<PAGE> 1
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. This prospectus supplement and the
accompanying prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JULY 9, 1999
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY , 1999
$573,656,000
CATERPILLAR FINANCIAL ASSET TRUST 1999-A
<TABLE>
<S> <C>
CATERPILLAR FINANCIAL CATERPILLAR FINANCIAL
FUNDING CORPORATION SERVICES CORPORATION
SELLER SERVICER
</TABLE>
BEFORE YOU PURCHASE
ANY OF THESE NOTES, BE
SURE YOU UNDERSTAND
THE STRUCTURE AND THE
RISKS. SEE ESPECIALLY
THE RISK FACTORS
BEGINNING ON PAGE S-11
OF THIS PROSPECTUS
SUPPLEMENT AND ON PAGE
14 OF THE ATTACHED
PROSPECTUS.
These notes are
asset-backed
securities issued by a
trust. The securities
are not obligations of
Caterpillar Inc.,
Caterpillar Financial
Services Corporation
or any of their
affiliates.
No one may use this
prospectus supplement
to offer and sell
these notes unless it
is accompanied by the
prospectus.
THE TRUST WILL ISSUE THE FOLLOWING SECURITIES:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT INTEREST RATE FINAL MATURITY DATE
---------------- ------------- -------------------
<S> <C> <C> <C>
Class A-1 Notes...... $155,000,000 % July 2000
Class A-2 Notes...... $125,000,000 % March 2002
Class A-3 Notes...... $270,000,000 % April 2004
Class B Notes........ $ 23,656,000 % July 2005
Certificates(1)...... $ 17,764,812 N/A N/A
</TABLE>
-----------------------------------------------
(1) The Certificates are not being offered by this prospectus supplement.
-- The trust will pay interest and principal on the securities on the 25th day
of each month. The first distribution date will be August 25, 1999.
-- The trust will pay principal sequentially to the earliest maturing class of
securities then outstanding until that class is paid in full.
THE UNDERWRITERS ARE OFFERING THE FOLLOWING SECURITIES BY THIS PROSPECTUS
SUPPLEMENT:
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE(1) DISCOUNT SELLER(1)(2)
----------------- ------------ ---------------
<S> <C> <C> <C>
Per Class A-1 Note..... % % %
Per Class A-2 Note..... % % %
Per Class A-3 Note..... % % %
Per Class B Note....... % % %
Total............. $ $ $
</TABLE>
-----------------------------------------------
(1) The price of the offered notes will also include interest accrued, if any,
from July , 1999.
(2) Before deducting expenses payable by the seller estimated to be $ .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT OR THE ATTACHED PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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 , 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WHERE TO FIND INFORMATION IN THESE
DOCUMENTS........................... S-3
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. S-3
SUMMARY OF TERMS OF THE NOTES......... S-4
STRUCTURAL SUMMARY.................... S-7
RISK FACTORS.......................... S-11
RECENT DEVELOPMENTS................... S-15
Year 2000 Readiness Disclosure... S-15
FORMATION OF THE TRUST................ S-16
The Trust........................ S-16
Capitalization of the Trust...... S-17
The Owner Trustee................ S-17
THE RECEIVABLES POOL.................. S-17
Delinquencies, Repossessions and
Net Losses..................... S-23
Residual Value and Equipment
Return Experience.............. S-28
WEIGHTED AVERAGE LIFE OF THE NOTES.... S-28
POOL FACTORS AND TRADING
INFORMATION......................... S-32
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............... S-32
Sources of Capital and
Liquidity...................... S-32
Results of Operations............ S-32
USE OF PROCEEDS....................... S-33
THE SELLER, CATERPILLAR AND THE
SERVICER............................ S-33
Caterpiller Inc.................. S-33
Caterpiller Financial Services
Corporation.................... S-33
DESCRIPTION OF THE NOTES.............. S-33
General.......................... S-33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Class A-1 Notes.............. S-34
The Class A-2 Notes, the Class
A-3 Notes and the Class B
Notes.......................... S-34
The Indenture.................... S-36
DESCRIPTION OF THE CERTIFICATES....... S-37
DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS................ S-37
Sale and Assignment of
Receivables.................... S-37
Accounts......................... S-37
Servicing Compensation and
Payment of Expenses............ S-38
Rights Upon Servicer Default..... S-38
Waiver of Past Defaults.......... S-38
Distributions.................... S-38
Reserve Account.................. S-42
Net Deposits..................... S-43
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES......................... S-44
Sale and Transfer of
Receivables.................... S-44
Dealer Recourse Receivables...... S-44
Cross-Collateralization.......... S-44
LEGAL INVESTMENT...................... S-45
FEDERAL INCOME TAX CONSEQUENCES....... S-45
ERISA CONSIDERATIONS.................. S-46
UNDERWRITING.......................... S-47
LEGAL OPINIONS........................ S-48
EXPERTS............................... S-49
ANNEX I -- GLOBAL CLEARANCE,
SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES... A-1
INDEX OF TERMS........................ A-5
REPORT OF INDEPENDENT ACCOUNTANTS..... F-1
</TABLE>
S-2
<PAGE> 3
WHERE TO FIND INFORMATION IN THESE DOCUMENTS
This prospectus supplement and the attached prospectus provide information
about the trust, Caterpillar Financial Asset Trust 1999-A, including terms and
conditions that apply to the securities to be issued by the trust. Only the
notes issued by the trust are offered hereby. The specific terms of the trust
are contained in this prospectus supplement. You should rely only on information
on the notes provided in this prospectus supplement and the attached prospectus.
We have not authorized anyone to provide you with different information.
We have included cross-references to captions in these materials where you
can find further related discussions. We have started with several introductory
sections describing the trust and terms in abbreviated form, followed by a more
complete description of the terms. The introductory sections are:
- Summary of Terms of the Notes -- provides important information
concerning the amounts and the payment terms of each class of notes
- Structural Summary -- gives a brief introduction to the key structural
features of the trust
- Risk Factors -- describes briefly some of the risks to investors of a
purchase of the notes
Cross references may be contained in the introductory sections which will
direct you elsewhere in this prospectus supplement or the attached prospectus to
more detailed descriptions of a particular topic. You can also find references
to key topics in the Table of Contents on the preceding page.
You can find a listing of the pages where capitalized terms are defined
under the captions "Index of Terms" beginning on page A-5 in this prospectus
supplement and under "Index of Terms" beginning on page 68 of the attached
prospectus.
Caterpillar Financial Funding Corporation's principal offices are located
at Greenview Plaza, 2950 East Flamingo Road, Suite C-3B, Las Vegas, Nevada 89121
and its telephone number is (702) 735-2514.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement and the attached prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended. These forward-looking statements, together with related
qualifying language and assumptions, are found in the material set forth under
"Recent Developments" and "Weighted Average Life of the Notes" in this
prospectus supplement and "Issuance of the Securities -- Book-Entry
Registration" in the attached prospectus. Forward-looking statements are also
found elsewhere in this prospectus supplement and the prospectus, and may be
identified by, among other things, accompanying language including the words
"expects," "intends," "anticipates," "estimates" or analogous expressions, or by
qualifying language or assumptions. These statements involve known and unknown
risks, uncertainties and other important factors that could cause the actual
results or performance to differ materially from these forward-looking
statements. These risks, uncertainties and other factors include, among others,
general economic and business conditions, competition, changes in political,
social and economic conditions, regulatory initiatives and compliance with
government regulations, customer preference and various other matters, many of
which are beyond the seller's control. These forward-looking statements speak
only as of the date of this prospectus supplement. The seller expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to these forward-looking statements to reflect any change in the seller's
expectations with regard thereto or any change in events, conditions or
circumstances on which any forward-looking statement is based.
S-3
<PAGE> 4
SUMMARY OF TERMS OF THE NOTES
The following summary is a short description of the main terms of the
offering of the notes. For that reason, this summary does not contain all of the
information that may be important to you. To fully understand the terms of the
offering of the notes, you will need to read both this prospectus supplement and
the attached prospectus, each in its entirety.
ISSUER
Caterpillar Financial Asset Trust 1999-A, a Delaware business trust, will use
the proceeds from the issuance and sale of the notes and certificates (which are
not offered hereby) to purchase a pool of receivables consisting of retail
installment sales contracts and finance leases secured by new and used
equipment. Caterpillar Financial Services Corporation ("CFSC" or the "Servicer")
originated and will continue to service the receivables. The trust will rely
upon collections on the receivables and the funds on deposit in certain accounts
to make payments on the notes. The trust will be solely liable for the payment
of the notes.
OFFERED SECURITIES
The trust is offering the following securities pursuant to this prospectus
supplement:
- - $155,000,000 Class A-1 % Asset Backed Notes
- - $125,000,000 Class A-2 % Asset Backed Notes
- - $270,000,000 Class A-3 % Asset Backed Notes
- - $23,656,000 Class B % Asset Backed Notes
The trust is also issuing $17,764,812 aggregate principal amount of Asset Backed
Certificates. The trust is not offering the Certificates pursuant to this
prospectus supplement.
CLOSING DATE
The trust expects to issue the securities on July , 1999.
TRUSTEES
<TABLE>
<S> <C>
Indenture Trustee The First National Bank of
Chicago, a national
banking association
Owner Trustee Chase Manhattan Bank
Delaware, a Delaware
banking corporation
</TABLE>
INTEREST AND PRINCIPAL DISTRIBUTION DATES
On the 25th day of each month (or if the 25th day is not a business day, the
next business day), the trust will pay interest and principal on the notes.
FIRST SCHEDULED DISTRIBUTION DATE
The first scheduled distribution date will be August 25, 1999.
RECORD DATES
On each distribution date, the trust will pay interest and principal to the
holders of record of the notes for that distribution date. The record date for
the notes generally will be the day immediately preceding the distribution date.
INTEREST RATES
The trust will pay interest on each class of notes at the fixed, annual rates
specified on the front cover of this prospectus supplement.
INTEREST ACCRUAL
<TABLE>
<S> <C>
Class A-1 Notes "actual/360," accrued from
distribution date to
distribution date.
This means that, if there
are no outstanding
shortfalls in the payment
of interest, the interest
due on each distribution
date will be the product
of:
1. the outstanding
principal balance;
</TABLE>
S-4
<PAGE> 5
<TABLE>
<S> <C>
2. the interest rate; and
3. the actual number of
days since the previous
distribution date (or in
the case of the first
distribution date, since
the closing date)
divided by 360.
All Other Notes "30/360," accrued from the
25th day of the previous
month to the 25th day of
the current month.
This means that, if there
are no outstanding
shortfalls in the payment
of interest, the interest
due on each distribution
date will be the product
of:
1. the outstanding
principal balance;
2. the interest rate; and
3. 30 (or in the case of
the first distribution
date, ) divided by
360.
</TABLE>
For a more detailed description of the payment of interest, you should refer to
the sections of this prospectus supplement entitled "Description of the
Notes -- The Class A-1 Notes -- Payments of Interest" and "-- The Class A-2
Notes, the Class A-3 Notes and the Class B Notes -- Payments of Interest."
SEQUENTIAL PRINCIPAL PAYMENTS
The trust generally will pay principal sequentially to the earliest maturing
class of notes then outstanding until that class is paid in full.
For a more detailed description of the payment of principal, you should refer to
the sections of this prospectus supplement entitled "Description of the
Notes -- The Class A-1 Notes -- Payments of Principal" and "-- The Class A-2
Notes, the Class A-3 Notes and the Class B Notes -- Payments of Principal."
OPTIONAL PREPAYMENT
The servicer has the option to purchase the receivables on any distribution date
on or after which (1) the Class A-1 Notes and the Class A-2 Notes have been paid
in full and (2) the note value of the receivables is 10% or less of the initial
note value of the receivables, provided that the purchase price for the
receivables is at least equal to the outstanding principal balance of the notes
plus accrued and unpaid interest thereon. The trust will apply this payment to
prepay the notes in full.
It is expected that at the time this purchase option becomes available to the
servicer only the Class A-3 Notes, the Class B Notes and the Certificates will
be outstanding.
FINAL MATURITY DATES
The trust is required to pay the outstanding principal amount of each class of
notes, to the extent not previously paid, in full on the final maturity date
specified on the front cover page of this prospectus supplement for each class.
RATINGS
It is a condition to the issuance of the notes that the:
- - Class A-1 Notes be rated in the highest short-term 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");
- - the Class A-2 and Class A-3 Notes be rated in the highest long-term rating
category by each of S&P and Moody's; and
- - 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 the notes, inasmuch
as a rating does not comment as to market price or suitability for a particular
investor. The ratings of the notes address the likelihood of the payment of
principal and interest on the notes pursuant to their terms. A rating agency may
qualify, lower or withdraw its rating in the future, in its discretion.
MINIMUM DENOMINATION
$1,000 and integral multiples thereof.
<TABLE>
<S> <C>
REGISTRATION, CLEARANCE AND SETTLEMENT
Class A Notes DTC/Cedelbank/
Euroclear
Class B Notes DTC
</TABLE>
S-5
<PAGE> 6
DEEMED REPRESENTATIONS FROM PURCHASERS OF THE CLASS B NOTES
If you purchase Class B Notes, you (and anyone to whom you assign or sell the
Class B Notes), shall be deemed to represent that you are a U.S. Person.
TAX STATUS
Opinions of Counsel
Orrick, Herrington & Sutcliffe LLP will deliver its opinion that for federal
income tax purposes the:
- - Class A Notes will be characterized as debt;
- - Class B Notes should be characterized as debt; and
- - trust will not be characterized as an association (or a publicly traded
partnership) taxable as a corporation.
Tuke Yopp & Sweeney, PLC, special Tennessee tax counsel, will deliver its
opinion that the:
- - notes owned by corporate investors shall have the same tax characteristics for
Tennessee income tax purposes as for federal income tax purposes; and
- - trust should not be subject to taxation in Tennessee.
Investor Representations
If you purchase the notes, you agree by your purchase that you will treat the
notes as indebtedness.
Investment Restrictions
The Class B Notes may not be purchased by persons who are not U.S. Persons.
If you are considering purchasing Class B Notes, you should refer to "Federal
Income Tax Consequences" in this prospectus supplement and in the prospectus and
"Annex I -- Global Clearance, Settlement and Tax Documentation Procedures" in
this prospectus supplement for more details.
Income Reporting by Investors
If you purchase the notes, you will be required to report taxable income on your
notes under an accrual method, which may require you to report taxable income
prior to receipt of cash distributions on your notes.
ERISA CONSIDERATIONS
The notes are generally eligible for purchase by persons investing assets of
employee benefit plans or individual retirement accounts, subject to important
considerations.
You should refer to "ERISA Considerations" in this prospectus supplement and in
the prospectus for more information.
ELIGIBILITY OF NOTES FOR PURCHASE BY MONEY MARKET FUNDS
The Class A-1 Notes are structured to be eligible for purchase by money market
funds under Rule 2a-7 under the Investment Company Act of 1940, as amended.
A money market fund should consult its legal advisors regarding the eligibility
of the Class A-1 Notes under Rule 2a-7 and whether an investment by the money
market fund in the Class A-1 Notes satisfies the money market fund's investment
policies and objectives.
CUSIP NUMBERS
- - Class A-1 Notes:
- - Class A-2 Notes:
- - Class A-3 Notes:
- - Class B Notes:
S-6
<PAGE> 7
STRUCTURAL SUMMARY
This summary briefly describes certain major structural components of the
trust. To fully understand the terms of the trust, you will need to read both
this prospectus supplement and the attached prospectus, each in its entirety.
TRANSFER OF RECEIVABLES AND FLOW OF FUNDS
Caterpillar Financial Funding Corporation, the seller, will purchase certain
receivables originated by CFSC consisting of retail installment sales contracts
and finance leases secured by new and used equipment, and then will sell the
receivables with an aggregate contract balance of $593,653,285 as of July 1,
1999 to the trust on the closing date. The trust will issue the securities, sell
the notes to investors, and convey the certificates and the net proceeds from
the sale of the notes to investors to the seller to pay for the receivables. The
following chart represents the flow of the funds invested by investors and the
receivables sold by CFSC:
[GRAPHIC]
PROPERTY OF THE TRUST
The property of the trust will include the following:
- - the receivables and the collections on the receivables;
- - security interests in the equipment financed by the receivables;
- - bank accounts;
- - rights to proceeds under insurance policies that cover the obligors under the
receivables or the equipment financed by the receivables;
- - proceeds of repossessed equipment and returned equipment;
- - remedies for breaches of representations and warranties made by the dealers
that originated the receivables; and
- - other rights under documents relating to the receivables.
COMPOSITION OF THE RECEIVABLES
The composition of the receivables as of July 1, 1999 is as follows:
<TABLE>
<S> <C>
- - Aggregate Contract
Balance(1)................... $593,653,285
- - Note Value of the
Receivables(2)............... $591,420,812
- - Aggregate Residual Balance... $2,359,151
- - Number of Receivables........ 6,786
- - Average Contract Balance..... $87,482
(Range)................... $5,022 to
$3,748,713
- - Weighted Average APR......... 7.11%
(Range)................... 5.75% to 14.23%
- - Weighted Average Original
Term......................... 49 months
(Range)................... 12 months to
60 months
- - Weighted Average
Remaining Term............... 43 months
(Range)(3)................ 6 months to
60 months
</TABLE>
- ---------------
(1) For a description of the calculation of the contract balance of the
receivables, you should refer to "The Receivables Pool" in this prospectus
supplement.
