26
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to ______________
Commission file number 0-21591
GRANITE FINANCIAL, INC.
(Name of small business issuer as specified in its charter)
Delaware 84-1349929
(State of Incorporation)(I.R.S. Employer Identification No.)
6424 West 91st Avenue
Westminster, Colorado 80030
(Address of principal executive offices)
(303) 650-4059
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes No X
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by
court.
Yes No
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common stock, $.001 par value; 3,500,000 shares outstanding
as of November 29, 1996
Transitional Small Business Disclosure Format (check one):
Yes No X
GRANITE FINANCIAL, INC.
FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PAGE NO.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Financial Statements:
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statement of Changes in Members' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17-21
PART 2. OTHER INFORMATION 22
EXHIBITS
10 MATERIAL CONTRACTS
10.1 Trust and Security Agreement 23-126
10.2 Lease Acquisition Agreement 127-155
10.3 Servicing Agreement 156-190
27 FINANCIAL DATA SCHEDULE 191
SIGNATURES 192
ITEM 1. FINANCIAL STATEMENTS
GRANITE FINANCIAL, LLC AND SUBSIDIARY
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro forma
September 30, September 30, June 30,
1996 1996 1996
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Assets
Cash $ 8,087 $ 8,087
Direct financing leases
available for sale (Notes 2
and 3) 9,697,275 9,697,275 8,671,869
Direct financing leases
assigned to lender (Note 2) 20,932,284 20,932,284 22,575,827
Prepaid and other assets 219,925 219,925 141,729
Deferred offering costs (Note 5) 491,062 491,062 97,765
Furniture and equipment, net 435,348 435,348 399,150
Loan origination fees, net 408,353 408,353 450,342
Organization costs, net 15,268 15,268 16,222
Total assets $32,207,603 $32,207,603 $32,352,904
Liabilities and Equity
Line-of-credit (Note 4) $ 3,734,948 $ 3,734,948 $ 3,690,618
Checks written in excess
of bank balance 288,848
Accounts payable and
accrued expenses 758,286 647,286 667,870
Due to affiliate (Note 3) 354,972 354,972 93,590
Proforma income taxes (Note 6) 411,447
Limited recourse Class A
note payable (Note 2) 19,292,387 19,292,387 20,761,785
Notes payable (Note 4) 4,901,211 4,901,211 4,090,818
29,453,251 28,930,804 29,593,529
Commitments
Common stock, $.001 par value;
20,000,000 shares authorized;
2,000,000 shares issued and
outstanding 2,000
Additional paid-in capital 2,752,352
Members' equity 3,276,799 2,759,375
Total stockholders' and
members' equity (Note 5) 2,754,352 3,276,799 2,759,375
Total liabilities and equity $32,207,603 $32,207,603 $32,352,904
</TABLE>
See notes to consolidated financial statements
GRANITE FINANCIAL, LLC AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Revenues
Sales of leases
(Note 3) $10,426,221 $ 4,632,293
Income from direct
financing leases 929,614 16,684
Total revenues 11,355,835 4,648,977
Costs
Cost of leases sold 9,843,125 4,293,683
Provision for credit
losses 25,000 79,702
Interest expense 437,989
Total costs 10,306,113 4,373,385
Gross profit 1,049,722 275,592
Other expenses
Salaries and
benefits 259,709 132,982
General and
administrative 181,500 75,822
Depreciation and
amortization 91,089 -
Total other
expenses 532,298 208,804
Net income 517,424 66,788
Pro forma income taxes (Note 6) (191,447) (24,712)
Pro forma net income $ 325,977 $ 42,076
Pro forma net income per share $ 0.16 $ 0.02
Weighted average number of pro forma
shares outstanding 2,000,000 2,000,000
(Notes 1 and 5)
</TABLE>
Note: Pro forma income taxes assumes a combined federal and state income
tax rate of 37.0%.
See notes to consolidated financial statements.
GRANITE FINANCIAL, LLC AND SUBSIDIARY
Consolidated Statement of Changes in Members' Equity
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Balance, June 30, 1996 $ 2,759,375
Net income for the quarter 517,424
Balance, September 30, 1996 $ 3,276,799
</TABLE>
See notes to consolidated financial statements
GRANITE FINANCIAL, LLC AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 517,424 $ 66,788
Adjustments to reconcile net income
to net cash used in operating
activities:
Due to affiliates 261,382 0
Provision for losses 19,685 78,702
Loan fees amortized 66,337
Depreciation and amortization 24,654
Net changes in operating assets
and liabilities
Increase in Direct financing
leases available for sale (1,045,091) (184,768)
Increase in prepaids and other
assets (430,431) (10,047)
Incr.(decr.) in Accts. payable
and accrued expenses (20,584) 121,386
(1,124,048) 5,272
Net cash provided by (used in)
operating activities (606,624) 72,060
Cash flows from investing activities:
Payments received on leases assigned
to lender 1,643,543 -
Expenditures for organization costs (6,076)
Purchase of furniture and equipment (59,898) (47,323)
Net cash provided by (used in)
investing activities 1,583,645 (53,399)
Cash flows from financing activities:
Checks written in excess of bank balance (288,848) -
Proceeds from notes payable 1,302,875 -
Principal payments on notes payable (492,482) -
Net proceeds from line-of-credit 44,330 -
Principal payments on Class A note payable (1,469,398) -
Expenditures for loan origination fees (24,349) -
Members' equity contribution net of
related costs 55,000
Deferred offering costs paid (41,062) -
Net cash provided by (used in)
financing activities (968,934) 55,000
Net increase in cash 8,087 73,661
Cash - beginning of period - 443,657
Cash - end of period $ 8,087 $ 517,318
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid during the quarters ended September 30, 1995 and 1996 for
interest was $0 and $525,588, respectively.
Noncash investing and financing activities:
Deferred offering costs of $352,235 are included in accrued
expenses.
See notes to consolidated financial statements
GRANITE FINANCIAL, LLC AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Granite Financial, LLC (the "LLC Company") was organized in
Colorado on February 21, 1995. The LLC Company is principally
engaged in the business of originating and selling lease contracts.
The lease contracts provide financing primarily for the acquisition
of computer, office products, medical equipment and other business
equipment. All equipment leased is acquired from unrelated parties.
In June 1996, Granite Financial, Inc. ("GFI") was incorporated.
Concurrently with the consummation of the public offering (Note 5),
GFI exchanged 2,000,000 shares of its common stock for all of the
outstanding membership interests of the LLC Company, as a result of
which GFI is the sole member of the LLC Company. Contemporaneously,
GFI caused the LLC Company to be liquidated and the assets of the
LLC Company were distributed to GFI as the sole member of the LLC
Company. GFI owns all of the capital stock of GF Funding Corp. I
and has assumed responsibility for all servicing and other
activities formerly undertaken by the LLC Company. Granite
Financial, LLC, its wholly-owned subsidiary, GF Funding Corp. I, and
its successor, GFI, will hereinafter be referred to as the
"Company".
The consolidated financial statements included herein are
presented in accordance with the requirements of Form 10-QSB and
consequently do not include all of the disclosures normally made in
the registrant's annual Form 10-KSB filing. These financial
statements should be read in conjunction with the financial
statements and notes thereto included in Granite Financial, Inc.'s
Amendment No. 3 to Form SB-2 which was filed with the Securities and
Exchange Commission on October 24, 1996.
Pro Forma Balance Sheet
The accompanying pro forma balance sheet as of September 30,
1996 reflects the income tax effects of the restructuring. As a
limited liability company, Granite Financial, LLC was not subject to
federal or state income taxes. As a result of the reorganization as
a C corporation in conjunction with the public offering, the Company
will record a one-time charge against earnings for net deferred
income taxes of $411,000 and a distribution of $111,000 to its
members in connection with each member's income tax obligation.
Interim unaudited financial statements
Information with respect to September 30, 1996 and 1995, and
the periods then ended, have not been audited by the Company's
independent auditors, but in the opinion of management, reflect all
adjustments (which include only normal recurring adjustments)
necessary for a fair presentation of the operations of the Company.
The results of operations for the three months ended September 30,
1996 and 1995 are not necessarily indicative of the results of the
entire year.
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Direct Financing Leases Available for Sale
The Company has entered into various lease agreements which, in
accordance with Statement No. 13 of the Financial Accounting
Standards Board, meet the criteria of capitalization and are
accounted for as direct financing leases. Under this method, the
amount by which gross lease rentals exceed the cost of the related
assets, less the estimated recoverable residual value at the
expiration of the lease, less the amount of expected losses, is
recognized as earned income over the life of the lease using the
interest method.
Leases in which the Company surrenders control of the future
economic benefits in the lease and the underlying equipment are
accounted for as a sale. The direct financing leases available for
sale, which are sold, are eliminated and the cost and related sales
proceeds recognized upon such sale. To the extent the Company
surrenders control of a portion of a pool of lease assets, the
Company will allocate the recorded lease investment between the
portion sold and the portion retained based on the relative fair
values of each portion on the date the leases were acquired or, if
not practical, on the date of sale. The Company will continue to
carry on its balance sheet an asset for the portion retained.
Any permanent reduction in the estimated residual value of
leased property is charged to operations in the period it occurs.
Direct Financing Leases Assigned to Lender
Direct financing leases sold as part of a securitization to a
special-purpose entity that issues debt securities are accounted for
as collateralized borrowings. The securitized leases, recorded as
Direct Financing Leases Assigned to Lenders, and the related debt
are reflected in the consolidated balance sheet. Direct financing
leases sold to a special-purpose entity that issues equity interests
instead of debt securities would be accounted for as a sale. The
consolidated statement of operations would reflect a gain or loss
and the securitized leases would be eliminated from the consolidated
balance sheet on the date of sale.
Lease Acquisition Costs and Broker Commissions
Lease acquisition costs consist of broker bonuses and
commissions paid upon the origination of the lease contracts. These
costs are included in direct financing leases held for sale and are
amortized to expense over the life of the related lease contracts on
the interest method.
Income Taxes
Granite Financial, LLC is taxable as a partnership under
federal and state income tax laws. As such, it is not subject to
income taxes as a separate entity and its income or loss is required
to be included in the income tax returns of its members. Upon
consummation of the public offering (Note 5), Granite Financial, LLC
was liquidated and the successor corporation, Granite Financial,
Inc., is taxed as a regular corporation. The statements of income
reflect pro forma information which present pro forma income taxes
as if computed at the statutory rate.
Effective upon liquidation of the LLC, the successor Company
will apply FAS 109, "Accounting for Income Taxes". Under FAS 109,
the Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Deferred tax
liabilities and assets are determined based on the difference
between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect. The measurement of
deferred tax assets is reduced, if necessary, by the amount of any
tax benefits that, based on available evidence, are not expected to
be realized.
Allowance for Credit Losses
An allowance for credit losses is maintained at a level which
is estimated by the Company to be necessary and adequate to provide
for expected losses in the existing portfolio of leases for which
the Company has either full or partial recourse. The leases are
collateralized by the equipment under lease and lessees generally
are required to personally guarantee lease payments. The Company's
risk of loss is partially mitigated by recovering collateral and
enforcing guarantees. However, the resale value of leased equipment
generally declines at a rate greater than the principal of the
lease, so full recovery on defaulted leases is not always possible.
Accounting Standard Not Yet Adopted
In June 1996, the Financial Accounting Standards Board ("FASB")
issued Statement No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("FAS 125").
FAS 125 provides consistent standards for distinguishing transfers
of financial assets that are sales from transfers that are secured
borrowings. Under FAS 125, after a transfer of financial assets, an
entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when
extinguished. FAS 125 prohibits early application and, accordingly,
the Company plans to adopt this standard for transactions occurring
after December 31, 1996. Upon adoption, transferred lease assets
that qualify for sales treatment under FAS 125 and the related
nonrecourse debt will be removed from the balance sheet with the
resulting gain or loss on sale reflected in the statement of
operations. The Company is unable to estimate the effect of the
adoption on the statement of operations as the amount and structure
of future securitization transactions is unknown. In November 1996,
the FASB issued an exposure draft which would defer the effective
date of certain provisions of FAS 125 for one year.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Note 2 - Direct Financing Leases
The Company's direct financing leases at September 30, 1996
consist of the following:
<TABLE>
<CAPTION>
Available Assigned to
For Sale Lender
<S> <C> <C>
Minimum lease payments receivable $ 12,069,070 $25,006,128
Estimated residual values of leased
property 258,297 848,596
Lease acquisition costs and broker
commissions 1,307,879 553,034
Unearned income and allowance for
credit losses (3,737,421) (5,269,703)
Security deposits (200,550) (205,771)
Net direct financing leases $ 9,697,275 $20,932,284
</TABLE>
Scheduled collections of minimum lease payments receivable are as
follows:
<TABLE>
<CAPTION>
Available Assigned to
Year Ending June 30, For Sale Lender
<S> <C> <C>
1997 (for nine months ending) $ 2,635,540 $ 6,357,820
1998 3,472,151 8,100,307
1999 2,997,520 5,655,884
2000 1,718,802 3,701,253
Thereafter 1,245,057 1,190,864
$12,069,070 $25,006,128
</TABLE>
The Company is required to estimate the amount of leases
expected to result in default and to estimate the amount of loss
that will be incurred under each default. The Company currently
provides allowances for these losses based on the historical
performance of the leases. These losses relate both to leases that
are held by the Company to maturity along with losses that could
result to the Company on leases sold to third parties under full or
partial recourse arrangements. The actual losses incurred could
differ materially from the amounts that the Company has estimated in
preparing the historical financial statements.
Private Offering of Lease-Backed Term Note
In April 1996, the Company's wholly-owned subsidiary, GF
Funding Corp. I, completed a private offering of a $21,688,993,
6.33% Class A lease-backed term note ("Class A Note"). The Class A
Note requires monthly principal and interest payments as specified
in the Note and Trust Indenture through November 2001. The
principal balance of the Class A note was $19,292,387 at September
30, 1996. The notes are collateralized by 1) the cash flows of the
underlying lease assets, 2) all of GF Funding Corp. I's rights and
interest in the related equipment, 3) a cash collateral account
maintained by a trustee and, 4) a financial guaranty insurance
policy which provides an unconditional guarantee of all principal
and interest payments on the Class A Note in the case of defaults or
prepayments on the lease assets. Of the underlying leases assets
which had a carrying value of $20,932,284 at September 30, 1996, the
Company has transferred, assigned and sold all of its right, title
and interest in the future cash flows from these lease assets and
the related equipment to G.F. Funding Corp. I for the benefit of the
holder of the Class A Note. As the Company has surrendered all
control over the future economic benefit of these lease assets and
there is limited recourse to the Company to the extent of the
overcollateralization leases, the underlying lease assets at a
carrying value of $20,932,284, have been reflected as direct
financing leases assigned to lender in the accompanying consolidated
balance sheet. On a monthly basis, the Company may receive any
remaining cash flows (the securitization residual interest) of the
underlying lease assets and related equipment after the Class A note
is satisfied as defined in the Trust Indenture. All payments
received from the underlying leases are to be sent directly to a
trustee where the cash flow is distributed in the priorities
provided for in the Trust Indenture. The Company is paid a
servicing fee as the servicer for all the underlying lease
contracts.
Note 3 - Sale of Leases
The Company entered into agreements with certain financial
institutions to sell, on an ongoing basis, certain leases either on
a recourse or non-recourse basis. The purchase price of the leases
is determined on a transaction by transaction basis based upon the
present value of the payments to be received under the lease.
Revenue, in the amount of the purchase price, is recognized on the
date of sale. The Company retains servicing of all leases under the
agreements. During the quarters ended September 30, 1995 and 1996,
the cost and related sales proceeds of leases sold, on a nonrecourse
basis, were $4,293,683 and $4,632,293 and $9,843,125 and
$10,426,221, respectively.
For the quarters ended September 30, 1995 and 1996, the cost
and related sales proceeds of leases sold to Heartland Bank were
$3,269,207 and $3,504,832 and $8,926,064 and $9,483,566,
respectively. Heartland Bank became a principal shareholder of the
Company in January 1996. The cost and related sales amounts are
included in the accompanying consolidated statements of income. At
September 30, 1996, $354,972 is included in Due to Affiliate in the
accompanying consolidated balance sheet related to certain leases
purchased by Heartland Bank. Subsequent to September 30, 1996, the
Company sold leases with a cost of $2,062,279 to Heartland Bank for
a sales price of $2,160,215. With respect to the leases sold to
Heartland Bank, there is recourse to the Company for the amount of
the related residuals of approximately $495,129 at September 30,
1996.
Note 4 - Credit Facilities
Line-of-Credit
<TABLE>
<CAPTION>
September 30,
1996
<S> <C>
$7,000,000 line-of-credit to a bank, due
June 30, 1997. Interest at the bank's
reference rate plus 1% (9.25% at September
30, 1996) payable monthly. The line is
collateralized by security interests in
certain eligible leases, as defined, entered
into by the Company, including a security
interest in the equipment covered by such
leases. Upon completion of the initial public
offering (Note 5), the line was increased to
$10,000,000. $ 3,734,948
</TABLE>
Subsequent to September 30, 1996, the Company entered into an agreement with a
bank for a line-of-credit of $5,000,000. The line-of-credit matures October
1997 and carries an interest rate equal to the bank's reference rate.
<TABLE>
<CAPTION>
Notes payable September 30,
1996
<S> <C>
Note payable to bank; the note requires a
minimum monthly payment of $86,700, as
defined in the agreement, and interest
at 11%, with all unpaid principal
and interest due July 31, 1997. This
note is secured by a pledge of all
of the stock of G.F. Funding Corp. I
owned by the Company. The note was
paid in full in November 1996 using
proceeds from the initial public offering
(Note 5) $ 866,500
Note payable to bank, payable in monthly
installments of $78,754, including interest
at the Treasury Rate plus 3% (9% at September
30, 1996), through February, 2000 when all
unpaid principal and interest is due;
collateralized by certain leases including
a security interest in the underlying equipment. 2,772,226
Note payable to bank, payable in monthly installments
of $28,303, including interest of 9.80% through
January, 2000; collateralized by certain leases
including a security interest in the underlying
equipment. 962,485
Note payable to shareholders, interest payable
monthly at 11% through November 29, 1996 when
all principal and unpaid interest is due; Note
was paid in full in November 1996 using proceeds
from the initial public offering (Note 5) 300,000
$4,901,211
</TABLE>
Maturities due on the notes payable are as follows:
<TABLE>
<CAPTION>
Year Ending June 30,
<S> <C>
1997 (for nine months ending) $ 1,492,767
1998 1,443,686
1999 1,159,094
2000 805,664
$ 4,901,211
</TABLE>
Note 5 - Members' Equity
Initial Public Offering
In October 1996, the Company completed its initial public
offering. The offering was comprised of 1,500,000 shares of common
stock priced at $7.50 per share. Additionally, the Company has
granted to the Underwriters of the offering a 45-day option to
purchase an
Note 5 - Members' Equity (continued)
aggregate of up to 225,000 additional shares of common stock to
cover over-allotments. At September 30, 1996, deferred offering
costs of $491,062 are reflected in the accompanying consolidated
balance sheet.
Stock Option Plans
The Company adopted its 1996 Omnibus Stock Option Plan in June
1996 (the "Option Plan"). An aggregate of 450,000 shares of Common
Stock are currently reserved for issuance under the Option Plan.
The Option Plan provides for the granting of incentive stock
options ("Incentive Stock Options") within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code")
and non-qualified stock options. Non-qualified stock options may be
granted to employees, directors and consultants of the Company,
while Incentive Stock Options may be granted only to employees. The
Option Plan is currently administered by the Compensation Committee
of the Board of Directors, which determines the terms and conditions
of the options granted under the Option Plan, including the exercise
price, number of shares subject to the option and the exercisability
thereof. The Option Plan was approved by the sole shareholder of
GFI as of June 22, 1996.
The exercise price of all Incentive Stock Options granted under
the Option Plan must be equal to the fair market value of the Common
Stock of the Company on the date of grant, and must be at least 110%
of fair market value when granted to a 10% or more shareholder. The
exercise price of all non-qualified stock options granted under the
Option Plan shall be not less than 85% of the fair market value of
the Common Stock on the date of grant. The term of all options
granted under the Incentive Plan may not exceed ten years, except
the term of Incentive Stock Options granted to a 10% or more
shareholder may not exceed five years.
The Option Plan may be amended or terminated by the Board of
Directors, but no such action may impair the rights of a participant
under a previously granted option.
As of September 30, 1996, a total of 250,000 non-qualified and
Incentive Stock Options were outstanding with exercise prices
ranging from $5.95 to $6.55 per share and a weighted average
exercise price per share of $6.33.
Note 6 - Income Taxes
The Company's status as an LLC was terminated upon completion
of the initial public offering. At that time, deferred tax
liabilities were recorded, and a charge to earnings of $411,000 was
included in continuing operations during the period of the change in
tax status. The Company distributed $111,000 to the members of the
LLC to provide the members with sufficient funds to pay tax
liabilities arising as a result of income allocated to the members
prior to the date of the public offering.
Note 7 - Disclosure About Fair Value of Financial Instruments
Direct Financing Leases
The fair values of the direct financing leases available for
sale and the direct financing leases assigned to lender were
determined based on the estimated remaining cash flows discounted at
an estimated current market rate of the leases of 11 1/2%.
Notes Payable
The fair value of the line-of-credit and bank notes payable at
September 30, 1996 approximated the carrying value because of the
short-term nature of these instruments. The fair value of the Class
A lease-backed term note approximated the carrying value due to the
nominal difference between the coupon and current market interest
rate.
<TABLE>
<CAPTION>
September 30, 1996
Carrying Fair
Amount Value
<S> <C> <C>
Direct financing leases assigned to
lender $ 20,932,284 $ 21,426,238
Direct financing leases available
for sale 9,697,275 10,053,665
Line-of-credit (3,734,948) (3,734,948)
Notes payable (4,901,211) (4,901,211)
Limited recourse Class A note payable (19,292,387) (19,292,387)
</TABLE>
The preceding methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value. Fair value estimates are made
at a specific point in time for the Company's financial instruments;
they are subjective in nature and involve uncertainties, matters of
significant judgment and, therefore, cannot be determined with
precision. Fair value estimates do not reflect the total value of
the Company as a going concern.
Note 8 - Related Party Transactions
An officer and director of the Company has devoted
approximately 50% of his time to the operations of Granite
Financial, LLC, but did not receive any compensation from the
Company. The officer's salary has been paid in full since February
1995 by a related company. The Company has agreed to reimburse the
related company $76,000 paid to the officer through June 30, 1996 on
the Company's behalf. For services rendered following September 19,
1996, the Company has agreed to compensate the officer for service
which he will render directly to the Company. Since September 19,
1996, the officer has devoted full-time to the Company's business
and affairs.
Note 8 - Related Party Transactions (continued)
In September 1996, the members advanced to the Company
$300,000. The notes, which had an 11% interest rate, were scheduled
to mature on November 29, 1996. In November 1996, the Company
repaid in full the advance using proceeds from the initial public
offering (Note 5).
See Note 3 for additional related party transactions.
Note 9 - Major Supplier
The Company's leases are originated through a network of 48
independent lease originators located throughout the United States.
Transactions generated by a single independent lease originator
accounted for approximately 18.0% of the Company's leases funded
during the quarter ended September 30, 1996. Transactions generated
by the Company's ten largest independent lease originators accounted
for approximately 61.23% of leases funded during the quarter ended
September 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Equipment leasing is a capital intensive business. As such, the
Company requires access to substantial short and long-term credit to
fund new equipment leases. Since inception through September 30,
1996, the Company has funded its operations primarily through sale
of leases, recourse borrowings, sale of equity to the present
shareholders of the Company and through the securitization completed
in April 1996. The Company's requirements for liquidity and access
to additional capital have been, and will continue to be,
significant. In the event the growth in leases funded and sold
continues at recent rates, the Company's capital requirements will
likewise continue to increase.
On October 25, 1996, the Company completed its initial public
offering of 1,500,000 shares of common stock priced at $7.50 per
share. The Company received net proceeds from such offering of
approximately $9,819,000 (before deducting other expenses payable by
the Company estimated at $725,000). The Company's underwriter for
such offering also has a 45 day option to purchase up to 225,000
additional shares of common stock solely to cover over-allotments.
As of December 3, 1996, the over-allotment option has not been
exercised. The proceeds from the offering were or will be used
primarily to fund expanded leasing operations, pay expenses and fund
collateral enhancements required by future securitizations, repay a
term loan of $874,856, repay advances from shareholders, fund a
distribution to members of Granite Financial, LLC for income taxes
and for other working capital and general corporate purposes.
On November 5, 1996, the Company closed its second
securitization transaction. The aggregate amount available for
funding under such securitization is $65 million. On the initial
closing date of November 5, 1996, the investor funded approximately
$7.2 million. The remaining amount under such facility is available
for funding on a monthly basis, subject to certain monthly minimum
and maximum amounts, during the period beginning on November 5,
1996, and, unless sooner terminated, ending on January 20, 1998.
Based on the structure of this securitization, the Company will
account for all fundings on a sale basis for financial statement
purposes, which allows the Company to recognize immediately gain on
leases contributed and sold for such securitization. The Company's
first securitization completed in April 1996 was accounted for as a
collateralized borrowing rather than on a sale basis due to the
different structure of that securitization. The overall effect on
the Company's financial position and results of operations of future
securitizations may differ significantly based on the accounting
method utilized for such securitizations.
In June 1996, the Company received a non-binding letter from The
Industrial Bank of Japan, Limited ("IBJ"), under which IBJ has
proposed issuing lease-backed bonds in the aggregate amount of $25
million. The nonbinding letter from IBJ provides that completion of
funding is subject to customary due diligence, approval of rating
agencies, approval of Financial Security Assurance, Inc. ("FSA") and
the negotiation and execution of appropriate documentation.
The Company maintains various bank credit facilities in the
aggregate amount of $19.3 million. Each credit facility is secured
by a first security interest in the specific leases pledged as
collateral, as well as a first security interest in the underlying
equipment. At September 30, 1996, an aggregate of $8.6 million was
outstanding under these facilities. In October 1996, one of such
facilities was increased from $7 to $10 million as a result of the
completion of the Company's public offering. Additionally, in
November 1996, a term loan was repaid using the proceeds of such
offering. The Company uses these facilities to warehouse leases
unless and until such leases are securitized or sold.
In June 1995, the Company entered into a Lease Sale Agreement
with Heartland Bank to sell leases to Heartland Bank at a price
equal to the remaining cash flows of the leases (including residual
interests), discounted to present value at an 11 1/2% per annum rate.
For the quarter ended September 30, 1996, Heartland Bank purchased
leases with a present value of approximately $10.4 million from the
Company. These lease purchases provided the Company with
significant liquidity during this period.
The Company's cash and cash equivalents at September 30, 1996
were $8,087. For the quarter ended September 30, 1996, net cash
used in operating activities was $607,000. Cash used to fund direct
financing leases available for sale of $1,045,000 and an increase in
prepaids and other assets of $430,000 was partially offset by
advances from affiliates of $261,000. Net cash provided by
investing activities for the quarter ended September 30, 1996 was
$1,584,000, primarily resulting from payments received of $1,644,000
on leases assigned. Net cash used in financing activities was
$969,000 for the quarter ended September 30, 1996, reflecting
proceeds received from notes payable of $1,303,000, and net proceeds
from lines of credit of $44,000, offset by principal payments on the
Class A notes of $1,469,000 and deferred offering costs of $41,000.
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of total revenues represented by certain items included
in the Company's Consolidated Statements of Income:
GRANITE FINANCIAL, LLC AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
3 Months 3 Months
Ended Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Revenues
Total revenues 100.0% 100.0%
Costs
Cost of leases sold 86.7% 92.4%
Provision for credit losses 0.2% 1.7%
Interest expense 3.9% 0.0%
Total costs 90.8% 94.1%
Gross profit 9.2% 5.9%
Other expenses
Salaries and benefits 2.3% 2.9%
General and administrative 1.6% 1.6%
Depreciation and amortization 0.8% 0.0%
Total other expenses 4.7% 4.5%
Net income 4.6% 1.4%
Pro forma income taxes (Note 6) -1.7% -0.5%
Pro forma net income 2.9% 0.9%
</TABLE>
Note: Pro forma income taxes assumes a combined federal and state
income tax rate of 37.0%.
See notes to consolidated financial statements
Three months ended September 30, 1996 and September 30, 1995
The Company's revenues are primarily a function of both the
immediate gain recognition from leases sold and the accretion of
income from leases held in the Company's lease portfolio. Sales of
leases to financial institutions during the three months ended
September 30, 1996 (the "1996 Period") totaled approximately $10.4
million, an increase of $5.8 million, or 126.1%, from $4.6 million
during the quarter ended September 30, 1995 (the "1995 Period").
Income from direct financing leases increased from $17,000 in the
1995 Period to approximately $930,000 in the 1996 Period. Total
revenues were $4.6 million during the 1995 Period and $11.4 million
during the 1996 Period. The income from direct financing leases
reflects the accounting for the April 1996 securitization as a
collateralized borrowing. Under this method of accounting for the
securitization, the Company records the securitized leases and
related non-recourse debt in the financial statements and recognizes
the related finance income over the life of the leases using the
interest method. A significant amount of the 1996 Period income
from direct financing leases is attributable to leases included in
the April 1996 securitization. The growth in the sales of leases
and income from direct financing leases is primarily attributable to
the increase in the number of leases funded by the Company. The
number of leases funded by the Company increased from 187 leases in
the 1995 Period to 421 leases in the 1996 Period, an increase of
125.1 %. Additionally, the dollar amount of leases funded increased
from $4.3 million in the 1995 Period to $11.0 million in the 1996
Period, an increase of 155.8 %.
Cost of leases sold increased approximately $5.5 million, or
127.9%, from $4.3 million in the 1995 Period to approximately $9.8
million in the 1996 Period. However, the cost of leases sold as a
percentage of revenues declined from 92.7% in the 1995 Period to
86.7% in the 1996 Period, reflecting the impact of the April 1996
securitization on the cost of leases sold.
The Company's gross profit as a percentage of revenues
increased from 5.9% in the 1995 Period to 9.2% in the 1996 Period.
The costs included in the calculation of gross profit include not
only the cost of leases sold but also the provision for credit
losses and interest expense related to the income from leases held
in the Company's portfolio. The Company's gross profit is directly
related to the difference between the implied rate of interest
received on leases funded and interest paid on amounts borrowed or
the implicit rate of interest in the arrangement under which leases
are securitized (referred to as the margin). The increase in the
gross profit percentages from the 1995 Period to the 1996 Period is
primarily attributable to the impact of the greater margin achieved
as a result of the securitization completed in April 1996 which
carried an advantageous borrowing rate.
Interest expense and commissions increased from $0 in the 1995
Period to $438,000 in the 1996 Period. The increase in interest
expense and commissions was primarily a result of the increase in
borrowings, both under credit lines and under the $21 million
limited recourse note from the April 1996 securitization. The
increase in borrowings were a direct result of the overall growth in
the number of leases funded by the Company from the 1995 Period to
the 1996 Period. Salaries and benefits increased by $127,000, or
95.5%, from $133,000 in the 1995 Period to $260,000 in the 1996
Period. Salaries and benefits represent personnel costs directly
attributable to the Company's executive, underwriting, marketing,
documentation, data processing and accounting functions. The
addition of eight employees from the 1995 Period to the 1996 Period,
which were necessary to support the Company's growth in business,
has resulted in the increase in salaries and benefits. General and
administrative expenses increased $106,000, or 139.5%, from $76,000
in the 1995 Period to $182,000 in the 1996 Period. General and
administrative expenses include commissions and referral fees,
accounting, legal and other operational expenses not directly
attributable to personnel. The increase from the 1995 Period to the
1996 Period was primarily due to the amortization of costs incurred
in connection with the April 1996 securitization and expenses
directly associated with the growth in lease fundings such as, but
not limited to, UCC filing fees, credit reports, postage, and
telephone expense. Depreciation and amortization increased $91,000
from $0 in the 1995 Period to $91,000 in the 1996 Period. This
increase reflects the Company's addition of office and computer
equipment as operations expanded from the 1995 Period to the 1996
Period. Also adding to the increase were loan costs paid in the
1996 Period as a result of utilizing certain credit facilities.
Net income increased $450,000, from $67,000 in the 1995 Period
to $517,000 in the 1996 Period. As Granite Financial, LLC was not
subject to federal and state income taxes, net income represents the
difference between gross profit and other expenses. To allow
comparisons with C Corporations, a pro forma combined federal and
state tax rate of 37.0% has been assumed for each period. Based on
this assumption, the Company would have incurred income taxes of
$25,000 and $191,000 in the 1995 Period and the 1996 Period,
respectively. Pro forma net income of $326,000 in the 1996 Period
represents an increase of $284,000, from pro forma net income of
$42,000 for the 1995 Period.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 - Material Contracts
10.1 Trust and Security Agreement, dated November 1, 1996,
among G.F. Funding Corp. II, as Transferor, Granite Financial,
Inc., as Servicer, Norwest Bank Minnesota, National
Association, as Trustee, and Norwest Bank Minnesota, National
Association, as Backup Servicer;
10.2 Lease Acquisition Agreement, dated November 1, 1996, between
Granite Financial, Inc. and G.F. Funding Corp. II;
10.3 Servicing Agreement, dated November 1, 1996, among G.F.
Funding Corp. II, as Transferor, Granite Financial, Inc., as
Servicer, Norwest Bank Minnesota, National Association, as
Trustee, and Norwest Bank Minnesota, National Association,
as Backup Servicer;
27 - Financial Data Schedule
(b) None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Form 10-QSB to be
signed on its behalf by the undersigned, thereunto duly
authorized.
GRANITE FINANCIAL, INC.
Dated: December 6, 1996 By: /s/ William W. Wehner
William W. Wehner
Chairman and President
Dated: December 6, 1996 By: /s/ William S. Cobb
William S. Cobb
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 8,087
<SECURITIES> 0
<RECEIVABLES> 31,397,457
<ALLOWANCES> 767,898
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 496,398
<DEPRECIATION> 61,050
<TOTAL-ASSETS> 32,207,603
<CURRENT-LIABILITIES> 0
<BONDS> 27,928,546
0
0
<COMMON> 0
<OTHER-SE> 3,276,799
<TOTAL-LIABILITY-AND-EQUITY> 3,276,799
<SALES> 10,426,221
<TOTAL-REVENUES> 11,355,835
<CGS> 9,843,125
<TOTAL-COSTS> 437,989
<OTHER-EXPENSES> 532,298
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 517,424
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 517,424
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
23
EXHIBIT 10.1
TRUST AND SECURITY AGREEMENT
among
GF FUNDING CORP. II
(the "Transferor")
GRANITE FINANCIAL, INC.
(the "Servicer")
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
(the "Trustee")
and
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
(the "Back-up Servicer")
Dated as of November 1, 1996
TABLE OF CONTENTS
Page
ARTICLE ONE 2
DEFINITIONS 2
Section 1.01 Definitions 2
ARTICLE TWO 28
THE CERTIFICATES 28
Section 2.01 Form Generally 28
Section 2.02 Series; Denomination 28
Section 2.03 Formation, Execution, Authentication, Delivery
and Dating 30
Section 2.04 Temporary Certificates 30
Section 2.05 Registration, Registration of Transfer and
Exchange 31
Section 2.06 Limitation on Transfer and Exchange 31
Section 2.07 Mutilated, Destroyed, Lost or Stolen Certificate 32
Section 2.08 Payment of Principal and Interest;
Principal and Interest Rights Preserved 33
Section 2.09 Persons Deemed Owner 36
Section 2.10 Cancellation 36
Section 2.11 Tax Treatment 36
Section 2.12 Dissolution upon Bankruptcy, etc. of Transferor 36
ARTICLE THREE 38
FUNDINGS; CONVERSIONS 38
Section 3.01 Fundings 38
Section 3.02 Funding Amounts 38
Section 3.03 Procedure for Fundings 38
Section 3.04 Verification of Funding Report 39
Section 3.05 Fundings by Certificateholders 40
Section 3.06 Calculation of Rates; Conversions 41
Section 3.07 Appointment of Certificate Funding Administrator 42
Section 3.08 Release of Excess Funds At Close of Funding
Period 43
ARTICLE FOUR 44
ISSUANCE OF CERTIFICATES; SUBSTITUTIONS OF COLLATERAL 44
Section 4.01 Conditions to Initial Issuance of Certificates 44
Section 4.02 Issuances of Additional Series of Certificates 45
Section 4.03 Perfection of Transfer 47
Section 4.04 Substitution, Removal and Purchase of Lease
Assets 48
Section 4.05 Releases 50
Section 4.07 Trust Estate 51
Section 4.08 Notice of Release 51
Section 4.09 Nature of Transfer 51
ARTICLE FIVE 52
SATISFACTION AND DISCHARGE 52
Section 5.01 Satisfaction and Discharge of Agreement 52
Section 5.02 Application of Trust Money 52
ARTICLE SIX 54
DEFAULTS AND REMEDIES 54
Section 6.01 Events of Default 54
Section 6.02 Acceleration of Maturity; Rescission and
Annulment 54
Section 6.03 Collection of Indebtedness and Suits for
Enforcement by Trustee 55
Section 6.04 Remedies 56
Section 6.05 Optional Preservation of Trust Estate 57
Section 6.06 Trustee May File Proofs of Claim 57
Section 6.07 Trustee May Enforce Claims Without
Possession of Certificates 58
Section 6.08 Application of Money Collected 58
Section 6.09 Limitation on Suits 59
Section 6.10 Unconditional Right of Certificateholders
to Receive Principal and Interest 60
Section 6.11 Restoration of Rights and Remedies 60
Section 6.12 Rights and Remedies Cumulative 60
Section 6.13 Delay or Omission; Not Waiver 61
Section 6.14 Control by MBIA or Certificateholders 61
Section 6.15 Waiver of Certain Events by MBIA or
Certificateholders 61
Section 6.16 Undertaking for Costs 62
Section 6.17 Waiver of Stay or Extension Laws 62
Section 6.18 Sale of Trust Estate 62
Section 6.19 Action on Certificates 63
ARTICLE SEVEN 64
THE TRUSTEE 64
Section 7.01 Certain Duties and Responsibilities 64
Section 7.02 Notice of Default and Other Events 65
Section 7.03 Certain Rights of Trustee 66
Section 7.04 Not Responsible for Recitals or Issuance
of Certificates 66
Section 7.05 May Hold Certificates 67
Section 7.06 Money Held in Trust 67
Section 7.07 Compensation and Reimbursement 68
Section 7.08 Corporate Trustee Required; Eligibility 68
Section 7.09 Resignation and Removal; Appointment of Successor 69
Section 7.10 Acceptance of Appointment by Successor 70
Section 7.11 Merger, Conversion, Consolidation or
Succession to Business of Trustee 70
Section 7.12 Co-Trustees and Separate Trustees 70
Section 7.13 Rights with Respect to the Servicer 71
Section 7.14 Appointment of Authenticating Agent 72
Section 7.15 Trustee to Hold Lease Contracts 73
Section 7.16 Money for Certificate Payments to Be Held in
Trust 73
ARTICLE EIGHT 75
THE CERTIFICATE INSURANCE POLICIES 75
Section 8.01 Payments under the Certificate Insurance Policies 75
ARTICLE NINE 76
AMENDMENTS 76
Section 9.01 Amendments without Consent of Certificateholders 76
Section 9.02 Amendments and Modifications to Agreement
with Consent of Certificateholders 77
Section 9.03 Execution of Amendments 78
Section 9.04 Effect of Amendments 78
Section 9.05 Reference in Certificates to Amendments 79
ARTICLE TEN 80
REDEMPTION OF CERTIFICATES 80
Section 10.01 Redemption at the Option of the
Transferor; Election to Redeem 80
Section 10.02 Notice to Trustee; Deposit of Redemption Price 80
Section 10.03 Notice of Redemption by the Transferor 80
Section 10.04 Certificates Payable on Redemption Date 81
Section 10.05 Release of Series Lease Contracts 81
ARTICLE ELEVEN 82
REPRESENTATIONS, WARRANTIES AND COVENANTS 82
Section 11.01 Representations and Warranties 82
Section 11.02 Covenants 84
Section 11.03 Other Matters as to the Transferor 88
ARTICLE TWELVE 90
ACCOUNTS AND ACCOUNTINGS 90
Section 12.01 Collection of Money 90
Section 12.02 Collection Account; Redemption Account 90
Section 12.03 Cash Collateral Account 93
Section 12.04 Reports by Trustee to MBIA and
Certificateholders 95
ARTICLE THIRTEEN 96
PROVISIONS OF GENERAL APPLICATION 96
Section 13.01 General Provisions 96
Section 13.02 Acts of Certificateholders 96
Section 13.03 Notices, etc., to Trustee, MBIA,
Transferor and Servicer 96
Section 13.04 Notices to Certificateholders; Waiver 97
Section 13.05 Effect of Headings and Table of Contents 97
Section 13.06 Successors and Assigns 97
Section 13.07 Separability 98
Section 13.08 Benefits of Agreement 98
Section 13.09 Legal Holidays 98
Section 13.10 Governing Law 98
Section 13.11 Counterparts 98
Section 13.12 Corporate Obligation 98
Section 13.13 Compliance Certificates and Opinions 98
Section 13.14 MBIA Default or Termination 99
EXHIBITS
A-1 Form of Class A Certificate
A-2 Form of Class B Certificate
B Form of Supplement to Trust and Security Agreement
C Form of Investment and Assumption Letter
D Form of Transferor Certificate
E Form of Funding Report
F Form of Funding Continuation Notice
G Form of Advance Rate Cure Notice
H Form of Conversion Report
I Form of Lease Sale Agreement
This TRUST AND SECURITY AGREEMENT (this "Agreement"), dated
as of November 1, 1996, is by and among GF Funding Corp. II (the
"Transferor"), Granite Financial, Inc., as servicer (the
"Servicer"), Norwest Bank Minnesota, National Association, a
national banking association, as back-up servicer (the "Back-up
Servicer"), and Norwest Bank Minnesota, National Association, a
national banking association, as trustee (the "Trustee").
PRELIMINARY STATEMENT
The Transferor has duly authorized the execution and
delivery of this Agreement to provide for the issuance of the
Certificates issuable as provided in this Agreement. All
covenants and agreements made by the Transferor, the Servicer,
the Trustee and the Back-up Servicer herein are for the benefit
and security of the Holders of the Certificates and MBIA. The
Transferor, the Servicer, the Trustee and the Back-up Servicer
are entering into this Agreement, and the Trustee is accepting
the trusts created hereby, for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged.
All things necessary to make this Agreement a valid
agreement of the Transferor, the Servicer, the Trustee and the
Back-up Servicer in accordance with its terms have been done.
CONVEYANCE CLAUSE
The Transferor does hereby absolutely transfer, assign, set
over, and otherwise convey to the Trustee, for the ratable
benefit of the Holders of the Certificates and MBIA, all of the
Transferor's rights, title and interest in and to the following
and any and all benefits accruing to the Transferor from (but
none of the obligations under): (a) the Lease Receivables and
Lease Contracts and all payments received on or with respect to
the Lease Contracts and Lease Receivables and due after the
applicable Cut-Off Dates or Acquisition Dates; (b) the
Transferor's rights and interests in the Equipment and any
security interest in the Equipment not owned by the Transferor;
(c) any rights of the Transferor under each Insurance Policy
related to the Lease Contracts or the Equipment and Insurance
Proceeds; (d) the Lease Acquisition Agreement, the Broker
Assignment Agreements, any Lease Sale Agreements and any other
Transaction Documents to which the Transferor is a party; (e) the
Servicing Agreement; (f) all amounts from time to time on deposit
in the Collection Account, the Cash Collateral Account, the
Lockbox Account, the Redemption Account and the ACH Account
(including any Eligible Investments and other property in such
accounts); (g) the Lease Contract Files; (h) the Certificate
Insurance Policies, except that the Holders of the Class B
Certificates shall have no right, title or interest in or to the
Certificate Insurance Policies; and (i) proceeds of the foregoing
(including, but not by way of limitation, all cash proceeds,
accounts, accounts receivable, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, insurance proceeds,
condemnation awards, rights to payment of any and every kind, and
other forms of obligations and receivables which at any time
constitute all or part or are included in the proceeds of any of
the foregoing), in each case whether now owned or hereafter
acquired, except that the Holders of the Class B Certificates
shall have no right, title or interest in proceeds of the
Certificate Insurance Policies (all of the foregoing being
hereinafter referred to as the "Trust Estate"). The foregoing
transfer, assignment, set over and conveyance does not constitute
and is not intended to result in a creation or an assumption by
the Trustee, any Certificateholder or MBIA of any obligation of
the Transferor, the Company, the Servicer or any other Person in
connection with the Trust Estate or under any agreement or
instrument relating thereto. The trust created by the foregoing
assignment shall be known as the "GF Funding Corp. II Master
Trust."
The Trustee acknowledges its acceptance on behalf of the
Certificateholders and MBIA of all right, title and interest
previously held by the Transferor in and to the Trust Estate, and
declares that it shall maintain such right, title and interest in
accordance with the provisions hereof and agrees to perform the
duties herein required to the best of its ability to the end that
the interests of the Certificateholders and MBIA may be
adequately and effectively protected.
ARTICLE ONE
DEFINITIONS
Section 1.01 Definitions.
Except as otherwise expressly provided herein or in the
applicable Supplement, or unless the context otherwise requires,
the following terms have the respective meanings set forth below
for all purposes of this Agreement, and the definitions of such
terms are equally applicable both to the singular and plural
forms of such terms. Capitalized terms used herein but not
otherwise defined shall have the respective meanings assigned to
such terms in the Servicing Agreement or the Lease Acquisition
Agreement.
"Accrual Date": With respect to any Series of Certificates,
the date upon which interest begins accruing on such
Certificates, as specified in such Certificates and the
applicable Supplement.
"Accrual Period": The period beginning on the twentieth day
of each month (or, in the case of the Accrual Period that is
applicable to an Initial Payment Date, beginning on the Accrual
Date for such Certificates) and ending on the nineteenth day of
the immediately following month, provided, however, solely for
purposes of calculating interest on the Class A Certificates
pursuant to Section 2.08 hereof, in the event that a Conversion
Date falls on a day other than the nineteenth day of a month,
the Accrual Period with respect to the Outstanding Floating
Tranche Balance shall begin on the twentieth day of the month
preceding such Conversion Date (or on such Conversion Date if
such Conversion Date is the twentieth day of a month) and end on
the close of business of such Conversion Date and the Accrual
Period for the Conversion Amount relating to the Outstanding
Fixed Tranche Balance calculated with respect to such Conversion
Date shall begin on the day following such Conversion Date and
end on the nineteenth day of the month immediately following such
Conversion Date.
"ACH": The National Automated Clearinghouse System.
"ACH Account": The account, if any, established by the
Transferor for the sole benefit of the Certificateholders and
MBIA pursuant to Section 12.02(f) hereof and in compliance with
Section 3.03(d) of the Servicing Agreement, into which account
shall be deposited payments related to the Lease Receivables and
as to which account the Trustee shall have the sole ability to
withdraw funds.
"ACH Bank": The bank, if any, specified in the Servicing
Agreement so long as such bank meets the requirements of a
Trustee as set forth in Section 7.08 hereof.
"Acquisition Date": Any Delivery Date, Funding Date or date
of substitution of a Substitute Lease Contract, as applicable.
"Act": With respect to any Certificateholder, the meaning
specified in Section 13.02.
"Additional Lease Contract": Each Lease Contract acquired
by the Transferor on an Acquisition Date including pursuant to a
Funding.
"Additional Principal Amount": The meaning specified in
Section 12.02(d)(x) hereof.
"Additional Servicer Fee": The amount, if any, of the fee
payable in accordance with Section 6.02 of the Servicing
Agreement to a successor Servicer appointed pursuant to Section
6.02 of the Servicing Agreement that is in excess of the Servicer
Fee.
