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As filed with the Securities and Exchange Commission on May 2, 2005
Reg. No. 333-121913
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
AMENDMENT NO. 2 TO
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CONSUMER PORTFOLIO SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 33-0459135
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
CHARLES BRADLEY, JR.
CHIEF EXECUTIVE OFFICER
16355 LAGUNA CANYON ROAD 16355 LAGUNA CANYON ROAD
IRVINE, CALIFORNIA 92618 IRVINE, CALIFORNIA 92618
(949) 450-3014 (949) 450-3014
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, and telephone number, including area
of registrant's principal executive code, of agent for service)
offices)
copies to:
PATRICK C. SARGENT MICHAEL J. KOLAR
ANDREWS KURTH LLP OPPENHEIMER WOLFF & DONNELLY LLP
1717 MAIN STREET, SUITE 3700 45 SOUTH SEVENTH STREET, SUITE 3300
DALLAS, TEXAS 75201 MINNEAPOLIS, MINNESOTA 55402
(214) 659-4400 (612) 607-7000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date. If any of the securities being registered
on this Form are to be offered on a delayed or continuous basis pursuant to Rule
415 under the Securities Act of 1933, check the following box.: [x]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to Item 11(a)(1) of
this Form, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of Each Class of
Securities to Be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered Registered Offering Price Per Unit Aggregate Offering Price Registration Fee(2)
-------------------------- ---------------------- -------------------------- ----------------------------- -------------------
Renewable Unsecured $ 100,000,000 (1) $ 100,000,000 $ 11,770.00
Subordinated Notes
(1) The Renewable Unsecured Subordinated Notes will be issued in
denominations selected by the purchasers in any amount equal to or
exceeding $1,000.
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(2) Paid to the Commission in connection with the initial filing of this
Registration Statement on January 7, 2005.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION; DATED MAY __, 2005
$100,000,000
CONSUMER PORTFOLIO SERVICES, INC.
THREE AND SIX MONTH RENEWABLE UNSECURED SUBORDINATED NOTES
ONE, TWO, THREE, FOUR, FIVE AND TEN YEAR RENEWABLE UNSECURED SUBORDINATED NOTES
___________________________
We are offering an aggregate principal amount of up to $100,000,000 of
our renewable unsecured subordinated notes. We may offer the notes from time to
time with maturities ranging from three months to ten years. However, depending
on our capital needs, notes with certain terms may not always be available. We
will establish interest rates on the securities offered in this prospectus from
time to time in interest rate supplements to this prospectus. The notes are
unsecured obligations and your right to payment is subordinated in right of
payment to substantially all of our existing and future senior, secured,
unsecured and subordinate indebtedness. Upon maturity, your notes will be
automatically renewed for the same term as your maturing notes and at an
interest rate that we are offering at that time to other investors with similar
aggregate note portfolios for notes of the same term, unless we elect not to
have your notes renewed or unless you notify us within 15 days after the
maturity date for your notes that you want your notes repaid. If notes of the
same term are not then being offered, the interest rate upon renewal will be the
rate specified by us on or before maturity or, if no such rate is specified, the
rate of the existing note. The interest rate on your renewed note may differ
from the interest rate applicable to your note during the prior term. After
giving you thirty days' advance notice, we may redeem all or a portion of your
notes for their original principal amount plus accrued and unpaid interest. You
also may request us to repurchase your notes prior to maturity; however, unless
the request is due to your death or total permanent disability, we may, in our
sole discretion, decline your request or, if we elect to repurchase your notes,
we will charge you a penalty of up to three months' interest on notes with three
month maturities and up to six months' interest on all other notes. Our
obligation to repurchase notes for any reason is limited in any single calendar
quarter to the greater of (a) $1 million or (b) 2% of the aggregate principal
amount of all notes outstanding at the end of the previous quarter.
The notes will be marketed and sold through Sumner Harrington Ltd.,
which is acting as our selling agent for the notes. The notes will not be listed
on any securities exchange or quoted on Nasdaq or any over-the-counter market.
Sumner Harrington Ltd. does not intend to make a market in the notes and we do
not anticipate that a market in the notes will develop. There will be
significant restrictions on your ability to transfer or resell the notes. Sumner
Harrington Ltd. also will act as our servicing agent in connection with our
ongoing administrative responsibilities for the notes. We have not requested a
rating for the notes; however, third parties may independently rate them.
THE NOTES ARE NOT CERTIFICATES OF DEPOSIT OR SIMILAR OBLIGATIONS OF,
AND ARE NOT GUARANTEED OR INSURED BY, ANY DEPOSITORY INSTITUTION, THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE SECURITIES INVESTOR PROTECTION CORPORATION OR
ANY OTHER GOVERNMENTAL OR PRIVATE FUND OR ENTITY. INVESTING IN THE NOTES
INVOLVES RISKS, WHICH ARE DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE 6 OF
THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
PER NOTE TOTAL
-------- -----
Public offering price 100.00% 100.00%
Selling agent commissions 3.00% 3.00%
Proceeds to CPS, before expenses 97.00% 97.00%
The selling agent will not receive the entire 3.0% gross commission on
notes with terms of less than three years unless the notes are successively
renewed for a total term of three years or more. See "Plan of Distribution" for
a description of additional compensation payable to the selling agent and its
affiliates in connection with services rendered in offering and selling the
notes, serving as the servicing agent and providing and managing the advertising
and marketing functions related to the sale of the notes. There will be no
underwriting discount.
Sumner Harrington Ltd. is not required to sell any specific number or
dollar amount of notes but will use its best efforts to sell the notes offered.
We will issue the notes in book-entry or uncertificated form. Subject
to certain limited exceptions, you will not receive a certificated security or a
negotiable instrument that evidences your notes. Sumner Harrington Ltd. will
deliver written confirmations to purchasers of the notes. Wells Fargo Bank
National Association, Minneapolis, Minnesota, will act as trustee for the notes.
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUMNER HARRINGTON LTD.
The date of this Prospectus is May [__], 2005
TABLE OF CONTENTS
PAGE
----
PROSPECTUS SUMMARY...........................................................1
CPS.......................................................................1
The Offering..............................................................2
RISK FACTORS.................................................................6
Risk Factors Relating to the Notes........................................6
Risk Factors Relating to CPS.............................................10
FORWARD-LOOKING STATEMENTS..................................................17
RATIOS OF EARNINGS TO FIXED CHARGES.........................................18
USE OF PROCEEDS.............................................................18
CAPITALIZATION..............................................................18
RECENT DEVELOPMENTS.........................................................19
DESCRIPTION OF THE NOTES....................................................20
MATERIAL FEDERAL INCOME TAX CONSEQUENCES....................................31
PLAN OF DISTRIBUTION........................................................33
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE...........................36
WHERE YOU CAN FIND MORE INFORMATION.........................................36
LEGAL MATTERS...............................................................37
EXPERTS.....................................................................37
GLOSSARY....................................................................38
i
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND
MAY NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD
READ THE ENTIRE PROSPECTUS AND THE OTHER INFORMATION THAT IS INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS BEFORE MAKING AN INVESTMENT DECISION. CERTAIN
INDUSTRY TERMS THAT WE USE ARE DEFINED IN THE GLOSSARY, WHICH BEGINS ON PAGE 38.
CPS
We are a specialized consumer finance company engaged in purchasing,
securitizing and servicing motor vehicle retail installment contracts originated
by franchised and select independent automobile dealerships in the United
States. We focus our efforts on acquiring contracts that are secured by late
model used and, to a lesser extent, new automobiles entered into with purchasers
with sub-prime credit. Such purchasers generally have limited credit history,
lower than average income or past credit problems, and generally would not be
expected to qualify for traditional financing, such as that provided by
commercial banks or automobile manufacturers' captive finance companies.
We started purchasing, originating and servicing motor vehicle
contracts in October 1991. Through December 31, 2004, we have purchased
approximately $5.4 billion of motor vehicle contracts from dealers.
In 2002 and 2003, we also obtained a total of approximately $530
million of motor vehicle contracts in our acquisition by merger of MFN Financial
Corporation and its subsidiaries in March 2002 and TFC Enterprises, Inc. and its
subsidiaries in May 2003. Both of the acquired companies were engaged in
businesses similar to ours. MFN ceased to purchase motor vehicle contracts
shortly after we acquired it; TFC continues to purchase motor vehicle contracts
as our subsidiary. Additionally, in April 2004, we purchased approximately $72.3
million of motor vehicle contracts, gross of discount, then held by SeaWest
Financial Corporation and were appointed the servicer of approximately $111.8
million of motor vehicle contracts that SeaWest had previously securitized. CPS
reported a loss in the amount of $15.9 million for the year ended December 31,
2004.
As of December 31, 2004, we had a total servicing portfolio, net of
unearned interest on pre-computed installment contracts, of approximately $906.9
million, including the remaining outstanding balance of motor vehicle contracts
acquired in the TFC and MFN acquisitions, acquired in the Seawest purchase and
serviced under the SeaWest securitizations.
We purchase motor vehicle contracts with the intention of placing them
into securitizations. Securitizations are transactions in which we sell a
specified pool of contracts to a special purpose entity of ours, which in turn
issues asset-backed securities to fund the purchase of the pool of contracts
from us. Depending on the structure of the securitization, the transaction may
be properly accounted for as a sale of the contracts or as a secured financing.
Since September 2003, we have structured our securitization transactions to be
reflected as secured financings for financial accounting purposes.
We were incorporated in California in 1991. Our principal executive
offices are located at 16355 Laguna Canyon Road, Irvine, California 92618, and
our telephone number is (949) 753-6800.
1
THE OFFERING
ISSUER Consumer Portfolio Services, Inc.
TRUSTEE Wells Fargo Bank, National Association
SELLING AND SERVICING AGENT Sumner Harrington Ltd.
PAYING AGENT Wells Fargo Bank, National Association
SECURITIES OFFERED Renewable Unsecured Subordinated Notes. The notes represent
our unsecured promise to repay principal at maturity and to
pay interest during the term or at maturity. By purchasing
a note, you are lending money to us.
METHOD OF PURCHASE Prior to your purchase of notes, you will be required to
complete a subscription agreement that will set forth the
principal amount of your purchase, the term of the notes
and certain other information regarding your ownership of
the notes. The form of subscription agreement is filed as
an exhibit to the registration statement of which this
prospectus is a part. As our servicing agent, Sumner
Harrington Ltd. will mail you written confirmation that
your subscription has been accepted.
DENOMINATION You may choose the denomination of the notes
you purchase in any principal amount of
$1,000 or more, including odd amounts.
OFFERING PRICE 100% of the principal amount per note.
RESCISSION RIGHT You may rescind your investment within five business days
of the postmark date of your purchase confirmation
without incurring an early redemption penalty. In
addition, if your subscription agreement is accepted by our
servicing agent at a time when we have determined that a
post-effective amendment to the registration statement
of which this prospectus is a part must be filed with the
Securities and Exchange Commission, but such post-effective
amendment has not yet been declared effective, you will be
able to rescind your investment subject to the conditions
set forth in this prospectus. See "Description of the Notes
-- Rescission Right" for additional information.
MATURITY You may generally choose maturities for your
notes of 3 or 6 months or 1, 2, 3, 4, 5 or
10 years; however, depending on our capital
requirements, we may not sell notes of all
maturities at all times.
INTEREST RATE The interest rate of the notes will be established at the
time you purchase them, or at the time of renewal, based
upon the rates we are offering in our latest interest rate
supplement to this prospectus, and will remain fixed
throughout each term. We may offer higher rates of interest
to investors with larger aggregate note portfolios, as set
forth in the then current interest rate supplement.
2
INTEREST PAYMENT DATES You may choose to receive interest payments monthly,
quarterly, semiannually, annually or at maturity. If you
choose to receive interest payments monthly, you may choose
the day on which you will be paid. Subject to our approval,
you may change the interest payment schedule or interest
payment date once during each term of your notes.
PRINCIPAL PAYMENT We will not pay principal over the term of the notes.
We are obligated to pay the entire principal balance of the
outstanding notes upon maturity.
PAYMENT METHOD Principal and interest payments will be made by direct
deposit to the account you designate in your subscription
documents.
RENEWAL OR REDEMPTION AT MATURITY Upon maturity, the notes will be automatically renewed for
the same term at the interest rate we are offering at that
time to other investors with similar aggregate note
portfolios for notes of the same maturity, unless we notify
you prior to the maturity date that we intend to repay the
notes. You may also notify us within 15 days after the
maturity date that you want your notes repaid. This 15 day
period will be automatically extended if you would
otherwise be required to make the repayment election at a
time when we have determined that a post-effective
amendment to the registration statement of which this
prospectus is a part must be filed with the Securities and
Exchange Commission, but such post-effective amendment has
not yet been declared effective.
If notes with similar terms are not being offered at
the time of renewal, the interest rate upon renewal
will be (a) the rate specified by us on or before the
maturity date or (b) if no such rate is specified,
the rate of your existing notes. The interest rate
being offered upon renewal may, however, differ from
the interest rate applicable to your notes during the
prior term. See "Description of the Notes -- Renewal
or Redemption on Maturity."
OPTIONAL REDEMPTION OR REPURCHASE After giving you 30 days' prior notice, we may redeem
some or all of your notes at a price equal to their
original principal amount plus accrued but unpaid interest.
You may request us to repurchase your notes prior to
maturity; however, unless the request is due to your
death or total permanent disability, we may, in our
sole discretion, decline to repurchase your notes,
and will, if we elect to repurchase your notes,
charge you a penalty of up to three months of
interest for notes with a three month maturity and up
to six months of interest for all other notes. The
total principal amount of notes that we will be
required to repurchase prior to maturity, for any
reason in any calendar quarter, will be limited to
the greater of $1 million or 2% of the total
principal amount of all notes outstanding at the end
of the previous quarter.
3
See "Description of Notes -- Redemption or Repurchase Prior
To Stated Maturity."
CONSOLIDATION, MERGER OR SALE Upon any consolidation, merger or sale of our
company, we will either redeem all of the notes or
our successor will be required to assume our
obligations to pay principal and interest on the
notes pursuant to the indenture for the notes. For a
description of these provisions see "Description of
the Notes - Consolidation, Merger or Sale."
RANKING; NO SECURITY The notes:
o are unsecured;
o rank junior to our existing and future
secured debt, including the debt of our
special purpose entities;
o rank junior to our existing and future
senior unsecured debt, including debt we may
incur under our existing and future credit
facilities; and
o rank junior to our existing and future
subordinated debt, except for $15 million of
outstanding unsecured subordinate debt and
offerings of additional renewable unsecured
subordinated notes, all of which will rank
PARI PASSU with the notes.
As of December 31, 2004, we had
approximately $660.5 million of debt
outstanding that is senior to the notes, of
which $599.3 million was issued by our
consolidated special purpose entities.
Including an additional $206.7 million of
debt that does not appear on our
consolidated financial statements (which was
issued by our off-balance sheet special
purpose entities), we had $867.2 million of
debt outstanding that is senior to the
notes. See "Capitalization."
RESTRICTIVE COVENANTS The indenture governing the notes contains limited
restrictive covenants. These covenants:
o require us to maintain a positive net
worth, which includes stockholders' equity
and any debt that is subordinated to the
notes;
o prohibit us from paying dividends on our
capital stock if there is an event of
default with respect to the notes or if
payment of the dividend would result in an
event of default; and
o restrict us from entering into certain
transactions with affiliates.
The covenants set forth in the indenture are
more fully dscribed under "Description of
Notes -- Restrictive covenants." These
covenants have significant exceptions. We do
not plan to issue any debt that is
subordinate to the notes.
4
USE OF PROCEEDS If all the notes are sold, with original or aggregate
maturities of three years or more, we would expect to
receive approximately $96.8 million of net proceeds from
this offering after deducting the selling agent's
commissions and estimated offering expenses payable by us.
The exact amount of net proceeds may vary considerably
depending on how long the notes are offered and other
factors. We intend to use the net proceeds to fund the
purchase of motor vehicle contracts and for other general
corporate purposes, which may include the payment of
general and administrative expenses. See "Use of Proceeds."
ABSENCE OF PUBLIC MARKET AND
RESTRICTIONS ON TRANSFERS There is no existing market for the notes.
Sumner Harrington Ltd. has advised us that it does not
intend to make a market in the notes after the completion
of this offering and we do not anticipate that a secondary
market for the notes will develop. We do not intend to
apply for listing of the notes on any securities exchange
or for quotation of the notes in any automated dealer
quotation system, including without limitation Nasdaq or
any over-the-counter market.
You will be able to transfer or pledge the
notes only with our prior written consent.
See "Description of the Notes - Transfers."
BOOK ENTRY The notes will be issued in book entry
or uncertificated form only. Except under
limited circumstances, the notes will not be
evidenced by certificated securities or
negotiable instruments. See "Description of
the Notes -- Book Entry Registration and
Transfers."