(2) For a description of the calculation of the note value of the receivables,
you should refer to "Description of the Transfer and Servicing
Agreements -- Distributions" in this prospectus supplement.
S-7
<PAGE> 8
(3) Based on scheduled payments and assuming no prepayments of the receivables.
SERVICER OF THE RECEIVABLES
CFSC will be the servicer of the receivables. The trust will pay the servicer a
servicing fee each month equal to 1/12 of 1% of the note value of the
receivables at the beginning of the previous month. In addition to the servicing
fee, the trust will also pay the servicer a servicer's yield equal to any late,
extension, and other administrative fees and expenses collected during each
month and certain reinvestment earnings on payments received on the receivables.
ADMINISTRATION OF THE TRUST
CFSC will be the administrator of the trust. The trust will pay the
administrator an administration fee of $500 each month.
PRIORITY OF DISTRIBUTIONS
From collections on the receivables during the prior calendar month and amounts
withdrawn from the reserve account, the trust generally will pay the following
amounts on each distribution date in the following order of priority:
(1) Servicing Fee -- the servicing fee payable to the servicer, if CFSC or an
affiliate is not the servicer;
(2) Administration Fee -- the administration fee payable to the administrator;
(3) Class A Note Interest -- interest due on all the Class A Notes ratably to
each class of the Class A Notes;
(4) First Allocation of Principal -- to the principal distribution account, an
amount, if any, equal to the excess of (x) the principal balances of the
Class A Notes over (y) the note value (described below) of the receivables;
(5) Class B Interest -- interest due on the Class B Notes to the holders of the
Class B Notes;
(6) Second Allocation of Principal -- to the principal distribution account, an
amount, if any, equal to the excess of (x) the principal balances of the
notes over (y) the note value of the receivables. This amount will be
reduced by any amount deposited in the principal distribution account
pursuant to clause (4) above;
(7) Reserve Account Deposit -- to the reserve account, the amount, if any,
necessary to reinstate the balance of the reserve account up to its
required amount;
(8) Regular Principal Allocation -- to the principal distribution account, an
amount equal to the excess of (x) the sum of the principal balances of the
notes and the certificates over (y) the note value of the receivables. This
amount will be reduced by any amounts previously deposited to the principal
distribution account pursuant to clauses (4) and (6);
(9) Servicing Fee -- the servicing fee payable to the servicer, if CFSC or an
affiliate is the servicer; and
(10) Certificate Distributions -- to the certificate distribution account, any
amounts remaining after the above distributions.
The note value of the receivables generally is the present value of the
aggregate of the scheduled and unpaid payments due on the receivables (including
all lease residual payments on the finance leases), discounted on a monthly
basis at 7.11% per annum (the weighted average APR of the receivables as of July
1, 1999). The initial note value of the receivables as of July 1, 1999 is
$591,420,812.
For a more detailed description of the calculation of the "note value," you
should refer to "Description of Transfer and Servicing
Agreement -- Distributions" in this prospectus supplement.
Distributions from the Principal Distribution Account
From deposits made to the principal distribution account, the trust will pay
principal on the securities in the following order of priority:
(1) to the Class A-1 Notes until they are paid in full;
(2) to the Class A-2 Notes until they are paid in full;
S-8
<PAGE> 9
(3) to the Class A-3 Notes until they are paid in full;
(4) to the Class B Notes until they are paid in full; and
(5) to the certificate distribution account, any funds remaining.
For a more detailed description of the priority of distributions and the
allocation of funds on each distribution date, you should refer to "Description
of the Transfer and Servicing Agreements -- Distributions" in this prospectus
supplement.
CHANGE IN PRIORITY OF DISTRIBUTION UPON CERTAIN EVENTS OF DEFAULT
If an event of default under the indenture occurs, the order of priority for
distributions will change.
- - Following the occurrence of an event of default relating to
1. default in the payment of principal, or
2. default for five days or more in the payment of interest on any class of
notes which has resulted in an acceleration of the notes,
the trust will make no distributions of principal or interest on the Class B
Notes until payment in full of principal and interest on the Class A Notes.
- - Following the occurrence of any other event of default which has resulted in
an acceleration of the notes, the trust will continue to pay interest on the
Class A Notes and interest on the Class B Notes on each distribution date
prior to paying principal on the Class A Notes on that distribution date.
For a more detailed description of events of default and rights of investors in
that circumstance, you should refer to "Description of Notes -- The
Indenture -- Events of Default; Rights upon Event of Default" in this prospectus
supplement and in the prospectus. For a more detailed description of the
priority of distributions and allocation of funds following an event of default,
you should refer to "Descriptions of the Transfer and Servicing
Agreements -- Distributions" in this prospectus supplement.
CREDIT ENHANCEMENT
The credit enhancement provides protection for the Class A Notes and the Class B
Notes against losses and delays in payment. Losses on the receivables or other
shortfalls of cash flow will be covered by withdrawals from the reserve account
and by allocation of available cash flow to the more senior classes of
securities prior to more subordinate classes.
The credit enhancement for the notes will be as follows:
<TABLE>
<S> <C>
Class A Notes Subordination of the Class B
Notes and the certificates;
and the reserve account;
Class B Notes Subordination of the
certificates; and the reserve
account.
</TABLE>
Subordination of Principal and Interest
As long as the Class A Notes remain outstanding, (1) payments of interest on the
Class B Notes will be subordinated to payments of interest on the Class A Notes
and, in certain circumstances, allocations to principal and (2) payments of
principal on the Class B Notes will be subordinated to payments of interest and
principal on the Class A Notes.
For a more detailed discussion of the subordination of the notes and
certificates and the priority of distributions, including changes after certain
events of default, you should refer to "Description of the Transfer and
Servicing Agreement -- Distributions" and "Description of the Notes -- The
Indenture -- Event of Default; Rights upon Event of Default" in this prospectus
supplement.
Reserve Account
On the closing date, the seller will deposit $7,392,760 (equal to 1.25% of the
initial note value of the receivables) to the reserve account for the trust.
On each distribution date, if collections on the receivables are insufficient to
pay the first six items listed in "Priority of Distributions" above, the
indenture trustee will withdraw funds from the reserve account to pay these
amounts.
On and after the final maturity date for any class of notes, if any principal
amount of that
S-9
<PAGE> 10
class remains outstanding, the indenture trustee will withdraw funds from the
reserve account to repay that class of notes in full.
The balance required to be on deposit in the reserve account on any distribution
date will be the lesser of (a) $7,392,760 (equal to 1.25% of the initial note
value of the receivables) and (b) the outstanding principal balance of the
notes.
On each distribution date, the trust will deposit into the reserve account, to
the extent necessary to reinstate the required balance of the reserve account,
any collections on the receivables remaining after the first six items listed in
"Priority of Distributions" above are satisfied.
On each distribution date, the trust will pay to the seller any funds on deposit
in the reserve account in excess of the required balance.
For a more detailed description of the deposits to and withdrawals from the
reserve account, you should refer to "Description of the Transfer and Servicing
Agreements -- Reserve Account" in this prospectus supplement.
S-10
<PAGE> 11
RISK FACTORS
You should consider the following risk factors in deciding whether to
purchase any of these notes.
THE ABSENCE OF A SECONDARY
MARKET FOR THE NOTES COULD
LIMIT YOUR ABILITY TO RESELL
THE NOTES The absence of a secondary market for the notes
could limit your ability to resell them. This
means that if in the future you want to sell
any of these notes before they mature, you may
be unable to find a buyer or, if you find a
buyer, the selling price may be less than it
would have been if a market existed for the
notes. There currently is no secondary market
for the notes. The underwriters for the notes
expect to make a market in the notes but will
not be obligated to do so. There is no
assurance that a secondary market for the notes
will develop. If a secondary market for the
notes does develop, it might end at any time or
it might not be sufficiently liquid to enable
you to resell any of your notes.
THE CLASS B NOTES ARE SUBJECT
TO A GREATER RISK OF LOSS THAN
THE CLASS A NOTES BECAUSE THE
CLASS B NOTES ARE SUBORDINATE
TO THE CLASS A NOTES The Class B Notes bear greater risk than the
Class A Notes because payments of interest and
principal on the Class B Notes are
subordinated, to the extent described below, to
payments of interest and principal on the Class
A Notes.
Interest payments on the Class B Notes on each
distribution date will be subordinated to
servicing fees due to the servicer (if CFSC or
an affiliate is not the servicer), interest
payments on the Class A Notes and an allocation
of principal payments to the Class A Notes to
the extent the sum of the principal balances of
the Class A Notes exceeds the note value of the
receivables. For a more detailed description of
these principal payment circumstances, see
"Description of the Transfer and Servicing
Agreements -- Distributions" in this prospectus
supplement. The payment order changes following
certain events of default. See "Description of
the Notes -- The Indenture -- Events of
Default; Rights Upon Events of Default" in this
prospectus supplement.
Principal payments on the Class B Notes will be
fully subordinated to principal payments on the
Class A Notes. No principal will be paid on the
Class B Notes until the Class A Notes have been
paid in full.
THE NOTES MAY SUFFER LOSSES
BECAUSE THE SOURCE OF FUNDS
FOR PAYMENTS ON THE NOTES IS
LIMITED TO THE ASSETS OF THE
TRUST The only source of funds for payments on the
notes will be the assets of the trust. You may
suffer a loss on your notes if the assets of
the trust are insufficient to pay fully their
principal amount. The notes are obligations
solely of the trust
S-11
<PAGE> 12
and will not be insured or guaranteed by CFSC
or Caterpillar Financial Funding Corporation,
including in their capacities as servicer and
seller, the indenture trustee, the owner
trustee or any other person or entity.
Consequently, you must rely for payment of your
notes upon payments on the receivables, and, to
the extent available, funds on deposit in the
reserve account.
The indenture authorizes the indenture trustee
to sell the receivables following an
acceleration of the maturity dates of the
notes. However, the amount received by the
indenture trustee upon selling the receivables
may be less than the aggregate principal amount
of the outstanding notes. In this circumstance,
the principal amount of the notes will not be
paid in full.
THE CLASS B NOTES MAY SUFFER
LOSSES FOLLOWING AN EVENT OF
DEFAULT UNDER THE INDENTURE
BECAUSE THE ORDER OF PRIORITY
OF PAYMENTS MAY CHANGE TO
FURTHER SUBORDINATE THE CLASS
B NOTES AND THE RIGHTS OF THE
HOLDERS OF THE CLASS B NOTES
TO DIRECT THE INDENTURE
TRUSTEE WILL BE SUBORDINATE TO
THE RIGHTS OF THE HOLDERS OF
THE CLASS A NOTES Following the occurrence of a 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 an acceleration of the
notes, the trust will not make any
distributions of principal or interest on the
Class B Notes until payment in full of
principal and interest on the Class A Notes.
If the maturity dates of the notes are
accelerated following the occurrence of an
event of default, the indenture trustee, acting
at the direction of the holders of a majority
in outstanding principal amount of the Class A
Notes, may sell the receivables and prepay the
notes. The holders of the Class B Notes will
not have any right to direct the indenture
trustee or to consent to any action until the
Class A Notes are paid in full. See
"Description of the Notes -- The Indenture --
Events of Default; Rights Upon Events of
Default" herein and in the prospectus. If
principal is repaid to you earlier than
expected as a result of an acceleration of the
maturity dates of the notes, you may not be
able to reinvest the prepaid amount at a rate
of return that is equal to or greater than the
rate of return on your notes. You also may not
be paid the full principal amount of your notes
if the assets of the trust are insufficient to
pay the full aggregate principal amount
thereof.
S-12
<PAGE> 13
THE CLASS B NOTES MAY SUFFER
LOSSES BECAUSE THE RIGHT OF
THE HOLDERS OF THE CLASS B
NOTES TO CONTROL TRUST ACTIONS
IS SUBORDINATE TO THE RIGHTS
OF THE HOLDERS OF THE CLASS A
NOTES TO CONTROL TRUST ACTIONS Because the trust has pledged the property of
the trust to the indenture trustee to secure
payment on the notes, the indenture trustee,
acting at the direction of the holders of a
majority in outstanding principal amount of the
Class A Notes, has the power to direct the
trust to take certain actions in connection
with the property of the trust until the Class
A Notes have been paid in full. Furthermore,
the holders of not less than 25% of the
outstanding principal balance of the Class A
Notes, or the indenture trustee acting on
behalf of the holders of Class A Notes, under
certain circumstances, have the right to
terminate the servicer as the servicer of the
receivables without consideration of the effect
that termination would have on the holders of
Class B Notes. The holders of Class B Notes
will not have the ability to remove the
servicer until the Class A Notes have been paid
in full. In addition, the holders of more than
50% of the outstanding principal amount of the
Class A Notes will have the right to waive
certain events of default with respect to the
servicer, without consideration of the effect
that waiver would have on the holders of Class
B Notes. See "Description of the Transfer and
Servicing Agreements -- Rights Upon Servicer
Default" and "-- Waiver of Past Defaults"
herein and in the prospectus.
THE NOTES MAY SUFFER LOSSES IF
THE INTERESTS OF OTHER PERSONS
IN THE RECEIVABLES ARE
SUPERIOR TO THE TRUST'S
INTEREST The sale of the receivables from CFSC to the
seller and from the seller to the trust, and
the grant of a security interest in the
receivables by the trust to the indenture
trustee, will be perfected through possession
by a custodian of the single original
installment sales contract or finance lease
relating to each receivable pursuant to a
custodial agreement. The custodian will
maintain possession of these documents in a
separate space proximate to the principal
executive offices of the seller. CFSC will
indicate on its computer records that the
receivables were sold to the seller and by the
seller to the trust. The original installment
sales contracts and finance leases relating to
the receivables will not be stamped to reflect
these transfers of ownership and the grant of a
security interest in the receivables. If a
court were to find that the seller had
possession of the installment sales contracts
and finance leases, the interests of the trust
and the indenture trustee in the receivables
would likely be unperfected and holders of the
notes might not receive all distributions to
which they would otherwise be entitled.
S-13
<PAGE> 14
Should the indenture trustee's security
interest and or the trust's ownership interest
in the receivables be found to be unperfected,
these interests may be inferior to the
interests of (1) the seller or CFSC, (2) any
creditors of the trust, the seller or CFSC, or
(3) a subsequent purchaser of receivables, in
the event the trust, the seller or CFSC
fraudulently or inadvertently sells a
receivable to a purchaser who had no notice of
the prior transfers thereof to the indenture
trustee, the trust or the seller and the
purchaser takes possession of all of the
originals of the related installment sales
contract or lease evidencing that receivable.
As a result of this lack of perfection, the
seller, the trust and the holders of the notes
might not be entitled to the payments on the
receivables.
INVESTMENT IN THE NOTES
PRESENTS RISKS THAT ARE NOT
ADDRESSED BY THE RATINGS 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.
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. You should not view
the ratings on any class of notes as a
recommendation to purchase, hold or sell that
class of notes because these ratings do not
comment as to the market price for those notes
or their suitability for you. Furthermore, a
rating agency may qualify, lower or withdraw
its rating in the future, in its discretion.
PAYMENTS ON THE NOTES MAY BE
DELAYED BEGINNING IN THE YEAR
2000 DUE TO COMPUTER PROBLEMS The "year 2000 problem" is the inability of
computer systems to distinguish between years
with the same last two digits in different
centuries, such as 1900 and 2000. The year 2000
problem may prevent computer systems from
properly recognizing date-sensitive information
when the year changes to 2000. Computer systems
that do not properly recognize such information
could generate erroneous data or otherwise
fail.
CFSC, the indenture trustee and DTC all provide
services for the trust using computer systems
that may experience the year 2000 problem. For
discussions of the year 2000 preparedness of
CFSC, the indenture trustee and DTC, see
"Recent Developments -- Year 2000 Readiness
Disclosure" in this prospectus supplement and
"Issuance of the Securities -- Book-Entry
Registration" in the attached prospectus. IF
THE COMPUTER SYSTEMS OF CFSC, THE INDENTURE
TRUSTEE OR DTC ARE NOT FULLY YEAR 2000
COMPLIANT, THIS COULD RESULT IN DELAY IN
COLLECTING OR PROCESSING PAYMENTS ON THE
RECEIVABLES OR MAKING DISTRIBUTIONS ON THE
NOTES.
S-14
<PAGE> 15
RECENT DEVELOPMENTS
YEAR 2000 READINESS DISCLOSURE
CFSC. In 1997, Caterpillar Financial Services Corporation (the "SERVICER"
or "CFSC") began to evaluate the extent of the year 2000 problem in the computer
systems it uses. At that time, CFSC evaluated its exposure in key internal
systems, key external systems and non-critical systems. During 1998 and 1999,
CFSC has continued to increase its preparedness, or "compliance," in each area.
CFSC's key internal systems include software and hardware used to track its
contract, customer and financial information as well as internal communications.
Most of these systems are currently year 2000 compliant. By the end of July
1999, CFSC expects to install software that will upgrade the remaining programs,
bringing them into compliance. CFSC expects the failure of systems that are not
currently compliant to cause only minor business disruption as it would perform
some tasks manually rather than electronically.
