deposit of any amount sufficient to restore the amount
on deposit in the Yield Supplement Account to the Specified Yield Supplement
Account Balance, up to an amount equal to the excess of the Specified Reserve
Account Balance over the amount on deposit in the Reserve Account, as described
above under "--Distributions."
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) $7,570,982 (which is equal to 1.25% 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 generally to distribute all of the
amount of the excess to the Seller or its designee. 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 (to the extent available) from amounts on deposit in
the Reserve Account and deposited into the Collection Account on any
Distribution Date to the extent that (a) the Total Required Payment exceeds (b)
the Total Available Amount.
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 and the Yield Supplement 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. Upon satisfaction of the Rating Agency Condition and
satisfaction of certain other conditions, the Seller may eliminate the Reserve
Account and replace it with an alternative arrangement, in which case funds on
deposit in the Reserve Account generally would be released to the Seller or its
designee and no further funds would be deposited in the Reserve Account.
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 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 the Leases 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
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<PAGE>
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 or Lease (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 and Leases. See "Risk Factors--RISKS OF UNPERFECTED SECURITY INTERESTS
IN RECEIVABLES" 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 or Leases, should a court find that
the Seller did have possession or control of such Installment Sales Contracts or
Leases, the interests of the Trust and the Indenture Trustee in the Receivables
would in all likelihood be unperfected.
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.
S-45
<PAGE>
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.
FEDERAL INCOME TAX CONSEQUENCES AND TREATMENT OF TRUST AS A FASIT
The Seller intends to cause an election to be made under the Code whereby
the Trust will qualify as one or more "financial asset securitization investment
trusts" or "FASITS" under the relevant provisions of the Code (the "FASIT
PROVISIONS"). Under the FASIT Provisions, a FASIT avoids federal income taxation
(other than tax imposed on "prohibited transactions," which is not expected to
be material) and can issue "regular interests," which are treated as debt for
federal income tax purposes. See "Federal Income Tax Consequences--Tax
Consequences to Holders of the Notes--TREATMENT OF THE NOTES AS INDEBTEDNESS" in
the Prospectus. Further, Special Tax Counsel is of the opinion that the Trust
will constitute one or more FASITs for federal income tax purposes and the Notes
will constitute "regular interests" in a FASIT. Accordingly, Special Tax Counsel
also is of the opinion that, for federal income tax purposes, the Trust will not
be treated as an association (or publicly traded partnership) taxable as a
corporation and the Notes will be classified as debt.
Although the Seller anticipates that the Trust will continue to qualify as
one or more FASITs and has obtained under the relevant documents from the
Servicer and Owner Trustee undertakings with respect to maintaining the
continuing qualification of the Trust as such, such continuing qualification is
dependent upon the compliance with all provisions of the Trust Agreement and
related documents, compliance with statutory changes in the future and with
compliance regulations not yet issued, as to each of which Special Tax Counsel
renders no opinion. If an entity electing to be treated as a FASIT fails to
comply with one or more of the ongoing requirements of the Code for FASIT status
during any taxable year, the Code provides that the entity will not be treated
as a FASIT after the date of such cessation. In such event, an entity electing
to be treated as a FASIT may be taxable as a corporation and the regular
interests issued by such entity may not be treated as debt for federal income
tax purposes. See "Federal Income Tax Consequences--Tax Consequences to Holders
of the Notes--POSSIBLE ALTERNATIVE TREATMENTS OF THE NOTES" in the Prospectus.
In the case of an inadvertent termination of FASIT status, the Code provides the
Treasury Department with authority to provide relief. Any such relief, however,
may be accompanied by sanctions, including the imposition of a corporate tax on
all or a portion of the FASIT's income for the period of time in which the
requirements for FASIT status are not satisfied.
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 and, accordingly,
Noteholders are required to report taxable income prior to the receipt of cash
paid in respect of a Note. 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 holder of the "ownership interest" in the FASIT
issuing the regular interests corresponding to the Notes, for purposes of
determining the applicability of exemption from federal income tax withholding
(in particular the rules regarding related parties). See "Federal Income Tax
Consequences--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.
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,
S-46
<PAGE>
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, collectively, "PARTIES IN INTEREST") who
have certain specified relationships to a Plan or its Plan Assets, unless a
statutory or administrative exemption is available. Parties in Interest 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 Certificateholder or any other parties may be deemed to be
benefiting from the issuance of the Notes and are Parties in Interest 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 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,
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<PAGE>
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
"Federal Income Tax Consequences and Treatment of Trust as a FASIT"), 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 Plans investing in the Notes.
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.