5
RISK FACTORS
THE RISKS DESCRIBED BELOW SET FORTH THE MATERIAL RISKS ASSOCIATED WITH
THE PURCHASE OF NOTES AND OUR COMPANY. BEFORE YOU INVEST IN THE NOTES, YOU
SHOULD CAREFULLY CONSIDER THESE RISK FACTORS, AS WELL AS THE OTHER INFORMATION
REGARDING THE NOTES AND THE COMPANY CONTAINED IN THIS PROSPECTUS AND IN THE
DOCUMENTS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
RISK FACTORS RELATING TO THE NOTES
BECAUSE OF THEIR CHARACTERISTICS, THE NOTES MAY NOT BE A SUITABLE INVESTMENT FOR
YOU.
The notes may not be a suitable investment for you, and we advise you
to consult your investment, tax and other professional financial advisors prior
to purchasing notes. The characteristics of the notes, including maturity,
interest rate and lack of liquidity, may not satisfy your investment objectives.
The notes may not be a suitable investment for you based on your ability to
withstand a loss of interest or principal or other aspects of your financial
situation, including your income, net worth, financial needs, investment risk
profile, return objectives, investment experience and other factors. Prior to
purchasing any notes, you should consider your investment allocation with
respect to the amount of your contemplated investment in the notes in relation
to your other investment holdings and the diversity of those holdings.
BECAUSE THE NOTES RANK JUNIOR TO SUBSTANTIALLY ALL OF OUR EXISTING AND FUTURE
DEBT AND OTHER FINANCIAL OBLIGATIONS, YOUR NOTES WILL LACK PRIORITY IN PAYMENT.
Your right to receive payments on the notes is junior to substantially
all of our existing indebtedness and future borrowings (including debt of our
special purpose entities). Your notes will be subordinated to the prior payment
in full of all of our other debt obligations, other than $15 million of debt
issued in 1995, as to which your notes will rank PARI PASSU. As of December 31,
2004, we had approximately $660.5 million of debt outstanding, including
indebtedness held by our special purpose entities, which will rank senior to
your notes. Including an additional $206.7 million of indebtedness issued by our
off-balance sheet special purpose entities, we had $867.2 of debt outstanding
that is senior to your notes. We may also incur substantial additional
indebtedness in the future that would also rank senior to your notes. Because of
the subordination provisions of the notes, in the event of our bankruptcy,
liquidation or dissolution, our assets would be available to make payments to
you under the notes only after all payments had been made on all of our secured
and unsecured indebtedness and other obligations that are senior to the notes.
Sufficient assets may not remain after all such senior payments have been made
to make any payments to you under the notes, including payments of interest when
due or principal upon maturity.
BECAUSE THERE WILL BE NO TRADING MARKET FOR THE NOTES AND BECAUSE TRANSFERS OF
THE NOTES REQUIRE OUR CONSENT, IT MAY BE DIFFICULT TO SELL YOUR NOTES.
Your ability to liquidate your investment is limited because of
transfer restrictions, the lack of a trading market and the limitation on
repurchase requests prior to maturity. Your notes may not be transferred without
our prior written consent. In addition, there will be no trading market for the
notes. Due to the restrictions on transfer of the notes and the lack of a market
for the sale of the notes, even if we permitted a transfer, you might be unable
to sell, pledge or otherwise liquidate your investment. Except in the case of
death or total permanent disability, repurchases of the notes prior to maturity
are subject to our approval and to repurchase penalties of up to three months
interest on notes with three month maturities and up to six months interest on
notes with maturities of six months or longer. The total principal amount of
notes that we would be required to repurchase in any calendar quarter, for any
reason, will be limited to the greater of $1 million or 2% of the aggregate
principal amount of all notes outstanding at the end of the previous quarter.
See "Description of the Notes."
BECAUSE THE NOTES WILL HAVE NO SINKING FUND, SECURITY, INSURANCE OR GUARANTEE,
YOU MAY LOSE ALL OR A PART OF YOUR INVESTMENT IN THE NOTES IF WE DO NOT HAVE
ENOUGH CASH TO PAY THE NOTES.
There is no sinking fund, security, insurance or guarantee of our
obligation to make payments on the notes. The notes are not secured by any of
our assets. We will not contribute funds to a separate account, commonly known
as a sinking fund, to make interest or principal payments on the notes. The
notes are not certificates of deposit or similar obligations of, and are not
guaranteed or insured by, any depository institution, the Federal Deposit
6
Insurance Corporation, the Securities Investor Protection Corporation, or any
other governmental or private fund or entity. Therefore, if you invest in the
notes, you will have to rely only on our cash flow from operations and other
sources of funds for repayment of principal at maturity or redemption and for
payment of interest when due. If our cash flow from operations and other sources
of funds are not sufficient to pay the notes, then you may lose all or part of
your investment.
THE NOTES WILL AUTOMATICALLY RENEW UNLESS YOU REQUEST REPAYMENT.
Upon maturity, the notes will be automatically renewed for the same
term as your maturing note and at an interest rate that we are offering at that
time to other investors with similar aggregate note portfolios for notes of the
same term, unless we notify you prior to the maturity date that we intend to
repay the notes or you notify us within 15 days after the maturity date that you
want your notes repaid. This 15 day period will be automatically extended if you
would otherwise be required to make the repayment election at a time when we
have determined that a post-effective amendment to the registration statement of
which this prospectus is a part must be filed with the Securities and Exchange
Commission, but such post-effective amendment has not yet been declared
effective. If notes with the same term are not then being offered, the interest
rate upon renewal will be the rate specified by us on or before the maturity
date, or the rate of the existing note if no such rate is specified. The
interest rate on your renewed note may be lower than the interest rate of your
original note. Any requests for repurchases after your notes are renewed will be
subject to our approval, which we may generally withhold or deny for any reason,
and to repurchase penalties and the limitations on the amount of notes we would
be willing to repurchase in any calendar quarter.
BECAUSE WE HAVE SUBSTANTIAL INDEBTEDNESS THAT IS SENIOR TO THE NOTES, OUR
ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
We have now and, after we sell these notes, will continue to have a
substantial amount of indebtedness. At December 31, 2004, we had approximately
$882.2 million of debt outstanding, comprising (in thousands):
------------------------------------- ----------- ---------- ----------
Warehouse lines of credit (1) 34,279
------------------------------------- ----------- ---------- ----------
Notes payable 1,421
------------------------------------- ----------- ---------- ----------
Residual interest financing 22,204
------------------------------------- ----------- ---------- ----------
Securitization trust debt (1) 542,815
------------------------------------- ----------- ---------- ----------
Senior secured debt 59,829
------------------------------------- ----------- ---------- ----------
Subordinated debt (2) 15,000
------------------------------------- ----------- ---------- ----------
Total on balance sheet debt 675,548
------------------------------------- ----------- ----------
Off-balance sheet securitization 206,651
trust debt (1)(3)
------------------------------------- ----------- ---------- ----------
Total on and off-balance sheet debt 882,199
------------------------------------- ----------- ---------- ==========
(1) Debt obligations of our special purpose entities
(2) Existing debt, issued in 1995, which will rank PARI PASSU with the
notes
(3) Debt obligations of our special purpose entities where the
securitization transactions were structured as sales for accounting purposes
Our debt to net worth ratio at December 31, 2004 was 9.7 (including all
debt issued by off-balance sheet special purpose entities our debt to net worth
ratio was 12.6 and excluding all securitization trust debt, our debt to net
worth ratio was 1.9), and our ratio of earnings to fixed charges, including
interest expense on the above-mentioned debt, was 0.52.
Our substantial indebtedness could adversely affect our financial
condition and prevent us from fulfilling our obligations under the notes by,
among other things:
o increasing our vulnerability to general adverse economic and
industry conditions;
7
o requiring us to dedicate a substantial portion of our cash
flow from operations to payments on our indebtedness, thereby
reducing amounts available for working capital, capital
expenditures and other general corporate purposes;
o limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
o placing us at a competitive disadvantage compared to our
competitors that have less debt; and
o limiting our ability to borrow additional funds.
Although we believe we will generate sufficient free cash flow to
service this debt and our obligations under the notes, there is no assurance
that we will be able to do so. If we do not generate sufficient operating
profits, our ability to make required payments on our senior debt, as well as on
the debt represented by the notes described in this prospectus, may be impaired.
IF WE INCUR SUBSTANTIALLY MORE INDEBTEDNESS THAT IS SENIOR TO YOUR NOTES, OUR
ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
Subject to limitations contained in our credit facility and in the
indenture, we may incur substantial additional indebtedness in the future. While
the indenture for the notes requires us to maintain a positive net worth, it
does not prohibit us from incurring additional indebtedness. Any such borrowings
would be senior to the notes. If we borrow more money, the risks to noteholders
described in this prospectus could intensify.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THE OFFERING.
We expect to use the proceeds from the offering to fund the purchase of
motor vehicle contracts and for other general corporate purposes, which may
include the payment of general and administrative expenses. Because no specific
allocation of the proceeds is required in the indenture, our management will
have broad discretion in determining how the proceeds of the offering will be
used. See "Use of Proceeds."
BECAUSE WE ARE SUBJECT TO MANY RESTRICTIONS IN OUR EXISTING CREDIT FACILITIES,
OUR ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
The terms of our existing credit facilities and our securitization
trust debt impose significant operating and financial restrictions on us and our
subsidiaries and require us to meet certain financial tests. The indenture for
the notes also imposes certain limited restrictions on our ability and that of
our subsidiaries to take certain actions. Such terms and restrictions may be
amended or supplemented from time to time without requiring any notice to or
consent of the holders of the notes or the trustee. These restrictions may have
an adverse impact on our business activities, results of operations and
financial condition. These restrictions may also significantly limit or prohibit
us from engaging in certain transactions, including the following:
o incurring or guaranteeing additional indebtedness;
o making capital expenditures in excess of agreed upon amounts;
o paying dividends or other distributions to our stockholders or
redeeming, repurchasing or retiring our capital stock or
subordinated obligations;
o making investments;
o creating or permitting liens on our assets or the assets of
our subsidiaries;
o issuing or selling capital stock of our subsidiaries;
o transferring or selling our assets;
8
o engaging in mergers or consolidations;
o permitting a change of control of our company;
o liquidating, winding up or dissolving our company;
o changing our name or the nature of our business, or the names
or nature of the business of our subsidiaries; and
o engaging in transactions with our affiliates outside the
normal course of business.
These restrictions may limit our ability to obtain additional sources
of capital, which may limit our ability to repay the notes. In addition, the
failure to comply with any of the covenants of our existing credit facilities or
the indenture or to maintain certain indebtedness ratios would cause a default
under one or more of our credit facilities and may cause a default under the
indenture or our other debt agreements that may be outstanding from time to
time. A default, if not waived, could result in acceleration of the related
indebtedness, in which case such debt would become immediately due and payable.
A continuing default or acceleration of one or more of our credit facilities,
the indenture or any other debt agreement, will likely cause a default under the
indenture and other debt agreements that otherwise would not be in default, in
which case all such related indebtedness could be accelerated. If this occurs,
we may not be able to repay our debt or borrow sufficient funds to refinance our
indebtedness. Even if any new financing is available, it may not be on terms
that are acceptable to us or it may not be sufficient to refinance all of our
indebtedness as it becomes due. Complying with these covenants may cause us to
take actions that are not favorable to holders of the notes. See "Description of
the Notes - Restrictive Covenants."
BECAUSE THERE ARE LIMITED RESTRICTIONS ON OUR ACTIVITIES UNDER THE INDENTURE,
YOU WILL HAVE ONLY LIMITED PROTECTIONS UNDER THE INDENTURE.
In comparison to the restrictive covenants that are imposed on us by
our existing credit facilities and other borrowing arrangements, the indenture
governing the notes contains relatively minimal restrictions on our activities.
In addition, the indenture contains only limited events of default other than
our failure to timely pay principal and interest on the notes. Because there are
only very limited restrictions and limited events of default under the
indenture, we will not be restricted from issuing additional debt senior to your
notes or be required to maintain any ratios of assets to debt in order to
increase the likelihood of timely payments to you under the notes. Further, if
we default in the payment of the notes or otherwise under the indenture, you
will likely have to rely on the trustee to exercise your remedies on your
behalf. You may not be able to seek remedies against us directly. See
"Description of the Notes - Events of Default."
BECAUSE WE MAY REDEEM THE NOTES AT ANY TIME PRIOR TO THEIR MATURITY, YOU MAY BE
SUBJECT TO REINVESTMENT RISK.
We have the right to redeem any note at any time prior to its stated
maturity upon 30 days written notice to you. The notes would be redeemed at 100%
of the principal amount plus accrued but unpaid interest up to but not including
the redemption date. Any such redemption may have the effect of reducing the
income or return on investment that any investor may receive on an investment in
the notes by reducing the term of the investment. If this occurs, you may not be
able to reinvest the proceeds at an interest rate comparable to the rate paid on
the notes. See "Description of the Notes - Redemption or Repurchase Prior To
Stated Maturity."
BECAUSE WE MAY TERMINATE THE DISTRIBUTION AND MANAGEMENT AGREEMENT UPON PRIOR
NOTICE TO SUMNER HARRINGTON LTD., YOU SHOULD NOT RELY ON SUMNER HARRINGTON LTD.
TO MARKET, SELL AND ADMINISTER THE NOTES.
The distribution and management agreement between us and Sumner
Harrington Ltd. may be terminated by us upon prior notice. Therefore, it is not
certain Sumner Harrington Ltd. will be responsible for the marketing, sale and
administration of the notes for the duration of this offering. Other parties,
including our company, may take over the functions currently provided by Sumner
Harrington Ltd. Therefore, you should not rely on Sumner Harrington Ltd.
continuously being responsible for the marketing, sale and administration of the
notes.
9
UNDER CERTAIN CIRCUMSTANCES, YOU MAY BE REQUIRED TO PAY TAXES ON ACCRUED
INTEREST ON THE NOTES PRIOR TO RECEIVING A SUFFICIENT AMOUNT OF CASH INTEREST
PAYMENTS.
If you choose to have interest on your note paid at maturity and the
term of your note exceeds one year, you may be required to pay taxes on the
accrued interest prior to our making any interest payments to you. You should
consult your tax advisor to determine your tax obligations.
RISK FACTORS RELATING TO CPS
BECAUSE WE REQUIRE A SUBSTANTIAL AMOUNT OF CASH TO SERVICE OUR DEBT, WE MAY NOT
BE ABLE TO PAY THE NOTES.
To service our indebtedness, we require a significant amount of cash.
Our ability to generate cash depends on many factors, including our successful
financial and operating performance. We cannot assure you that our business
strategy will succeed or that we will achieve our anticipated financial results.
Our financial and operational performance depends upon a number of factors, many
of which are beyond our control. These factors include, without limitation:
o the current economic and competitive conditions in the
asset-backed securities market;
o the current credit quality of our motor vehicle contracts;
o the performance of our residual interests;
o any operating difficulties or pricing pressures we may
experience;
o our ability to obtain credit enhancement;
o our ability to establish and maintain dealer relationships;
o the passage of laws or regulations that affect us adversely;
o any delays in implementing any strategic projects we may have;
o our ability to compete with our competitors; and
o our ability to acquire motor vehicle contracts.
Depending upon the outcome of one or more of these factors, we may not
be able to generate sufficient cash flow from operations or to obtain sufficient
funding to satisfy all of our obligations, including our obligations under the
notes. If we are unable to pay our debts, we will be required to pursue one or
more alternative strategies, such as selling assets, refinancing or
restructuring our indebtedness or selling additional equity capital. These
alternative strategies may not be feasible at the time, may prove inadequate or
could require the prior consent of our senior secured and unsecured lenders.
BECAUSE WE NEED SUBSTANTIAL LIQUIDITY TO OPERATE OUR BUSINESS, WE MAY NOT BE
ABLE TO PAY THE NOTES.
We have historically funded our operations principally through
internally generated cash flows, sales of debt and equity securities, including
through securitizations and warehouse credit facilities, borrowings from a
private equity fund and sales of subordinated notes. However, we may not be able
to obtain sufficient funding for our operations through either or a combination
of (1) future access to the capital markets for equity or debt issuances,
including securitizations or (2) future borrowings or other financings on
acceptable terms to us.
10
If we are unable to access the capital markets or obtain acceptable
financing, our results of operations, financial condition and cash flows would
be materially and adversely affected and we may be unable to make payments on
the notes. We require a substantial amount of cash liquidity to operate our
business. Among other things, we use such cash liquidity to:
o acquire motor vehicle contracts;
o fund overcollateralization in warehouse facilities and
securitizations;
o pay securitization fees and expenses;
o fund spread accounts in connection with securitizations;
o satisfy working capital requirements and pay operating
expenses; and
o pay interest expense.