CFSC's key external systems include utilities, banking, and facility
control hardware and software. In these areas, CFSC has contacted its key
suppliers and asked them to certify their compliance. In situations where they
are not compliant, CFSC is monitoring their plans to implement the changes
necessary to become compliant. If these suppliers do not become compliant, it
could have a significant negative impact on CFSC's ability to service the
receivables and administer the trust. However, in most cases, CFSC has multiple
suppliers that could mitigate the adverse impact. CFSC has developed contingency
plans that would allow at least a minimal level of operation to continue in the
event that certain key suppliers, such as electric power or data communication
systems, do not become compliant by 2000.
CFSC's non-critical systems include business software used in non-critical
functions, such as spreadsheets used to report information which could be
manually reported and office support machines which are not vital to daily
operations. If these items failed to become compliant, they would cause minimal
disruption to particular CFSC offices.
The First National Bank of Chicago. The First National Bank of Chicago
("FIRST CHICAGO"), the trustee for the Notes, has provided the following
information to the seller regarding its year 2000 compliance efforts:
Federal regulatory agencies recommended that all financial institutions
have their programming changes and internal testing for mission-critical
applications substantially complete by December 31, 1998. As of April 30, 1999,
95% of First Chicago's affected information technology applications were tested
and returned to production. All applications related to First Chicago's
corporate trust unit's system, bond processing and payment system were certified
as compliant prior to December 31, 1998.
First Chicago has met the regulatory guideline for June 30, 1999 that
states the testing of mission critical systems be complete and the
implementation of mission critical systems be substantially complete. First
Chicago's applications, computers, systems software, telecommunications systems,
security devices, desktop PCs and servers, and office equipment have undergone
extensive testing and are largely year 2000 ready. First Chicago will continue
to verify the readiness of computer applications, equipment and contingency
plans by testing them throughout the remainder of 1999.
DTC. DTC has provided information regarding its year 2000 compliance
efforts to its participants and other members of the financial community. That
information is set forth under the caption "Issuance of the
Securities -- Book-Entry Registration" in the attached prospectus.
IF THE COMPUTER SYSTEMS OF CFSC, THE INDENTURE TRUSTEE OR DTC ARE NOT FULLY
YEAR 2000 COMPLIANT, THIS COULD RESULT IN A DELAY IN COLLECTING OR PROCESSING
PAYMENTS ON THE RECEIVABLES
S-15
<PAGE> 16
OR MAKING DISTRIBUTIONS ON THE NOTES. The trust will not be responsible for
paying any year 2000 compliance costs incurred by CFSC, First Chicago or DTC.
The forward-looking statements contained in this year 2000 discussion
should be read in conjunction with the last paragraph on page S-3 of this
prospectus supplement.
FORMATION OF THE TRUST
THE TRUST
Caterpillar Financial Asset Trust 1999-A (the "ISSUER" or the "TRUST"), is
a business trust formed under the laws of the State of Delaware pursuant to a
Trust Agreement dated as of July 1, 1999 (the "TRUST AGREEMENT") between
Caterpillar Financial Funding Corporation (the "SELLER") and Chase Manhattan
Bank Delaware, acting thereunder not in its individual capacity but solely as
owner trustee (the "OWNER TRUSTEE"), 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 $17,764,812
(excluding amounts deposited in the Reserve Account), which represents the
initial principal balance of the Certificates which will be conveyed to the
Seller. The net proceeds from the initial sale of the Notes, together with the
Certificates, will be used by the Trust to purchase a pool of fixed rate retail
installment sales contracts and finance leases (the "RECEIVABLES") from the
Seller pursuant to a Sale and Servicing Agreement to be dated as of July 1, 1999
(the "SALE AND SERVICING AGREEMENT") among the Seller, the Servicer and the
Trust. The Servicer will initially service the Receivables pursuant to the Sale
and Servicing Agreement, and will be compensated for acting as the Servicer. See
"Description of the Transfer and Servicing Agreements -- Servicing Compensation
and Payment of Expenses" herein and in the Prospectus. Each Receivables File
will contain the single original related Installment Sales Contract or Lease (as
represented by CFSC in a Purchase Agreement to be dated as of July 1, 1999 (the
"PURCHASE AGREEMENT") between CFSC and the Seller). Pursuant to a Custodial
Agreement to be dated as of July 1, 1999 (the "CUSTODIAL AGREEMENT") among CFSC,
the Seller, the Trust and First Chicago, First Chicago will act as custodian (in
such capacity, the "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 -- The
Notes May Suffer Losses if the Interests of Other Persons in the Receivables are
Superior to the Trust's Interest" herein and "Risk Factors -- Risk of
Unperfected Security Interests in Receivables" 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" 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 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
S-16
<PAGE> 17
security interests in some of the Receivables or Financed Equipment as a result
of occurrences after July , 1999 (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 "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>
<CAPTION>
PRINCIPAL AMOUNT
----------------
<S> <C>
Class A-1 % Asset Backed Notes (the "CLASS A-1
NOTES")................................................... $155,000,000
Class A-2 % Asset Backed Notes (the "CLASS A-2
NOTES")................................................... 125,000,000
Class A-3 % Asset Backed Notes (the "CLASS A-3
NOTES")................................................... 270,000,000
Class B % Asset Backed Notes (the "CLASS B NOTES").... 23,656,000
Asset Backed Certificates (the "CERTIFICATES").............. 17,764,812
------------
Total............................................. $591,420,812
============
</TABLE>
The Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes are
collectively referred to as the "CLASS A NOTES" and, together with the Class B
Notes, the "NOTES".
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 assets of the Trust will consist of fixed rate retail installment sales
contracts ("INSTALLMENT SALES CONTRACTS") and finance leases ("LEASES") secured
by new and used equipment manufactured primarily by Caterpillar ("FINANCED
EQUIPMENT"), including rights to receive certain payments with respect to the
Installment Sales Contracts and Leases (the "RECEIVABLES"). The Receivables
arise from loans and finance leases originated in connection with retail sales
by Caterpillar dealers ("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 pool of
Receivables (the "RECEIVABLES POOL") will include the Receivables purchased
pursuant to the Purchase Agreement with an aggregate Contract Balance of
$593,653,285 as of July 1, 1999 (the "CUT-OFF DATE").
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 1999 or later than June 2004, (ii) has an APR of at least 5.75%
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 residual payment amount of $10 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
S-17
<PAGE> 18
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 and unpaid interest. 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 equaled the Initial Pool
Balance.
Some of the columns in the following tables may not sum to the total due to
rounding.
COMPOSITION OF THE RECEIVABLES
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
AVERAGE REMAINING
ORIGINAL TERM
AGGREGATE TERM (RANGE)
CONTRACT RESIDUAL NUMBER OF WEIGHTED AVERAGE (RANGE) (IN (IN
BALANCE BALANCE RECEIVABLES APR (RANGE) MONTHS) MONTHS)(1)
------------ ---------- ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Installment Sales
Contracts........... $486,558,865 $ 0 5,029 7.04%(5.75% - 14.23%) 49(12 - 60) 42(6 - 60)
Leases............... 107,094,420 2,359,151 1,757 7.43%(5.75% - 13.03%) 51(12 - 60) 43(6 - 60)
------------ ---------- ----- -------------------- ----------- -----------
Total............. $593,653,285 $2,359,151 6,786 7.11% 49 43
============ ========== ===== ==================== =========== ===========
<CAPTION>
AVERAGE
CONTRACT BALANCE (RANGE)
----------------------------
<S> <C>
Installment Sales
Contracts........... $96,751($5,093 - $3,748,713)
Leases............... $60,953($5,022 - $2,013,289)
----------------------------
Total............. $87,482
============================
</TABLE>
- ---------------
(1) Based on scheduled payments and assuming no prepayments of the Receivables.
S-18
<PAGE> 19
DISTRIBUTION BY APR OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE
NUMBER OF AGGREGATE CONTRACT
APR RANGE(1) RECEIVABLES CONTRACT BALANCE BALANCE
------------ ----------- ---------------- ----------
<S> <C> <C> <C>
5.75 - 5.99.................................... 967 $ 92,300,753 15.55%
6.00 - 6.49.................................... 931 123,959,943 20.88
6.50 - 6.99.................................... 1,002 126,488,210 21.31
7.00 - 7.49.................................... 424 52,341,025 8.82
7.50 - 7.99.................................... 388 40,371,082 6.80
8.00 - 8.49.................................... 1,201 70,868,610 11.94
8.50 - 8.99.................................... 1,383 66,081,925 11.13
9.00 - 9.49.................................... 258 12,085,519 2.04
9.50 - 9.99.................................... 116 6,483,885 1.09
10.00 and over.................................. 116 2,672,334 0.45
----- ------------ ------
Total................................. 6,786 $593,653,285 100.00%
===== ============ ======
</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
NUMBER OF AGGREGATE CONTRACT
RECEIVABLES CONTRACT BALANCE BALANCE
----------- ---------------- ----------
<S> <C> <C> <C>
New Equipment(1)............................ 3,985 $419,791,002 70.71%
Used Equipment.............................. 2,801 173,862,282 29.29
----- ------------ ------
Total............................. 6,786 $593,653,285 100.00%
===== ============ ======
</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.............................. 5,267 $560,250,426 94.37%
Lift Trucks......................................... 1,418 25,568,747 4.31
Paving Equipment.................................... 101 7,834,111 1.32
----- ------------ ------
Total..................................... 6,786 $593,653,285 100.00%
===== ============ ======
</TABLE>
S-19
<PAGE> 20
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................... 399 $ 21,425,475 3.61%
Construction........................................ 3,943 398,142,732 67.07
Mining.............................................. 190 37,147,677 6.26
Manufacturing....................................... 877 44,003,949 7.41
Transportation/Public Utilities..................... 330 21,692,822 3.65
Wholesale Trade..................................... 421 16,734,726 2.82
Other (1)........................................... 626 54,505,905 9.18
----- ------------ ------
Total..................................... 6,786 $593,653,285 100.00%
===== ============ ======
</TABLE>
- ---------------
(1) Other includes retail, financial, insurance and real estate, 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............................................. 5,741 $460,954,516 77.65%
Variable Frequency (1).............................. 1,045 132,698,769 22.35
----- ------------ ------
Total..................................... 6,786 $593,653,285 100.00%
===== ============ ======
</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-20
<PAGE> 21
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....................................... 1,919 $ 27,566,266 4.64%
$ 25,001 - $50,000.................................. 1,385 51,700,969 8.71
$ 50,001 - $75,000.................................. 1,021 62,503,117 10.53
$ 75,001 - $100,000................................. 646 56,260,300 9.48
$100,001 - $125,000................................. 467 51,965,847 8.75
$125,001 - $150,000................................. 355 48,707,729 8.20
$150,001 - $175,000................................. 251 40,680,083 6.85
$175,001 - $200,000................................. 164 30,702,707 5.17
$200,001 - $250,000................................. 186 41,307,683 6.96
$250,001 - $300,000................................. 129 35,041,361 5.90
$300,001 - $350,000................................. 85 27,470,215 4.63
$350,001 - $400,000................................. 43 16,058,670 2.71
$400,001 - $450,000................................. 37 15,642,614 2.63
$450,001 - $500,000................................. 13 6,168,087 1.04
$500,001 - $550,000................................. 9 4,792,734 0.81
$550,001 - $600,000................................. 9 5,144,464 0.87
$600,001 - $1,000,000............................... 39 29,124,789 4.91
Over $1,000,000..................................... 28 42,815,649 7.21
----- ------------ ------
Total..................................... 6,786 $593,653,285 100.00%
===== ============ ======
</TABLE>
DISTRIBUTION OF LEASES BY RESIDUAL TYPE
<TABLE>
<CAPTION>
RESIDUAL
AMOUNT AS RESIDUAL
A PERCENT OF AMOUNT AS
AGGREGATE PERCENT OF AGGREGATE A PERCENTAGE
ORIGINAL AGGREGATE AGGREGATE ORIGINAL OF AGGREGATE
TYPE OF CUSTOMER NUMBER OF EQUIPMENT CONTRACT CONTRACT RESIDUAL EQUIPMENT CONTRACT
OBLIGATION RECEIVABLES COST BALANCE BALANCE AMOUNT COST BALANCE
---------------- ----------- ------------ ------------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mandatory Final
Payment(1)......... 1,596 $119,152,802 $ 98,006,656 91.51% $2,358,856 1.98% 2.41%
Not Mandatory Final
Payment............ 161 14,437,351 9,087,764 8.49 295 0.00% 0.00%
----- ------------ ------------ ------ ----------
Total............ 1,757 $133,590,153 $107,094,420 100.00% $2,359,151
===== ============ ============ ====== ==========
</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-21
<PAGE> 22
GEOGRAPHIC DISTRIBUTION OF THE RECEIVABLES
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF CONTRACT CONTRACT
STATE(1) RECEIVABLES BALANCE BALANCE
-------- ----------- ------------ ----------
<S> <C> <C> <C>
Alabama............................................. 189 $ 14,223,472 2.40%
Alaska.............................................. 43 4,155,633 0.70
Arizona............................................. 93 12,176,766 2.05
Arkansas............................................ 103 7,512,164 1.27
California.......................................... 471 50,635,709 8.53
Colorado............................................ 46 8,498,871 1.43
Connecticut......................................... 20 1,697,090 0.29
Delaware............................................ 16 1,350,861 0.23
Florida............................................. 422 32,308,509 5.44
Georgia............................................. 363 37,101,798 6.25
Hawaii.............................................. 17 1,260,903 0.21
Idaho............................................... 42 3,441,060 0.58
Illinois............................................ 182 18,767,589 3.16
Indiana............................................. 139 7,701,332 1.30
Iowa................................................ 54 4,655,853 0.78
Kansas.............................................. 79 9,725,847 1.64
Kentucky............................................ 150 17,208,552 2.90
Louisiana........................................... 88 6,902,853 1.16
Maine............................................... 3 19,862 0.00
Maryland............................................ 34 6,401,962 1.08
Massachusetts....................................... 21 1,003,759 0.17
Michigan............................................ 544 33,952,252 5.72
Minnesota........................................... 108 9,322,589 1.57
Mississippi......................................... 106 6,637,853 1.12
Missouri............................................ 147 11,936,292 2.01
Montana............................................. 48 3,875,896 0.65
Nebraska............................................ 46 4,389,358 0.74
Nevada.............................................. 61 8,848,259 1.49
New Hampshire....................................... 1 61,299 0.01
New Jersey.......................................... 266 $ 24,989,712 4.21
New Mexico.......................................... 51 5,890,406 0.99
New York............................................ 90 6,642,480 1.12
North Carolina...................................... 282 18,810,566 3.17
North Dakota........................................ 22 2,671,476 0.45
Ohio................................................ 421 29,925,110 5.04
Oklahoma............................................ 77 9,147,970 1.54
Oregon.............................................. 108 8,583,284 1.45
Pennsylvania........................................ 273 24,777,846 4.17
Rhode Island........................................ 2 349,578 0.06
South Carolina...................................... 155 12,189,426 2.05
South Dakota........................................ 35 2,141,915 0.36
Tennessee........................................... 120 9,444,339 1.59
Texas............................................... 542 48,415,608 8.16
Utah................................................ 31 3,728,793 0.63
Vermont............................................. 1 59,166 0.01
Virginia............................................ 264 22,652,154 3.82
Washington.......................................... 117 11,127,564 1.87
</TABLE>
S-22
<PAGE> 23
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE AGGREGATE
NUMBER OF CONTRACT CONTRACT
STATE(1) RECEIVABLES BALANCE BALANCE
-------- ----------- ------------ ----------
<S> <C> <C> <C>
West Virginia....................................... 88 11,452,063 1.93
Wisconsin........................................... 171 10,634,728 1.79
Wyoming............................................. 34 4,244,857 0.72
----- ------------ ------
Total..................................... 6,786 $593,653,285 100.00%
===== ============ ======
</TABLE>
- ---------------
(1) Based on billing addresses of Obligors on the Receivables as of the Cut-off
Date.
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 81.96% of the Receivables were Installment Sales Contracts
and the remaining 18.04% of the Receivables were Leases. 6.11% of the
Receivables were originated or arranged by Darr Equipment Co., a dealer in
Dallas, Texas, and in the aggregate 23.26% of the Receivables were originated or
arranged by the five largest Dealers. No other Dealer originated or arranged
more than 5.52% of the Receivables. 3.26% 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 0.71% of the Receivables, and the
five largest Obligors accounted for approximately 3.08% of the Receivables.
Approximately 94.95% of the Receivables have related Financed Equipment
manufactured by Caterpillar and the remaining approximately 5.05% 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 finance leases are affected by economic conditions generally. The level of
repossessions and net losses set forth
S-23
<PAGE> 24
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.