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
CLASS A NOTE UNDERWRITERS NOTES NOTES NOTES
-------------- -------------- --------------
<S> <C> <C> <C>
Goldman, Sachs & Co................................... $ 54,668,000 $ 72,668,000 $ 61,038,000
Chase Securities Inc.................................. 54,666,000 72,666,000 61,038,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................... 54,666,000 72,666,000 61,038,000
-------------- -------------- --------------
Total....................................... $164,000,000 $218,000,000 $183,114,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
In the Class A Note Underwriting Agreement, the Class A Note 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 the Class
A-3 Notes to the public at the prices set forth on the cover page hereof, and to
certain dealers at such prices less a concession not in excess of 0.070% per
Class A-1 Note, 0.115% per Class A-2 Note and 0.140% per Class A-3 Note. The
Class A Note Underwriters may allow and such dealers may reallow a concession
not in excess of 0.040% per Class A-1 Note, 0.070% per Class A-2 Note and 0.085%
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 Goldman, Sachs & Co. (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 0.240%
per Class B Note. The Class B Note Underwriter may allow and such dealers may
reallow a concession not in excess of 0.150% per Class B Note to certain other
dealers. After the initial public offering, such price and concession may be
changed.
S-48
<PAGE>
Until the distribution of the Notes 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, Goldman,
Sachs & Co. ("GOLDMAN SACHS"), 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 Goldman Sachs 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.
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
represents 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.
Chase Securities Inc., an Underwriter, is an affiliate of the Owner Trustee.
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, PLC, Nashville, Tennessee.
S-49
<PAGE>
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Caterpillar
Financial Asset Trust 1998-A Class A-1 5.6375% Asset Backed Notes, Class A-2
5.75% Asset Backed Notes, Class A-3 5.85% Asset Backed Notes and the Class B
5.85% 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 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
A-1
<PAGE>
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.
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;
A-2
<PAGE>
(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 who is not a U.S.
Person (as defined below) generally 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, under currently
applicable law, (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, any state thereof, or any political subdivision of either (including the
District of Columbia) or (iii) an estate or trust, the income of which is
includible in gross income for United States tax purposes, regardless of its
source. The U.S. Treasury Department has recently finalized new regulations that
will revise some aspects of the current system for withholding on amounts paid
to foreign persons. Under these regulations, interest or OID paid to a
nonresident alien would continue to be exempt from U.S. withholding taxes
(including backup withholding) provided that the holder complies with the new
certification procedures. 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-17
Administration Fee............................................................. S-17
Administrator.................................................................. S-17
APR............................................................................ S-23, S-40
Caterpillar.................................................................... S-34
Cede........................................................................... S-3
Cedel.......................................................................... A-1
Certificate Balance............................................................ S-10, S-40
Certificates................................................................... S-1, S-5
CFSC........................................................................... S-4
Class A Note Underwriters...................................................... S-48
Class A Note Underwriting Agreement............................................ S-48
Class A Noteholders............................................................ S-7
Class A Noteholders' Interest Carryover Shortfall.............................. S-11, 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-4
Class A-1 Note Final Scheduled Distribution Date............................... S-8, S-40
Class A-1 Note Pool Factor..................................................... S-33
Class A-1 Note Rate............................................................ S-6, S-34
Class A-1 Noteholders.......................................................... S-7
Class A-1 Notes................................................................ S-1, S-4
Class A-2 Note Final Scheduled Distribution Date............................... S-8, S-40
Class A-2 Note Pool Factor..................................................... S-33
Class A-2 Note Rate............................................................ S-6, S-35
Class A-2 Noteholders.......................................................... S-7
Class A-2 Notes................................................................ S-1, S-4
Class A-3 Note Final Scheduled Distribution Date............................... S-8, S-40
Class A-3 Note Pool Factor..................................................... S-33
Class A-3 Note Prepayment Price................................................ S-9, S-37
Class A-3 Note Rate............................................................ S-6, S-35
Class A-3 Noteholders.......................................................... S-7
Class A-3 Notes................................................................ S-1, S-4
Class B Note Final Scheduled Distribution Date................................. S-8, S-40
Class B Note Pool Factor....................................................... S-33
Class B Note Prepayment Price.................................................. S-9, S-37
Class B Note Rate.............................................................. S-6, S-35
Class B Note Underwriter....................................................... S-48
Class B Note Underwriting Agreement............................................ S-48
Class B Noteholders............................................................ S-7
Class B Noteholders' Interest Carryover Shortfall.............................. S-11, S-40
Class B Noteholders' Interest Distributable Amount............................. S-11, S-41
Class B Noteholders' Monthly Interest Distributable Amount..................... S-11, S-41
Class B Notes.................................................................. S-1, S-4
Closing Date................................................................... S-1
Code........................................................................... S-18
Collection Account............................................................. S-16
Collection Period.............................................................. S-12, S-41
</TABLE>
A-4
<PAGE>
<TABLE>
<S> <C>
Commission..................................................................... S-3
Contract Balance............................................................... S-6, S-23
Custodial Agreement............................................................ S-17
Custodian...................................................................... S-17
Cut-off Date................................................................... S-5, S-22
Cut-off Date APR............................................................... S-6, S-41
Dealers........................................................................ S-5
Determination Date............................................................. S-39
Discount Receivables........................................................... S-13, S-42
S-1, S-7,
Distribution Date.............................................................. S-34
DOL............................................................................ S-47
DTC............................................................................ S-3, A-1
ERISA.......................................................................... S-19, S-46
Euroclear...................................................................... A-1