Prior to the third quarter of 2003, when we securitized our motor
vehicle contracts, we reported a gain on the sale of those contracts. This gain
represented a substantial portion of our revenues prior to the third quarter of
2003. However, although we reported this gain at the time of sale, we received
the monthly cash payments on those contracts (representing revenue previously
recognized) over the life of the motor vehicle contracts, rather than at the
time of sale. As a result, a substantial portion of our reported revenues prior
to the third quarter of 2003 did not represent immediate cash liquidity. See
"Recent Developments".
OUR ABILITY TO PAY THE NOTES WILL DEPEND ON OUR ABILITY TO SECURE AND MAINTAIN
CREDIT AND WAREHOUSE FINANCING ON FAVORABLE TERMS.
We depend on credit and warehouse facilities to finance our purchases
of motor vehicle contracts. Our business strategy requires that these credit and
warehouse financing sources continue to be available to us from the time of
purchase or origination of a motor vehicle contract until its sale through a
securitization.
Our primary source of day-to-day liquidity is our warehouse lines of
credit, in which we sell or pledge motor vehicle contracts, as often as once a
week, to special-purpose affiliated entities where they are "warehoused" until
they are securitized. We depend substantially on two warehouse lines of credit;
(i) a $125 million warehouse line of credit with Paradigm Funding LLC, which was
renewed in April 2004 and, unless earlier terminated upon the occurrence of
certain events, will expire in May 2005 and (ii) a $100 million warehouse line
of credit with UBS Real Estate Securities Inc., which was executed in June 2004
and, unless earlier terminated upon the occurrence of certain events, will
expire in June 2007. These warehouse facilities will remain available to us only
if, among other things, we comply with certain financial covenants contained in
the documents governing these facilities. These warehouse facilities may not be
available to us in the future and we may not be able to obtain other credit
facilities on favorable terms to fund our operations. See "Recent Developments".
If we are unable to arrange new warehousing or credit facilities or
extend our existing warehouse or credit facilities when they come due, our
results of operations, financial condition and cash flows could be materially
and adversely affected and we may be unable to make payments on the notes.
OUR ABILITY TO PAY THE NOTES WILL DEPEND ON OUR ABILITY TO SECURITIZE OUR
PORTFOLIO OF MOTOR VEHICLE CONTRACTS.
We are dependent upon our ability to continue to finance pools of
motor vehicle contracts in term securitizations in order to generate cash
proceeds for new purchases of motor vehicle contracts. We have historically
depended on securitizations of motor vehicle contracts to provide permanent
financing of those contracts. By "permanent financing" we mean financing that
extends to cover the full term of the contracts. By contrast, our warehouse
credit facilities permit us to borrow against the value of such receivables only
for limited times. There can be no assurance that any securitization transaction
will be available on terms acceptable to us, or at all. The timing of any
securitization transaction is affected by a number of factors beyond our
control, any of which could cause substantial delays, including, without
limitation,
11
o market conditions;
o the approval by all parties of the terms of the
securitization;
o the availability of credit enhancement on acceptable terms;
and
o our ability to acquire a sufficient number of motor vehicle
contracts for securitization.
Adverse changes in the market for securitized contract pools may result
in our inability to securitize contracts and may result in a substantial
extension of the period during which our contracts are financed through our
warehouse facilities, which would burden our financing capabilities, could
require us to curtail our purchase of contracts, and could have a material
adverse effect on us and our ability to make payments on the notes.
OUR ABILITY TO PAY THE NOTES WILL DEPEND ON CASH FLOWS FROM OUR RESIDUAL
INTERESTS IN OUR SECURITIZATION PROGRAM AND OUR WAREHOUSE CREDIT FACILITIES.
When we sell or pledge our motor vehicle contracts in securitizations
and warehouse credit facilities, we receive cash and a residual interest in the
securitized assets. This residual interest represents the right to receive the
future cash flows to be generated by the motor vehicle contracts in excess of
(i) the interest and principal paid to investors on the indebtedness issued in
connection with the financing (ii) the costs of servicing the contracts and
(iii) certain other costs incurred in connection with completing and maintaining
the securitization or warehousing. We sometimes refer to these future cash flows
as "excess spread cash flows."
Under the financial structures we have used to date in our
securitizations and warehouse credit facilities, excess spread cash flows that
would otherwise be paid to the holder of the residual interest are used to
increase overcollateralization or are retained in a spread account within the
securitization trusts or the warehouse facility to provide liquidity and credit
enhancement for the related securities.
While the specific terms and mechanics of each spread account vary
among transactions, our securitization and warehousing agreements generally
provide that we will receive excess spread cash flows only if the amount of
overcollateralization and spread account balances have reached specified levels
and/or the delinquency, defaults or net losses related to the contracts in the
motor vehicle contract pools are below certain predetermined levels. In the
event delinquencies, defaults or net losses on contracts exceed these levels,
the terms of the securitization or warehouse facility:
o may require increased credit enhancement, including an
increase in the amount required to be on deposit in the
spread account, to be accumulated for the particular pool;
o may restrict the distribution to us of excess spread cash
flows associated with other securitized or warehoused pools;
and
o in certain circumstances, may permit affected parties to
require the transfer of servicing on some or all if the
securitized or warehoused contracts to another servicer.
We typically retain or sell residual interests or use them as
collateral to borrow cash. In any case, the future excess spread cash flow
received in respect of the residual interests are integral to the financing of
our operations. The amount of cash received from residual interests depends in
large part on how well our portfolio of securitized and warehoused motor vehicle
contracts performs. If our portfolio of warehoused and securitized motor vehicle
contracts has higher delinquency and loss ratios than expected, then the amount
of money realized from our retained residual interests, or the amount of money
we could obtain from the sale or other financing of our residual interests,
would be reduced, which could have an adverse effect on our operations,
financial condition and cash flows and our ability to make payments on the
notes.
IF WE ARE UNABLE TO OBTAIN CREDIT ENHANCEMENT FOR OUR SECURITIZATION PROGRAM OR
OUR WAREHOUSE CREDIT FACILITIES UPON FAVORABLE TERMS, OUR ABILITY TO PAY THE
NOTES MAY BE IMPAIRED.
In our securitizations, we typically utilize credit enhancement in the
form of one or more financial guaranty insurance policies issued by Financial
Security Assurance Inc., XL Capital Assurance Inc. or Radian Asset Assurance
Inc. Each of these policies unconditionally and irrevocably guarantees certain
interest and principal payments on the securities issued in our securitizations.
These guarantees enable these securities to achieve the highest credit rating
available. This form of credit enhancement reduces the costs of our
securitizations relative to alternative forms of credit enhancements currently
available to us. None of FSA, XL or Radian is required to insure future
securitizations. As we pursue future securitizations, we may not be able to
obtain:
12
o credit enhancement in any form from FSA, XL or Radian or any
other provider of credit enhancement on acceptable terms; or
o similar ratings for future securitizations.
We also rely on a financial guaranty insurance policy issued by XL to
reduce our borrowing cost under our warehouse facility with Paradigm. If XL's
credit rating is downgraded or if XL withdraws our credit enhancement from the
Paradigm warehouse facility, we could be subject to higher interest costs for
our future securitizations and higher financing costs during the warehousing
period. Higher interest and financing costs could have a material adverse effect
on our results of operations, financial condition and cash flows and our ability
to make interest payments on, or repay, the notes.
IF OUR PORTFOLIO OF MOTOR VEHICLE CONTRACTS EXPERIENCES HIGHER LEVELS OF
DEFAULTS, DELINQUENCIES OR LOSSES THAN WE ANTICIPATE, OUR ABILITY TO PAY THE
NOTES MAY BE IMPAIRED.
We specialize in the purchase, sale and servicing of contracts to
finance automobile purchases by customers with impaired or limited credit
histories or "sub-prime" customers, which entail a higher risk of
non-performance, higher delinquencies and higher losses than contracts with more
creditworthy customers. While we believe that the underwriting criteria and
collection methods we employ enable us to control the higher risks inherent in
contracts with sub-prime customers, no assurance can be given that such criteria
and methods will afford adequate protection against such risks. We have in the
past experienced fluctuations in the delinquency and charge-off performance of
our contracts. In the event that portfolios of contracts securitized and
serviced by us experience greater defaults, higher delinquencies or higher net
losses than anticipated, our income could be negatively affected and our ability
to make payments on the notes could be impaired. A larger number of defaults
than anticipated could also result in adverse changes in the structure of future
securitization transactions, such as a requirement of increased cash collateral
or other credit enhancement in such transactions.
IF THE ECONOMY OF ALL OR CERTAIN REGIONS OF THE UNITED STATES SLOWS OR ENTERS
INTO A RECESSION, OUR ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
Our business is directly related to sales of new and used automobiles,
which are sensitive to employment rates, prevailing interest rates and other
domestic economic conditions. Delinquencies, repossessions and losses generally
increase during economic slowdowns or recessions. Because of our focus on
"sub-prime" customers, the actual rates of delinquencies, repossessions and
losses on our motor vehicle contracts could be higher under adverse economic
conditions than those experienced in the automobile finance industry in general,
particularly in the states of Texas, California, Florida, Louisiana and
Pennsylvania, states in which our motor vehicle contracts are geographically
concentrated. Any sustained period of economic slowdown or recession could
adversely affect our ability to sell or securitize pools of contracts. The
timing of any economic changes is uncertain, and weakness in the economy could
have an adverse effect on our business and that of the dealers from which we
purchase contracts and result in reductions in our revenues or the cash flows
available to us, and, therefore, could have an adverse effect on our ability to
make payments on the notes.
IF AN INCREASE IN INTEREST RATES RESULTS IN A DECREASE IN OUR CASH FLOW FROM
EXCESS SPREAD, OUR ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
Our profitability is largely determined by the difference, or "spread,"
between the effective interest rate received by us on the motor vehicle
contracts which we acquire and the interest rates payable under our warehouse
credit facilities during the warehousing period and on the securities issued in
our securitizations.
Several factors affect our ability to manage interest rate risk.
Specifically, we are subject to interest rate risk during the period between
when motor vehicle contracts are purchased from dealers and when such contracts
are sold and financed in a securitization. Interest rates on our warehouse
credit facilities are adjustable while the interest rates on the contracts are
fixed. Therefore, if interest rates increase, the interest we must pay to the
lenders under our warehouse credit facilities is likely to increase while the
13
interest realized by us under those warehoused contracts remains the same, and
thus, during the warehousing period, the excess spread cash flow received by us
would likely decrease. Additionally, contracts warehoused and then securitized
during a rising interest rate environment may result in less excess spread cash
flow realized by us under those securitizations as, historically, our
securitization facilities pay interest to securityholders on a fixed rate basis
set at prevailing interest rates at the time of the closing of the
securitization, which may be several months after the contracts securitized were
originated and entered the warehouse, while our customers pay fixed rates of
interest on the contracts. A decrease in excess spread cash flow could adversely
affect our earnings and cash flow and our ability to make payments on the notes.
To mitigate, but not eliminate, the short-term risk relating to
interest rates payable by us under the warehouse facilities, we generally hold
motor vehicle contracts in the warehouse facilities for less than four months.
To mitigate, but not eliminate, the long-term risk relating to interest rates
payable by us in securitizations, we have in the past, and intend to continue
to, structure some of our securitization transactions to include pre-funding
structures, whereby the amount of securities issued exceeds the amount of
contracts initially sold into the securitization. In pre-funding, the proceeds
from the pre-funded portion are held in an escrow account until we sell the
additional contracts into the securitization in amounts up to the balance of the
pre-funded escrow account. In pre-funded securitizations, we effectively lock in
our borrowing costs with respect to the contracts we subsequently sell into the
securitization. However, we incur an expense in pre-funded securitizations equal
to the difference between the money market yields earned on the proceeds held in
escrow prior to subsequent delivery of contracts and the interest rate paid on
the securities outstanding, the amount as to which there can be no assurance.
Despite these mitigation strategies, an increase in prevailing interest rates
would cause us to receive less excess spread cash flows on motor vehicle
contracts, and thus could adversely affect our earnings and cash flows and our
ability to make payments on the notes.
IF WE ARE UNABLE TO SUCCESSFULLY COMPETE WITH OUR COMPETITORS, OUR ABILITY TO
PAY THE NOTES MAY BE IMPAIRED.
The automobile financing business is highly competitive. We compete
with a number of national, local and regional finance companies. In addition,
competitors or potential competitors include other types of financial services
companies, such as commercial banks, savings and loan associations, leasing
companies, credit unions providing retail loan financing and lease financing for
new and used vehicles and captive finance companies affiliated with major
automobile manufacturers such as General Motors Acceptance Corporation and Ford
Motor Credit Corporation. Many of our competitors and potential competitors
possess substantially greater financial, marketing, technical, personnel and
other resources than we do, including greater access to capital markets for
unsecured commercial paper and investment grade rated debt instruments, and to
other funding sources which may be unavailable to us. Moreover, our future
profitability will be directly related to the availability and cost of our
capital relative to that of our competitors. Many of these companies also have
long-standing relationships with automobile dealers and may provide other
financing to dealers, including floor plan financing for the dealers' purchases
of automobiles from manufacturers, which we do not offer. There can be no
assurance that we will be able to continue to compete successfully and, as a
result, we may not be able to purchase contracts from dealers at a price
acceptable to us, which could result in reductions in our revenues or the cash
flows available to us, and, therefore, could have an adverse effect on our
ability to make payments on the notes.
IF OUR DEALERS DO NOT SUBMIT A SUFFICIENT NUMBER OF SUITABLE MOTOR VEHICLE
CONTRACTS TO US FOR PURCHASE, OUR ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
We are dependent upon establishing and maintaining relationships with a
large number of unaffiliated automobile dealers to supply us with motor vehicle
contracts. During the year ended December 31, 2003, no dealer accounted for more
than 1.0% of the contracts we purchased. The agreements we have with dealers to
purchase contracts do not require dealers to submit a minimum number of
contracts for purchase. The failure of dealers to submit contracts that meet our
underwriting criteria could result in reductions in our revenues or the cash
flows available to us, and, therefore, could have an adverse effect on our
ability to make payments on the notes.
IF A SIGNIFICANT NUMBER OF OUR MOTOR VEHICLE CONTRACTS PREPAY OR EXPERIENCE
DEFAULTS, OUR ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
If motor vehicle contracts that we purchase or service are prepaid or
experience defaults, this could materially and adversely affect our results of
operations, financial condition and cash flows and our ability to make payments
on the notes. Our results of operations, financial condition, cash flows and
liquidity, and consequently our ability to make payments on the notes, depend,
14
to a material extent, on the performance of motor vehicle contracts which we
purchase, warehouse and securitize. A portion of the motor vehicle contracts
acquired by us will default or prepay. In the event of payment default, the
collateral value of the motor vehicle securing a motor vehicle contract will
most likely not cover the outstanding principal balance on that contract and the
related costs of recovery. We maintain an allowance for credit losses on motor
vehicle contracts held on our balance sheet, which reflects our estimates of
probable credit losses which can be reasonably estimated for on-balance sheet
securitizations and warehoused contracts. If the allowance is inadequate, then
we would recognize the losses in excess of the allowance as an expense and our
results of operations could be adversely affected. In addition, under the terms
of our warehouse facilities with Paradigm and UBS, we are not able to borrow
against defaulted motor vehicle contracts.
Our servicing income can also be adversely affected by prepayment of,
or defaults under, motor vehicle contracts in our servicing portfolio. Our
contractual servicing revenue is based on a percentage of the outstanding
principal balance of the motor vehicle contracts in our servicing portfolio. If
motor vehicle contracts are prepaid or charged off, then our servicing revenue
will decline while our servicing costs may not decline proportionately.
The value of our residual interest in the securitized assets in each
off-balance sheet securitization reflects our estimate of expected future credit
losses and prepayments for the motor vehicle contracts included in that
securitization. If actual rates of credit loss or prepayments, or both, on such
motor vehicle contracts exceed our estimates, the value of our residual interest
and the related cash flow would be impaired. We periodically review our credit
loss and prepayment assumptions relative to the performance of the securitized
motor vehicle contracts and to market conditions. Our results of operations and
liquidity could be adversely affected if actual credit loss or prepayment levels
on securitized motor vehicle contracts substantially exceed anticipated levels.
Under certain circumstances, we could be required to record an impairment charge
through a reduction to interest income.
THE EFFECTS OF TERRORISM AND MILITARY ACTION MAY IMPAIR OUR ABILITY TO PAY THE
NOTES.
The long-term economic impact of the events of September 11, 2001,
possible future attacks or other incidents and related military action, or
current or future military action by United States forces in Iraq and other
regions, could have a material adverse effect on general economic conditions,
consumer confidence, and market liquidity. No assurance can be given as to the
effect of these events on the performance of the motor vehicle contracts. Any
adverse impact resulting from these events could materially affect our results
of operations, financial condition and cash flows. In addition, activation of a
substantial number of U.S. military reservists or members of the National Guard
may significantly increase the proportion of contracts whose interest rates are
reduced by the application of the Servicemembers' Civil Relief Act, which
provides, generally, that an obligor who is covered by the relief act may not be
charged interest on the related contract in excess of 6% annually during the
period of the obligor's active duty.