DELINQUENCY EXPERIENCE FOR THE U.S. ISC PORTFOLIO(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------------
1995 1996 1997 1998
-------------------- -------------------- -------------------- --------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Portfolio(2).............. 17,354 $1,198.8 20,653 $1,269.4 25,066 $1,634.9 30,312 $2,075.5
Delinquency(3)
31-60 Days.................... 396 $ 17.1 445 $ 20.3 410 $ 17.6 294 $ 15.1
over 60 Days.................. 387 $ 32.7 457 $ 19.8 309 $ 13.4 319 $ 12.6
Total Delinquencies............. 783 $ 49.8 902 $ 40.1 719 $ 31.0 613 $ 27.7
Total Delinquencies as a Percent
of the Gross Portfolio........ 4.51% 4.15% 4.37% 3.16% 2.87% 1.90% 2.02% 1.33%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT MARCH 31, 1999
--------------------- --------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- -------- --------- -------
<S> <C> <C> <C> <C>
Gross Portfolio(2).......................................... 26,098 $1,726.6 31,666 $2,187.2
Delinquency(3)
31-60 Days................................................ 260 $ 10.7 255 $ 12.0
over 60 Days.............................................. 270 $ 11.7 344 $ 13.4
Total Delinquencies......................................... 530 $ 22.4 599 $ 25.4
Total Delinquencies as a Percent of the Gross Portfolio..... 2.03% 1.29% 1.89% 1.16%
</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-24
<PAGE> 25
DELINQUENCY EXPERIENCE FOR THE U.S. LEASE PORTFOLIO(1)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------------------------------------------
1995 1996 1997 1998
------------------ ------------------ ------------------ --------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- ------ --------- ------ --------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Portfolio(2)................... 14,343 $608.0 15,772 $803.9 17,434 $983.5 19,088 $1,151.1
Delinquency(3)
31-60 Days......................... 293 $ 9.7 249 $ 6.9 199 $ 10.0 217 $ 7.4
over 60 Days....................... 291 $ 8.1 430 $ 9.1 223 $ 5.1 227 $ 5.6
Total Delinquencies.................. 584 $ 17.8 679 $ 16.0 422 $ 15.1 444 $ 13.0
Total Delinquencies as a Percent of
the Gross Portfolio................ 4.07% 2.93% 4.31% 1.99% 2.41% 1.54% 2.33% 1.13%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT MARCH 31, 1999
-------------------- --------------------
NUMBER OF NUMBER OF
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Gross Portfolio(2).......................................... 17,593 $1,000.3 19,187 $1,146.2
Delinquency(3)
31-60 Days................................................ 128 $ 5.9 139 $ 5.5
over 60 Days.............................................. 191 $ 4.3 207 $ 11.0
Total Delinquencies......................................... 319 $ 10.2 346 $ 16.5
Total Delinquencies as a Percent of the Gross Portfolio..... 1.81% 1.02% 1.80% 1.44%
</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-25
<PAGE> 26
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 1998 1998(5) 1999(5)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Gross Portfolio Outstanding During
the Period................................. $1,024.5 $1,214.6 $1,434.4 $1,862.3 $1,683.5 $2,147.4
Repossessions as a Percent of Average Gross
Portfolio Outstanding(2)................... 0.98% 1.02% 1.17% 1.10% 1.05% 1.66%
Net Losses as a Percent of
Liquidations(3)(4)......................... 0.86% 0.51% 0.55% 0.66% 0.20% 0.32%
Net Losses as a Percent of Average Gross
Portfolio Outstanding(4)................... 0.45% 0.30% 0.33% 0.39% 0.12% 0.19%
</TABLE>
- ---------------
(1) Except as indicated, all amounts and percentages are based on the Contract
Balance.
(2) Repossessions 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.
S-26
<PAGE> 27
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 1998 1998(4) 1999(4)
------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Gross Portfolio Outstanding During the
Period......................................... $735.3 $941.0 $1,211.7 $1,497.9 $1,361.8 $1,623.0
Repossessions as a Percent of Average Gross
Portfolio Outstanding.......................... 0.84% 0.85% 1.03% 0.83% 0.82% 1.55%
Net Losses as a Percent of Liquidations(2)(3).... 0.33% 0.36% 0.56% 0.55% 0.12% 0.37%
Net Losses as a Percent of Average Gross
Portfolio Outstanding(3)....................... 0.16% 0.18% 0.26% 0.26% 0.06% 0.17%
</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-27
<PAGE> 28
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 1998 1998 1999
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Terminated Leases(2)......... 3,513 4,004 4,990 5,411 1,402 1,460
Units of Returned
Equipment(3)............... 0 7 1 13 2 9
Full Term Ratio(4)........... 0.00% 0.17% 0.02% 0.24% 0.14% 0.62%
Residual Value of Equipment
Relating to Terminated
Leases..................... $47,348,544 $49,652,850 $80,405,946 $106,717,592 $25,528,131 $32,237,306
Residual Value of Equipment
Relating to Terminated
Leases as a Percent of Cost
of such Equipment.......... 16.69% 15.25% 19.09% 19.95% 18.54% 20.53%
Aggregate Residual Losses
(Gains) on Returned
Equipment(5)............... $ 0 $ 2,368 $ 200 $ 39,262 $ (7,584) $ (1,277)
Aggregate Residual Losses
(Gains) per Lease with
Returned Equipment(5)...... $ 0 $ 338 $ 200 $ 3,020 $ (3,792) $ (142)
</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 Notes will not receive any
principal payments until the Class A-1 Notes are paid in full, the Class A-3
Notes will not receive any principal payments until the Class A-2 Notes are paid
in full and the Class B Notes 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.
S-28
<PAGE> 29
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 June 30, 2005, 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.
The following information is given solely to illustrate the effect of
prepayments of the Receivables on the weighted average life of the Notes under
the stated assumptions and is not a prediction of the prepayment rate that might
actually be experienced by the Receivables.
Prepayments on installment sales contracts and finance leases can be
measured relative to a prepayment standard or model. The model used in this
Prospectus Supplement is based on a constant prepayment rate ("CPR"). CPR is
determined by the percentage of principal outstanding at the beginning of a
period that prepays during that period, stated as an annualized rate. The CPR
prepayment model, like any prepayment model, does not purport to be either an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment.
The tables on pages S-30 and S-31 have been prepared on the basis of
certain assumptions, including that: (i) all of the Receivables have an APR of
7.11%, (ii) the Initial Note Value is equal to $591,420,812, (iii) the
Receivables prepay in full at the specified monthly CPR, with no defaults,
losses or repurchases, (iv) each scheduled payment on the Receivables is made on
the last day of each Collection Period and each Collection Period has 30 days,
(v) distributions on the Notes and Certificates are made on each Distribution
Date in accordance with the description set forth under "Description of the
Transfer and Servicing Agreement -- Distributions," (vi) the Closing Date is
July 21, 1999, (vii) the Servicer exercises its option to purchase the
Receivables on the earliest permitted Distribution Date, (viii) the balance in
the Reserve Account on each Distribution Date is equal to the Specified Reserve
Account Balance, (ix) CFSC is the Servicer and (x) there are no reinvestment
earnings on the Reserve Account. The tables indicate the projected weighted
average life of each class of Notes and set forth the percent of the initial
principal amount of each class of Notes that is projected to be outstanding
after each of the Distribution Dates shown at various CPR percentages.
The information included in the following tables represents forward-looking
statements and involves risks and uncertainties that could cause actual results
to differ materially from those in the forward-looking statements. The actual
characteristics and performance of the Receivables will differ from the
assumptions used in constructing the tables on pages S-30 and S-31. The
assumptions used are hypothetical and have been provided only to give a general
sense of how the principal cash flows might behave under varying prepayment
scenarios. For example, it is highly unlikely that the Receivables will prepay
at a constant CPR until maturity or that all of the Receivable will prepay at
the same CPR. Moreover, the diverse terms of Receivables could produce slower or
faster principal distributions than indicated in the tables at the various CPRs
specified. Any difference between such assumptions and the actual
characteristics and performance of the Receivables will affect the
S-29
<PAGE> 30
percentages of initial principal amounts outstanding over time and the weighted
average lives of the Notes.
PERCENTAGE OF INITIAL PRINCIPAL AMOUNT OF THE NOTES AT VARIOUS CPR PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-1 NOTES CLASS A-2 NOTES
----------------------------------------------- -----------------------------------------------
DISTRIBUTION DATE 0% 10% 14% 19% 24% 0% 10% 14% 19% 24%
----------------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date.................. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
August 1999................... 89.54 86.30 84.91 83.08 81.15 100.00 100.00 100.00 100.00 100.00
September 1999................ 80.29 73.99 71.30 67.80 64.11 100.00 100.00 100.00 100.00 100.00
October 1999.................. 70.85 61.69 57.81 52.77 47.48 100.00 100.00 100.00 100.00 100.00
November 1999................. 61.42 49.58 44.60 38.15 31.43 100.00 100.00 100.00 100.00 100.00
December 1999................. 51.93 37.61 31.62 23.90 15.90 100.00 100.00 100.00 100.00 100.00
January 2000.................. 42.45 25.83 18.92 10.05 0.91 100.00 100.00 100.00 100.00 100.00
February 2000................. 34.00 15.19 7.43 0.00 0.00 100.00 100.00 100.00 96.90 84.28
March 2000.................... 25.97 5.11 0.00 0.00 0.00 100.00 100.00 95.72 82.22 68.44
April 2000.................... 17.76 0.00 0.00 0.00 0.00 100.00 93.82 82.32 67.76 52.97
May 2000...................... 8.94 0.00 0.00 0.00 0.00 100.00 80.81 68.54 53.08 37.45
June 2000..................... 0.00 0.00 0.00 0.00 0.00 99.72 67.60 54.67 38.44 22.13
July 2000..................... 0.00 0.00 0.00 0.00 0.00 88.18 54.45 40.96 24.09 7.23
August 2000................... 0.00 0.00 0.00 0.00 0.00 76.47 41.35 27.39 10.01 0.00
September 2000................ 0.00 0.00 0.00 0.00 0.00 64.78 28.47 14.13 0.00 0.00
October 2000.................. 0.00 0.00 0.00 0.00 0.00 53.01 15.72 1.09 0.00 0.00
November 2000................. 0.00 0.00 0.00 0.00 0.00 41.13 3.09 0.00 0.00 0.00
December 2000................. 0.00 0.00 0.00 0.00 0.00 29.17 0.00 0.00 0.00 0.00
January 2001.................. 0.00 0.00 0.00 0.00 0.00 17.69 0.00 0.00 0.00 0.00
February 2001................. 0.00 0.00 0.00 0.00 0.00 7.45 0.00 0.00 0.00 0.00
March 2001.................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
April 2001.................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
May 2001...................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
June 2001..................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 2001..................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
August 2001................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
September 2001................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
October 2001.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
November 2001................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
December 2001................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 2002.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
February 2002................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
March 2002.................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
April 2002.................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
May 2002...................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
June 2002..................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
July 2002..................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
August 2002................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
September 2002................ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
October 2002.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
November 2002................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
December 2002................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
January 2003.................. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life
(years)(1)................... 0.50 0.39 0.36 0.32 0.30 1.33 1.08 1.00 0.90 0.82
</TABLE>
- -------------------------
(1) The weighted average life of a Class A-1 Note or Class A-2 Note is
determined by: (a) multiplying the amount of each principal payment on the
applicable Note by the number of years from the date of issuance of such
Note to the related Distribution Date, (b) adding the results, and (c)
dividing the sum by the related initial principal amount of such Note.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ON PAGE
S-29 (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF
THE RECEIVABLES, WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND
PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-30
<PAGE> 31
PERCENTAGE OF INITIAL PRINCIPAL AMOUNT OF THE NOTES AT VARIOUS CPR PERCENTAGES
<TABLE>
<CAPTION>
CLASS A-3 NOTES CLASS B NOTES
-------------------------------------- --------------------------------------
DISTRIBUTION DATE 0% 10% 14% 19% 24% 0% 10% 14% 19% 24%
----------------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date..................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
August 1999...................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
September 1999................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October 1999..................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November 1999.................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December 1999.................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
January 2000..................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
February 2000.................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
March 2000....................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
April 2000....................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
May 2000......................................... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
June 2000........................................ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
July 2000........................................ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
August 2000...................................... 100.00 100.00 100.00 100.00 96.63 100.00 100.00 100.00 100.00 100.00
September 2000................................... 100.00 100.00 100.00 98.32 90.17 100.00 100.00 100.00 100.00 100.00
October 2000..................................... 100.00 100.00 100.00 92.15 83.92 100.00 100.00 100.00 100.00 100.00
November 2000.................................... 100.00 100.00 94.56 86.13 77.86 100.00 100.00 100.00 100.00 100.00
December 2000.................................... 100.00 95.64 88.72 80.25 72.00 100.00 100.00 100.00 100.00 100.00
January 2001..................................... 100.00 90.13 83.18 74.71 66.50 100.00 100.00 100.00 100.00 100.00
February 2001.................................... 100.00 85.20 78.21 69.75 61.58 100.00 100.00 100.00 100.00 100.00
March 2001....................................... 98.85 80.46 73.47 65.03 56.93 100.00 100.00 100.00 100.00 100.00
April 2001....................................... 94.27 75.81 68.84 60.46 52.47 100.00 100.00 100.00 100.00 100.00
May 2001......................................... 89.32 70.94 64.04 55.78 47.94 100.00 100.00 100.00 100.00 100.00
June 2001........................................ 84.20 66.00 59.21 51.12 43.48 100.00 100.00 100.00 100.00 100.00
July 2001........................................ 78.99 61.06 54.42 46.55 39.14 100.00 100.00 100.00 100.00 100.00
August 2001...................................... 73.80 56.23 49.76 42.12 34.98 100.00 100.00 100.00 100.00 100.00
September 2001................................... 68.64 51.50 45.23 37.86 31.00 100.00 100.00 100.00 100.00 100.00
October 2001..................................... 63.62 46.95 40.89 33.80 27.24 100.00 100.00 100.00 100.00 100.00
November 2001.................................... 58.70 42.57 36.74 29.94 23.69 100.00 100.00 100.00 100.00 100.00
December 2001.................................... 53.88 38.32 32.74 26.26 20.32 100.00 100.00 100.00 100.00 100.00
January 2002..................................... 49.20 34.26 28.93 22.77 17.16 100.00 100.00 100.00 100.00 100.00
February 2002.................................... 45.03 30.64 25.55 19.69 14.37 100.00 100.00 100.00 100.00 100.00
March 2002....................................... 41.14 27.31 22.44 16.86 11.83 100.00 100.00 100.00 100.00 100.00
April 2002....................................... 37.40 24.13 19.49 14.20 9.46 100.00 100.00 100.00 100.00 100.00
May 2002......................................... 33.43 20.84 16.47 11.51 7.07 100.00 100.00 100.00 100.00 100.00
June 2002........................................ 29.36 17.53 13.45 8.83 0.00 100.00 100.00 100.00 100.00 0.00
July 2002........................................ 25.43 14.38 10.59 0.00 0.00 100.00 100.00 100.00 0.00 0.00
August 2002...................................... 21.62 11.37 7.87 0.00 0.00 100.00 100.00 100.00 0.00 0.00
September 2002................................... 17.92 8.48 0.00 0.00 0.00 100.00 100.00 0.00 0.00 0.00
October 2002..................................... 14.43 0.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00
November 2002.................................... 11.07 0.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00
December 2002.................................... 7.96 0.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00
January 2003..................................... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life (years)(1)................. 2.59 2.30 2.19 2.05 1.92 3.51 3.26 3.18 3.01 2.93
</TABLE>
- -------------------------
(1) The weighted average life of a Class A-3 Note or Class B Note is determined
by: (a) multiplying the amount of each principal payment on the applicable
Note by the number of years from the date of issuance of such Note to the
related Distribution Date, (b) adding the results, and (c) dividing the sum
by the related initial principal amount of such Note.
THIS TABLE HAS BEEN PREPARED BASED ON THE ASSUMPTIONS DESCRIBED ON PAGE
S-29 (INCLUDING THE ASSUMPTIONS REGARDING THE CHARACTERISTICS AND PERFORMANCE OF
THE RECEIVABLES, WHICH WILL DIFFER FROM THE ACTUAL CHARACTERISTICS AND
PERFORMANCE THEREOF) AND SHOULD BE READ IN CONJUNCTION THEREWITH.
S-31
<PAGE> 32
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 an Indenture to be dated as of July 1, 1999 (the "INDENTURE"),
between the Issuer and First Chicago as indenture trustee (the "INDENTURE
TRUSTEE"), 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 source of capital will be the net proceeds of the
offering of the Notes. See "Formation of the Trust -- Capitalization of the
Trust" herein.
The Trust's primary sources of liquidity will be payments on the
Receivables and amounts on deposit in the Reserve Account. For a discussion of
CFSC's experience pertaining to delinquencies, repossessions and net losses, see
"The Receivables Pool -- Delinquencies, Repossessions and Net Losses" herein.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Trust's
Statement of Financial Position and Notes thereto included in this Prospectus
Supplement.
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
S-32
<PAGE> 33
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.
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. 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 $1,513 million on sales and revenues of
$21.0 billion for the year ended December 31, 1998 as compared with profits of
$1,665 million on sales and revenues of $18.9 billion for the year ended
December 31, 1997. 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, 1998, the percentages of total value of
CFSC's portfolio represented by these financing plans were as follows: non-tax
(financing) leases, 23%; installment sales contracts, 20%; tax-oriented leases,
15%; customer loans, 15%; wholesale financing, 19%; dealer loans, 6%; and
governmental lease-purchase contracts, 2%.
At December 31, 1998, CFSC had 821 full-time employees and serviced 48,810
accounts, including approximately $10.7 billion in gross finance receivables. In
the United States, as of December 31, 1998, 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.
S-33
<PAGE> 34
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 % 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 holders of record of
the Class A-1 Notes (the "CLASS A-1 NOTEHOLDERS") monthly on each Distribution
Date commencing August 25, 1999. With respect to the Notes, the record date (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 in
which such Distribution Date occurs)."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 the
Administration Fee, and from amounts on deposit in the Reserve Account. See
"Description of the Transfer and Servicing Agreements -- Distributions" and
"-- Reserve Account" herein. If the amount of interest on the principal amounts
of 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), the Administration
Fee 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 remaining after the payment of the Noteholders' Interest
Distributable Amount. See "Description of the Transfer and Servicing
Agreements -- Distributions" and "-- Reserve 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).