Exchange Act................................................................... S-3
FASITs......................................................................... S-18, S-46
FASIT Provisions............................................................... S-46
Final Maturity Date............................................................ S-16
Final Scheduled Distribution Date.............................................. 41
Financed Equipment............................................................. S-2, S-5
First Priority Principal Distribution Amount................................... S-12, S-41
Fixed-Rate Certificates........................................................ S-1, S-5
Global Securities.............................................................. A-1
Goldman Sachs.................................................................. S-49
Indenture...................................................................... S-2, S-4
Indenture Trustee.............................................................. S-2, S-4
Initial Pool Balance........................................................... S-5, S-41
Installment Sales Contracts.................................................... S-5
Interest Only Certificates..................................................... S-1, S-5
Issuer......................................................................... S-1, S-4
Leases......................................................................... S-5
Liquidated Receivables......................................................... S-39
Liquidation Proceeds........................................................... S-39
Maximum Note Rate.............................................................. S-13, S-42
Moody's........................................................................ S-2, S-19
Net Investment................................................................. S-6, S-23
Noteholders.................................................................... S-7
Noteholders' Interest Distributable Amount..................................... S-41
Notes.......................................................................... S-1, S-4
Obligors....................................................................... S-5
Owner Trustee.................................................................. S-2, S-4
Parties in Interest............................................................ S-47
Plan Asset Regulation.......................................................... S-47
Plan Assets.................................................................... S-19, S-47
Plans.......................................................................... S-19, S-47
Pool Balance................................................................... S-6, S-41
Principal Distribution Account................................................. S-38
Principal Distribution Amount.................................................. S-12, S-41
Purchase Agreement............................................................. S-5
Rating Agency.................................................................. S-2, S-19
Rating Agency Condition........................................................ S-14, S-43
Realized Losses................................................................ S-6, S-41
Receivables.................................................................... S-2, S-5
</TABLE>
A-5
<PAGE>
<TABLE>
<S> <C>
Receivables Files.............................................................. S-18, S-21
Receivables Pool............................................................... S-22
Record Date.................................................................... S-7
Regular Principal Distribution Amount.......................................... S-12, S-42
Required Rate.................................................................. S-13, S-42
Reserve Account................................................................ S-15
Reserve Account Initial Deposit................................................ S-15, S-43
Residual Certificate........................................................... S-1, S-5
S&P............................................................................ S-2, S-19
Sale and Servicing Agreement................................................... S-5
Second Priority Principal Distribution Amount.................................. S-12, S-42
Seller......................................................................... S-4
Servicer....................................................................... S-4
Servicing Fee.................................................................. S-17
Servicing Fee Rate............................................................. S-17
Special Tax Counsel............................................................ S-18
Specified Reserve Account Balance.............................................. S-15, S-44
Specified Yield Supplement Account Balance..................................... S-43
Tennessee Tax Counsel.......................................................... S-18
Total Available Amount......................................................... S-12, S-39
Total Distribution Amount...................................................... S-13, S-42
Total Required Payment......................................................... S-13, S-42
Transfer and Servicing Agreements.............................................. S-37
Trust.......................................................................... S-1, S-4
Trust Agreement................................................................ S-2, S-4
U.S. ISC Portfolio............................................................. S-28
U.S. Lease Portfolio........................................................... S-28
U.S. Portfolio................................................................. S-28
U.S. Person.................................................................... A-3
Underwriters................................................................... S-48
Underwriting Agreements........................................................ S-48
Variable Frequency Receivables................................................. S-25
Yield Supplement Account....................................................... S-13, S-42
Yield Supplement Account Deposit............................................... S-14, S-42
Yield Supplement Deposit Amount................................................ 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.
To the extent 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 July 27, 1998
<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 or method 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 fractional 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.
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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).
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SUMMARY OF TERMS
The following summary is qualified 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."
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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").
Notes will be available for purchase in denominations
specified in the related Prospectus Supplement. If so
specified in the related Prospectus Supplement, Notes
will be available in book-entry form only and 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."
To the extent 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.
With respect to a Series that includes two or more
Classes of Notes, each Class may differ as to the timing
and priority of
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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. Payments 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.
To the extent 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.
With respect to a Series that includes two or more
Classes of Certificates, each Class may differ as to
timing and priority of
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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.
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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 (less any repossession
expenses), (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, (vii) with
respect to any Leases owned by such Trust, any proceeds
of returned Financed Equipment, and (viii) 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 AGREE-
MENT"), 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 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
Caterpillar 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.