IF WE LOSE SERVICING RIGHTS ON OUR PORTFOLIO OF MOTOR VEHICLE CONTRACTS, OUR
ABILITY TO PAY THE NOTES WILL BE IMPAIRED.
The loss of our servicing rights could materially and adversely affect
our results of operations, financial condition and cash flows and our ability to
make payments on the notes. Our results of operations, financial condition and
cash flows, and our ability to make interest payments on, or repay, the notes,
would be materially and adversely affected if any of the following were to
occur:
o the loss of our servicing rights under the sale and servicing
agreements for our warehouse facilities with Paradigm Funding
and UBS;
o the loss of our servicing rights under the applicable sale and
servicing agreement relating to motor vehicle contracts which
we have sold in our securitizations or service on behalf of
third parties, including servicing rights acquired from
Seawest; or
o the occurrence of certain trigger events under our insurance
agreements with FSA, XL or Radian or with any other credit
enhancer in each of our securitizations that would block the
release of excess spread cash flows or cash releases from the
spread accounts in those securitizations.
15
We are entitled to receive servicing fees only while we act as servicer
under the applicable sale and servicing agreement for motor vehicle contracts
entered into in connection with our warehouse facilities and securitizations and
the agreements under which we service motor vehicle contracts in connection with
the Seawest securitizations. Under our warehouse facilities and securitizations
and the Seawest securitizations, we may be terminated as servicer upon the
occurrence of certain events, including:
o our failure generally to observe and perform covenants and
agreements applicable to us;
o certain bankruptcy events involving us; or
o the occurrence of certain events of default under the
documents governing the facilities.
IF WE LOSE KEY PERSONNEL, OUR ABILITY TO PAY THE NOTES MAY BE IMPAIRED
Our future operating results depend in significant part upon the
continued service of our key senior management personnel, none of whom is bound
by an employment agreement. Our future operating results also depend in part
upon our ability to attract and retain qualified management, technical, sales
and support personnel for our operations. Competition for such personnel is
intense. We cannot assure you that we will be successful in attracting or
retaining such personnel. The loss of any key employee, the failure of any key
employee to perform in his or her current position or our inability to attract
and retain skilled employees, as needed, could materially and adversely affect
our results of operations, financial condition and cash flows.
IF WE FAIL TO COMPLY WITH REGULATIONS, OUR ABILITY TO PAY THE NOTES MAY BE
IMPAIRED.
Failure to materially comply with all laws and regulations applicable
to us could materially and adversely affect our ability to operate our business
and our ability to make payments on the notes. Our business is subject to
numerous federal and state consumer protection laws and regulations, which,
among other things:
o require us to obtain and maintain certain licenses and
qualifications;
o limit the interest rates, fees and other charges we are
allowed to charge;
o limit or prescribe certain other terms of our motor vehicle
contracts;
o require specific disclosures;
o define our rights to repossess and sell collateral; and
o maintain safeguards designed to protect the security and
confidentiality of customer information.
We believe that we are in compliance in all material respects with all
such laws and regulations, and that such laws and regulations have had no
material adverse effect on our ability to operate our business. However, we may
be materially and adversely affected if we fail to comply with:
o applicable laws and regulations;
o changes in existing laws or regulations;
o changes in the interpretation of existing laws or regulations;
or
o any additional laws or regulations that may be enacted in the
future.
IF WE EXPERIENCE UNFAVORABLE LITIGATION RESULTS, OUR ABILITY TO PAY THE NOTES
MAY BE IMPAIRED.
Unfavorable outcomes in any of our current or future litigation
proceedings could materially and adversely affect our results of operations,
financial conditions and cash flows and our ability to make payments on the
notes. As a consumer finance company, we are subject to various consumer claims
16
and litigation seeking damages and statutory penalties based upon, among other
things, disclosure inaccuracies and wrongful repossession, which could take the
form of a plaintiff's class action complaint. We, as the assignee of finance
contracts originated by dealers, may also be named as a co-defendant in lawsuits
filed by consumers principally against dealers. We are also subject to other
litigation common to the motor vehicle industry and businesses in general. The
damages and penalties claimed by consumers and others in these types of matters
can be substantial. The relief requested by the plaintiffs varies but includes
requests for compensatory, statutory and punitive damages.
While we intend to vigorously defend ourselves against such
proceedings, there is a chance that our results of operations, financial
condition and cash flows could be materially and adversely affected by
unfavorable outcomes, which, in turn, could affect our ability to make interest
payments on, or repay, the notes.
IF WE EXPERIENCE PROBLEMS WITH OUR ACCOUNTING AND COLLECTION SYSTEMS, OUR
ABILITY TO PAY THE NOTES MAY BE IMPAIRED.
Problems with our in-house loan accounting and collection systems could
materially and adversely affect our collections and cash flows and our ability
to make payments on the notes. Any significant failures or defects with our
accounting and collection systems could adversely affect our results of
operations, financial conditions and cash flows and our ability to perform our
obligations under the notes.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain statements of a forward-looking nature
relating to future events or our future performance. These forward-looking
statements are based on our current expectations, assumptions, estimates and
projections about us and our industry. When used in this prospectus, the words
"expects," "believes," "anticipates," "estimates," "intends" and similar
expressions are intended to identify forward-looking statements. These
statements include, but are not limited to, statements of our plans, strategies
and prospects under the captions "Prospectus Summary," "Risk Factors," "Use of
Proceeds," and other statements contained elsewhere in this prospectus.
These forward-looking statements are only predictions and are subject
to risks and uncertainties that could cause actual events or results to differ
materially from those projected. The cautionary statements made in this
prospectus should be read as being applicable to all related forward-looking
statements wherever they appear in this prospectus. We assume no obligation to
update these forward-looking statements publicly for any reason. Actual results
could differ materially from those anticipated in these forward-looking
statements.
The risk factors discussed above could cause our actual results to
differ materially from those expressed in any forward-looking statements.
RATIOS OF EARNINGS TO FIXED CHARGES
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Ratio of earnings to
fixed charges(1) -1.54 -0.77 1.02 1.12 1.02 0.52
Deficiency(2)($000s) 72,163 32,403 15,888
------------------
(1) For purposes of computing our ratios of earnings to fixed charges, we
calculated earnings by adding fixed charges to income before income taxes.
Fixed charges consist of gross interest expenses and one-third of our rent
expense, which is the amount we believe is representative of the interest
factor component of our rent
expense.
17
(2) The deficiency is the amount by which the sum of earnings plus fixed
charges, as calculated above, fell short of fixed charges. It is thus equal
to our pre-tax loss recorded in the years ended December 31, 1999 and
2000, and the year ended December 31, 2004.
USE OF PROCEEDS
If all of the notes are sold with maturities of three years or more, we
would expect to receive approximately $96.8 million of net proceeds from this
offering after deducting the selling agent commissions and estimated offering
expenses payable by us. Although we have no specific plan to allocate the
proceeds, the general purpose of the offering is to raise capital to purchase
motor vehicle contracts and for other general corporate purposes, which may
include payment of general and administrative expenses.
CAPITALIZATION
The following table sets forth our capitalization, as of December 31,
2004. For a description of the application of the net proceeds, assuming all of
the notes are sold with maturities of two years or more, see "Use of Proceeds"
and "Risk Factors - Risk Factors Relating to the Notes - Our Management has
Broad Discretion Over the Use of Proceeds."
As of December 31, 2004
(in 000's)
Actual As adjusted
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 18,153 $ 18,153
Warehouse lines of credit 34,279 34,279
Tax liabilities, net 2,978 2,978
Notes payable 1,421 1,421
Residual interest financing 22,204 22,204
Securitization trust debt 542,815 542,815
Senior secured debt 59,829 59,829
Subordinated debt 15,000 115,000
---------- ----------
696,679 796,679
SHAREHOLDERS' EQUITY
Preferred stock, $1 par value;
authorized 5,000,000 shares; none issued -- --
Series A preferred stock, $1 par value;
authorized 5,000,000 shares;
3,415,000 shares issued; none outstanding -- --
Common stock, no par value; authorized
30,000,000 shares; 21,403,409
shares issued and outstanding at December 31, 2004 66,283 66,283
Retained earnings 5,104 5,104
Comprehensive loss - minimum pension benefit
obligation, net (1,017) (1,017)
Deferred compensation (450) (450)
---------- ----------
Total Shareholders' Equity 69,920 69,920
---------- ----------
Total capitalization $ 766,599 $ 866,599
========== ==========
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RECENT DEVELOPMENTS
2004 FINANCIAL RESULTS.
We reported a loss in the amount of $15.9 million for the year ended
December 31, 2004, and $12.2 million for the quarter ended that date. Our
financial results for the fourth quarter of 2004 included two significant
non-cash charges: a $9.1 million impairment loss on our residual interest in our
securitizations and a $4.5 million provision for credit losses related to the
portfolio of receivables that we purchased from SeaWest Financial Corporation in
2004. Further information concerning our results of operations for 2004 is
contained in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 31, 2005.
Certain of our securitization transactions and our warehouse credit
facilities contain various financial covenants requiring certain minimum
financial ratios and results. Such covenants include maintaining minimum levels
of liquidity and net worth and not exceeding maximum leverage levels and maximum
financial losses. In addition, certain of our securitization and
non-securitization related debt contains cross-default provisions which would
allow certain of our creditors to declare a default if a default were declared
under a different facility. As a result of waivers and amendments to these
covenants and cross-default provisions throughout 2004 and during the first
quarter of 2005, we were in compliance with all such covenants and cross-default
provisions as of December 31, 2004 and as of the date of this prospectus. There
can be no assurance that we will remain in compliance with any of the covenants
and cross-default provisions in our securitization transactions or our warehouse
credit facilities (as the same have been and/or may be amended from time to
time) or that we will be able to obtain waivers or amendments to any such
covenants and cross default provisions from our senior lenders in the future.
See "Risk Factors -- Our ability to pay the notes will depend on our ability to
secure and maintain credit and warehouse financing on favorable terms."
SHARE REPURCHASE PROGRAM
We have announced that a new share repurchase program has been
authorized. The maximum dollar amount we expect to spend on purchases of our
shares is $5 million; no minimum amount is committed. Purchases under such
program have not commenced as of the date of this prospectus, and there can be
no assurance as to the amount or timing of any such purchases.
AMENDMENT OF PARADIGM FUNDING WAREHOUSE CREDIT FACILITY
In November 2004, we amended the agreements governing our warehouse
credit facility with Paradigm Funding. The principal change was to allow us to
borrow against auto receivables originated by our subsidiary, TFC.
19
DESCRIPTION OF THE NOTES
GENERAL. The renewable unsecured subordinated notes we are offering
will represent subordinated, unsecured debt obligations of CPS. We will issue
the notes under an indenture between us and Wells Fargo Bank, National
Association, as trustee. The terms and conditions of the notes include those
stated in the indenture and those made part of the indenture by reference to the
Trust Indenture Act of 1939. The following is a summary of the material
provisions of the indenture. For a complete understanding of the notes, you
should review the definitive terms and conditions contained in the indenture,
which include definitions of certain terms used below. A copy of the indenture
has been filed with the SEC as an exhibit to the registration statement of which
this prospectus is a part and is available from us at no charge upon request.
The notes will be subordinated in right of payment to the prior payment
in full of all our secured, unsecured, senior and subordinate debt, and other
financial obligations, whether outstanding on the date of the indenture or
incurred following the date of the indenture. Subject to limited restrictions
contained in the indenture discussed below, there is no limit under the
indenture on the amount of additional debt we may incur. See " - Subordination"
below.
The notes are not secured by any collateral or lien and we are not
required to establish or maintain a sinking fund to provide for payments on the
notes. See " - No Security; No Sinking Fund" below. In addition, the notes are
not bank certificates of deposit and are not insured by the Federal Deposit
Insurance Corporation, the Securities Investor Protection Corporation or any
other agency or company.
You may select the amount (subject to a minimum principal amount of
$1,000) and term (ranging from 3 months to 10 years) of the notes you would like
to purchase when you subscribe; however, depending upon our capital
requirements, we may not always offer notes with the requested terms. See " -
Denomination" and " - Term" below.
We will determine the rate at which we will pay you interest on the
notes at the time of subscription and the rate will be fixed for the term of
your note. Currently available rates will be set forth in interest rate
supplements to this prospectus. The interest rate will vary based on the term to
maturity of the note you purchase and the total principal amount of all notes
owned by you and your immediate family. We may change the interest rates at
which we are offering new or renewed notes based on market conditions, the
demand for notes and other factors. See " - Interest Rate" below.
Upon acceptance of your subscription to purchase notes, our servicing
agent will create an account in a book-entry registration and transfer system
for you, and credit the principal amount of your subscription to your account.
Our servicing agent will send you a purchase confirmation that will indicate our
acceptance of your subscription. You will have five business days from the
postmark date of your purchase confirmation to rescind your subscription. If
your subscription is rejected by us or our servicing agent, or if you rescind
your subscription during the rescission period, all funds deposited will be
promptly returned to you without any interest. See " - Book-Entry Registration
and Transfer" and " - Rescission Right" below. Investors whose subscriptions for
notes have been accepted and anyone who subsequently acquires notes in a
qualified transfer are referred to as "holders" or "registered holders" in this
prospectus and in the indenture.
We may modify or supplement the terms of the notes described in this
prospectus from time to time in a supplement to the indenture and a supplement
to this prospectus. Except as set forth under " - Amendment, Supplement And
Waiver" below, any modification or amendment will not affect notes outstanding
at the time of such modification or amendment.
DENOMINATION. You may purchase notes in the minimum principal amount of
$1,000 or any amount in excess of $1,000. You will determine the original
principal amount of each note you purchase when you subscribe. You may not
cumulate purchases of multiple notes with principal amounts less than $1,000 to
satisfy the minimum denomination requirement.
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TERM. We may offer notes with the following terms to maturity:
o three months o three years
o six months o four years
o one year o five years
o two years o ten years
You will select the term of each note you purchase when you subscribe.
You may purchase multiple notes with different terms by filling in investment
amounts for more than one term on your subscription agreement. However, we may
not always sell notes with all of the above terms.
INTEREST RATE. The rate of interest we will offer to pay you on notes
at any particular time will vary based upon market conditions, and will be
determined by the length of the term of the notes, the total principal amount of
all notes owned by you and your immediate family, our capital requirements and
other factors described below. The interest rate on a particular note will be
determined at the time of subscription or renewal, and then remain fixed for the
original or renewal term of the note. We will establish and may change the
interest rates payable for notes of various terms and at various investment
levels in an interest rate supplement to this prospectus.
The notes will earn incrementally higher interest rates when, at the
time they are purchased or renewed, the aggregate principal amount of the note
portfolios of the holder and the holder's immediate family is at least $25,000,
$50,000, $75,000 or $100,000. The interest rates payable at each level of
investment will be set forth in an interest rate supplement to this prospectus.
Immediate family members include parents, children, siblings, grandparents, and
grandchildren. Members of sibling families are also considered immediate family
members if the holder's sibling is also a note holder. An investor must identify
his or her immediate family members in the subscription agreement in order to
use their notes to determine the interest rate for such investor's notes.
Interest rates we offer on the notes may vary based on numerous factors
in addition to length of the term and aggregate principal amount. These factors
may include, but are not limited to:
o the desire to attract new investors;
o whether the notes exceed certain principal amounts;
o whether the notes are being renewed by existing holders; and
o whether the notes are beneficially owned by persons residing
in particular geographic localities.
COMPUTATION OF INTEREST. We will compute interest on notes on the basis
of a calendar year consisting of 365 days. Interest will compound daily and
accrue from the date of purchase. The date of purchase will be the date we
receive and accept funds if the funds are received prior to 12:01 p.m. central
time on a business day, or the next business day if the funds are received on a
non-business day or at or after 12:01 p.m. central time on a business day. Our
business days are Monday through Friday, except for legal holidays in the State
of Minnesota.
INTEREST PAYMENT DATES. Holders of notes may elect at the time a
subscription agreement is completed to have interest paid either monthly,
quarterly, semiannually, annually or at maturity. If you choose to have interest
paid monthly, you may elect the day of the month on which interest will be paid,
subject to our approval. For all other payment periods, interest will be paid on
the same day of the month as the purchase date of your note. You will not earn
interest on any rescinded note. See "--Rescission Right" below for additional
information on your right to rescind your investment.
21
The period or day of interest payment for each note may be changed one
time only by the holder during the term of the note, subject to our approval.