"Advance Rate": 81.5%; provided, however, that (i) if an
Advance Rate Decrease Event of the type described in clause (a)
of that term occurs, the Advance Rate automatically will be
reduced to 80.5% effective as of the earlier of the next Funding
Date or Calculation Date and (ii) if any other Advance Rate
Decrease Event occurs, the Advance Rate automatically will be
reduced to 79.5% effective as of the earlier of the next Funding
Date or Calculation Date. After the occurrence of an Advance
Rate Decrease Event, the Advance Rate may thereafter be increased
pursuant to the terms of the Advance Rate Cure Notice.
"Advance Rate Cure Notice": A written notice delivered by
MBIA, at its sole discretion, to the Transferor, the Trustee, the
Certificate Funding Administrator and the Servicer with the
delivery of a Funding Continuation Notice, substantially in the
form attached hereto as Exhibit G.
"Advance Rate Decrease Event": The occurrence of any one of
the following events:
(a) commencing with the fifth Determination Date after the
Initial Delivery Date, if, as of any Calculation Date,
twelve times the ratio of (i) the aggregate IPB of all
Lease Contracts that have become Defaulted Lease
Contracts during the related Due Period over (ii) the
Aggregate IPB as of the Calculation Date for the third
Due Period prior to the related Due Period, is equal to
or exceeds 4.0 %, provided, however that if this
calculation is being made with respect to any of the
first six Determination Dates after the Initial
Delivery Date, the number of Lease Contracts that have
become Defaulted Lease Contracts during the related Due
Period must equal or exceed three; or
(b) commencing with the fifth Determination Date after the
Initial Delivery Date, if, as of any Calculation Date,
twelve times the ratio of (i) the aggregate IPB of all
Lease Contracts that have become Defaulted Lease
Contracts during the related Due Period over (ii) the
Aggregate IPB as of the Calculation Date for the third
Due Period prior to the related Due Period, is equal to
or exceeds 4.25%, provided, however that if this
calculation is being made with respect to any of the
first six Determination Dates after the Initial
Delivery Date, the number of Lease Contracts that have
become Defaulted Lease Contracts during the related Due
Period must equal or exceed three; or
(c) commencing with the fourth Determination Date after the
Initial Delivery Date, for the three prior consecutive
Due Periods, the average of the 1-30 Day Delinquency
Rates is equal to or greater than 5.0%; or
(d) a Decrease Funding Termination Event occurs.
"Affiliate": With respect to any specified Person, any
other Person controlling or controlled by or under common control
with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means
the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling"
and "controlled" have meanings correlative to the foregoing.
"Aggregate Initial IPB": The sum of the Aggregate Initial
Series IPB for all Outstanding Series of Certificates.
"Aggregate IPB": The aggregate of the Implicit Principal
Balances of all Series Lease Contracts for all Outstanding
Series.
"Aggregate Initial Series IPB": With respect to each Series
of Class A Certificates and any Related Series of Class B
Certificates, the sum of the Initial Pool Balance and the
cumulative of the Aggregate Interval Pools, in each case, for
such Series.
"Aggregate Interval Pool": With respect to each Floating
Interval and as of the last Determination Date occurring in such
Floating Interval, the aggregate of the then outstanding IPB of
the Interval Pool acquired during such Floating Interval.
"Aggregate Targeted Principal Distribution Amount": For any
Payment Date, the amount by which the Outstanding Principal
Amount of all Series of Class A Certificates, before giving
effect to any payments of principal expected to occur on such
Payment Date, exceeds the Aggregate IPB less the Required
Collateralization Amount.
"Agreement": This Agreement, as supplemented by
Supplements, in the form when originally executed and, if from
time to time further supplemented or amended by one or more
amendments hereto pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this Agreement
designated "Articles," "Sections," "Subsections" and other
subdivisions are to the designated Articles, Sections,
Subsections and other subdivisions of this Agreement as
originally executed, or if amended or supplemented, as so amended
and supplemented, and all references in a Supplement to the
designated "Articles," "Sections," "Subsections" and other
subdivisions are to the designated Articles, Sections,
Subsections and other subdivisions of such Supplement. The words
"herein," "hereof," "hereunder" and other words of similar import
when not related to a specific subdivision of this Agreement,
refer to this Agreement as a whole and not to any particular
Article, Section, Subsection or other subdivision of this
Agreement or any Supplement.
"Amended Lease Schedule": With respect to any Series Lease
Schedule, the list of Lease Contracts amending such Series Lease
Schedule pursuant to any substitution, repurchase, modification
or Funding of Lease Contracts in accordance with the terms hereof
and the Lease Acquisition Agreement, and accompanied by a Company
Certificate or a Transferor Certificate, as applicable.
"Amortization Period": With respect to each Series of
Certificates, the period commencing on the earlier of (i) the
applicable Expected Funding Termination Date and (ii) the first
day of the Accrual Period following the occurrence of a Funding
Termination Event and, in either case, ending on the applicable
Stated Maturity or Expected Maturity, as applicable.
"Annualized Gross Default Rate": For any Due Period, the
sum of the Implicit Principal Balances as of the Calculation Date
occurring in such Due Period of all Lease Contracts that either
(a) have become delinquent for a period of 91 or more days during
such Due Period (including any such Lease Contracts that have
been repurchased, removed or substituted during such Due Period),
or (b) the Servicer has determined in accordance with its
customary practices that it shall not make a Servicer Advance
with respect to such Lease Contract, that a prior Servicer
Advance with respect to such Lease Contract is unrecoverable, or
that the remaining Scheduled Payments under the related Lease
Contract are uncollectible during such Due Period (including any
such Lease Contracts that have been removed, repurchased or
substituted during such Due Period), divided by the Aggregate IPB
on the Calculation Date immediately preceding such Due Period
multiplied by twelve.
"Authenticating Agent": Initially, the Trustee, and
thereafter any entity appointed by the Trustee pursuant to
Section 7.14 hereof.
"Back-up Servicer": Norwest Bank Minnesota, National
Association, and all successors thereto.
"Back-up Servicer Fee": The fee payable on each Payment
Date to the Back-up Servicer in consideration for the Back-up
Servicer's performance of its duties pursuant to this Agreement
and the Servicing Agreement as Back-up Servicer, in an amount
equal to the product of one-twelfth of the Back-up Servicer Fee
Rate and the Outstanding Principal Amount of all Series of
Class A Certificates immediately following the preceding Payment
Date, provided, however, with respect to the Initial Payment
Date, the Back-up Servicer Fee shall equal $150.51.
"Back-up Servicer Fee Rate": .05% per annum.
"Benefit Plan Investor": The meaning set forth in 29 C.F.R.
2510.3-101.
"Board of Directors": Either the board of directors of the
Transferor or of the Servicer, as the context requires, or any
duly authorized committee of such board.
"Board Resolution": A copy of a resolution certified by the
Secretary or an Assistant Secretary of the Transferor or of the
Servicer to have been duly adopted by its Board of Directors and
to be in full force and effect on the date of such certification
and delivered to the Trustee.
"Broker Assignment Agreements": The assignments by which
the Company obtains an assignment of lease contracts and the
related equipment from the originating broker.
"Business Day": Any day other than a Saturday, a Sunday or
a day on which banking institutions in New York City or in the
city in which the principal place of business of the Transferor
or the Servicer or the corporate trust office of the Trustee
under this Agreement is located are authorized or obligated by
law or executive order to close.
"Calculation Date": The last day of a Due Period, except
that (a) with respect to any calculations made regarding any
Funding for any Series of Certificates, the Calculation Date
shall mean the Calculation Date that was the basis for the most
recent Monthly Servicer's Report; and (b) with respect to any
calculations made regarding the Initial Funding Amount for a
Series or any Fundings that occur prior to delivery of the
initial Monthly Servicer's Report, the Calculation Date shall
mean the Cut-Off Date for the Initial Delivery Date.
"Cash Collateral Account": The trust account or accounts
created and maintained pursuant to Section 12.03 hereof.
"Cash Collateral Account Factor": One plus the quotient of
(a) the positive difference between (i) the sum of (x) the
weighted average of the Floating Rate for each Outstanding Series
of Class A Certificates and the Fixed Rate for each Outstanding
Series of Class A Certificates, weighted, respectively by the IPB
for the related tranche of such Class A Certificates of each
Series and (y) the MBIA Premium Rate (weighted by the Outstanding
Principal Amount of the related Series of Class A Certificates),
the Trustee Fee Rate, the Back-up Servicer Fee Rate, and
(ii) 2.5% over (b) twelve.
"Cash Collateral Account Deposit": With respect to the
issuance of any Series of Certificates, the amount to be
deposited in the Cash Collateral Account on the related Delivery
Date as set forth in the applicable Supplement.
"Cash Collateral Account Required Balance": As of any date
of determination, an amount equal to the sum of all Cash
Collateral Account Deposits for any Series of Certificates
Outstanding plus the product of (i) the Cash Collateral Account
Factor and (ii) the Required Collateralization Amount minus:
(x) if the determination date relates to a Payment Date,
the positive difference between: (A) the Aggregate
IPB, and (B) the Outstanding Principal Amount of all
Series of Class A Certificates, after giving effect to
any payments of principal expected to occur on the
related Payment Date; and
(y) if the determination date relates to a Funding, the
positive difference between: (A) the Aggregate IPB and
the Funding IPB relating to the Funding expected to
occur on the related Funding Date, and (B) the
Outstanding Principal Amount of all Series of Class A
Certificates and the Funding Amount for the Funding
expected to occur on the related Funding Date;
provided, however, if a Trigger Event has occurred, the Cash
Collateral Account Required Balance shall be an amount equal to
zero.
"Certificate" or "Certificates": Any one or collectively,
all Outstanding Series of Class A Certificates and Class B
Certificates or all Outstanding Certificates of any one Series or
any one Class, as is consistent with the context in which such
term is used.
"Certificate Funding Administration Agreement": Unless
otherwise specified in the related Supplement, with respect to
any Series of Class A Certificates, the administration agreement
executed in connection therewith between the Certificate Funding
Administrator, the Servicer and the Transferor.
"Certificate Funding Administrator": Rothschild Inc., or
any successor Certificate Funding Administrator approved in
writing by MBIA.
"Certificate Insurance Policies": The certificate guaranty
insurance policies issued by MBIA insuring each Series of Class A
Certificates in accordance with the terms thereof.
"Certificate Interest Rate": With respect to any Series of
Class A Certificates and each Floating Rate Tranche and Fixed
Rate Tranche, the applicable Floating Rate and Fixed Rate,
respectively, and with respect to any Series of Class B
Certificates, the annual rate at which interest accrues on such
Certificates of such Series, as specified as the Class B
Certificate Interest Rate in the applicable Supplement.
"Certificate Purchase Agreement": Each Certificate Purchase
Agreement between the Transferor and one or more purchasers of
Certificates.
"Certificate Register" and "Certificate Registrar": The
respective meanings specified in Section 2.05 hereof.
"Certificateholder" or "Holder": The Person in whose name a
Certificate is registered in the Certificate Register.
"Class": With respect to each Series of Certificates, as so
specified in the related Supplement, a separate senior and/or
subordinated Class of Certificates issued pursuant to this
Agreement, designated as Class A Certificates and Class B
Certificates, respectively, with the specific terms identified in
this Agreement and in the applicable Supplement.
"Class A Certificates": All Series of Class A Certificates
Outstanding as of any date.
"Class A Principal Distribution Amount": As to each Series
of Class A Certificates and (a) as of each Payment Date prior to
the Stated Maturity of such Class of such Series, an amount equal
to the lesser of:
(i) the applicable Class A Targeted Principal
Distribution Amount for the Class A
Certificates of such Series for such Payment
Date, or
(ii) if the amounts available in the Collection
Account and the Cash Collateral Account
(including any Reinvestment Income in such
accounts) after payment of all amounts
required by clauses (i) through (v) of
Section 12.02(d) hereof are less than the
Class A Targeted Principal Distribution
Amounts for all Series of Class A
Certificates, an amount equal to the product
of:
(A) the total funds available for payment of
principal on the Class A Certificates, in
accordance with the priorities set forth in
Section 12.02(d) hereof, and
(B) the applicable Pro Rata Share of the Class A
Targeted Principal Distribution Amount for
such Series of Class A Certificates;
(b) as of the Stated Maturity of each Series of Class A
Certificates, an amount equal to the Outstanding
Principal Amount of the Class A Certificates of such
Series as of such date.
"Class A Targeted Principal Distribution Amount": With
respect to each Payment Date and each Series of Class A
Certificates:
(a) during the Funding Period for such Series of
Certificates, the Class A Targeted Principal
Distribution Amount shall equal zero;
(b) during the Amortization Period for any Payment Date
other than at Stated Maturity, the Aggregate Targeted
Principal Distribution Amount times a percentage
determined by dividing: (i) the decline in the Series
IPB for such Series of Class A Certificates from the
second Calculation Date preceding such Payment Date to
the Calculation Date preceding such Payment Date, by
(ii) the decline in the Aggregate IPB from the second
Calculation Date preceding such Payment Date to the
Calculation Date preceding such Payment Date;
(c) on the applicable Stated Maturity, an amount equal to
the Outstanding Principal Amount of Class A
Certificates of such Series as of such date.
"Class B Additional Return": With respect to each Series of
Class B Certificates, the amount specified in the applicable
Supplement that is payable upon the reduction of the Outstanding
Principal Amount of such Series to zero and if more than one
Outstanding Series of Class B Certificates is entitled to a Class
B Additional Return pursuant to its related Supplement, the Pro
Rata Share of such amount.
"Class B Certificates": Each Class of Certificates
designated as such in the applicable Supplement.
"Class B Interest Rate": The annual rate at which interest
accrues on the Class B Certificates of any Series, as specified
in such Certificates and in the applicable Supplement for such
Series.
"Class B Principal Distribution Amount": Unless otherwise
specified in the related Supplement, as to each Series of Class B
Certificates and as of each Payment Date, an amount equal to all
funds then available to be distributed in accordance with the
priorities set forth in Section 12.02(d) hereof and if more than
one Series of Class B Certificates are Outstanding, the Pro Rata
Share of such funds, provided, however, that no principal shall
be paid on any Series of Class B Certificates while its Related
Series is in its Funding Period.
"Code": The Internal Revenue Code of 1986, as amended.
"Collection Account": The trust account or accounts created
and maintained pursuant to Section 12.02 hereof.
"Company": Granite Financial, Inc., and all successors
thereto in accordance with the Lease Acquisition Agreement.
"Company Certificate": An Officer's Certificate delivered
by the Company substantially in the form of Exhibit A to the
Lease Acquisition Agreement.
"Concentration Limits": The meaning specified in the Lease
Acquisition Agreement.
"Controlling Holders": If any Class A Certificates are then
Outstanding, the Holders of not less than 51% of Outstanding
Principal Amount of all Series of Class A Certificates; otherwise
the Holders of not less than 51% of Outstanding Principal Amount
of all Series of Class B Certificates.
"Conversion Amount": With respect to each Conversion Date
and any Series of Class A Certificates in its Funding Period, and
as determined on the Determination Date preceding such Conversion
Date, the lesser of (i) the product of the Advance Rate and the
Aggregate Interval Pool with respect to such Series and (ii) the
Outstanding Floating Tranche Balance for such Series; provided,
however, that with respect to the Conversion Date for the final
Floating Interval for any Series, the Conversion Amount for such
Series will equal the Outstanding Floating Tranche Balance for
such Series as of such Conversion Date.
"Conversion Date": Unless otherwise specified in the
related Supplement, the close of business on the last day of each
Floating Interval (whether or not a Business Day), provided,
however, that if a Funding Termination Event occurs during a
Floating Interval, the Conversion Date with respect to such
Floating Interval shall be the close of business on the last
Business Day of the Accrual Period in which such Funding
Termination Event has occurred.
"Conversion Rate": The lesser of (i) the Treasury Rate in
effect on the Reset Date preceding the related Conversion Date
corresponding most closely to the Weighted Average Life of the
related Interval Pool, plus the Fixed Rate Spread, converted to a
monthly interest rate and (ii) the Maximum Interest Rate.
"Conversion Report": A Conversion Report substantially in
the form of Exhibit H hereto.
"Corporate Trust Office": The principal corporate trust
office of the Trustee at 6th Street and Marquette Avenue,
Minneapolis, Minnesota 55479-0070, or at such other address as
the Trustee may designate from time to time by notice to MBIA,
the Certificateholders and the Transferor, or the principal
corporate trust office of any successor Trustee.
"Cumulative Gross Default Rate": For any Due Period, the
sum of the Implicit Principal Balances, determined in the Due
Period during which such Lease Contracts became 91 or more days
delinquent, that either (a) are currently delinquent for a period
of 91 or more days (including any such Lease Contracts that have
been repurchased, removed or substituted during such Due Period),
or (b) the Servicer has determined in accordance with its
customary practices that it shall not make a Servicer Advance
with respect to such Lease Contract, that a prior Servicer
Advance with respect to such Lease Contract is unrecoverable, or
that the remaining Scheduled Payments under the related Lease
Contract are uncollectible (including any such Lease Contracts
that have been removed, repurchased or substituted during such
Due Period) divided by the Aggregate Initial IPB of all
Outstanding Series of Class A Certificates.
"Customer": The lessee under each related Lease Contract,
including any guarantor of such lessee and their respective
successors and assigns.
"Cut-Off Date": With respect to any Series of Certificates,
the meaning specified in the applicable Supplement.
"Decrease Funding Termination Event": With respect to any
Series in its Funding Period, the meaning set forth in the
related Supplement.
"Default": Any occurrence or circumstance which with notice
or the lapse of time or both would become an Event of Default.
"Defaulted Lease Contract": A Lease Contract shall become a
Defaulted Lease Contract at the earlier of (a) the Calculation
Date on which such Lease Contract becomes delinquent for a period
of 180 or more days, or (b) the Servicer determines in accordance
with its customary practices that it shall not make a Servicer
Advance with respect to such Lease Contract, that a prior
Servicer Advance with respect to such Lease Contract is
unrecoverable, or that the remaining Scheduled Payments under the
related Lease Contract are uncollectible.
"Delinquent Lease Contract": For any Due Period, any Lease
Contract (a) as to which a full Scheduled Payment was not
received when due by the Servicer and remains unpaid as of the
Calculation Date at the end of such Due Period and (b) which is
not a Defaulted Lease Contract.
"Delivery Date": The date on which the Certificates of a
Series are first executed, authenticated and delivered, as
specified in the applicable Supplement.
"Determination Date": The fourth Business Day preceding
each Payment Date.
"Discount Rate": With respect to any Series of Class A
Certificates, or a portion of a Series of Class A Certificates on
any date of determination, the rate equal to the sum of the
Trustee Fee Rate, the Back-up Servicer Fee Rate, the applicable
MBIA Premium Rate, and (i) with respect to any Floating Rate
Tranche, the applicable Maximum Interest Rate, (ii) with respect
to any Pool acquired on a Delivery Date, the related Initial
Fixed Rate, and (iii) with respect to computations of the
Conversion Amount , the Aggregate Interval Pool or the Net
Interval Pool, the applicable Conversion Rate.
"Dissolution Event": With respect to the Trust, the
withdrawal or expulsion of the Transferor as a beneficial
interest holder in the Trust, the termination, liquidation, or
dissolution of the Transferor, or the occurrence of an Insolvency
Event with respect to the Transferor.
"Dollar(s)": Lawful money of the United States of America.
"Due Date": With respect to each Lease Contract, each date
on which payment is due thereunder.
"Due Period": As to any Determination Date or Payment Date,
the period beginning on the first day and ending on the last day
of the calendar month preceding the month in which such
Determination Date or Payment Date occurs.
"Electronic Ledgers": The electronic master records of all
lease contracts of the Company or the Servicer similar to and
including the Lease Contracts.
"Eligible Investments": Any and all of the following:
(a) direct obligations of, and obligations fully guaranteed
by, the United States of America, the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage
Association, the Federal Home Loan Banks or any agency
or instrumentality of the United States of America the
obligations of which are backed by the full faith and
credit of the United States of America;
(b) (i) demand and time deposits in, certificates of
deposit of, banker's acceptances issued by or federal
funds sold by any depository institution or trust
company (including the Trustee or its agent acting in
their respective commercial capacities) incorporated
under the laws of the United States of America or any
State thereof and subject to supervision and
examination by federal and/or state authorities, so
long as at the time of such investment or contractual
commitment providing for such investment, such
depository institution or trust company has a short
term unsecured debt rating in the highest available
rating category of S&P and Moody's and provided that
each such investment has an original maturity of no
more than 365 days, and (ii) any other demand or time
deposit or deposit which is fully insured by the
Federal Deposit Insurance Corporation;
(c) repurchase obligations with a term not to exceed 30
days with respect to any security described in clause
(a) above and entered into with a depository
institution or trust company (acting as a principal)
rated "A" or higher by S&P and rated A2 or higher by
Moody's; provided, however, that collateral transferred
pursuant to such repurchase obligation must be of the
type described in clause (a) above and must (i) be
valued weekly at current market price plus accrued
interest, (ii) pursuant to such valuation, equal, at
all times, 105% of the cash transferred by the Trustee
in exchange for such collateral and (iii) be delivered
to the Trustee or, if the Trustee is supplying the
collateral, an agent for the Trustee, in such a manner
as to accomplish perfection of a security interest in
the collateral by possession of certificated
securities.
(d) securities bearing interest or sold at a discount
issued by any corporation incorporated under the laws
of the United States of America or any State thereof
which has a long term unsecured debt rating in the
highest available rating category of each of the Rating
Agencies at the time of such investment;
(e) commercial paper having an original maturity of less
than 365 days and issued by an institution having a
short term unsecured debt rating in the highest
available rating category of each of the Rating
Agencies at the time of such investment;
(f) a guaranteed investment contract approved in writing by
each of the Rating Agencies and MBIA and issued by an
insurance company or other corporation having a long
term unsecured debt rating in the highest available
rating category of each of the Rating Agencies at the
time of such investment;
(g) money market funds having ratings in the highest
available rating categories of S&P and Moody's at the
time of such investment which invest only in other
Eligible Investments; any such money market funds which
provide for demand withdrawals being conclusively
deemed to satisfy any maturity requirement for Eligible
Investments set forth in this Agreement; and
(h) any investment approved in writing by each of the
Rating Agencies and MBIA.
The Trustee may purchase from or sell to itself or an affiliate,
as principal or agent, the Eligible Investments listed above.
All Eligible Investments shall be made in the name of the Trustee
for the benefit of the Certificateholders and MBIA.
"Eligible Lease Contract": A Lease Contract that satisfies
the selection criteria set forth in Section 3.01(a) of the Lease
Acquisition Agreement as of the applicable Acquisition Date.
"Equipment": The equipment leased to the Customers pursuant
to the Lease Contracts, together with any replacement parts,
additions and repairs thereof, and any accessories incorporated
therein and/or affixed thereto.
"ERISA": The Employee Retirement Income Security Act of
1974, as amended or any successor statute thereto.
"Event of Default": The meaning specified in Section 6.01
hereof.
"Existing Indebtedness": The meaning specified in the Lease
Acquisition Agreement.
"Expected Funding Termination Date": For each Series of
Class A Certificates and the related Series of Class B
Certificates, the date specified in the related Supplement for
such Series of Class A Certificates.
"Expected Maturity": With respect to any Series of Class B
Certificates, the meaning specified in the applicable Supplement.
"Final Due Date": With respect to each Lease Contract, the
final Due Date thereunder.
"Final Payment Date": With respect to any Certificate of a
Series, the date on which the final principal payment on such
Certificate is made as therein or herein provided, whether at the
Stated Maturity or Expected Maturity, as applicable, or by
acceleration or redemption.
"First Period Interest": With respect to any Funding, the
amounts, if any, of interest that will accrue on the related
Funding Amount at the applicable Floating Interest Rate as
determined on the related Reset Date, commencing on such Funding
Date and ending on the last day of the Accrual Period in which
such Funding occurs.
"Fixed Rate": With respect to each Series of Class A
Certificates, (i) until the first Conversion Date, a per annum
rate equal to the Initial Fixed Rate; (ii) thereafter during the
Funding Period for such Series and as of each Conversion Date
with respect thereto, a rate as determined on the Reset Date
immediately prior to such Conversion Date, equal to the lesser of
(A) the weighted average of the Initial Fixed Rate and the
Conversion Rates established for each Interval Pool relating to
such Series, weighted, respectively, by the Net Interval Pool for
each such Interval Pool and (B) the Maximum Interest Rate; and
(iii) during the Amortization Period, an amount equal to the
Fixed Rate set on the last Conversion Date for such Series.
"Fixed Rate Spread": With respect to each Series of Class A
Certificates, as defined in the related Supplement.
"Fixed Rate Tranche": With respect to each Series of
Class A Certificates, the tranche under the Series of
Certificates in a principal amount which is equal to the
Outstanding Fixed Tranche Balance for such Series.
"Floating Interval": With respect to each Series of Class A
Certificates, as defined in the related Supplement.
"Floating Rate": With respect to each Series of Class A
Certificates, the lesser of (i) a per annum rate equal to the
LIBOR Rate plus the applicable Floating Rate Spread and (ii) the
Maximum Interest Rate.
"Floating Rate Spread": With respect to each Series of
Class A Certificates, as defined in the related Supplement.
"Floating Rate Tranche": For a Series of Class A
Certificates in its Funding Period, the tranche under the Series
of Certificates which is equal to the Outstanding Floating
Tranche Balance for such Series.
"Floor Percentage": 5%.
"Funded Lease Contract": A Lease Contract acquired by the
Transferor on a Funding Date other than a Delivery Date.
"Funding": An extension of credit by any Class A
Certificateholder to the Transferor on a Funding Date with
respect to any Series of Class A Certificates.
"Funding Amount": As of any Funding Date for any Series of
Class A Certificates, the amount, if any, by which the sum of
(i) the Aggregate IPB as of such date (without taking into
account the Funding IPB for the current Funding Date) and
(ii) the Funding IPB for the current Funding Date, exceeds the
sum of (A) the Required Collateralization Amount and (B) the
Outstanding Principal Amount of all Series of Class A
Certificates; provided, however, that the sum of all Funding
Amounts on all Funding Dates for such Series shall not exceed the
Maximum Series Amount and no Funding Amount shall be less than
the Minimum Funding Amount.
"Funding Continuation Notice": Written notice from MBIA to
the Transferor, the Servicer and the Trustee, substantially in
the form of Exhibit F hereto, stating that the Funding Period for
a particular Series of Class A Certificates can be continued for
the period set forth in such Funding Continuation Notice on the
terms set forth in this Agreement and the applicable Supplement
for such Series.
"Funding Date": With respect to any Series of Class A
Certificates, any Business Day on which the Transferor desires to
obtain a Funding in accordance with the terms of this Agreement,
provided, however, that (a) no Fundings shall occur on any date
between and including a Determination Date and the related
Payment Date and (b) Fundings shall not occur more than one time
per week.
"Funding IPB": The sum of the Implicit Principal Balances
of the Lease Contracts to be acquired by or on behalf of the
Transferor on any Funding Date.
"Funding Period": The period of time commencing on the
initial issuance of a Series of Class A Certificates and ending
on the applicable Funding Termination Date.
"Funding Report": A Funding Report in the form of Exhibit E
hereto.
"Funding Termination Date": With respect to any Series of
Certificates, the earlier of (a) the Expected Funding Termination
Date, and (b) the day of the occurrence of a Funding Termination
Event.
"Funding Termination Event": With respect to any Series of
Class A Certificates and the Related Series of Class B
Certificates, the meaning specified in the applicable Supplement
for such Series of Class A Certificates.
"Guaranty Amounts": Any and all amounts paid by any
guarantor indicated on the applicable Lease Contract.
"Holder" or "Certificateholder": The person in whose name a
Certificate is registered in the Certificate Register.
"Implicit Principal Balance" or "IPB": As of any date of
determination, with respect to any Lease Contract, the present
value of the remaining stream of Scheduled Payments (reduced by
the applicable Servicer Fee but not reduced by any Additional
Servicer Fee) due with respect to such Lease Contract after the
applicable Calculation Date, and calculated by discounting such
Scheduled Payments (assuming such Scheduled Payments are received
on the last day of the related Due Period) to such Calculation
Date at an annual rate equal to the applicable Discount Rate, at
the same frequency as the Payment Dates; except that on the
Calculation Date, (a) on or immediately following the deposit
into the Collection Account of any Insurance Proceeds (and the
termination of the related Lease Contract) or the Removal Price,
or on or immediately following the delivery of a Substitute Lease
Contract, (b) immediately on or after the date that a Lease
Contract has become a Defaulted Lease Contract, or
(c) immediately preceding the Final Payment Date, the Implicit
Principal Balance of each such related Lease Contract shall be
zero. To the extent that the Final Due Date of any Series Lease
Contract is later than the Stated Maturity of the last maturing
Certificates of the related Series of Class A Certificates, any
Scheduled Payments due on such Lease Contract after the
Calculation Date immediately preceding such Stated Maturity shall
not be taken into account in calculating the Implicit Principal
Balance of such Lease Contract.
"Independent": When used with respect to any specified
Person means such a Person, who (a) is in fact independent of the
Transferor, (b) does not have any direct financial interest or
any material indirect financial interest in the Transferor or in
any Affiliate of the Transferor and (c) is not connected with the
Transferor as an officer, employee, promoter, underwriter,
trustee, partner, director, or person performing similar
functions. Whenever it is herein provided that any Independent
Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by a Transferor Order and
approved by the Trustee in the exercise of reasonable care, and
such opinion or certificate shall state that the signer has read
this definition and that the signer is Independent within the
meaning hereof.
"Independent Accountants": Ehrhardt, Keefe, Steiner &
Hottman, or any firm of independent certified public accountants
of recognized national standing and reasonably acceptable to
MBIA, or if an MBIA Default or Termination has occurred and is
continuing, the Controlling Holders.
"Initial Cash Deposit": The amount, if any, specified in
the applicable Supplement.
"Initial Delivery Date": The date on which the first Series
of Certificates are executed, authenticated and delivered.
"Initial Fixed Rate": With respect to each Series of
Class A Certificates and if so specified with respect to any
Series of Class B Certificates, as defined in the related
Supplement.
"Initial Funding Amount": With respect to each Series of
Class A Certificates, as defined in the related Supplement.
"Initial Payment Date": With respect to each Series, as
defined in the related Supplement.
"Initial Pool Balance": With respect to each Series of
Certificates, the Series IPB as of the related Delivery Date.
"Initial Series Lease Schedule": The listing of Lease
Contracts and related Equipment attached to the Company
Certificate executed on the Initial Delivery Date.
"Insolvency Event" means, with respect to a specified
Person, (a) the commencement of an involuntary case against such
Person under the Federal bankruptcy laws, as now or hereinafter
in effect, or another present or future Federal or state
bankruptcy, insolvency or similar law, and such case is not
dismissed within 60 days; or (b) the filing of a decree or entry
of an order for relief by a court having jurisdiction in the
premises in respect of such Person or any substantial part of its
property in an involuntary case under any applicable federal or
state bankruptcy, insolvency or other similar law now or
hereafter in effect, or appointing a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official
for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person's affairs;
or (c) the commencement by such Person of a voluntary case under
any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, or the consent by such
Person to the entry of an order for relief in an involuntary case
under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official
for such Person or for any substantial part of its property, or
the making by such Person of any general assignment for the
benefit of creditors, or the failure by such Person generally to
pay its debts as such debts become due, or the taking of action
by such Person in furtherance of any of the foregoing.
"Insurance Agreement": With respect to each Series of
Class A Certificates, the applicable Insurance Agreement related
to such Series, by and among MBIA, the Transferor, the Company,
the Servicer, the Back-up Servicer, the Trustee and the
Certificate Funding Administrator, as amended or supplemented in
accordance with the terms thereof.
"Insurance Policy": With respect to an item of Equipment
and a Lease Contract, any insurance policy maintained by the
Customer pursuant to the related Lease Contract that covers
physical damage to the Equipment or general liability (including
policies procured by the Company or the Servicer on behalf of the
Customer).
"Insurance Proceeds": With respect to an item of Equipment
and a Lease Contract, any amount received during the related Due
Period pursuant to an Insurance Policy issued with respect to
such Equipment and the related Lease Contract, net of any costs
of collecting such amounts not otherwise reimbursed.
"Insurer": Any insurance company or other insurer providing
any Insurance Policy.
"Interval Pool": With respect to each Series of Class A
Certificates (i) the Lease Contracts set forth in the Initial
Series Lease Schedule relating to such Series and (ii) for each
Floating Interval, all of the Lease Contracts acquired by the
Transferor during such Floating Interval
"Investment and Assumption Letter": The letter required to
be delivered by each transferee of a Certificate, as provided in
Section 2.06 hereof, substantially in the form of Exhibit C
hereto or, under the circumstances described in Section
2.06(a)(ii), in the form required thereby.
"Lease Acquisition Agreement": The Lease Acquisition
Agreement dated as of November 1, 1996, by and between the
Transferor and the Company, as amended or supplemented from time
to time in accordance with the terms thereof.
"Lease Assets": The meaning specified in the Lease
Acquisition Agreement.
"Lease Contract File": The meaning specified in the Lease
Acquisition Agreement.
"Lease Contracts": The lease contracts including all Loan
Contracts (and all rights with respect thereto, including all
guaranties and other agreements or arrangements of whatever
character from time to time supporting or securing payment of any
Lease Contract and all rights with respect to any agreements or
arrangements with the vendors, dealers or manufacturers of the
Equipment to the extent specifically related to any Lease
Contract) which are identified either (i) on a Series Lease
Schedule delivered to the Trustee and MBIA on a Delivery Date, or
(ii) on an Amended Lease Schedule delivered to the Trustee and
MBIA on an Acquisition Date or on the date on which Substitute
Lease Contracts are delivered to the Trustee; provided that, from
and after the date on which a Lease Contract is repurchased,
removed or substituted by the Company or the Transferor in
accordance with Section 4.04 hereof, such repurchased, removed or
replaced Lease Contract shall no longer constitute a Lease
Contract for purposes of the Transaction Documents.
"Lease Receivables": With respect to any Lease Contract,
all of, and the right to receive all of (a) the Scheduled
Payments, (b) any prepayments made with respect of such Lease
Contract, (c) any Guaranty Amounts, (d) any Insurance Proceeds,
(e) any Residual Proceeds, (f) any Overdue Payments, and (g) any
Recoveries.
"Lease Sale Agreement": Each Lease Sale Agreement entered
into by the Transferor with a Seller and approved by MBIA in
writing, substantially in the form of Exhibit I hereto.
"LIBOR Rate": Unless otherwise specified in the related
Supplement, with respect to each Series of Class A Certificates
and each Accrual Period, an interest rate per annum equal to the
rate for London interbank offered quotations for one-month
Eurodollar deposits determined by the Trustee for such Accrual
Period as follows:
(a) On each Reset Date, the Trustee will determine the
LIBOR Rate on the basis of the rate for deposits in U.S.
Dollars for a period of one month that appears on the
Telerate Page 3750 or Bloomberg MMR2 as of 11:00 a.m.
(London time) on such Reset Date. If such rate does not
appear on Telerate Page 3750 or Bloomberg MMR2, the rate for
such Reset Date will be determined on the basis of the rates
at which deposits in U.S. Dollars are offered by the
Reference Banks at approximately 11:00 a.m. (London time) on
such date to prime banks in the London interbank market for
a period of one month commencing on that Reset Date. The
Trustee will request the principal London office of each of
the Reference Banks to provide such a quotation.
(b) If, on any Reset Date, at least two Reference Banks
provide quotations when requested, the LIBOR Rate for such
Reset Date will be the arithmetic mean of the quotations so
received.
(c) If, on any Reset Date, only one or none of the
Reference Banks provides such a quotation, the LIBOR Rate
will be the arithmetic mean of the offered rates quoted by
major banks in New York City selected by the Trustee at
approximately 11:00 a.m. (New York City time) on such Reset
Date for loans to leading European banks in U.S. Dollars for
a period of one month commencing on that Reset Date.
(d) If, on any Reset Date, the LIBOR Rate cannot be
calculated pursuant to one of the above methods, the LIBOR
Rate for such Reset Date shall be the Maximum Interest Rate.
"Lien": The meaning specified in the Lease Acquisition
Agreement.
"Liquidated Lease Receivable": A Lease Receivable that has
been liquidated pursuant to Section 3.01(b) of the Servicing
Agreement.
"Loan Contract": A Lease Contract that evidences a sale of
the related Equipment to the Customer and the retention by the
lessor of a security interest in such Equipment.
"Lockbox Account": The meaning specified in the Servicing
Agreement.
"London Banking Day": Any day on which dealings in deposits
in Dollars are transacted in the London interbank market.
"Material Affiliate": Any entity whose capital stock the
Company has majority ownership.
"Maximum Interest Rate": For each Series of Class A
Certificates, as defined in the related Supplement.
"Maximum Monthly Amount": For each Series of Class A
Certificates, as defined in the related Supplement.
"Maximum Series Amount": For each Series, as defined in the
related Supplement.
"MBIA": MBIA Insurance Corporation and any successor
thereto.
"MBIA Default or Termination": The occurrence and
continuance of any of the following events:
(a) the failure by MBIA to make a payment under a
Certificate Insurance Policy in accordance with its
terms;
(b) the occurrence of an "Insurer Insolvency," as that term
is defined in the Insurance Agreement, with respect to
MBIA; or
(c) 124 days have lapsed since all Class A Certificates
have been paid in full, MBIA has been paid all amounts
owed to it under each Insurance Agreement, all
Certificate Insurance Policies have been surrendered to
MBIA and the Insurance Agreements have been terminated.
"MBIA Premium": The sum of all MBIA Premiums specified in
each Insurance Agreement.
"MBIA Premium Rate": With respect to each Series of
Certificates, the meaning specified in the applicable Insurance
Agreement.
"Minimum Funding Amount": With respect to each Series of
Class A Certificates, the meaning specified in the related
Supplement.
"Minimum Monthly Amount": With respect to each Series of
Class A Certificates, the meaning specified in the related
Supplement.
"Monthly Servicer's Report": The report prepared by the
Servicer pursuant to Section 4.01 of the Servicing Agreement.
"Moody's": Moody's Investors Service, Inc. and its
successors in interest.
"Net Funding Amount": With respect to each Funding Date,
the positive difference between the Funding Amount and the First
Period Interest.
"Net Interval Pool": With respect to each Interval Pool and
as of any date of determination, the then outstanding IPB of such
Interval Pool.
"Net Worth Requirement" means, for purposes of determining
whether a Trigger Event has occurred, the Servicer's consolidated
Tangible Net Worth shall not be less than (a) during the period
from the Initial Delivery Date through the fiscal year ending
June 30, 1997, $10,189,224, (b) during the fiscal year ending
June 30, 1998, the sum of (i) $10,189,224 plus (ii) 75% of the
cumulative after tax consolidated net income from October 1, 1996
to June 30, 1997, such amount being calculated without any offset
and reduction for net losses incurred from October 1, 1996 to
June 30, 1997, and (c) during each fiscal year ending
thereafter, the sum of (i) the Net Worth Requirement established
as of the last day of the immediately preceding fiscal year, plus
(ii) 75% of the cumulative after tax consolidated net income for
each year thereafter, such amount being calculated without any
offset or reduction for net losses incurred during the fiscal
year for which such calculation is being made. For purposes of
determining whether a Funding Termination Event has occurred, the
Net Worth Requirement shall have the same meaning as set forth
above, except that $10,571,320 shall be substituted for
$10,189,224 above.
"Nonrecoverable Advance": The meaning specified in the
Servicing Agreement.
"Officer's Certificate": A certificate signed by the
Chairman of the Board, the President, a Vice President, the
Treasurer, the Controller, an Assistant Controller or the
Secretary of the company on whose behalf the certificate is
delivered, and delivered to the Trustee, which certificate shall
comply with the applicable requirements of Section 13.13 hereof.
Unless otherwise specified, any reference in this Agreement to an
Officer's Certificate shall be to an Officer's Certificate of the
Transferor.
"1-30 Day Delinquency Rate": For any Due Period, the sum of
the Implicit Principal Balances as of the Calculation Date
occurring in such Due Period of all Lease Contracts that are at
least 1 day and less than 31 days delinquent as of such
Calculation Date (including any such Lease Contracts that have
been repurchased, removed or substituted during such Due Period),
divided by the Aggregate IPB on such Calculation Date (including
any such Lease Contracts that have been repurchased, removed or
substituted during such Due Period).
"Opinion of Counsel": A written opinion of outside counsel
who shall be reasonably satisfactory to the Trustee and MBIA and
which opinion shall comply with the applicable requirements of
Section 13.13 hereof.
"Outstanding": With respect to Certificates, as of any date
of determination, all Certificates theretofore authenticated and
delivered under this Agreement except:
(a) Certificates theretofore canceled by the Certificate
Registrar or delivered to the Certificate Registrar for
cancellation; and
(b) Certificates in exchange for or in lieu of which other
Certificates have been authenticated and delivered
pursuant to this Agreement, unless proof satisfactory
to the Trustee is presented that any such Certificates
are held by a bona fide purchaser;
provided, however, that for purposes of disbursing payments from
the Certificate Insurance Policies and in determining whether the
Holders of the requisite Outstanding Principal Amount of
Certificates have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Certificates
owned by the Transferor or any other obligor upon the
Certificates or any Affiliate of the Transferor or the Servicer
or such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent, or waiver, only
Certificates which the Trustee knows to be so owned shall be so
disregarded.
"Outstanding Fixed Tranche Balance": With respect to any
Series of Class A Certificates as of any date of determination, a
principal amount equal to the positive difference between (i) the
sum of (a) the Initial Funding Amount for such Series and (b) the
aggregate of all Conversion Amounts for such Series and (ii) the
sum of (a) the aggregate Class A Principal Distribution Amounts
distributed to Certificateholders of such Series pursuant to
Section 12.02(d)(vi) hereof, and (b) the aggregate Additional
Principal Amounts distributed to Certificateholders of such
Series pursuant to Section 12.02(d)(x) hereof.
"Outstanding Floating Tranche Balance": With respect to any
Series of Class A Certificates, as of the applicable Delivery
Date, zero. Thereafter, on any date of determination, an amount
equal to the aggregate amount of all Fundings made with respect
to such Series through and including such date of determination
exclusive of the Funding with respect to such Series on the
Delivery Date, minus the aggregate amount of all Conversion
Amounts for such Series through and including such date of
determination.
"Outstanding Principal Amount": With respect to any
Outstanding Class A Certificate or Series of Class A Certificates
as of any date of determination, the sum of the Outstanding
Floating Tranche Balance for such Series and the Outstanding
Fixed Tranche Balance for such Series; and with respect to any
Outstanding Class B Certificate or Series of Class B
Certificates, the unpaid principal amount of such Certificate or
Class of Certificates.
"Overdue Payment": With respect to a Due Period and a Lease
Contract that is a Delinquent Lease Contract, all payments due in
a prior Due Period that the Servicer receives from or on behalf
of a Customer during the related Due Period on such Delinquent
Lease Contract, including any Servicing Charges.
"Paying Agent": The Trustee or any other Person that meets
the eligibility standards for the Trustee specified in Section
7.08 hereof and is authorized by the Transferor pursuant to
Section 7.16 hereof to pay the principal of, or interest on, any
Certificates on behalf of the Transferor.
"Payment Date": For each Series, the twentieth day of each
calendar month (or if such day is not a Business Day, the next
succeeding Business Day) commencing on the Initial Payment Date
for such Series.
"Person": Any individual, corporation, partnership,
association, joint-stock company, limited liability company,
trust (including any beneficiary thereof), unincorporated
organization or government or any agency or political subdivision
thereof.
"Placement Agent": Rothschild Inc.
"Pool": A pool of Eligible Lease Contracts to be funded on
a Funding Date or any Delivery Date.
"Preference Claim": The meaning given in Section 8.01
hereof.
"Private Placement Memorandum" or "Final Private Placement
Memorandum": The Private Placement Memorandum, if any, related
to any direct or indirect offering of a Series of Certificates
and having the date specified in the applicable Supplement.
"Proceeding": Any suit in equity, action at law or other
judicial or administrative proceeding.
"Pro Rata Share": With respect to:
(a) any distribution of the Class A Principal Distribution
Amount on any Series of Class A Certificates on any
Payment Date, a percentage, determined by dividing:
(i) the Class A Targeted Principal Distribution Amount
scheduled to be paid on such Series of Class A
Certificates, by
(ii) the aggregate Class A Targeted Principal
Distribution Amounts in respect of all Series of
Class A Certificates on such Payment Date;
(b) any distribution of interest on any Series of Class A
Certificates on any Payment Date, a percentage,
determined by dividing the amount of interest scheduled
to be paid on such Series of Class A Certificates by
the amount of interest scheduled to be paid on all
Series of Class A Certificates on such Payment Date;
(c) any payments of Additional Principal Amounts on any
Payment Date, a percentage determined by dividing:
(i) the decline in the related Series IPB since the
Calculation Date preceding the applicable Trigger
Event, by
(ii) the decline in the Aggregate IPB since the
Calculation Date preceding the applicable Trigger
Event;
(d) any distribution of the Class B Principal Distribution
Amount and the Class B Additional Return on any Series
of Class B Certificates on any Payment Date, a
percentage, determined by dividing:
(i) the Outstanding Principal Amount of such Series of
Class B Certificates, by
(ii) the aggregate Outstanding Principal Amount of all
Series of Class B Certificates.
"PUT Payments": A provision in a Lease Contract obligating
the lessee to purchase the related Equipment upon termination.
"Rating Agencies": Moody's and S & P.
"Record Date": The close of business on the last day of the
month preceding the applicable Payment Date, whether or not a
Business Day, except with respect to an Initial Payment Date, the
Record Date shall be the related Delivery Date.
"Recoveries": For any Due Period occurring after the date
on which any Lease Contract becomes a Defaulted Lease Contract
and with respect to such Defaulted Lease Contract, all payments
that the Servicer received from or on behalf of a Customer during
such Due Period in respect of such Defaulted Lease Contract or
from liquidation or re-leasing of the related Equipment,
including but not limited to Scheduled Payments, Overdue
Payments, Guaranty Amounts, and Insurance Proceeds.
"Redemption Account": The trust account or accounts created
and maintained pursuant to Section 12.02 hereof.
"Redemption Date": A date fixed pursuant to Section 10.01
hereof.
"Redemption Price": With respect to any Class of
Certificates being redeemed pursuant to Article Ten hereof, and
as of the related Redemption Date, the Outstanding Principal
Amount of such Class of Certificates, together with interest
accrued and unpaid thereon to but excluding the related
Redemption Date at the applicable Certificate Interest Rate
(exclusive of installments of interest and principal maturing on
or prior to such date, payment of which shall have been made or
duly provided for to the Holder of such Certificate on the
applicable Record Date or as otherwise provided in this
Agreement).
"Redemption Record Date": With respect to any redemption of
Certificates, a date fixed pursuant to Section 10.01 hereof.
"Reference Banks": For each Series of Class A Certificates,
unless otherwise specified in the applicable Supplement, four
leading banks selected by the Trustee that are engaged in
transactions in eurodollar deposits in the international
Eurocurrency market, each of which shall have an established
place of business in London.
"Registered Holder": The Person whose name appears on the
Certificate Register on the applicable Record Date or Redemption
Record Date.
"Reinvestment Income": Any interest or other earnings
earned on all or part of the Trust Estate.
"Related Series": As to each Series of Class B
Certificates, the Series of Class A Certificates which shall be
designated in the Supplement for such Series of Class B
Certificates as its "Related Series"; and as to each Series of
Class A Certificates, one or more Series of Class B Certificates
which have been designated as having such Series of Class A
Certificates as a "Related Series."
"Removal Price": With respect to any Lease Contract
repurchased by the Company pursuant to Sections 2.06 or 3.03 of
the Lease Acquisition Agreement, repurchased by any Seller
pursuant to a Lease Sale Agreement or removed by the Transferor
pursuant to Section 4.04(d) hereof, the sum of (a) the Implicit
Principal Balance (computed without giving effect to clauses (b)
and (c) of the definition of "Implicit Principal Balance") of the
related Lease Receivable on the Calculation Date on or
immediately preceding the date when the Lease Contract is removed
or repurchased, (b) any Scheduled Payments with respect to the
Lease Contract due on or prior to such Calculation Date but not
received through such Calculation Date, and (c) with respect to
the related Equipment, the amount, if any, recorded in the books
and records of the Transferor as the "unguaranteed residual."