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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 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, guaranteed investment contracts, swaps or
other interest rate protection agreements, repurchase
obligations, other agreements with respect to third
party payments or other support, cash deposits or other
arrangements. 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................... If so 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 related
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 Prospectus
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 and maintained 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
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during the Funding Period specified in the related
Prospectus Supplement. The amount that may be initially
deposited into a Pre-Funding Account, and the length of
a 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--RISK OF UNPERFECTED
SECURITY INTERESTS IN RECEIVABLES" and "--RISK OF
UNPERFECTED SECURITY INTERESTS IN FINANCED EQUIPMENT"
herein.
If so 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 certain
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 repre-
sentation 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 no such modifications
may reduce the underlying APR or Principal 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
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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.
To the extent 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
Balance 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 appli-
cable 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 Re-
ceivables 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 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 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. If so 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.
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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 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 related Indenture Trustee, if a subsequent purchaser
were able to take physical possession of the Receivables
Files without knowledge of such assignment, such
Indenture Trustee's interest in the Receivables could be
defeated. In such event, distributions to
Securityholders may be adversely affected. See "Risk
Factors--Risk of Unperfected Security Interests in
Receivables" 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. 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 connection with
extensions of credit and collections relating to
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retail installment sales contracts and finance leases,
and certain of these laws make an assignee of such a
contract liable to the obligor thereon for any violation
by the lender. To the extent 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.
Tax Status........................ In connection with the issuance of each Series of
Securities, to the extent specified in the related
Prospectus Supplement, Orrick, Herrington & Sutcliffe
LLP, as special tax counsel to the related Trust, is of
the opinion 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, unless the related Prospectus
Supplement indicates that the Trust will qualify as a
"financial asset securitization investment trust," 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
"Federal Income Tax Consequences" for additional
information concerning the application of federal tax
laws.
Upon the issuance of each Series of Securities, if so
specified in the related Prospectus Supplement, Tuke
Yopp & Sweeney, PLC, 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
characterizations 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.
</TABLE>
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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.
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 fractional
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 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" above.
MATURITY AND PREPAYMENT UNCERTAINTY. 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, 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 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 (each 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 "CONTRACT
BALANCE" or "PRINCIPAL BALANCE" (as the applicable term is defined in the
related Prospectus Supplement). (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
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<PAGE>
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 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 related 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 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.
RISK OF UNPERFECTED SECURITY INTERESTS IN RECEIVABLES. 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
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") pursuant to the related
Custodial Agreement. The related Custodian will maintain possession of such
Receivables Files in a space leased by such 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,
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<PAGE>
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. If so specified in
the related Prospectus Supplement, 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 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 related Indenture Trustee, if a subsequent purchaser were able
to take physical possession of the Receivables Files without knowledge of such
assignment, such Indenture Trustee's interest in the Receivables could be
defeated. In such event, distributions to Securityholders may be adversely
affected.
RISK OF UNPERFECTED SECURITY INTERESTS IN FINANCED EQUIPMENT. 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 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.
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RISK OF 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 include the creation and maintenance 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 the related Receivables to the
Seller, and the Seller has taken and will take all actions that are required to
perfect and maintain the perfection of 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 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 related
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
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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.
RISK OF SERVICER DEFAULT. 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 right 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.
RELIANCE ON THE SELLER, CFSC AND 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 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 Funding Period shall not exceed three months from the related Closing
Date.
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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, and will be publicly available through the
Commission's web site (http://www.sec.gov).
RISK OF UNENFORCEABLE LEASE PROVISIONS. 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.
RISK OF NON-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 finance leases, and certain of these laws make an assignee of such a
contract liable to the obligor thereon for any violation by the lender. If so
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.
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.
RISK OF YEAR 2000. Many existing computer programs use only two digits to
identify a year in the date field. These programs could fail or produce
erroneous results during the transition from the year 1999 to the year 2000.
The Servicer has evaluated the impact of preparing its systems for the year
2000. It has identified areas of potential impact and is implementing conversion
efforts. The Servicer's target is to have all systems ready for the year 2000 by
December 31, 1998.
If the Servicer, the Owner Trustee or the Indenture Trustee of any Series do
not have by the year 2000 computerized systems which are year 2000 compliant,
the ability to service the Receivables (in the case of the Servicer), to make
distributions to Certificateholders (in the case of the Owner Trustee) and to
make distributions to the Noteholders (in the case of the Indenture Trustee) may
be materially and adversely affected.
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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 fractional 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 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 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 so as to perfect the transfer of the Receivables
from CFSC to the Seller, or if instead, a UCC financing statement is to be filed
to perfect the transfer from CFSC to the Seller. If the Receivables Files are
not delivered to a Custodian, then, 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; in such case, UCC financing statements will be filed to
perfect the transfer of the Receivables from the Seller to the Trust and from
the Trust to the Indenture Trustee. The related Installment Sales Contracts
and/or Leases will not be stamped to reflect the assignment of the receivables
to the Seller, to the Trust and to the Indenture Trustee. Accordingly, if a
subsequent purchaser were able to take physical possession of the Receivables
Files without knowledge of such assignments, the Indenture Trustee's interest in
the Receivables could be defeated. In such event, distributions to
Securityholders may be adversely affected. UCC 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.