Requests to change the election must be made in writing to our servicing agent
and will be effective no later than the first business day following the 45th
day after the election change request is received. No specific change in
election form is required and there is no charge to change the election once
during the term of a note. Any interest not paid on an interest payment date
will be paid at maturity.
PLACE AND METHOD OF PAYMENT. We will pay principal and interest on the
notes by direct deposit to the account you specify in your subscription
documents. We will not accept subscription agreements from investors who are
unwilling to receive their interest payments via direct deposit. If the
foregoing payment method is not available, principal and interest on the notes
will be payable at our principal executive office or at such other place as we
may designate for payment purposes.
SERVICING AGENT. We have engaged Sumner Harrington Ltd., the investment
banking firm that is helping us sell the notes, to act as our servicing agent
for the notes. Sumner Harrington Ltd.'s responsibilities as servicing agent will
involve the performance of certain administrative and customer service functions
for the notes that we are responsible for performing as the issuer of the notes.
For example, as our servicing agent, Sumner Harrington Ltd. will serve as our
registrar and transfer agent and will manage all aspects of the customer service
function for the notes, including handling all phone inquiries, mailing
investment kits, meeting with investors, processing subscription agreements,
issuing quarterly investor statements and redeeming and repurchasing notes. In
addition, as servicing agent, Sumner Harrington Ltd. will provide us with
monthly reports and analysis regarding the status of the notes, the marketing
efforts and the amount of notes that remain available for purchase and also will
have the ability to exercise certain limited discretion with respect to waiving
early repurchase penalties, changing interest payment dates and rejecting
subscription agreements. Other duties of Sumner Harrington Ltd. as our servicing
agent under the distribution and management agreement are described throughout
this section and under "Plan of Distribution."
As compensation for its services as servicing agent, we will pay Sumner
Harrington Ltd. an annual portfolio management fee equal to 0.25% of the
weighted average daily principal balance of the notes so long as Sumner
Harrington Ltd. is engaged as our servicing agent, subject to certain maximum
payment provisions set forth below in "Plan of Distribution." The ongoing fee
will be paid monthly. The distribution and management agreement may be
terminated by either party by prior notice. Sumner Harrington Ltd.'s duties and
compensation as selling agent under the same agreement are described under "Plan
of Distribution."
You may contact our servicing agent with any questions about the notes
at the following address and telephone number:
Sumner Harrington Ltd.
11100 Wayzata Boulevard, Suite 170
Minneapolis, MN 55305
Telephone: (800) 234-5777
Fax: (952) 546-5585
BOOK-ENTRY REGISTRATION AND TRANSFER. The notes are issued in book
entry form, which means that no physical note is created. Evidence of your
ownership is provided by written confirmation. Except under limited
circumstances described below, holders will not receive or be entitled to
receive any physical delivery of a certificated security or negotiable
instrument that evidences their notes. The issuance and transfer of notes will
be accomplished exclusively through the crediting and debiting of the
appropriate accounts in our book-entry registration and transfer system. Our
servicing agent will maintain the book-entry system.
The holders of the accounts established upon the purchase or transfer
of notes will be deemed to be the owners of the notes under the indenture. The
holder of the notes must rely upon the procedures established by the trustee to
exercise any rights of a holder of notes under the indenture. Our servicing
agent will regularly provide the trustee with information regarding the
establishment of new accounts and the transfer of existing accounts.
Our servicing agent will also regularly provide the trustee with
information regarding the total amount of any principal and/or interest due to
holders with regard to the notes on any interest payment date or upon
redemption.
22
On each interest payment date, the servicing agent will credit interest
due on each account and direct payments to the holders. The servicing agent will
determine the interest payments to be made to the book-entry accounts and
maintain, supervise and review any records relating to book-entry beneficial
interests in the notes.
Book-entry notations in the accounts evidencing ownership of the notes
are exchangeable for actual notes in principal denominations of $1,000 and any
amount in excess of $1,000 and fully registered in those names as we direct only
if:
o we, at our option, advise the trustee in writing of our
election to terminate the book-entry system, or
o after the occurrence of an event of default under the
indenture, holders of more than 50% of the aggregate
outstanding principal amount of the notes advise the trustee
in writing that the continuation of a book-entry system is no
longer in the best interests of the holders of notes and the
trustee notifies all registered holders of the occurrence of
any such event and the availability of certificated securities
that evidence the notes.
Subject to the exceptions described above, the book-entry interests in
these securities will not be exchangeable for fully registered certificated
notes.
RESCISSION RIGHT. A purchaser of notes has the right to rescind his or
her investment, without penalty, upon written request to our servicing agent
within five business days from the postmark date of the purchase confirmation
(but not upon transfer or automatic renewal of a note). You will not earn
interest on any rescinded note. We will promptly return any funds sent with a
subscription agreement that is properly rescinded. A written request for
rescission, if personally delivered or delivered via electronic transmission,
must be received by our servicing agent on or prior to the fifth business day
following the mailing of written confirmation by us of the acceptance of your
subscription. If mailed, the written request for rescission must be postmarked
on or before the fifth business day following the mailing of such written
confirmation by us.
In addition, if your subscription agreement is accepted by our
servicing agent at a time when we have determined that a post-effective
amendment to the registration statement of which this prospectus is a part must
be filed with the Securities and Exchange Commission, but such post-effective
amendment has not yet been declared effective, our servicing agent will send to
you at your registered address a notice and a copy of the post-effective
amendment once it has been declared effective. You will have the right to
rescind your investment upon written request to our servicing agent within five
business days from the postmark date of the notice that the post-effective
amendment has been declared effective. We will promptly return any funds sent
with a subscription agreement that is properly rescinded without penalty,
although any interest previously paid on the notes being rescinded will be
deducted from the funds returned to you upon rescission. A written request for
rescission, if personally delivered or delivered via electronic transmission,
must be received by our servicing agent on or prior to the fifth business day
following the mailing of the notice that the post-effective amendment has been
declared effective. If mailed, the written request for rescission must be
postmarked on or before the fifth business day following the mailing of such
notice.
The limitations on the amount of notes that can be redeemed early in a
single calendar quarter described under "- Redemption or Repurchase Prior to
Stated Maturity" below do not affect your rescission rights.
RIGHT TO REJECT SUBSCRIPTIONS. Our servicing agent may reject any
subscription for notes in its sole discretion. If a subscription for notes is
rejected, we will promptly return any funds sent with that subscription, without
interest.
RENEWAL OR REDEMPTION ON MATURITY. Approximately 15, but not less than
10 days prior to maturity of your note, our servicing agent will send you a
notice at your registered address indicating that your note is about to mature
and whether we will allow automatic renewal of your note. If we allow you to
renew your note, our servicing agent will also send to you a current interest
23
rate supplement and, if the prospectus has changed since the delivery of this
prospectus in connection with your original subscription or any prior renewal, a
current prospectus or prospectus supplement. The interest rate supplement will
set forth the interest rates then in effect. The notice will recommend that you
review the prospectus and any prospectus supplement, along with the interest
rate supplement, prior to exercising one of the below options. If we do not send
you a new prospectus because the prospectus has not changed since the delivery
of this prospectus in connection with your original subscription or any prior
renewal, we will send you a new prospectus upon your request. Unless the
election period is extended as described below, you will have until 15 days
after the maturity date to exercise one of the following options:
o You can do nothing, in which case your note will automatically
renew for a new term equal to the original term at the
interest rate in effect at the time of renewal. If your note
pays interest only at maturity, all accrued interest will be
added to the principal amount of your note upon renewal. For
notes with other payment options, interest will be paid on the
renewed note on the same schedule as the original note.
o You can elect repayment of your note, in which case the
principal amount will be repaid in full along with any accrued
but unpaid interest. If you choose this option, your note will
not earn interest on or after the maturity date.
o You can elect repayment of your note and use all or part of
the proceeds to purchase a new note with a different term or
principal amount. To exercise this option, you will need to
complete a subscription agreement for the new note and mail it
along with your request to our servicing agent. The issue date
of the new note will be the maturity date of the old note. Any
proceeds from the old note that are not applied to the new
note will be sent to you.
o If your note pays interest only at maturity, you can receive
the accrued interest that you have earned during the note term
just ended while allowing the principal amount of your note to
roll over and renew for the same term at the interest rate
then in effect. To exercise this option, you will need to
call, fax or send a written request to our servicing agent.
The foregoing options will be available to holders until termination or
redemption under the indenture and the notes by either the holder or us.
Interest will accrue from the first day of each renewed term. Each renewed note
will retain all its original provisions, including provisions relating to
payment, except that the interest rate payable during any renewal term will be
the interest rate that is being offered at that time to other holders with
similar aggregate note portfolios for notes of the same term as set forth in the
interest rate supplement delivered with the maturity notice. If similar notes
are not then being offered, the interest rate upon renewal will be the rate
specified by us on or before the maturity date, or the rate of the existing note
if no such rate is specified.
If we notify the holder of our intention to repay a note at maturity,
we will pay the holder the principal amount and any accrued but unpaid interest
on the stated maturity date. Similarly, if, within 15 days after a note's stated
maturity date (or during any applicable extension of the 15 day period, as
described below), the holder requests repayment with respect to a note, we will
pay the holder the principal amount of the note plus accrued but unpaid interest
up to, but not including, the note's stated maturity date. In the event that a
holder's regularly scheduled interest payment date falls after the maturity date
of the note but before the date on which the holder requests repayment, the
holder may receive interest payments that include interest for periods after the
maturity date of the note. If this occurs, the excess interest will be deducted
from our final payment of the principal amount of the note to the holder. We
will initiate payment to any holder timely requesting repayment by the later of
the maturity date or five business days after the date on which we receive such
notice from the holder. Because payment is made by ACH transfer, funds may not
be received in the holder's account for 2 to 3 business days. Requests for
repayment should be made to our servicing agent in writing.
We will be required from time to time to file post-effective amendments
to the registration statement of which this prospectus is a part to update the
information it contains. If you would otherwise be required to elect to have
your notes renewed or repaid following their stated maturity at a time when we
have determined that a post-effective amendment must be filed with the
Securities and Exchange Commission, but such post-effective amendment has not
yet been declared effective, the period during which you can elect renewal or
24
repayment will be automatically extended until ten days following the postmark
date of a notice that will be sent to you at your registered address by the
servicing agent that the post-effective amendment has been declared effective.
In the event that a holder's regularly scheduled interest payment date falls
after the maturity date of the note but before the date on which the holder
requests repayment, the holder may receive an interest payment that includes
interest for periods after the maturity date of the note. If this occurs, the
excess interest will be deducted from our final payment of the principal amount
of the note to the holder. All other provisions relating to the renewal or
redemption of notes upon their stated maturity described above shall remain
unchanged.
REDEMPTION OR REPURCHASE PRIOR TO STATED MATURITY. The notes may be
redeemed prior to stated maturity only as set forth in the indenture and
described below. The holder has no right to require us to prepay or repurchase
any note prior to its maturity date as originally stated or as it may be
extended, except as indicated in the indenture and described below.
REDEMPTION BY US. We have the right to redeem any note at any
time prior to its stated maturity upon 30 days written notice to the
holder of the note. The holder of the note being redeemed will be paid
a redemption price equal to the outstanding principal amount thereof
plus but accrued and unpaid interest up to but not including the date
of redemption without any penalty or premium. We may use any criteria
we choose to determine which notes we will redeem if we choose to do
so. We are not required to redeem notes on a pro rata basis.
REPURCHASE ELECTION UPON DEATH OR TOTAL PERMANENT DISABILITY.
Notes may be repurchased prior to maturity, in whole and not in part,
at the election of a holder who is a natural person (including notes
held in an individual retirement account), by giving us written notice
within 45 days following the holder's total permanent disability, as
established to our satisfaction, or at the election of the holder's
estate, by giving written notice within 45 days following his or her
death. Subject to the limitations described below, we will repurchase
the notes within 10 days after the later to occur of the request for
repurchase or the establishment to our satisfaction of the holder's
death or total permanent disability. The repurchase price, in the event
of such a death or total permanent disability, will be the principal
amount of the notes, plus interest accrued and not previously paid up
to but not including the date of repurchase. If spouses are joint
registered holders of a note, the right to elect to have us repurchase
will apply when either registered holder dies or suffers a total
permanent disability. If the note is held jointly by two or more
persons who are not legally married, none of these persons will have
the right to request that we repurchase the notes unless all joint
holders have either died or suffered a total permanent disability. If
the note is held by a person who is not a natural person such as a
trust, partnership, corporation or other similar entity, the right to
request repurchase upon death or total permanent disability does not
apply.
REPURCHASE AT REQUEST OF HOLDER. In addition to the right to
elect repurchase upon death or total permanent disability, a holder may
request that we repurchase one or more of the holders' notes prior to
maturity, in whole and not in part, at any time by giving us written
notice. Subject to approval, at our sole discretion, and the
limitations described below, we will repurchase the holder's note(s)
specified in the notice within 10 days of receipt of the notice. The
repurchase price, in the event we elect to repurchase the notes, will
be the principal amount of the note, plus interest accrued and not
previously paid (up to but not including the date of repurchase), minus
a repurchase penalty. The early repurchase penalty for a note with a
three month maturity is the interest accrued on such note up to the
date of repurchase, not to exceed three months of simple interest at
the existing rate. The early repurchase penalty for a note with a
maturity of six months or longer is the interest accrued on such note
up to the date of repurchase, not to exceed six months of simple
interest at the existing rate. The penalty for early repurchase may be
waived or reduced at the limited discretion of our servicing agent.
LIMITATIONS ON REQUIREMENTS TO REPURCHASE. Our obligation to
repurchase notes prior to maturity for any reason will be subject to a
calendar quarter limit equal to the greater of $1 million of aggregate
principal amount for all holders or 2% of the total principal amount of
all notes outstanding at the end of the previous calendar quarter. This
limit includes any notes we repurchase upon death or total permanent
disability of the holder and any notes that we repurchase pursuant to
the holders' right to elect repurchase. Repurchase requests will be
honored in the order in which they are received, to the extent
25
possible, and any repurchase request not honored in a calendar quarter
will be honored in the next calendar quarter, to the extent possible,
since repurchases in the next calendar quarter are also subject to the
same calendar quarter limitation. For purposes of determining the order
in which repurchase requests are received, a repurchase request will be
deemed made on the later of the date on which it is received by us or,
if applicable, the date on which the death or total permanent
disability is established to our reasonable satisfaction.
MODIFICATIONS TO REPURCHASE POLICY. We may modify the policies
on repurchase in the future. No modification will affect the right of
repurchase applicable to any note outstanding at the time of any such
modification.
TRANSFERS. The notes are not negotiable debt instruments and, subject
to certain exceptions, will be issued only in book-entry form. The purchase
confirmation issued upon our acceptance of a subscription is not a certificated
security or negotiable instrument, and no rights of record ownership can be
transferred without our prior written consent. Ownership of notes may be
transferred on the servicing agent's register only as follows:
o The holder must deliver written notice requesting a transfer
to our servicing agent signed by the holder(s) or such
holder's duly authorized representative on a form to be
supplied by our servicing agent.
o We must provide our written consent to the proposed transfer.
o We or our servicing agent may require a legal opinion from
counsel satisfactory to the servicing agent that the proposed
transfer will not violate any applicable securities laws.
o We or our servicing agent may require a signature guarantee in
connection with such transfer.
Upon transfer of a note, our servicing agent will provide the new
holder of the note with a purchase confirmation that will evidence the transfer
of the account on our servicing agent's records. We or our servicing agent may
charge a reasonable service charge in connection with the transfer of any note.
QUARTERLY STATEMENTS. Our servicing agent will provide holders of the
notes with quarterly statements, which will indicate, among other things, the
account balance at the end of the quarter, interest credited, redemptions or
repurchases made, if any, and the interest rate paid during the quarter. These
statements will be mailed not later than the 10th business day following the end
of each calendar quarter. Our servicing agent may charge such holders a
reasonable fee to cover the charges incurred in providing such information.
SUBORDINATION. The indebtedness evidenced by the notes, and any
interest thereon, is subordinated in right of payment to all of our senior debt,
including indebtedness held by our subsidiaries that are special purpose
entities. "Senior debt" means all of our secured, unsecured, senior or
subordinate indebtedness, as well as other financial obligations of the company,
whether outstanding on the date of this prospectus or incurred after the date of
this prospectus, whether such indebtedness is or is not specifically designated
as being senior debt in its defining instruments, other than (i) existing
outstanding unsecured subordinated indebtedness in the amount of $15 million,
and (ii) any future offerings of additional renewable unsecured subordinated
notes, both of which will rank equally with the notes. Any documents, agreements
or instruments evidencing or relating to any senior debt may be amended,
restated, supplemented and/or renewed from time to time without requiring any
notice to or consent of any holder of notes or any person or entity acting on
behalf of any such holder or the trustee.