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 % 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 %
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 % 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
S-34
<PAGE> 35
Class A-2 Notes, the Class A-3 Notes and the Class B Notes will in each case
accrue from and including the 25th day of the month prior to the current
Distribution Date (or, in the case of the initial Distribution Date, from and
including the Closing Date) to but excluding the 25th day of the month of the
current Distribution Date and will be payable to 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 Class A-2 Noteholders, the "CLASS A NOTEHOLDERS") and the
holders of record of the Class B Notes (the "CLASS B NOTEHOLDERS" and, together
with the Class A Noteholders, the "NOTEHOLDERS") monthly on each Distribution
Date commencing August 25, 1999. 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 the Administration Fee 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. See "Description of the Transfer and Servicing
Agreements -- Distributions" 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, each of the
Class A-1 Noteholders, the Class A-2 Noteholders and the Class A-3 Noteholders
will receive their ratable share (based upon the total amount of interest due to
the Class A-1 Noteholders, the Class A-2 Noteholders and the Class A-3
Noteholders) of the amount available to be distributed in respect of interest on
the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes, and each Class
A-2 Noteholder and each Class A-3 Noteholder will receive its ratable share
(based on the principal amount of its Class A-2 Note or its Class A-3 Note and
the total amount distributable to the Class A-2 Noteholders or the Class A-3
Noteholders) of such amount. In such event, the Class B Noteholders will not
receive any payments of interest on such Distribution Date.
In addition, 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), the
Administration Fee 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. Principal payments will be made to the Class B Noteholders
on each
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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 Administration Fee, 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. 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), the outstanding principal amount, if any, of the Class A-3 Notes will
be payable in full on the Class A-3 Note Final Scheduled Distribution Date from
available funds therefor (including any amounts on deposit in the Reserve
Account) and the outstanding principal amount, if any, of the Class B Notes will
be payable in full on the Class B Note Final Scheduled Distribution Date from
available funds therefor (including any amounts on deposit in the Reserve
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 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 Note Value has been
reduced to 10% or less of the Initial Note Value 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
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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
Certificates. The Certificates will not be entitled to distributions of
interest.
Distributions of principal on the Certificates will be subordinate in
priority of payment to interest and principal due on the Notes to the extent
described herein. Funds on deposit in the Reserve Account will not be available
to cover scheduled payments with respect to the Certificates.
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following, as well as other information included elsewhere in this
Prospectus Supplement and in the Prospectus, summarizes the material terms of
the Sale and Servicing Agreement, the Purchase Agreement, the Administration
Agreement, and the Trust Agreement (collectively, the "TRANSFER AND SERVICING
AGREEMENTS," forms of which have been filed as exhibits to the Registration
Statement). Copies of the Transfer and Servicing Agreements will be filed with
the Commission following the issuance of the Securities. The following summary
does not purport to be complete and is subject to, and qualified 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
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entitled the Principal Distribution Account (such subaccount, the "PRINCIPAL
DISTRIBUTION ACCOUNT")and (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 (the "RESERVE ACCOUNT").
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 (the
"SERVICING FEE RATE") of the Note Value as of the first day of such Collection
Period (the "SERVICING FEE"). 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.
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.
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
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the Receivables during the related Collection Period 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 CFSC, in its capacity as
administrator (the "ADMINISTRATOR"), or for deposit in the applicable Trust
Account on the following Distribution Date.
Distributions of the Total Distribution Amount shall be made in the
following order of priority (except as described herein):
(i) to the Servicer (if CFSC or an affiliate is not the Servicer), the
Servicing Fee and all unpaid Servicing Fees from prior Collection Periods;
(ii) to the Administrator, the monthly administration fee in an amount
equal to $500 per month (the "ADMINISTRATION FEE") and all unpaid
Administration Fees from prior Collection Periods;
(iii) to the Class A Noteholders, the Class A Noteholders' Interest
Distributable Amount;
(iv) to the Principal Distribution Account, the First Priority
Principal Distribution Amount, if any;
(v) to the Class B Noteholders, the Class B Noteholders' Interest
Distributable Amount;
(vi) to the Principal Distribution Account, the Second Priority
Principal Distribution Amount, if any;
(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
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.
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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.
"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, $17,764,812 and,
thereafter, equals $17,764,812, reduced by all amounts allocable to principal
previously distributed to holders of the 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, with respect to the Class A-1 Notes,
from and including the preceding Distribution Date (or, in the case of the
initial Distribution Date, from and including the Closing Date), to but
excluding such Distribution Date (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, from and including the 25th day of the month preceding such Distribution
Date (or in the case of the initial Distribution Date, from and including the
Closing Date), to but excluding the 25th day of the month containing such
Distribution Date (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 2000
Distribution Date.
"CLASS A-2 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the March 2002
Distribution Date.
"CLASS A-3 NOTE FINAL SCHEDULED DISTRIBUTION DATE" means the April 2004
Distribution Date.
"CLASS B NOTE FINAL SCHEDULED DISTRIBUTION DATE"means the July 2005
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 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.
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"CLASS B NOTEHOLDERS' MONTHLY INTEREST DISTRIBUTABLE AMOUNT" means, with
respect to any Distribution Date, an amount equal to the aggregate interest
accrued on the Class B Notes at the Class B Note Rate from and including the
preceding Distribution Date (or from and including the Closing Date in the case
of the initial Distribution Date) to but excluding such Distribution Date (based
on a 360-day year of twelve 30-day months).
"COLLECTION PERIOD" means, with respect to the first Distribution Date, the
calendar month ending on July 31, 1999, and with respect to each subsequent
Distribution Date, the preceding calendar month.
"CUT-OFF DATE APR" is 7.11%, 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 Note Value 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 NOTE VALUE" means $591,420,812, which is the Note Value as of the
Cut-off Date.
"INITIAL POOL BALANCE" means $593,653,285, which is the sum of the Contract
Balances of each Receivable as of the Cut-off Date.
"NOTE VALUE" means, at any time, the present value of the scheduled and
unpaid payments on the Receivables (including all end of lease purchase option
payments on the Leases), discounted on a monthly basis at the Cut-off Date APR.
For purposes of calculating Note Value, (1) for any delinquent Receivable that
has not had the equipment by which it is secured repossessed and which is not a
Liquidated Receivable, the amount of any delinquent payments will be assumed to
be received in the next collection period and all other payments which have not
yet become due will be assumed to be received as originally scheduled, (2) for
any Receivable that has had the equipment by which it is secured repossessed but
which has not yet become a Liquidated Receivable, the outstanding Contract
Balance of such Receivable will be assumed to be received in the next collection
period and it will be assumed that no other payments will be received on such
Receivable, and (3) for any Liquidated Receivable, it will be assumed that no
payments will be received on such Receivable.
"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.
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"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.
"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 Note Value 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 Note Value 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 and (ii)
the amount, if any, withdrawn from the Reserve Account and deposited into the
Collection Amount on such Distribution Date.
"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 Administration Fee, (iii) the Class A Noteholders' Interest Distributable
Amount, (iv) the First Priority Principal Distribution Amount, (v) the Class B
Noteholders' Interest Distributable Amount, and (vi) 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.
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
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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
$7,392,760 (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 Amount remaining after the payment of the Servicing Fee (if CFSC or
an affiliate is not the Servicer), the Administration Fee, 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 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) $7,392,760 (which is equal to 1.25% of the Initial Note
Value).
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
overcollateralization provided by the Certificates is intended to enhance the
likelihood of receipt by the Noteholders of the full amount of principal and
interest due them and to decrease the likelihood that the Noteholders will
experience losses. In addition, the subordination of the Class B Notes to the
Class A Notes is intended to provide the Class A Noteholders with these same
protections. However, because in certain circumstances the Reserve Account could
be depleted and/or the aggregate amount of Realized Losses could exceed the
outstanding principal amount of the Class B Notes and the overcollateralization
provided by the Certificates, these protections are limited. Upon notification
in writing by each of S&P and Moody's (each, a "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 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.
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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
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 -- The Notes May Suffer Losses if the
Interests of Other Persons in the Receivables are Superior to the Trust's
Interest" herein and "Risk Factors -- Risks of Unperfected Security Interests in
Receivables" 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
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lienholder, would foreclose upon Financed Equipment, possibly resulting in a
substitution of the related Obligor.
The Trust shall have the right to foreclose upon all liens, junior or
otherwise, that it holds with respect to any Receivable, whether on the related
Financed Equipment or on equipment the first priority lien on which has not been
assigned to the Trust. If the Trust forecloses on a junior lien on any equipment
in which it does not have a first priority lien, such foreclosure would be
subject to the senior liens not held by the Trust. In addition, any junior liens
held by the Trust may be eliminated should any more senior liens not held by the
Trust foreclose upon the related equipment.
CFSC does not maintain statistical data with respect to the portion of each
retail installment sales contract secured by related Financed Equipment and the
portion of such contract secured by the cross-collateralized liens. However,
because the existence of such cross-collateralized liens will not place the
Trust in a different credit position than that of CFSC should CFSC retain the
Receivables, and in light of CFSC's credit loss experience with respect to the
U.S. ISC Portfolio, the Seller believes that such statistical data with respect
to the cross-collateralization of the Receivables is not material to investors
in the Securities.
LEGAL INVESTMENT
The Class A-1 Notes will be eligible securities for purchase by money
market funds under paragraph (a)(9) of Rule 2a-7 under the Investment Company
Act of 1940, as amended.
FEDERAL INCOME TAX CONSEQUENCES
As is set forth in the Prospectus, the Seller, the Trust and the
Noteholders will agree to treat the Notes as debt for United States federal
income tax purposes. Further, as is also described in the Prospectus, Orrick,
Herrington & Sutcliffe LLP ("SPECIAL TAX COUNSEL") is of the opinion that the
Class A Notes will be classified as debt for such purposes. See "Federal Income
Tax Consequences -- Tax Characterization to Holders of the Notes" for additional
discussion with respect to the federal income tax treatment of the Class A
Notes.
Notwithstanding the treatment of the Class B Notes by the Seller, the Trust
and the Noteholders as debt for federal income tax purposes, because of the
subordination of those Notes and the capitalization of the Trust, the treatment
of the Class B Notes as debt for federal income tax purposes is less clear. In
that regard, Special Tax Counsel is of the opinion that the Class B Notes should
be classified as debt for federal income tax purposes. If, consistent with that
opinion, the Class B Notes are treated as debt, the discussion in the Prospectus
under "Federal Income Tax Consequences -- Tax Consequences to Holders of the
Notes" would be applicable with respect to the treatment of the Class B Notes.
If, however, the Class B Notes instead were treated as equity, the treatment
described in the Prospectus under the heading "Federal Income Tax
Consequences -- Tax Consequences to Holders of the Certificates" generally would
be applicable to the Class B Notes as though they were Certificates (except that
no partnership tax return will be filed with respect to the Trust or the Class B
Notes based on this possible alternative characterization). Accordingly,
although Class B Noteholders are required to be U.S. Persons, a Class B
Noteholder who failed to so qualify (and whose investment was not otherwise
disregarded as in violation of such Noteholder restriction) would be subject to
income tax withholding in respect of the Class B Notes. Further, holders of
Class B Notes who were tax-exempt entities, including pension plans, could be
subject to unrelated business income tax in respect of a Class B Note. Class B
Noteholders treated as holding equity also could be subject to state taxes in
any states in which the Trust was deemed to be doing business. See "Federal
Income Tax Consequences -- Tax Consequences to Holders of the Notes -- Possible
Alternative Treatments of the Notes" and "Federal Income Tax Consequences -- Tax
Consequences to Holders of the Certificates" for additional considerations
relevant to Class B Noteholders whose Class B Notes were treated as equity
rather than as debt for federal income tax purposes.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and Section 4975 of the Code impose certain requirements on employee benefit
plans and certain other plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and certain collective investment funds or
insurance company general or separate accounts in which such plans, accounts or
arrangements are invested, that are subject to the fiduciary responsibility and
prohibited transaction provisions of ERISA and/or Section 4975 of the Code
(collectively, "PLANS"), and on persons who are fiduciaries with respect to
Plans, in connection with the investment of assets that are treated as "plan
assets" of any Plan for purposes of applying Title I of ERISA and Section 4975
of the Code ("PLAN ASSETS"). ERISA generally imposes on Plan fiduciaries certain
general fiduciary requirements, including those of investment prudence and
diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. Generally, any person who has
discretionary authority or control respecting the management or disposition of
Plan Assets, and any person who provides investment advice with respect to such
assets for a fee, is a fiduciary with respect to such Plan Assets.
Subject to the considerations described below, the Notes are eligible for
purchase with Plan Assets of any Plan.
ERISA and Section 4975 of the Code prohibit a broad range of transactions
involving Plan Assets and persons ("parties in interest" under ERISA and
"disqualified persons" under the Code, 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 Asset
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
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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, 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,
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 NOTE UNDERWRITERS CLASS A-1 NOTES CLASS A-2 NOTES CLASS A-3 NOTES
------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Goldman, Sachs & Co......................... $ $ $
Chase Securities Inc........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................
------------ ------------ ------------
Total........................... $155,000,000 $125,000,000 $270,000,000
============ ============ ============
</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 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 % per
Class A-1 Note, % per Class A-2 Note and % per Class A-3 Note. The
Class A Note Underwriters may allow and such dealers may reallow a concession
not in excess of % per Class A-1 Note, % per Class A-2 Note and
% per Class A-3 Note to certain other dealers. After the initial public
offering, such prices and such concessions may be changed.
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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 %
per Class B Note. The Class B Note Underwriter may allow and such dealers may
reallow a concession not in excess of % per Class B Note to certain other
dealers. After the initial public offering, such price and concession may be
changed.
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
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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.
EXPERTS
The statement of financial position of the Trust as of June 30, 1999
included in this Prospectus Supplement has been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Caterpillar
Financial Asset Trust 1999-A Class A-1 % Asset Backed Notes, Class A-2
% Asset Backed Notes, Class A-3 % Asset Backed Notes and the Class B
% Asset Backed Notes (collectively, the "GLOBAL SECURITIES") will be
available only in book-entry form. Investors in Class A Notes may hold their
Global Securities through any of The Depository Trust Company ("DTC"), Cedelbank
("CEDEL") or the Euroclear System ("EUROCLEAR"). The Global Securities
representing interests in Class A Notes will be tradable as home market
instruments in both the European and U.S. domestic markets. Investors in Class B
Notes may hold their Global Securities only through DTC. Initial settlement and
all secondary trades will settle in same-day funds.
Secondary market trading between investors in Class A Notes holding their
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 Class A 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.
The Class B Notes may not be purchased by persons who are not U.S. Persons
and any purported transfer of an interest in a Class B Note to a person that is
not a U.S. Person shall be void. Subject to DTC approval, the Class B Notes
shall bear a legend indicating such ownership and transfer restriction. By
acceptance of a Class B Note, each Class B Noteholder shall be deemed to have
represented and warranted to the Seller, the Trust and the Indenture Trustee
that such Noteholder is a U.S. Person. In addition, if requested by the Seller,
the Trust or the Administrator, an investor in the Class B Notes will be
required to deliver to the Seller an affidavit and related tax forms certifying
generally to the effect that, under penalty of perjury, such investor is a U.S.
Person.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name of
Cede & Co. ("CEDE") 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 in Class A Notes 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.