"Required Audits": With respect to each Series of Class A
Certificates, the requirements set forth in the applicable
Supplement.
"Required Collateralization Amount": As of the Initial
Delivery Date, $1,639,954.70, and as of any date of
determination thereafter, the greatest of
(a) one minus the applicable Advance Rate multiplied
by the Aggregate IPB (including any Lease Contracts to
be purchased or funded and excluding any Lease
Contracts to be released pursuant to Section 10.05
hereof on such date of determination),
(b) the aggregate Implicit Principal Balance of the Lease
Contracts (including any Lease Contracts to be purchased or
funded on such date of determination and excluding any Lease
Contracts to be released pursuant to Section 10.05 hereof on
such date of determination) relating to the three Customers
whose Lease Contracts have the greatest remaining Implicit
Principal Balances, and
(c) the Floor Percentage multiplied by the Aggregate
Initial IPB (including any Lease Contracts to be purchased
or funded on such date of determination).
"Reset Date": Unless otherwise specified in the related
Supplement, during the Funding Period for each Series, (i) with
respect to First Period Interest, the second Business Day
preceding a Funding Date, (ii) with respect to the LIBOR Rate
(other than the calculation of the LIBOR Rate with respect to
First Period Interest), the second Business Day immediately
preceding the commencement of each Accrual Period for interest
paid on any Payment Date; provided, however, that if such date is
not both a Business Day and a London Banking Day, the Reset Date
shall be the first preceding day that is both a Business Day and
a London Banking Day and (iii) with respect to the Treasury Rate,
the Conversion Rate or the Fixed Rate, the Determination Date
preceding the related Conversion Date.
"Residual Proceeds": With respect to a Lease Contract that
is not a Defaulted Lease Contract and the related Equipment, the
net proceeds (including Insurance Proceeds) of any sale, re-lease
(including any lease renewal) or other disposition of such
Equipment or any periodic payment under the Lease Contract for
use of the Equipment after the initial term thereof.
"Responsible Officer": When used with respect to the
Trustee, any officer assigned to the Corporate Trust Department
(or any successor thereto), including any Vice President, Senior
Trust Officer, Trust Officer, Assistant Trust Officer, any
Assistant Secretary, any Trust Officer or any other Officer of
the Trustee customarily performing functions similar to those
performed by any of the above designated officers and having
direct responsibility for the administration of this Agreement,
and also, with respect to a particular matter, any other officer,
to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Sale": The meaning specified in Section 6.18 hereof.
"Scheduled Expenses": On any Determination Date, the
Servicer Fee, the Back-up Servicer Fee, the MBIA Premium and the
Trustee Fee to be due on the next succeeding Payment Date.
"Scheduled Payment": With respect to a Payment Date and a
Lease Contract, the periodic payment (exclusive of any amounts in
respect of taxes and any PUT Payments or other balloon payments)
set forth in such Lease Contract due from the Customer in the
related Due Period, calculated without regard to any modification
granted pursuant to Section 3.01(b)(v) of the Servicing
Agreement.
"Seller": Any Person that has been approved in writing by
MBIA to sell Lease Contracts to the Transferor pursuant to a
Lease Sale Agreement and as to which MBIA has received such legal
opinions, certificates and any other documentation as MBIA may
reasonably request.
"Series": A separate Series of Certificates issued pursuant
to this Agreement, with the specific terms identified in the
applicable Supplement. Each Series may be comprised of either or
both Class A Certificates and Class B Certificates.
"Series IPB": With respect to any Series of Certificates,
the sum of the Implicit Principal Balances of all related Series
Lease Contracts.
"Series Lease Contracts": For each Series of Class A
Certificates and the Related Series of Class B Certificates, the
Lease Contracts listed on the related Series Lease Schedule.
"Series Lease Schedule": For each Series of Certificates,
the list of Lease Contracts and Lease Receivables attached to the
applicable Supplement for such Series of Certificates, together
with and as amended by all related Amended Lease Schedules, each
of which shall include with respect to each Lease Contract:
(a) a number identifying the Lease Contract, (b) the Implicit
Principal Balance, (c) the number identifying the Customer,
(d) the State of the Customer's billing address, (e) the original
and remaining term, (f) the Scheduled Payment and the frequency
thereof, (g) the Equipment type, (h) the zip code of the
Customer's billing address, (i) the broker of the Lease Contract
(j) whether such Lease Contract is a "true lease" or a Loan
Contract, (k) the amount of any PUT Payment and (l) any
additional items specified in the related Supplement.
"Servicer": Initially, the Company, and thereafter any
successor Servicer appointed pursuant to Section 6.02 of the
Servicing Agreement.
"Servicer Advance": The meaning set forth in Section 3.04
of the Servicing Agreement.
"Servicing Officers": The persons listed on a certificate
of the Servicer from time to time delivered by the Servicer to
the Transferor and the Trustee.
"Servicer Fee": $8 per Lease Contract per Scheduled Payment
on such Lease Contract, the amount payable to the Servicer as the
Servicer Fee on each Payment Date. The Servicer Fee shall not
include the Additional Servicer Fee.
"Servicing Agreement": The Servicing Agreement dated as of
November 1, 1996 by and among the Servicer, the Transferor, the
Back-up Servicer and the Trustee, as amended or supplemented from
time to time in accordance with the terms thereof.
"Servicing Charges": The sum of (a) all late payment
charges paid by Customers on Lease Contracts that are Delinquent
Lease Contracts after payment in full of any Scheduled Payments
due in a prior Due Period and Scheduled Payments for the related
Due Period and (b) any other incidental charges or fees received
from a Customer, including but not limited to, late fees,
collection fees and bounced check charges.
"61-90 Day Delinquency Rate": For any Due Period, the sum
of the Implicit Principal Balances as of the Calculation Date
occurring in such Due Period of all Lease Contracts that are more
than 60 days and less than 91 days delinquent, as of such
Calculation Date (including any such Lease Contracts that have
been repurchased, removed or substituted during such Due Period),
divided by the Aggregate IPB on such Calculation Date (including
any such Lease Contracts that have been repurchased, removed or
substituted during such Due Period).
"S & P": Standard & Poor's Ratings Services, a division of
The McGraw Hill Companies, Inc., and its successors in interest.
"State": Any state of the United States of America and, in
addition, the District of Columbia and Puerto Rico.
"Stated Maturity": With respect to any Series of Class A
Certificates, the meaning specified in the applicable Supplement.
"Substitute Lease Contract": The meaning specified in the
Lease Acquisition Agreement.
"Supplement": With respect to any Series, the supplement to
this Agreement in the form attached as Exhibit B hereto for any
Series of Class A Certificates and for any Series of Class B
Certificates and pursuant to which the terms of such Series are
specified as provided in Section 2.02 hereof.
"Tangible Net Worth": The excess of (a) the tangible assets
of the Servicer and any subsidiaries calculated in accordance
with GAAP, as reduced by adequate reserves in each case where
reserves are proper, over (b) all indebtedness (including
subordinated debt) of the Servicer and its subsidiaries;
provided, however, that (i) in no event shall there be included
in the above calculation any intangible assets such as patents,
trademarks, trade names, copyrights, licenses, goodwill,
organizational costs, advances or loans to, or receivables from,
directors, officers, employees or subsidiaries (other than
subsidiaries that are special purpose entities owned by the
Servicer or any subsidiary thereof), prepaid assets, amounts
relating to covenants not to compete, pension assets, deferred
charges or treasury stock or any securities of the Servicer or
any other securities unless the same are readily marketable in
the United States of America or entitled to be used as a credit
against federal income tax liabilities, (ii) securities included
as such intangible assets shall be taken into account at their
current market price or cost, whichever is lower, and (iii) any
write-up in the book value of any assets shall not be taken into
account.
"Transaction Documents": The Agreement, the Servicing
Agreement, the Lease Acquisition Agreement, the Certificates, the
Insurance Agreements, the Certificate Insurance Policies and the
Certificate Funding Administration Agreements.
"Transaction Documents Date": With respect to each Series
of Certificates, the meaning specified in the applicable
Supplement.
"Transferor": GF Funding Corp. II, and all successors
thereto in accordance with the terms hereof.
"Transferor Certificate": An Officer's Certificate
delivered by the Transferor substantially in the form of Exhibit
D hereto.
"Transferor Order" and "Transferor Request": A written
order or request signed in the name of the Transferor by its
President or a Vice President, and delivered to the Trustee.
"Transferor Payment Office": The account indicated in the
instructions provided by the Transferor to each Holder of a
Certificate in its Funding Period, as such instructions may be
amended from time to time upon two Business Days' written notice
from the Transferor to each such Holder.
"Transition Cost": Any documented expenses reasonably
incurred by a successor Servicer, the Trustee or MBIA in
connection with a transfer of servicing from the Servicer to a
successor Servicer as successor Servicer pursuant to Section 6.02
of the Servicing Agreement, but not to exceed $50,000.
"Treasury Rate": With respect to each Reset Date preceding
each Conversion Date, a per annum rate equal to the yield on
actively traded U.S. government securities with a maturity
corresponding most closely to the Weighted Average Life of the
related Initial Pool or related Aggregate Interval Pool, as
applicable, as set forth on page "USD" of the Bloomberg Financial
Markets Screen as set forth on page "USD" of the Bloomberg
Financial Markets Screen (or if not available, any other
nationally recognized trading screen reporting on-line intra-day
trading in United States government securities) at 11:00 a.m.
(New York time) on any date of determination, or in the event no
such nationally recognized trading screen is available, the
arithmetic mean of the yields for the two columns under the
heading "Week Ending" published in the Statistical Release under
the caption "Treasury Constant Maturities" for two year
maturities.
"Trigger Event": The occurrence of any one of the following
events, and the declaration by MBIA, or if an MBIA Default or
Termination has occurred and is continuing, by the Controlling
Holders, that such occurrence shall constitute a Trigger Event:
(a) commencing with the fourth Determination Date after the
Initial Delivery Date, the average of the Annualized
Gross Default Rates for the three consecutive prior Due
Periods was equal to or greater than 5.5%;
(b) the Cumulative Gross Default Rate exceeds 7.5%;
(c) commencing with the fourth Determination Date after the
Initial Delivery Date, the average of the 61-90 Day
Delinquency Rates for the three consecutive prior Due
Periods was equal to or greater than 2%;
(d) the Net Worth Requirement is not met;
(e) the Transferor or the Trust Estate becomes an
"investment company" within the meaning of the
Investment Company Act of 1940, as amended;
(f) the occurrence of a Servicer Event of Default;
(g) either William W. Wehner or both of the following
employees, Mark Speros and William Cobb (or the
successor chief financial officer if MBIA has consented
to such person in writing), terminate or shall have
terminated their employment with the Servicer or any of
its Affiliates or die;
(h) an Event of Default occurs or the Company or any
Material Affiliate shall be in default under, or in
violation of any covenant or obligation under any loan
agreement, such that the lender under such loan
agreement would be authorized, pursuant to the terms of
such agreement and upon the expiration of any cure
period or grace period with respect to such violation
or default, to demand immediate payment by the Company
or such Material Affiliate, as applicable, of 10% or
more of the aggregate total recourse debt of the
Company and all affiliates of the Company, and such
default or violation shall not have been cured,
remedied or waived in writing by such lender after 90
days, counting from the initial date of the violation
or default and not from the expiration of any
applicable cure or grace period;
(i) any payment by MBIA under a Certificate Insurance
Policy; or
(j) the occurrence of any other event designated as an
additional Trigger Event set forth in any Supplement.
"Trust": The GF Funding Corp. II Master Trust created
hereunder.
"Trust Estate": The meaning specified in the Conveyance
Clause of this Agreement.
"Trustee": Norwest Bank Minnesota, National Association,
until a successor Person shall have become the Trustee pursuant
to the applicable provisions of this Agreement, and thereafter
"Trustee" shall mean such successor Person.
"Trustee Fee": The fee payable on each Payment Date to the
Trustee in consideration for the Trustee's performance of its
duties pursuant to this Agreement as Trustee, in an amount equal
to the product of one-twelfth of the Trustee Fee Rate and the
Outstanding Principal Amount of all Series of Class A
Certificates immediately following the preceding Payment Date,
provided, however, with respect to the Initial Payment Date, the
Trustee Fee shall equal $150.51.
"Trustee Fee Rate": .05% per annum.
"Vice President": With respect to the Transferor or the
Trustee, any vice president, whether or not designated by a
number or a word or words added before or after the title "vice
president."
"Weighted Average Life": The weighted average life to
maturity of the Lease Contracts delivered to the Trustee on the
applicable Delivery Date or in a Floating Interval.
ARTICLE TWO
THE CERTIFICATES
Section 2.01 Form Generally.
The Class A Certificates and the certificates of
authentication shall be in substantially the form set forth in
Exhibit A-1 hereto and the Class B Certificates shall be in
substantially the form set forth in Exhibit A-2 hereto, in each
case with such appropriate insertions, omissions, substitutions
and other variations as are required or permitted by this
Agreement, and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon,
as may, consistently herewith, be determined by the officers
executing such Certificates, as evidenced by their execution of
the Certificates.
The definitive Certificates shall be typewritten, printed,
lithographed or engraved or produced by any combination of these
methods on steel engraved borders or may be produced in any
manner acceptable to the Trustee and the initial purchasers of
the Certificates, all as determined by the officers executing
such Certificates, as evidenced by their execution of such
Certificates.
Section 2.02 Series; Denomination.
(a) This Agreement provides for the issuance by the
Transferor from time to time of one or more Series of
Certificates consisting of one or both Class A Certificates and
Class B Certificates, all subject to and in accordance with the
terms of this Agreement and the applicable Supplement and
provided that no Series of Class A Certificates may be issued
while another Series of Class A Certificates is in its Funding
Period. Each Certificate in a Series shall bear upon the face
thereof the designation selected for the Series to which it
belongs. All Series of Certificates of each Class shall be
identical except for differences among the Series for Certificate
Interest Rates, Stated Maturities, Expected Maturity Dates and
the other items identified below.
Each Series of Class A Certificates issued under this
Agreement shall in all respects represent a fractional undivided
interest in the Trust Estate, pari passu with all other Series of
Class A Certificates (although the Certificate Insurance Policies
are issued specific to each Series of Class A Certificates), and
shall be entitled to the benefits hereof without preference,
priority or distinction on account of the actual time or times of
authentication and delivery, all in accordance with the terms and
provisions of this Agreement and the applicable Supplement.
Each Series of Class B Certificates issued under this
Agreement shall in all respects represent a fractional undivided
interest in the Trust Estate, pari passu with all other Series of
Class B Certificates and subordinate to all Series of Class A
Certificates and to certain other payments as provided herein
(although the Class B Certificates are not secured by and do not
have the benefit of any Certificate Insurance Policies or any
proceeds therefrom), and shall be entitled to the benefits hereof
without preference, priority or distinction on account of the
actual time or times of authentication and delivery, all in
accordance with the terms and provisions of this Agreement and
the applicable Supplement. One or more Series of Class B
Certificates may be issued with respect to any Related Series of
Class A Certificates with the prior written consent of MBIA and
subject to the other conditions of Section 4.02(d) hereof.
The rights of the Holders of the Class B Certificates to
receive payments of principal and interest in respect of the
Class B Certificates on any Payment Date shall be subordinated to
the rights of the Holders of Class A Certificates to receive
payments of principal and interest in respect of the Class A
Certificates on such Payment Date and certain other payments as
set forth in Section 12.02(d).
The Supplement with regard to a Series of Certificates shall
establish, without limitation, the following terms and provisions
of each Class of Certificates of such Series, each of which the
Transferor shall determine in authorizing the issuance of any
Series:
(i) designation of the Series and Class, and with
respect to each Series of Class B Certificates,
the applicable Related Series of Class A
Certificates;
(ii) the applicable Delivery Date, Initial Payment
Date, Accrual Date, the Transaction Documents
Date, the Series Lease Schedule, if applicable,
the date of the related Private Placement
Memorandum, if applicable, and, for Class A
Certificates only, the applicable Cut-Off Date,
Floating Interval, Expected Funding Termination
Date and the Initial Funding Amount, and, for
Class B Certificates only, the definition of the
applicable Class B Additional Return;
(iii) the maximum aggregate principal amount of
Certificates of each Class of such Series that may
be issued, including, without limitation, the
Maximum Series Amount and, for Class A
Certificates only, the maximum amount that can be
outstanding under the Floating Rate Tranche if
different from the Maximum Series Amount;
(iv) with respect to a Series of Class B Certificates,
the Class B Certificate Interest Rate, and with
respect to a Series of Class A Certificates, the
terms used in the definition of Fixed Rate and
Floating Rate that require further specification
in the applicable Supplement, including without
limitation, the applicable Initial Fixed Rate, the
Fixed Rate Spread and the Floating Rate Spread;
(v) any Initial Cash Deposit and any Cash Collateral
Account Deposit for such Series;
(vi) the Stated Maturity for each Series of Class A
Certificates and the Expected Maturity of each
Series of Class B Certificates; and
(vii) if applicable, the Certificate Insurance
Policy number.
The applicable Insurance Agreement for each Series of
Class A Certificates shall contain the terms relating to the MBIA
Premium and the MBIA Premium Rate for such Series of Class A
Certificates.
(b) The aggregate principal amount of Certificates of each
Class of each Series which may be authenticated and delivered
under this Agreement shall be the Maximum Series Amount, except
for Certificates authenticated and delivered upon registration of
transfer or in exchange for or in lieu of, other Certificates
pursuant to Sections 2.04, 2.05, 2.07 or 9.05 hereof. The
Certificates shall be issuable only as registered Certificates
without coupons in denominations of at least $250,000 and any
amount in excess thereof; provided, however, that, the foregoing
shall not restrict or prevent the transfer in accordance with
Sections 2.05 and 2.06 hereof of any Certificate with a remaining
Outstanding Principal Amount of less than $250,000.
Section 2.03 Formation, Execution, Authentication,
Delivery and Dating.
(a) By its conveyance of the Trust Estate to the Trustee as
set forth in the Conveyance Clause hereof, the Transferor hereby
establishes the Trust in exchange for $250,000 initial principal
amount of "Class B Lease-Backed Certificates, Series 1996-1"
which are being issued on the Initial Delivery Date pursuant to a
Supplement to this Agreement, dated as of November 1, 1996, among
the Transferor, the Servicer, the Indenture Trustee and the Back-
up Servicer, such other Class B Certificates as may be issued to
the Transferor from time to time hereafter pursuant to the terms
hereof and all other rights of the Transferor set forth herein.
On the Initial Delivery Date and from time to time thereafter,
Certificates shall be issued in accordance with the terms hereof
by the Trust and authenticated by the Trustee upon the written
order of the Transferor.
(b) The Certificates shall be executed on behalf of the
Transferor by its President or one of its Vice Presidents under
its corporate seal imprinted or otherwise reproduced thereon.
The signature of these officers on the Certificates must be
manual.
(c) Certificates bearing the manual signatures of
individuals who were at any time the proper officers of the
Transferor shall bind the Transferor, notwithstanding that such
individuals or any of them have ceased to hold such offices prior
to the authentication or delivery of such Certificates or did not
hold offices at the date of authentication or delivery of such
Certificates.
(d) Each Certificate shall bear on its face the applicable
Delivery Date and be dated as of the date of its authentication.
(e) No Certificate shall be entitled to any benefit under
this Agreement or be valid or obligatory for any purpose, unless
there appears on such Certificate a certificate of authentication
substantially in the form provided for herein executed by the
Trustee or by any Authenticating Agent by the manual signature of
one of its authorized officers, and such certificate upon any
Certificate shall be conclusive evidence, and the only evidence,
that such Certificate has been duly authenticated and delivered
hereunder.
Section 2.04 Temporary Certificates.
Pending the preparation of definitive Certificates, the
Transferor may execute, and upon Transferor Order, the Trustee
shall authenticate and deliver, temporary Certificates which are
printed, lithographed, typewritten, mimeographed or otherwise
produced, in any denomination, containing the same terms and
representing the same rights as the definitive Certificates in
lieu of which they are issued.
If temporary Certificates are issued, the Transferor will
cause definitive Certificates to be prepared without unreasonable
delay. After the preparation of definitive Certificates, the
temporary Certificates shall be exchangeable for definitive
Certificates upon surrender of the temporary Certificates at the
office or agency of the Transferor to be maintained as provided
in Section 11.02(m) hereof, without charge to the Holder. Upon
surrender for cancellation of any one or more temporary
Certificates, the Transferor shall execute and the Trustee shall
authenticate and deliver in exchange therefor one or more
definitive Certificates of any authorized denominations and of a
like initial aggregate principal amount and Stated Maturity or
Expected Maturity, as applicable. Until so exchanged, the
temporary Certificates shall in all respects be entitled to the
same benefits under this Agreement as definitive Certificates.
Section 2.05 Registration, Registration of Transfer and
Exchange.
(a) The Transferor shall cause to be kept at an office or
agency to be maintained by the Transferor in accordance with
Section 11.02(m) hereof a register (the "Certificate Register"),
in which, subject to such reasonable regulations as it may
prescribe, the Transferor shall provide for the registration of
Certificates and the registration of transfers of Certificates.
Norwest Bank Minnesota, National Association, 6th Street and
Marquette Avenue, Minneapolis, Minnesota 55479-0070, is hereby
appointed "Certificate Registrar" for the purpose of registering
Certificates and transfers of Certificates as herein provided.
The Trustee shall have the right to examine the Certificate
Register at all reasonable times and to rely conclusively upon a
Certificate of the Certificate Registrar as to the names and
addresses of the Holders of the Certificates and the principal
amounts and numbers of such Certificates as held.
(b) Upon surrender for registration of transfer of any
Certificate at the office or agency of the Transferor to be
maintained as provided in Section 11.02(m) hereof and subject to
the conditions set forth in Section 2.06 hereof, the Transferor
shall execute, and the Trustee or its agent shall authenticate
and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of any authorized
denominations, and of a like aggregate principal amount, Class,
Series and Stated Maturity or Expected Maturity, as applicable.
(c) At the option of the Holder, Certificates of a Series
may be exchanged for other Certificates of such Series of any
authorized denominations and of a like aggregate principal
amount, Class and Stated Maturity or Expected Maturity, as
applicable, upon surrender of the Certificates to be exchanged at
such office or agency. Whenever any Certificates are so
surrendered for exchange, the Transferor shall execute, and the
Trustee or its agent shall authenticate and deliver, the
Certificates which the Certificateholder making the exchange is
entitled to receive.
(d) All Certificates issued upon any registration of
transfer or exchange of Certificates shall be the valid
obligations of the Transferor, evidencing the same debt and
entitled to the same benefits under this Agreement, as the
Certificates surrendered upon such registration of such transfer
or exchange.
Every Certificate presented or surrendered for registration
of transfer or exchange shall (if so required by the Transferor
or the Certificate Registrar) be duly endorsed or be accompanied
by a written instrument of transfer in form satisfactory to the
Transferor and the Certificate Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Certificates, but the
Transferor may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of
Certificates, other than exchanges pursuant to Section 2.04 or
9.05 hereof not involving any registration of transfer.
Section 2.06 Limitation on Transfer and Exchange.
(a) The Certificates have not been registered or qualified
under the Securities Act of 1933, as amended (the "1933 Act") or
the securities laws of any state. No transfer of any Certificate
shall be made unless that transfer is made in a transaction which
does not require registration or qualification under the 1933 Act
or under applicable state securities or "Blue Sky" laws. No
transfer of a Certificate may be made while such Certificate is
in its Funding Period without the consent of the Transferor. In
the event that a transfer is to be made without registration or
qualification, such Certificateholder's prospective transferee
shall either (i) deliver to the Trustee an Investment and
Assumption Letter or (ii) deliver to the Trustee an opinion of
counsel that the transfer is exempt from such registration or
qualification (which opinion shall not be at the expense of the
Transferor, the Trustee, the Servicer or the Trust Estate) and,
in the case of Class A Certificates in their Funding Period,
together with a written agreement of such proposed transferee to
assume the Funding obligations of such Certificateholder, in a
form substantially similar to paragraph 7 of the Investment and
Assumption Letter. Neither the Transferor nor the Trustee is
obligated to register or qualify the Certificates under the 1933
Act or any other securities law. Any such Holder desiring to
effect such transfer shall, and does hereby agree to, indemnify
the Trustee, MBIA and the Transferor against any liability, cost
or expense (including attorneys' fees) that may result if the
transfer is not so exempt or is not made in accordance with such
federal and state laws. The Trustee shall promptly, after
receipt of such information as is set forth in the next
succeeding sentence, furnish to any Holder, or any Prospective
Owner designated by a Holder, the information required to be
delivered to Holders and Prospective Owners of Certificates in
connection with resales of the Certificates to permit compliance
with Rule 144A of the 1933 Act in connection with such resales.
Such information shall be provided to the Trustee by the
Servicer.
(b) No acquisition or transfer of a Certificate or any
interest therein may be made to any "Benefit Plan Investor" (as
defined in 29 C.F.R. 2510.3-101) or to any person who is
directly or indirectly purchasing such Certificates or an
interest therein on behalf of, as named fiduciary of, as trustee
of, or with assets of, such a Benefit Plan Investor unless the
Trustee is provided with evidence that establishes to the
satisfaction of the Trustee that (i) either no "prohibited
transaction" under ERISA or the Code will occur in connection
with such prospective acquiror's or transferee's acquisition and
holding of the Certificates or that the acquisition and holding
of the Certificates by such prospective acquiror or transferee is
subject to a statutory or administrative exemption, and (ii) that
the prospective acquiror's or transferee's acquisition and
holding will not subject the Transferor, the Servicer, the
Trustee or the Certificate Funding Administrator to any
obligation or liability (including obligations or liabilities
under ERISA or Section 4975 of the Code) in addition to those
explicitly undertaken in the Transaction Documents.
(c) No acquisition or transfer of a Class A Certificate or
any interest therein may be made during such Certificate's
Funding Period without the prior written consent of the
Transferor. Unless otherwise specified in the related
Supplement, no transfer of a Class B Certificate or any interest
therein may be made without the prior written consent of the
Transferor, except that any transfer of a Class B Certificate by
the Transferor shall require the consent of Holders of a majority
of the remaining Outstanding Principal Amount of the Class B
Certificates of all Series.
(d) The Trustee shall have no liability to the Trust Estate
or any Certificateholder arising from a transfer of any such
Certificate in reliance upon a certification described in this
Section 2.06.
Section 2.07 Mutilated, Destroyed, Lost or Stolen
Certificate.
If (i) any mutilated Certificate is surrendered to the
Certificate Registrar, or the Trustee receives evidence to its
satisfaction of the destruction, loss or theft of any
Certificate, and (ii) there is delivered to the Trustee and MBIA
such security or indemnity as may be required by the Trustee to
save the Transferor, the Trustee and MBIA or any agent of any of
them harmless, then, in the absence of notice to the Transferor
or the Certificate Registrar that such Certificate has been
acquired by a bona fide purchaser, the Transferor shall execute
and, upon its request, the Trustee shall authenticate and
deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of the
same tenor, Series, initial principal amount and Stated Maturity
or Expected Maturity, as applicable, bearing a number not
contemporaneously outstanding. If after the delivery of such new
Certificate, a bona fide purchaser of the original Certificate in
lieu of which such new Certificate was issued presents for
payment such original Certificate, MBIA, the Transferor and the
Trustee shall be entitled to recover such new Certificate from
the person to whom it was delivered or any person taking
therefrom, except a bona fide purchaser, and shall be entitled to
recover upon the security or indemnity provided therefor to the
extent of any loss, damage, cost or expenses incurred by MBIA,
the Transferor or the Trustee or any agent of any of them in
connection therewith. If any such mutilated, destroyed, lost or
stolen Certificate shall have become or shall be about to become
due and payable, or shall have become subject to redemption in
full, instead of issuing a new Certificate, the Transferor may
pay such Certificate without surrender thereof, except that any
mutilated Certificate shall be surrendered.
No service charge shall be made to a Holder for any
registration of transfer or exchange of Certificates, but the
Transferor may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of
Certificates, other than exchanges pursuant to Section 2.04 or
9.05 hereof not involving any registration of transfer. Upon the
issuance of any new Certificate under this Section, the
Transferor may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every new Certificate issued pursuant to this Section 2.07,
in lieu of any destroyed, lost or stolen Certificate, shall
constitute an original additional contractual obligation of the
Transferor, whether or not the destroyed, lost or stolen
Certificate shall be at any time enforceable by anyone, and shall
be entitled to all the benefits of this Agreement equally and
proportionately with any and all other Certificates duly issued
hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies
with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Certificates.
Section 2.08 Payment of Principal and Interest; Principal
and Interest Rights Preserved.
(a) For each applicable Accrual Period, the Class A
Certificates shall bear interest on the Outstanding Fixed Tranche
Balance and on the Outstanding Floating Tranche Balance, in each
case as of the first day of such Accrual Period, at the
applicable Fixed Rate and the Floating Rate, respectively. The
Fixed Rate and the Floating Rate shall be calculated on the last
applicable Reset Date preceding the Accrual Period in which the
Fixed Rate or the Floating Rate, as applicable, was last
calculated for each Series, until the last day preceding the
Final Payment Date and (to the extent that the payment of such
interest shall be legally enforceable) on any overdue installment
of interest from the date such interest became due and until
fully paid. Interest for each Accrual Period on each Fixed Rate
Tranche shall be calculated on the basis of a 360-day year
consisting of 12 months of 30 days each, and interest on each
Floating Rate Tranche shall be calculated on the basis of a 360
day year and actual days elapsed. Interest shall be due and
payable in arrears on each Payment Date, with each payment of
interest calculated as described above on the Outstanding Fixed
Tranche Balance and the Outstanding Floating Tranche Balance of
the Certificates immediately following the preceding Payment Date
or on the applicable Delivery Date, if there has not been any
preceding Payment Date. Notwithstanding the foregoing, with
respect to any Fundings under the related Floating Rate Tranche
occurring since the preceding Payment Date, interest on the
related Funding Amounts from the related Funding Date through the
end of the Accrual Period in which such Funding occurs shall be
paid in the amount of the applicable First Period Interest at the
time of such Funding as provided in Section 3.05 hereof. Such
First Period Interest on the Funding Amount shall be determined
on the Funding Date at the rate established on the applicable
Reset Date. In making any such interest payment, if the interest
calculation with respect to a Certificate shall result in a
portion of such payment being less than $0.01, then such payment
shall be decreased to the nearest whole cent, and no subsequent
adjustment shall be made in respect thereof.
(b) The Class B Certificates shall bear interest on the
Outstanding Principal Amount thereof for each applicable Accrual
Period at the Class B Certificate Interest Rate for such Series
in effect at the beginning of the related Accrual Period, until
the last day preceding the Payment Date on which its principal
balance has been reduced to zero and (to the extent provided for
in the related Supplement and to the extent that the payment of
such interest shall be legally enforceable) on any overdue
installment of interest from the date such interest became due
until fully paid and, unless otherwise specified in the related
Supplement, calculated on the basis of a 360-day year consisting
of 12 months of 30 days each. The Class B Certificates shall
also be entitled to such Class B Additional Returns as specified
in the related Supplement. Interest shall be due and payable in
arrears on each Payment Date, with each payment of interest
calculated as described above on the Outstanding Principal Amount
of the Class B Certificates immediately following the preceding
Payment Date or on the applicable Delivery Date, if there has not
been any preceding Payment Date; provided that the payment of
interest on the Class B Certificates is subordinate to the
payment of interest and principal on the Class A Certificates and
to certain other payments as specified in Section 12.02(d) and
that interest, principal and other amounts are due and payable on
the Class B Certificates only to the extent there are funds
available therefor on such Payment Date in accordance with the
priorities set forth in Section 12.02 (d). In making any such
interest payment, if the interest calculation with respect to a
Certificate shall result in a portion of such payment being less
than $0.01, then such payment shall be decreased to the nearest
whole cent, and no subsequent adjustment shall be made in respect
thereof.
(c) The principal of each Certificate shall be payable in
installments ending no later than the applicable Stated Maturity
or Expected Maturity thereof unless such Certificate becomes due
and payable at an earlier date by declaration of acceleration,
call for redemption or otherwise. All reductions in the
principal amount of a Certificate effected by payments of
installments of principal made on any Payment Date shall be
binding upon all future Holders of such Certificate and of any
Certificate issued upon the registration of transfer thereof or
in exchange therefor or in lieu thereof, whether or not such
payment is noted on such Certificate. Each installment of
principal payable on the Class A Certificates shall be in an
amount equal to the Class A Principal Distribution Amount and the
Additional Principal Amount, if any, available to be paid in
accordance with the priorities of Section 12.02(d) hereof, except
that at the Stated Maturity of any Series of Class A
Certificates, the outstanding principal amount of such Class A
Certificates shall be paid in full prior to the allocation of any
other payments of principal to any other Series of Certificates
on such Payment Date. Each installment of principal payable on
the Class B Certificates shall be in an amount equal to the
Class B Principal Distribution Amount and Holders of the Class B
Certificates shall be entitled to the applicable Class B
Additional Return; provided that the payment of the Class B
Principal Distribution Amount and the Class B Additional Return
shall be subordinate to the payments of principal and interest on
the Class A Certificates and to certain other payments in
accordance with Section 12.02(d) hereof. The principal payable
on the Class A Certificates of any Series shall be paid on each
Payment Date beginning on the first Payment Date in the
applicable Amortization Period and ending on the applicable Final
Payment Date, and the principal payable on the Class B
Certificates of any Series shall be paid on each Payment Date
beginning on the first Payment Date in the Amortization Period
for the applicable Related Series of Class A Certificates, or, if
such Series of Class B Certificates is issued after such first
Payment Date, beginning on the first Payment Date after issuance
unless otherwise specified in the related Supplement and ending
on the applicable Final Payment Date. All payments of principal
with respect to all of the Certificates of any Class of a Series,
shall be made on a pro rata basis based upon the ratio that the
Outstanding Principal Amount of a Certificate bears to the
Outstanding Principal Amount of all Certificates of such Class of
such Series; provided, however, that if as a result of such
proration a portion of such principal would be less than $.01,
then such payment shall be increased to the nearest whole cent,
and such portion shall be deducted from the next succeeding
principal payment.
(d) The principal, interest and any other amounts paid on
the Certificates are payable by check mailed by first-class mail
to the Person whose name appears as the Registered Holder of such
Certificate on the Certificate Register at the address of such
Person as it appears on the Certificate Register or by wire
transfer in immediately available funds to the account specified
in writing to the Trustee by such Registered Holder at least five
Business Days prior to the Record Date for the Payment Date on
which wire transfers will commence, in such coin or currency of
the United States of America as at the time of payment is legal
tender for the payment of public and private debts. Except as
set forth in the final sentence of this Section 2.08(d), all
payments on the Certificates shall be paid without any
requirement of presentment. The Transferor shall notify the
Person in whose name a Certificate is registered at the close of
business on the Record Date next preceding the Payment Date on
which the Transferor expects that the final installment of
principal of such Certificate will be paid that the Transferor
expects that such final installment will be paid on such Payment
Date. Such notice shall be mailed no later than the tenth day
prior to such Payment Date and shall specify the place where such
Certificate may be surrendered. Funds representing any such
checks returned undeliverable shall be held in accordance with
Section 7.16 hereof. Each Certificateholder shall surrender its
Certificate to the Trustee prior to payment of the final
installment of principal of such Certificate.
(e) Notwithstanding any of the foregoing provisions with
respect to payments of principal of and interest on the
Certificates, if the Certificates have become or been declared
due and payable following an Event of Default and such
acceleration of maturity and its consequences have not been
rescinded and annulled, then payments of principal of and
interest on such Certificates shall be made in accordance with
Section 6.08 hereof.
(f) Each Holder of a Certificate, by acceptance of its
Certificate, agrees that during the term of this Agreement and
for one year and one day after the termination hereof, such
Holder or any Affiliate thereof will not file any involuntary
petition or otherwise institute any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding or other
proceeding under any federal or state bankruptcy or similar law
against the Transferor.
(g) The Certificates are payable only out of the Trust
Estate and do not represent recourse obligations of the
Transferor, the Servicer or any affiliate thereof or any
successor thereto.
Section 2.09 Persons Deemed Owner.
Prior to due presentment for registration of transfer of any
Certificate, the Transferor, MBIA, the Trustee and any agent of
the Transferor, MBIA or the Trustee shall treat the Person in
whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving payments of principal of
and interest on such Certificate and for all other purposes
whatsoever, whether or not such Certificate be overdue, and
neither the Transferor, MBIA, the Trustee nor any agent of the
Transferor, MBIA or the Trustee shall be affected by notice to
the contrary.
Section 2.10 Cancellation.
All Certificates surrendered to the Trustee for payment,
registration of transfer or exchange (including Certificates
surrendered to any Person other than the Trustee which shall be
delivered to the Trustee) shall be promptly canceled by the
Trustee. No Certificates shall be authenticated in lieu of or in
exchange for any Certificates canceled as provided in this
Section 2.10, except as expressly permitted by this Agreement.
All canceled Certificates held by the Trustee shall be disposed
of by the Trustee as is customary with its standard practice.
Section 2.11 Tax Treatment.
The Transferor has structured this Agreement and the
Certificates with the intention that the Class A Certificates
qualify under applicable tax laws as indebtedness secured by the
Trust Estate. The Transferor and the Class B Certificateholders
further intend that the Trust formed hereby be treated as a
partnership, with the assets of the partnership including all of
the assets comprising the Trust Estate, the partners of the
partnership being the Class B Certificateholders and the
Transferor, and the Class A Certificates being nonrecourse debt
of such partnership. The Transferor, the Trustee, the Servicer,
MBIA and each Certificateholder, by acceptance of its Certificate
(and any Person that is a beneficial owner of any interest in a
Certificate, by virtue of such Person's acquisition of a
beneficial interest therein) agree to report the transactions
contemplated hereby in accordance with such stated intentions
unless and until determined to the contrary by an applicable
taxing authority. In connection therewith, the Transferor shall
maintain capital accounts and make partnership allocations in
accordance with section 704 of the Code. In addition, the
Transferor agrees that it will hold at least 1% and not more than
80%, by Outstanding Principal Amount, of each Series of Class B
Certificates issued and outstanding at any time. The Transferor
is hereby designated as the "tax matters partner" of the Trust.
Section 2.12 Dissolution upon Bankruptcy, etc. of
Transferor.
(a) Promptly after the occurrence of any Dissolution Event
with respect to the Transferor, (i) the Transferor shall give the
Trustee, MBIA and the Certificateholders written notice of such
Dissolution Event, and (ii) if the Trustee receives notice of
such Dissolution Event other than from the Transferor, it shall
give prompt written notice to MBIA, and the Certificateholders of
the occurrence of such event; provided, however, that any failure
to give a notice required by this sentence shall not prevent or
delay, in any manner, a termination of the Trust pursuant to
subsection (b) of this Section 2.12.
(b) If a Dissolution Event shall occur, the Trustee shall
retain for the benefit of the Certificateholders and MBIA, all
remedies available at law or under this Agreement and none of the
liens or security interests granted pursuant to this Agreement
shall be extinguished, released, terminated or impaired by the
same; rather, such liens and security interests shall continue to
encumber the Trust Estate until all principal and interest on the
Certificates representing the beneficial interests in the Trust
Estate is paid in full and any other amounts required to be paid
by the Trust hereunder are so paid. In any case however, subject
to the following, if a Dissolution Event occurs with respect to
the Transferor, the Trust shall be terminated in accordance with
this Section ninety (90) days after the date of such Dissolution
Event, unless, before the end of such 90-day period, the Trustee
shall have received written instructions from MBIA (so long as
the Insurance Agreement remains in effect and there is no MBIA
Default or Termination) and the Class B Certificateholders (not
including the Transferor), to the effect that such parties
disapprove of the liquidation of the Lease Contracts and
termination of the Trust and providing for the appointment of a
successor to the Transferor. If authorization to continue the
Trust Estate is not received, and the Insurance Agreement is
still in effect, the Trust Estate shall not be sold, but the
Trustee shall adopt a plan of dissolution acceptable to MBIA that
provides for the appointment of a conservator, who shall be
acceptable to MBIA, and shall make collections on the Lease
Contracts and the other assets of the Trust Estate, for
distribution in accordance with the terms of and priority of
payment set forth in this Agreement. Otherwise, the Trustee
shall promptly sell the assets of the Trust Estate in a
commercially reasonable manner and on commercially reasonable
terms. The proceeds of such a sale shall be treated as
collections under this Agreement.
ARTICLE THREE
FUNDINGS; CONVERSIONS
Section 3.01 Fundings.
Subject to satisfaction of the conditions precedent set
forth in Section 3.03 hereof and Eligible Lease Contracts being
available to be acquired pursuant to the Lease Acquisition
Agreement or a Lease Sale Agreement, during the Funding Period
for each Series of Class A Certificates the Transferor shall
acquire additional Pools pursuant to the Lease Acquisition
Agreement or a Lease Sale Agreement with the proceeds of a
Funding.
Section 3.02 Funding Amounts.
The Funding Amount for a Pool acquired on a Funding Date
shall be determined by the Servicer on behalf of the Transferor
and confirmed by the Certificate Funding Administrator and the
Trustee and shall be reflected in the Funding Report with respect
to Lease Contracts identified on the related Amended Lease
Schedule attached to the Transferor Certificate and the Company
Certificate for such Funding. Each additional Pool shall become
subject to this Agreement pursuant to the Transferor's
Certificate and the related Lease Contract Files shall be held by
the Trustee as provided herein.
Section 3.03 Procedure for Fundings.
(a) Conditions Precedent. Each Funding is subject to the
satisfaction of the following conditions precedent on the
relevant date specified below:
(i) three Business Days advance notification by the
Servicer to the Trustee, MBIA and the Certificate Funding
Administrator (by telephone or in writing) of a request for
a Funding to occur;
(ii) no later than 11:00 a.m. (New York time) the
second Business Day immediately prior to the requested
Funding Date, the Transferor shall have delivered to the
Certificate Funding Administrator and the Trustee, by a
diskette or electronic transfer, a list of the proposed
Lease Contracts to be funded, and providing for each such
Lease Contract all information required to be provided in
the Amended Lease Schedule as provided in the definition
thereof;
(iii) the delivery by the Transferor to the Trustee
on or before the second Business Day immediately prior to
the requested Funding Date of the original executed
counterpart of the Lease Contracts relating to such Funding
and the other items comprising the related Lease Contract
Files;
(iv) the Transferor's delivery to the Trustee on or
before the Business Day immediately prior to the requested
Funding Date of the Transferor Certificate and the Company
Certificate, each accompanied by an Amended Lease Schedule,
executed by the Company or the Transferor, as appropriate;
(v) no Default, Event of Default or Funding
Termination Event shall exist or shall result from the
Funding;
(vi) the related Certificate Insurance Policy shall be
in full force and effect and no MBIA Default or Termination
shall have occurred;
(vii) (A) the Lease Contracts proposed to be funded
with such Funding shall be Eligible Lease Contracts, and
(B) after giving effect to such Funding, neither the
Concentration Limits nor the Maximum Series Amount shall be
exceeded;
(viii) as of the second Business Day immediately
prior to the requested Funding Date, a Certificate Funding
Administrator is in place in accordance with Section 3.07
hereof;
(ix) such Funding shall occur on a date prior to the
Funding Termination Date;
(x) the Funding Report shall have been delivered to
the Trustee and MBIA pursuant to clause (b) below; and
(xi) such other conditions as may be specified in the
applicable Supplement.
(b) Preparation of Funding Report. The Servicer, together
with the Certificate Funding Administrator, shall review such
diskette or electronic transfer specified in clause (a)(ii) above
and prepare a Funding Report from the information provided in
such diskette or electronic transfer, the existing information
regarding all other Lease Contracts and the existing information
used to generate the Monthly Servicer's Report. No later than
10:00 a.m. (New York time) on each Business Day immediately
preceding a proposed Funding Date, the Certificate Funding
Administrator shall fax the Funding Report, and the amount of the
Funding to be funded by Certificateholders, to the Transferor and
the Transferor shall thereupon execute such report and fax it to
MBIA and the Trustee no later than 11:00 a.m. (New York time) on
such date of receipt. In the Funding Report, the Servicer shall
calculate the First Period Interest on the related Funding
Amount. The Servicer shall forward to MBIA by overnight mail or
electronic transfer, for receipt by MBIA on the related Funding
Date, a diskette or other electronic file, containing, in a
standardized format, the same information that was delivered by
the Transferor pursuant to clause (a)(ii) above.
Section 3.04 Verification of Funding Report.
(a) Upon the Trustee's receipt of a Funding Report pursuant
to Section 3.03(b) hereof, the Trustee shall recompute all of the
calculations in such Funding Report (including without limitation
a recalculation of the Implicit Principal Balances of the related
Lease Contracts) based on the information contained in the list
of Lease Contracts forwarded to it by diskette or electronic
transfer, the existing information regarding all other Lease
Contracts and the existing information used to generate the
Monthly Servicer's Report, and if the Trustee does not discover
and is not notified of any errors in the calculations in such
Funding Report that have not been corrected by 3:00 p.m. (New
York time) on the Business Day immediately preceding the proposed
Funding Date and all of the conditions precedent set forth in
Section 3.03 hereof have been satisfied (provided, however, that
with respect to 3.03(a)(vii)(A), the Trustee may conclusively
rely on the Company Certificate), the Trustee shall notify the
Certificateholders of the Funding Amount by faxing the Funding
Report to the Certificateholders by 3:00 p.m. (New York time) on
the Business Day immediately preceding the proposed Funding Date.
If the Trustee discovers or is notified of any error in the
Funding Report that is not corrected by 3:00 p.m. (New York time)
on the Business Day immediately preceding the proposed Funding
Date or if any of the conditions precedent set forth in
Section 3.03(a) hereof have not been satisfied, the Trustee shall
notify the Certificateholders that the applicable Funding is
postponed until the next Business Day following resolution of any
such error, and the Trustee shall thereupon notify MBIA, the
Certificate Funding Administrator and the Transferor of such
error. If MBIA discovers any error in the Funding Report after a
Funding based on such report, MBIA shall notify the Trustee, the
Servicer, the Company, the Certificate Funding Administrator and
the Transferor.
(b) If a Funding occurs based upon a Funding Report with
respect to which an error has been discovered and the Certificate
Funding Administrator or the Transferor is not able to correct
such error to the satisfaction of the Certificateholders and MBIA
by the next succeeding date upon which a Funding is permitted to
occur (or, in the case of the final Funding preceding or on the
applicable Funding Termination Date, by the Payment Date
immediately following such Funding Termination Date), the
Transferor shall cause the Company or the applicable Seller to
either (i) repurchase the affected Lease Contracts at a price
equal to the Removal Price of such Lease Contracts, (ii) replace
the affected Lease Contracts with Substitute Lease Contracts, in
each case on the earlier of (x) the second succeeding date upon
which the next Funding is permitted to occur, (y) the following
Determination Date and (z) the Funding Termination Date or
(iii) deposit funds in the Collection Account in the amount, if
any, by which the Funding as recalculated based on the correct
information is less than the erroneous Funding.
(c) At the end of each Floating Interval for each Series of
Class A Certificates and on the Funding Termination Date (if such
date is not the end of a Floating Interval) for each Series of
Class A Certificates, the Transferor will forward to the
Independent Accountants by mailing computer diskettes or by
electronic transfer, the Conversion Report prepared in connection
with such Floating Interval together with the information
necessary to calculate the Implicit Principal Balance of the
Lease Contracts and the Conversion Amount included in such
Conversion Report. The Transferor shall cause the Independent
Accountants to recalculate the Implicit Principal Balances of the
Lease Contracts included in such Conversion Report and the
related Conversion Amount, in each case based solely on the
information contained in such reports or on such computer
diskettes, and to send the results of such recalculation to the
Transferor, the Servicer, the Certificate Funding Administrator
and MBIA. If any errors have been discovered by the Independent
Accountants in the course of any such review, the Funding Amount
shall be adjusted on the following Funding Date or on the date a
final Funding occurs pursuant to Section 3.08 hereof to take such
errors into account.