The indenture does not prevent holders of senior debt from disposing
of, or exercising any other rights with respect to, any or all of the collateral
securing the senior debt. As of December 31, 2004, we had approximately $660.5
million of debt outstanding that is senior to the notes, of which $599.3 million
was issued by our consolidated special purpose entities. Including an additional
$206.7 million of debt that does not appear on our consolidated financial
statements (which was issued by our off-balance sheet special purpose entities),
we had $867.2 million of debt outstanding that is senior to the notes.
26
Except for certain limited restrictions, the terms of the notes or the
indenture do not impose any limitation on the amount of senior debt or other
indebtedness we may incur, although our existing senior debt agreements may
restrict us from incurring new senior debt. See "Risk Factors - Risk Factors
Relating to the Notes - You Lack Priority in Payment on the Notes."
The notes are not guaranteed by any of our subsidiaries, affiliates or
control persons. Accordingly, in the event of a liquidation or dissolution of
one of our subsidiaries, creditors of that subsidiary will be paid in full, or
provision for such payment will be made, from the assets of that subsidiary
prior to distributing any remaining assets to us as a shareholder of that
subsidiary. Therefore, in the event of liquidation or dissolution of a
subsidiary, no assets of that subsidiary may be used to make payment to the
holders of the notes until the creditors of that subsidiary are paid in full
from the assets of that subsidiary.
In the event of any liquidation, dissolution or any other winding up of
us, or of any receivership, insolvency, bankruptcy, readjustment, reorganization
or similar proceeding under the U.S. Bankruptcy Code or any other applicable
federal or state law relating to bankruptcy or insolvency, or during the
continuation of any event of default on the senior debt, no payment may be made
on the notes until all senior debt has been paid in full or provision for such
payment has been made to the satisfaction of the senior debt holders. If any of
the above events occurs, holders of senior debt may also submit claims on behalf
of holders of the notes and retain the proceeds for their own benefit until they
have been fully paid, and any excess will be turned over to the holders of the
notes. If any distribution is nonetheless made to holders of the notes, the
money or property distributed to them must be paid over to the holders of the
senior debt to the extent necessary to pay senior debt in full.
We will not make any payment, direct or indirect (whether for interest,
principal, as a result of any redemption or repurchase at maturity, on default,
or otherwise), on the notes and any other indebtedness being subordinated to the
payment of the notes, and neither the holders of the notes nor the trustee will
have the right, directly or indirectly, to sue to enforce the indenture or the
notes, if a default or event of default under any senior debt has occurred and
is continuing, or if any default or event of default under any senior debt would
result from such payment, in each case unless and until:
o the default and event of default has been cured or waived or
has ceased to exist; or
o the end of the period commencing on the date the trustee
receives written notice of default from a holder of the senior
debt and ending on the earlier of
-- the trustee's receipt of a valid waiver of default
from the holder of senior debt; or
-- the trustee's receipt of a written notice from the
holder of senior debt terminating the payment
blockage period.
Provided, however, that if any of the blockage events described above
has occurred and 179 days have passed since the trustee's receipt of the notice
of default without the occurrence of the cure, waiver or termination of all
blockage periods described above, the trustee may thereafter sue on and enforce
the indenture and the notes as long as any funds paid as a result of any such
suit or enforcement action shall be paid toward the senior debt until it is
indefeasibly paid in full before being applied to the notes.
NO SECURITY; NO SINKING FUND. The notes are unsecured, which means that
none of our tangible or intangible assets or property, nor any of the assets or
property of any of our subsidiaries, has been set aside or reserved to make
payment to the holders of the notes in the event that we default on our
obligations to the holders. In addition, we will not contribute funds to any
separate account, commonly known as a sinking fund, to repay principal or
interest due on the notes upon maturity or default. See "Risk Factors - Risk
Factors Relating to the Notes - The Notes will have No Sinking Fund, Security,
Insurance or Guarantee."
RESTRICTIVE COVENANTS. The indenture contains certain limited
restricted covenants that require us to maintain certain financial standards and
restrict us from certain actions as set forth below.
The indenture provides that, so long as the notes are outstanding:
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o we will maintain a positive net worth, which includes
stockholder's equity and any of our debt that is subordinate
to the notes;
o we will not declare or pay any dividends or other payments of
cash or other property to our stockholders (other than a
dividend paid in shares of our capital stock on a pro rata
basis to all our stockholders) unless no default and no event
of default with respect to the notes exists or would exist
immediately following the declaration or payment of the
dividend or other payment; and
o we will not guarantee, endorse or otherwise become liable for
any obligations of any of our control persons, or other
parties controlled by or under common control with any of our
control persons, provided however, that we and our
subsidiaries may make investments in and guarantee the
obligations of our special purpose entities.
See "Risk Factors - Risk Factors Relating to the Notes - You Will Have
Only Limited Protection Under the Indenture."
CONSOLIDATION, MERGER OR SALE. The indenture generally permits a
consolidation or merger between us and another entity. It also permits the sale
or transfer by us of all or substantially all of our property and assets. These
transactions are permitted if:
o the resulting or acquiring entity, if other than us, is a
United States corporation, limited liability company or
limited partnership and assumes all of our responsibilities
and liabilities under the indenture, including the payment of
all amounts due on the notes and performance of the covenants
in the indenture; and
o immediately after the transaction, and giving effect to the
transaction, no event of default under the indenture exists.
If we consolidate or merge with or into any other entity or sell or
lease all or substantially all of our assets, according to the terms and
conditions of the indenture, the resulting or acquiring entity will be
substituted for us in the indenture with the same effect as if it had been an
original party to the indenture. As a result, the successor entity may exercise
our rights and powers under the indenture, in our name and we will be released
from all our liabilities and obligations under the indenture and under the
notes.
EVENTS OF DEFAULT. The indenture provides that each of the following
constitutes an event of default:
o failure to pay interest on a note within 15 days after the due
date for such payment (whether or not prohibited by the
subordination provisions of the indenture);
o failure to pay principal on a note within 10 days after the
due date for such payment (whether or not prohibited by the
subordination provisions of the indenture);
o our failure to observe or perform any material covenant,
condition or agreement or our breach of any material
representation or warranty, but only after we have been given
notice of such failure or breach and such failure or breach is
not cured within 30 days after our receipt of notice;
o defaults in certain of our other financial obligations that
are not cured within 30 days; and
o certain events of bankruptcy or insolvency with respect to us.
If any event of default occurs and is continuing (other than an event
of default involving certain events of bankruptcy or insolvency with respect to
us), the trustee or the holders of at least a majority in principal amount of
the then outstanding notes may by notice to us declare the unpaid principal of
and any accrued interest on the notes to be due and payable immediately. So long
as any senior debt is outstanding, however, and a payment blockage on the notes
28
is in effect, a declaration of this kind will not be effective, and neither the
trustee nor the holders of notes may enforce the indenture or the notes, except
as otherwise set forth above in "- Subordination". In the event senior debt is
outstanding and no payment blockage on the notes is in effect, a declaration of
this kind will not become effective until the earlier of:
o the day which is five business days after the receipt by us
and the holders of senior debt of such written notice of
acceleration; or
o the date of acceleration of any senior debt.
In the case of an event of default arising from certain events of
bankruptcy or insolvency, with respect to us, all outstanding notes will become
due and payable without further action or notice.
Holders of the notes may not enforce the indenture or the notes except
as provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust power. The trustee may withhold from
holders of the notes notice of any continuing default or event of default
(except a default or event of default relating to the payment of principal or
interest on the notes) if the trustee in good faith determines that withholding
notice would have no material adverse effect on the holders.
The holders of a majority in aggregate principal amount of the notes
then outstanding by notice to the trustee may, on behalf of the holders of all
of the notes, waive any existing default or event of default and its
consequences under the indenture, except:
o a continuing default or event of default in the payment of
interest on, or the principal of, a note held by a
non-consenting holder; or
o a waiver that would conflict with any judgment or decree.
We are required to deliver to the trustee within 120 days of the end of
our fiscal year a certificate regarding compliance with the indenture, and we
are required, upon becoming aware of any default or event of default, to deliver
to the trustee a certificate specifying such default or event of default and
what action we are taking or propose to take with respect to the default or
event of default.
AMENDMENT, SUPPLEMENT AND WAIVER. Except as provided in this prospectus
or the indenture, the terms of the indenture or the notes then outstanding may
be amended or supplemented with the consent of the holders of at least a
majority in principal amount of the notes then outstanding, and any existing
default or compliance with any provision of the indenture or the notes may be
waived with the consent of the holders of a majority in principal amount of the
then outstanding notes.
Notwithstanding the foregoing, an amendment or waiver will not be
effective with respect to the notes held by a holder who has not consented if it
has any of the following consequences:
o reduces the aggregate principal amount of notes whose holders
must consent to an amendment, supplement or waiver;
o reduces the principal of or changes the fixed maturity of any
note or alters the repurchase or redemption provisions or the
price at which we shall offer to repurchase or redeem the
note;
o reduces the rate of or changes the time for payment of
interest, including default interest, on any note;
o waives a default or event of default in the payment of
principal or interest on the notes, except a rescission of
acceleration of the notes by the holders of at least a
majority in aggregate principal amount of the then outstanding
notes and a waiver of the payment default that resulted from
such acceleration;.
29
o makes any note payable in money other than that stated in this
prospectus;
o makes any change in the provisions of the indenture relating
to waivers of past defaults or the rights of holders of notes
to receive payments of principal of or interest on the notes;
o makes any change to the subordination provisions of the
indenture that has a material adverse effect on holders of
notes;
o modifies or eliminates the right of the estate of a holder or
a holder to cause us to repurchase a note upon the death or
total permanent disability of a holder; or
o makes any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of any holder of the
notes, we and the trustee may amend or supplement the indenture or the notes:
o to cure any ambiguity, defect or inconsistency;
o to provide for assumption of our obligations to holders of the
notes in the case of a merger, consolidation or sale of all or
substantially all of our assets;
o to provide for additional uncertificated or certificated
notes;
o to make any change that does not adversely affect the legal
rights under the indenture of any such holder, including but
not limited to an increase in the aggregate dollar amount of
notes which may be outstanding under the indenture;
o to modify our policy regarding repurchases elected by a holder
of notes prior to maturity and our policy regarding repurchase
of the notes prior to maturity upon the death or total
permanent disability of any holder of the notes, but such
modifications shall not materially adversely affect any then
outstanding notes; or
o to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act.
THE TRUSTEE. Wells Fargo Bank, National Association has agreed to be
the trustee under the indenture. The indenture contains certain limitations on
the rights of the trustee, should it become one of our creditors, to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any claim as security or otherwise. The trustee will be permitted
to engage in other transactions with us.
Subject to certain exceptions, the holders of a majority in principal
amount of the then outstanding notes will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the trustee. The indenture provides that in case an event of
default specified in the indenture shall occur and not be cured, the trustee
will be required, in the exercise of its power, to use the degree of care of a
reasonable person in the conduct of his own affairs. Subject to such provisions,
the trustee will be under no obligation to exercise any of its rights or powers
under the indenture at the request of any holder of notes, unless the holder
shall have offered to the trustee security and indemnity satisfactory to it
against any loss, liability or expense.
RESIGNATION OR REMOVAL OF THE TRUSTEE. The trustee may resign at any
time, or may be removed by the holders of a majority of the aggregate principal
amount of the outstanding notes. In addition, upon the occurrence of
contingencies relating generally to the insolvency of the trustee or the
trustee's ineligibility to serve as trustee under the Trust Indenture Act of
1939, as amended, we may remove the trustee. However, no resignation or removal
of the trustee may become effective until a successor trustee has accepted the
appointment as provided in the indenture.
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REPORTS TO TRUSTEE. Our servicing agent will provide the trustee with
quarterly reports containing any information reasonably requested by the
trustee. These quarterly reports will include information on each note
outstanding during the preceding quarter, including outstanding principal
balance, interest credited and paid, transfers made, any redemption or
repurchase and interest rate paid.
NO PERSONAL LIABILITY OF OUR OR OUR SERVICING AGENT'S DIRECTORS,
OFFICERS, EMPLOYEES AND STOCKHOLDERS. No director, officer, employee,
incorporator or stockholder of ours or our servicing agent, will have any
liability for any of our obligations under the notes, the indenture or for any
claim based on, in respect to, or by reason of, these obligations or their
creation. Each holder of the notes waives and releases these persons from any
liability, including any liability arising under applicable securities laws. The
waiver and release are part of the consideration for issuance of the notes. We
have been advised that the waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the SEC that such a
waiver is against public policy.
SERVICE CHARGES. We and our servicing agent may assess service charges
for changing the registration of any note to reflect a change in name of the
holder, multiple changes in interest payment dates or transfers (whether by
operation of law or otherwise) of a note by the holder to another person.
ADDITIONAL SECURITIES. We may offer additional classes of securities
with terms and conditions different from the notes currently being offered in
this prospectus. We will amend or supplement this prospectus if and when we
decide to offer to the public any additional class of security under this
prospectus. If we sell the entire principal amount of notes offered in this
prospectus, we may register and sell additional notes by amending this
prospectus, but we are under no obligation to do so.
VARIATIONS BY STATE. We may offer different securities and vary the
terms and conditions of the offer (including, but not limited to, different
interest rates and service charges for all notes) depending upon the state where
the purchaser resides.
INTEREST WITHHOLDING. We will withhold 28% (which rate is scheduled to
increase to 31% for payments made after December 31, 2010) of any interest paid
to any investor who has not provided us with a social security number, employer
identification number, or other satisfactory equivalent in the subscription
agreement (or another document) or where the Internal Revenue Service has
notified us that backup withholding is otherwise required. Please read "Material
Federal Income Tax Consequences - Reporting and Backup Withholding."
LIQUIDITY. There is not currently a trading market for the notes, and
we do not expect that a trading market for the notes will develop.
SATISFACTION AND DISCHARGE OF INDENTURE. The indenture shall cease to
be of further effect upon the payment in full of all of the outstanding notes
and the delivery of an officer's certificate to the trustee stating that we do
not intend to issue additional notes under the indenture or, with certain
limitations, upon deposit with the trustee of funds sufficient for the payment
in full of all of the outstanding notes.
REPORTS. We currently publish annual reports containing financial
statements and quarterly reports containing financial information for the first
three quarters of each fiscal year. We will send copies of these reports, at no
charge, to any holder of notes who sends a written request to:
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, California 92618
Attention: Corporate Secretary
(949) 753-6800.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is our counsel's opinion of the material
federal income tax consequences relating to the ownership and disposition of the
notes. The discussion is based upon the current provisions of the Internal
Revenue Code of 1986, as amended, regulations issued under the Internal Revenue
31
Code and judicial or ruling authority, all of which are subject to change that
may be applied retroactively. The discussion assumes that the notes are held as
capital assets and does not discuss the federal income tax consequences
applicable to all categories of investors, some of which may be subject to
special rules such as banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies, persons that will hold notes as a position
in a hedging, straddle or conversion transactions, or persons that have a
functional currency other than the U.S. dollar. If a partnership holds notes,
the tax treatment of a partner will generally depend on the status of the
partner and on the activities of the partnership. In addition, it does not deal
with holders other than original purchasers. You are urged to consult your own
tax advisor to determine the specific federal, state, local and any other tax
consequences applicable to you relating to your ownership and disposition of the
notes.
INTEREST INCOME ON THE NOTES
Subject to the discussion below applicable to "non-U.S. holders,"
interest paid on the notes will generally be taxable to you as ordinary income
as the income is paid if you are a cash method taxpayer or as the income accrues
if you are an accrual method taxpayer.
However, a note with a term of one year or less, which we refer to in
this discussion as a "short-term note," will be treated as having been issued
with original issue discount or "OID" for tax purposes equal to the total
payments on the note over its issue price. If you are a cash method holder of a
short-term note you are not required to include this OID as income currently
unless you elect to do so. Cash method holders who make that election and
accrual method holders of short-term notes are generally required to recognize
the OID in income currently as it accrues on a straight-line basis unless the
holder elects to accrue the OID under a constant yield method. Under a constant
yield method, you generally would be required to include in income increasingly
greater amounts of OID in successive accrual periods.
Cash method holders of short-term notes who do not include OID in
income currently will generally be taxed on stated interest at the time it is
received and will treat any gain realized on the disposition of a short-term
note as ordinary income to the extent of the accrued OID generally reduced by
any prior payments of interest. In addition, these cash method holders will be
required to defer deductions for certain interest paid on indebtedness related
to purchasing or carrying the short-term notes until the OID is included in the
holder's income.
There are also some situations in which a cash basis holder of a note
having a term of more than one year may have taxable interest income with
respect to a note before any cash payment is received with respect to the note.
If you report income on the cash method and you hold a note with a term longer
than one year that pays interest only at maturity, you generally will be
required to include OID accrued during the original term (without regard to
renewals) as ordinary gross income as the OID accrues. OID accrues under a
constant yield method, as described above.