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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 or the Seller pursuant to the related
Sale and 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) the interest
earned on short-term investments made by such Trust, (x) with respect to any
Leases owned by such Trust, any proceeds of returned Financed Equipment, and
(xi) 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. If so 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
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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, Contract Balance or Principal Balance of the Receivables and the
geographic location of each Obligor of the Receivables, percentages of new and
used equipment, industry application, range of original loan-to-value ratios 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. The ratings on any applicable Series of Securities will be based,
in part, upon such eligibility criteria and the purchase of Subsequent
Receivables meeting the criteria specified in the related Sale and Servicing
Agreement will not result in a downgrade or withdrawal of the ratings on such
Securities. 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 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
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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 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
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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.
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
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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 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
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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. CFSC expects, as Servicer, to
continue to allow these modifications and terminations with respect to the
Leases included in the related Trust 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.
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 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, 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.
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The rate of prepayments on the Receivables may be 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 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 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 property of the related
Trust. Any such extensions or modifications may increase 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 of 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. 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
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 "Description of the Transfer and Servicing Agreements--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
To the extent 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 or other specified account,
if any, and (iii) to
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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 Funding Period, are limited as described herein. To the extent
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 and maintenance 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--RISK OF SUBSTANTIVE CONSOLIDATION
OF CFSC AND THE SELLER" herein.
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
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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 oriented (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 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 by reference to, the provisions of the Notes and the Indenture.
If so 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. The Notes will be available
for purchase in denominations specified in the related Prospectus Supplement
and, if so specified in the related Prospectus Supplement, 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
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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. If so 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, if so provided in the related Prospectus Supplement, each Class
of Noteholders will receive its 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.
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Notwithstanding the foregoing, 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 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.
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 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, 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, 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
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manner set forth in the related Prospectus Supplement. Therefore, 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. 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. 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 may
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.
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.
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.
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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.
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.
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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 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 of 1939, 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 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.
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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. If
so specified 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.
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. Interest on each Class of Fixed
Rate Securities will be computed on the basis of a 360-day year of twelve 30-day
months or such other basis as may be set forth in the related Prospectus
Supplement. 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
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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 (as defined in such Prospectus
Supplement), 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
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. To the extent 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
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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.
If so 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 "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 note or 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 or
another nominee 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
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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 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.
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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 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.
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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.
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
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
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"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 make initial deposits to
any Reserve Account or other specified account and 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 (as such term is defined in the related
Prospectus Supplement, the "FUNDING PERIOD") on each date specified as a
transfer date in the related Prospectus Supplement (each, a "SUBSEQUENT CLOSING
DATE"). Subsequent Receivables will be subject to the same underwriting criteria
as the Initial Receivables. 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 Funding Period shall not exceed three months from the related Closing
Date. The Prospectus Supplement with respect to any applicable Series will
specify the amount of the deposit into the Pre-Funding Account on the Closing
Date (the "ORIGINAL PRE-FUNDED AMOUNT") and the term or duration of the Funding
Period. Funds on deposit in the Pre-Funding Account with respect to any
applicable Series will be invested in Eligible Investments prior to being used
to purchase Subsequent Receivables. Any amounts remaining on deposit in a
Pre-Funding Account at the end of a Funding Period will be distributed to the
holders of the applicable Series of Securities in the manner specified in the
related Prospectus Supplement.
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 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 Seller, the related Trust and the related 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. To the extent 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 "CONTRACT BALANCE" or "PRINCIPAL
BALANCE" (as the applicable 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
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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 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 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
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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. If so 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 finance 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 related payment schedule; provided, however, that no such modifications may
reduce the underlying APR or Principal 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 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. 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,
and any proceeds after such date (deficiency proceeds) would not be proceeds of
Receivables in
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the related Trust and the holders of Securities will in no event be entitled to
distributions of such deficiency proceeds. 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 may, in
order to satisfy the requirements described above for monthly remittances,
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
To the extent 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 fixed percentage per annum (as
specified 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.
If so 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 received. Payments by or on behalf of Obligors
will be allocated first to any overdue scheduled payment (including taxes and
miscellaneous billables), second to the current scheduled payment (including
taxes and miscellaneous billables) 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 below under "--Net Deposits."
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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.
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. To the
extent 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.
If so 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. If so provided in the related Prospectus
Supplement, the Reserve Account will be
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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 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;
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(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 "Federal Income
Tax Consequences" 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 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.
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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.
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
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
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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, 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.
AMENDMENT
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, 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,
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.