Section 3.05 Fundings by Certificateholders.
(a) Upon the issuance of each Series of Class A
Certificates and execution of a Certificate Purchase Agreement on
the related Delivery Date, the initial Class A Certificateholders
shall have agreed, and by their acquisition of any Class A
Certificates and execution of an Investment and Assumption Letter
after the applicable Delivery Date any subsequent Class A
Certificateholders shall have agreed, on the terms and conditions
set forth herein and in the related Certificate Purchase
Agreement, to make Fundings to the Transferor on the Delivery
Date and from time to time thereafter on any Funding Date during
the Funding Period, as specified by the Transferor in accordance
with Section 3.05(c) below. On the related Delivery Date, a
Funding shall take place under the Fixed Rate Tranche of such
Series in the amount equal to any Initial Funding Amount for such
Series. Each subsequent Funding shall take place under the
Floating Rate Tranche in an amount equal to the applicable
Funding Amount; provided, however, unless otherwise specified in
the related Supplement, for each calendar month, the aggregate of
the Fundings, including the Initial Funding Amount for such
Series, during such month shall be in a minimum amount equal to
the Minimum Monthly Amount and in a maximum amount equal to the
Maximum Monthly Amount. The aggregate amount of all Fundings
under any Series shall not exceed the Maximum Series Limit.
(b) Except for the Initial Funding on the related Delivery
Date and the Funding described in Section 3.08 hereof, the
Fundings shall be allocated to the Floating Rate Tranche of the
applicable Series until converted pursuant to clause (f) below.
Each Series of Class A Certificates shall be issued in an
aggregate principal amount equal to the Maximum Series Amount,
although at any one time the Outstanding Principal Balance may be
less than the Maximum Series Amount for such Series. The Class A
Certificateholders shall endorse on a schedule, which shall be
attached to each Class A Certificate, the date and amount of each
Funding made by such Class A Certificateholder with respect to
the related Series and the amount of each payment of principal
made by the Transferor with respect thereto; provided, however,
that the Class A Certificateholders may, at their option, record
the amount of their respective Fundings in other internal records
rather than on such a schedule. The Class A Certificateholders
are authorized and directed by the Transferor and MBIA to make
such endorsements or records but each Certificateholder's records
shall be effective only if such records are in agreement with the
applicable Certificate Register maintained by the Trustee, absent
manifest error in such Certificate Register. Failure by any
Class A Certificateholders to make, or an error by any Class A
Certificateholder in making, such endorsement or record with
respect to any Funding shall not limit or otherwise affect the
obligations of the Transferor hereunder or under any Class A
Certificate.
(c) Subject to the terms hereof, each Class A
Certificateholder will make available to the Transferor the Net
Funding Amount for such Series that is specified in the Funding
Report (which shall be an amount equal to such Class A
Certificateholder's pro rata share of the Net Funding Amount) at
the Transferor Payment Office by 3:00 p.m. (New York time) on the
applicable Funding Date in immediately available funds. Each
such Holder's pro rata share of a Funding shall be determined by
multiplying the amount of such Funding Amount by a fraction, the
numerator of which shall be equal to the maximum principal amount
of such Holder's Class A Certificate (as indicated on the face of
such Certificate), and the denominator of which shall be equal to
the Maximum Series Amount.
(d) The failure of any Class A Certificateholder to remit
its pro rata share of any Net Funding Amount for its Series on
the Delivery Date or any Funding Date shall not relieve any other
Class A Certificateholder in such Series of any obligation
hereunder to make its pro rata share of a Net Funding Amount on
such Funding Date. Any nondefaulting Class A Certificateholder
may, but is not required to, fund the portion of the Funding
Amount not funded by the defaulting Certificateholder. If the
nondefaulting Class A Certificateholder does not fund the portion
of the Funding Amount by the defaulting Certificateholder, the
Funding Amount, the Minimum Monthly Amount and the Minimum
Funding Amount with respect thereto, shall be reduced by the
defaulting Class A Certificateholder's portion of the Funding
Amount and the Transferor shall have all remedies available to it
under applicable law in respect of the defaulting Class A
Certificateholder.
(e) Immediately following each Funding or payment of
principal on any Series of Certificates, the Trustee shall make
an appropriate notation in the applicable Certificate Register
indicating the amount and date of the Funding or payment and the
unused Maximum Series Amount after giving effect to any Funding.
Section 3.06 Calculation of Rates; Conversions.
(a) On or before 2:00 p.m. (New York time) on the
Determination Date immediately preceding a Conversion Date or
such other date as specified in the applicable Supplement, the
Trustee shall determine the Treasury Rate on such Reset Date. In
addition, on or before 2:00 p.m. (New York time) on the second
Business Day immediately preceding the commencement of each
Accrual Period during the Funding Period, the Trustee shall
determine the LIBOR Rate for the next succeeding Accrual Period.
Upon each determination of the LIBOR Rate and the Treasury Rate,
the Trustee will promptly provide notice of such determination to
MBIA, the Certificate Funding Administrator, the Holders of the
Class A Certificates that are in their Funding Period and the
Servicer. On or before 2:00 p.m. (New York time) two Business
Days preceding each Funding Date, the Trustee shall determine the
appropriate LIBOR Rate on such date with respect to the Funding
Amount for the calculation of the First Period Interest thereon.
The determination of the LIBOR Rate and the Treasury Rate by the
Trustee shall (in the absence of manifest error) be final and
binding on each Holder of a Class A Certificate.
(b) On the Reset Date preceding each Conversion Date, the
Servicer shall calculate, and the Certificate Funding
Administrator shall confirm, on the Conversion Report, the
Conversion Rate, the Conversion Amount, the Outstanding Floating
Tranche Balance, the Outstanding Fixed Tranche Balance, and the
Fixed Rate, each to be in effect as of the such Conversion Date,
and notify MBIA, the Certificateholders with Certificates in a
Funding Period and the Trustee of the rate or amount determined
with respect to each such calculation. In such Conversion
Report, the Servicer shall instruct the Trustee to increase the
Outstanding Fixed Tranche Balance by the Conversion Amount
determined on the Determination Date preceding such Conversion
Date and to reduce the Outstanding Floating Tranche Balance by a
like amount. Such increases and reductions with respect to the
Certificates shall be deemed effective as of the Conversion Date
succeeding the related Reset Date. Any discrepancies shall be
worked out between the Certificate Funding Administrator and the
Trustee within two Business Days and the Certificate Funding
Administrator's judgment shall control. Notwithstanding the
foregoing, all amounts outstanding under the Floating Rate
Tranche shall be converted to the Fixed Rate Tranche on the
Conversion Date immediately following the Funding Termination
Date.
(c) If, as of any Conversion Date as determined on the
Determination Date immediately preceding such Conversion Date,
there is an Outstanding Floating Tranche Balance, the Trustee
shall, based on the most recent Conversion Report on which the
Trustee may conclusively rely, increase the Outstanding Fixed
Tranche Balance by the Conversion Amount determined on such
Determination Date and reduce the Outstanding Floating Tranche
Balance by a like amount. Such increase and reductions shall be
effective as of such Conversion Date.
Section 3.07 Appointment of Certificate Funding
Administrator.
(a) As a condition to the issuance of any Series of Class A
Certificates, the Transferor shall appoint Rothschild Inc. to act
as the Certificate Funding Administrator to perform the functions
described in this Article Three. If at any time MBIA, or upon an
MBIA Default or Termination, the Certificateholders, shall notify
the Trustee and Rothschild Inc. in writing that Rothschild Inc.
has failed to perform its duties in accordance with this Article
Three or if at any time, Rothschild Inc. shall become the subject
of a proceeding under the United States Bankruptcy Code or if
Rothschild Inc. resigns as Certificate Funding Administrator, the
Servicer shall direct the Transferor to appoint a successor
Certificate Funding Administrator of the Servicer's choosing
which shall be acceptable to MBIA and notify the Trustee of such
appointment. Upon notice of such appointment, the Trustee shall
mail written notice thereof by first-class mail, postage prepaid,
to all Class A Certificateholders. Upon the Certificate Funding
Administrator's resignation or termination pursuant to this
Section 3.07, (i) the Certificate Funding Administrator shall
comply with the provisions hereof and the Insurance Agreement
until the acceptance of the appointment of a successor
Certificate Funding Administrator and (ii) until the Trustee
receives MBIA's written consent to a successor Certificate
Funding Administrator, no Funding shall occur. Any successor
Certificate Funding Administrator upon acceptance of its
appointment hereunder shall become vested with all the rights,
powers and duties of its predecessor hereunder, with like effect
as if originally named as the Certificate Funding Administrator.
(b) The Transferor agrees to pay the Certificate Funding
Administrator compensation for its services under this Article
Three in accordance with the Certificate Administration
Agreement, which fee shall in no event be an obligation of the
Trust Estate.
Section 3.08 Release of Excess Funds At Close of Funding
Period.
On the later of (i) the last Business Day preceding the
final Conversion Date for each Series of Class A Certificates or
(ii) the delivery of the report of the Independent Accountants as
described in Section 3.04(c) hereof relating to such Conversion
Date, the Transferor shall direct the Trustee to request a final
Funding under the Fixed Rate Tranche from the Class A
Certificateholders of that Series, and such Certificateholders
shall fund on such day, an amount equal to the lesser of (i) the
Maximum Series Amount minus the Outstanding Fixed Tranche Balance
after giving effect to the Conversion on the final Conversion
Date and (ii) the excess of the Aggregate IPB over the sum of
(a) the Required Collateralization Amount and (b) the Outstanding
Principal Amount of all Series of Class A Certificates but in no
event less than zero. The proceeds of such Funding shall be
deposited in the Collection Account for application in accordance
with Section 12.02(d) hereof. The Servicer shall notify the
Trustee on the Determination Date preceding such final Conversion
Date of the amount to be funded on such last Business Day.
ARTICLE FOUR
ISSUANCE OF CERTIFICATES; SUBSTITUTIONS OF COLLATERAL
Section 4.01 Conditions to Initial Issuance of
Certificates.
Each Series of Certificates to be issued on the Initial
Delivery Date shall be executed by the Transferor and delivered
to the Trustee for authentication, and thereupon, the same shall
be authenticated and delivered by the Trustee upon Transferor
Order and upon receipt by the Trustee of the following:
(a) a Company Certificate and a Transferor Certificate with
the Series Lease Schedule related to the Class A Certificates
attached thereto;
(b) the original executed counterpart of each Lease
Contract and all other items included in the Lease Contract File,
subject to such exceptions as shall be noted in an exception
report delivered to MBIA and the Certificateholders of the
applicable Series;
(c) a Board Resolution of each of the Transferor, the
Servicer and the Company authorizing, as applicable, the
execution, delivery and performance of the Transaction Documents
and the transactions contemplated hereby and by the other
Transaction Documents, certified by the Secretary or an Assistant
Secretary of the Transferor, the Servicer or the Company, as
applicable;
(d) a copy of an officially certified document, dated not
more than 30 days prior to the Initial Delivery Date, evidencing
the due organization and good standing of each of the Transferor,
the Servicer and the Company in their respective states of
incorporation;
(e) copies of the Certificate of Incorporation and By-Laws
of each of the Transferor, the Servicer and the Company,
certified by the Secretary or an Assistant Secretary of the
Transferor, the Servicer and the Company, as applicable;
(f) (i) evidence of filing with the Secretary of State of
the State (and with the relevant county, if required by the
applicable state law) of the Company's chief executive office of
UCC-1 financing statements executed by the Company, as debtor,
and naming the Transferor as secured party, the Trustee for the
benefit of the Certificateholders and MBIA as assignee and the
Lease Assets as collateral; and (ii) evidence of filing with the
Secretary of State of the State (and with the relevant county, if
required by the applicable state law) of the Transferor's chief
executive office of UCC-1 financing statements executed by the
Transferor, as debtor, and naming the Trustee for the benefit of
the Certificateholders and MBIA as secured party, and the Trust
Estate as collateral;
(g) a certificate listing the Servicing Officers of the
Servicer as of the Initial Delivery Date;
(h) an executed copy of a Supplement for each Series of
Certificates to be issued on the Initial Delivery Date and the
Servicing Agreement and the Lease Acquisition Agreement;
(i) a Certificate Insurance Policy for the Series of
Class A Certificates being issued on such date;
(j) evidence of the deposit by the Transferor of any
applicable Initial Cash Deposit;
(k) evidence of the deposit by the Transferor into the
Collection Account of any amounts paid on the Lease Contracts
since the applicable Cut-Off Date; and
(l) such other documents as the Trustee, MBIA or the
Certificateholders of the Series being issued may reasonably
require, including such documents and opinions described in the
applicable Certificate Purchase Agreement.
Section 4.02 Issuances of Additional Series of
Certificates.
(a) Additional Series of Class A Certificates and Class B
Certificates may be issued by the Transferor in accordance with
the terms of this Agreement, provided that no new Series of
Class A Certificates shall be issued while an Outstanding Series
of Class A Certificates is in its Funding Period, provided
further that no new Series shall be issued if, after the issuance
of such new Series, the Aggregate IPB (after giving effect to the
addition of any new Lease Contracts on such date of issuance) is
not at least equal to the sum of the Outstanding Principal Amount
of all Series of Class A Certificates (including any Series of
Class A Certificates to be issued on such date) plus the Required
Collateralization Amount. All additional Series of Certificates
must be approved in writing by MBIA, provided, however, that
nothing herein shall obligate MBIA to issue any Certificate
Insurance Policy; rather such obligation shall arise only under a
written commitment issued by MBIA to issue a Certificate
Insurance Policy.
(b) On or before the Delivery Date relating to any new
Series of Certificates, the parties hereto will execute and
deliver a Supplement that will specify the terms applicable to
such new Series of Certificates. The terms set forth in such
Supplement may modify or amend, subject to Article Nine hereof,
the terms of this Agreement solely as applied to such new Series
of Certificates.
(c) Each new Series of Class A Certificates shall be
executed by the Transferor and delivered to the Trustee for
authentication, and thereupon, the same shall be authenticated
and delivered by the Trustee upon Transferor Order and upon
receipt by the Trustee of the following:
(i) evidence of the delivery of the original executed
counterpart of each Lease Contract to be delivered on the
related Delivery Date and an Officer's Certificate of the
Transferor certifying that all of the terms of the Lease
Acquisition Agreement have been complied with; and all other
items included in the Lease Contract File;
(ii) a Supplement for such Series of Class A Certificates
and if the Transferor is acquiring Lease Contracts from the
Company on the applicable Delivery Date, a Company
Certificate and a Transferor Certificate, subjecting any new
Lease Contracts to the provisions of the Transaction
Documents, and providing with respect to such new Lease
Contracts a Series Lease Schedule;
(iii) on or before the tenth Business Day immediately
preceding the Delivery Date for the Class A Certificates to
be issued (unless the parties to be notified agree to a
shorter time period), the Transferor shall have given the
Trustee, the Servicer, MBIA and each Rating Agency notice of
such issuance and the applicable Delivery Date;
(iv) the Transferor shall have delivered to the Trustee and
MBIA the related Supplement, executed by each party hereto
other than the Trustee;
(v) the Transferor shall have delivered to the Trustee and
MBIA an Officers' Certificate of the Transferor to the
effect that (A) such issuance will not result in the
occurrence of a Trigger Event or a Default under this
Agreement and the Transferor is not in Default under this
Agreement, (B) the issuance of the Class A Certificates
applied for will not result in a breach of any of the terms,
conditions or provisions of, or constitute a Default under,
any agreement or instrument to which the Transferor is a
party or by which it is bound, or any order of any court or
administrative agency entered in any proceeding to which the
Transferor is a party or by which it may be bound or to
which it may be subject, (C) all conditions precedent
provided in this Agreement relating to the authentication
and delivery of the additional Series of Class A
Certificates applied for have been complied with, and
(D) specifying the applicable Stated Maturity and the
principal amount of the Certificates to be authenticated and
delivered;
(vi) to the extent not previously filed, (A) evidence of
filing with the Secretary of State of the State (and with
the relevant county, if required by the applicable state
law) of the Company's and any applicable Seller's chief
executive office of UCC-1 financing statements executed by
the Company or such Seller, as debtor, and naming the
Transferor as secured party, and the applicable Lease Assets
as collateral; and (B) evidence of filing with the Secretary
of State of the State (and with the relevant county, if
required by the applicable state law) of the Transferor's
chief executive office of UCC-1 financing statements
executed by the Transferor, as debtor, and naming the
Trustee for the benefit of the Certificateholders and MBIA
as secured party, and the Trust Estate as collateral;
(vii) the Transferor shall have delivered to the Trustee
and MBIA an Officers' Certificate to the effect that
attached thereto are true and correct copies of letters
signed by each Rating Agency confirming that the Class A
Certificates of such Series have been rated "AAA" by S&P and
"Aaa" by Moody's and that the rating on each other Series of
Class A Certificates has not been or will not be withdrawn
or downgraded on the applicable Delivery Date as a result of
such issuance;
(viii) a certificate guaranty insurance policy issued by
MBIA with respect to the payment of principal and interest
of any new Series of Class A Certificates in form and
substance substantially the same as the Certificate
Insurance Policy issued by MBIA with respect to the Class A
Certificates issued on the Initial Delivery Date, and
evidence that MBIA shall not have been downgraded from a
"AAA" and "Aaa" rating;
(ix) an opinion of counsel to the effect that the Class A
Certificates of any Series to be issued should be
characterized as debt for tax purposes and that the issuance
of such Series will not adversely affect the
characterization of the Class A Certificates of any other
Outstanding Series as debt for tax purposes, and as to such
additional legal matters as MBIA may reasonably request;
(x) evidence of the deposit by the Transferor into the
Collection Account of any amounts paid under the Lease
Contracts of such Series since the related Cut-Off Date;
(xi) such other documents, certificates, instruments,
opinions, or other items as may be required by the terms of
the Supplement creating such Series of Certificates or as
may be required by MBIA;
(xii) no MBIA Default or Termination shall have occurred
and be continuing with respect to any outstanding Series of
Certificates; and
(xiii) an officer's certificate of the Transferor stating
that all conditions precedent to the issuance of such new
Series of Certificates have been complied with.
Upon satisfaction of the above conditions, the Trustee shall
execute the Supplement and issue and deliver to or upon the order
of the Transferor the applicable Class A Certificates, and
provide notice to all existing Certificateholders of the issuance
of such Series of Certificates.
(d) On or before the Delivery Date relating to any Series
of Class B Certificates, the parties hereto will execute and
deliver a Supplement which will specify the terms of such new
Series of Class B Certificates. The terms set forth in such
Supplement may modify or amend, subject to Article Nine hereof,
the terms of this Agreement solely as applied to such new Series
of Class B Certificates. Each new Series of Class B Certificates
may be executed by the Transferor and delivered to the Trustee
for authentication, and thereupon, the same shall be
authenticated and delivered by the Trustee upon Transferor Order
and upon receipt:
(i) by the Trustee, of an executed copy of a Supplement for
such Series of Class B Certificates;
(ii) by the Trustee and MBIA, of an Officers' Certificate of
the Transferor to the effect that (A) such issuance will not
result in the occurrence of a Trigger Event or a Default
under this Agreement and the Transferor is not in Default
under this Agreement, (B) the issuance of the Class B
Certificates applied for will not result in a breach of any
of the terms, conditions or provisions of, or constitute a
Default under, any agreement or instrument to which the
Transferor is a party or by which it is bound, or any order
of any court or administrative agency entered in any
proceeding to which the Transferor is a party or by which it
may be bound or to which it may be subject, (C) all
conditions precedent provided in this Agreement relating to
the authentication and delivery of the additional Series of
Class B Certificates applied for have been complied with,
and (D) specifying the applicable Expected Maturity, the
principal amount and Certificate Interest Rate of the
Class B Certificates to be authenticated and delivered; and
(iii) an opinion of counsel to the effect that the
issuance of such Series of Class B Certificates will not
adversely affect the characterization of the Class A
Certificates of any Outstanding Series as debt for tax
purposes, and as to such additional legal matters as MBIA
may reasonably request.
Upon satisfaction of the above conditions, the Trustee shall
execute the Supplement and issue and deliver to or upon the order
of the Transferor the applicable Class B Certificates, and
provide notice to MBIA and all existing Certificateholders of the
issuance of such Series of Certificates.
Section 4.03 Perfection of Transfer.
(a) The Transferor, the Company and each Seller shall file
UCC-1 financing statements described in Sections 4.01(f) and
4.02(c)(vi) hereof in accordance with such Sections. From time
to time, the Servicer shall take or cause to be taken such
actions and execute such documents as are necessary to perfect
and protect the Trustee's and MBIA's respective interests in the
Lease Contracts against all other Persons, including, without
limitation, the filing of financing statements, amendments
thereto and continuation statements, the execution of transfer
instruments and the making of notations on or taking possession
of all records or documents of title.
(b) If any change in either the Company's, the Transferor's
or any Seller's name, identity, structure or the location of its
principal place of business or chief executive office occurs,
then the Transferor shall, or the Transferor shall cause the
Company or such Seller to deliver 30 days prior written notice of
such change or relocation to the Servicer, MBIA and the Trustee
and no later than the effective date of such change or
relocation, the Servicer shall file such amendments or statements
as may be required to preserve and protect the Trustee's and
MBIA's respective interests in the Trust Estate.
(c) During the term of this Agreement, the Transferor will
maintain its chief executive office and principal place of
business in one of the States of the United States.
(d) The Servicer agrees to pay all reasonable costs and
disbursements in connection with the perfection and the
maintenance of perfection, as against all third parties, of the
Trustee's and MBIA's respective right, title and interest in and
to the Trust Estate.
(e) The Trustee shall hold the original executed
counterparts of each Lease Contract at its office in the State of
Minnesota, and at any such new address in the State of Minnesota
as the Trustee shall inform the Servicer, the Transferor, and
MBIA in writing from time to time. The Trustee shall hold each
Lease Contract for the benefit of Certificateholders and MBIA,
and maintain accurate records pertaining to each Lease Contract
to maintain a current inventory thereof. The Trustee may, if
requested by the Servicer in writing for purposes of servicing a
Lease Contract, temporarily release to the Servicer such Lease
Contract. Any Lease Contract temporarily released from the
custody of the Trustee to the Servicer or its agents shall have
stamped on it prior to delivery a legend to the effect that the
Lease Contract is the property of Norwest Bank Minnesota,
National Association, as Trustee. The Servicer shall promptly
return the Lease Contract to the Trustee when the need therefor
no longer exists.
Section 4.04 Substitution, Removal and Purchase of Lease
Assets.
(a) If at any time the Transferor, MBIA or the Trustee
obtains knowledge (within the meaning of 7.01(e) hereof),
discovers or is notified by the Servicer that any of the
representations and warranties of the Company in the Lease
Acquisition Agreement or of any Seller in any Lease Sale
Agreement were incorrect at the time as of which such
representations and warranties were made, then the Person
discovering such defect, omission, or circumstance shall promptly
notify MBIA and the other parties to this Agreement.
(b) In the event that any representation or warranty of the
Company in the Lease Acquisition Agreement or of any Seller in
any Lease Sale Agreement is incorrect and materially and
adversely affects the interests of MBIA or the Holders of the
Certificates, or if there is any breach of any of the
representations and warranties set forth in Sections 3.01(a)(ii),
3.01(a)(v), 3.01(a)(vii), 3.01(a)(xix) or 3.01(c)(iii) of the
Lease Acquisition Agreement or the equivalent section of any
Lease Sale Agreement, the Transferor shall require the Company or
the applicable Seller pursuant to the Lease Acquisition Agreement
or such Lease Sale Agreement to eliminate or otherwise cure the
circumstance or condition which has caused such representation or
warranty to be incorrect within 30 days of discovery or notice
thereof. If the Company or such Seller fails or the Company or
the Back-up Servicer or such Seller is unable to cure such
circumstance or condition in accordance with the Lease
Acquisition Agreement or the applicable Lease Sale Agreement,
then the Transferor shall require the Company or such Seller to
substitute or purchase pursuant to the Lease Acquisition
Agreement or such Lease Sale Agreement for any Lease Asset as to
which such representation or warranty is incorrect within the
time specified in Section 3.03 of the Lease Acquisition Agreement
or the equivalent section of such Lease Sale Agreement. The
proceeds of a purchase shall be remitted by the Transferor to the
Servicer for deposit by the Servicer in the Collection Account
pursuant to Section 3.03(c) of the Servicing Agreement.
(c) If the Transferor fails to enforce the purchase or
substitution obligation of the Company or a Seller under the
Lease Acquisition Agreement or any Lease Sale Agreement, at the
direction of MBIA, or upon the occurrence of an MBIA Default or
Termination, the Controlling Holders (provided, in each case,
that the requirements of Section 7.03(e) have been satisfied) the
Trustee shall enforce such purchase or substitution obligation
for the benefit of the Certificateholders and MBIA, and the
Trustee is hereby appointed attorney-in-fact to act on behalf of
and in the name of the Transferor to require such purchase or
substitution.
(d) With respect to (i) any Lease Contract to be prepaid or
terminated early pursuant to Section 3.09 of the Servicing
Agreement and (ii) any Lease Contract that becomes a Defaulted
Lease Contract or any Lease Contract that becomes a Delinquent
Lease Contract, the Transferor shall be entitled to, upon five
Business Days notice to the Trustee, remove such Lease Contract
from the Trust Estate and deliver a Substitute Lease Contract
meeting the same requirements as those specified in Section 3.04
of the Lease Acquisition Agreement for substitutions and
purchases by the Company upon breaches of a representation or
warranty by the Company thereunder; provided, however, that the
aggregate Implicit Principal Balance of such prepaid and early
terminated Lease Contracts, Defaulted Lease Contracts and
Delinquent Lease Contracts that are substituted or removed by the
Transferor shall be subject to an overall limit of 10% of the
Aggregate Initial IPB; and, provided, further that no
substitution or repurchase shall be made if (i) such substitution
or repurchase is made with any intent to hinder, delay, or
defraud any entity to which the Company is or will become
indebted; (ii) there shall be any reason to believe that the
Company is insolvent or that such substitution or repurchase will
render the Company insolvent on the date thereof or as a result
of such substitution or repurchase; (iii) at the time of such
substitution or repurchase, the Company is engaged in business,
or about to engage in business, for which the assets remaining
with it after the substitution or repurchase will be an
unreasonably small amount of capital; or (iv) the Company intends
or believes that it will incur debts beyond its ability to pay as
such debts mature.
(e) The Transferor shall comply with the requirements
relating to Substitute Lease Contracts and Funded Lease Contracts
as set forth in the Lease Acquisition Agreement (including
compliance with the Eligibility Criteria and the Concentration
Limits) within the time periods set forth therein. In addition,
in the case of any new Lease Contracts acquired by the Transferor
pursuant to a Funding, the Transferor shall provide to the
Trustee and MBIA, as applicable, the items listed in Section
3.03(a) hereof which are required to be delivered to the Trustee
and/or MBIA pursuant to such Section. On or prior to the
Business Day preceding the Initial Delivery Date or within two
Business Days of the related Funding Date the Trustee will review
the related Lease Contract Files. The Trustee shall confirm, by
execution and delivery of a certificate of the Trustee to the
Transferor, the Certificateholders and MBIA, that: (1) the
Trustee has received the Lease Contract Files; and (2) that the
Trustee has received the originals of each Lease Contract. In
the case of any Substitute Lease Contracts acquired by the
Transferor, the Transferor shall provide to the Trustee on the
applicable date of delivery the items listed in (i) and (ii)
below, and to MBIA the item listed in (i) below. In the case of
any new Lease Contracts acquired by the Transferor pursuant to
either a Funding or a substitution of a Lease Contract, the
Transferor shall provide to the Trustee and MBIA at the end of
each calendar quarter the items listed in (iii) below with
respect to any Substitute Lease Contracts substituted or Funded
Lease Contracts acquired during such period:
(i) a Company Certificate and a Transferor
Certificate, each such certificate having attached thereto
an Amended Lease Schedule and subjecting such Substitute
Lease Contract to the provisions thereof and hereof and
providing with respect to the Substitute Lease Contract the
information required to supplement the related Series Lease
Schedule, and with respect to titled Equipment, an
application to retitle or originate title in such Equipment,
as applicable, in the name of the Transferor and naming the
Trustee as secured party;
(ii) the original executed counterpart of the Lease
Contract relating to such Substitute Lease Contract and all
other items included in the Lease Contract File; and
(iii) evidence that financing statements have been
filed with respect to such Substitute Lease Contract or
Funded Lease Contract in accordance with Sections 4.01(f),
4.02(b)(vi) and 4.03 hereof.
(f) If, upon examination of the Lease Contract Files in
accordance with Section 4.04(e) hereof, the Trustee determines
that any such Lease Contract File does not satisfy the
requirements set forth in Section 4.04(e) hereof, or is unable to
confirm that the requirements have been met, the Trustee shall
promptly notify the Transferor, the Servicer and MBIA by
telephone or telecopy. If the Transferor or the Servicer does
not satisfy the Trustee that the requirements of Section 4.04(e)
hereof have been met prior to the related Funding Date, the
Trustee shall return the applicable Lease Contract and related
files to the Transferor.
Section 4.05 Releases.
(a) The Transferor shall be entitled to obtain a release
from the lien of this Agreement for any Lease Contract and,
except in the case of a re-lease under (iii) below, the related
Equipment at any time (i) after a payment by the Company or the
Transferor of the Removal Price of the Lease Receivable,
(ii) after a Substitute Lease Contract is substituted for such
Lease Contract, or (iii) upon the termination of a Lease Contract
following the sale, lease or other disposition of the related
Equipment in accordance with Section 3.01(b)(vii) of the
Servicing Agreement, if the Transferor delivers to the Trustee
and MBIA an Officer's Certificate (A) identifying the Lease
Receivable and the related Lease Contract and Equipment to be
released, (B) requesting the release thereof, (C) setting forth
the amount deposited in the Collection Account with respect
thereto, in the event a Lease Contract and the related Equipment
are being released from the lien of this Agreement pursuant to
(i) or (iii) above, and (D) certifying that the amount deposited
in the Collection Account (x) equals the Removal Price of the
Lease Contract, in the event a Lease Contract and the related
Equipment are being released from the lien of this Agreement
pursuant to (i) above or (y) equals the entire amount of
Insurance Proceeds, Recoveries or Residual Proceeds received or
expected to be received with respect to such Lease Contract and
related Equipment in the event of a release from the lien of this
Agreement pursuant to (iii) above.
(b) Upon satisfaction of the conditions specified in
subsection (a), the Trustee shall release from the lien of this
Agreement and deliver to or upon the order of the Transferor (or
to or upon the order of the Company if it has satisfied its
obligations under Section 4.04 hereof and Section 3.04 of the
Lease Acquisition Agreement with respect to a Lease Contract) the
Lease Contract, the Lease Receivable and the Equipment described
in the Transferor's request for release.
Section 4.07 Trust Estate.
The Trustee may, and when required by the provisions of
Articles Four, Five, Six and Twelve hereof shall, execute
instruments to release property from the lien of this Agreement,
or convey the Trustee's interest in the same, in a manner and
under circumstances which are not inconsistent with the
provisions of this Agreement. No party relying upon an
instrument executed by the Trustee as provided in this Article
Four shall be bound to ascertain the Trustee's authority, inquire
into the satisfaction of any conditions precedent or see to the
application of any monies.
Section 4.08 Notice of Release.
The Trustee shall be entitled to receive at least 10 days'
notice of any action to be taken pursuant to Section 4.06(a)
hereof, accompanied by copies of any instruments involved.
Section 4.09 Nature of Transfer.
To the extent that the transfer of the Trust Estate from the
Transferor to the Trustee is deemed to be a secured financing,
the Transferor shall be deemed hereunder to have granted to the
Trustee, and the Transferor does hereby grant to the Trustee, a
security interest in all of the Transferor's right, title and
interest in, to and under the Trust Estate, whether now owned or
hereafter acquired. For purposes of such grant, this Agreement
shall constitute a security agreement under applicable law.
ARTICLE FIVE
SATISFACTION AND DISCHARGE
Section 5.01 Satisfaction and Discharge of Agreement.
(a) Following payment in full of (i) all of the
Certificates, (ii) the fees and charges of the Trustee, (iii) all
other obligations of the Transferor under the Transaction
Documents and (iv) all amounts owing to MBIA under the Insurance
Agreement, and the release by the Trustee of the Trust Estate in
accordance with Section 5.01(b) hereof, this Agreement shall be
discharged and the Trustee shall notify the Rating Agencies
thereof.
(b) Upon payment in full of the amounts referred to in
clauses (i) through (iv) of Section 5.01(a) hereof, the
Transferor may submit to the Trustee an Officer's Certificate
requesting the release to the Transferor or its designee of a
stated amount of the funds on deposit in the Cash Collateral
Account and some or all of the other Trust Estate (collectively,
the "Withdrawn Collateral"), accompanied by an Opinion of Counsel
reasonably acceptable to MBIA or, if an MBIA Default or
Termination has occurred and is continuing, acceptable to the
Controlling Holders, to the effect that, after the release of the
Withdrawn Collateral, there will remain an amount in the Cash
Collateral Account or otherwise subject to this Agreement at
least equal to the payments of interest due on the Outstanding
Certificates and the Class A Principal Distribution Amounts and
Class B Principal Distribution Amounts that are subject to
recapture as preferential transfers pursuant to Section 547 of
the Bankruptcy Code or, alternatively, to the effect that no such
payments are subject to recapture. In rendering such Opinion of
Counsel, such counsel may rely as to factual matters, including,
without limitation, the date on which funds were received and the
source of funds, upon an Officer's Certificate. Promptly after
receipt of such Officer's Certificate, Opinion of Counsel and
authorization to release from MBIA, the Trustee shall release the
Withdrawn Collateral from the lien of this Agreement, and deliver
the Withdrawn Collateral to the Transferor or its designee. The
Transferor shall be entitled to deliver more than one such
Officer's Certificate and Opinion of Counsel until the entire
Trust Estate is released and delivered to the Transferor or its
designee. Notwithstanding the foregoing, MBIA or, if an MBIA
Default or Termination has occurred and is continuing, the
Controlling Holders, may waive the requirement that the
Transferor deliver such Officer's Certificate and/or Opinion of
Counsel and authorize the Trustee by written direction to release
all or a portion of the Cash Collateral Account or other items of
the Trust Estate from the lien of this Agreement upon payment in
full of the amounts referred to in clauses (i) through (iv) of
Section 5.01(a) hereof. Notwithstanding termination of this
Agreement, the Trustee shall remain obligated to make claims
under the applicable Certificate Insurance Policy with respect to
any Preference Claim.
(c) In connection with the discharge of this Agreement and
the release of the Trust Estate, the Trustee shall release from
the lien of this Agreement and deliver to or upon the order of
the Transferor all property remaining in the Trust Estate and
shall execute and file, at the expense of the Transferor, UCC
financing statements evidencing such discharge and release.
Section 5.02 Application of Trust Money.
Subject to the last paragraph of Section 7.16 hereof, all
monies deposited with the Trustee pursuant to Section 5.01 hereof
shall be held in trust and if invested, shall be invested in
Eligible Investments of the type described in clause (a) of the
definition thereof, and applied by the Trustee, in accordance
with the provisions of the Certificates and this Agreement, to
the payment, either directly or through any Paying Agent as the
Trustee may determine, to the Persons entitled thereto, of the
principal and interest for whose payment such money has been
deposited with the Trustee; but such money need not be segregated
from other funds except to the extent required in this Agreement
or to the extent required by law.
ARTICLE SIX
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
"Event of Default" wherever used herein means any one of the
following events:
(a) default in the payment of any interest or any
other amounts due and owing to the Class A
Certificateholders when the same becomes due and payable,
and if there are no Class A Certificates Outstanding,
default in the payment of any interest upon any Class B
Certificates when the same becomes due and payable; or
(b) default in the payment of any principal of any
Class A Certificate when the same becomes due and payable,
and if there are no Class A Certificates Outstanding,
default in the payment of any principal upon any Class B
Certificates when the same becomes due and payable; or
(c) default in the performance of any covenant of the
Transferor, or breach of any representation or warranty of
the Transferor which has a material adverse effect on the
Certificateholders or MBIA, in this Agreement, the Lease
Acquisition Agreement, any Lease Sale Agreement, the
Insurance Agreement, the Certificate Purchase Agreement or
the Servicing Agreement (other than a covenant or warranty
default in the performance of which or breach of which is
elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 30
days after the Transferor has actual knowledge thereof;
(d) the entry of a decree or order for relief by a
court having jurisdiction in the premises in respect of the
Transferor under the United States Bankruptcy Code or any
other applicable Federal or state bankruptcy, insolvency,
reorganization, liquidation or other similar law now or
hereafter in effect or any arrangement with creditors or
appointing a receiver, liquidator, assignee, trustee, or
sequestrator (or other similar official) for the Transferor
or for any substantial part of its property, or ordering the
winding up or liquidation of the Transferor's affairs, and
the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(e) the institution by the Transferor of proceedings
to be adjudicated a bankrupt or insolvent, or the consent by
the Transferor to the institution of bankruptcy or
insolvency proceedings against the Transferor, or the filing
by the Transferor of a petition or answer or consent seeking
reorganization or relief under the United States Bankruptcy
Code or any other applicable Federal or state bankruptcy
insolvency, reorganization, liquidation or other similar law
now or hereafter in effect, or the consent by the Transferor
to the filing of any such petition or to the appointment of
or taking possession by a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or other similar
official) of the Transferor or of any substantial part of
the Transferor's property, or the making by the Transferor
of any assignment for the benefit of creditors, or the
admission by it in writing of its inability, or the failure
by it generally, to pay its debts as they become due, or
the taking of corporate action by the Transferor in
furtherance of any such action.
Section 6.02 Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default with respect to any of the
Certificates at the time Outstanding occurs and is continuing,
then, and in every such case, the Trustee shall, at the direction
of MBIA, or if there is an MBIA Default or Termination, the
Trustee shall, at the direction of the Controlling Holders,
declare the principal of all the Certificates to be immediately
due and payable, by notice given in writing to the Transferor
(and to the Trustee if given by Certificateholders); provided
that, MBIA shall not declare the Outstanding Principal Amount of
all of the Certificates immediately due and payable unless it
shall have endorsed the Certificate Insurance Policies to provide
coverage for any shortfall in the payment of accelerated
principal and any interest due on the Class A Certificates on the
date established for redemption thereof pursuant to such
acceleration, and upon any such declaration, such principal shall
become immediately due and payable without any presentment,
demand, protest or other notice of any kind (except such notices
as shall be expressly required by the provisions of this
Agreement), all of which are hereby expressly waived.
At any time after such a declaration of acceleration has
been made, but before any Sale of the Trust Estate has been made
or a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided,
MBIA, or if an MBIA Default or Termination has occurred, the
Controlling Holders, by written notice to the Transferor and the
Trustee, may rescind and annul such declaration and its
consequences (except that in the case of a payment default on the
Class A Certificates, or if no Class A Certificates are
Outstanding, the Class B Certificates, the consent of all the
Holders of such Class shall be required to rescind and annul such
a declaration and its consequences) if:
(1) the Transferor has paid or deposited with the
Trustee a sum sufficient to pay
(A) all overdue installments of interest on all
Class A Certificates, or if no Class A Certificates are
Outstanding, the Class B Certificates;
(B) the principal of any Class A Certificates, or
if no Class A Certificates are Outstanding, the Class B
Certificates which have become due otherwise than by
such declaration of acceleration and interest thereon
at the rate borne by such Certificates from the time
such principal first became due until the date when
paid; and
(C) all sums paid or advanced, together with
interest thereon, by the Trustee, MBIA or any
Certificateholder hereunder or by MBIA under the
Insurance Agreement or any Certificate Insurance
Policy, and the reasonable compensation, expenses,
disbursements and advances of the Trustee, MBIA and the
Certificateholders, their agents and counsel incurred
in connection with the enforcement of this Agreement to
the date of such payment or deposit; and
(2) all Events of Default, other than the nonpayment
of the principal on the Class A Certificates, or if no
Class A Certificates are Outstanding, the Class B
Certificates which have become due solely by such
declaration of acceleration, have been cured or waived
as provided in Section 6.15 hereof.
No such rescission shall affect any subsequent default or impair
any right consequent thereon.
Section 6.03 Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Transferor covenants that if an Event of Default shall
occur and be continuing and any of the Certificates have been
declared due and payable and such declaration has not been
rescinded and annulled, the Transferor will, upon demand of the
Trustee and at the direction of MBIA, or if an MBIA Default or
Termination has occurred at the direction of the Controlling
Holders, pay to the Trustee, for the benefit of the Holders of
the Certificates and MBIA, the whole amount then due and payable
on the Certificates for principal and interest, with interest
upon the overdue principal at the rate borne by the Certificates
and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements
and advances of the Trustee and MBIA, their respective agents and
counsel.
If the Transferor fails to pay such amount forthwith upon
such demand, the Trustee, in its own name and as Trustee of an
express trust shall, at the direction of MBIA, and if an MBIA
Default or Termination has occurred the Trustee may, and shall,
at the direction of the Controlling Holders, institute
Proceedings for the collection of the sums so due and unpaid, and
prosecute such Proceeding to judgment or final decree, and
enforce the same against the Transferor and collect the monies
adjudged or decreed to be payable in the manner provided by law
out of the property of the Transferor, wherever situated.
If an Event of Default occurs and is continuing, the Trustee
shall, at the direction of MBIA, and if an MBIA Default or
Termination has occurred the Trustee may in its discretion
proceed, and shall at the direction of the Controlling Holders
proceed, to protect and enforce its rights and the rights of MBIA
by such appropriate Proceedings as the Trustee, at the direction
of MBIA, or if an MBIA Default or Termination has occurred, at
its discretion shall deem most effectual to protect and enforce
any such rights, whether for the specific enforcement of any
covenant or agreement in this Agreement or in aid of the exercise
of any power granted herein, or to enforce any other proper
remedy.
Section 6.04 Remedies.
If an Event of Default shall have occurred and be
continuing, the Trustee shall, at the direction of MBIA, and if
an MBIA Default or Termination has occurred, the Trustee shall,
at the direction of the Controlling Holders, do one or more of
the following:
(a) institute Proceedings for the collection of all
amounts then due and payable on the Certificates or under
this Agreement, whether by declaration or otherwise, enforce
any judgment obtained, and collect from the Transferor the
monies adjudged due;
(b) take possession of and sell the Trust Estate
securing the Certificates or any portion thereof or rights
or interest therein, at one or more Sales called and
conducted in any manner permitted by law;
(c) institute any Proceedings from time to time for
the complete or partial foreclosure of the lien created by
this Agreement with respect to the Trust Estate;
(d) during the continuance of a default under a Lease
Contract, exercise any of the rights of the lessor under
such Lease Contract;
(e) exercise any remedies of a secured party under the
Uniform Commercial Code or any applicable law and take any
other appropriate action to protect and enforce the rights
and remedies of the Trustee, MBIA and the Holders of the
Certificates hereunder; and
(f) institute proceedings against MBIA for the
collection of any amounts then due and payable under any
Certificate Insurance Policy, whether by declaration or
otherwise, enforce any judgment obtained, and collect from
MBIA the monies adjudged due;
provided, however, that without the consent of MBIA, or if an
MBIA Default or Termination has occurred, all the Controlling
Holders, the Trustee may not sell or otherwise liquidate any
portion of the Trust Estate unless the proceeds of such Sale or
liquidation distributable to the Certificateholders are
sufficient to discharge in full the amounts then due and unpaid
upon the Certificates of such Controlling Holders for principal
and interest together with any amounts owed to MBIA under the
Insurance Agreement.
Section 6.05 Optional Preservation of Trust Estate.
If (i) an Event of Default shall have occurred and be
continuing with respect to the Certificates and (ii) no
Certificates have been declared due and payable, or such
declaration and its consequences have been annulled and
rescinded, the Trustee shall, at the direction of MBIA, or if an
MBIA Default or Termination has occurred, the Trustee may in its
sole discretion if it determines it to be in the best interests
of the Controlling Holders and shall, upon request from the
Controlling Holders elect, by giving written notice of such
election to the Transferor, to take possession of and retain the
Trust Estate securing the Certificates intact, collect or cause
the collection of the proceeds thereof and make and apply all
payments and deposits and maintain all accounts in respect of
such Certificates in accordance with the provisions of Article
Twelve of this Agreement. If the Trustee is unable to or is
stayed from giving such notice to the Transferor for any reason
whatsoever, such election shall be effective as of the time of
such determination or request, as the case may be,
notwithstanding any failure to give such notice, and the Trustee
shall give such notice upon the removal or cure of such inability
or stay (but shall have no obligation to effect such removal or
cure). Any such election may be rescinded with respect to any
portion of the Trust Estate securing the Certificates remaining
at the time of such rescission by written notice to the Trustee
and the Transferor from MBIA or, if an MBIA Default or
Termination has occurred, from the Controlling Holders.
Section 6.06 Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial Proceeding relating to the
Transferor or any other obligor upon any of the Certificates or
the property of the Transferor or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of
any of the Certificates shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Transferor
for the payment of overdue principal or interest) shall be
entitled and empowered, to intervene in such proceeding or
otherwise,
(a) to file and prove a claim for the whole amount of
principal and interest owing and unpaid in respect of the
Certificates issued hereunder and to file such other papers
or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel and any
other amounts due the Trustee under Section 7.07 hereof) and
of MBIA and the Certificateholders allowed in such judicial
Proceeding, and
(b) to collect and receive any monies or other
property payable or deliverable on any such claims and to
distribute the same,
and any receiver, assignee, trustee, liquidator, or sequestrator
(or other similar official) in any such judicial Proceeding is
hereby authorized by MBIA and each Certificateholder to make such
payments to the Trustee, and in the event that the Trustee shall
consent to the making of such payments directly to MBIA or the
Certificateholders, to pay to the Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof.
Nothing contained in this Agreement shall be deemed to
authorize the Trustee to authorize or consent to or accept or
adopt on behalf of MBIA or any Certificateholder any plan of
reorganization, arrangement, adjustment or composition affecting
MBIA or any of the Certificates or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the
claim of MBIA or any Certificateholder in any such Proceeding.
Section 6.07 Trustee May Enforce Claims Without Possession
of Certificates.
(a) In all Proceedings brought by the Trustee (and also any
Proceedings involving the interpretation of any provision of this
Agreement to which the Trustee shall be a party), the Trustee
shall be held to represent all of the Certificateholders, and it
shall not be necessary to make any Certificateholder a party to
any such Proceedings.
(b) All rights of actions and claims under this Agreement
or any of the Certificates may be prosecuted and enforced by the
Trustee without the possession of any of the Certificates or the
production thereof in any Proceeding relating thereto, and any
such Proceedings instituted by the Trustee shall be brought in
its own name as Trustee of an express trust, and any recovery
whether by judgment, settlement or otherwise shall, after
provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, be for MBIA and the ratable benefit of the Holders
of the Certificates.
Section 6.08 Application of Money Collected.