TREATMENT OF DISPOSITIONS OF NOTES
Upon the sale, exchange, retirement or other taxable disposition of a
note, you will recognize gain or loss in an amount equal to the difference
between the amount realized on the disposition and your adjusted tax basis in
the note. Your adjusted tax basis of a note generally will equal your original
cost for the note, increased by any accrued but unpaid interest (including OID)
you previously included in income with respect to the note and reduced by any
principal payments you previously received with respect to the note. Any gain or
loss will be capital gain or loss, except for gain representing accrued interest
not previously included in your income. This capital gain or loss will be
short-term or long-term capital gain or loss, depending on whether the note had
been held for more than one year or for one year or less.
NON-U.S. HOLDERS
Generally, if you are a nonresident alien individual or a non-U.S.
corporation and do not hold the note in connection with a United States trade or
business, interest paid and OID accrued on the notes will be treated as
"portfolio interest" and therefore will be exempt from a 30% United States
withholding tax. In that case, you will be entitled to receive interest payments
on the notes free of United States federal income tax provided that you
32
periodically provide a statement on applicable IRS forms certifying under
penalty of perjury that you are not a United States person and provide your name
and address. In addition, in that case you will not be subject to United States
federal income tax on gain from the disposition of a note unless you are an
individual who is present in the United States for 183 days or more during the
taxable year in which the disposition takes place and certain other requirements
are met. Interest paid and accrued OID paid to a non-U.S. person are not subject
to withholding if they are effectively connected with a United States trade or
business conducted by that person and we are provided a properly executed IRS
Form W-8ECI. They will, however, generally be subject to the regular United
States income tax.
REPORTING AND BACKUP WITHHOLDING
We will report annually to the Internal Revenue Service and to holders
of record that are not excepted from the reporting requirements any information
that may be required with respect to interest or OID on the notes.
Under certain circumstances, as a holder of a note, you may be subject
to "backup withholding" at a 28% rate. After December 31, 2010, the backup
withholding rate is scheduled to increase to 31%. Backup withholding may apply
to you if you are a United States person and, among other circumstances, you
fail to furnish on IRS Form W-9 or a substitute Form W-9 your Social Security
number or other taxpayer identification number to us. Backup withholding may
apply, under certain circumstances, if you are a non-U.S. person and fail to
provide us with the statement necessary to establish an exemption from federal
income and withholding tax on interest on the note. Backup withholding, however,
does not apply to payments on a note made to certain exempt recipients, such as
corporations and tax-exempt organizations, and to certain non-U.S. persons.
Backup withholding is not an additional tax and may be refunded or credited
against your United States federal income tax liability, provided that you
furnish certain required information.
This federal tax discussion is included for general information only
and may not be applicable depending upon your particular situation. You are
urged to consult your own tax advisor with respect to the specific tax
consequences to you of the ownership and disposition of the notes, including the
tax consequences under state, local, foreign and other tax laws and the possible
effects of changes in federal or other tax laws.
PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in a
distribution and management agreement between us and Sumner Harrington Ltd.,
Sumner Harrington Ltd. has agreed to serve as our selling agent and to use its
best efforts to sell the notes on the terms set forth in this prospectus. The
selling agent is not obligated to sell any minimum amount of notes or to
purchase any of the notes.
The selling agent proposes to offer the notes to the public on our
behalf on the terms set forth in this prospectus and the prospectus supplements
that we file from time to time. The selling agent plans to market the notes
directly to the public through newspaper, radio, internet, direct mail and other
advertising. In addition, our selling agent will manage certain administrative
and customer service functions relating to the notes, including handling all
inquiries from potential investors, mailing investment kits, meeting with
investors, processing subscription agreements and responding to all written and
telephonic questions relating to the notes. Upon prior written notice to the
selling agent, we may elect to use a different selling agent or perform these
duties ourselves. The selling agent's servicing responsibilities are described
under "Description of the Notes - Servicing Agent."
We have agreed to reimburse the selling agent for its out-of-pocket
expenses incurred in connection with the offer and sale of the notes, including
document fulfillment expenses, legal and accounting fees, regulatory fees, due
diligence expenses and marketing costs. Under the terms of the distribution and
management agreement, we also will pay our selling agent a commission equal to
3.00% of the principal amount of all notes sold. For notes with maturities of
three years or more, the entire 3.00% commission will be paid to the selling
agent at the time of issuance and no additional commission will be paid upon
renewal. For notes with maturities of less than three years, the gross 3.00%
commission will be paid in PRO RATA installments upon the original issuance and
each renewal, if any, over the first three years. Accordingly, the selling agent
will not receive the entire 3.00% gross commission on notes with terms of less
than three years unless the notes are successively renewed for three years. The
selling agent may engage or allow selected brokers or dealers to sell notes for
a commission, at no additional cost to us.
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Under the distribution and management agreement, we have also agreed to
pay Sumner Harrington Ltd. an annual portfolio management fee equal to 0.25% of
the weighted average principal balance of the notes outstanding for its services
as servicing agent. See "Description of the Notes - Servicing Agent." The amount
of this fee will depend upon a number of variables, including the pace at which
notes are sold, the terms of the notes sold and whether the notes are redeemed
or repurchased.
The distribution and management agreement may be terminated by either
us or Sumner Harrington Ltd. upon giving prior notice.
The selling agent and we have engaged Sumner Harrington Agency, Inc.,
an advertising and marketing subsidiary of Sumner Harrington Ltd., to directly
provide or manage the advertising and marketing functions related to the sale of
the notes. These services include media planning, media buying, creative and
copy development, direct mail services, literature fulfillment, commercial
printing, list management, list brokering, and other similar activities. Sumner
Harrington Agency, Inc. is compensated directly by us or its sub-service
providers for these advertising and marketing services. This compensation is
consistent with accepted normal advertising and marketing industry standards for
similar services.
The selling agent and its affiliate will only be compensated to the
extent that notes are sold in the offering. The table below summarizes the
estimated amounts of compensation or reimbursement that we will pay the selling
agent and its affiliate for services rendered in offering and selling the notes,
serving as the servicing agent, and providing and managing the advertising and
marketing functions related to the sale of the notes. In no event will the total
commission plus the total cost of the remaining line items exceed 8% of the
aggregate principal amount of the notes.
Compensation and Reimbursement % of Offering Amount(1)
------------------------------ ------------- ---------
Total commissions 3.000% $ 3,000,000(2)
Selling agent's legal counsel fees 0.075% $ 75,000
Document fulfillment expenses 0.100% $ 100,000
Annual portfolio management fee 2.250% $ 2,250,000
Media placement and management fee 1.000% $ 1,000,000
--------------
(1) All amounts assume the sale of 100% of aggregate principal amount of
notes offered and represent the maximum possible amount payable to the
selling agent or its affiliate over the entire term of the offering. If
less than 100% of the aggregate principal amount of the notes are sold
in the offering, the amounts actually paid to the agent or its
affiliate for commissions and annual portfolio management fees will be
less. In no event will the compensation paid to the selling agent or
its affiliates for commissions and annual portfolio management fees
exceed the percentage amounts shown, as applied to the notes actually
sold.
(2) Assumes that each note with a term of less than three years is
successively renewed for a total of three years.
The distribution and management agreement provides for reciprocal
indemnification between us and the selling agent, including the selling agent's
and our officers, directors and controlling persons, against civil liabilities
in connection with this offering, including certain liabilities under the
Securities Act of 1933, as amended. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted pursuant to such
indemnification provisions, we have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
Prior to the offering, there has been no public market for the notes.
We do not intend to list the notes on any securities exchange or include them
for quotation on Nasdaq. The selling agent is not obligated to make a market in
the notes and does not intend to do so. We do not anticipate that a secondary
market for the notes will develop.
34
The foregoing is a summary of the material provisions relating to
selling and distribution of the notes in the distribution and management
agreement. The provisions of the distribution and management agreement relating
to our retention of Sumner Harrington Ltd. to act as our servicing agent in
performing our ongoing administrative responsibilities for the notes are
described under "Description of the Notes." Any amendment to the distribution
and management agreement will be filed as an exhibit to an amendment to the
registration statement of which this prospectus is a part.
35
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference into
this prospectus is an important part of this prospectus. Specifically, we are
incorporating by reference the documents listed below:
o Our Annual Report on Form 10-K for the year ended December 31,
2004;
o Our Current Reports on Form 8-K filed with the SEC on March
29, 2005 and April 6, 2005.
You should rely only on the information we include or incorporate by
reference in this prospectus and any applicable prospectus supplement. We have
not authorized anyone to provide you with information different from that
contained or incorporated by reference in this prospectus. The information
contained in this prospectus and any applicable prospectus supplement is
accurate only as of the date on the front of those documents, regardless of the
time of delivery of this prospectus or the applicable prospectus supplement or
of any sale of our securities.
Any statement contained in this prospectus or in a document
incorporated by reference in this prospectus is deemed to be modified or
superseded for purposes of this prospectus to the extent that any of the
following modifies or supersedes a statement in this prospectus or incorporated
by reference in this prospectus:
o in the case of a statement in a previously filed document
incorporated by reference in this prospectus, a statement
contained in this prospectus;
o a statement contained in any accompanying prospectus
supplement relating to a specific offering of notes; or
o a statement contained in any other subsequently filed document
that is also incorporated by reference in this prospectus.
Any modified or superseded statement will not be deemed to constitute a
part of this prospectus or any accompanying prospectus supplement, except as
modified or superseded. Except as provided by the above mentioned exceptions,
all information appearing in this prospectus and each accompanying prospectus
supplement is qualified in its entirety by the information appearing in the
documents incorporated by reference.
A copy of our above-mentioned Form 10-K and a copy of our latest
subsequently filed Form 10-Q are being delivered with this prospectus. We will
provide without charge to each person to whom a copy of this prospectus is
delivered, upon his or her written or oral request, a copy of any or all of the
documents incorporated in this prospectus by reference, other than exhibits to
the documents, unless the exhibits are incorporated specifically by reference in
the documents. Requests for copies should be directed to:
Consumer Portfolio Services, Inc.
16355 Laguna Canyon Road
Irvine, California 92618
Attention: Corporate Secretary
(949) 753-6800
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Our SEC filings are also available to
the public at the SEC's web site at http://www.sec.gov.
36
We have also filed a registration statement on Form S-2 under the
Securities Act with the SEC with respect to the notes offered by this
prospectus. This prospectus has been filed as part of that registration
statement. This prospectus does not contain all of the information set forth in
the registration statement because parts of the registration statement are
omitted in accordance with the rules and regulations of the SEC. The
registration statement is available for inspection and copying as set forth
above.
LEGAL MATTERS
Certain legal matters in connection with the notes will be passed upon
for us by Andrews Kurth LLP, Dallas, Texas. Certain legal matters in connection
with the notes will be passed upon for Sumner Harrington Ltd. by Oppenheimer
Wolff & Donnelly LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Consumer Portfolio Services,
Inc. as of December 31, 2004 have been incorporated by reference herein in
reliance upon the report of McGladrey & Pullen LLP, independent registered
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
The consolidated financial statements of Consumer Portfolio Services,
Inc. as of December 31, 2003, and for each of the years in the two-year period
ended December 31, 2003, have been incorporated by reference herein in reliance
upon the report of KPMG LLP, independent registered public accountants,
incorporated by reference herein, an upon the authority of said firm as experts
in accounting and auditing.
37
GLOSSARY
ASSET-BACKED SECURITIES -- Securities that are backed by financial
assets, such as automobile contracts and loans.
CREDIT ENHANCEMENT -- Credit enhancement refers to a mechanism that is
intended to protect the holders of the asset-backed securities against losses
due to defaults by the obligors under the contracts.
EXCESS SPREAD CASH FLOWS -- The difference between the cash collected
from contracts in a securitization or warehouse credit facility in any period
and the sum of (i) the interest and principal paid to investors on the
indebtedness issued in connection with the securitization or warehouse credit
facility, (ii) the costs of servicing the contracts and (iii) certain other
costs incurred in connection with completing and maintaining the securitization
or warehousing.
MOTOR VEHICLE CONTRACT -- A retail installment sales contract or
installment loan agreement secured by a new or used automobile, light-duty truck
or van.
OVERCOLLATERALIZATION -- With respect to a securitization or warehouse
credit facility, the excess of (a) the aggregate principal balance of the
securitized or warehoused pool of motor vehicle contracts over (b) the aggregate
outstanding principal amount of the related indebtedness.
SECURITIZATION OR SECURITIZED -- The process through which contracts
and other receivables are accumulated or pooled and sold to a trust which issues
securities representing interests in the trust to investors.
SERVICING PORTFOLIO -- All of the motor vehicle contracts that we own
and that we have sold in securitizations and into our warehouse credit
facilities and service in connection with the Seawest securitizations and, in
each case, continue to service.
SPECIAL PURPOSE ENTITIES -- Our subsidiaries that were formed for the
specific purpose of securitizing our motor vehicle contract receivables and
facilitating our warehouse, residual and other financing facilities.
SPREAD ACCOUNT -- An account required by the credit enhancer of a
securitization or warehouse credit facility in order to protect the credit
enhancer against credit losses. Generally, excess spread cash flow from the pool
of contracts is credited to the account and retained until the account balance
reaches a set maximum balance. If the maximum balance set forth under the terms
of a particular securitization or warehouse credit facility is attained, the
excess spread cash flows and any surplus in the spread account are returned to
us, our residual lenders or the purchaser of a residual interest, as the case
may be. The maximum balance in a particular securitization may increase or
decrease over time, and also may never be attained in any particular
securitization or warehouse credit facility. Any remaining spread account
balance is released to us, our residual lenders or the purchaser of a residual
interest, as the case may be, upon termination of the securitization or
warehouse credit facility.
WAREHOUSING -- A method in which contracts are financed by financial
institutions on a short-term basis. In a warehousing arrangement, which we also
refer to as a "warehouse credit facility", contracts are accumulated or pooled
on a daily or less frequent basis and assigned or pledged as collateral for
short-term borrowings until they are financed in a securitization.
38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are expenses (other than the selling agent's commissions and
expenses) expected to be incurred in connection with the issuance and
distribution of the securities registered hereby. With the exception of the
Securities and Exchange Commission registration fee and the NASD filing fee, the
amounts set forth below are estimates and actual expenses may vary considerably
from these estimates depending upon how long the notes are offered and other
factors:
Securities and Exchange Commission registration fee $ 11,770
NASD filing fee 3,500
Accounting fees and expenses 50,000
Blue Sky fees and expenses 1,000
Legal fees and expenses 50,000
Printing expenses 75,000
Trustee's fees and expenses 15,000
Selling agent's counsel fees 75,000
Miscellaneous 50,000
-----------
TOTAL $ 331,270
===========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (a) Under California law, a California corporation may eliminate or
limit the personal liability of a director of the corporation for monetary
damages for breach of the director's duty of care as a director, provided that
the breach does not involve certain enumerated actions, including, among other
things, intentional misconduct or knowing and culpable violation of the law,
acts or omissions which the director believes to be contrary to the best
interests of the corporation or its shareholders or which reflect an absence of
good faith on the director's part, the unlawful purchase or redemption of stock,
payment of unlawful dividends, and receipt of improper personal benefits. The
registrant's Board of Directors believes that such provisions have become
commonplace among major corporations and are beneficial in attracting and
retaining qualified directors, and the registrant's Articles of Incorporation
include such provisions.
The registrant's Articles of Incorporation and Bylaws also impose a mandatory
obligation upon the registrant to indemnify any director or officer to the
fullest extent authorized or permitted by law (as now or hereinafter in effect),
including under circumstances in which indemnification would otherwise be at the
discretion of the registrant.
Under Section 7.02 of the Distribution and Management Agreement filed as Exhibit
1.1 to this Registration Statement, the selling agent has agreed to indemnify,
under certain conditions, CPS, its officers and directors, and persons who
control CPS within the meaning of the Securities Act of 1933, as amended,
against certain liabilities.
39
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT NO. DESCRIPTION
--------------- -------------------------------------------------------------
*1.1 Form of Distribution and Management Agreement (Previously
filed as Exhibit 1.1 to Amendment No. 1 to Registration
Statement No. 333-121913)
*3.1 Restated Articles of Incorporation (Previously filed as
Exhibit 3.1 to Amendment No. 1 to Registration Statement No.
333-121913)
*3.2 Amended and Restated Bylaws (Previously filed as Exhibit 3.2
to Amendment No. 1 to Registration Statement No. 333-121913)
*4.1 Form of Indenture (Previously filed as Exhibit 4.1 to
Registration Statement No. 333-121913)
*4.2 Form of Notes (Previously filed as Exhibit 24.1 to
Registration Statement No. 333-121913)
*4.3 Form of Note Confirmation (Previously filed as Exhibit 4.3
to Amendment No. 1 to Registration Statement No. 333-121913)
*4.4 Form of Subscription Agreement (Previously filed as Exhibit
4.4 to Amendment No. 1 to Registration Statement No.