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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, if so provided in the related Prospectus
Supplement and subject to such further conditions as may be specified therein,
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).
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 a 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 related Receivables Files. The related Custodian will maintain
its possession of the 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 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
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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 and maintenance 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.
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 and maintain the perfection of the
Seller's ownership interest in such 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 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 receivable sold by the debtor prior to the
filing for bankruptcy remain property of the debtor's bankruptcy estate.
Although the Receivables related 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 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
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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.
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.
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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 the related 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 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.
EXCESS PROCEEDS
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
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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. 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.
FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax consequences of an investment in the Notes and Certificates as of the date
hereof. Counsel to each Trust specified in the related Prospectus Supplement
("SPECIAL TAX COUNSEL") is of the opinion that this discussion of federal income
tax consequences is accurate in all material respects. As more fully discussed
below, Special Tax Counsel also is of the opinion that the Notes will be
classified as debt for United States federal income tax purposes and that the
Trust will not be classified as an association or publicly traded partnership
taxable as a corporation for such purposes. Except to the extent provided in a
related Prospectus Supplement, Special Tax Counsel will render no other opinions
to a Trust with respect to the Notes, the Certificates or the Trust. This
discussion is intended as an explanatory discussion of the possible effects of
the classification of the Notes and the Certificates to investors generally and
related tax matters affecting investors generally, but does not purport to
furnish information in the level of detail or with the attention to an
investor's specific tax circumstances that would be provided by an investor's
tax advisor. 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 jurisdiction, to their particular situations.
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This 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 deals only with Notes and Certificates held
as capital assets within the meaning of Section 1221 of the Code and does not
address all of the tax consequences relevant to a particular Securityholder in
light of that Securityholder's circumstances, and some Securityholders (such as
financial institutions, tax-exempt organizations, insurance companies,
securities dealers, mutual funds, REITs, RICs, S corporations, estates and
trusts, electing large partnerships, or investors holding Securities as part of
a hedge, straddle, integrated or conversion transaction or whose "functional
currency" is not the United States dollar) may be subject to special tax rules
and limitations not discussed below. Except as otherwise indicated, this summary
is addressed only to original purchasers of the Certificates who are "UNITED
STATES PERSONS" (as defined in Code Section 7701(a)(30)).
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 is of the 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. If so specified in the related Prospectus Supplement, Special Tax
Counsel also is of the opinion that the Trust will qualify as a "financial asset
securitization investment trust" (a "FASIT") within the meaning of Sections 860H
through 860L of the Code (the "FASIT PROVISIONS"). In any such case, the related
Prospectus Supplement will set forth certain additional relevant material
federal income tax consequences to Securityholders.
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. Further, Special
Tax Counsel is of the opinion 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. If an election to treat the
Trust as a FASIT is made, the discussion below regarding the United States
federal income tax treatment of the Notes will also be applicable to the
Certificates.
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 OID.
Accordingly, the stated interest on a Note will be taxable to a Noteholder (i)
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 or (ii) if
the Notes are issued by a Trust for which an election to be treated as a FASIT
will be made, at the time it accrues regardless of the Noteholder's regular
method of accounting. 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.
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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).
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 Seller or the Trust (including in the absence of a FASIT
election with respect to the Trust, 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 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.
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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 above.
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, 1999, subject to certain transition rules. Prospective
investors are urged to consult their own tax advisors regarding the New
Regulations.
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 would likely 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. If an election to treat the Trust as a FASIT
is not made, 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 that, in each case, constitute
assets of the partnership and in which the Seller has an interest), and the
Notes being debt of the partnership. The remainder of this discussion of the
treatment of the Certificates assumes that no election to treat the Trust as a
FASIT will be made. 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. 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. See "--Tax
Consequences to Holders of the Notes" above. 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
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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. 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.
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
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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 OID and (ii) not subject to the "imputed interest" rules of the
Code, and, therefore, the Trust should not have OID. 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 capital gain or loss.
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
contribute all of its assets and liabilities to a new partnership in exchange
for an interest in the new partnership; and, immediately thereafter, the
terminating partnership represented by the Trust would be considered to
distribute its assets to its partners (I.E., the Certificateholders and any
other equity holders in the Trust). 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 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 (includible 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.
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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, 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-1. The Trust will
provide the Schedule K-1 information to nominees that fail to provide the Trust
with the information statement described below and such nominees will be
required to forward such information to the beneficial owners of the
Certificates. Generally, 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
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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.
NEW WITHHOLDING REGULATIONS. The New Regulations make certain modifications
to the withholding, backup withholding and information reporting rules described
above. 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, 1999, subject to certain transition rules.
Prospective investors are urged to consult their own tax advisors regarding the
New Regulations.
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CERTAIN STATE TAX CONSIDERATIONS
The following is a discussion of certain Tennessee state tax considerations.