If the Certificates have been declared due and payable
following an Event of Default and such declaration has not been
rescinded or annulled, any money collected by the Trustee with
respect to the Certificates pursuant to this Article Six or
otherwise and any other money that may be held thereafter by the
Trustee as security for the Certificates shall be applied in the
following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal
or interest, upon presentation of the Certificates and the
notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid; provided that proceeds of a
claim under a Certificate Insurance Policy will be used only to
pay interest and principal on the applicable Class A Certificates
of a Series in the manner set forth in clauses Fifth and Sixth
below:
FIRST: To the payment to the Trustee of the Trustee
Fee then due, and any costs and expenses incurred by it in
connection with enforcing the remedies provided for in this
Article Six;
SECOND: To the payment of all the Servicer Fee and other
amounts due the Servicer pursuant to Section 12.02(d)(i) hereof
and to pay the Servicer the amount necessary to reimburse the
Servicer for any other unrecovered Servicer Advances;
THIRD: To the payment to the Back-up Servicer of the Back-
up Servicer Fee then due;
FOURTH: To the payment to MBIA of the MBIA Premium then
due;
FIFTH: To the payment of the amounts then due and unpaid
upon the Class A Certificates of each Series for interest, with
interest (to the extent payment thereof is legally enforceable at
the respective rate or rates prescribed therefor in the
Certificates) on overdue principal, in the proportion in which
the Outstanding Principal Amount of each Series of Class A
Certificates represents of the Outstanding Principal Amount of
all Series of Class A Certificates, without preference or
priority of any kind, according to the amounts due and payable on
the Class A Certificates for interest;
SIXTH: To the payments of the remaining Outstanding
Principal Amount of the Class A Certificates, in the proportion
in which the Outstanding Principal Amount of each Series of Class
A Certificates represents of the Outstanding Principal Amount of
all Series of Class A Certificates, without preference or
priority of any kind;
SEVENTH: To the payment to MBIA of any amounts previously
paid by MBIA under any of the Certificate Insurance Policies and
not theretofore repaid, together with interest thereon and any
other amounts due under the Insurance Agreement;
EIGHTH: To reimburse MBIA, and in the event an MBIA
Default or Termination has occurred, to reimburse the
Certificateholders, for any costs or expenses incurred in
connection with any enforcement action with respect to this
Agreement or the Certificates;
TENTH: To the payment to the Servicer of any other
amounts due the Servicer as expressly provided herein and in the
Servicing Agreement;
ELEVENTH: To the payment to the Trustee and the Back-up
Servicer, any other amounts due to the Trustee or the Back-up
Servicer as expressly provided herein and in the Servicing
Agreement;
TWELFTH: To the payment of the amounts then due and unpaid
upon the Class B Certificates for interest, with interest (to
the extent such interest has been collected by the Trustee or a
sum sufficient therefor has been so collected and payment thereof
is legally enforceable at the respective rate or rates prescribed
therefor in the Class B Certificates) on overdue principal, in
the proportion in which the Outstanding Principal Amount of each
Series of Class B Certificates represents of the Outstanding
Principal Amount of all Series of Class B Certificates, without
preference or priority of any kind, according to the amounts due
and payable on the Class B Certificates for interest;
THIRTEENTH: To the payment of the remaining Outstanding
Principal Amount of the Class B Certificates, in the proportion
in which the Outstanding Principal Amount of each Series of Class
B Certificate represents of the Outstanding Principal Amount of
all Series of Class B Certificates, without preference or
priority of any kind;
FOURTEENTH: To the payment of any surplus to or at the
written direction of the Transferor or any other person legally
entitled thereto.
Section 6.09 Limitation on Suits.
No Holder of any Certificate shall have any right to
institute any Proceeding, judicial or otherwise, with respect to
this Agreement, or for the appointment of a receiver or trustee,
or for any other remedy hereunder for so long as an MBIA Default
or Termination has not occurred, and if an MBIA Default or
Termination has occurred, unless
(a) such Holder has previously given written
notice to the Trustee of a continuing Event of Default;
(b) the Controlling Holders shall have made
written request to the Trustee to institute Proceedings
in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders have offered to the
Trustee reasonable indemnity against the costs,
expenses and liabilities to be incurred in compliance
with such request;
(d) the Trustee for 30 days after its receipt of
such notice, request and offer of security or indemnity
has failed to institute any such Proceedings; and
(e) no direction inconsistent with such written
request has been given to the Trustee during such
30-day period by the Controlling Holders; it being
understood and intended that no one or more Holders of
Certificates shall have any right in any manner
whatever by virtue of, or by availing of, any provision
of this Agreement to affect, disturb or prejudice the
rights of any other Holders of Certificates, or to
obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this
Agreement, except in the manner herein provided and for
the equal and ratable benefit of all the Holders of
Certificates.
Section 6.10 Unconditional Right of Certificateholders to
Receive Principal and Interest.
Notwithstanding any other provision in this Agreement, the
Holder of any Class A Certificate shall have the right, which is
absolute and unconditional, to receive payment of the principal
and interest on such Class A Certificate as such principal and
interest becomes due and payable and to institute any Proceeding
for the enforcement of any such payment, and such right shall not
be impaired without the consent of such Holder.
Section 6.11 Restoration of Rights and Remedies.
If the Trustee, MBIA or any Certificateholder has instituted
any Proceeding to enforce any right or remedy under this
Agreement and such Proceeding has been discontinued or abandoned
for any reason, or has been determined adversely to the Trustee,
MBIA or to such Certificateholder, then, and in every case, the
Transferor, the Trustee, MBIA and the Certificateholders shall,
subject to any determination in such Proceeding, be restored
severally and respectively to their former positions hereunder,
and thereafter all rights and remedies of the Trustee, MBIA and
the Certificateholders shall continue as though no such
Proceeding had been instituted.
Section 6.12 Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Certificates
in the last paragraph of Section 2.07 hereof, no right or remedy
herein conferred upon or reserved to the Trustee, MBIA or to the
Certificateholders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right
or remedy.
Section 6.13 Delay or Omission; Not Waiver.
No delay or omission of the Trustee, MBIA or of any Holder
of any Certificate to exercise any right or remedy accruing upon
any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or any
acquiescence therein. Every right and remedy given by this
Article Six or by law to the Trustee, MBIA or to the
Certificateholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee, MBIA or by the
Certificateholders, as the case may be, subject in each case,
however, to the right of MBIA to control any such right and
remedy except as provided in Section 13.14 hereof.
Section 6.14 Control by MBIA or Certificateholders.
MBIA or, if an MBIA Default or Termination has occurred, the
Controlling Holders shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy
available to the Trustee or exercising any trust or power
conferred on the Trustee; provided that:
(a) such direction shall not be in conflict with
any rule of law or with this Agreement including,
without limitation, any provision hereof which
expressly provides for approval by a greater percentage
of Outstanding Principal Amount of all Certificates;
(b) any direction to the Trustee by the
Certificateholders of a Class to undertake a private
sale of the Trust Estate shall be by the Holders of all
Outstanding Certificates of such Class, unless the
condition set forth in Section 6.18(b)(ii) hereof is
met;
(c) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with
such direction; provided, however, that, subject to
Section 7.01 hereof, the Trustee need not take any
action which a Responsible Officer or Officers of the
Trustee in good faith determines might involve it in
personal liability or be prejudicial to the
Certificateholders of the Controlling Class not
consenting; and
(d) the Trustee has been furnished reasonable
indemnity against costs, expenses and liabilities which
it might incur in connection therewith as provided in
Section 7.01(f) hereof.
Section 6.15 Waiver of Certain Events by MBIA or
Certificateholders.
MBIA, or if an MBIA Default or Termination has occurred the
Controlling Holders, may on behalf of the Holders of all the
Certificates waive any past Default or Trigger Event hereunder
and its consequences, except:
(a) a Default in the payment of the principal of
or interest on any Certificate, or a Default described
in Sections 6.01(d) and (e) hereof, or
(b) in respect of a covenant or provision hereof
which under Article Nine hereof cannot be modified or
amended without the consent of the Holder of each
Outstanding Certificate affected.
Upon any such waiver, such Default or Trigger Event shall cease
to exist, and any Event of Default or other consequence arising
therefrom shall be deemed to have been cured for every purpose of
this Agreement; but no such waiver shall extend to any subsequent
or other Default or Trigger Event or impair any right consequent
thereon.
Section 6.16 Undertaking for Costs.
All parties to this Agreement agree, and each Holder of any
Certificate by his acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Agreement,
or in any suit against the Trustee for any action taken, suffered
or omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant
in such suit, having due regard to the merits and good faith of
the claims or defenses made by such party litigant; but the
provisions of this Section 6.16 shall not apply to any suit
instituted by the Trustee or MBIA, or to any suit instituted by
the Controlling Holders, or to any suit instituted by any
Certificateholder for the enforcement of the payment of the
principal of or interest on any Certificate on or after the
Stated Maturity expressed in such Certificate.
Section 6.17 Waiver of Stay or Extension Laws.
The Transferor covenants (to the extent that it may lawfully
do so) that it will not, at any time, insist upon, or plead, or
in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law wherever enacted, now or at any
time hereafter in force, which may affect the covenants or the
performance of this Agreement; and the Transferor (to the extent
that it may lawfully do so) hereby expressly waives all benefit
or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 6.18 Sale of Trust Estate.
(a) The power to effect any sale (a "Sale") of any portion
of the Trust Estate pursuant to Section 6.04 hereof shall not be
exhausted by any one or more Sales as to any portion of the Trust
Estate remaining unsold, but shall continue unimpaired until the
entire Trust Estate securing the Certificates shall have been
sold or all amounts payable on the Certificates and under this
Agreement with respect thereto shall have been paid. The Trustee
may from time to time postpone any Sale by public announcement
made at the time and place of such Sale.
(b) To the extent permitted by applicable law, the Trustee
shall not, in any private Sale, sell to a third party the Trust
Estate, or any portion thereof unless:
(i) MBIA, or if an MBIA Default or Termination
has occurred the Controlling Holders, consent in
writing to or directs the Trustee to make such Sale; or
(ii) if an MBIA Default or Termination has
occurred, the proceeds of such Sale would not be less
than the sum of all amounts due to the Trustee
hereunder and the Outstanding Principal Amount of the
Certificates of the Controlling Class and interest due
or to become due thereon on the Payment Date next
succeeding such Sale, together with any amount owing to
MBIA under the Insurance Agreement.
(c) The Trustee, MBIA or the Certificateholders may bid for
and acquire any portion of the Trust Estate in connection with a
public Sale thereof, and in lieu of paying cash therefor, any
Certificateholder may make settlement for the purchase price by
crediting against amounts owing on the Certificates of such
Holder or other amounts owing to such Holder secured by this
Agreement, that portion of the net proceeds of such Sale to which
such Holder would be entitled, after deducting the reasonable
costs, charges and expenses incurred by the Trustee, MBIA or the
Certificateholders in connection with such Sale. The Certificates
need not be produced in order to complete any such Sale, or in
order for the net proceeds of such Sale to be credited against
the Certificates. The Trustee, MBIA or the Certificateholders
may hold, lease, operate, manage or otherwise deal with any
property so acquired in any manner permitted by law.
(d) The Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion
of the Trust Estate in connection with a Sale thereof. In
addition, the Trustee is hereby irrevocably appointed the agent
and attorney-in-fact of the Transferor to transfer and convey its
interest in any portion of the Trust Estate in connection with a
Sale thereof, and to take all action necessary to effect such
Sale. No purchaser or transferee at such a sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction
of any conditions precedent or see to the application of any
monies.
(e) The method, manner, time, place and terms of any Sale
of all or any portion of the Trust Estate shall be commercially
reasonable.
Section 6.19 Action on Certificates.
The Trustee's right to seek and recover judgment on the
Certificates or under this Agreement shall not be affected by the
seeking, obtaining or application of any other relief under or
with respect to this Agreement. Neither the lien of this
Agreement nor any rights or remedies of the Trustee or the
Certificateholders shall be impaired by the recovery of any
judgment by the Trustee against the Transferor or by the levy of
any execution under such judgment upon any portion of the Trust
Estate or upon any of the assets of the Transferor.
ARTICLE SEVEN
THE TRUSTEE
Section 7.01 Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default
known to the Trustee as provided in subsection (e) below:
(i) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in
this Agreement, and no implied covenants or obligations
shall be read into this Agreement against the Trustee;
and
(ii) in the absence of bad faith or negligence on
its part, the Trustee may conclusively rely as to the
truth of the statements and the correctness of the
opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the
requirements of this Agreement; but in the case of any
such certificates or opinions, which by any provision
hereof are specifically required to be furnished to the
Trustee, the Trustee shall be under a duty to examine
the same and to determine whether or not they conform
to the requirements of this Agreement.
(b) In case an Event of Default known to the Trustee as
provided in subsection (e) below has occurred and is continuing,
the Trustee shall exercise such of the rights and powers vested
in it by this Agreement, and shall use the same degree of care
and skill in its exercise, as a reasonable person would exercise
or use under the circumstances in the conduct of his or her own
affairs.
(c) No provision of this Agreement shall be construed to
relieve the Trustee from liability for its own negligent action,
its own negligent failure to act, or its own willful misconduct
or bad faith, except that:
(i) this subsection (c) shall not be construed to
limit the effect of subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer
of the Trustee, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent
facts;
(iii) the Trustee shall not be liable with
respect to any action taken or omitted to be taken by
it in good faith in accordance with the direction of
MBIA or the Controlling Holders (or other such
percentage as may be required by the terms hereof) in
accordance with Section 6.14 hereof relating to the
time, method and place of conducting any Proceeding for
any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this
Agreement, the Lease Acquisition Agreement or the
Servicing Agreement; and
(iv) no provision of this Agreement shall require
the Trustee to expend or risk its own funds or
otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall
have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or
liability is not reasonably assured to it, provided
that nothing contained in this Agreement shall excuse
the Trustee for failure to perform its duties as
Trustee under this Agreement.
(d) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 7.01.
(e) For all purposes under this Agreement, the Trustee
shall not be deemed to have notice of any Event of Default
described in Section 6.01(d) or 6.01(e) hereof or any Default
described in Section 6.01(c) hereof or of any Trigger Event,
Funding Termination Event or Advance Rate Decrease Event unless a
Responsible Officer assigned to and working in the Trustee's
corporate trust department has actual knowledge thereof or unless
written notice of any event which is in fact such an Event of
Default, Default or Trigger Event, Funding Termination Event or
Advance Rate Decrease Event is received by the Trustee at the
Corporate Trust Office, and such notice references any of the
Certificates generally, the Transferor, the Trust Estate or this
Agreement.
(f) The Trustee shall be under no obligation to institute
any suit, or to take any remedial proceeding under this
Agreement, or to enter any appearance or in any way defend in any
suit in which it may be made defendant, or to take any steps in
the execution of the trusts hereby created or in the enforcement
of any rights and powers hereunder until it shall be indemnified
to its satisfaction against any and all costs and expenses,
outlays and counsel fees and other reasonable disbursements and
against all liability, except liability that is adjudicated, in
connection with any action so taken.
(g) Notwithstanding any extinguishment of all right, title
and interest of the Transferor in and to the Trust Estate
following an Event of Default and a consequent declaration of
acceleration of the maturity of any of the Certificates, whether
such extinguishment occurs through a Sale of the Trust Estate to
another person or the acquisition of the Trust Estate by the
Trustee, the rights of the Certificateholders shall continue to
be governed by the terms of this Agreement.
(h) Notwithstanding anything to the contrary contained
herein, the provisions of subsections (e) through (g), inclusive,
of this Section 7.01 shall be subject to the provisions of
subsections (a) through (c), inclusive, of this Section 7.01.
(j) The Trustee shall provide the reports and accountings
as required pursuant to Section 12.04 hereof.
Section 7.02 Notice of Default and Other Events.
Promptly after the occurrence of any Default, Trigger Event,
Funding Termination Event, Advance Rate Decrease Event or MBIA
Default or Termination known to the Trustee (within the meaning
of Section 7.01(e) hereof) which is continuing, within one
Business Day of obtaining such knowledge, the Trustee shall
transmit by telephonic or telegraphic communication confirmed by
mail to MBIA and to all Holders of Certificates, as their names
and addresses appear on the Certificate Register, notice of such
Default, Trigger Event, Funding Termination Event, Advance Rate
Decrease Event or MBIA Default or Termination known to the
Trustee, unless in the case of notice of Default or notice of any
Trigger Event to Certificateholders, such Default shall have been
promptly cured or waived or such Trigger Event shall have been
waived by MBIA in accordance with this Agreement.
Section 7.03 Certain Rights of Trustee.
Except as otherwise provided in Section 7.01,
(a) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, note or other
obligation, paper or document believed by it to be genuine
and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Transferor
mentioned herein shall be sufficiently evidenced by a
Transferor Request or Transferor Order and any resolution of
the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Agreement
the Trustee shall deem it desirable that a matter be proved
or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the
written advice of such counsel selected by the Trustee with
due care or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
(e) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Agreement at the request or direction of any of the
Certificateholders pursuant to this Agreement, unless such
Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in compliance
with such request or direction;
(f) unless so directed by the Controlling Holders or
MBIA and if, in either case, the requirements of clause (e)
above have been satisfied, the Trustee shall not be bound to
make any investigation into the facts or matters stated in
any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
note or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation
into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or
investigation, it shall be entitled to examine the books,
records and premises of the Transferor, upon reasonable
notice and at reasonable times personally or by agent or
attorney; and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys.
Section 7.04 Not Responsible for Recitals or Issuance of
Certificates.
(a) The recitals contained in this Agreement and in the
Certificates, except the certificates of authentication on the
Certificates, shall be taken as the statements of the Transferor,
and the Trustee assumes no responsibility for their correctness.
The Trustee makes no representations as to the validity or
condition of the Trust Estate or any part thereof, or as to the
title of the Transferor thereto or as to the security afforded
thereby or hereby, or as to the validity or genuineness of any
securities at any time pledged and deposited with the Trustee
hereunder or as to the validity or sufficiency of this Agreement
or any of the Certificates. The Trustee shall not be accountable
for the use or application by the Transferor of any of the
Certificates or the proceeds thereof or of any money paid to the
Transferor or upon Transferor Order under any provisions hereof.
(b) Except as otherwise expressly provided herein and in
Section 7.15 and without limiting the generality of the
foregoing, the Trustee shall have no responsibility or liability
for or with respect to the validity of any Equipment or Lease
Contract, the perfection of any security interest (whether as of
the date hereof or at any future time), the maintenance of or the
taking of any action to maintain such perfection, the validity of
the assignment of any portion of the Trust Estate to the Trustee
or of any intervening assignment, the review of any Lease
Contract (it being understood that the Trustee has not reviewed
and does not intend to review the substance or form of any such
Lease Contract), the performance or enforcement of any Lease
Contract, the validity and sufficiency of the Certificate
Insurance Policies, the compliance by the Transferor or the
Servicer with any covenant or the breach by the Transferor or the
Servicer of any warranty or representation made hereunder or in
any related document or the accuracy of any such warranty or
representation, any investment of monies in the Collection
Account or any loss resulting therefrom, the acts or omissions of
the Transferor, the Servicer, MBIA or any Customer, any action of
the Servicer taken in the name of the Trustee, or the validity of
the Servicing Agreement or the Lease Acquisition Agreement.
(c) Except as otherwise expressly provided herein, the
Trustee shall not have any obligation or liability under any
Lease Contract by reason of or arising out of this Agreement or
the assignment of such Lease Contract hereunder or the receipt by
the Trustee of any payment relating to any Lease Contract
pursuant hereto, nor shall the Trustee be required or obligated
in any manner to perform or fulfill any of the obligations of the
Transferor under or pursuant to any Lease Contract, or to make
any payment, or to make any inquiry as to the nature or the
sufficiency of any payment received by it, or the sufficiency of
any performance by any party, under any Lease Contract.
Section 7.05 May Hold Certificates.
The Trustee, the Servicer, any Paying Agent, the Certificate
Registrar, any Authenticating Agent or any other agent of the
Transferor, in its individual or any other capacity, may become
the owner or pledgee of Certificates, and if operative, may
otherwise deal with the Transferor with the same rights it would
have if it were not Trustee, Servicer, Paying Agent, Certificate
Registrar, Authenticating Agent or such other agent.
Section 7.06 Money Held in Trust.
Money and investments held in trust by the Trustee or any
Paying Agent hereunder shall be held in one or more trust
accounts hereunder but need not be segregated from other funds
except to the extent required in this Agreement or required by
law. The Trustee or any Paying Agent shall be under no liability
for interest on any money received by it hereunder except as
otherwise agreed with the Transferor or otherwise specifically
provided in this Agreement.
Section 7.07 Compensation and Reimbursement.
The Transferor agrees:
(a) to pay the Trustee monthly its fee for all
services rendered by it hereunder as Trustee, in the
amount of the Trustee Fee (which compensation shall
not otherwise be limited by any provision of law in
regard to the compensation of a trustee of an express
trust), and to pay to the Back-up Servicer its fee for
all services rendered hereunder and under the Servicing
Agreement as Back-up Servicer, in the amount of the
Back-up Servicer Fee;
(b) except as otherwise expressly provided
herein, to reimburse the Trustee or the Back-up
Servicer upon its request for all reasonable
out-of-pocket expenses, disbursements and advances
incurred or made by the Trustee or the Back-up Servicer
in accordance with any provision of this Agreement or
Servicing Agreement (including the reasonable
compensation and the expenses and disbursements of the
Trustee's and Back-up Servicer's agents and counsel),
except any such expense, disbursement or advance as may
be attributable to its negligence or bad faith; and
(c) to indemnify and hold harmless the Trust
Estate and the Trustee from and against any loss,
liability, expense, damage or injury (other than those
attributable to a Certificateholder in its capacity as
an investor in any of the Certificates) sustained or
suffered pursuant to this Agreement by reason of any
acts, omissions or alleged acts or omissions arising
out of activities of the Trust Estate or the Trustee
(including without limitation any violation of any
applicable laws by the Transferor as a result of the
transactions contemplated by this Agreement),
including, but not limited to, any judgment, award,
settlement, reasonable attorneys' fees and other
expenses incurred in connection with the defense of any
actual or threatened action, proceeding or claim;
provided that the Transferor shall not indemnify the
Trustee if such loss, liability, expense, damage or
injury is due to the Trustee's gross negligence or
willful misconduct, willful misfeasance or bad faith in
the performance of duties. Any indemnification pursuant
to this Section shall only be payable from the assets
of the Transferor and shall not be payable from the
assets of the Trust Estate. The provisions of this
indemnity shall run directly to and be enforceable by
an injured person subject to the limitations hereof and
this indemnification agreement shall survive the
termination of this Agreement.
Section 7.08 Corporate Trustee Required; Eligibility.
There shall at all times be a trustee hereunder which shall
be a corporation or association organized and doing business
under the laws of the United States of America or of any state,
authorized under such laws to exercise corporate trust powers,
having a combined capital and surplus of at least $50,000,000 (or
a lesser amount with the approval of MBIA, the Rating Agencies
and the Controlling Certificateholders), subject to supervision
or examination by Federal or state authority and having an office
within the United States of America, and which shall have a
commercial paper or other short-term rating of the highest short
term rating categories by each of the Rating Agencies, or
otherwise acceptable to each of the Rating Agencies. If such
corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this
Article.
Section 7.09 Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee under Section 7.10 hereof.
(b) The Trustee may resign at any time by giving 30 days'
written notice thereof to the Transferor, MBIA and to each
Certificateholder. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee. Such
court may thereupon, after such notice, if any, as it may deem
proper and may prescribe, appoint a successor Trustee.
(c) The Trustee may be removed by MBIA or, if an MBIA
Default or Termination shall have occurred and is continuing, the
Controlling Holders, at any time if one of the following events
have occurred:
(i) the Trustee shall cease to be eligible under
Section 7.08 hereof and shall fail to resign after
written request therefor by the Transferor, MBIA or by
any Certificateholder, or
(ii) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent or a
receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs
for the purpose of rehabilitation, conservation or
liquidation, or
(iii) the Trustee has failed to perform its
duties in this Agreement or has breached any
representation of warranty made in this Agreement.
(d) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
the Trustee for any cause with respect to any of the
Certificates, the Transferor by a Board Resolution, shall
promptly appoint a successor Trustee satisfactory to MBIA, or,
if an MBIA Default or Termination has occurred, to the
Controlling Holders. If no successor Trustee shall have been so
appointed by the Transferor within 30 days of notice of removal
or resignation and shall have accepted appointment in the manner
hereinafter provided, then MBIA may appoint a successor Trustee.
If MBIA shall fail to appoint a successor Trustee within 90 days
or in the event of an MBIA Default or Termination, then the
Controlling Holders may petition any court of competent
jurisdiction for the appointment of a successor Trustee with
respect to the Certificates.
(e) The Transferor shall give notice in the manner provided
in Section 13.04 hereof of each resignation and each removal of
the Trustee and each appointment of a successor Trustee with
respect to the Certificates to the Certificateholders and the
Rating Agencies. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
Section 7.10 Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Transferor and the retiring
Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee but, on request
of the Transferor or the successor Trustee, such retiring Trustee
shall, upon payment of its reasonable out-of-pocket costs and
expenses, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the
retiring Trustee, and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such
retiring Trustee hereunder, subject nevertheless to its lien, if
any, provided for in Section 7.07 hereof. Upon request of any
such successor Trustee, the Transferor shall execute any and all
instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be
eligible under this Article.
Section 7.11 Merger, Conversion, Consolidation or
Succession to Business of Trustee.
Any Person into which the Trustee may be merged or converted
or with which it may be consolidated, or any Person resulting
from any merger, conversion or consolidation to which the Trustee
shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided such
Person shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, and notice
thereof shall be provided by the Trustee to the
Certificateholders and the Rating Agencies. In case any
Certificates have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such
authentication and deliver the Certificates so authenticated with
the same effect as if such successor Trustee had itself
authenticated such Certificates.
Section 7.12 Co-Trustees and Separate Trustees.
At any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Trust Estate
may at the time be located, the Transferor, MBIA and the Trustee
shall have power to appoint, and, upon the written request of the
Trustee, MBIA or, if an MBIA Default or Termination has occurred
and is continuing, of the Holders representing at least 25% in
Outstanding Principal Amount of all Certificates, the Transferor
shall for such purpose join with the Trustee in the execution,
delivery and performance of all instruments and agreements
necessary or proper to appoint, one or more Persons approved by
the Trustee and meeting the requirements of Section 7.08 hereof,
either to act as co-Trustee, jointly with the Trustee of all or
any part of such Trust Estate, or to act as separate Trustee of
any such property, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such
Person or persons in the capacity aforesaid, any property, title,
right or power deemed necessary or desirable, subject to the
other provisions of this Section. If the Transferor does not join
in such appointment within 15 days after the receipt by it of a
request so to do, or in case an Event of Default has occurred and
is continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument from the Transferor be
reasonably required by any co-Trustee or separate Trustee so
appointed for more fully confirming to such co-Trustee or
separate Trustee such property, title, right or power, any and
all such instruments shall, on request, be executed, acknowledged
and delivered by the Transferor.
Every co-Trustee or separate Trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject
to the following terms:
(a) the Certificates shall be authenticated and
delivered by, and all rights, powers, duties and
obligations under this Agreement in respect of the
custody of securities, cash and other personal property
held by, or required to be deposited or pledged with,
the Trustee under this Agreement, shall be exercised
solely by the Trustee;
(b) the rights, powers, duties and obligations
conferred or imposed upon the Trustee by this Agreement
in respect of any property covered by such appointment
shall be conferred or imposed upon and exercised or
performed by the Trustee or by the Trustee and such
co-Trustee or separate Trustee jointly, as shall be
provided in the instrument appointing such co-Trustee
or separate Trustee, except to the extent that under
any law of any jurisdiction in which any particular act
is to be performed, the Trustee shall be incompetent or
unqualified to perform such act, in which event such
rights, powers, duties and obligations shall be
exercised and performed by such co-Trustee or separate
Trustee;
(c) the Trustee at any time, by an instrument in
writing executed by it, with the concurrence of the
Transferor evidenced by a Board Resolution, may accept
the resignation of or remove any co-Trustee or separate
Trustee, appointed under this Section, and, in case an
Event of Default has occurred and is continuing, the
Trustee shall have power to accept the resignation of,
or remove, any such co-Trustee or separate Trustee
without the concurrence of the Transferor. Upon the
written request of the Trustee, the Transferor shall
join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A
successor to any co-Trustee or separate Trustee that
has so resigned or been removed may be appointed in the
manner provided in this Section;
(d) no co-Trustee or separate Trustee hereunder
shall be personally liable by reason of any act or
omission of the Trustee or any other such Trustee
hereunder nor shall the Trustee be liable by reason of
any act or omission of any co-Trustee or separate
Trustee selected by the Trustee with due care or
appointed in accordance with directions to the Trustee
pursuant to Section 6.14; and
(e) any Act of Certificateholders delivered to
the Trustee shall be deemed to have been delivered to
each such co-Trustee and separate Trustee.
Section 7.13 Rights with Respect to the Servicer.
The Trustee's rights and obligations with respect to the
Servicer and the Back-up Servicer shall be governed by the
Servicing Agreement.
Section 7.14 Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents
with respect to the Certificates which shall be authorized to act
on behalf of the Trustee to authenticate Certificates issued upon
original issue or upon exchange, registration of transfer or
pursuant to Section 2.05 hereof, and Certificates so
authenticated shall be entitled to the benefits of this Agreement
and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is
made in this Agreement to the authentication and delivery of
Certificates by the Trustee or the Trustee's certificate of
authentication or the delivery of Certificates to the Trustee for
authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed
on behalf of the Trustee by an Authenticating Agent and delivery
of the Certificates to the Authenticating Agent on behalf of the
Trustee. Each Authenticating Agent shall be acceptable to the
Transferor, MBIA and if an MBIA Default or Termination has
occurred and is continuing, the Certificateholders and shall at
all times be a corporation having a combined capital and surplus
of not less than the equivalent of $50,000,000 and subject to
supervision or examination by Federal or state authority or the
equivalent foreign authority, in the case of an Authenticating
Agent who is not organized and doing business under the laws of
the United States of America, any state thereof or the District
of Columbia. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of
such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of
this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which such Authenticating Agent shall be a
party, or any corporation succeeding to the corporate agency or
corporate trust business of such Authenticating Agent, shall
continue to be an Authenticating Agent without the execution or
filing of any paper or any further act on the part of the Trustee
or such Authenticating Agent; provided, such corporation shall be
otherwise eligible under this Section.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee, MBIA and to the
Transferor. The Trustee may at any time terminate the agency of
an Authenticating Agent by giving written notice thereof to such
Authenticating Agent, MBIA and to the Transferor. Upon receiving
such a notice of resignation or upon such a termination, or in
case at any time such Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, the
Trustee may appoint a successor Authenticating Agent which shall
be acceptable to the Transferor and MBIA and shall mail written
notice of such appointment by first-class mail, postage prepaid,
to all Holders of Certificates, if any, with respect to which
such Authenticating Agent will serve, as their names and
addresses appear in the Certificate Register. Any successor
Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its
predecessor hereunder, with like effect as if originally named as
an Authenticating Agent. No successor Authenticating Agent shall
be appointed unless eligible under the provisions of this
Section.
The Trustee may pay to each Authenticating Agent from time
to time reasonable compensation for its services under this
Section and the Trustee shall be entitled to be reimbursed for
such payments, subject to the provisions of Section 7.07 hereof.
If an appointment is made pursuant to this Section, the
Certificates may have endorsed thereon, in addition to the
Trustee's certificate of authentication, an alternate certificate
of authentication in the following form:
This is one of the Certificates described in the
within-mentioned Agreement.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
As Trustee
By: As Authenticating
Agent
By: Authorized Officer
Section 7.15 Trustee to Hold Lease Contracts.
The Trustee hereby acknowledges receipt (subject to any
exceptions as may be noted by the Trustee to the Servicer, MBIA
and the Certificateholders within 10 days of the related Delivery
Date) of and shall hold each Lease Contract together with any
documents relating thereto that may from time to time be
delivered to the Trustee, until such time as such Lease Contract
is released from the Trust Estate pursuant to the terms of this
Agreement.
Upon receipt of the Lease Contracts, the Trustee shall
determine that they are listed on the applicable Series Lease
Schedule. The Trustee shall be under no duty or obligation to
inspect, review or examine the Lease Contracts and other
documents to determine that the same are genuine, enforceable or
appropriate for the represented purpose or that they have
actually been recorded or that they are other than what they
purport to be on their face.
Section 7.16 Money for Certificate Payments to Be Held in
Trust.
The Trustee agrees, and if there is any Paying Agent other
than the Trustee, the Transferor will cause each Paying Agent
other than the Trustee to execute and deliver to the Trustee and
MBIA an instrument in which such Paying Agent shall agree with
the Trustee that, subject to the provisions of this Section, such
Paying Agent will:
(a) hold all sums held by it for the payment of
principal or interest on Certificates in trust for the
benefit of the Certificateholders entitled thereto and MBIA
until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(b) give the Trustee, MBIA and the
Certificateholders notice of any Default by the Transferor
(or any other obligor upon the Certificates) in the making
of any payment of principal or interest; and
(c) at any time during the continuance of any such
Default, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such Paying
Agent.
The Transferor may at any time, for the purpose of obtaining
the satisfaction and discharge of this Agreement or for any other
purpose, pay, or by Transferor Order direct any Paying Agent to
pay, to the Trustee all sums held in trust by such Paying Agent,
such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by such Paying Agent; and, upon
such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect
to such money.
Any money deposited with the Trustee or any Paying Agent in
trust for the payment of the principal or interest on any
Certificate and remaining unclaimed for three years after such
principal or interest has become due and payable shall be paid to
the Transferor on Transferor Request or to MBIA if such payment
had been made by MBIA; and the Holder of such Certificate shall
thereafter, as an unsecured general creditor, and subject to any
applicable statute of limitations, look only to the Transferor
for payment thereof, and all liability of the Trustee, such
Paying Agent or MBIA with respect to such trust money or the
related Certificate, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to
make any such repayment, may at the expense of the Transferor
cause to be published once, in a newspaper published in the
English language, customarily published on each Business Day and
of general circulation in the city in which the Corporate Trust
Office is located, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less
than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to the
Transferor; and provided, further, that any amounts held that are
proceeds of a claim made under a Certificate Insurance Policy
shall be returned to MBIA, and the Certificateholders shall look
only to MBIA for such payments. The Trustee may also adopt and
employ, at the expense of the Transferor, any other reasonable
means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to
Certificateholders whose right to or interest in monies due and
payable but not claimed is determinable from the records of any
Paying Agent, at the last address as shown on the Certificate
Register for each such Certificateholder).
ARTICLE EIGHT
THE CERTIFICATE INSURANCE POLICIES
Section 8.01 Payments under the Certificate Insurance
Policies.
If on the close of business on the second Business Day prior
to any Payment Date, the funds on deposit in the Collection
Account and available to be distributed on such Payment Date
pursuant to Section 12.02(d) hereof after any transfer from the
Cash Collateral Account in accordance with Section 12.03 hereof
are not sufficient to make the payment of any interest due on the
Outstanding Class A Certificates of the applicable Series on such
Payment Date in accordance with Section 12.02(d)(v) hereof, the
Trustee shall, no later than 10:00 a.m. New York time, on the
Business Day immediately preceding such Payment Date make a claim
under the applicable Certificate Insurance Policy in an amount
equal to such insufficiency. In addition, if on the close of
business on the second Business Day immediately prior to any
Stated Maturity the funds on deposit in the Collection Account
after any transfer from the Cash Collateral Account in accordance
with Section 12.03 hereof are not sufficient to pay the entire
Outstanding Principal Amount of all Class A Certificates of the
applicable Series (after giving effect to the application of
funds available to pay the Pro Rata Share of the Class A
Principal Distribution Amount of each Outstanding Series in
accordance with Section 12.02(d)(vi) hereof), the Trustee shall,
no later than 10:00 a.m. New York time, on the Business Day
immediately preceding such Stated Maturity, make a claim under
the applicable Certificate Insurance Policy in an amount equal to
such insufficiency. Proceeds of claims on the Certificate
Insurance Policies shall be deposited in the Collection Account
and used solely to pay amounts due in respect of interest on the
applicable Class A Certificates on each Payment Date and
principal of the applicable Certificates at the Stated Maturity.
In addition, on any day that the Trustee has actual
knowledge or receives notice that any amount previously paid to a
Holder of Class A Certificates has been subsequently recovered
from such Certificateholder pursuant to a final order of a court
of competent jurisdiction that such payment constitutes an
avoidable preference within the meaning of any applicable
bankruptcy law to such Certificateholder (a "Preference Claim"),
the Trustee shall make a claim within one Business Day upon the
relevant Certificate Insurance Policy for the full amount of such
Preference Claim in accordance with the terms of such Certificate
Insurance Policy. Any proceeds of any such Preference Claim
received by the Trustee shall be paid to the related Class A
Certificateholders.
ARTICLE NINE
AMENDMENTS
Section 9.01 Amendments without Consent of
Certificateholders.
The Transferor, the Servicer, the Back-up Servicer and the
Trustee, with the prior written consent of MBIA but without the
consent of the Holders of any Certificates, at any time and from
time to time, may enter into one or more amendments hereto, in
form satisfactory to the Trustee, for any of the following
purposes, provided that any such amendment, as evidenced by an
Opinion of Counsel if requested by the Trustee, will not have a
material adverse affect on the Controlling Holders:
(a) to correct or amplify the description of any
property at any time included in the Trust Estate, or
better to assure, convey and confirm unto the Trustee
any property included or required to be included in the
Trust Estate, or to include in the Trust Estate any
additional property; or
(b) to evidence the succession of another Person
to the Transferor, and the assumption by such successor
of the covenants of the Transferor herein and in the
Certificates contained, in accordance with Section
11.02(o) hereof; or
(c) to add to the covenants of the Transferor,
for the benefit of MBIA or the Holders of all
Certificates or to surrender any right or power herein
conferred upon the Transferor; or
(d) to convey, transfer, assign, mortgage or
pledge any property to or with the Trustee; or
(e) to cure any ambiguity, to correct or
supplement any provision herein which may be defective
or inconsistent with any other provisions with respect
to matters or questions arising under this Agreement,
which shall not be inconsistent with the provisions of
this Agreement; or
(f) to evidence the succession of the Trustee
pursuant to Article Seven hereof; or
(g) as may be necessary to effectuate the
issuance of any additional Series of Certificates in
accordance with the terms of this Agreement and the
related Supplement; provided that any such amendment
does not modify this Agreement in a manner described in
paragraphs (i) through (viii) of Section 9.02(a)
hereof.
The Trustee is hereby authorized to join in the execution of
any such amendment and to make any further appropriate agreements
and stipulations that may be therein contained, but the Trustee
shall not be obligated to enter into any such amendment that
affects the Trustee's own rights, duties, liabilities or
immunities under this Agreement or otherwise.
Promptly after the execution by the Transferor, the
Servicer, the Back-up Servicer and the Trustee of any amendment
pursuant to this Section, the Transferor shall mail to the Rating
Agencies and each Certificateholder a copy of such amendment.
Notwithstanding the foregoing, provided that MBIA, in its
sole discretion, and Holders of more than 50% of Outstanding
Principal Amount of Class B Certificates (exclusive of any Class
B Certificates held by the Transferor) have given their prior
written consent, Holders of any Series of Class A Certificates,
by their acceptance of their Class A Certificates, agree that the
definitions of "Advance Rate Decrease Event" and "Advance Rate"
can be amended without the consent of any Holder of a Class A
Certificate if the Rating Agencies confirm that such amendment
will not affect the then current rating on any Outstanding Series
and, subject to the fulfillment of such conditions, the Trustee,
the Back-up Servicer, the Transferor and the Servicer may enter
into one or more amendments hereunder to effect such change.
Section 9.02 Amendments and Modifications to Agreement
with Consent of Certificateholders.
(a) With the prior written consent of MBIA and the
Controlling Holders, by Act of said Holders delivered to the
Transferor and the Trustee, the Transferor, the Servicer, the
Back-up Servicer and the Trustee may enter into an amendment or
modification of this Agreement for the purpose of adding any
provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the
rights of the Holders of the Certificates under this Agreement
(other than as described in Section 9.01); provided, however,
that no such amendment shall, without the consent of the Holders
of each Outstanding Certificate affected thereby:
(i) change the Stated Maturity of any Certificate
or the due date of any installment of principal of, or
any installment of interest on, any Certificate, or
change the principal amount thereof or the Certificate
Interest Rate or change any place of payment where, or
the coin or currency in which, any Certificate or the
interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment;
or
(ii) reduce the percentage in Outstanding
Principal Amount of Certificates, the consent of the
Holders of which is required for any such amendment, or
the consent of the Holders of which is required for any
waiver of compliance with certain provisions of this
Agreement or Events of Default or their consequences;
or
(iii) impair or adversely affect the Trust
Estate; or
(iv) modify or alter the definition of the term
"Outstanding" or "Outstanding Principal Amount" or
"Controlling Holders" or "Required Collateralization
Amount"; or
(v) modify or alter the provisions of the proviso to
Section 6.04 hereof; or
(vi) modify any of the provisions of this Section
9.02, except to increase the percentage of Holders
required for any modification or waiver or to provide
that certain other provisions of this Agreement cannot
be modified or waived without the consent of each
Holder of each Outstanding Certificate affected
thereby; or
(vii) permit the creation of any lien ranking
prior to, on a parity with, or subordinate to the lien
of this Agreement with respect to any part of the Trust
Estate or terminate or release the lien of this
Agreement on any property at any time subject hereto or
deprive the Holder of any Certificate of the security
afforded by the lien of this Agreement; or
(viii) modify any of Sections 6.01, 6.02, 6.03,
6.18, or Section 12.02(d) hereof.
(b) With the prior written consent of MBIA and the Holders
of not less than 66-2/3% in Outstanding Principal Amount of a
Series of Class A Certificates that is in its Funding Period, by
Act of said Holders delivered to the Transferor and the Trustee,
the Transferor, the Servicer, the Back-up Servicer and the
Trustee may enter into amendments hereto for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of Article Three hereof or the definitions
therein, provided that any such amendment does not modify the
Agreement in a manner described in clauses (i) through (viii) of
paragraph (a) of this Section 9.02.
(c) With the prior written consent of MBIA and the Holders
of not less than 66-2/3% in Outstanding Principal Amount of any
Series of Class B Certificates and provided that an Opinion of
Counsel has been rendered that such amendment will not, in any
material way, affect the tax treatment of any Series of Class B
Certificates, by Act of said Holders delivered to the Transferor
and the Trustee, the Transferor, the Servicer, the Back-up
Servicer and the Trustee may enter into amendments hereto for the
purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions, including definitions,
contained herein relating to such Series of Class B Certificates,
provided that any such amendment does not modify this Agreement
in a manner described in clauses (i) through (viii) of paragraph
(a) of this Section 9.02, and provided, further, that no such
amendment shall be effective until the Trustee has received an
Opinion of Counsel that such amendment will not have a material
adverse affect on the tax treatment of any Outstanding Series of
Class B Certificates.
(d) The Trustee is hereby authorized to join in the
execution of any amendments to this Agreement pursuant to clause
(a), (b) or (c) above and to make any further appropriate
agreements and stipulations that may be therein contained, but
the Trustee shall not be obligated to enter into any such
amendment that affects the Trustee's own rights, duties,
liabilities or immunities under this Agreement It shall not be
necessary for any Act of Certificateholders under this Section to
approve the particular form of any proposed supplemental
agreement, but it shall be sufficient if such Act shall approve
the substance thereof. Promptly after the execution by the
Transferor, the Servicer, the Back-up Servicer and the Trustee of
any amendment pursuant to this Section, the Transferor shall mail
to the Holders of the Certificates, MBIA and the Rating Agencies
a copy of such amendment, together with any consents obtained
from MBIA in connection therewith.
Section 9.03 Execution of Amendments.
In executing any amendment permitted by this Article or the
modifications thereby of the trusts created by this Agreement,
the Trustee shall be entitled to receive upon request, and
(subject to Section 7.01 hereof) shall be fully protected in
relying in good faith upon, an Opinion of Counsel reasonably
acceptable to the Trustee stating that the execution of such
amendment is authorized or permitted by this Agreement. The
Trustee may, but shall not be obligated to, enter into any such
amendment which affects the Trustee's own duties or immunities
under this Agreement or otherwise.
Section 9.04 Effect of Amendments.
Upon the execution of any amendment under this Article, this
Agreement shall be modified in accordance therewith, and such
amendment shall form a part of this Agreement for all purposes;
and every Holder of Certificates theretofore or thereafter
authenticated and delivered hereunder shall be bound thereby.
Section 9.05 Reference in Certificates to Amendments.
Certificates authenticated and delivered after the execution
of any amendment pursuant to this Article may, and if required by
the Trustee shall, bear a notation in form approved by the
Trustee as to any matter provided for in such amendment. If the
Transferor shall so determine, new Certificates so modified as to
conform, in the opinion of the Trustee and the Transferor, to any
such amendment may be prepared and executed by the Transferor and
authenticated and delivered by the Trustee in exchange for
Outstanding Certificates.
ARTICLE TEN
REDEMPTION OF CERTIFICATES
Section 10.01 Redemption at the Option of the Transferor;
Election to Redeem.
The Transferor shall have the option to redeem (a) at any
time except as may be otherwise specified in the related
Supplement, all of the Outstanding Certificates of any Series of
Class B Certificates at any time after the Outstanding Principal
Amount of such Class of Certificates in the Series is less than
10% of the original Outstanding Principal Amount of such Class of
Certificates as of the related Delivery Date and provided that
the Outstanding Principal Amount of the Related Series of Class A
Certificates has been reduced to zero and (b) all of the
Outstanding Certificates of any Series of Class A Certificates,
at any time after the Outstanding Principal Amount of such Class
of Certificates in the Series is less than 10% of the Outstanding
Principal Amount of such Class of Certificates as of the related
Funding Termination Date, in each case at the applicable
Redemption Price plus any fees due hereunder and all amounts due
to MBIA under the Insurance Agreement. With respect to any
redemption permitted by clause (b) above, MBIA shall have the
same option to redeem any Series of Class A Certificates in the
absence of the exercise thereof by the Transferor.
The Transferor shall set the Redemption Date and the
Redemption Record Date for a Series of Certificates and give
notice thereof to the Trustee pursuant to Section 10.02 hereof.
Installments of interest and principal that are due
regarding a Series of Certificates on or prior to the related
Redemption Date shall continue to be payable to the Holders of
such Certificates called for redemption as of the relevant Record
Dates according to their terms and the provisions of Section 2.08
hereof. The election of the Transferor or MBIA to redeem any
Class A Certificates pursuant to this Section shall be evidenced
by a Board Resolution or written notice from MBIA, respectively,
directing the Trustee to make the payment of the Redemption Price
on all of the Certificates to be redeemed from monies deposited
with the Trustee pursuant to Section 10.04 hereof.
Section 10.02 Notice to Trustee; Deposit of Redemption
Price.
In the case of any redemption pursuant to Section 10.01
hereof, the Transferor or MBIA, as applicable, shall, at least 15
days prior to the related Redemption Date, notify the Trustee and
the applicable Certificateholders of such Redemption Date and
shall deposit into the Redemption Account on such notification
date an amount equal to the Redemption Price of all Certificates
to be redeemed on such Redemption Date plus any fees due
hereunder and all amounts due to MBIA under the Insurance
Agreement.
Section 10.03 Notice of Redemption by the Transferor.
Upon receipt of such notice and such deposit set forth in
Section 10.02 above, the Trustee shall provide notice of
redemption pursuant to Section 10.01 hereof by first-class mail,
postage prepaid, mailed no later than the Business Day following
the date on which such deposit was made, to each Holder of
Certificates whose Certificates are to be redeemed, at such
Holder's address in the Certificate Register.
All notices of redemption shall state:
(a) the applicable Redemption Date;
(b) the applicable Redemption Price; and
(c) that on such Redemption Date, the Redemption Price will
become due and payable upon each such Certificate in the related
Series, and that interest thereon shall cease to accrue on such
date.
Notice of redemption of a Series of Certificates shall be
given by the Trustee in the name and at the expense of the
Transferor or MBIA, as applicable. Failure to give notice of
redemption, or any defect therein, to any Holder of any
Certificate selected for redemption shall not impair or affect
the validity of the redemption of any other Certificate.
Section 10.04 Certificates Payable on Redemption Date.
Notice of redemption having been given as provided in
Section 10.03 hereof, the Series of Certificates to be redeemed
shall, on the applicable Redemption Date, become due and payable
at the Redemption Price and on such Redemption Date such
Certificates shall cease to bear interest. The Holders of such
Certificates shall be paid the Redemption Price by the Paying
Agent on behalf of the Transferor; provided, however, that
installments of principal and interest that are due regarding
such Series of Certificates on or prior to such Redemption Date
shall be payable to the Holders of such Certificates registered
as such on the relevant Record Dates according to their terms and
the provisions of Section 2.08 hereof.