333-121913)
*5.1 Opinion of Andrews Kurth LLP with respect to legality of
Notes (Previously filed as Exhibit 5.1 to Amendment No. 1 to
Registration Statement No. 333-121913)
*8.1 Opinion of Andrews Kurth LLP with respect to tax matters
(Previously filed as Exhibit 8.1 to Amendment No. 1 to
Registration Statement No. 333-121913)
*10.1 Indenture re: Rising Interest Subordinated Redeemable
Securities (RISRS) (see Exhibit 4.1 to Registration
Statement No. 33-99652)
*10.2 First Supplemental Indenture re: RISRS (see Exhibit 4.2 to
Registration Statement No. 33-99652)
*10.5 Third Amended and Restated Securities Purchase Agreement
dated as of January 29, 2004, between the registrant and
Levine Leichtman Capital Partners II, L.P. (LLCP) (see
Exhibit 99.16 to the Schedule 13D filed by LLCP with respect
to the registrant on February 3, 2004)
*10.6 Amendment to Agreement filed as Exhibit 10.5, dated as of
March 25, 2004 (see Exhibit 99.22 to the Schedule 13D filed
by LLCP with respect to the registrant on June 4, 2004)
40
*10.7 Amendment to Agreement filed as Exhibit 10.5, dated as of
April 2, 2004 (see Exhibit 99.23 to the Schedule 13D filed
by LLCP with respect to the registrant on June 4, 2004)
*10.8 Amendment to Agreement filed as Exhibit 10.5, dated as of May
28, 2004 (see Exhibit 99.25 to the Schedule 13D filed by
LLCP with respect to the registrant on June 4, 2004)
*10.9 Amendment to Agreement filed as Exhibit 10.5, dated as of
June 25, 2004 (see Exhibit 99.29 to the Schedule 13D filed
by LLCP with respect to the registrant on June 29, 2004)
*10.10 Secured Senior Note due February 28, 2003 issued by the
registrant to LLCP (see Exhibit 4.2 to registrant's Form 8-K
filed on March 25, 2002)
*10.11 Second Amended and Restated Secured Senior Note due November
30, 2003 issued by the registrant to LLCP (see Exhibit 4.3
to registrant's Form 8-K filed on March 25, 2002)
*10.12 12.00% Senior Secured Note due 2008 issued by the registrant
to LLCP (see Exhibit 4.4 to registrant's Form 8-K filed on
March 25, 2002)
*10.13 Sale and Servicing Agreement, dated as of March 1, 2002,
among the registrant, CPS Auto Receivables Trust 2002-A, CPS
Receivables Corp., Systems and Services Technologies, Inc.
and Bank One Trust Company, N.A. (see Exhibit 4.5 to
registrant's Form 8-K on March 25, 2002)
*10.14 Indenture, dated as of March 1, 2002, between CPS Auto
Receivables Trust 2002-A and Bank One Trust Company, N.A.
(see Exhibit 4.6 to registrant's Form 8-K on March 25, 2002)
*10.15 Third Amended and Restated Secured Senior Note Due 2005 (see
Exhibit 99.17 to Schedule 13D filed by LLCP with respect to
the registrant on February 3, 2004)
*10.16 Amended and Restated Secured Senior Note (see Exhibit 99.18
to Schedule 13D filed by LLCP with respect to the registrant
on February 3, 2004)
*10.17 11.75% Secured Senior Note Due 2006 (see Exhibit 99.26 to
Schedule 13D filed by LLCP with respect to the registrant on
June 4, 2004)
*10.18 11.75% Secured Senior Note Due 2006 (see Exhibit 99.30 to
Schedule 13D filed by LLCP with respect to the registrant on
June 29, 2004)
*10.19 1991 Stock Option Plan (Previously filed as Exhibit 10.19 to
Amendment No. 1 to Registration Statement No. 333-121913)
41
*10.20 1997 Long-Term Incentive Stock Plan, as amended to date
(Previously filed as Exhibit 10.20 to Amendment No. 1 to
Registration Statement No. 333-121913)
*10.22 Lease Agreement re Chesapeake Collection Facility (see
Exhibit 10.11 to registrant's Form 10-K filed March 31, 1997)
*10.23 Lease of Headquarters Building (see Exhibit 10.22 to
registrant's Form 10-Q filed November 14, 1997)
*10.26 Warrant to Purchase 1,335,000 Shares of Common Stock (see
Exhibit 6 to the Schedule 13D filed by LLCP with respect to
the registrant on April 21, 1999)
*10.28 Amendment to Master Spread Account Agreement (see Exhibit
10.32 to registrant's Form 10-K filed March 30, 2000)
**10.29 Second Amended and Restated Sale and Servicing Agreement
dated April 13, 2005 by and among CPS Warehouse Trust
(CPSWT), CPS, Wells Fargo Bank, National Association (WFBNA)
and WestLB AG (WLBAG)
**10.30 Second Amended and Restated Annex A to Agreement filed as
Exhibit 10.29
**10.31 Second Amended and Restated Indenture dated as of April 13,
2005 by and among CPSWT, WLBAG and WFBNA
**10.33 Second Amended and Restated Note Purchase Agreement dated
April 13, 2005 by and among CPSWT, CPS, Paradigm Funding LLC
and WLBAG
*10.35 Sale and Servicing Agreement dated June 30, 2004 by and among
Page Funding LLC (PFLLC), CPS and WFBNA (Previously filed as
Exhibit 10.35 to Amendment No. 1 to Registration
Statement No. 333-121913)
*10.36 Annex A to Agreement filed as Exhibit 10.35 (Previously
filed as Exhibit 10.36 to Amendment No. 1 to Registration
Statement No. 333-121913)
*10.37 Indenture dated as of June 30, 2004 by and among PFLLC, UBS
Real Estate Securities, Inc. (UBSRES) and WFBNA (Previously
filed as Exhibit 10.37 to Amendment No. 1 to Registration
Statement No. 333-121913)
*10.38 Note Purchase Agreement dated as of June 30, 2004 by and
among PFLLC, UBSRES and WFBNA (Previously filed as Exhibit
10.38 to Amendment No. 1 to Registration Statement No.
333-121913)
42
*10.39 Variable Funding Note dated June 30, 2004 by PFLLC
(Previously filed as Exhibit 10.39 to Amendment No. 1 to
Registration Statement No. 333-121913)
*16.1 Letter of KPMG LLP to the Securities and Exchange Commission
pursuant to Item 304(a)(3) of Regulation S-K (previously
filed as Exhibit 16.1 to registrant's Form 8-K dated
November 15, 2004)
*21.1 Subsidiaries of the Registrant (Previously filed as Exhibit
21.1 to Amendment No. 1 to Registration Statement No.
333-121913)
*23.1 Consent of Andrews Kurth LLP (included in Exhibits 5.1 and
8.1)
**23.2 Consent of McGladrey & Pullen LLP
**23.3 Consent of KPMG LLP
*24.1 Power of Attorney (Previously filed as Exhibit 24.1 to
Registration Statement No. 333-121913)
*25.1 Statement of Eligibility of Trustee (Previously filed as
Exhibit 25.1 to Registration Statement No. 333-121913)
--------------------
* Previously filed with this registration statement, or incorporated by
reference to the specified filing.
** Filed herewith.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
43
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, an increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant under Rule 424(b)(1), or (4), or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
44
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Amendment No. 2 to
Registration Statement on Form S-2 to be signed on its behalf by the
undersigned, thereunto duly authorized, in Irvine, State of California, on May
2, 2005.
Consumer Portfolio Services, Inc.
By: /s/ Charles E. Bradley, Jr.
----------------------------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement on Form S-2 has been signed by
the following persons in the capacities and on the dates indicated below.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Charles E. Bradley, Jr. Chairman of the Board of Directors, May 2, 2005
--------------------------------- President, and Chief Executive
Charles E. Bradley, Jr. Officer (Principal Executive Officer)
/s/ Robert E. Riedl Chief Financial Officer May 2, 2005
--------------------------------- (Principal Financial and Accounting
Robert E. Riedl Officer)
/s/ E. Bruce Fredrikson * Director May 2, 2005
---------------------------------
E. Bruce Fredrikson
/s/ John E. McConnaughy * Director May 2, 2005
---------------------------------
John E. McConnaughy
/s/ John G. Poole * Director May 2, 2005
---------------------------------
John G. Poole
/s/ William B. Roberts * Director May 2, 2005
---------------------------------
William B. Roberts
/s/ John C. Warner * Director May 2, 2005
---------------------------------
John C. Warner
/s/ Daniel S. Wood * Director May 2, 2005
---------------------------------
Daniel S. Wood
* by Charles E. Bradley, Jr., as attorney-in-fact
44
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
--------------- -------------------------------------------------------------
*1.1 Form of Distribution and Management Agreement (Previously
filed as Exhibit 1.1 to Amendment No. 1 to Registration
Statement No. 333-121913)
*3.1 Restated Articles of Incorporation (Previously filed as
Exhibit 3.1 to Amendment No. 1 to Registration Statement No.
333-121913)
*3.2 Amended and Restated Bylaws (Previously filed as Exhibit 3.2
to Amendment No. 1 to Registration Statement No. 333-121913)
*4.1 Form of Indenture (Previously filed as Exhibit 4.1 to
Registration Statement No. 333-121913)
*4.2 Form of Notes (Previously filed as Exhibit 24.1 to
Registration Statement No. 333-121913)
*4.3 Form of Note Confirmation (Previously filed as Exhibit 4.3
to Amendment No. 1 to Registration Statement No. 333-121913)
*4.4 Form of Subscription Agreement (Previously filed as Exhibit
4.4 to Amendment No. 1 to Registration Statement No.
333-121913)
*5.1 Opinion of Andrews Kurth LLP with respect to legality of
Notes (Previously filed as Exhibit 5.1 to Amendment No. 1 to
Registration Statement No. 333-121913)
*8.1 Opinion of Andrews Kurth LLP with respect to tax matters
(Previously filed as Exhibit 8.1 to Amendment No. 1 to
Registration Statement No. 333-121913)
*10.1 Indenture re: Rising Interest Subordinated Redeemable
Securities (RISRS) (see Exhibit 4.1 to Registration
Statement No. 33-99652)
*10.2 First Supplemental Indenture re: RISRS (see Exhibit 4.2 to
Registration Statement No. 33-99652)
*10.5 Third Amended and Restated Securities Purchase Agreement
dated as of January 29, 2004, between the registrant and
Levine Leichtman Capital Partners II, L.P. (LLCP) (see
Exhibit 99.16 to the Schedule 13D filed by LLCP with respect
to the registrant on February 3, 2004)
*10.6 Amendment to Agreement filed as Exhibit 10.5, dated as of
March 25, 2004 (see Exhibit 99.22 to the Schedule 13D filed
by LLCP with respect to the registrant on June 4, 2004)
*10.7 Amendment to Agreement filed as Exhibit 10.5, dated as of
April 2, 2004 (see Exhibit 99.23 to the Schedule 13D filed
by LLCP with respect to the registrant on June 4, 2004)
*10.8 Amendment to Agreement filed as Exhibit 10.5, dated as of May
28, 2004 (see Exhibit 99.25 to the Schedule 13D filed by
LLCP with respect to the registrant on June 4, 2004)
*10.9 Amendment to Agreement filed as Exhibit 10.5, dated as of
June 25, 2004 (see Exhibit 99.29 to the Schedule 13D filed
by LLCP with respect to the registrant on June 29, 2004)
*10.10 Secured Senior Note due February 28, 2003 issued by the
registrant to LLCP (see Exhibit 4.2 to registrant's Form 8-K
filed on March 25, 2002)
*10.11 Second Amended and Restated Secured Senior Note due November
30, 2003 issued by the registrant to LLCP (see Exhibit 4.3
to registrant's Form 8-K filed on March 25, 2002)
*10.12 12.00% Senior Secured Note due 2008 issued by the registrant
to LLCP (see Exhibit 4.4 to registrant's Form 8-K filed on
March 25, 2002)
*10.13 Sale and Servicing Agreement, dated as of March 1, 2002,
among the registrant, CPS Auto Receivables Trust 2002-A, CPS
Receivables Corp., Systems and Services Technologies, Inc.
and Bank One Trust Company, N.A. (see Exhibit 4.5 to
registrant's Form 8-K on March 25, 2002)
*10.14 Indenture, dated as of March 1, 2002, between CPS Auto
Receivables Trust 2002-A and Bank One Trust Company, N.A.
(see Exhibit 4.6 to registrant's Form 8-K on March 25, 2002)
*10.15 Third Amended and Restated Secured Senior Note Due 2005 (see
Exhibit 99.17 to Schedule 13D filed by LLCP with respect to
the registrant on February 3, 2004)
*10.16 Amended and Restated Secured Senior Note (see Exhibit 99.18
to Schedule 13D filed by LLCP with respect to the registrant
on February 3, 2004)
*10.17 11.75% Secured Senior Note Due 2006 (see Exhibit 99.26 to
Schedule 13D filed by LLCP with respect to the registrant on
June 4, 2004)
*10.18 11.75% Secured Senior Note Due 2006 (see Exhibit 99.30 to
Schedule 13D filed by LLCP with respect to the registrant on
June 29, 2004)
*10.19 1991 Stock Option Plan (Previously filed as Exhibit 10.19 to
Amendment No. 1 to Registration Statement No. 333-121913)
*10.20 1997 Long-Term Incentive Stock Plan, as amended to date
(Previously filed as Exhibit 10.20 to Amendment No. 1 to
Registration Statement No. 333-121913)
*10.22 Lease Agreement re Chesapeake Collection Facility (see
Exhibit 10.11 to registrant's Form 10-K filed March 31, 1997)
*10.23 Lease of Headquarters Building (see Exhibit 10.22 to
registrant's Form 10-Q filed November 14, 1997)
*10.26 Warrant to Purchase 1,335,000 Shares of Common Stock (see
Exhibit 6 to the Schedule 13D filed by LLCP with respect to
the registrant on April 21, 1999)
*10.28 Amendment to Master Spread Account Agreement (see Exhibit
10.32 to registrant's Form 10-K filed March 30, 2000)
**10.29 Second Amended and Restated Sale and Servicing Agreement
dated April 13, 2005 by and among CPS Warehouse Trust
(CPSWT), CPS, Wells Fargo Bank, National Association (WFBNA)
and WestLB AG (WLBAG)
**10.30 Second Amended and Restated Annex A to Agreement filed as
Exhibit 10.29
**10.31 Second Amended and Restated Indenture dated as of April 13,
2005 by and among CPSWT, WLBAG and WFBNA
**10.33 Second Amended and Restated Note Purchase Agreement dated
April 13, 2005 by and among CPSWT, CPS, Paradigm Funding LLC
and WLBAG
*10.35 Sale and Servicing Agreement dated June 30, 2004 by and among
Page Funding LLC (PFLLC), CPS and WFBNA (Previously filed as
Exhibit 10.35 to Amendment No. 1 to Registration
Statement No. 333-121913)
*10.36 Annex A to Agreement filed as Exhibit 10.35 (Previously
filed as Exhibit 10.36 to Amendment No. 1 to Registration
Statement No. 333-121913)
*10.37 Indenture dated as of June 30, 2004 by and among PFLLC, UBS
Real Estate Securities, Inc. (UBSRES) and WFBNA (Previously
filed as Exhibit 10.37 to Amendment No. 1 to Registration
Statement No. 333-121913)
*10.38 Note Purchase Agreement dated as of June 30, 2004 by and
among PFLLC, UBSRES and WFBNA (Previously filed as Exhibit
10.38 to Amendment No. 1 to Registration Statement No.
333-121913)
*10.39 Variable Funding Note dated June 30, 2004 by PFLLC
(Previously filed as Exhibit 10.39 to Amendment No. 1 to
Registration Statement No. 333-121913)
*16.1 Letter of KPMG LLP to the Securities and Exchange Commission
pursuant to Item 304(a)(3) of Regulation S-K (previously
filed as Exhibit 16.1 to registrant's Form 8-K dated
November 15, 2004)
*21.1 Subsidiaries of the Registrant (Previously filed as Exhibit
21.1 to Amendment No. 1 to Registration Statement No.
333-121913)
*23.1 Consent of Andrews Kurth LLP (included in Exhibits 5.1 and
8.1)
**23.2 Consent of McGladrey & Pullen LLP
**23.3 Consent of KPMG LLP
*24.1 Power of Attorney (Previously filed as Exhibit 24.1 to
Registration Statement No. 333-121913)
*25.1 Statement of Eligibility of Trustee (Previously filed as
Exhibit 25.1 to Registration Statement No. 333-121913)
--------------------
* Previously filed with this registration statement, or incorporated by
reference to the specified filing.
** Filed herewith.