To the extent specified in the related Prospectus Supplement, Tuke Yopp &
Sweeney, PLC 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, PLC 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,
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.
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 or domiciled
in 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, PLC (1) the Certificates of each Series will be treated as "stock" and
interim distributions by the Trust to the Certificateholders (other than
distributions in liquidation) will be taxable as "dividends" under the Hall Tax,
and (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 or
"domiciled" in Tennessee, a literal interpretation of the Hall Tax would subject
such Trust to taxation thereunder. In the opinion of Tuke Yopp & Sweeney, PLC,
based upon existing legal precedent, the activities of the Servicer on behalf of
the Trust in Tennessee should not cause a Trust to be deemed either a "resident"
of or "domiciled" or "doing business" in Tennessee. Tennessee has recently
enacted legislation which has significantly expanded what constitutes "doing
business" within Tennessee. Because the determination of what constitutes "doing
business" involves qualitative and quantitative analysis of a taxpayer's
activities in Tennessee, Tuke Yopp & Sweeney, PLC cannot state without
qualification that a Trust will not be "doing business" in Tennessee. If a Trust
is "domiciled" in Tennessee, the TDOR has ruled it can tax interest income of
the Trust from obligations with maturities of longer than six months but has
held in the Ruling income from finance leases is rental income and not subject
to the Hall Tax. Furthermore, in the opinion of Tuke Yopp & Sweeney, PLC, 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.
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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, if so specified in the
Prospectus Supplement, 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, collectively, "PARTIES IN INTEREST") who
have certain specified relationships to a Plan or its Plan Assets, unless a
statutory or administrative exemption is available. Parties in Interest 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.
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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 rating 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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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................................................................................ 21
Article 2A......................................................................... 18, 53
Base Rate.......................................................................... 35
Book-Entry Certificates............................................................ 36
Book-Entry Notes................................................................... 36
Book-Entry Securities.............................................................. 36
Calculation Agent.................................................................. 35
Caterpillar........................................................................ 6, 28
Cede............................................................................... 3
Cedel.............................................................................. 36
Cedel Participants................................................................. 38
Certificate Balance................................................................ 5
Certificate Distribution Account................................................... 41
Certificate Pool Factor............................................................ 26
Certificateholder.................................................................. 37
Certificateholders................................................................. 5, 37
Certificates....................................................................... 1
CFSC............................................................................... 4, 28
Class.............................................................................. 1
Closing Date....................................................................... 39
Code............................................................................... 12, 54
Collection Account................................................................. 41
Commission......................................................................... 3
Commodity Indexed Securities....................................................... 35
Contract Balance................................................................... 13, 40
Currency Indexed Securities........................................................ 35
Custodial Agreement................................................................ 9
Custodian.......................................................................... 9
Cut-off Date....................................................................... 7
Cut-off Date APR................................................................... 40
Dealer Agreement................................................................... 22
Dealer Agreements.................................................................. 20
Dealers............................................................................ 7
Definitive Certificates............................................................ 36
Definitive Notes................................................................... 36
Definitive Securities.............................................................. 36
Depositaries....................................................................... 36
Depository......................................................................... 28
Distribution Date.................................................................. 29
DTC................................................................................ 3
Eligible Deposit Account........................................................... 42
Eligible Institution............................................................... 42
Eligible Investments............................................................... 41
ERISA.............................................................................. 12, 62
Euroclear.......................................................................... 38
Euroclear Operator................................................................. 38
Euroclear Participants............................................................. 38
Euroclear System................................................................... 38
</TABLE>
64
<PAGE>
<TABLE>
<S> <C>
Event of Default................................................................... 30
Exchange Act....................................................................... 3
F&E Tax............................................................................ 61
Face Amount........................................................................ 36
FASIT.............................................................................. 54
FASIT Provisions................................................................... 54
Financed Equipment................................................................. 1, 6
Fixed Rate Securities.............................................................. 34
Floating Rate Securities........................................................... 35
foreign person..................................................................... 55
Funding Period..................................................................... 5, 40
GAAP............................................................................... 23
Hall Tax........................................................................... 61
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.............................................................. 37
Initial Cut-off Date............................................................... 7
Initial Pool Balance............................................................... 49
Initial Receivables................................................................ 7, 39
Insolvency Event................................................................... 47
Insolvency Laws.................................................................... 16
Installment Sales Contract......................................................... 6
Interest Rate...................................................................... 4
Interest Reset Period.............................................................. 35
Investment Earnings................................................................ 42
IRS................................................................................ 53
Issuer............................................................................. 4
Lease.............................................................................. 6
Lease Scheduled Payments........................................................... 23
Mechanics' Liens................................................................... 11