If the Holders of any Certificate called for redemption
shall not be so paid, the principal and premium on such Series of
Certificates, if any, shall, until paid, bear interest from the
applicable Redemption Date at the related Certificate Interest
Rate.
Section 10.05 Release of Series Lease Contracts.
In connection with any redemption permitted under this
Article Ten, the Transferor or MBIA, as the case may be, shall be
permitted to obtain a release of the related Series Lease
Contracts to the extent that (a) after giving effect to such
release, the sum of (i) the amount of funds then held in the Cash
Collateral Account and (ii) the Aggregate IPB is equal to or
exceeds the Required Collateralization Amount plus the
Outstanding Principal Amount of all Series of Class A
Certificates and any Related Series of Class B Certificates
(after giving effect to such redemption and the issuance of any
new Series of Certificates) and (b) the applicable Redemption
Price shall have been deposited into the Redemption Account as
required by Section 10.02.
ARTICLE ELEVEN
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 11.01 Representations and Warranties.
The Transferor hereby makes the following representations
and warranties for the benefit of the Trustee, MBIA and the
Certificateholders on which the Trustee relies in accepting the
Trust Estate in trust and in authenticating the Certificates.
Such representations and warranties are made as of the Initial
Delivery Date and, except as specifically provided herein, each
additional Delivery Date, and shall survive the transfer,
conveyance and assignment of the Trust Estate to the Trustee.
(a) Organization and Good Standing. The Transferor is a
corporation duly organized, validly existing and in good standing
under the law of the State of Delaware and each other State where
the nature of its business requires it to qualify, except to the
extent that the failure to so qualify would not in the aggregate
materially adversely affect the ability of the Transferor to
perform its obligations under the Transaction Documents;
(b) Authorization. The Transferor has the power, authority
and legal right to execute, deliver and perform under the terms
of the Transaction Documents and the execution, delivery and
performance of the Transaction Documents have been duly
authorized by the Transferor by all necessary corporate action;
(c) Binding Obligation. Each of (i) this Agreement,
assuming due authorization, execution and delivery by the
Trustee, the Back-up Servicer and the Servicer, (ii) the
Insurance Agreement, assuming due authorization, execution and
delivery by MBIA, the Trustee, the Back-up Servicer, the Company,
the Certificate Funding Administrator and the Servicer, (iii) the
Servicing Agreement, assuming due authorization, execution and
delivery by the Transferor, the Servicer, the Trustee and the
Servicer and (iv) the applicable Certificate Purchase Agreement,
assuming due authorization, execution and delivery by the
purchaser named therein and (v) the Lease Acquisition Agreement,
assuming due authorization, execution and delivery by the
Company, constitutes, and upon execution, each Lease Sale
Agreement, assuming due authorization, execution and delivery by
all parties thereto other than the Transferor, will constitute, a
legal, valid and binding obligation of the Transferor,
enforceable against the Transferor in accordance with its terms
except that (A) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws
(whether statutory, regulatory or decisional) now or hereafter in
effect relating to creditors' rights generally and (B) the remedy
of specific performance and injunctive and other forms of
equitable relief may be subject to certain equitable defenses and
to the discretion of the court before which any proceeding
therefor may be brought, whether a proceeding at law or in
equity;
(d) No Violation. The consummation of the transactions
contemplated by the fulfillment of the terms of the Transaction
Documents will not conflict with, result in any breach of any of
the terms and provisions of or constitute (with or without
notice, lapse of time or both) a default under the organizational
documents or bylaws of the Transferor, or any material indenture,
agreement, mortgage, deed of trust or other instrument to which
the Transferor is a party or by which it is bound, or in the
creation or imposition of any Lien upon any of its properties
pursuant to the terms of such indenture, agreement, mortgage,
deed of trust or other such instrument, other than any Lien
created or imposed pursuant to the terms of the Transaction
Documents, or violate any law, or any material order, rule or
regulation applicable to the Transferor of any court or of any
federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the
Transferor or any of its properties.
(e) No Proceedings. There are no Proceedings or
investigations to which the Transferor, or any of the
Transferor's Affiliates, is a party pending, or, to the knowledge
of Transferor, threatened, before any court, regulatory body,
administrative agency or other tribunal or governmental
instrumentality (A) asserting the invalidity of the Transaction
Documents, (B) seeking to prevent the issuance of any of the
Certificates or the consummation of any of the transactions
contemplated by the Transaction Documents or (C) seeking any
determination or ruling that would materially and adversely
affect the performance by the Transferor of its obligations
under, or the validity or enforceability of, the Transaction
Documents.
(f) Approvals. All approvals, authorizations, consents,
orders or other actions of any Person, or of any court,
governmental agency or body or official, required in connection
with the execution and delivery of the Transaction Documents and
with the valid and proper authorization, issuance and sale of the
Certificates pursuant to this Agreement (except approvals of
State securities officials under the Blue Sky Laws), have been or
will be taken or obtained on or prior to the applicable Delivery
Date.
(g) Place of Business. As of the Initial Delivery Date,
the Transferor's principal place of business and chief executive
office is located at 6424 W. 91st Avenue, Suite B, Westminster,
CO 80030, and the Transferor has done business only under the
name GF Funding Corp. II.
(h) Transfer and Assignment of Lease Assets. Upon the
delivery to the Trustee of the Lease Contracts and the filing of
the financing statements described in Sections 4.01(f) and
4.02(c)(vi) hereof, the Trustee for the benefit of the
Certificateholders shall have a first priority perfected security
interest in the Lease Receivables and the Lease Contracts and in
the proceeds thereof, except for Liens permitted under Section
11.02(a) and limited to the extent set forth in Section 9-306 of
the UCC as in effect in the applicable jurisdiction. All filings
(including, without limitation, UCC filings) as are necessary in
any jurisdiction to perfect the ownership or other interest of
the Trustee in the Trust Estate (other than filings with respect
to Equipment underlying Lease Contracts), including the transfer
of the Lease Contracts and the payments to become due thereunder,
have been made.
(i) Parent of the Transferor. The Company is the
registered owner of all of the issued and outstanding common
stock of the Transferor, all of which common stock has been
validly issued, is fully paid and nonassessable.
(j) Lease Acquisition Agreement As of the Initial Delivery
Date the Transferor has entered into the Lease Acquisition
Agreement with the Company relating to its acquisition of the
Lease Contracts, the Lease Receivables and the Equipment, and the
representations and warranties made by the Company relating to
the Lease Contracts, Lease Receivables and the Equipment have
been validly assigned to and are for the benefit of the
Transferor, the Trustee, MBIA and the Certificateholders and such
representations and warranties are true and correct in all
material respects.
(k) Bulk Transfer Laws. The transfer, assignment and
conveyance of the Lease Contracts, the Equipment and the Lease
Receivables by the Company to the Transferor pursuant to the
Lease Acquisition Agreement or by the Transferor pursuant to this
Agreement is not subject to the bulk transfer or any similar
statutory provisions in effect in any applicable jurisdiction.
(l) The Lease Contracts. The Transferor hereby restates
and makes each of the representations and warranties with respect
to the Lease Contracts, the Lease Receivables and the Equipment
that are made by the Company in Section 3.01 of the Lease
Acquisition Agreement as of the date on which such
representations and warranties were made.
(m) Investment Company Act. The Transferor is not an
"investment company" as such term is defined in the Investment
Company Act of 1940, as amended.
Section 11.02 Covenants.
The Transferor hereby makes the following covenants for the
benefit of the Trustee, MBIA and the Certificateholders, on which
the Trustee relies in accepting the Trust Estate in trust and in
authenticating the Certificates. Such covenants shall survive
the transfer, conveyance and assignment of the Trust Estate to
the Trustee.
(a) No Liens. Except for the conveyances and assignment
hereunder, the Transferor will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or
suffer to exist any Lien on any Trust Estate now existing or
hereafter created, or any interest therein prior to the
termination of this Agreement pursuant to Section 5.01 hereof;
the Transferor will notify the Trustee of the existence of any
Lien on any Trust Estate immediately upon discovery thereof; and
the Transferor shall defend the right, title and interest of the
Trustee in, to and under the Trust Estate now existing or
hereafter created, against all claims of third parties claiming
through or under the Transferor; provided, however, that nothing
in this Section 11.02(a) shall prevent or be deemed to prohibit
the Transferor from suffering to exist upon any of the Equipment
any Liens for municipal or other local taxes and other
governmental charges owed by the Transferor or a Customer if
such taxes or governmental charges shall not at the time be due
and payable or if the Transferor or related Customer shall
currently be contesting the validity thereof in good faith by
appropriate proceedings and the Transferor shall have set aside
on its books adequate reserves with respect thereto.
(b) Delivery of Collections. The Transferor agrees to hold
in trust and promptly pay to the Servicer all amounts received by
the Transferor in respect of the Trust Estate (other than amounts
distributed to or for the benefit of the Transferor pursuant to
Article Twelve hereof).
(c) Obligations with Respect to Lease Contracts. The
Transferor will duly fulfill all obligations on its part to be
fulfilled under or in connection with each Lease Contract and
will do nothing to impair the rights of the Trustee (for the
benefit of the Certificateholders and MBIA) in the Lease Receiv
ables, the Lease Contracts and any other Trust Estate. As long
as there is no event of default under the applicable Lease
Contract, the Transferor will not disturb the Customer's quiet
and peaceful possession of the related Equipment and the
Customer's unrestricted use thereof for its intended purpose.
(d) Compliance with Law. The Transferor will comply, in
all material respects, with all acts, rules, regulations, orders,
decrees and directions of any governmental authority applicable
to the Lease Contracts or any part thereof. The Transferor will
comply, in all material respects, with all requirements of law
applicable to the Transferor.
(e) Preservation of Security Interest. The Transferor
shall execute and file such continuation statements and any other
documents which may be required by law to fully preserve and
protect the interest of the Trustee (for the benefit of the
Certificateholders and MBIA) in the Trust Estate.
(f) Maintenance of Office, etc. The Transferor will not,
without providing 30 days notice to the Trustee and MBIA and
without filing such amendments to any previously filed financing
statements as the Trustee or MBIA may require or as may be
required in order to maintain the Trustee's perfected security
interest in the Trust Estate, (a) change the location of its
principal executive office, or (b) change its name, identity or
corporate structure in any manner which would make any financing
statement or continuation statement filed by the Transferor in
accordance with the Servicing Agreement or this Agreement
seriously misleading within the meaning of Article 9-402(7) of
any applicable enactment of the UCC.
(g) Further Assurances. The Transferor will make, execute
or endorse, acknowledge, and file or deliver to the Trustee from
time to time such schedules, confirmatory assignments,
conveyances, transfer endorsements, powers of attorney,
certificates, reports and other assurances or instruments and
take such further steps relating to the Trust Estate, as the
Trustee may request and reasonably require.
(h) Notice of Liens. The Transferor shall notify the
Trustee and MBIA promptly after becoming aware of any Lien on any
Trust Estate, except for any Liens on Equipment for municipal or
other local taxes if such taxes shall not at the time be due or
payable without penalty or if the Transferor or the related
Customer shall currently be contesting the validity thereof in
good faith by appropriate proceedings and the Transferor shall
have set aside on its books adequate reserves with respect
thereto.
(i) Activities of the Transferor. The Transferor (a) shall
engage in only (1) the acquisition, ownership, leasing, selling
and pledging of the property acquired by the Transferor pursuant
to the Lease Acquisition Agreement and Lease Sale Agreement, and
causing the issuance of, receiving and selling the Certificates
issued pursuant to this Agreement and (2) the exercise of any
powers permitted to corporations under the corporate law of the
State of Delaware which are incidental to the foregoing or
necessary to accomplish the foregoing and the Transferor shall
incur no debt other than trade payables and expense accruals in
connection with its operations in the normal course of business,
and other than as contemplated by the Transaction Documents; (b)
will (1) maintain its books, records and cash management accounts
separate from the books and records of any other entity and in
accordance with generally accepted accounting principles, (2)
maintain separate bank accounts and no funds of the Transferor
shall be commingled with funds of any other entity except for a
limited period of time between receipt by the Company in its
capacity as Servicer or the Lockbox Bank of certain payments on
the Lease Contracts and the underlying proceeds as specified in
the Servicing Agreement, (3) keep in full effect its existence,
rights and franchises as a corporation under the laws of its
State of incorporation, and will obtain and preserve its
qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary
to protect the validity and enforceability of this Agreement, (4)
observe all corporate procedures required by its Certificate of
Incorporation, its bylaws and the laws of the state of Delaware,
(5) maintain its good standing under the laws of the state of
Delaware, (6) keep correct and complete books and records of
account and minutes of meeting and other proceedings of its Board
of Directors and shareholder meetings, (7) obtain proper
authorization from its directors or shareholders, as appropriate
and act solely in its corporate name and through its duly
authorized officers and agents in the conduct of its business,
(8) disclose in its financial statements that the Lease Assets
have been sold and assigned to the Transferor and from the
Transferor to the Trust and that the assets of the Transferor are
not available to pay the creditors of the Company, (9) maintain a
separate telephone number and stationery reflecting a separate
address and identity from that of the Company; and (c) will not
(1) dissolve or liquidate in whole or in part, (2) own any
subsidiary or lend or advance any moneys to, or make an
investment in, any Person, (3) make any capital expenditures,
(4)(A) commence any case, proceeding or other action under any
existing or future bankruptcy, insolvency or similar law seeking
to have an order for relief entered with respect to it, or
seeking reorganization, arrangement, adjustment, wind-up,
liquidation, dissolution, composition or other relief with
respect to it or its debts, (B) seek appointment of a receiver,
trustee, custodian or other similar official for it or any part
of its assets, (C) make a general assignment for the benefit of
creditors, or (D) take any action in furtherance of, or
consenting or acquiescing in, any of the foregoing, (5) guarantee
(directly or indirectly), endorse or otherwise become
contingently liable (directly or indirectly) for the obligations
of, or own or purchase any stock, obligations or securities of or
any other interest in, or make any capital contribution to, any
other Person, (6) merge or consolidate with any other Person,
(7) engage in any other action that bears on whether the separate
legal identity of the Transferor will be respected, including
without limitation (A) holding itself out as being liable for the
debts of any other party or (B) acting other than in its
corporate name and through its duly authorized officers or
agents, or (8) create, incur, assume, or in any manner become
liable in respect of any indebtedness other than as contemplated
by the Transaction Documents and other than trade payables and
expense accruals incurred in the ordinary course of business and
which are incidental to its business purpose; provided, however,
that the Transferor may take any action prohibited by this
clause (8) if (x) the Transferor shall cause, prior to the
taking of such action, an Opinion of Counsel experienced in
federal bankruptcy matters, in substance satisfactory to the
Trustee, the Certificateholders, MBIA and the Rating Agencies
confirming the non-consolidation of the Transferor and the
Company, to be delivered to the Trustee, the Certificateholders,
MBIA and the Rating Agencies, (y) the Rating Agencies shall
indicate in writing that the taking of such action will not
affect the then current rating of any Series of Certificates, and
(z) MBIA, and if an MBIA Default or Termination has occurred, the
Controlling Holders, shall have given their prior written consent
The Transferor shall not amend any article in its Certificate of
Incorporation that deals with any matter discussed above without
the prior written consent of MBIA. On or before April 15 of each
year, so long as any of the Certificates are Outstanding, the
Transferor shall furnish to each Certificateholder, the Trustee
and MBIA, an Officer's Certificate confirming that the Transferor
has complied with its obligations under this Section 11.02(i).
(j) Directors. The Transferor agrees that at all times, at
least two of the directors and one of the executive officers of
the Transferor (or two persons, one of whom is serving as both a
director and an executive officer) will not be a director,
officer or employee of any direct or ultimate parent, or
Affiliate of the parent or of the Transferor; provided, however,
that such independent directors and officers may serve in similar
capacities for other "special purpose corporations" formed by the
Company and its Affiliates. The Transferor's Certificate of
Incorporation shall at all times provide that such independent
directors shall have a fiduciary duty to the Holders of the
Certificates and will always require unanimous consent of the
board of directors to file any bankruptcy petition.
(k) Preservation of the Equipment. The Transferor warrants
that it is the lawful owner and possessor of the Equipment or
has a valid security interest therein and that it will warrant
and defend such Equipment against all Persons, claims and demands
whatsoever. The Transferor shall not assign, sell, pledge, or
exchange, or in any way encumber or otherwise dispose of the
Equipment, except as permitted under this Agreement.
(l) Tax Treatment. The Transferor shall comply with
Sections 2.11 and 2.12 of this Agreement at all times and its
financial and tax records shall reflect such treatment.
(m) Maintenance of Office or Agency. The Transferor will
maintain an office or agency within the United States of America
where Certificates may be presented or surrendered for payment,
where Certificates may be surrendered for registration of
transfer or exchange and where notices and demand to or upon the
Transferor in respect of the Certificates and this Agreement may
be served. The Transferor hereby initially appoints the Trustee
as the Paying Agent and its Corporate Trust Office as the office
for each of said purposes. The Transferor will give 30 days prior
written notice to the Trustee, MBIA and the Certificateholders of
any change in the identity of the Paying Agent or the location,
of any such office or agency. If at any time the Transferor shall
fail to maintain any such office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the
Trustee, and the Transferor hereby appoints the Trustee its agent
to receive all such presentations, surrenders, notices and
demands.
(n) Enforcement of Servicing Agreement and Lease
Acquisition Agreement. The Transferor will take all actions
necessary, and diligently pursue all remedies available to it, to
the extent commercially reasonable, to enforce the obligations of
the Servicer under the Servicing Agreement, the Company under the
Lease Acquisition Agreement and each Seller under each Lease Sale
Agreement and to secure its rights thereunder.
(o) Transferor May Consolidate, etc., Only on Certain
Terms. The Transferor shall not consolidate or merge with or
into any other Person or convey or transfer its properties and
assets substantially as an entirety to any Person, unless:
(i) the Person (if other than the Transferor)
formed by or surviving such consolidation or merger or
which acquires by conveyance or transfer the properties
and assets of the Transferor substantially as an
entirety shall be a Person organized and existing as a
limited purpose corporation under the laws of the
United States of America or any State thereof and
shall have expressly assumed, by an amendment hereto,
executed and delivered to the Trustee and MBIA, in form
and substance reasonably satisfactory to the Trustee
and MBIA, the obligation to make due and punctual
payments of the principal of and interest on all of the
Certificates and to perform every covenant of this
Agreement on the part of the Transferor to be performed
or observed; and
(ii) the Transferor shall have caused the Trustee
to have received a letter from the Rating Agencies to
the effect that the rating issued with respect to the
Certificates is confirmed, notwithstanding the
consummation of such merger, consolidation, transfer or
conveyance together with the consent of MBIA to such
merger, consolidation transfer or conveyance; and
(iii) immediately after giving effect to such
transaction, no Event of Default or Default shall have
occurred and be continuing; and
(iv) the Transferor shall have delivered to the
Trustee and MBIA an Officer's Certificate and an
Opinion of Counsel each stating that such
consolidation, merger, conveyance or transfer and such
Supplement comply with this Article Eleven and that all
conditions precedent herein provided for relating to
such transaction have been complied with; and
(v) such consolidation, merger, conveyance or
transfer shall be on such terms as shall fully preserve
the lien and security of this Agreement, the perfection
and priority thereof and the rights and powers of the
Trustee, MBIA and the Holders of the Certificates
under this Agreement; and
(vi) the surviving corporation shall be a "special
purpose corporation"; i.e., shall have an
organizational charter substantially similar to the
Certificate of Incorporation of the Transferor
including specific limitations on the business
purposes, and provisions for independent directors; and
(vii) MBIA shall have given its prior written
consent, which consent shall not be unreasonably
withheld or delayed.
(p) Successor Substituted. Upon any consolidation or
merger, or any conveyance or transfer of the properties and
assets of the Transferor substantially as an entirety in
accordance with Section 11.02(o) hereof, the Person formed by or
surviving such consolidation or merger (if other than the
Transferor) or the Person to which such conveyance or transfer is
made shall succeed to, and be substituted for, and may exercise
every right and power of, the Transferor under this Agreement
with the same effect as if such Person had been named as the
Transferor herein upon the execution of an assignment and
assumption agreement by such Person. In the event of any such
conveyance or transfer, the Person named as the "Transferor" in
the first paragraph of this Agreement or any successor which
shall theretofore have become such in the manner prescribed in
this Article shall be released from its liabilities as obligor
and maker on all the Certificates and from its obligations under
this Agreement and may be dissolved, wound-up and liquidated at
any time thereafter.
(q) Use of Proceeds. The proceeds from the sale of the
Certificates will be used by the Transferor (i) to pay the
Existing Indebtedness, (ii) to pay the expenses associated with
this transaction and (iii) for general corporate purposes,
including the cost of funding additional Lease Contracts. None
of the transactions contemplated in the Transaction Documents
(including the use of the proceeds from the sale of the
Certificates) will result in a violation of Section 7 of the
Securities and Exchange Act of 1934, as amended, or any
regulations issued pursuant thereto, including Regulations G, T,
U and X of the Board of Governors of the Federal Reserve System,
12 C.F.R., Chapter II. The Transferor does not own or intend to
carry or purchase any "margin security" within the meaning of
said Regulation G, including margin securities originally issued
by it or any "margin stock" within the meaning of said Regulation
U.
(r) Notice of Trigger Events, Funding Termination Events or
Advance Rate Decrease Events. Upon the Transferor's obtaining
knowledge of the occurrence of any Trigger Event, Funding
Termination Event or Advance Rate Decrease Event, the Transferor
shall within one Business Day of obtaining such knowledge notify
MBIA, the Rating Agencies and the Certificateholders of such
occurrence.
(s) Required Audits. The Transferor shall cause the
Servicer to perform the Required Audits on a timely basis.
Section 11.03 Other Matters as to the Transferor.
(a) Limitation on Liability of Directors, Officers, or
Employees of the Transferor Except as provided in subsection (b)
of this Section and elsewhere in this Agreement, the directors,
officers, or employees of the Transferor shall not be under any
personal liability to the Trust, the Trustee, the
Certificateholders, the Servicer, or any other Person hereunder
or pursuant to any documents delivered hereunder, it being
expressly understood that all such liability is expressly waived
and released as a condition of, and as consideration for, the
execution of this Agreement and the issuance of the Certificates,
except with respect to liability resulting from such person's
fraudulent or willful misconduct. The Transferor and any
director or officer or employee or agent of the Transferor may
rely in good faith on the advice of counsel or on any documents
of any kind, prima facie properly executed and submitted by any
Person respecting any matters arising hereunder.
(b) Liability of Transferor. The Transferor shall be
liable directly to and will indemnify any injured party for all
losses, claims, damages, liabilities, taxes and expenses of the
Trust (to the extent not payable out of the Trust Estate) to the
extent that it would be liable if the Trust were a partnership
under the Delaware Revised Uniform Limited Partnership Act in
which it was a general partner and the Class B Certificateholders
are limited partners; provided, however, that the Transferor
shall not be liable for any losses incurred by a
Certificateholder in its capacity as an investor in the
Certificates. Third party creditors of the Trust (other than in
connection with the obligations excluded in the preceding
sentence) shall be deemed third-party beneficiaries of this
paragraph.
(c) Demand Note. The Transferor shall not sell, convey,
pledge, transfer or otherwise dispose of the Demand Note so long
as the Trust remains in existence.
(d) Parties Will Not Institute Insolvency Proceedings.
During the term of this Agreement and for one year and one day
after the termination hereof, none of the parties hereto or any
Affiliate thereof will file any involuntary petition or otherwise
institute any bankruptcy, reorganization, arrangement, insolvency
or liquidation proceeding or other proceeding under any federal
or state bankruptcy or similar law against the Transferor.
ARTICLE TWELVE
ACCOUNTS AND ACCOUNTINGS
Section 12.01 Collection of Money.
Except as otherwise expressly provided herein, the Trustee
may demand payment or delivery of, and shall receive and collect,
all money and other property payable to or receivable by the
Trustee pursuant to this Agreement. The Trustee shall, upon
request from the Servicer, provide the Servicer with sufficient
information regarding the amount of collections with respect to
the Lease Contracts received by the Trustee in the Lockbox
Account (if such account is held by the Trustee) and the other
accounts held in the name of the Trustee to permit the Servicer
to perform its duties under the Servicing Agreement. The Trustee
shall hold all such money and property so received by it as part
of the Trust Estate and shall apply it as provided in this
Agreement. If any Lease Contract becomes a Defaulted Lease
Contract, the Trustee, upon Transferor or Servicer request may,
and upon the request of MBIA or if an MBIA Default or Termination
has occurred and is continuing, the Controlling Holders shall
take such action as may be appropriate to enforce such payment or
performance, including the institution and prosecution of
appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default
under this Agreement and to proceed thereafter as provided in
Article Six hereof. If the Transferor receives any amounts
payable to or receivable by the Trustee pursuant to this
Agreement, the Transferor shall immediately, but not later than
two Business Days after receipt, remit such amounts to the
Trustee for deposit in the Collection Account.
Section 12.02 Collection Account; Redemption Account.
(a) Prior to the Initial Delivery Date, the Trustee shall
open and maintain a trust account at its Corporate Trust Office
(the "Collection Account") in the name of the Trustee for the
benefit of the Certificateholders and MBIA, for the receipt of
(i) payments remitted to the Trustee by the Servicer and ACH Bank
pursuant to Sections 3.03 and 3.04 of the Servicing Agreement,
amounts transferred from the Lockbox Account in accordance with
Section 3.03 of the Servicing Agreement and any amounts received
by the Trustee pursuant to Section 12.01 hereof, (ii) amounts
transferred from the Cash Collateral Account in accordance with
Section 12.03(d)(i), (ii) and (iii) hereof, (iii) with respect to
the Class A Certificates, proceeds of claims made under any of
the Certificate Insurance Policies, in accordance with Article
Eight hereof, upon receipt, and (iv) any Reinvestment Income.
Funds in the Collection Account shall not be commingled with any
other monies. All payments to be made from time to time by the
Transferor to the Certificateholders out of funds in the
Collection Account pursuant to the Agreement shall be made by the
Trustee or the Paying Agent of the Transferor. All monies
deposited from time to time in the Collection Account pursuant to
this Agreement shall be held by the Trustee as part of the Trust
Estate as herein provided.
(b) Upon Transferor Order, the Trustee shall invest the
funds in the Collection Account in Eligible Investments;
provided, however, that all monies on deposit in the Collection
Account pursuant to Section 12.02(a)(iii) hereof shall remain
uninvested. The Transferor Order shall specify the Eligible
Investments in which the Trustee shall invest, shall state that
the same are Eligible Investments and shall further specify the
percentage of funds to be invested in each Eligible Investment.
No such Eligible Investment shall mature later than the second
Business Day preceding the next following Payment Date and shall
not be sold or disposed of prior to its maturity; provided that,
Eligible Investments of the type described in clause (a) of the
definition of Eligible Investments may mature on such Payment
Date. In the absence of a Transferor Order, the Trustee shall
invest funds in the Collection Account in Eligible Investments
described in clause (g) of the definition thereof. Eligible
Investments shall be made in the name of the Trustee for the
benefit of the Certificateholders and MBIA. The Trustee shall
provide to the Servicer and MBIA monthly written confirmation of
such investments, describing the Eligible Investments in which
such amounts have been invested. Any funds not so invested must
be insured by the Federal Deposit Insurance Corporation.
(c) Any income or other gain from investments in Eligible
Investments as outlined in (b) above shall be credited to the
Collection Account and any loss resulting from such investments
shall be charged to such account; provided, however, that the
Transferor shall make or cause to be made no later than the
applicable Payment Date a deposit to the Collection Account to
the extent of any losses therein. Except as otherwise
specifically set forth herein, the Trustee shall not be liable
for any loss incurred on any funds invested in Eligible
Investments pursuant to the provisions of this Section 12.02
(other than in its capacity as obligor under any Eligible
Investment).
(d) On each Payment Date if either no Default or Event of
Default shall have occurred and be continuing or a Default or
Event of Default shall have occurred and be continuing but the
entire Outstanding Principal Amount of all Certificates shall not
have been declared due and payable pursuant to Section 6.02
hereof, then on such Payment Date, after making all transfers and
deposits to the Collection Account referred to in Section
12.02(a) hereof, the Trustee shall withdraw from the Collection
Account (other than amounts representing payments of Lease
Receivables due after the Calculation Date immediately preceding
such Payment Date unless such amounts are used toward Servicer
Advances pursuant to Section 3.04 of the Servicing Agreement)
including the Reinvestment Income therein, and shall make the
following disbursements in the following order in accordance with
the provisions of and instructions on the Monthly Servicer's
Report; provided, however, that (x) the proceeds of claims under
any of the Certificate Insurance Policies shall be used solely to
pay interest and principal due under paragraphs (v) and (vi) of
this Section 12.02(d) in accordance with the terms of the
applicable Certificate Insurance Policy; (y) the Trustee shall
withdraw from the Collection Account and make interest payments
based on the Outstanding Principal Amount of all Class A
Certificates even if it shall not have received the Monthly
Servicer's Report; and (z) if there are insufficient funds to
make the payments of interest or principal specified in clause
(v) or (vi) below, then the amount available to be paid pursuant
to such clause will be allocated to each Series of Certificates
based on the applicable Pro Rata Share, provided, however, that
proceeds of a claim under a Certificate Insurance Policy to pay
any Outstanding Principal Amount upon the Stated Maturity of a
Series of Class A Certificates shall be used solely to pay such
Outstanding Principal Amount after giving effect to the
application of funds available to pay the Pro Rata Share of the
Class A Principal Distribution Amount of each Outstanding Series:
(i) to pay to the Servicer: (A) the Servicer Fee
then due for all Certificates; (B) the amounts
necessary to reimburse the Servicer and any successor
Servicer and subservicer as provided in Section 3.08(a)
of the Servicing Agreement for reasonable costs and
expenses incurred by the Servicer (including reasonable
attorney's fees and out-of-pocket expenses) in
connection with the realization, attempted realization
or enforcement of rights and remedies upon Lease
Contracts that have become Defaulted Lease Contracts,
from amounts received as Recoveries from such Defaulted
Lease Contracts; (C) any amounts received from
Customers to pay the taxes described in Section 3.07 of
the Servicing Agreement, to the extent deposited in the
Collection Account; (D) the amount necessary to
reimburse the Servicer for any Nonrecoverable Advance;
and (E) all amounts received in respect of Lease
Receivables as to which the Servicer has made an
unrecovered Servicer Advance, to the extent of such
Servicer Advance;
(ii) to pay to the Trustee the Trustee Fee then
due for all Certificates;
(iii) to pay to the Back-up Servicer the Back-
up Servicer Fee then due for all Certificates;
(iv) to pay to MBIA the MBIA Premium then due for
all of the Class A Certificates;
(v) to pay the interest due on that Payment Date
on all outstanding Class A Certificates and any overdue
interest, to be applied as provided in Section 2.08
hereof;
(vi) first, to pay the Class A Principal
Distribution Amount to all outstanding Class A
Certificates of a Series at Stated Maturity of such
Series, and second, to pay the Class A Principal
Distribution Amount on all outstanding Class A
Certificates of all other Series, to be applied to the
payment of Certificate principal as provided in Section
2.08 hereof;
(vii) unless a Trigger Event has occurred, to
deposit into the Cash Collateral Account an amount
necessary to bring the balance therein to an amount
equal to the Cash Collateral Account Required Balance;
(viii) to pay to MBIA, any amounts previously
paid by MBIA under any Certificate Insurance Policy and
not heretofore repaid, together with interest thereon
in accordance with each Insurance Agreement;
(ix) to pay to a successor Servicer after a
successor Servicer has been appointed pursuant to
Section 6.02 of the Servicing Agreement, the Additional
Servicer Fee, if any, and to pay any successor
Servicer, MBIA or the Trustee, any Transition Costs
incurred by any successor Servicer, MBIA (solely
pursuant to Section 6.02(d) of the Servicing Agreement)
or the Trustee and not previously reimbursed;
(x) on and after each Payment Date following the
initial occurrence of a Trigger Event, apply any
remaining funds (the "Additional Principal Amount") to
the payment of Certificate principal on all Outstanding
Class A Certificates, in the amount of the Pro Rata
Share of any Additional Principal Amount for each such
Series of Certificates;
(xi) to pay to the Trustee and the Back-up
Servicer, any other amounts due to the Trustee or the
Back-up Servicer as expressly provided herein and in
the Servicing Agreement;
(xii) to pay to MBIA, any other amounts due
under the Insurance Agreement;
(xiii) to pay to the Servicer any other
amounts due the Servicer as expressly provided herein
and in the Servicing Agreement;
(xiv) to pay or provide adequate reserves for
payment of any current federal, state or local taxes
measured by or imposed on income or gross receipts of
the Transferor;
(xv) to pay the interest due on that Payment Date
on all Outstanding Class B Certificates and any overdue
interest and interest thereon, to be applied as
provided in Section 2.08 hereof;
(xvi) to pay the Class B Principal
Distribution Amount due on that Payment Date on all
Outstanding Class B Certificates, to be applied to the
payment of Certificate principal as provided in Section
2.08 hereof;
(xvii) upon the reduction of the Outstanding
Principal Amount of any Series of Class B Certificates
to zero, to pay any applicable Class B Additional
Return to such Series of Class B Certificates; and
(xviii) to remit any excess funds to or at the
direction of the Transferor in accordance with the
instructions on the Monthly Servicer's Report.
(e) Prior to the Initial Delivery Date, the Transferor
shall cause the Trustee to open and maintain a trust account at
the Corporate Trust Office (the "Redemption Account") in the name
of the Trustee for the benefit of Certificateholders and MBIA,
for the receipt of the Redemption Price of any Certificates to be
redeemed in accordance with Article Ten hereof. On any
Redemption Date, the Trustee shall withdraw the applicable
Redemption Price from the Redemption Account and the Paying Agent
shall remit the Redemption Price to the applicable
Certificateholders in accordance with Section 10.04 hereof.
Moneys in the Redemption Account shall be invested in Eligible
Investments that mature no later than two Business Days prior to
the relevant Redemption Date. Eligible Investments shall be made
in the name of the Trustee for the benefit of the
Certificateholders and MBIA. Any monies deposited in the
Redemption Account for purposes of redeeming Certificates
pursuant to Article Ten hereof shall, subject to Section 7.16
hereof, remain in the Redemption Account until used to redeem
such Certificates.
(f) If payments on the Lease Contracts are made by means of
electronic transfers from a Customer bank account, the Servicer
shall either remit such payments to the Collection Account in
accordance with Section 3.03(a) of the Servicing Agreement, or
the Transferor shall open and maintain an account at the ACH Bank
(the "ACH Account") in the name of the Trustee for the sole
benefit of the Certificateholders and MBIA for the receipt of
such collections in accordance with the Servicing Agreement.
Upon the opening of the ACH Account, the Transferor shall make an
initial deposit therein (the "Initial ACH Deposit") in an amount
equal to $50,000. The Trustee shall transfer moneys from the
ACH Account to the Collection Account on the applicable
Determination Date in order to comply with Section 3.03(d) of the
Servicing Agreement. Moneys in the ACH Account shall be invested
in Eligible Investments that mature no later than the relevant
Determination Date. Eligible Investments shall be made in the
name of the Trustee for the benefit of the Certificateholders and
MBIA.
Section 12.03 Cash Collateral Account.
(a) Prior to the initial Delivery Date, the Transferor
shall cause the Trustee to open and maintain a trust account at
the Corporate Trust Office (the "Cash Collateral Account") in the
name of the Trustee for the benefit of the Certificateholders and
MBIA, for the receipt of (i) any Cash Collateral Account Deposits
required to be made with respect to a Series of Certificates,
(ii) deposits pursuant to Section 12.02(d)(vii), and (iii) any
other deposits required under a Supplement. Monies received in
the Cash Collateral Account will be invested at the written
direction of the Transferor in Eligible Investments during the
term of this Agreement, and any income or other gain realized
from such investment, shall be held by the Trustee in the Cash
Collateral Account as part of the Trust Estate subject to
disbursement and withdrawal as herein provided. Eligible
Investments shall be made in the name of the Trustee for the
benefit of the Certificateholders and MBIA. No such Eligible
Investment shall mature later than the second Business Day
preceding the next following Payment Date and shall not be sold
or disposed of prior to its maturity; provided that, Eligible
Investments of the type described in clause (a) of the definition
of Eligible Investments may mature on such Payment Date. In the
absence of a Transferor Order, the Trustee shall invest funds in
the Collection Account in Eligible Investments described in
clause (g) of the definition thereof Monies shall be subject to
withdrawal in accordance with Section 12.03(d) hereof.
(b) The Trustee shall provide to the Servicer and MBIA
monthly written confirmation of investments of funds held in the
Cash Collateral Account, describing the Eligible Investments in
which such amounts have been invested. Any funds not so invested
must be insured by the Federal Deposit Insurance Corporation.
(c) If any amounts invested as provided in Section 12.03(a)
hereof shall be needed for disbursement from the Cash Collateral
Account as set forth in Section 12.03(d) hereof, the Trustee
shall cause such investments of such Cash Collateral Account to
be sold or otherwise converted to cash to the credit of such Cash
Collateral Account. The Trustee shall not be liable for any
investment loss resulting from investment of money in the Cash
Collateral Account in any Eligible Investment in accordance with
the terms hereof (other than in its capacity as obligor under any
Eligible Investment).
(d) Disbursements from the Cash Collateral Account shall be
made, to the extent funds therefore are available, only as
follows:
(i) in the event that the amount in the
Collection Account at 10:00 a.m. Minneapolis time on
the Determination Date immediately preceding any
Payment Date (other than amounts representing payments
of Lease Receivables due after the Calculation Date
immediately preceding such Payment Date unless such
amounts are used toward Servicer Advances pursuant to
Section 3.04 of the Servicing Agreement) is less than
the amounts required to be paid from the Collection
Account on such Payment Date pursuant to clauses (i)
through (vi) of Section 12.02(d) hereof (with the Class
A Principal Distribution Amount determined in
accordance with clauses (a)(i) and (b) of the
definition thereof), the Trustee shall withdraw funds
from the Cash Collateral Account on or prior to 4:00
p.m. New York time on such Determination Date to the
extent necessary to make such payments on such Payment
Date and deposit such funds into the Collection
Account;
(ii) subject to subparagraph (iii) of this Section
12.03(d), in the event that on any Delivery Date or
Payment Date the balance in the Cash Collateral Account
equals an amount greater than the Cash Collateral
Account Required Balance (after giving effect to the
distributions listed in clause (i) of this Section
12.03(d) and Section 12.02(d)(i) through (vi) hereof on
such Payment Date), the Trustee shall withdraw funds in
the Cash Collateral Account in such amount so that the
remaining amount in the Cash Collateral Account after
such withdrawal will equal the Cash Collateral Account
Required Balance, and deposit such amounts in the
Collection Account for distribution on such Payment
Date in accordance with the priorities set forth in
Section 12.02(d);
(iii) in the event that on any Payment Date a
Trigger Event has occurred, the Trustee shall withdraw
all funds from the Cash Collateral Account and deposit
such funds into the Collection Account for disbursement
in accordance with the provisions of Section 12.02(d)
hereof; and
(iv) subject to subparagraph (iii) of this Section
12.03(d), in the event that on any Funding Date the
balance in the Cash Collateral Account, after giving
effect to any Funding occurring on such Funding Date,
equals an amount greater than the Cash Collateral
Account Required Balance, the Trustee shall withdraw
funds in the Cash Collateral Account in such amount so
that the remaining amount in the Cash Collateral
Account after such withdrawal will equal the Cash
Collateral Account Required Balance, and disburse such
amounts to or at the direction of the Transferor.
Section 12.04 Reports by Trustee to MBIA and
Certificateholders.
(a) On each Payment Date the Trustee shall account to each
Holder of Certificates on which payments of principal and
interest are then being made the amount which represents
principal and the amount which represents interest, and shall
contemporaneously advise the Transferor and MBIA of all such
payments. The Trustee may satisfy its obligations under this
Section 12.04 by delivering the Monthly Servicer's Report to each
such Holder of the Certificates, MBIA, the Transferor, the Rating
Agencies and the Placement Agent. On or before the 15th day prior
to any Final Payment Date the Trustee shall provide notice to
MBIA, the Rating Agencies and the Holders of the applicable
Series of Certificates of the Final Payment Date for such
Certificates. Such notice shall include (1) a statement that
interest shall cease to accrue as of the last day preceding the
date on which the Final Payment Date occurs, and (2) shall
specify the place or places at which presentation and surrender
may be made.
(b) The Trustee shall, on a monthly basis beginning on the
first Calculation Date, confirm the credit rating or, if more
than one credit rating has been assigned, each such credit rating
of each institution in which funds are invested pursuant to
clause (g) of the definition of Eligible Investments and shall
promptly notify the Certificateholders and MBIA if any such
credit rating has been lowered.
(c) At least annually, or as otherwise required by law, the
Trustee shall distribute to Certificateholders any information
returns or other tax information or statements as are required
by applicable tax law to be distributed to the
Certificateholders. The Servicer shall prepare or cause to be
prepared all such information for distribution by the Trustee to
the Certificateholders.
ARTICLE THIRTEEN
PROVISIONS OF GENERAL APPLICATION
Section 13.01 General Provisions.
All of the provisions of this Article shall apply to this
Agreement, as supplemented by each Supplement.
Section 13.02 Acts of Certificateholders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Agreement to be
given or taken by Certificateholders may be embodied in and
evidenced by one or more instruments of substantially similar
tenor signed by such Certificateholders in person or by an agent
duly appointed in writing; and, except as herein otherwise
expressly provided, such action shall become effective when such
instrument or instruments are delivered to the Trustee, and,
where it is hereby expressly required, to the Transferor. Such
instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act"
of the Certificateholders signing such instrument or instruments.
Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of
this Agreement and (subject to Section 7.01 hereof) conclusive in
favor of the Trustee and the Transferor, if made in the manner
provided in this Section 13.02.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved in any manner which the
Trustee deems sufficient.
(c) The ownership of Certificates shall be proved by
the Certificate Register.
(d) Any request, demand, authorization, direction, notice,
consent, waiver or other action by the Holder of any Certificate
shall bind the Holder of every Certificate issued upon the
registration of transfer thereof or in exchange therefor or in
lieu thereof, in respect of anything done, omitted or suffered to
be done by the Trustee or the Transferor in reliance thereon,
whether or not notation of such action is made upon such
Certificate.
Section 13.03 Notices, etc., to Trustee, MBIA, Transferor
and Servicer.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Certificateholders or other document
provided or permitted by this Agreement to be made upon, given or
furnished to, or filed with any party hereto shall be sufficient
for every purpose hereunder if in writing and telecopied or
mailed, first-class postage prepaid and addressed to the
appropriate address below:
(a) to the Trustee at Sixth Street and Marquette
Avenue, Minneapolis, Minnesota 55479-0070, or at any other
address previously furnished in writing to the Transferor,
MBIA, the Certificateholders and the Servicer; or
(b) to MBIA at MBIA Insurance Corporation, 113 King
Street, Armonk, New York 10504, Attention: Structured
Finance - Insured Portfolio Management (SF-IPM), or at any
other address previously furnished in writing by MBIA to the
Trustee, the Certificateholders, the Servicer and the
Transferor; or
(c) to the Transferor at 6424 W. 91st Avenue, Suite B,
Westminster, CO 80030, Attention: President, or at any
other address previously furnished in writing to the
Trustee, MBIA, the Certificateholders and the Servicer by
the Transferor; or
(d) to the Servicer at 6424 W. 91st Avenue,
Westminster, CO 80030, Attention: President, or at any
other address previously furnished in writing to the
Trustee, MBIA, the Certificateholders and the Transferor.
(e) to each of (i) S & P at 26 Broadway, New York,
New York 10004, Attention: Asset Backed Surveillance Group,
and (ii) Moody's at 99 Church Street, New York, NY 10007.
Section 13.04 Notices to Certificateholders; Waiver.
Where this Agreement provides for notice to
Certificateholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each
Certificateholder affected by such event, at his address as it
appears on the Certificate Register, not later than the latest
date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case in which notice to
Certificateholders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any
particular Certificateholder shall affect the sufficiency of such
notice with respect to other Certificateholders, and any notice
which is mailed in the manner herein provided shall conclusively
be presumed to have been duly given.
Where this Agreement provides for notice in any manner, such
notice may be waived in writing by any Person entitled to receive
such notice, either before or after the event, and such waiver
shall be the equivalent of such notice. Waivers of notice by
Certificateholders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case, by reason of the suspension of regular mail service
as a result of a strike, work stoppage or similar activity, it
shall be impractical to mail notice of any event to
Certificateholders when such notice is required to be given
pursuant to any provision of this Agreement, then any manner of
giving such notice as shall be satisfactory to the Trustee shall
be deemed to be a sufficient giving of such notice.
Section 13.05 Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the
construction hereof.
Section 13.06 Successors and Assigns.
All covenants and agreements in this Agreement by the
Transferor shall bind its successors and assigns, whether so
expressed or not. Notwithstanding the foregoing, no party shall
assign any of its rights under this Agreement, or delegate any of
its duties, except in accordance with the provisions of Sections
2.06, 7.10 and 11.02(o) hereof. The Transferor agrees not to
withdraw as a party hereunder so long as there has been no MBIA
Default or Termination.
Section 13.07 Separability.
In case any provision in this Agreement or in the
Certificates shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
Section 13.08 Benefits of Agreement.
Nothing in this Agreement or in the Certificates, express or
implied, shall give to any Person, other than the parties hereto,
the Certificateholders, and any Paying Agent which may be
appointed pursuant to the provisions hereof, and any of their
successors hereunder, any benefit or any legal or equitable
right, remedy or claim under this Agreement or under the
Certificates, except that MBIA is an express third party
beneficiary to this Agreement.
Section 13.09 Legal Holidays.
In any case in which the date of any Payment Date or the
Stated Maturity of any Certificate shall not be a Business Day,
then (notwithstanding any other provision of a Certificate or
this Agreement) payment of principal or interest need not be made
on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the nominal date of
any such Stated Maturity or Payment Date and, assuming such
payment is actually made on such subsequent Business Day, no
additional interest shall accrue on the amount so paid for the
period from and after any such nominal date.
Section 13.10 Governing Law.
THE AGREEMENT AND EACH CERTIFICATE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
THEREIN, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS OF ANY
STATE.
Section 13.11 Counterparts.
The Agreement may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the
same instrument.
Section 13.12 Corporate Obligation.
No recourse may be taken, directly or indirectly, against
any incorporator, subscriber to the capital stock, stockholder,
employee, officer or director of the Transferor or of any
predecessor or successor of the Transferor with respect to the
Transferor's obligations on the Certificates or under this
Agreement or any certificate or other writing delivered in
connection herewith.
Section 13.13 Compliance Certificates and Opinions.
Upon any application, order or request by the Transferor or
the Servicer to the Trustee to take any action under any
provision of this Agreement for which a specific request is
required under this Agreement, the Transferor or the Servicer, as
applicable, shall furnish to the Trustee an Officer's Certificate
of the Transferor or the Servicer, as applicable, stating that
all conditions precedent, if any, provided for in this Agreement
relating to the proposed action have been complied with, except
that in the case of any such application or request as to which
the furnishing of a different certificate is specifically
required by any provision of this Agreement relating to such
particular application or request, no additional certificate need
be furnished.
Every certificate or opinion with respect to compliance with
a condition or covenant provided for in this Agreement shall
include:
(a) a statement that each individual signing such
certificate or opinion has read or has caused to be read
such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(c) a statement that, in the opinion of each such
individual, such individual has made such examination or
investigation as is necessary to enable such individual to
express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been
complied with.
Section 13.14 MBIA Default or Termination.
If an MBIA Default or Termination occurs and is continuing,
MBIA's right to consent hereunder and under any other Transaction
Document and to direct the Trustee shall be void and, in such
event, in all provisions of this Agreement wherein MBIA's consent
or direction is required or permitted, the consent or direction
of the Controlling Holders shall be required or permitted.