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<PAGE> 51
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 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
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<PAGE> 52
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;
(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
A-3
<PAGE> 53
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-4
<PAGE> 54
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>
<CAPTION>
PAGE
----
<S> <C>
Administration Fee.......................................... S-39
Administrator............................................... S-39
APR......................................................... S-40
Caterpillar................................................. S-33
Cede........................................................ A-1
Cedel....................................................... A-1
Certificate Balance......................................... S-40
Certificates................................................ S-17
CFSC........................................................ S-15
Class A Note Underwriters................................... S-47
Class A Note Underwriting Agreement......................... S-47
Class A Noteholders......................................... S-35
Class A Noteholders' Interest Carryover Shortfall........... S-40
Class A Noteholders' Interest Distributable Amount.......... S-40
Class A Noteholders' Monthly Interest Distributable
Amount.................................................... S-40
Class A Notes............................................... S-17
Class A-1 Note Final Scheduled Distribution Date............ S-40
Class A-1 Note Pool Factor.................................. S-32
Class A-1 Note Rate......................................... S-34
Class A-1 Noteholders....................................... S-34
Class A-1 Notes............................................. S-17
Class A-2 Note Final Scheduled Distribution Date............ S-40
Class A-2 Note Pool Factor.................................. S-32
Class A-2 Note Rate......................................... S-34
Class A-2 Noteholders....................................... S-35
Class A-2 Notes............................................. S-17
Class A-3 Note Final Scheduled Distribution Date............ S-40
Class A-3 Note Pool Factor.................................. S-32
Class A-3 Note Prepayment Price............................. S-36
Class A-3 Note Rate......................................... S-34
Class A-3 Noteholders....................................... S-35
Class A-3 Notes............................................. S-17
Class B Note Final Scheduled Distribution Date.............. S-40
Class B Note Pool Factor.................................... S-32
Class B Note Prepayment Price............................... S-35
Class B Note Rate........................................... S-34
Class B Note Underwriter.................................... S-48
Class B Note Underwriting Agreement......................... S-48
Class B Noteholders......................................... S-35
Class B Noteholders' Interest Carryover Shortfall........... S-40
Class B Noteholders' Interest Distributable Amount.......... S-40
Class B Noteholders' Monthly Interest Distributable
Amount.................................................... S-41
Class B Notes............................................... S-17
Closing Date................................................ S-17
Collection Period........................................... S-41
</TABLE>
A-5
<PAGE> 55
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Contract Balance............................................ S-18
CPR......................................................... S-29
Custodial Agreement......................................... S-16
Custodian................................................... S-16
Cut-off Date................................................ S-17
Cut-off Date APR............................................ S-41
Dealers..................................................... S-17
Determination Date.......................................... S-38
Distribution Date........................................... S-34
DOL......................................................... S-46
DTC......................................................... A-1
ERISA....................................................... S-46
Euroclear................................................... A-1
Final Scheduled Distribution Date........................... S-41
Financed Equipment.......................................... S-17
First Chicago............................................... S-15
First Priority Principal Distribution Amount................ S-41
Global Securities........................................... A-1
Goldman Sachs............................................... S-48
Indenture................................................... S-32
Indenture Trustee........................................... S-32
Initial Note Value.......................................... S-41
Initial Pool Balance........................................ S-41
Installment Sales Contracts................................. S-17
Issuer...................................................... S-16
Leases...................................................... S-17
Liquidated Receivables...................................... S-39
Liquidation Proceeds........................................ S-39
Moody's..................................................... S-5
Net Investment.............................................. S-18
Note Value.................................................. S-41
Noteholders................................................. S-35
Noteholders' Interest Distributable Amount.................. S-41
Notes....................................................... S-17
Obligors.................................................... S-17
Owner Trustee............................................... S-16
Parties in Interest......................................... S-46
Plan Asset Regulation....................................... S-47
Plan Assets................................................. S-46
Plans....................................................... S-46
Pool Balance................................................ S-41
Principal Distribution Account.............................. S-38
Principal Distribution Amount............................... S-42
Purchase Agreement.......................................... S-16
Rating Agency............................................... S-43
Realized Losses............................................. S-42
Receivables.............................................S-16, S-17
Record Date................................................. S-34
Receivables Pool............................................ S-17
Regular Principal Distribution Amount....................... S-42
Reserve Account............................................. S-38
</TABLE>
A-6
<PAGE> 56
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reserve Account Initial Deposit............................. S-43
S&P......................................................... S-5
Sale and Servicing Agreement................................ S-16
Second Priority Principal Distribution Amount............... S-42
Seller...................................................... S-16
Servicer.................................................... S-15
Servicing Fee............................................... S-38
Servicing Fee Rate.......................................... S-38
Special Tax Counsel......................................... S-45
Specified Reserve Account Balance........................... S-43
Total Available Amount...................................... S-38
Total Distribution Amount................................... S-42
Total Required Payment...................................... S-42
Transfer and Servicing Agreements........................... S-37
Trust....................................................... S-16
Trust Agreement............................................. S-16
U.S. ISC Portfolio.......................................... S-23
U.S. Lease Portfolio........................................ S-23
U.S. Portfolio.............................................. S-23
U.S. Person................................................. A-4
Underwriters................................................ S-48
Underwriting Agreements..................................... S-48
Variable Frequency Receivables.............................. S-20
</TABLE>
A-7
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustee of the
Caterpillar Financial Asset Trust 1999-A
In our opinion, the accompanying statement of financial position presents
fairly, in all material respects, the financial position of Caterpillar
Financial Asset Trust 1999-A (the "Trust") at June 30, 1999, in conformity with
generally accepted accounting principles. This statement of financial position
is the responsibility of the Trust's management; our responsibility is to
express an opinion on this statement of financial position based on our audit.
We conducted our audit of this statement in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial position is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial position,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall statement of financial position
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.
PricewaterhouseCoopers LLP
Nashville, Tennessee
July 2, 1999
F-1
<PAGE> 58
CATERPILLAR FINANCIAL ASSET TRUST 1999-A
STATEMENT OF FINANCIAL POSITION
JUNE 30, 1999
<TABLE>
<S> <C>
ASSETS:
Restricted cash........................................... $100
----
Total assets................................................ $100
====
LIABILITIES AND UNDIVIDED INTERESTS:
Undivided interests....................................... $100
----
Total liabilities and undivided interests................... $100
====
</TABLE>
See accompanying notes to this financial statement
F-2
<PAGE> 59
CATERPILLAR FINANCIAL ASSET TRUST 1999-A
NOTES TO FINANCIAL STATEMENT
NOTE 1 -- SUMMARY OF OPERATIONS
Caterpillar Financial Asset Trust 1999-A (the "Trust") is a Delaware
business trust, the beneficial equity interest in which is owned by Caterpillar
Financial Funding Corporation (the "Seller"). The Trust was formed by the Seller
and Chase Manhattan Bank Delaware pursuant to a Trust Agreement dated May 28,
1999. The Trust's activities will consist of the issuance and sale of notes (the
"Notes") and the issuance of certificates (the "Certificates") to the Seller,
proceeds from which will be used by the Trust to purchase a pool of receivables
consisting of retail installment sales contracts and finance leases secured by
new and used equipment. The Trust will rely upon collections on the receivables
and the funds on deposit in certain accounts to make payments on the Notes and
Certificates. The Trust will be solely liable for the payment of the Notes and
Certificates. The Trust has not commenced operations, except for receiving the
capital contribution of the Seller.
NOTE 2 -- RESTRICTED CASH
Restricted cash includes all monies held in one or more accounts
established and maintained by the servicer, Caterpillar Financial Services
Corporation, and the Seller.
NOTE 3 -- INCOME TAXES
For federal income tax purposes, it is expected that the Notes will be
characterized as debt and that the Trust will not be characterized as an
association (or a publicly traded partnership) taxable as a corporation. Each
noteholder, by its ownership of a Note, will agree to treat the Notes as
indebtedness.
F-3
<PAGE> 60
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. This prospectus supplement shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such state.
SUBJECT TO COMPLETION, DATED JULY 9, 1999
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 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.
POTENTIAL INVESTORS SHOULD CONSIDER, AMONG OTHER THINGS, THE INFORMATION
SET FORTH IN "RISK FACTORS" COMMENCING ON PAGE 14 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 , 1999
<PAGE> 61
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORTS TO NOTEHOLDERS AND
CERTIFICATEHOLDERS............. 3
AVAILABLE INFORMATION............ 3
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE......... 3
SUMMARY OF TERMS................. 4
RISK FACTORS..................... 14
THE TRUSTS....................... 20
General..................... 20
The Owner Trustee........... 21
THE TRUST PROPERTY............... 21
THE RECEIVABLES POOLS............ 21
The Retail Equipment
Financing Business........ 22
WEIGHTED AVERAGE LIFE OF THE
SECURITIES..................... 27
POOL FACTORS AND TRADING
INFORMATION.................... 28
USE OF PROCEEDS.................. 28
THE SELLER, CATERPILLAR AND THE
SERVICER....................... 28
Caterpillar Financial
Funding Corporation....... 28
Caterpillar Inc............. 29
Caterpillar Financial
Services Corporation...... 30
DESCRIPTION OF THE NOTES......... 30
General..................... 30
Principal and Interest on
the Notes................. 30
The Indenture............... 31
DESCRIPTION OF THE
CERTIFICATES................... 35
General..................... 35
Distributions of Principal
and Interest.............. 36
List of
Certificateholders........ 36
CERTAIN INFORMATION REGARDING THE
SECURITIES..................... 36
Fixed Rate Securities....... 36
Floating Rate Securities.... 37
Indexed Securities.......... 37
ISSUANCE OF THE SECURITIES....... 38
Definitive Securities....... 38
Book-Entry Registration..... 39
DESCRIPTION OF THE TRANSFER AND
SERVICING AGREEMENTS........... 42
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Sale and Assignment of
Receivables............... 42
Accounts.................... 44
Servicing Procedures........ 45
Payments on Receivables..... 46
Servicing Compensation and
Payment of Expenses....... 46
Distributions............... 47
Credit and Cash Flow
Enhancement............... 47
Net Deposits................ 48
Reports to
Securityholders........... 49
Statements to Trustees and
Trust..................... 50
Evidence as to Compliance... 50
Certain Matters Regarding
the Service............... 50
Servicer Default............ 51
Rights Upon Servicer
Default................... 51
Waiver of Past Defaults..... 52
Amendment................... 52
Payment of Notes............ 52
Termination................. 53
Administration Agreement.... 53
CERTAIN LEGAL ASPECTS OF THE
RECEIVABLES.................... 53
Sale and Transfer of
Receivables............... 53
Bankruptcy.................. 54
Security Interest in
Equipment................. 55
Repossession................ 56
Notice of Sale; Redemption
Rights.................... 56
Excess Proceeds............. 56
Leases...................... 57
Other....................... 57
FEDERAL INCOME TAX CONSEQUENCES.. 57
Tax Characterization of the
Trust..................... 58
Tax Consequences to Holders
of the Notes.............. 58
Tax Consequences to Holders
of the Certificates....... 60
CERTAIN STATE TAX
CONSIDERATIONS................. 65
ERISA CONSIDERATIONS............. 66
PLAN OF DISTRIBUTION............. 66
RATINGS.......................... 67
LEGAL OPINIONS................... 67
INDEX OF TERMS................... 68
</TABLE>
2
<PAGE> 62
REPORTS TO NOTEHOLDERS AND CERTIFICATEHOLDERS
Unless and until Definitive Notes or Definitive Certificates are issued,
periodic and annual unaudited reports containing information concerning the
Receivables of the related Trust will be prepared by the Servicer and sent on
behalf of such Trust to Cede & Co. ("CEDE"), as nominee of The Depository Trust
Company ("DTC") and registered holder of the related Securities. To the extent
specified in the related Prospectus Supplement, such periodic and annual
unaudited reports will also be sent on behalf of any such Trust to any
registered holders of the Securities. See "Issuance of the
Securities -- Book-Entry Registration" and "Description of the Transfer and
Servicing Agreements -- Reports to Securityholders" herein. Such reports will
not constitute financial statements that have been examined and reported upon
by, with an opinion expressed by, an independent public accountant or certified
public accountant. Each Trust will file with the Securities and Exchange
Commission (the "COMMISSION") such periodic reports as are required under the
Securities Exchange Act of 1934, as amended, and the rules and regulations of
the Commission thereunder (the "EXCHANGE ACT") or as are otherwise agreed to by
the Commission. Copies of such periodic reports may be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
AVAILABLE INFORMATION
The Seller, as originator of each Trust, has filed with the Commission a
Registration Statement (together with all amendments and exhibits thereto,
referred to herein as the "REGISTRATION STATEMENT") under the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(the "SECURITIES ACT"), with respect to the Securities offered pursuant to this
Prospectus. For further information, reference is made to the Registration
Statement which may be inspected and copied, at prescribed rates, at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; at the Commission's Midwest Regional Office at 500 West
Madison Street, Chicago, Illinois 60661-2511; and at the Commission's Northeast
Regional Office at 7 World Trade Center, 13th Floor, New York, New York 10048.
In addition, the Commission maintains a public access site on the Internet
through the World Wide Web at which site reports, information statements and
other information, including all electronic filings, regarding the Seller and
each Trust may be viewed. The Internet address of such World Wide Web site is
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
All documents filed with the Commission by the Seller, as originator of any
Trust, pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this Prospectus and prior to the termination of any offering of the
Securities made by this Prospectus shall be deemed to be incorporated by
reference in this Prospectus and to be a part of this Prospectus from the date
of the filing of such documents.
The Servicer on behalf of any Trust will provide without charge to each
person to whom this Prospectus is delivered, on the written or oral request of
such person, a copy of any or all of the documents referred to above that have
been or may be incorporated by reference in this Prospectus, other than exhibits
to such documents unless such exhibits are specifically requested. Such written
or oral requests should be directed to the Servicer at: Caterpillar Financial
Services Corporation, 3322 West End Avenue, Nashville, Tennessee 37203-1071,
Attention: Treasurer (Telephone: (615) 386-5800).
3
<PAGE> 63
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."
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.
4
<PAGE> 64
With respect to a Series that includes two or more
Classes of Notes, each Class may differ as to the
timing and priority of payments, seniority,
allocations of losses, Interest Rate or amount of
or method of determining payments of principal or
interest as described in the related Prospectus
Supplement. 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 available 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.
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With respect to a Series that includes two or more
Classes of Certificates, each Class may differ as
to timing and priority of distributions, seniority,
allocations of losses, Pass-Through Rates or amount
of or method of determining distributions in
respect of principal or interest. Distributions of
principal or interest in respect of any such Class
or Classes may or may not be made upon the
occurrence of specified events or on the basis of
collections from designated portions of the
Receivables in the related Trust. In addition, a
Series may include one or more Classes of
Certificates ("STRIP CERTIFICATES") entitled to (i)
distributions in respect of principal with
disproportionate, nominal or no interest
distributions or (ii) distributions in respect of
interest with disproportionate, nominal or no
principal distributions.
To the extent specified in the related Prospectus
Supplement, distributions in respect of the
Certificates may be subordinated in priority of
payment to payments on the Notes.
If the Servicer exercises its option to purchase
the Receivables of a Trust, in the manner and on
the respective terms and conditions described under
"Description of the Transfer and Servicing
Agreements -- Termination" herein, the related
Certificateholders will receive as a prepayment an
amount in respect of the Certificates as specified
in the related Prospectus Supplement. In addition,
if the related Prospectus Supplement provides that
the property of a Trust will include a Pre-Funding
Account, 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, 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
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any right of setoff. No Lease contract requires any
additional performance obligations by CFSC.
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 AGREEMENT"), between CFSC
and the Seller, and the Seller will sell the
Receivables to the related Trust pursuant to a Sale
and Servicing Agreement (the "SALE AND SERVICING
AGREEMENT") among the Seller, the Servicer and such
Trust. Such Receivables (the "INITIAL RECEIVABLES")
shall have an aggregate principal balance specified
in the related Prospectus Supplement as of a date
specified therein (such date, the "INITIAL CUT-OFF
DATE").
If and to the extent provided in the related
Prospectus Supplement, the Seller will be obligated
to sell, and the related Trust will be obligated to
purchase (subject to the availability of
Receivables, and to the satisfaction of certain
conditions described in the related Sale and
Servicing Agreement), the Subsequent Receivables
from time to time during the Funding Period
specified in the related Prospectus Supplement,
which Subsequent Receivables will have an aggregate
principal balance as of the date determined therein
(each, a "SUBSEQUENT CUT-OFF DATE", and together
with the Initial Cut-off Date, a "CUT-OFF DATE")
not in excess of the amount on deposit in the
Pre-Funding Account (the "PRE-FUNDED AMOUNT") on
the related Closing Date. If the related Prospectus
Supplement so provides for a Pre-Funding Account,
the funds on deposit in such Pre-Funding Account on
the related Closing Date will not exceed 25% of the
related Trust Property, and the related 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
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based on the criteria specified in the related
Purchase Agreement and described herein and in the
related Prospectus Supplement.
Credit and Cash Flow
Enhancement................ If and to the extent provided in the related
Prospectus Supplement, credit enhancement with
respect to a Trust or any Class or 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
Accounts................... If the Distribution Dates for a Series or Class
occur 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
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related Securityholders, which monies will be used
to purchase Subsequent Receivables from the Seller
from time to time during the Funding Period
specified in the related Prospectus Supplement. 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
Agreements................. With respect to each Trust, pursuant to a Purchase
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 representation
or warranty made by CFSC in the Purchase Agreement,
CFSC will be obligated to repurchase such
Receivable from the Seller pursuant to the related
Purchase Agreement contemporaneously with the
Seller's repurchase from such Trust. The obligation
of the Seller to repurchase any Receivable with
respect to which CFSC has breached a representation
or warranty is subject to CFSC's repurchase of such
Receivable.
Consistent with its normal servicing procedures,
the Servicer may, in its discretion, arrange with
the Obligor on a Receivable to extend or modify its
payment schedule; provided, however, that 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
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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.
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 or "NOTE VALUE" (as that term may
be defined in the related Prospectus Supplement),
as specified in the related Prospectus Supplement,
as of the first day of such Collection Period, plus
(b) any late fees, extension fees and other
administrative fees or similar charges allowed by
applicable law with respect to such Receivables
(collectively, the "SERVICER'S YIELD"). With
respect to each Trust, the Servicing Fee for each
Collection Period will decline over the term of the
related Securities as the aggregate principal
balance of the related Receivables decreases. See
"Description of the Transfer and Servicing
Agreements -- Servicing Compensation and Payment of
Expenses" herein and in the related Prospectus
Supplement.
Administration Agreement... With respect to each Trust, CFSC, in its capacity
as administrator (the "ADMINISTRATOR"), will enter
into an agreement (an "ADMINISTRATION AGREEMENT")
with such Trust and the related Indenture Trustee
pursuant to which the Administrator will agree, to
the extent provided in such Administration
Agreement, to provide the notices and to perform
certain other administrative obligations required
by the related Indenture. As compensation for the
performance of the Administrator's obligations
under its Administration Agreement and as
reimbursement for its expenses related thereto, the
Administrator will be entitled to a monthly
administration fee in an amount to be set forth in
the related Prospectus Supplement (the
"ADMINISTRATION FEE").