New Regulations.................................................................... 56
Note Distribution Account.......................................................... 41
Note Pool Factor................................................................... 26
Noteholder......................................................................... 37
Noteholders........................................................................ 4, 37
Notes.............................................................................. 1
Obligors........................................................................... 7
OID................................................................................ 54
OID Regulations.................................................................... 54
Original Pre-Funded Amount......................................................... 40
Owner Trustee...................................................................... 1
Participants....................................................................... 36
Parties in Interest................................................................ 62
Pass-Through Rate.................................................................. 5
Plan Assets........................................................................ 62
Plans.............................................................................. 62
Pool Balance....................................................................... 26
Pre-Funded Amount.................................................................. 7, 17
Pre-Funding Account................................................................ 1, 8
</TABLE>
65
<PAGE>
<TABLE>
<S> <C>
Principal Balance.................................................................. 13, 40
Prospectus Supplement.............................................................. 1
Purchase Agreement................................................................. 7, 39
Purchase Amount.................................................................... 40
Rating Agency...................................................................... 63
Realized Losses.................................................................... 46
Receivables........................................................................ 1, 6, 21
Receivables Files.................................................................. 10, 14
Record Date........................................................................ 36
Registration Statement............................................................. 3
Related Documents.................................................................. 32
Reserve Account.................................................................... 44
Rules.............................................................................. 37
Ruling............................................................................. 61
Sale and Servicing Agreement....................................................... 7
Schedule of Receivables............................................................ 40
Securities......................................................................... 1
Securities Act..................................................................... 3
Securityholders.................................................................... 5
Seller............................................................................. 1, 4
Series............................................................................. 1
Servicer........................................................................... 4
Servicer Default................................................................... 47
Servicer's Yield................................................................... 10, 43
Servicing Fee...................................................................... 10, 43
Servicing Fee Rate................................................................. 10, 43
Special Tax Counsel................................................................ 53
Specified Reserve Account Balance.................................................. 8, 44
Spread............................................................................. 35
Spread Multiplier.................................................................. 35
Stock Index........................................................................ 35
Stock Indexed Securities........................................................... 35
Strip Certificates................................................................. 6
Strip Notes........................................................................ 5
Subsequent Closing Date............................................................ 40
Subsequent Cut-off Date............................................................ 7
Subsequent Receivables............................................................. 1, 40
TDOR............................................................................... 61
Tennessee Tax Counsel.............................................................. 12
Terms and Conditions............................................................... 38
Total Distribution Amount.......................................................... 43
Transfer and Servicing Agreements.................................................. 39
Trust.............................................................................. 1, 4
Trust Accounts..................................................................... 41
Trust Agreement.................................................................... 4
Trust Property..................................................................... 20
Trustee............................................................................ 36
U.S. ISC Portfolio................................................................. 25
U.S. Lease Portfolio............................................................... 25
U.S. Portfolio..................................................................... 25
UCC................................................................................ 9, 14
Underwriters....................................................................... 63
United States Persons.............................................................. 54
</TABLE>
66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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-3
Summary of Terms..................................... S-4
Risk Factors......................................... S-20
Formation of the Trust............................... S-21
The Receivables Pool................................. S-22
Weighted Average Life of the Notes................... S-32
Pool Factors and Trading Information................. S-33
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. S-33
Use of Proceeds...................................... S-34
The Seller, Caterpillar and the Servicer............. S-34
Description of the Notes............................. S-34
Description of the Certificates...................... S-37
Description of the Transfer and Servicing
Agreements.......................................... S-37
Certain Legal Aspects of the Receivables............. S-44
Legal Investment..................................... S-46
Federal Income Tax Consequences and Treatment of
Trust as a FASIT.................................... S-46
ERISA Considerations................................. S-46
Underwriting......................................... S-48
Legal Opinions....................................... S-49
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........................................... 19
The Trust Property................................... 20
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............. 27
Description of the Notes............................. 28
Description of the Certificates...................... 33
Certain Information Regarding the Securities......... 34
Issuance of the Securities........................... 36
Description of the Transfer and Servicing
Agreements.......................................... 39
Certain Legal Aspects of the Receivables............. 49
Federal Income Tax Consequences...................... 53
Certain State Tax Considerations..................... 61
ERISA Considerations................................. 62
Plan of Distribution................................. 63
Ratings.............................................. 63
Legal Opinions....................................... 63
Index of Terms....................................... 64
</TABLE>
UNTIL OCTOBER 25, 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.
$589,290,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CATERPILLAR
FINANCIAL ASSET
TRUST 1998-A
$164,000,000
CLASS A-1 5.6375%
ASSET BACKED NOTES
$218,000,000
CLASS A-2 5.75%
ASSET BACKED NOTES
$183,114,000
CLASS A-3 5.85%
ASSET BACKED NOTES
$24,176,000
CLASS B 5.85%
ASSET BACKED NOTES
CATERPILLAR FINANCIAL
FUNDING CORPORATION
SELLER
CATERPILLAR FINANCIAL
SERVICES CORPORATION
SERVICER
----------------
PROSPECTUS SUPPLEMENT
----------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