IN WITNESS WHEREOF, the Transferor, the Servicer, the Trustee
and the Back-up Servicer have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of
the date and year first above written.
GF FUNDING CORP. II, Transferor
By: s/ William W. Wehner
Name: William W. Wehner
Title: President
GRANITE FINANCIAL, INC., Servicer
By: /s/ William W. Wehner
Name: William W. Wehner
Title: President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee and Back-up
Servicer
By: /s/ Bonnie Seideman
Name: Bonnie Seideman
Title: Assistant Vice President
1
EXHIBIT 10.2
LEASE ACQUISITION AGREEMENT
between
GRANITE FINANCIAL, INC.
(the "Company")
and
GF FUNDING CORP. II
(the "Transferor")
Dated as of November 1, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS 2
Section 1.01 Defined Terms 2
ARTICLE 2 ACQUISITION OF LEASE ASSETS 4
Section 2.01 Authorization and Issuance of Common Stock by
the Transferor 4
Section 2.02 Lease Asset Acquisitions 4
Section 2.03 Assumption of Indebtedness by the
Transferor; Payment of Removal Price 4
Section 2.04 Delivery of Lease Contracts; Filing of
Financing Statements 4
Section 2.05 Servicing of Lease Contracts and Equipment 5
Section 2.06 Review of Lease Contracts 5
Section 2.07 Nature of Transfer 5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES 6
Section 3.01 Representations and Warranties of the Company 6
Section 3.02 Representations and Warranties of the
Transferor 13
Section 3.03 Purchase or Substitution Required Upon
Breach of Certain Representations and
Warranties 14
Section 3.04 Requirements for Purchase or Substitution of
Lease Contracts and Acquisition of Additional
Lease Contracts 15
ARTICLE 4 COVENANTS OF THE TRANSFEROR AND COMPANY 17
Section 4.01 Company Covenants 17
Section 4.02 Transferor Covenants 20
Section 4.03 Assignment of Lease Assets 21
ARTICLE 5 CONDITIONS PRECEDENT 22
Section 5.01 Conditions to the Transferor's Obligations 22
ARTICLE 6 TERM AND TERMINATION 23
Section 6.01 Term 23
Section 6.02 Default by the Company 23
ARTICLE 7 MISCELLANEOUS 24
Section 7.01 Amendments 24
Section 7.02 Governing Law 24
Section 7.03 Notices 24
Section 7.04 Separability Clause 24
Section 7.05 Assignment 24
Section 7.06 Further Assurances 24
Section 7.07 No Waivers; Cumulative Remedies 24
Section 7.08 Binding Effect; Third Party Beneficiaries 25
Section 7.09 Set-Off 25
Section 7.10 MBIA Default or Termination 25
EXHIBITS
A FORM OF COMPANY CERTIFICATE
B FORM OF LEASE CONTRACTS
C POOL CONCENTRATION LIMIT EXCEPTIONS
D CONCENTRATION LIMITS
E FORM OF BROKER ASSIGNMENT AGREEMENTS
LEASE ACQUISITION AGREEMENT
This LEASE ACQUISITION AGREEMENT (the "Lease Acquisition
Agreement"), dated as of November 1, 1996, is by and between
Granite Financial, Inc. (the "Company") and GF Funding Corp. II
(the "Transferor").
PRELIMINARY STATEMENT
The Transferor has entered into a Trust and Security
Agreement, dated as of November 1, 1996 (as amended from time to
time, the "Trust and Security Agreement"), with Norwest Bank
Minnesota, National Association as the Trustee (the "Trustee")
and back-up servicer (the "Back-up Servicer") and Granite
Financial, Inc., as servicer (the "Servicer"), pursuant to which
the Transferor intends to issue one or more Series of
Certificates.
In furtherance thereof, the Transferor and the Company are
entering into this Lease Acquisition Agreement to provide for,
among other things, the acquisition by the Transferor of all of
the right, title and interest in and to certain Lease Assets,
which the Transferor is and will from time to time convey to the
Trustee for the benefit of MBIA and the Certificateholders. As a
precondition to the effectiveness of this Lease Acquisition
Agreement, the Transferor, the Trustee, the Servicer and the
Back-up Servicer will enter into the Servicing Agreement to
provide for the servicing of the Lease Assets.
In addition, under the Trust and Security Agreement, the
Transferor is conveying to the Trustee, among other things, all
of the Transferor's rights derived under this Lease Acquisition
Agreement and the Servicing Agreement, and the Company agrees
that all covenants and agreements made by it in this Lease
Acquisition Agreement with respect to the Lease Assets shall also
be for the benefit of the Trustee, MBIA and all Holders from time
to time of the Certificates. In consideration for its
contribution and sale of the Lease Assets and its
representations, warranties, covenants and other agreements under
this Lease Acquisition Agreement, the Company has received all of
the Common Stock of the Transferor and such other consideration
as may from time to time be paid hereunder.
ARTICLE 1
DEFINITIONS
Section 1.01 Defined Terms. For purposes of this Lease
Acquisition Agreement the following terms shall have the meanings
specified herein. Capitalized terms used herein but not
otherwise defined shall have the respective meanings assigned to
such terms in the Trust and Security Agreement, or if not defined
therein, in the Servicing Agreement.
"Common Stock": All of the issued and outstanding shares of
common stock of the Transferor, which consists of 1,000 shares
having a par value of $.01 per share.
"Company Certificate": The Company Certificate
substantially in the form attached hereto as Exhibit A, one of
which shall be entered into in connection with each issuance of a
Series of Certificates and on any Acquisition Date.
"Computer Tape": The diskette or other computer readable
medium, prepared by the Company, containing descriptions and
payment information on each Lease Contract on the Series Lease
Schedule.
"Concentration Limits": The limitations as to the
composition of the Lease Contracts acquired by the Transferor
hereunder, as described on Exhibit D hereto, and as amended from
time to time with the prior written consent of MBIA and with
notice to the Rating Agencies and the Certificateholders.
"Demand Note": The promissory note payable by the Company
to the Transferor on demand.
"Eligible Lease Contract": A Lease Contract that satisfies
the selection criteria set forth in Section 3.01(a) hereof as of
the applicable Acquisition Date.
"Existing Indebtedness": With respect to any Series of
Certificates, the indebtedness that the Company shall incur from
time to time which relates to financings of the Lease Receivables
and which shall be assumed by the Transferor on the applicable
Delivery Date, all as set forth in Schedule II to the applicable
Company Certificate.
"Initial Acquisition Date": November 1, 1996.
"Initial Series Lease Schedule": The list of Lease
Contracts and Lease Receivables attached to the Company
Certificate executed as of the Initial Delivery Date.
"Lease Assets": All right, title and interest in and to
(a) the Lease Contracts, including the proceeds of the Lease
Contracts and all payments received on or with respect to the
Lease Contracts on or after the related Acquisition Date, other
than payments of principal and interest and any other payments
due on the Lease Contracts before the related Acquisition Date,
(b) the Lease Contract Files, (c) the Company's rights and
interests in the Equipment, (d) all rights and interests of the
Company under each Insurance Policy related to the Lease
Contracts and related Equipment and Insurance Proceeds, (e) the
Servicing Charges with respect to the Lease Contracts and (f) all
income and proceeds of the foregoing or relating thereto.
"Lease Contract File": With respect to each Lease Contract,
the following documents:
(i) the one and only executed original
counterpart of the Lease Contract that constitutes
"chattel paper" for purposes of Sections 9-105(1)(b)
and 9-305 of the UCC;
(ii) copies of any evidence of insurance and any
other copies of documents evidencing or related to any
Insurance Policy;
(iii) copies of such documents, if any, that
the Company keeps on file indicating that the lessor
has a perfected security interest in the related
Equipment in accordance with its customary procedures
relating to an individual Lease Contract, Customer or
Equipment;
(iv) copies of evidence that the Customer received
the Equipment and that the Equipment was in good
working order and acceptable to the Customer at the
time of receipt by the Customer; and
(v) copies of any Broker Assignment Agreements whereby
the Company acquired the Lease Contract from a broker.
"Lien": Any security interest, lien, charge, pledge, equity
or encumbrance of any kind other than liens for taxes due and
payable after the applicable Acquisition Date, mechanic's liens
filed after the applicable Acquisition Date and any liens that
attach after the applicable Acquisition Date by operation of law.
"Servicing Agreement": The Servicing Agreement dated as of
November 1, 1996 by and among the Servicer, the Transferor, the
Back-up Servicer and the Trustee, as amended or supplemented from
time to time.
"PUT": A provision in a Lease Contract obligating the lessee
to purchase the related Equipment upon termination.
"Substitute Lease Contract": The meaning set forth in
Section 3.04(b) hereof.
ARTICLE 2
ACQUISITION OF LEASE ASSETS
Section 2.01 Authorization and Issuance of Common Stock by
the Transferor. Subject to all the terms and conditions hereof
and in reliance upon the representations, warranties and
covenants set forth in this Lease Acquisition Agreement, as of
the Initial Acquisition Date the Transferor hereby issues to the
Company the Common Stock. Such Common Stock shall be issued in
the name of, and delivered directly to, the Company and the
Company hereby agrees to obtain directly from the Transferor such
Common Stock, all in accordance with the terms hereof.
Section 2.02 Lease Asset Acquisitions. In return for the
Common Stock and other rights created by this Lease Acquisition
Agreement, as of the Initial Acquisition Date the Transferor is
acquiring the Lease Assets listed on the Initial Series Lease
Schedule and the Demand Note in an aggregate principal amount of
$200,000. The Company, from time to time hereafter, shall
transfer to the Transferor or originate on behalf of the
Transferor, and the Transferor shall acquire from the Company
additional Lease Assets pursuant to a Company Certificate (a) in
the case of Lease Assets being acquired by the Transferor in
connection with the issuance of a new Series of Certificates,
with the applicable Series Lease Schedule attached thereto or (b)
in the case of Substitute Lease Contracts and Additional Lease
Contracts acquired on a Funding Date, with the applicable Amended
Lease Schedule attached thereto. The Company agrees that all
Lease Contracts transferred, assigned and originated on behalf of
the Transferor hereunder shall be Eligible Lease Contracts and
that all Lease Assets acquired by the Transferor shall conform
with all of the requirements hereof. The Company hereby
acknowledges that its transfer and assignment of the Lease Assets
to the Transferor is absolute and irrevocable, without
reservation or retention of any interest whatsoever by the
Company.
To the extent that the Company shall retain any files or
documentation pertaining to the Lease Assets, it shall hold such
documents in trust for the benefit of the Trustee as the owner
thereof. The possession of any documents or files pertaining to
the Lease Assets by the Company is at the will of the Transferor
for the sole purpose of servicing such Lease Assets, and such
retention and possession by the Company is in a custodial
capacity only. The documents and files retained by the Company
relating to the Lease Assets shall be segregated from the books
and records of the Company and shall be marked appropriately to
reflect clearly the sale of the related Lease Assets to the
Transferor and the assignment from the Transferor to the Trustee.
Section 2.03 Assumption of Indebtedness by the Transferor;
Payment of Removal Price. By the execution of the applicable
Company Certificate, subject to all the terms and conditions
hereof and in reliance upon the representations, warranties and
covenants set forth herein, on each Delivery Date the Transferor
hereby agrees to assume the Existing Indebtedness and to repay
the Existing Indebtedness with the proceeds of the sale of the
Certificates on the related Delivery Date simultaneously with the
issuance of the related Series of Certificates.
Section 2.04 Delivery of Lease Contracts; Filing of
Financing Statements.
(a) In connection with the Transferor's acquisition of the
Lease Assets, the Company, on behalf of the Transferor, shall
deliver the original Lease Contracts and all other items included
in the Lease Contract Files to the Trustee so that the Trustee
may retain possession thereof as provided in the Transaction
Documents. In addition, the Company agrees to record and file
prior to the related Delivery Date or within the time period set
forth in the Trust and Security Agreement, at its own expense,
financing statements (and thereafter timely continuation
statements with respect to such financing statements) with
respect to the Lease Assets, meeting the requirements of the
Transaction Documents.
(b) In connection with each acquisition of Lease Assets by
the Transferor hereunder, the Company shall promptly, at its own
expense, cause any Electronic Ledger maintained by it to be
marked to show that the Lease Assets have been acquired by the
Transferor in accordance with this Lease Acquisition Agreement
and transferred by the Transferor to the Trustee in accordance
with the Transaction Documents.
Section 2.05 Servicing of Lease Contracts and Equipment.
The Servicer shall service the Lease Assets for the benefit of
the Transferor (and its successors and assigns), the Trustee,
MBIA and the Certificateholders, in accordance with the terms and
conditions of the Transaction Documents. Notwithstanding the
foregoing, the Company acknowledges and agrees that its
obligations under this Lease Acquisition Agreement are
independent of any obligations it may have as Servicer and that
its obligations under this Lease Acquisition Agreement will
continue in full force and effect, whether or not it is acting as
Servicer, until termination of this Lease Acquisition Agreement
in accordance with Section 6.01 hereof.
Section 2.06 Review of Lease Contracts. If the Company
discovers or is notified by the Trustee, MBIA or the
Certificateholders that any Lease Contracts are missing or
defective (that is, mutilated, damaged, defaced, incomplete,
improperly dated, clearly forged or otherwise physically altered)
in any material respect, the Company shall correct or cure such
omission, defect or other irregularity within 30 days from the
date the Company discovered, or is notified by the Trustee, MBIA
or the Certificateholders of, such omission or defect.
Otherwise, the Company shall repurchase such Lease Contract from
the Transferor or replace such Lease Contract with a Substitute
Lease Contract in accordance with Section 3.04(c) hereof.
Section 2.07 Nature of Transfer.
(a) In the event that the transfer of the Lease Assets from
the Company to the Transferor is deemed to be a secured
financing, the Company shall be deemed hereunder to have conveyed
to the Transferor, and the Company does hereby convey to the
Transferor, a security interest in all of the Company's right,
title and interest in, to and under the Lease Assets, whether now
owned or hereafter acquired. For purposes of such conveyance,
this Lease Acquisition Agreement shall constitute a security
agreement under applicable law.
(b) In the event that the transfer contemplated by this
Lease Acquisition Agreement is deemed for any reason to be less
than a transfer of complete legal title of all of the Company's
right, title and interest in, to and under the Lease Assets, the
parties hereto intend that this Lease Acquisition Agreement
operate to transfer all of the Company's equitable interests in,
to and under the Lease Assets to the Transferor.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the
Company.
(a) The Company hereby makes the following representations
and warranties as to each Lease Contract to the Transferor and
for the benefit of MBIA, the Trustee and Holders of the
Certificates, on which the Transferor relies in acquiring the
Lease Assets. Such representations and warranties speak as of
the related Acquisition Date unless otherwise indicated, but
shall survive any subsequent transfer, assignment, contribution
or conveyance of the Lease Assets:
(i) The information set forth in the Series Lease
Schedule is true and correct as of the related Acquisition
Date.
(ii) The Lease Contract is by its terms an absolute and
unconditional obligation of the Customer, non-cancelable
and, except in certain instances involving loss or damage to
the Equipment, non-prepayable prior to the expiration of the
initial term of such Lease Contract; no Lease Contract
provides for the substitution, exchange or addition of any
other items of Equipment pursuant to such Lease Contract;
and the rights with respect to such Lease Contract are
assignable by the lessor thereunder without the consent of
or notice to any Person. Each Lease Contract is net to the
lessor of any maintenance, taxes, insurance or other
expenses and contains provisions requiring the Customer to
assume all risk of loss or malfunction of the related
Equipment.
(iii) The Company has heretofore provided to the
Trustee the sole original counterpart of each of the Lease
Contracts, as amended, and except for amendments and
supplements already reflected in the Lease Contracts on the
related Acquisition Date and as reflected in the Series
Lease Schedule, the Lease Contracts have not been amended,
waived or modified. All such documents constitute the
entire agreement between the lessor and the lessee in
respect of the Equipment.
(iv) There is only one original executed counterpart of
the Lease Contract and it constitutes "chattel paper" for
purposes of section 9-105(1)(b) and 9-308 of the UCC which
has been delivered to the Trustee and the Company's
Electronic Ledgers have been marked as provided in Section
2.04(b) hereof.
(v) The Lease Contract was not originated in, nor is
it subject to the laws of, any jurisdiction, the laws of
which would make unlawful the sale, transfer or assignment
of such document under any of the Transaction Documents,
including any repurchase in accordance with the Transaction
Documents.
(vi) The Lease Contract is, and on any related Delivery
Date will be, in full force and effect in accordance with
its terms and neither the Company nor any other obligated
party has or will have suspended or reduced any payments or
obligations due or to become due thereunder by reason of a
default by the other party to such Lease Contract; as of the
applicable Acquisition Date, none of the Customers is more
than 30 days delinquent in making a Scheduled Payment
(without regard to advances, if any, made by the Servicer)
and there are no proceedings pending, or to the best of the
Company's knowledge, threatened asserting insolvency of a
Customer; there has been no other default, breach or
violation and no event permitting acceleration under the
Lease Contract; there are no proceedings pending, or to the
best of the Company's knowledge, threatened, wherein the
Customer, any other obligated party or any governmental
agency has alleged that any such Lease Contract is illegal
or unenforceable; and none of the Scheduled Payments are
subject to any set-off or credit of any kind.
(vii) The Lease Contract is the valid, binding and
legally enforceable full recourse obligation of the parties
thereto, enforceable in accordance with its terms, subject,
as to enforcement, to applicable bankruptcy, insolvency,
reorganization and other similar laws of general
applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of
whether enforcement is sought in a court of law or equity.
(viii) All filings (including Uniform Commercial
Code filings), notices, transfers and recordings as required
under the Trust and Security Agreement or applicable law and
that may be necessary to perfect the first priority security
interest of the Transferor and the Trustee in the Lease
Contracts and the related Lease Receivables being acquired
hereunder, have been accomplished and are in full force and
effect; provided, however, that the Company shall not be
required to file any assignments of financing statements
with respect to the Equipment underlying the Lease
Contracts. The Company has a first priority perfected
security interest in the Equipment underlying all Loan
Contracts and in any Equipment exceeding $50,000 in value
underlying any other Lease Contracts.
(ix) Each Lease Contract being acquired by the
Transferor is substantially in the form of lease contracts
attached hereto as Exhibit B (which may include addendums in
the forms included in such Exhibit B), except for immaterial
modifications or deviations from the form lease contracts
which appear in certain Lease Contracts or which may appear
in the future form Lease Contracts of the Company, which
immaterial modifications or deviations will not have a
material adverse effect on the Holders of the Certificates
or MBIA and will not reduce the Scheduled Payments or other
payments due under the Lease Contracts; provided, however,
that some Lease Contracts may include a rider providing
additional or alternate terms regarding the purchase of the
equipment upon the expiration of such Lease Contract. The
Broker Assignment Agreement pursuant to which Lease
Contracts were acquired by the Company from brokers is
substantially in the form of Exhibit E attached hereto.
(x) The Lease Contract was either (A) originated by
the Company on behalf of itself or the Transferor or
purchased from a broker in the ordinary course of business
and meets the Company's origination and underwriting
criteria used in originating the Lease Contracts delivered
to the Transferor on the Initial Delivery Date, or
(B) purchased from a leasing company that originated such
leases pursuant to agreed upon and well-articulated
underwriting and documentation standards acceptable to MBIA
and with whom the Company has regularly dealt in the past
and underwritten consistent with the criteria used to
originate Lease Contracts delivered to the Transferor on the
Initial Delivery Date. The origination and collection
practices used by the Company with respect to each Lease
Contract have been in all respects legal, proper, prudent
and customary in the equipment financing and servicing
business. None of the Lease Contracts is a consumer lease.
Any acquisition from a broker is a true sale or absolute
transfer and not a loan to the broker or a joint venture/co-
ownership arrangement with the broker.
(xi) In determining whether to lease Equipment to any
particular Customer, the Company considered each Customer's
ability to pay any PUT Payments included in the terms of the
Lease Contract. In determining whether to lease Equipment
to any particular Customer, the Company considered each
Customer's ability to pay any increases in the rental
payments due under the terms of the Lease Contract.
(xii) The Equipment related to the Lease Contract
was properly delivered to the Customer in good repair,
without defects and in satisfactory order and, to the best
knowledge of the Company, is currently in proper working
order as of the related Acquisition Date. Each Customer has
accepted the Equipment leased to it and, after reasonable
opportunity to inspect and test such Equipment, has not
notified the Company of any defects therein.
(xiii) Except as approved in writing by MBIA, each
Lease Receivable derives from a Lease Contract that has an
original stated term of at least 12 months and not more than
60 months. Each such Lease Contract is within its original
term and has not had any extensions.
(xiv) Except with respect to (A) any Additional
Lease Contract, (B) the Lease Contracts described in
Exhibit C hereto, and (C) such other Lease Contracts as
approved by MBIA (provided that the aggregate IPB of such
Lease Contracts approved by MBIA by this clause (C) does not
exceed 2% of the Aggregate IPB), each Customer under each
Lease Contract will have made at least two lease payments
with respect to such Lease Contract, including any security
deposit or advance payment made by the Customer upon the
execution of the Lease Contract or the delivery of the
Equipment. Each Lease Contract obligates the related
Customer to make all Scheduled Payments thereunder in full
notwithstanding the collection by the lessor of a security
deposit with respect thereto. The calculation of the
Implicit Principal Balance of each Lease Receivable does not
include any security deposits or advance payments collected
by or on behalf of the lessor which are applied to Scheduled
Payments.
(xv) None of the Customers is a lessee that is a
merchant with respect to the Equipment leased under any
Lease Contract, and none of the Customers is the United
States of America or any state, or agency, department or
instrumentality or political subdivision of the United
States of America or any state. Each Lease Contract is
payable in U.S. dollars and the obligor thereon is a United
States resident with a billing address in the U.S.
(xvi) All requirements of applicable Federal, state
and local laws, and regulations thereunder in respect of the
Lease Contract have been complied with in all material
respects, including, without limitation, usury laws, the
Federal Truth-in-Lending Act, the Fair Credit Reporting Act,
the Fair Debt Collection Practices Act, and any other
applicable consumer credit, equal opportunity and disclosure
laws if any, and each Lease Contract complied in all
material respects at the time it was originated or made and
now complies in all material respects with all legal
requirements of the jurisdiction in which it was originated.
(xvii) With the sole exception of the Customer's
right to quiet enjoyment, the Lease Contract is not and will
not be subject to any right of rescission, set-off,
counterclaim or defense, including the defense of usury and
the operation of any of the terms of the Lease Contract or
the exercise by the Company or the Customer of any right
under the Lease Contract will not render such Lease Contract
unenforceable in whole or in part, and no such right of
rescission, set-off, counterclaim or defense, including a
defense arising out of a breach of the Customer's right of
quiet enjoyment of the Equipment, has been asserted with
respect thereto.
(xviii) The Company has duly fulfilled all
obligations on the lessor's part to be fulfilled under or in
connection with the origination, acquisition and assignment
of the Lease Assets including, without limitation, giving
any notices or consents necessary to effect the acquisition
of the Lease Assets by the Transferor and the Company has
done nothing to impair the rights of the Trust Estate and
the Holders of the Certificates in the Lease Contract or
payments with respect thereto. The Company has obtained all
necessary licenses, permits and charters required to be
obtained by the Company, which failure to obtain would
render any portion of the Transaction Documents
unenforceable and would have a material adverse effect on
MBIA or the Certificateholders.
(xix) The Lease Contract and the Company's interest
in the Equipment have not been sold, transferred, assigned
or pledged by the Company to any Person other than the
Transferor (except for security interests in the Lease
Assets which shall be terminated on or prior to the related
Acquisition Date), and upon execution and delivery of this
Lease Acquisition Agreement by the Company and the repayment
by the Transferor of any Existing Indebtedness, the
Transferor will have all of the right, title and interest in
and to the Lease Assets, free and clear of all liens and
encumbrances and any interest of the Company or its
successors, except for the interests of the Customer
pursuant to the Lease Contract and the interest of the
Trustee under the Trust and Security Agreement, and upon the
Transferor's conveyance of the Lease Assets to the Trustee,
the Trustee will either be the owner thereof or have a first
perfected security interest therein.
(xx) Each Lease Contract requires that the Customer
maintain the Equipment in good and workable order and that
the Customer obtain and maintain physical damage insurance
or purchase insurance from the Company covering the
Equipment. Insurance coverage required to be maintained by
the Customer under each Lease Contract is of a type
customary for the equipment covered thereby and consistent
with industry practice for monitoring compliance thereof.
Insurance and the loss payee endorsement on Equipment having
a purchase price in excess of $50,000 is in full force and
effect.
(xxi) The Company purchased each item of Equipment
from either (A) the manufacturer or other supplier or broker
following receipt of an invoice from such manufacturer,
supplier or broker or (B) a Customer following confirmation
that such item of Equipment was on such Customer's premises.
The sale to the Transferor of the Lease Assets does not
violate the terms or provisions of any lease or any other
agreement to which the Company is a party or by which it is
bound.
(xxii) Each item of Equipment is of a type described
in Exhibit D attached hereto under the category Equipment
type.
(xxiii) The transfer, assignment and conveyance of
the Lease Assets by the Company pursuant to this Lease
Acquisition Agreement and the assignment of the Lease Assets
by the Transferor to the Trustee are not subject to and will
not result in any tax, fee or governmental charge payable by
the Company or the Transferor to any federal, state or local
government ("Transfer Taxes") other than Transfer Taxes
which have or will be paid by the Company as due. In the
event that the Transferor or the Trustee receives actual
notice of any Transfer Taxes arising out of the transfer,
assignment and conveyance of the Lease Assets, on written
demand by the Transferor, or upon the Company otherwise
being given notice thereof, the Company shall pay, and
otherwise indemnify and hold the Transferor, the Trustee,
MBIA and the Trust Estate harmless, on an after-tax basis,
from and against any and all such Transfer Taxes (it being
understood that the holders of the Certificates, the
Trustee, MBIA and the Trust Estate shall have no obligation
to pay such Transfer Taxes).
(xxiv) As of the Initial Delivery Date,
approximately three-quarters of the Lease Contracts are Loan
Contracts.
(xxv) Each Lease Contract File delivered to the
Trustee contains each applicable item described in the
definition of Lease Contract File.
(b) The Company hereby makes the following representations
and warranties to the Transferor, and for the benefit of MBIA,
the Trustee and the Holders of the Certificates, on which the
Transferor relies in acquiring the Lease Assets and issuing a
Series of Certificates. Such representations and warranties
speak as of each Acquisition Date, unless otherwise indicated,
but shall survive any subsequent transfer, assignment,
contribution or conveyance of the Lease Assets:
(i) Except as described in Exhibit C hereto, with
respect to all Lease Assets acquired by the Transferor on an
Acquisition Date and any prior date, each of the
Concentration Limits as set forth on Exhibit D hereto are
true and correct as of such Acquisition Date.
(ii) The Company used no selection procedures that
identified the Lease Contracts being acquired on such
Acquisition Date as being less desirable or valuable than
other comparable equipment leases owned by the Company.
(iii) The Computer Tape from which the selection of
the Lease Contracts being acquired on any applicable
Delivery Date was derived, was made available to the
Transferor's accountants that are providing any comfort
letter to MBIA, any Certificateholders or the Placement
Agent in connection with any information contained in any
Private Placement Memorandum applicable to such
Certificates, and such information was complete and accurate
as of its date and includes a description of the same Lease
Contracts that are described in the related Series Lease
Schedule and the payments due thereunder as of the related
Cut-Off Date.
(c) The Company hereby makes the following representations
and warranties to the Transferor and for the benefit of MBIA, the
Trustee and the Holders of the Certificates on which the
Transferor relies in acquiring the Lease Assets and issuing a
Series of Certificates. Such representations and warranties
speak as of the related Acquisition Date unless otherwise
indicated, but shall survive any subsequent transfer, assignment,
contribution or conveyance of the Lease Assets:
(i) As of the Initial Delivery Date, the Company has
been duly organized and is validly existing and in good
standing as a corporation under the laws of the state of
Delaware with corporate power and authority to own its
properties and to transact the business in which it is now
engaged, and the Company is duly qualified to do business in
and is in good standing under the laws of each State in
which any Equipment or any Customer is located or is not
required under applicable law to effect such qualification,
except where failure to so qualify would not have a material
adverse effect on the ability of the Company to perform its
obligations under the Transaction Documents or on any of the
Lease Contracts, the Lease Receivables or the Equipment.
(ii) The performance of the obligations of the Company
under this Lease Acquisition Agreement and the other
Transaction Documents and the consummation of the
transactions herein and therein contemplated will not
conflict with or result in any breach of any of the terms or
provisions of, or constitute with or without notice, lapse
of time or both, a default under the Articles of
Organization or Operating Agreement of the Company, or any
material indenture, agreement, mortgage, deed of trust or
other instrument to which the Company is a party or by which
it is bound, or result in the creation or imposition of any
lien, charge or encumbrance (except the lien created by the
Transaction Documents) upon any of the property or assets of
the Company pursuant to the terms of such indenture,
mortgage, deed of trust, or other agreement or instrument to
which the Company is a party or by which the Company is
bound or to which any of the Company's property or assets is
subject, nor will such action result in any violation of the
provisions of the Company's Articles of Organization or
Operating Agreement or any statute or any order, rule or
regulation of any court or any regulatory authority or other
governmental agency or body having jurisdiction over the
Company or any of its properties; and no consent, approval,
authorization, order, registration or qualification of or
with or other action of any court, or any such regulatory
authority or other governmental agency or body is required
for consummation of the transactions contemplated by this
Lease Acquisition Agreement and the other Transaction
Documents except such consents, approvals and authorizations
which have been obtained or such registrations or
qualifications which have been made.
(iii) This Lease Acquisition Agreement and each
other Transaction Document to which the Company is a party
have been duly authorized, executed and delivered by the
Company by all necessary corporate action and such
agreements are the valid and legally binding obligations of
the Company, enforceable against the Company in accordance
with their respective terms, subject as to enforcement to
applicable bankruptcy, insolvency, reorganization and other
similar laws of general applicability relating to or
affecting creditors' rights generally and to general
principles of equity regardless of whether enforcement is
sought in a court of law or equity.
(iv) As of the Initial Delivery Date, the Company's
address indicated in Section 7.03 hereof is the chief
executive office, principal place of business and the office
where the Company keeps its records concerning the Lease
Contracts, Lease Receivables and the Equipment, and the
Company has done business only under the name "Granite
Financial, Inc.".
(v) The Company does not believe, nor does it have any
reasonable cause to believe, that it cannot perform each and
every covenant contained in this Lease Acquisition
Agreement.
(vi) The transactions contemplated by the Transaction
Documents are being consummated by the Company in
furtherance of its ordinary business purposes, with no
contemplation of insolvency and with no intent to hinder,
delay or defraud any of its present or future creditors.
(vii) The consideration received by the Company
pursuant to this Lease Acquisition Agreement is fair
consideration having value reasonably equivalent to or in
excess of the value of the Lease Assets and the performance
of the Company's obligations hereunder.
(viii) Neither on the date of the transactions
contemplated by the Transaction Documents or immediately
before or after such transactions, nor as a result of the
transactions, will the Company:
(A) be insolvent such that the sum of
its debts is greater than all of its
respective property, at a fair valuation;
(B) be engaged in or about to engage
in, business or a transaction for which any
property remaining with the Company will be
an unreasonably small capital or the
remaining assets of the Company will be
unreasonably small in relation to its
respective business or the transaction;
or
(C) have intended to incur or believed
it would incur, debts that would be beyond
its respective ability to pay as such debts
mature or become due. The Company's assets
and cash flow enable it to meet its present
obligations in the ordinary course of
business as they become due.
(ix) Both immediately before and after the transactions
contemplated by the Transaction Documents (A) the present
fair salable value of the Company's assets was or will be in
excess of the amount that will be required to pay its
probable liabilities as they then exist and as they become
absolute and matured; and (B) the sum of the Company's
assets was or will be greater than the sum of its debts,
valuing its assets at a fair salable value.
(x) The acquisition of the Lease Assets by the
Transferor pursuant to this Lease Acquisition Agreement is
not subject to the bulk transfer or any similar statutory
provisions in effect in any applicable jurisdiction.
(xi) There are no proceedings or investigations
pending, or to the knowledge of the Company, threatened,
against or affecting the Company in or before any court,
governmental authority or agency or arbitration board or
tribunal (including, but not limited to any such proceeding
or investigation with respect to any environmental or other
liability resulting from the ownership or use of any of the
Equipment) which, individually or in the aggregate, involve
the possibility of materially and adversely affecting the
properties, business, prospects, profits or condition
(financial or otherwise) of the Company, or the ability of
the Company to perform its obligations under this Lease
Acquisition Agreement. The Company is not in default with
respect to any order of any court, governmental authority or
agency or arbitration board or tribunal.
(xii) All tax returns or extensions required to be
filed by the Company in any jurisdiction have in fact been
filed, and all taxes, assessments, fees and other
governmental charges upon the Company, or upon any of the
respective properties, income or franchises of the Company,
shown to be due and payable on such returns have been, or
will be, paid when due. All such tax returns are true and
correct and the Company has no knowledge of any proposed
additional tax assessment against it in any material amount
nor of any basis therefor. The provisions for taxes on the
books of the Company are in accordance with generally
accepted accounting principles.
(xiii) The Company (A) is not in violation of any
laws, ordinances, governmental rules or regulations to which
it is subject, (B) has not failed to obtain any licenses,
permits, franchises or other governmental authorizations
necessary to the ownership of its property or to the conduct
of its business, and (C) is not in violation in any material
respect of any term of any agreement, charter instrument,
bylaw or instrument to which it is a party or by which it
may be bound which violation or failure to obtain might
materially adversely affect the business or condition
(financial or otherwise) of the Company.
(xiv) As of the date thereof, the applicable
Private Placement Memorandum does not contain any untrue
statement of fact that would have a material effect on the
related Lease Contracts or on the ability of the Trust
Estate to realize the benefits thereof.
(xv) It is the intention of the Company that the Lease
Assets be acquired by the Transferor and that the beneficial
interest in and title to the Lease Assets not be part of the
Company's estate in the event of the filing of a bankruptcy
petition by or against the Company under any bankruptcy law.
(xvi) Immediately prior to the acquisition of the
Lease Assets by the Transferor pursuant to this Lease
Acquisition Agreement, the Company was the sole owner of the
Lease Assets and with respect to each Loan Contract and each
Lease Contract as to which the underlying Equipment had a
purchase price in excess of $50,000, had a valid first
perfected security interest in the related Equipment, and
had good and marketable title thereto, free and clear of all
liens, claims and encumbrances (except for the Existing
Indebtedness and security interests in the Lease Assets
which shall be terminated on or prior to the related
Acquisition Date); and the acquisition of the Lease Assets
by the Transferor does not violate the terms or provisions
of any Lease Asset.
(xvii) Upon the issuance of the Common Stock to the
Company in accordance with the terms of this Lease
Acquisition Agreement, the Company will be the registered
owner of all of the issued and outstanding common stock of
the Transferor, all of which Common Stock will be validly
issued, fully paid and nonassessable.
(xviii) The Company intends to treat the transfer of
the Lease Assets to the Transferor as a sale for accounting
purposes and a contribution to the Transferor for federal,
state and local income tax purposes.
(xix) The present value of all benefits vested
under all "employee pension benefit plans," as such term is
defined in Section 3 of ERISA, maintained by the Company, or
in which employees of the Company are entitled to
participate, as from time to time in effect (herein called
to "Pension Plans"), does not exceed the value of the assets
of the Pension Plans allocable to such vested benefits
(based on the value of such assets as of the last annual
valuation date). No prohibited transactions, accumulated
funding deficiencies, withdrawals or reportable events have
occurred with respect to any Pension Plans that, in the
aggregate, could subject the Company to any material tax,
penalty or other liability. No notice of intent to
terminate a Pension Plan has been filed, nor has any Pension
Plan been terminated under Section 4041(f) of ERISA, nor has
the Pension Benefit Guaranty Corporation instituted
proceedings to terminate, or appoint a trustee to
administer, a Pension Plan and no event has occurred or
condition exists which might constitute grounds under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan.
(xx) The transfer of the Lease Assets pursuant to this
Lease Acquisition Agreement constitutes the valid transfer
by the Company to the Transferor of all of the Company's
right, title and interest in the Lease Assets. The Company
has valid business reasons for contributing and selling the
Lease Assets to the Transferor pursuant to this Lease
Acquisition Agreement rather than obtaining a loan secured
by the Lease Assets. The Company will be operated generally
so as to not be substantively consolidated with the
Transferor.
Section 3.02 Representations and Warranties of the
Transferor. The Transferor hereby represents and warrants to,
and agrees with the Company for the benefit of, MBIA, the Trustee
and Holders of the Certificates, on which representations and
warranties the Company relies in entering into this Lease
Acquisition Agreement with the Transferor. The Company agrees
that any breach by the Transferor of any such representations and
warranties shall not limit or excuse the full performance of the
Company's obligations hereunder. Such representations and
warranties speak as of each Acquisition Date unless otherwise
indicated, but shall survive any subsequent transfer, assignment,
contribution or conveyance of the Lease Assets:
(a) The Transferor has been duly organized and is validly
existing in good standing as a corporation under the laws of the
State of Delaware, with corporate power and authority to own its
properties, perform its obligations under the Transaction
Documents and to transact the business in which it is now engaged
or in which it proposes to engage; the Transferor is duly
qualified to do business and is in good standing in each State in
which the nature of its business requires it to be so qualified,
except where failure to so qualify would not have a material
adverse effect on the ability of the Transferor to perform its
obligations under the Transaction Documents.
(b) The transfer to and receipt by the Transferor of the
Lease Contracts and the related Lease Receivables and the
Equipment pursuant to this Lease Acquisition Agreement and the
consummation of the transactions contemplated herein and in the
Transaction Documents will not conflict with or result in breach
of any of the terms or provisions of, or constitute (with or
without notice, lapse of time or both) a default under the
Certificate of Incorporation or By-laws of the Transferor or any
material indenture, agreement, mortgage, deed of trust or other
instrument to which the Transferor is a party or by which it is
bound, or result in the creation or imposition of any lien,
charge or encumbrance (except for the lien created by the Trust
and Security Agreement) upon any of the property or assets of the
Transferor pursuant to the terms of, such indenture, mortgage,
deed of trust, or other agreement or instrument to which the
Transferor is a party or by which it is bound or to which any of
the property or assets of the Transferor is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Transferor or any
statute or any order, rule or regulation of any court or
regulatory authority or other governmental agency or body having
jurisdiction over the Transferor or any of its properties; and no
consent, approval, authorization, order, registration or
qualification of or with or other action of any court or any such
regulatory authority or other governmental agency or body is
required for the acquisition of the Lease Contracts and the
related Lease Receivables and the Company's interest in the
Equipment hereunder.
(c) The Transaction Documents have been duly authorized,
executed and delivered by the Transferor by all necessary
corporate action and constitute valid and legally binding
obligations of the Transferor enforceable against the Transferor
in accordance with their terms, subject as to enforcement to
bankruptcy, insolvency, reorganization and other similar laws of
general applicability relating to or affecting creditors' rights
generally and to general principles of equity regardless of
whether enforcement is sought in a court of equity or law.
(d) There are no proceedings or investigations to which the
Transferor is a party pending or, to the knowledge of the
Transferor, threatened, before any court, regulatory body,
administrative agency or other tribunal or governmental
instrumentality (i) asserting the invalidity of this Lease
Acquisition Agreement, (ii) seeking to prevent the issuance of
the Certificates or the consummation of any of the transactions
contemplated by this Lease Acquisition Agreement, or (iii)
seeking any determination or ruling that would materially and
adversely affect the performance by the Transferor of its
obligations under, or the validity or enforceability of, this
Lease Acquisition Agreement.
(e) All approvals, authorizations, consents, orders or
other actions of any Person or of any court, governmental agency
or body or official, required in connection with the execution
and delivery of this Lease Acquisition Agreement, have been or
will be taken or obtained on or prior to the Initial Delivery
Date.
(f) The Transferor's address indicated in Section 7.03
hereof is the principal place of business and chief executive
office of the Transferor.
Section 3.03 Purchase or Substitution Required Upon Breach
of Certain Representations and Warranties. If (i) the Company,
the Transferor, the Trustee, the Servicer, the Back-up Servicer
or MBIA discovers the breach of any representations or warranties
set forth in Section 3.01 hereof which materially and adversely
affects the value of a Lease Contract, the related Equipment, or
the interests of the Holders of the Certificates or MBIA, or a
breach of any of the representations and warranties set forth in
Sections 3.01(a)(ii), 3.01(a)(v), 3.01(a)(vii), 3.01(a)(xix) or
3.01(c)(iii), or (ii) the Company or the Transferor discovers the
occurrence of any missing or defective document as specified in
Section 2.06 hereof, or (iii) the Trustee shall fail to receive
evidence acceptable to MBIA that each assignment of a financing
statement required under Section 3.01(a)(viii) hereof has been
filed within the time period set forth therein, then the party
discovering such breach or condition shall give prompt written
notice to the other parties and the Company shall, within 30 days
from the date the Company was notified of, or otherwise
discovers, such breach or condition, cure such breach or
condition. If the Company fails to cure such breach in the
applicable time period, the Company shall either (1)(a) purchase
such Lease Contract and related Equipment from the Transferor at
the Removal Price or (b) provide a Substitute Lease Contract and
Equipment or (2) if the breach relates to a representation or
warranty regarding the selection criteria of the Lease Contracts
as a whole and is not cured (as the liquidated damages remedy
therefor) by the Company, either (a) purchase such non-conforming
Lease Contracts and related Equipment from the Transferor or (b)
provide Substitute Lease Contracts as set forth above, so that
the representations and warranties with respect to the selection
criteria are correct, as evidenced by a certificate of an officer
of the Company to the Trustee and MBIA. The Removal Price for a
purchased Lease Contract and the related Equipment shall be paid,
and any Substitute Lease Contract shall be delivered, by the
Company to the Transferor in accordance with Section 3.04(c)
hereof. It is understood and agreed that the obligation of the
Company to cure or purchase or replace any Lease Contract as to
which such a breach has occurred shall constitute the sole remedy
respecting such breach available to the Transferor, the Holders
of Certificates or the Trustee on behalf of such Holders (except
for any indemnities provided under Section 4.01(j) hereof or
under the Trust and Security Agreement) for any losses, claims,
damages and liabilities arising from the Transferor's ownership
of such Lease Contract or the inclusion of such Lease Contract in
the Trust Estate.
Section 3.04 Requirements for Purchase or Substitution of
Lease Contracts and Acquisition of Additional Lease Contracts.
(a) If the Company purchases any Lease Contract under
Sections 2.06 or 3.03 hereof, or if the Transferor removes any
Lease Contract under Section 4.04(d) of the Trust and Security
Agreement, or removes any Lease Contract under Section 3.09 of
the Servicing Agreement, such Lease Contract shall be purchased
or removed by the Company or the Transferor, as applicable, at
the Removal Price. All purchases shall be accomplished at the
times specified in subsection (c) below.
(b) (1) If the Company substitutes any Lease Contract under
Section 2.06 or 3.03 hereof, or if the Transferor substitutes any
Lease Contract under Section 4.04(d) of the Trust and Security
Agreement or under Section 3.09 of the Servicing Agreement (a
"Substitute Lease Contract"), or (2) if the Company conveys to
the Transferor or originates on behalf of the Transferor any
Additional Lease Contract, each such Substitute Lease Contract
and Additional Lease Contract (i) shall be an Eligible Lease
Contract; (ii) shall be with a Customer whose credit is equal to
or better than that of the Customer under any other Lease
Contract; (iii) shall be written on one of the Company's standard
lease forms; (iv) shall be accompanied by (A) a Company
Certificate substantially in the form of Exhibit A hereto
subjecting such Lease Contract to the provisions hereof and
providing with respect to such Substitute Lease Contract or
Additional Lease Contract, an Amended Lease Schedule and
(B) evidence of the UCC filings required, as set forth in the
Trust and Security Agreement; (v) shall not have been selected
using any other procedures that identified the Lease Contract as
being less desirable or valuable than other comparable equipment
leases owned by the Company; and (vi) shall not cause the
Concentration Limits to be violated.
In addition to the above criteria, the following shall apply
in connection with any Substitute Lease Contract and Additional
Lease Contract, as applicable: (1) any Substitute Lease
Contracts assigned by the Company on any date in substitution for
Lease Contracts on any Series Lease Schedule shall have an
aggregate Implicit Principal Balance at least equal to the
aggregate Implicit Principal Balance of the Lease Contracts on
such Series Lease Schedule being withdrawn, computed as to both
the Substitute Lease Contracts and the withdrawn Lease Contracts
using the Discount Rate applicable to the Series of Certificates
to which such withdrawn Lease Contracts relate; and (2) a
Substitute Lease Contract or Additional Lease Contract may have
Scheduled Payments that are due after the last day of the month
preceding the Stated Maturity of the related Series of
Certificates, but such payments shall not be counted in any
Implicit Principal Balance computation.
Upon the substitution of any Substitute Lease Contract or
the addition of any Additional Lease Contract pursuant to the
provisions of this Section 3.04(b), the Company hereby agrees
that such Substitute Lease Contract and Additional Lease Contract
will be subject to all the terms and provisions of this Lease
Acquisition Agreement, the Servicing Agreement and the Trust and
Security Agreement just as if such Substitute Lease Contract or
Additional Lease Contract had been one of the original Lease
Contracts acquired on the Initial Acquisition Date. Upon the
substitution of a Substitute Lease Contract or the addition of an
Additional Lease Contract pursuant to this Section 3.04(b), the
Transferor and the Company shall also comply with the provisions
and limitations set forth in the Trust and Security Agreement.
All substitutions shall be accomplished at the time specified in
subsection (c) below.
(c) Any purchase or substitution of a Lease Contract by the
Company in accordance with Sections 2.06 or 3.03 hereof or this
Section 3.04 shall be made either by remittance of the Removal
Price to the Servicer for deposit into the Collection Account in
accordance with Section 3.03(a) of the Servicing Agreement or by
substitution of a Substitute Lease Contract, as applicable, on or
prior to the Determination Date next following the expiration of
the cure period set forth in Sections 2.06 or 3.03 hereof, as
applicable. Such substitution or purchase shall be effective as
of the Payment Date immediately following such Determination
Date.
(d) Any voluntary purchase or substitution of a Lease
Contract by the Company pursuant to the terms of the Servicing
Agreement or Trust and Security Agreement in the event of a
default, delinquency, prepayment or modification with respect to
such Lease Contract shall satisfy the same requirements for a
purchase or substitution, as the case may be, as are set forth in
this Section 3.04.
ARTICLE 4
COVENANTS OF THE TRANSFEROR AND COMPANY
Section 4.01 Company Covenants. The Company hereby
covenants and agrees with the Transferor as follows:
(a) Except as hereinafter provided, the Company will keep
in full effect its existence, rights and franchises as a
corporation, and will obtain and preserve its qualification to do
business as a foreign corporation in each jurisdiction in which
such qualification is or shall be necessary to protect the
validity and enforceability of this Lease Acquisition Agreement
or any of the Lease Contracts and to perform its duties
hereunder; provided, however, that the Servicer may reorganize as
a corporation in another state provided that the Transferor has
provided to MBIA and the Certificateholders an Officer's
Certificate to the effect that such action will not cause the
Company to breach any obligation hereunder. Any person into
which the Company may be merged or consolidated, or to whom the
Company has sold substantially all of its assets, or any
corporation resulting from any merger, conversion or
consolidation to which the Company shall be a party, or any
Person succeeding to the business of the Company shall be the
successor of the Company hereunder, without the execution or
filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding;
provided, however, that (u) MBIA shall have given its prior
written consent, (v) immediately after giving effect to such
transaction, the substance of each representation or warranty
made pursuant to Section 3.01(c) shall be accurate, (w) such
successor meets the Net Worth Requirement and executes an
agreement or assumption, in form reasonably satisfactory the
Trustee and MBIA, to perform every obligation under this Lease
Acquisition Agreement, (x) such successor has a net worth that is
sufficient to perform in accordance with the Transaction
Documents and at least approximately equivalent to the net worth
of the Company immediately prior to such sale, merger or
consolidation, (y) the Company shall have delivered to the
Transferor a certificate of an officer of the Company and an
Opinion of Counsel each stating that such consolidation, merger,
or succession and such agreement of assumption complies with this
Section 4.01 and that all conditions precedent, if any, provided
for in this Lease Acquisition Agreement relating to such
transaction have been complied with, and (z) the Company shall
have delivered to the Transferor and MBIA and the Trustee an
Opinion of Counsel either (1) stating that, in the opinion of
such Counsel, all financing statements, continuation statements
and amendments thereto have been executed and filed that are
necessary fully to preserve and protect the interest of the
Transferor in the Lease Contracts and reciting the details of
such filings, or (2) stating that, in the opinion of such
Counsel, no such action shall be necessary to preserve and
protect such interest.