Certain Legal Aspects of
the
Receivables; Repurchase
Obligations................ With respect to any Trust, unless the related
Prospectus Supplement provides that such interests
will be 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
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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.
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
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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
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.
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ERISA Considerations....... A fiduciary of any employee benefit plan or other
plan or arrangement subject to the Employee
Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 4975 of the Internal Revenue
Code of 1986, as amended (the "CODE"), should
carefully review with its legal advisors whether
the purchase or holding of any Class of Securities
could give rise to a transaction prohibited or not
otherwise permissible under ERISA or the Code. See
"ERISA Considerations" herein and in the related
Prospectus Supplement.
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RISK FACTORS
Investors should consider, among other things, the matters discussed under
"Risk Factors" in the Prospectus Supplement and the following risk factors in
connection with the purchase of the Securities of any Series.
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
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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 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
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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, 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 ownership interest in the Receivables be found to be unperfected, such
interests may potentially be inferior to the interests of (i) the such Trust,
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, 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, the interest of the Seller, the Trust or the Indenture Trustee 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
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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.
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
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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 Receivables to the related Trust is an absolute
sale of such Receivables to such Trust. For a further discussion of certain
consequences of characterization of the transaction as a sale or a pledge, see
"Certain Legal Aspects of the Receivables -- Bankruptcy" herein.
Risk of Commingling. With respect to each Trust, unless the related
Prospectus Supplement provides for more frequent deposits (as described below),
then for so long as CFSC is the Servicer and provided that (i) there exists no
Servicer Default (as defined herein) and (ii) each other condition to making
monthly or less frequent deposits as may be specified by the Rating Agencies and
described in the related Prospectus Supplement is satisfied, the Servicer will
not be required to deposit payments on the related Receivables (from whatever
source) and all proceeds of such Receivables collected during each Collection
Period into the related Collection Account until on or before the business day
preceding each related Distribution Date. If the related Prospectus Supplement
so provides, or if the above described conditions are not met, the Servicer will
deposit all such amounts collected during each Collection Period into the
related Collection Account within two business days of receipt and
identification thereof. Normally, collections are identified within one day of
receipt. The Servicer will also deposit any Purchase Amounts (as defined herein)
when due. Pending deposit into such Collection Account, the Servicer will be
under no obligation to segregate collections from its funds and such collections
may be invested by the Servicer at its own risk, for its own benefit and without
being subject to any investment restrictions and will not be segregated from the
funds of the Servicer. If the Servicer were unable to remit such funds, or if
the Servicer became insolvent, the holders of Securities might incur a loss with
respect to collections not deposited in the Collection Account. To the extent
set forth in the related Prospectus Supplement, the Servicer may, in order to
satisfy the requirements for monthly remittances described above, obtain a
letter of credit or other security for the benefit of the related Trust to
secure timely remittances of collections on the related Receivables and payment
of the aggregate Purchase Amount with respect to Receivables purchased by the
Servicer.
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
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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.
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
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names of the beneficial owners of such Notes and Certificates or their nominees.
Accordingly, unless and until Definitive Notes or Definitive Certificates are
issued for such Securities, holders of beneficial interests in such Notes and
Certificates will not be recognized by the applicable Trustees as Noteholders
and Certificateholders and will only be able to exercise the rights of
Noteholders and Certificateholders indirectly through DTC and its Participants.
See "Issuance of the Securities -- Book-Entry Registration" herein.
THE TRUSTS
GENERAL
With respect to each Series of Securities, the Seller will establish a
separate Trust for the transactions described herein and in the related
Prospectus Supplement. After its formation, each Trust will not engage in any
activity other than (i) acquiring, holding and managing the Receivables and the
other assets of such Trust and proceeds therefrom, (ii) issuing and making
payments on the related Notes, (iii) issuing and making payments on the related
Certificates representing 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
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Equipment and certain other cross-collateralized equipment which secure
defaulted Receivables. In such event, certain factors, such as such Trust's not
having first perfected security interests in some of the Financed Equipment and
the risk of fraud or negligence of CFSC or (under certain circumstances) the
related Dealer, may affect such Trust's ability to realize on the collateral
securing the Receivables, and thus the proceeds to be distributed to
Securityholders with respect to the Securities, may be reduced. See "Description
of the Transfer and Servicing Agreements -- Distributions", "-- Credit and Cash
Flow Enhancement" and "Certain Legal Aspects of the Receivables" herein and
"Description of the Transfer and Servicing Agreements -- Distributions" in the
related Prospectus Supplement.
The principal offices of each Trust and of the related Owner Trustee will
be specified in the related Prospectus Supplement.
THE OWNER TRUSTEE
The Owner Trustee for each Trust will be specified in the related
Prospectus Supplement. An Owner Trustee's liability in connection with the
issuance and sale of the Securities of the related Series will be limited solely
to the express obligations of such Owner Trustee set forth in the related Trust
Agreement and the related Sale and Servicing Agreement. An Owner Trustee may
resign at any time, in which event the Administrator 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
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will be originated by CFSC in the ordinary course of its and the Dealers' sale
or leasing business. CFSC purchases or originates contracts in accordance with
its credit standards which are based upon the Obligor's ability to repay the
obligation, the Obligor's credit history and, as described below, the equity
position, if any, with respect to the related Financed Equipment.
The Receivables to be held by each Trust will be selected from the U.S.
Portfolio of Installment Sales Contracts and/or Leases not previously sold
meeting several criteria. As of the applicable Cut-off Date, among the criteria
to be met (except as described under "Certain Legal Aspects of the Receivables"
herein) are that each Receivable: (i) will be secured by a first priority
perfected security interest in the related Financed Equipment (which Financed
Equipment is located in the United States), (ii) will have been originated in
the United States, (iii) will have an Obligor which has a United States billing
address, (iv) in the case of an Installment Sales Contract, will provide for
scheduled payments that fully amortize the amount financed over its original
term to maturity, (v) will not be more than 31 days past due, and (vi) will
satisfy the other criteria, if any, set forth in the related Prospectus
Supplement. As of the applicable Cut-off Date, no Obligor on any related
Receivable will be noted on the related records of the Servicer as being in
default under the related Installment Sales Contract or Lease or as being the
subject of a bankruptcy proceeding. No selection procedures believed by the
Seller to be adverse to the Securityholders of any Series will be used in
selecting the related Receivables.
Information with respect to each pool of Receivables will be set forth in
the related Prospectus Supplement, including, to the extent appropriate, the
composition of the Receivables, the distribution by annual percentage rate
("APR") (as such term is defined in the related Prospectus Supplement), type of
equipment, 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
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equipment, with used equipment financings generally having shorter terms and
higher interest rates and requiring higher down payments.
Origination Process. CFSC provides Dealers with printed retail forms of
installment sales contracts and leases which generally are used by the Dealers
to arrange transactions and originate receivables. In addition to receivables it
originates directly, CFSC acquires individual receivables from Dealers which
generally meet the following criteria: (i) are current in payment, (ii) have no
payment thereon that has been past due more than 60 days since such receivable
was originated, (iii) have not been extended for more than one month in the last
six months or for more than two months in the last twelve months, and (iv) have
a remaining financed value of at least $10,000 and a remaining term to maturity
of at least 12 months. Acquisitions of finance leases from Dealers take place in
conjunction with CFSC's acquisition of the related financed equipment. A credit
application containing basic obligor information is required for each receivable
financed by CFSC, which application may be submitted verbally to CFSC by the
Dealer or in writing completed by the Dealer, obligor or applicable CFSC
territory manager. The application is processed by one of CFSC's regional
offices in the United States, and additional information is obtained in order to
evaluate the prospective obligor's creditworthiness. The extent of the
additional information required varies based on the amount of financing
requested and the extent of information available. In most cases, CFSC obtains a
credit bureau report on the obligor from an independent credit bureau and credit
references provided by the obligor. The credit references provided by the
obligor, which are typically banks, finance companies or suppliers that have
furnished credit to such obligor, are checked. Whenever possible, audited or
certified financial statements of the obligor are obtained when the aggregate
amount of such obligor's financed contracts exceed $100,000. Individual finance
leases for lift trucks generally do not exceed $100,000 in aggregate Lease
Scheduled Payments (as defined below). CFSC also maintains payment histories on
many past and present CFSC customers which, if available, are reviewed before
any financing is approved.
Creditworthiness of an obligor is evaluated based on criteria established
by CFSC's management. The same credit criteria are applied regardless of which
of CFSC's regional offices reviews the application and regardless of whether
CFSC originates the receivable directly or acquires the receivable from a Dealer
after origination. In the event that the aggregate amount of receivables of any
obligor financed by CFSC exceeds the approval limits of the regional office
staff, a credit narrative is forwarded to CFSC headquarters for review and
concurrence. In assessing the credit quality of a potential receivable, where
the obligor's equity position in the related financed equipment is not
significant, CFSC's credit decision relies more on its evaluation of the
creditworthiness of the prospective obligor, rather than the collateral value of
the financed equipment. Finance leases generally do not require trade-ins or
down payments, and thus may not have significant equity positions in the related
financed equipment. Installment sales contracts also may be originated without
trade-ins or with low or no down payments.
Dealer Agreements. In the case of receivables not originated directly by
CFSC, at the time CFSC approves an application for credit and fully executed
copies of all required agreements and instruments are delivered by the Dealer to
CFSC, the related receivable is sold by the Dealer to CFSC pursuant to an
assignment agreement between CFSC and such Dealer (a "DEALER AGREEMENT"). With
respect to any Trust, the Seller will assign to such Trust all of its rights
under the Dealer Agreements for the related receivables (including its right to
recourse against the Dealers, if any, for losses due to defaults or prepayments
or for unearned prepaid finance charges). The level of recourse to Dealers
varies and may be subject to certain 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.
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Installment Sales Contracts -- Contract Terms. CFSC offers installment
sales contracts with a variety of repayment schedules tailored to the obligor's
anticipated cash flows, such as annual, semi-annual, quarterly and monthly
payments. However, a "skip payments" schedule, under which payments, generally
up to three predetermined consecutive months, are "skipped" to coincide with an
obligor's cash flow patterns, can be selected by a qualifying obligor at the
time the installment sales contract is originated. CFSC will take into account
the related obligor's equity position in its financed equipment at origination
before approving a "skip payments" schedule.
The maximum amount that CFSC will finance under an installment sales
contract varies based on the obligor's credit history, the type of equipment
financed, whether the equipment is new or used, the payment schedule and the
length of the contract (which generally ranges at origination from 12 to 72
months). The amount financed is calculated as a percentage of the value of the
related financed equipment, which percentage ranges generally from 75% to 90%
for new equipment and from 65% to 80% for used equipment. These percentages,
however, may vary, depending on the obligor's credit history and the type of
financed equipment. The value of new equipment is based on its original list
price, and the value of used equipment is generally based on its "as is" value
as derived from appropriate market references. At origination or acquisition
from a Dealer of a receivable, CFSC confirms the applicable loan-to-value ratio.
Obligors are required to obtain and maintain physical damage insurance
covering the financed equipment under installment sales contracts naming CFSC as
loss payee. The regional offices are responsible for verifying insurance
coverage on the equipment at the time the receivable is originated or acquired.
Subsequent follow-up on insurance coverage during the term of financing is
provided by an independent supplier of this service. Also, at the time the
receivable is originated, physical damage insurance and term life insurance that
can be financed under the contract may be made available.
The installment sales contracts provide for allocation of payments
according to the actuarial method and commence accruing interest on their
origination date. As such, an installment sales contract provides for
amortization of the amount financed over a series of fixed level payment
installments. Each installment, other than the installment representing the
final scheduled payment on such an installment sales contract, consists of an
amount of interest equal to one-twelfth of the annual percentage rate stated on
an installment sales contract (or a larger fraction based on the number of
months since the last payment if a "skip payments" schedule is in place)
multiplied by the unpaid principal balance of such an installment sales
contract, and an amount of principal equal to the remainder of the installment.
The obligor pays a fixed monthly installment until the final scheduled payment
date of such an installment sales contract, at which time the amount of the
final installment is increased or decreased as necessary to repay the then
outstanding principal balance thereof plus accrued interest thereon.
If such an installment sales contract is prepaid in part, unless CFSC and
the related obligor agree to an amendment of the payment schedule, prepayments
are held for application to the next succeeding scheduled payment or payments,
and the unpaid principal balance (and the interest accrued thereon) is not
adjusted downward until the actual date of the scheduled payment. If an
installment sales contract is prepaid in full, the obligor receives a rebate of
any unearned portion of interest thereon computed on an actuarial basis.
Leases -- Contract Terms. CFSC offers finance leases with a variety of
payment schedules designed to meet an obligor's needs. The initial term of a
finance lease generally ranges from one to six years. Generally, each finance
lease provides for the monthly payment of rent in advance. Such periodic
payments are referred to herein as "LEASE SCHEDULED PAYMENTS." Lease Scheduled
Payments represent the amortization, generally on a level basis, of the total
amount that a lessee is required to pay throughout the term of a finance lease.
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.
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Finance leases are recorded by CFSC under generally accepted accounting
principles ("GAAP") as direct financing leases. As direct financing leases, the
finance leases to be included as Receivables in the Trusts are "net leases" and
the related Obligor assumes responsibility for the financed items, including
delivery, installation, operation, maintenance and return of the related
financed equipment. Except for the accommodation billing program described
below, no finance lease imposes any affirmative obligation on CFSC, and such
finance leases are non-cancelable by the lessees. The related Obligor further
agrees to indemnify CFSC for any liabilities arising out of the finance lease.
CFSC is also authorized to perform the related Obligor's obligations under each
finance lease, at the related Obligor's expense, if it so elects in cases where
the related Obligor has failed to perform. In addition, finance leases contain
clauses unconditionally obligating the related Obligor to make periodic
payments, without any right of setoff, at the times and on the dates specified
in the finance lease. Other than a warranty of quiet enjoyment, CFSC makes no
express or implied warranties with respect to the Financed Equipment.
Obligors under any finance lease are required to obtain and maintain
physical damage insurance and comprehensive public liability insurance covering
the financed equipment in the name of CFSC for not less than $500,000 combined
coverage. All such insurance must be in a form and with companies as CFSC shall
approve and shall be primary, without right of contribution from any other
insurance carried by CFSC. The regional offices are responsible for verifying
insurance coverage on the equipment at the time the receivable is originated or
acquired. Subsequent follow-up on insurance coverage during the term of
financing is provided by an independent supplier of this service. Also, at the
time the receivable is originated, physical damage insurance and term life
insurance that can be financed under the receivable may be made available.
Under an accommodation billing system, obligors may aggregate with their
Lease Scheduled Payment the periodic payment for a maintenance contract, which
maintenance would be performed by a Dealer or other service provider and not by
CFSC. Upon receipt of funds by CFSC, CFSC would then forward the appropriate
amount to the service provider; provided, that CFSC will not forward any such
amount until it has received the Lease Scheduled Payment in full. As described
above, failure to perform by a Dealer or any such service provider is not a
defense to payment by such obligor under the related finance lease.
If CFSC receives a payment or payments in advance for a finance lease, such
advance payments are held for application to the next succeeding payment or
payments, and no adjustment in the Lease Scheduled Payments outstanding takes
place until the due date of each such payment. Although finance leases are not
prepayable by their terms, CFSC will generally agree to terminate a finance
lease upon payment by the related obligor of the aggregate Lease Scheduled
Payments outstanding thereunder.
The Leases included as Receivables of any Trust will constitute only leases
intended for security as defined in Section 1-201(37) of the UCC. As leases
intended for security, the Dealer or CFSC, as applicable, in effect finances the
"purchase" of the Financed Equipment by the related Obligor and retains a
security interest in the Financed Equipment. The related Obligor retains the
Financed Equipment for substantially all its economic life and CFSC retains no
significant residual interest. These leases are considered conditional
sales-type leases for federal tax purposes, and, accordingly, CFSC does not take
any federal tax benefits. End of lease options for such finance leases generally
provide for purchase of the Financed Equipment at a prestated price intended to
be significantly below market value.
Obligors under any finance lease may alter or modify the Financed Equipment
relating to CFSC's finance lease only if such alteration or modification does
not impair its originally intended function or use or reduce its value. In
addition, the related Obligor shall not make any "non-reversible" addition (as
defined for federal income tax purposes) to an item of Financed Equipment
without the prior written consent of CFSC. Upon the prior written consent of
CFSC, the related Obligor may sublease or relocate the Financed Equipment. The
right to receive such notice and to grant or deny such
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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 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."
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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.
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
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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 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
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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 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.
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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 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,
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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.
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
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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
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.
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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.
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,
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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
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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 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
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historical and other information concerning the Indexed Currency, the Indexed
Commodity, the Stock Index or other price or economic measures used in such
determination will be set forth in the related Prospectus Supplement, together
with information concerning tax consequences to the holders of such Indexed
Securities.
If the determination of the Indexed Principal Amount of an Indexed Security
is based on an Index calculated or announced by a third party and such third
party either suspends the calculation or announcement of such Index or changes
the basis upon which such Index is calculated (other than changes consistent
with policies in effect at the time such Indexed Security was issued and
permitted changes described in the related Prospectus Supplement), then such
Index shall be calculated for purposes of such Indexed Security by an
independent calculation agent named in the related Prospectus Supplement on the
same basis, and subject to the same conditions and controls, as applied to the
original third party. If for any reason such Index cannot be calculated on the
same basis and subject to the same conditions and controls as applied to the
original third party, then the Indexed Principal Amount of such Indexed Security
shall be calculated in the manner set forth in the related Prospectus
Supplement. Any determination of such independent calculation agent shall, in
the absence of manifest error, be binding on all parties.
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.
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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 Cedelbank ("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 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
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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.
DTC management is aware that some computer applications, systems, and the
like for processing data (the "DTC SYSTEMS") that are dependent upon calendar
dates, including dates before, on, and after January 1, 2000, may encounter
"Year 2000 problems." DTC has informed its Participants and other members of the
financial community (the "INDUSTRY") that it has developed and is implementing a
program so that the DTC Systems, as the same relate to the timely payment of
distributions (including principal and income payments) to securityholders,
book-entry deliveries, and settlement of trades within DTC ("DTC SERVICES"),
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to: (i)
impress upon them the importance of such services being Year 2000 compliant; and
(ii) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, DTC is in the process of
developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
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 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
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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.
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,
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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 Trust 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 Trust is unable to locate
a qualified successor, (ii) the Trust, 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 Trust, 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
"SCHEDULE OF RECEIVABLES").
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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
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respect to which any such representation or warranty of CFSC has been breached
is subject to CFSC's repurchase of such Receivable for the Purchase Amount. The
repurchase obligation will constitute the sole remedy available to the
Noteholders, the Indenture Trustee, the Certificateholders or the Owner Trustee
in respect of such Trust for any such uncured breach.
Pursuant to the related Sale and Servicing Agreement and Custodial
Agreement, unless the related Prospectus Supplement specifies that the interests
of the Seller, the related Trust and the related Indenture Trustee will be
perfected by filing UCC financing statements, the Seller, the related Trust and
the related Indenture Trustee will appoint the Custodian as custodian of the
related Receivables, and the ownership and security interests of the Seller,
such Trust and such Indenture Trustee, as applicable, will be perfected by the
Custodian's possession of the related physical Installment Sales Contracts and
Leases on behalf of such parties. CFSC's accounting records and computer systems
will reflect the sale and assignment of the Receivables to the Seller and the
sale and assignment by the Seller to each Trust, but the Installment Sales
Contracts and/or Leases will not be stamped to reflect the sale and assignment
of the Receivables to such Trust.
If UCC financing statements are filed to perfect the interests of the
Seller, the related Trust and the related Indenture Trustee, CFSC's accounting
records and computer systems will reflect the sales and assignments described
above, and the Servicer will maintain possession of the related Installment
Sales Contracts and/or Leases to facilitate servicing and to minimize
administrative burden and expense. The Servicer will not stamp the Installment
Sales Contracts and/or Leases to reflect the sale and assignment of the
Receivables to the related Trust or Indenture Trustee.
ACCOUNTS
With respect to each Trust, the Servicer will establish and maintain at the
office of the related Indenture Trustee one or more accounts, in the name of
such Indenture Trustee on behalf of the related Securityholders, into which all
payments made on or with respect to the related Receivables will be deposited
(collectively, the "COLLECTION ACCOUNT"). The Servicer will also establish and
maintain at the office of such Indenture Trustee one or more accounts, in the
name of such Indenture Trustee on behalf of the related Noteholders, in which
amounts released from the Collection Account and the Reserve Account, if any, or
any other credit enhancement for payment to Noteholders will be deposited and
from which all payments to Noteholders will be made (each, a "NOTE DISTRIBUTION
ACCOUNT"). The Servicer will also establish and maintain at the office of the
related Owner Trustee an account, in the name of such Owner Trustee, on behalf
of the related Certificateholders, in which amounts released from the related
Collection Account and the Reserve Account, if any, or any other credit
enhancement for distribution to Certificateholders will be deposited and from
which all distributions to Certificateholders will be made (the "CERTIFICATE
DISTRIBUTION ACCOUNT"). If so specified in the related Prospectus Supplement,
the Seller may also establish and maintain a Pre-Funding Account, in the name of
such Indenture Trustee on behalf of the related Securityholders, which 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
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preceding the day of the next distribution. However, to the extent permitted by
the Rating Agencies and provided in the related Sale and Servicing Agreement,
funds in any Reserve Account may be invested in securities that will not mature
prior to the next Distribution Date and will not be sold to meet any shortfalls.
Thus, the amount of cash in any Reserve Account at any time available for
withdrawal may be less than the balance of the Reserve Account at such time. If
the amount required to be withdrawn from any Reserve Account to cover shortfalls
in collections on the related Receivables (as provided in the related Prospectus
Supplement) exceeds the amount of cash in such Reserve Account, a temporary
shortfall in the amounts distributed to the related Noteholders or
Certificateholders, as applicable, could result, which could, in turn, increase
the average life of the related Securities. 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
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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 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 or Note Value, as specified in the related Prospectus Supplement,
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 may 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 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
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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."
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
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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 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 certain 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
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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;
(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
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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.
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
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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 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
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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, the
Transfer and Servicing Agreements provide that 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.
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
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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 generally 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
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its computer records that such Receivables have been sold, but, unless otherwise
specified in the related Prospectus Supplement, UCC financing statements will
not be filed to perfect such transfers of ownership or such grant of a security
interest in such Receivables. If UCC financing statements are filed to perfect
such transfers of ownership or grants of security interests, to facilitate
servicing and reduce administrative costs, the Receivables Files will be
retained by the Servicer and will not be physically segregated from other
similar documents that are in the Servicer's possession or otherwise stamped or
marked to reflect the transfer to the related Trust so long as CFSC is servicing
the Receivables. However, UCC financing statements will be filed reflecting the
sale and assignment of the Receivables by CFSC to the Seller, and by the Seller
to such Trust, and the Servicer's accounting records and computer files will be
marked to reflect such sales and assignments. Because the Receivables Files will
remain in the Servicer's possession and will not be stamped or otherwise marked
to reflect the assignment to the Indenture Trustee, if a subsequent purchaser
were able to take physical possession of the Receivables Files without knowledge
of such assignment, the Indenture Trustee's interest in the Receivables could be
defeated. In such event, distributions to Securityholders may be adversely
affected.
BANKRUPTCY
The Seller has taken and will take steps, in structuring the transactions
contemplated hereby, that are intended to ensure that a voluntary or involuntary
petition for relief by or against CFSC under any Insolvency Law will not result
in the substantive consolidation of the assets and liabilities of the Seller
with those of CFSC. These steps include the creation 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
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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 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
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which the original secured party, if any, failed to obtain and assign to CFSC a
perfected security interest, the security interest of CFSC would be subordinated
to, among others, subsequent purchasers of the equipment and holders of
perfected security interests. Such a failure, however, would constitute a breach
of the warranties of CFSC under each Purchase Agreement and would create an
obligation of CFSC to repurchase the related Receivables unless the breach is
cured. The Seller will assign its rights pursuant to each Purchase Agreement to
the related Trust. See "Description of the Transfer and Servicing
Agreements -- Sale and Assignment of Receivables" herein.
Under each Sale and Servicing Agreement, the Servicer will be obligated to
take appropriate steps, at its own expense, to maintain perfection of security
interests in each item of Financed Equipment and is obligated to repurchase the
related Receivable if it fails to do so.
Under the laws of most states, liens for repairs performed on the equipment
and liens for unpaid taxes may take priority over even a perfected security
interest in such goods. CFSC 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.
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Courts have applied general equitable principles to secured parties
pursuing repossession or litigation involving deficiency balances. These
equitable principles may have the effect of relieving an obligor from some or
all of the legal consequences of a default.
In several cases, consumers have asserted that the self-help remedies of
secured parties under the UCC and related laws violate the due process
protections provided under the 14th Amendment to the Constitution of the United
States. Courts have generally upheld the notice provisions of the UCC and
related laws as reasonable or have found that the repossession and resale by the
creditor do not involve sufficient state action to afford constitutional
protection to consumers.
CFSC will warrant under each Purchase Agreement that each Receivable
complies with all requirements of applicable law in all material respects.
Accordingly, if an Obligor has a claim against a Trust for violation of any law
and such claim materially and adversely affects such Trust's interest in a
Receivable, such violation would constitute a breach of the warranties of CFSC
under the related Purchase Agreement and would create an obligation of CFSC to
repurchase such Receivable unless the breach is cured. See "Description of the
Transfer and Servicing Agreements -- Sale and Assignment of Receivables" herein.
LEASES
Certain states have adopted a version of Article 2A of the UCC ("ARTICLE
2A"). Article 2A purports to codify many provisions of existing common law.
Although there is little precedent regarding how Article 2A will be interpreted,
it may, among other things, limit enforceability of any "unconscionable" lease
or "unconscionable" provision in a lease, provide a lessee with remedies,
including the right to cancel the lease, for certain lessor breaches or
defaults, and may add to or modify the terms of "consumer leases" and leases
where the lessee is a "merchant lessee." However, with respect to any Lease
conveyed to a Trust, CFSC will represent in the related Purchase Agreement that
(i) such Lease contract is not a "consumer lease" and (ii) to the best of its
knowledge, the related Obligor has accepted the related Financed Equipment
leased to it and, after reasonable opportunity to inspect and test, has not
notified CFSC of any defects therein. 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
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and in the related Prospectus Supplement, 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.
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, to the
extent specified in the related Prospectus Supplement, 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
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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.
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
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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.
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, 2000, 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
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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 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
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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 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.
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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.
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
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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 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, 2000, subject to certain
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transition rules. Prospective investors are urged to consult their own tax
advisors regarding the New Regulations.
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. There
are no rulings or reported cases involving Tennessee taxation with respect to
transactions similar to the transactions discussed in this Prospectus. The
statutes and regulations regarding Tennessee taxation are subject to change
(which change may be retroactive) and further interpretation by the Tennessee
Department of Revenue (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 Tennessee income tax (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
Franchise & Excise Tax (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. A Trust is statutorily exempt from the Hall Tax. In the opinion of
Tuke Yopp & Sweeney, PLC, if a Trust is classified as a "disregarded entity"
under the Code, it will not be subject to F&E Tax. If the Trust is classified as
a partnership and is "doing business" in Tennessee, the Trust would be subject
to the F&E Tax. In the opinion of Tuke Yopp & Sweeney, PLC, the activities of
the Servicer on behalf of the Trust in Tennessee should not cause a Trust to be
deemed to be "doing business" in 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 were subject to the F&E Tax, such tax would reduce the amounts
otherwise available for distribution to the related Certificateholders. 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.
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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.
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
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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, 53
Administration Fee.......................................... 10, 53
Administrator............................................... 10, 53
APR......................................................... 22
Article 2A.................................................. 19, 57
Base Rate................................................... 37
Book-Entry Certificates..................................... 39
Book-Entry Notes............................................ 39
Book-Entry Securities....................................... 39
Calculation Agent........................................... 37
Caterpillar................................................. 6, 29
Cede........................................................ 3
Cedel....................................................... 39
Cedel Participants.......................................... 41
Certificate Balance......................................... 5
Certificate Distribution Account............................ 44
Certificate Pool Factor..................................... 28
Certificateholder........................................... 40
Certificateholders.......................................... 5, 40
Certificates................................................ 1
CFSC........................................................ 4, 30
Class....................................................... 1
Closing Date................................................ 42
Code........................................................ 13, 58
Collection Account.......................................... 44
Commission.................................................. 3
Commodity Indexed Securities................................ 37
Contract Balance............................................ 14, 43
Currency Indexed Securities................................. 37
Custodial Agreement......................................... 9
Custodian................................................... 9
Cut-off Date................................................ 7
Cut-off Date APR............................................ 43
Dealer Agreement............................................ 23
Dealer Agreements........................................... 21
Dealers..................................................... 7
Definitive Certificates..................................... 38
Definitive Notes............................................ 38
Definitive Securities....................................... 38
Depositaries................................................ 39
Depository.................................................. 30
Distribution Date........................................... 31
DTC......................................................... 3
DTC Services................................................ 40
DTC Systems................................................. 40
Eligible Deposit Account.................................... 45
Eligible Institution........................................ 45
Eligible Investments........................................ 14
ERISA....................................................... 13, 66
</TABLE>
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<TABLE>
<S> <C>
Euroclear................................................... 41
Euroclear Operator.......................................... 41
Euroclear Participants...................................... 41
Euroclear System............................................ 41
Event of Default............................................ 32
Exchange Act................................................ 3
F&E Tax..................................................... 65
Face Amount................................................. 38
FASIT....................................................... 58
FASIT Provisions............................................ 58
Financed Equipment.......................................... 1, 6
Fixed Rate Securities....................................... 36
Floating Rate Securities.................................... 36
foreign person.............................................. 59
Funding Period.............................................. 5, 43
GAAP........................................................ 25
Hall Tax.................................................... 65
Implicit Interest Rate...................................... 24
Indenture................................................... 4
Indenture Trustee........................................... 1, 30
Index....................................................... 37
Indexed Commodity........................................... 37
Indexed Currency............................................ 37
Indexed Principal Amount.................................... 37
Indexed Securities.......................................... 37
Indirect Participants....................................... 39
Industry.................................................... 40
Initial Cut-off Date........................................ 7
Initial Pool Balance........................................ 53
Initial Receivables......................................... 7, 42
Insolvency Event............................................ 51
Insolvency Laws............................................. 17
Installment Sales Contract.................................. 6
Interest Rate............................................... 4
Interest Reset Period....................................... 37
Investment Earnings......................................... 45
IRS......................................................... 58
Issuer...................................................... 4
Lease....................................................... 6
Lease Scheduled Payments.................................... 24
Mechanics' Liens............................................ 11
New Regulations............................................. 60
Note Distribution Account................................... 44
Note Pool Factor............................................ 28
Noteholder.................................................. 40
Noteholders................................................. 4, 40
Notes....................................................... 1
Obligors.................................................... 7
OID......................................................... 59
OID Regulations............................................. 59
Original Pre-Funded Amount.................................. 43
Owner Trustee............................................... 1
Participants................................................ 39
</TABLE>
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<TABLE>
<S> <C>
Parties in Interest......................................... 66
Pass-Through Rate........................................... 5
Plan Assets................................................. 66
Plans....................................................... 66
Pool Balance................................................ 28
Pre-Funded Amount........................................... 7, 19
Pre-Funding Account......................................... 1, 8
Principal Balance........................................... 14, 43
Prospectus Supplement....................................... 1
Purchase Agreement.......................................... 7, 42
Purchase Amount............................................. 43
Rating Agency............................................... 67
Realized Losses............................................. 49
Receivables................................................. 1, 6, 22
Receivables Files........................................... 10, 16
Record Date................................................. 38
Registration Statement...................................... 3
Related Documents........................................... 34
Reserve Account............................................. 48
Rules....................................................... 40
Sale and Servicing Agreement................................ 7
Schedule of Receivables..................................... 42
Securities.................................................. 1
Securities Act.............................................. 3
Securityholders............................................. 5
Seller...................................................... 1, 4
Series...................................................... 1
Servicer.................................................... 4
Servicer Default............................................ 51
Servicer's Yield............................................ 10, 46
Servicing Fee............................................... 10, 46
Servicing Fee Rate.......................................... 10, 46
Special Tax Counsel......................................... 57
Specified Reserve Account Balance........................... 8, 48
Spread...................................................... 37
Spread Multiplier........................................... 37
Stock Index................................................. 37
Stock Indexed Securities.................................... 37
Strip Certificates.......................................... 6
Strip Notes................................................. 5
Subsequent Closing Date..................................... 43
Subsequent Cut-off Date..................................... 7
Subsequent Receivables...................................... 1, 43
TDOR........................................................ 65
Tennessee Tax Counsel....................................... 12
Terms and Conditions........................................ 41
Total Distribution Amount................................... 46
Transfer and Servicing Agreements........................... 42
Trust....................................................... 1, 4
Trust Accounts.............................................. 44
Trust Agreement............................................. 4
Trust Property.............................................. 21
Trustee..................................................... 38
</TABLE>
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<TABLE>
<S> <C>
U.S. ISC Portfolio.......................................... 27
U.S. Lease Portfolio........................................ 27
U.S. Portfolio.............................................. 27
UCC......................................................... 9, 15
Underwriters................................................ 67
United States Persons....................................... 58
</TABLE>
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You should rely only on the information contained in or incorporated by
reference into this Prospectus Supplement or the Prospectus. We have not
authorized anyone to give you different information. We do not claim the
accuracy of the information in this prospectus supplement or the prospectus as
of any date other than the date stated on the cover page. We are not offering
the notes in any states where it is not permitted.
-------------------------
CATERPILLAR FINANCIAL
FUNDING CORPORATION
SELLER
CATERPILLAR FINANCIAL
SERVICES CORPORATION
SERVICER
-------------------------
Dealer Prospectus Delivery Obligation. Until October , 1999 all dealers that
effect transactions in these notes, whether or not participating in the
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
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$573,656,000
CATERPILLAR
FINANCIAL ASSET
TRUST 1999-A
$155,000,000
CLASS A-1 %
ASSET BACKED NOTES
$125,000,000
CLASS A-2 %
ASSET BACKED NOTES
$270,000,000
CLASS A-3 %
ASSET BACKED NOTES
$23,656,000
CLASS B %
ASSET BACKED NOTES
-------------------------
PROSPECTUS SUPPLEMENT
-------------------------
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
MERRILL LYNCH & CO.
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