(b) Neither the Company nor any of the directors, officers,
employees or agents of the Company shall be under any liability
to the Transferor, the Trustee or the Holders of Certificates for
any action taken or for refraining from the taking of any action
in good faith pursuant to this Lease Acquisition Agreement, or
for errors in judgment not involving recklessness or gross
negligence; provided, however, that this provision shall not
protect the Company against any breach of warranties or
representations made herein, or failure to perform its
obligations in strict compliance with this Lease Acquisition
Agreement, or any liability which would otherwise be imposed by
reason of any breach of the terms and conditions of this Lease
Acquisition Agreement. The Company, and any director, officer,
employee or agent of the Company, may rely in good faith on any
document of any kind prima facie properly executed and submitted
by any Person respecting any matters arising hereunder. The
Company shall not be under any obligation to appear in,
prosecute, or defend any legal action that is not incidental to
its obligations as the contributor of the Lease Assets under this
Lease Acquisition Agreement and that in its opinion may involve
it in any expense or liability.
(c) The Company, from time to time, at its own expense,
shall execute and file such additional financing statements
(including continuation statements) as may be necessary to
preserve the security interests and liens described in Section
3.01(a)(viii) hereof as may be reasonably requested by the
Transferor, MBIA or the Trustee and are reasonably satisfactory
in form and substance to the Trustee and MBIA.
(d) The Company will not change its name, identity or
corporate structure in any manner that would, could, or might
make any financing statement or continuation statement misleading
within the meaning of section 9-402 (7) of the UCC, unless it
shall have given the Transferor and the Trustee at least 30 days'
prior written notice thereof and shall have provided evidence of
appropriate UCC filings.
(e) The Company will give the Transferor, MBIA and the
Trustee at least 30 days prior written notice of any relocation
of its principal executive office if, as a result of such
relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement and the
Company shall provide evidence of appropriate UCC filings.
(f) The Company will duly fulfill all obligations on its
part to be fulfilled under or in connection with each Lease
Contract, will not change or modify the terms of the Lease
Contracts except as expressly permitted by the terms of the
Transaction Documents and will do nothing to impair the rights of
the Transferor, MBIA or the Trustee in the Lease Contract or the
Equipment. In the event that the rights of the Company under any
Lease Contract, any guaranty of the related Customer's
obligations under any Lease Contract, or any Insurance Policy are
not assignable or have not, in fact, been assigned to the
Transferor or to the Trustee, the Company will enforce such
rights on behalf of the Transferor and the Trustee.
(g) The Company will comply, in all material respects, with
all acts, rules, regulations, orders, decrees and directions of
any governmental authority applicable to the Lease Assets or any
part thereof; provided, however, that the Company may contest any
act, regulation, order, decree or direction in any reasonable
manner which shall not materially and adversely affect the rights
of the Transferor, MBIA or the Trustee in the Lease Assets.
(h) The Company will advise the Transferor, MBIA and the
Trustee promptly, in reasonable detail, of the occurrence of any
breach by the Company following discovery by the Company of such
breach of any of its representations, warranties and covenants
contained herein.
(i) The Company will execute or endorse, acknowledge, and
deliver to the Transferor and the Trustee from time to time such
schedules, confirmatory assignments, conveyances, powers of
attorney, and other reassurances or instruments and take such
further similar actions relating to the Lease Contracts, the
related Lease Receivables, Equipment and the rights covered by
the Transaction Documents, as the Transferor or the Trustee may
reasonably request to preserve and maintain title to the Lease
Assets and the rights of the Trustee, MBIA and the Holders of
Certificates therein against the claims of all persons and
parties.
(j) The Company agrees to indemnify, defend and hold the
Transferor, the Trustee, MBIA and the Certificateholders
harmless from and against any and all loss, liability, damage,
judgment, claim, deficiency or expense (including interest,
penalties, reasonable attorney's fees and amounts paid in
settlement) that is caused by (i) a breach at any time by the
Company of its representations, warranties and covenants
contained in Section 3.01 hereof or this Section 4.01 or (ii) any
material information furnished by the Company which is set forth
in any schedule delivered hereunder, being untrue in any respect
when any such representation was made or schedule delivered,
provided that the Company shall not have any liability with
respect to a representation or warranty as to any specific Lease
Contract, Lease Receivable or Equipment other than to purchase
such Lease Contract or substitute for such Lease Contract in
accordance with Section 3.03 hereof unless such breach of
representation or warranty is the result of the Company's fraud,
gross negligence, bad faith or willful misconduct. The Company
shall also indemnify the Trustee, the Servicer, MBIA and the
Certificateholders for any cost or expenses incurred by them in
the enforcement of this Lease Acquisition Agreement or as a
result of the Company's failure to perform its obligations
hereunder. The obligations of the Company under this Section
4.01(j) shall be considered to have been relied upon by the
Transferor, the Trustee and MBIA and shall survive the execution,
delivery and performance of this Lease Acquisition Agreement,
regardless of any investigation made by or on behalf of the
Transferor, until termination of the Trust and Security
Agreement. If the Company has made any indemnity payments
pursuant to this Section 4.01(j) and thereafter any Person
recovers the amount of the related loss or any portion thereof
from others, such Person will promptly repay the amount recovered
to the Company, without interest.
(k) The Company will do nothing to disturb or impair the
acquisition hereunder by the Transferor of the Lease Contracts
and the related Lease Receivables and Equipment.
(l) The Company (i) will (A) maintain its books and records
separate from the books and records of the Transferor and (B)
maintain bank accounts separate from those of the Transferor and
its shareholders, (C) prepare (and issue to its creditors) only
financial statements which are separate from those of its
shareholders, (D) maintain two Independent directors on the
Transferor's board of directors, so long as the Company is a
shareholder of the Transferor, (E) maintain an arm's length
relationship with the Transferor, (F) conduct its business solely
in its own name so as not to mislead others as to the identity of
the company with which those others are concerned, (G) disclose
the effects of these transactions on its annual financial
statements in accordance with generally accepted accounting
principles and will also disclose on such financial statements
that the Trust Estate and the assets of the Transferor are not
available to pay creditors of the Company, and (ii) will not (V)
hold itself out or permit itself to be held out as having agreed
to pay or as being liable for the debts of the Transferor, (W)
commingle its assets or funds with those of the Transferor, (X)
take any action that would cause the dissolution or liquidation
of the Transferor, (Y) guarantee (directly or indirectly),
endorse or otherwise become contingently liable (directly or
indirectly) for the obligations of the Transferor, or (Z)
institute against the Transferor, or join any other person in
instituting against the Transferor, any case, proceeding or other
action under any existing or future bankruptcy, insolvency or
similar laws. This subsection (l) shall survive termination of
this Lease Acquisition Agreement.
(m) The Company shall notify the Transferor, the Trustee
and MBIA promptly after becoming aware of any Lien on any Lease
Asset.
(n) On each date as of which the Company substitutes a
Substitute Lease Contract or assigns Additional Lease Contracts
to the Transferor in accordance with Sections 2.06 or 3.04(b)
hereof, or otherwise assigns Lease Contracts to the Transferor,
the Company shall provide to the Transferor a Company Certificate
substantially in the form of Exhibit A hereto subjecting such
Lease Contract to the provisions hereof and providing with
respect to such Lease Contracts the information required in the
Amended Lease Schedule.
(o) For financial accounting purposes (and notwithstanding
the tax treatment of the transactions contemplated by the
Transaction Documents), the annual financial statements of the
Company will disclose the effects of the transactions
contemplated by the Transaction Documents as a sale by the
Company to the Transferor and a sale by the Transferor to the
Trustee in accordance with generally accepted accounting
principles. The financial statements of the Company and the
Transferor will also disclose that the Trust Estate and the
assets of the Transferor are not available to pay creditors of
the Company. The resolutions, agreements and other instruments
underlying the Transaction Documents will be continuously
maintained by the Company as official records.
(p) The Company shall comply with Section 2.11 of the Trust
and Security Agreement concerning the treatment of this
transaction for Federal, state and local income tax purposes.
(q) The Company as Servicer will, at its own cost and
expense, (i) retain the Electronic Ledger as a master record of
the Lease Contracts and Equipment and copies of all documents
relating to each Lease Contract (other than the original executed
Lease Contracts) as custodian for the Transferor, the Trust and
other Persons, if any, with interests in the Lease Contracts and
Equipment and (ii) mark the Electronic Ledger to the effect that
the Lease Contracts and Equipment have been acquired the
Transferor and that they have been transferred and assigned to
the Trustee pursuant to the Trust and Security Agreement.
(r) In the event that Company elects to transfer the Common
Stock to an affiliate or pledge a security interest in the Common
Stock, the Company agrees that each of the following conditions
shall be satisfied: (i) such transfer or pledge shall be made in
connection with a financing by such affiliate or the Company, as
applicable, secured by the Common Stock, (ii) if transferred, the
Common Stock shall be held by one entity and if that entity is an
affiliate, such entity shall be organized as a bankruptcy remote
special purpose entity, (iii) the Company shall, on behalf of the
Transferor, obtain an agreement from the transferee or the
secured party substantially to the effect that (x) it will take
no action that would cause the Transferor to breach any of its
covenants under any Transaction Document, (y) that for a period
of one year and one day after the termination of the Trust and
Security Agreement, it will not file any involuntary petition or
otherwise institute any bankruptcy, reorganization, insolvency or
liquidation proceeding or other proceeding under any federal or
state bankruptcy or similar law against the Transferor and
(z) the transferee agrees to pay any tax or ERISA liabilities
imposed upon the Transferor or the Trust Estate to the extent
attributable to the Transferor or the Trust Estate becoming a
member of the consolidated tax group of such transferee or
secured party, and (iv) the Company shall provide such bankruptcy
and tax opinions as MBIA may reasonably request.
(s) The Company shall cause to be performed any Required
Audits imposed upon it in its capacity as the Servicer or
otherwise.
Section 4.02 Transferor Covenants. The Transferor hereby
covenants and agrees with the Company as follows:
(a) The Transferor hereby acknowledges and agrees that its
rights in the Equipment are expressly subject to the rights of
the related Customers in such Equipment pursuant to the
applicable Lease Contract. The Transferor covenants and agrees
that, so long as a Customer shall not be in default of any of the
provisions of the applicable Lease Contract, neither the
Transferor nor any assignee of the Transferor will disturb the
Customer's quiet and peaceful possession of the related Equipment
and the Customer's unrestricted use thereof for its intended
purpose.
(b) If in any enforcement suit or legal proceeding it is
held that the Company may not enforce a Lease Contract on the
ground that it is not a real party in interest or holder entitled
to enforce the Lease Contract, the Transferor shall, at the
Transferor's expense, take such steps as the Transferor deems
necessary to enforce the Contract, including bringing suit in the
Transferor's name or causing the Trustee to bring suit in the
Trustee's name.
(c) The Transferor warrants that, until the transfer of the
Equipment to the Trustee, it will own and possess the Equipment
subsequent to its acquisition thereof and that it will warrant
and defend its title to such Equipment against all Persons,
claims and demands whatsoever. The Transferor shall not assign,
sell, pledge, or exchange, or in any way encumber or otherwise
dispose of the Equipment, except as permitted under the Trust and
Security Agreement.
(d) The Transferor shall comply with Section 2.11 of the
Trust and Security Agreement concerning the treatment of this
transaction for Federal, state and local income tax purposes.
Section 4.03 Assignment of Lease Assets. The Company
understands that the Transferor will convey to the Trustee all of
its right, title and interest in and to this Lease Acquisition
Agreement and the Lease Assets. The Company consents to such
conveyance and further agrees that all representations,
warranties, covenants and agreements the Company made herein
shall also be for the benefit of and inure to the Trustee, MBIA
and all Holders from time to time of the Certificates.
ARTICLE 5
CONDITIONS PRECEDENT
Section 5.01 Conditions to the Transferor's Obligations.
The obligations of the Transferor to provide the Company with the
consideration provided for in this Lease Acquisition Agreement
shall be subject to the satisfaction of the following conditions:
(a) All representations and warranties of the Company
contained in Section 3.01(a) and (b) of this Lease Acquisition
Agreement and all information provided in any Series Lease
Schedule or Amended Lease Schedule, as applicable, shall be true
and correct on the related Acquisition Date, all representations
and warranties in Sections 3.01(c) hereof, shall be true and
correct as of the applicable Acquisition Date, and the Company
shall have delivered to the Transferor, the Trustee, MBIA and
each original purchaser of the Certificates an Officer's
Certificate to such effect;
(b) The Company shall have delivered all other information
theretofore required or reasonably requested by the Transferor to
be delivered by the Company hereunder, duly certified by an
officer of the Company, and the Company shall have substantially
performed all other obligations required to be performed by the
provisions of this Lease Acquisition Agreement;
(c) On or prior to the applicable Acquisition Date, the
Company shall have delivered the Lease Contracts and the other
items in the Lease Contract Files to the Trustee and there shall
have been made all filings, recordings and/or registrations, and
there shall have been given, or taken, any notice or any other
similar action, as may be necessary in the opinion of the
Transferor, in order to establish and preserve the right, title
and interest of the Transferor in the Lease Assets;
(d) On or before the Initial Acquisition Date, the
Transferor, the Servicer, the Back-Up Servicer and the Trustee
shall have entered into the Servicing Agreement;
(e) All of the Certificates shall be issued and sold on the
applicable Delivery Date and the Transferor shall receive the
full consideration due it upon the issuance of such Certificates
and the Existing Indebtedness shall have been satisfied.
ARTICLE 6
TERM AND TERMINATION
Section 6.01 Term. This Lease Acquisition Agreement shall
commence as of the date of execution and delivery hereof and
shall continue in full force and effect until the later of
(i) payment with respect to the last Lease Asset or
(ii) termination of the Trust and Security Agreement.
Section 6.02 Default by the Company. If the Company
breaches its representations and warranties set forth in Section
3.01 of this Lease Acquisition Agreement or its covenants set
forth in Section 4.01 of this Lease Acquisition Agreement and
such default shall not have been cured for a period of 30 days
(or such other cure period as may be specified in Section 3.03),
or if the Company shall become insolvent or make an assignment
for the benefit of its creditors or have a receiver appointed for
all or substantially all of its properties, or if any proceedings
are commenced, or consented to, by the Company are not stayed or
dismissed within 60 days after being commenced against the
Company under any bankruptcy, insolvency or other law for the
relief of debtors, the Transferor shall have the right, with the
prior written consent of the Trustee and MBIA, in addition to any
other rights it may have under any applicable law, to terminate
its obligations under this Lease Acquisition Agreement upon prior
written notice to the Company; provided that any termination of
this Lease Acquisition Agreement shall not release the Company
from any obligation under this Lease Acquisition Agreement.
ARTICLE 7
MISCELLANEOUS
Section 7.01 Amendments. This Lease Acquisition Agreement
and the rights and obligations of the parties hereunder may not
be changed orally but only by an instrument in writing signed by
the party against which enforcement is sought together with the
prior written consent of the Trustee and MBIA but without the
consent of any Certificateholder. Promptly after the execution
of any amendment, the Transferor shall send to the Trustee, MBIA,
each Holder of the Certificates, and each Rating Agency, a
conformed copy of each such amendment.
Section 7.02 Governing Law. This Lease Acquisition
Agreement shall be construed in accordance with the internal laws
of the State of New York, without regard to choice of law
principals.
Section 7.03 Notices. All demands, notices and
communications hereunder shall be in writing and shall be
delivered or mailed by registered or certified United States
mail, postage prepaid, and addressed, in the case of the Company,
to 6424 W. 91st Avenue, Westminster, CO 80030, Attention:
President, and in the case of the Transferor, to 6424 W. 91st
Avenue, Suite B, Westminster, CO 80030, Attention: President,
and in the case of MBIA to 113 King Street, Armonk, New York
10504, Attention: Structured Finance - Insured Portfolio
Management (SF-IPM). All notices and demands shall be deemed to
have been given either at the time of the delivery thereof to any
officer of the Person entitled to receive such notices and
demands at the address of such Person for notices hereunder, or
on the third day after the mailing thereof to such address, as
the case may be. Any Person may change the address for notices
hereunder by giving notice of such change to the other Person.
Section 7.04 Separability Clause. Any provisions of this
Lease Acquisition Agreement which are prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any
other jurisdiction.
Section 7.05 Assignment. Except as provided in Section
4.01(a) hereof, this Lease Acquisition Agreement may not be
assigned or delegated by the Company without the prior written
consent of the Transferor, MBIA and the Trustee and, except as
provided in Section 4.03 hereof, may not be assigned or delegated
by the Transferor without the prior written consent of the
Company, MBIA and Trustee.
Section 7.06 Further Assurances. Each of the Company and
the Transferor agrees to do such further acts and things and to
execute and deliver to the Trustee and MBIA such additional
assignments, agreements, powers and instruments as are required
by the Trustee to carry into effect the purposes of this Lease
Acquisition Agreement or to better assure and confirm unto the
Trustee, MBIA or the Holders of the Certificates their rights,
powers or remedies hereunder. If any Customer shall be in
default under any Lease Contract, upon reasonable request from
the Servicer, the Company will take all reasonable steps to
assist in enforcing such Lease Contract and preserving and
maintaining title to the Lease Assets and the rights of the
Trustee, MBIA and the Holders of the Certificates therein against
the claims of all persons and parties to the extent the Company
is capable of performing such requested steps and the Servicer
reasonably determines that the assistance of the Company is
necessary to effect the intent and purposes hereof.
Section 7.07 No Waivers; Cumulative Remedies. No failure
to exercise and no delay in exercising, on the part of the
Transferor or the Company, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof nor shall any single
or partial exercise of any right, remedy, or privilege hereunder
preclude any other or further exercise hereof or the exercise of
any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative
and not exhaustive of any rights, remedies, powers and privilege
provided by law.
Section 7.08 Binding Effect; Third Party Beneficiaries.
This Lease Acquisition Agreement will inure to the benefit of and
be binding upon the parties hereto, and shall inure to the
benefit of the Trustee, MBIA, the Holders of Certificates, and
their respective successors and permitted assigns.
Section 7.09 Set-Off.
(a) The Company hereby irrevocably and unconditionally
waives all right of set-off that it may have under contract
(including this Lease Acquisition Agreement), applicable law or
otherwise with respect to any funds or monies of the Transferor
or the Trust Estate at any time held by or in the possession of
the Company.
(b) The Transferor shall have the right to set-off against
the Company any amounts to which the Company may be entitled and
to apply such amounts to any claims the Transferor may have
against the Company from time to time under this Lease
Acquisition Agreement. Upon any such set-off the Transferor
shall give notice of the amount thereof and the reasons therefor.
Section 7.10 MBIA Default or Termination. If an MBIA
Default or Termination occurs and is continuing, MBIA's right to
consent hereunder and to direct the Trustee shall be void and, in
such event, in all provisions of this Agreement wherein MBIA's
consent or direction is required or permitted, the consent or
direction of the Controlling Holders shall be required or
permitted.
IN WITNESS WHEREOF, the Company and the Transferor have caused
this Lease Acquisition Agreement to be duly executed by their
respective officers thereunto duly authorized as of the date and year
first above written.
GRANITE FINANCIAL, INC.,
Company
By: s/ William W. Wehner
Name: William W. Wehner
Title: President
GF FUNDING CORP. II,
Transferor
By: s/ William W. Wehner
Name: William W. Wehner
Title: President
1
EXHIBIT 10.3
SERVICING AGREEMENT
among
GRANITE FINANCIAL, INC.
(the "Servicer")
GF FUNDING CORP. II
(the "Transferor")
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
(the "Trustee")
and
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
(the "Back-up Servicer")
Dated as of November 1, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 2
DEFINITIONS 2
Section 1.01 Defined Terms 2
ARTICLE 2 4
SERVICER REPRESENTATIONS AND WARRANTIES 4
Section 2.01 Representations and Warranties 4
(a) Organization and Good Standing 4
(b) Authorization and Binding Obligation 4
(c) No Violation 4
(d) No Proceedings 4
(e) Approvals 4
(f) Investment Company 5
(g) Standard of Care 5
(h) Insurance 5
(i) Net Worth 5
ARTICLE 3 6
ADMINISTRATION AND SERVICING OF LEASE CONTRACTS 6
Section 3.01 Responsibilities of Servicer 6
Section 3.02 Servicer Standard of Care 8
Section 3.03 Lockbox Account and Servicer Remittances 9
Section 3.04 Servicer Advances 10
Section 3.05 Financing Statements 10
Section 3.06 Maintenance of Insurance Policy; Insurance
Proceeds 10
Section 3.07 Personal Property and Sales Taxes 11
Section 3.08 Servicing Compensation 11
Section 3.09 Substitution or Purchase of Lease Contracts 11
Section 3.10 No Offset 12
Section 3.11 Required Audits 12
ARTICLE 4 13
ACCOUNTINGS, STATEMENTS AND REPORTS 13
Section 4.01 Monthly Servicer's Reports 13
Section 4.02 Financial Statements; Certification as to
Compliance; Notice of Default 13
Section 4.03 Independent Accountants' Reports; Annual
Federal Tax Lien Search 14
Section 4.04 Access to Certain Documentation and Information 15
Section 4.05 Other Necessary Data 16
Section 4.06 Trustee to Cooperate 16
ARTICLE 5 18
THE SERVICER 18
Section 5.01 Servicer Indemnification 18
Section 5.02 Corporate Existence; Reorganizations 18
Section 5.03 Limitation on Liability of the Servicer and
Others 18
Section 5.04 The Servicer Not to Resign 19
ARTICLE 6 20
SERVICING TERMINATION 20
Section 6.01 Servicer Events of Default 20
Section 6.02 Back-up Servicer to Act; Taking of Bids;
Appointment of Successor Servicer 22
Section 6.03 Notification to Certificateholders 23
Section 6.04 Waiver of Past Defaults 23
Section 6.05 Effects of Termination of Servicer 23
Section 6.06 No Effect on Other Parties 24
ARTICLE 7 25
THE BACK-UP SERVICER 25
Section 7.01 Representations of Back-up Servicer 25
Section 7.02 Merger or Consolidation of, or Assumption
of the Obligations of, Back-up Servicer 25
Section 7.03 Back-up Servicer Resignation 26
Section 7.04 Oversight of Servicing 26
Section 7.05 Back-up Servicer Compensation 27
Section 7.06 Duties and Responsibilities 27
ARTICLE 8 28
MISCELLANEOUS PROVISIONS 28
Section 8.01 Termination 28
Section 8.02 Amendments 28
Section 8.03 Governing Law 29
Section 8.04 Notices 29
Section 8.05 Severability of Provisions 29
Section 8.06 Binding Effect 29
Section 8.07 Article Headings and Captions 29
Section 8.08 Legal Holidays 29
Section 8.09 Assignment for Security for the Certificates 29
Section 8.10 No Servicing Assignment 30
Section 8.11 MBIA Default or Termination 30
Section 8.12 Third Party Beneficiary 30
Section 8.13 Counterparts 30
SERVICING AGREEMENT
This SERVICING AGREEMENT ("Agreement"), dated as of November
1, 1996, is by and among Granite Financial, Inc., a Delaware
corporation, as Servicer (the "Servicer"), GF Funding Corp. II, a
Delaware corporation, as Transferor (the "Transferor"), Norwest
Bank Minnesota, National Association, as Back-up Servicer (the
"Back-up Servicer"), and Norwest Bank Minnesota, National
Association, as Trustee (the "Trustee").
PRELIMINARY STATEMENT
The Transferor has entered into a Trust and Security
Agreement dated as of November 1, 1996, (as amended from time to
time, the "Trust and Security Agreement"), with the Trustee, the
Back-up Servicer and the Servicer, pursuant to which the GF
Funding Corp. II Master Trust intends to issue one or more Series
of Certificates (the "Certificates").
The Transferor and Granite Financial, Inc. (the "Company")
have entered into a Lease Acquisition Agreement dated as of
November 1, 1996 (as amended from time to time, the "Lease
Acquisition Agreement"), providing for, among other things, the
contribution, from time to time, by the Company to the Transferor
of all of the Company's right, title and interest in and to
certain Lease Assets which the Transferor is and will be
conveying to the Trustee, for the benefit of the
Certificateholders and MBIA. In addition, the Transferor may, to
the extent permitted under the Trust and Security Agreement,
enter into Lease Sale Agreements with other Sellers of Lease
Assets, which the Transferor will be conveying to the Trustee,
for the benefit of the Certificateholders and MBIA. As a
precondition to the effectiveness of the Lease Acquisition
Agreement and the Trust and Security Agreement, the Lease
Acquisition Agreement and the Trust and Security Agreement
require that the Servicer, the Transferor, the Trustee and the
Back-up Servicer enter into this Agreement to provide for the
servicing of the Lease Assets.
In addition, the Transferor is conveying to the Trustee,
among other things, all of the Transferor's rights derived under
this Agreement and the Lease Acquisition Agreement, and the
Servicer agrees that all covenants and agreements made by the
Servicer herein with respect to the Lease Assets shall also be
for the benefit of the Trustee, MBIA and all holders from time to
time of the Certificates. For its services under this Agreement,
the Servicer, the Back-up Servicer and the Trustee will receive
the compensation described herein or in the Trust and Security
Agreement.
ARTICLE 1
DEFINITIONS
Section 1.01 Defined Terms. Except as otherwise specified or
as the context may otherwise require, the following terms have the
respective meanings set forth below for all purposes of this
Agreement, and the definitions of such terms are equally applicable
both to the singular and plural forms of such terms and to the
masculine, feminine and neuter genders of such terms. Capitalized
terms used but not otherwise defined herein shall have the respective
meanings assigned to such terms in the Trust and Security Agreement
or, if not defined therein, in the Lease Acquisition Agreement.
"Agreement": This Servicing Agreement, dated as of November 1,
1996, by and among the Servicer, the Transferor, the Back-up Servicer
and the Trustee, as amended from time to time in accordance with the
terms hereof.
"Back-up Servicer": Initially, Norwest Bank Minnesota, National
Association, until a successor Person shall have become the Back-up
Servicer pursuant to the applicable provisions of this Agreement, and
thereafter "Back-up Servicer" shall mean such successor Person.
"Company": Granite Financial, Inc. and all successors thereto
in accordance with the Lease Acquisition Agreement.
"Computer Tape": Any computer tape or disk prepared by the
Servicer and distributed to various parties as required herein.
"Lease Acquisition Agreement": The Lease Acquisition Agreement,
dated as of November 1, 1996, between the Transferor and the Company,
as amended from time to time in accordance with the terms thereof.
"Lease Assets": For purposes of this Agreement, Lease Assets
shall mean, collectively, the "Lease Assets" as defined in the Lease
Acquisition Agreement and the "Lease Assets" as defined in the Lease
Sale Agreements.
"Lease Sale Agreement": Each Lease Sale Agreement entered into
by the Transferor with a Seller and approved by MBIA in writing,
substantially in the form of Exhibit I to the Trust and Security
Agreement.
"Lockbox Account": The account established at the Lockbox Bank
by the Trustee pursuant to the Lockbox Agreement, which account is
maintained in the name of, and at the sole control of, the Trustee
and any Permitted Parties for and on behalf of the Trustee, MBIA, the
Certificateholders, the Transferor and any Permitted Parties into
which account shall be deposited payments related to the Lease
Receivables and as to which solely the Trustee and any Permitted
Parties shall have the ability to withdraw funds.
"Lockbox Agreement": An agreement among the Trustee, the
Transferor, any Permitted Parties and the Lockbox Bank, substantially
in the form attached hereto as Exhibit B or such other form as
approved by MBIA together with all amendments and supplements thereto
and all subsequent agreements of a similar nature between the
Transferor, the Trustee, any Permitted Parties and any successor
Lockbox Bank.
"Lockbox Bank": Any bank approved by MBIA, and any successor
Lockbox Bank appointed pursuant to Section 3.03(a) hereof.
"Monthly Servicer's Report": The report prepared by the
Servicer pursuant to Section 4.01 hereof.
"Nonrecoverable Advance": A Servicer Advance that the Servicer
determines in good faith, and in accordance with its customary
servicing practices, is unlikely to be eventually repaid from
Scheduled Payments made by or on behalf of the related Customer in
accordance with Section 3.04 hereof.
"Officer's Certificate": A certificate signed by the Chairman
of the Board, the Vice-Chairman of the Board, the President, a Vice
President, the Treasurer or the Secretary of the Servicer.
"Permitted Parties": A trustee for any other securitization
transaction engaged in by the Company or its Affiliates for the
benefit of the trust established thereunder, reasonably acceptable to
MBIA.
"Reported Companies": The Servicer and its Affiliates on a
consolidated basis, and if the initial Servicer is no longer acting
as Servicer, then in addition, any successor Servicer appointed
pursuant to this Agreement.
"Reported Companies' Financial Statements": The Reported
Companies' audited consolidating balance sheet and income statement,
consolidated statement of sources and uses/applications of cash,
auditors opinion letter regarding audited financial statements, and
all notes to the audited financial statements.
"Seller": Any Person that has been approved in writing by MBIA
to sell Lease Contracts to the Transferor pursuant to a Lease Sale
Agreement.
"Servicer": Granite Financial, Inc. until a successor Person
shall have become the Servicer pursuant to the applicable provisions
of this Agreement, and thereafter "Servicer" shall mean such
successor Person.
"Servicer Advance": The meaning set forth in Section 3.04
hereof.
"Servicer Default": Any occurrence or circumstance which with
notice or the lapse of time or both would be a Servicer Event of
Default under this Agreement.
"Servicer Event of Default": Each of the occurrences or
circumstances enumerated in Section 6.01 hereof.
"Servicer Termination Notice": The notice described in Section
6.01 hereof.
"Servicing Officers": Those officers of the Servicer involved
in, or responsible for, the administration and servicing of the Lease
Contracts, as identified on the list of Servicing Officers furnished
by the Servicer to the Trustee, the Back-up Servicer, and MBIA from
time to time.
"Transferor": GF Funding Corp. II, and all successors thereto
in accordance with the terms of the Trust and Security Agreement.
ARTICLE 2
SERVICER REPRESENTATIONS AND WARRANTIES
Section 2.01 Representations and Warranties. The Servicer
makes the following representations and warranties as of each
Delivery Date, except as otherwise specified below, which shall
survive such date:
(a) Organization and Good Standing. The Servicer has been duly
organized and is validly existing and in good standing as a
corporation under the laws of the State of Delaware or the laws of
such other state as permitted by Section 5.02(a), with requisite
power and authority to own its properties, perform its obligations
under this Agreement and to transact the business in which it is now
engaged or in which it proposes to engage.
(b) Authorization and Binding Obligation. Each of this
Agreement, the Trust and Security Agreement and the Insurance
Agreement has been duly authorized, executed and delivered by the
Servicer and constitutes the valid and legally binding obligation of
the Servicer enforceable against the Servicer in accordance with its
terms, subject as to enforcement to any bankruptcy, insolvency,
reorganization and other similar laws of general applicability
relating to or affecting creditors' rights generally and to general
principles of equity regardless of whether enforcement is sought in a
court of equity or law.
(c) No Violation. The entering into of this Agreement, the
Trust and Security Agreement and the Insurance Agreement and the
performance by the Servicer of its obligations under this Agreement,
the Trust and Security Agreement and the Insurance Agreement and the
consummation of the transactions herein and therein contemplated will
not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any of
the property or assets of such Servicer pursuant to the terms of any
material indenture, mortgage, deed of trust or other agreement or
instrument to which it is a party or by which it is bound or to which
any of its property or assets is subject, nor will such action result
in any violation of the provisions of its certificate of
incorporation or bylaws, or any statute or any order, rule or
regulation of any court or any regulatory authority or other
governmental agency or body having jurisdiction over it or any of its
properties; and no consent, approval, authorization, order,
registration or qualification of or with any court, or any such
regulatory authority or other governmental agency or body is required
for the Servicer to enter into this Agreement, the Trust and Security
Agreement and the Insurance Agreement.
(d) No Proceedings. There are no proceedings or investigations
pending, or to the knowledge of the Servicer, threatened against or
affecting the Servicer or any subsidiary in or before any court,
governmental authority or agency or arbitration board or tribunal,
including but not limited to any such proceeding or investigation
with respect to any environmental or other liability resulting from
the ownership or use of any of the Equipment, which, individually or
in the aggregate, involve the probability of materially and adversely
affecting the properties, business, prospects, profits or condition
(financial or otherwise) of the Servicer and its subsidiaries, or the
ability of the Servicer to perform its obligations under this
Agreement, the Trust and Security Agreement or the Insurance
Agreement. The Servicer is not in default with respect to any order
of any court, governmental authority or agency or arbitration board
or tribunal.
(e) Approvals. The Servicer (i) is not in violation of any
laws, ordinances, governmental rules or regulations to which it is
subject, (ii) has not failed to obtain any licenses, permits,
franchises or other governmental authorizations necessary to the
ownership of its property or to the conduct of its business, and
(iii) is not in violation in any material respect of any term of any
agreement, charter instrument, bylaw or instrument to which it is a
party or by which it may be bound, which violation or failure to
obtain materially adversely affect the business or condition
(financial or otherwise) of the Servicer and its subsidiaries.
(f) Investment Company. The Servicer is not an investment
company which is required to register under the Investment Company
Act of 1940, as amended.
(g) Standard of Care. The Servicer has serviced the Lease
Contracts and Equipment in a manner consistent with industry
standards for lease contracts similar to the Lease Contracts and
Equipment, and in any event in a prudent and commercially reasonable
manner, and has conducted its servicing operations in a manner
consistent with industry standards for servicing of financial
portfolios.
(h) Insurance. The Servicer maintains insurance with respect
to its operations and property which is adequate and customary in
light of the Servicer's operations.
(i) Net Worth. As of the Initial Delivery Date, the Servicer
is in compliance with the Net Worth Requirement.
ARTICLE 3
ADMINISTRATION AND SERVICING OF LEASE CONTRACTS
Section 3.01 Responsibilities of Servicer.
(a) The Transferor hereby appoints the Servicer, for the
benefit of MBIA and the Certificateholders, to act as Servicer of the
Lease Assets and as such, the Servicer shall be responsible for, and
shall, in accordance with its customary servicing procedures, pursue
the managing, servicing, administering, enforcing and making of
collections on the Lease Contracts, the Equipment, the Lease
Receivables and any Insurance Policies, the enforcement of the
Trustee's security interest in the Lease Contracts, Lease Receivables
and Equipment conveyed pursuant to the Trust and Security Agreement,
and the sale or the releasing of the Equipment upon the expiration or
other termination of the related Lease Contract (or repossession
thereof without termination), each in accordance with the standards
and procedures set forth in this Agreement and any related provisions
of the Trust and Security Agreement and Lease Acquisition Agreement.
The Servicer's responsibilities shall include monitoring and posting
of all payments, responding to inquiries of Customers, investigating
delinquencies, accounting for collections and furnishing monthly and
annual statements to the Back-up Servicer, the Trustee, MBIA, the
Rating Agencies and the Certificateholders with respect to payments
under the Lease Contracts, making Servicer Advances, providing
appropriate federal income tax information to the Trustee for use in
providing information to the Certificateholders or MBIA, collecting
and remitting sales and property taxes to taxing authorities, and
maintaining the perfected security interest of the Trustee in the
Trust Estate. The Servicer (at its expense) shall have full power
and authority, acting at its sole discretion, to do any and all
things in connection with such managing, servicing, administration,
enforcement, collection and such sale of the Equipment that it may
deem necessary or desirable, including the prudent delegation of such
responsibilities; provided that only with the prior written consent
of MBIA shall the Servicer subcontract with another firm to act as
subservicer with respect to the Servicer's obligations hereunder and
then only so long as the Servicer remains fully responsible and
accountable for performance of all obligations of the Servicer
hereunder; provided further that the Servicer may subcontract out its
remarketing obligations with respect to the Equipment without the
consent of MBIA so long as the Servicer remains fully responsible and
accountable for the performance of such obligations. Without
limiting the generality of the foregoing, the Servicer shall, and is
hereby authorized and empowered by the Trustee, subject to Section
3.02 hereof, to execute and deliver (on behalf of itself, the
Certificateholders, the Trustee or any of them) any and all
instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with
respect to the Lease Contracts and any files or documentation
pertaining to the Lease Assets. The Servicer also may, in its sole
discretion, waive any late payment charge or penalty, or any other
fees that may be collected in the ordinary course of servicing any
Lease Contract. Notwithstanding the foregoing, the Servicer shall
not, except pursuant to a judicial order from a court of competent
jurisdiction, or as otherwise expressly provided in this Agreement,
release or waive the right to collect the Scheduled Payments or any
unpaid balance on any Lease Contract. The Trustee shall, at the
expense of the Servicer, furnish the Servicer with any powers of
attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties
hereunder, and the Trustee shall not be responsible for the
Servicer's application thereof.
(b) The Servicer shall conduct any Lease Contract management,
servicing, administration, collection or enforcement actions in the
following manner:
(i) The Servicer, as agent for and on behalf of the
Trustee, MBIA and the Certificateholders, with respect to any
Defaulted Lease Contract shall follow such practices and
procedures as are normal and consistent with the Servicer's
standards and procedures relating to its own lease contracts,
lease receivables and equipment that are similar to the Lease
Contracts, Lease Receivables and the Equipment, and, in any
event, consistent with the standard of care described in Section
3.02 hereof, including without limitation, the taking of
appropriate actions to foreclose or otherwise liquidate any such
Defaulted Lease Contract, together with the related Equipment,
to collect any Guaranty Amounts, and to enforce the Transferor's
rights under the Lease Acquisition Agreement. All Recoveries,
Insurance Proceeds or Residual Proceeds in respect of any such
Lease Receivable and the related Equipment received by the
Servicer shall be remitted to the Trustee for deposit in the
Collection Account pursuant to Section 3.03 hereof;
(ii) The Servicer may sue to enforce or collect upon Lease
Contracts as agent for the Trustee on behalf of the
Certificateholders and MBIA. If the Servicer elects to commence
a legal proceeding to enforce a Lease Contract, the act of
commencement shall be deemed to be an automatic conveyance of
the Lease Contract to the Servicer for purposes of collection
only. If, however, in any enforcement suit or legal proceeding
it is held that the Servicer may not enforce a Lease Contract on
the ground that it is not a real party in interest or a holder
entitled to enforce the Lease Contract, then the Trustee on
behalf of the Certificateholders and MBIA shall, at the
Servicer's request and expense, take such steps as the Servicer
deems necessary and instructs the Trustee in writing to take to
enforce the Lease Contract, including bringing suit in its name
or the names of the Certificateholders or MBIA, and the Trustee
shall be indemnified by the Servicer for any such action taken.
Any Lease Contract temporarily released from the custody of the
Trustee to the Servicer or its agents shall have stamped on it
prior to its delivery a legend to the effect that the Lease
Contract is the property of Norwest Bank Minnesota, National
Association as Trustee, and the Servicer shall promptly return
all Lease Contracts when the need therefore no longer exists,
provided that no more than 25 Lease Contracts shall be released
to the Servicer at any one time;
(iii) The Servicer shall exercise any rights of
recourse against third parties that exist with respect to any
Lease Contract in accordance with the Servicer's usual practice
and, in any event, consistent with the standard of care
described in Section 3.02 hereof. In exercising recourse
rights, the Servicer is authorized on the Trustee's behalf to
reconvey the Lease Contract to the person against whom recourse
exists to the extent necessary, and at the price set forth in
the document creating the recourse. The Servicer will not
reduce or diminish such recourse rights, except to the extent
that it exercises such right;
(iv) The Servicer may not allow substitutions of Substitute
Lease Contracts that do not comply with Section 3.09 hereof,
Sections 2.04, 3.03 and 3.04 of the Lease Acquisition Agreement
and Section 4.04 of the Trust and Security Agreement. If a
Customer requests a financing of an upgrade to any Equipment,
the Servicer shall either (A) include such upgrade on an
existing Lease Contract and treat the Scheduled Payments related
thereto as an Additional Lease Contract for all purposes of this
Agreement, the Lease Acquisition Agreement and the Trust and
Security Agreement, or (B) originate a separate lease contract
for such Customer;
(v) The Servicer may waive, modify or vary any terms of
any Lease Contract or consent to the postponement of strict
compliance with any such term if in the Servicer's reasonable
and prudent determination such waiver, modification or
postponement is not materially adverse to the Certificateholders
or MBIA; provided, however, that (A) the Servicer shall not
forgive any payment of rent, (B) the Servicer shall not permit
any modification with respect to any Lease Contract that would
decrease any Scheduled Payment, defer the payment of any
principal or interest or any Scheduled Payment, reduce the
Implicit Principal Balance (except in connection with actual
payments attributable to such Implicit Principal Balance), or
prevent the complete amortization of the Implicit Principal
Balance from occurring by the Calculation Date preceding the
Stated Maturity of the related Series of Certificates and,
(C) except as otherwise specifically provided herein, the
Servicer will not waive or modify the requirement that a
Customer maintain insurance with respect to the related
Equipment. The Servicer shall provide the Back-up Servicer,
MBIA and the Trustee with an Amended Lease Schedule to the
related Series Lease Schedule reflecting any modification of any
Scheduled Payment;
(vi) The Servicer shall not consent to the termination of
any Lease Contract in connection with loss of or damage to the
related Equipment unless the Customer has paid an amount not
less than the Removal Price for such Lease Contract, or if less,
the maximum amount legally collectible under the related Lease
Contract;
(vii) Upon termination of a Lease Contract after
payment of the last Scheduled Payment due thereunder or in the
event that the Servicer in the enforcement of any Lease Contract
otherwise (A) acquires title to any item of Equipment with
respect to which title was held by the Customer or (B) reclaims
possession of Equipment from the Customer, the Servicer shall
use its best efforts to sell or re-lease such item of Equipment
on market value terms promptly and consistent with the standard
of care set forth in Section 3.02 hereof. Any Insurance
Proceeds, Recoveries or Residual Proceeds related thereto shall
be deposited in accordance with Section 3.03 hereof;
(viii) Notwithstanding any provision to the contrary
contained in this Agreement, the Servicer shall exercise any
right under a Lease Contract to accelerate the unpaid Scheduled
Payments, due or to become due thereunder in such a manner as to
maximize the net proceeds available to the Trust Estate;
provided, however, that the Servicer will not accelerate any
Scheduled Payment unless permitted to do so by the terms of the
Lease Contract or under applicable law;
(ix) The Servicer shall maintain insurance with respect to
its operations and property which is adequate and customary in
light of the Servicer's operations; and
(x) The Servicer shall comply with and not modify its
credit and collection policies with respect to the Lease
Contracts in any manner which would adversely affect the
Certificates or the Trust Estate.
Section 3.02 Servicer Standard of Care. In managing,
administering, servicing, enforcing and making collections on the
Lease Contracts and Equipment pursuant to this Agreement, the
Servicer will exercise that degree of skill and care consistent with
industry standards for servicing of small to medium ticket equipment
leasing portfolios, and that which the Servicer customarily exercises
with respect to similar lease contracts and equipment owned or
originated by it, and in any event, in a prudent and commercially
reasonable manner. The Servicer shall punctually perform all of its
obligations and agreements under this Agreement and shall comply with
all applicable federal and state laws and regulations, shall maintain
all state and federal licenses and franchises necessary for it to
perform its servicing responsibilities hereunder, and shall not
materially impair the rights of MBIA or the Certificateholders in any
Lease Contracts or payments thereunder.
Section 3.03 Lockbox Account and Servicer Remittances.
(a) The Transferor and the Trustee shall establish the Lockbox
Account within 30 days of the Initial Delivery Date at the Lockbox
Bank pursuant to the Lockbox Agreement. At the time of execution of
the Lockbox Agreement, each of the Transferor, the Servicer, the
Lockbox Bank and any other party to the Lockbox Agreement shall
provide MBIA with opinions of counsel reasonably acceptable to MBIA
regarding the enforceability of the Lockbox Agreement against such
person. The Servicer shall pay to the Lockbox Bank when due the fees
set forth in the Lockbox Agreement. The Lockbox Bank may be removed
by the Transferor with the written consent of MBIA if the Lockbox
Bank has failed to perform its duties to the satisfaction of the
Transferor and the Servicer, provided that a successor Lockbox Bank,
meeting the qualifications of a corporate trustee as set forth in
Section 7.08 of the Trust and Security Agreement, has executed a
Lockbox Agreement in form and substance satisfactory to MBIA, the
Trustee, the Transferor and the Servicer.
(b) After the Lockbox Agreement has been executed, the Servicer
shall promptly notify the Customers of the transfer of the Lease
Contracts to the GF Funding Corp. II Master Trust and instruct the
Customers to send all payments relating to Lease Receivables directly
to the Lockbox Bank for deposit into the Lockbox Account. On each
Business Day, the Trustee shall, or shall cause the Lockbox Bank to,
transfer to the Collection Account all amounts allocable to the Lease
Contracts on deposit in the Lockbox Account.
(c) The Servicer, as agent of the Transferor, the
Certificateholders and MBIA shall remit to the Trustee for deposit in
the Collection Account by 12:00 noon Minneapolis time on each Tuesday
and Thursday that is a Business Day, or if such day is not a Business
Day, on the next Business Day thereafter, the amounts described below
that have been collected by the Servicer through 4:00 p.m.
Minneapolis time on the preceding Business Day so long as such
amounts in the aggregate exceed $1,000:
(i) all payments made under the Lease Contracts by or on
behalf of the Customers relating to the Lease Receivables,
including prepayments and Overdue Payments but excluding taxes
and Servicing Charges, received directly by the Servicer;
(ii) all Residual Proceeds and Recoveries;
(iii) the Removal Price of any Lease Contract purchased
by the Company or the Transferor, to the extent received by the
Servicer;
(iv) all Guaranty Amounts; and
(v) all Insurance Proceeds.
The Servicer shall hold in trust for the benefit of the Holders
of the Certificates and MBIA any payment it receives relating to
items (i) through (v) above until such time as the Servicer transfers
any such payment to the Trustee for deposit in the Collection
Account.
(d) If ACH debits are utilized with respect to a Lease
Contract, (x) the Transferor, the Trustee and the ACH Bank shall
enter into a depositary agreement acceptable to the Trustee and
substantially in the form of the Lockbox Agreement and (y) the
Servicer will notify the National Automated Clearing House System to
debit the Customer for all payments relating to Lease Receivables
under such Lease Contract and to credit an account (the "ACH
Account") maintained at the ACH Bank, in the name of and in the sole
control of the Trustee for the benefit of the Certificateholders and
MBIA, and the Servicer shall not revoke or modify such notifications.
The Servicer shall be responsible for the payment of the fees of any
ACH Account and shall not be entitled to reimbursement therefor. In
the event (i) a Customer provides the Servicer or the applicable ACH
Bank with written notice of its termination of such Customer's
authorization agreement for ACH debits, or (ii) the Servicer
otherwise receives directly moneys with respect to Lease Receivables
that would otherwise involve ACH debits, the Servicer shall deposit
all payments from all such Customers into the Collection Account in
accordance with subsection (c) above, and, in the case of clause (i),
the Servicer shall promptly instruct the Customer to send all lease
payments directly to the Lockbox Bank. Payments received in the ACH
Account representing any payment listed in Section 3.03(c)(i) through
(v) above, will be transferred by the Trustee to the Collection
Account on the related Determination Date.
Section 3.04 Servicer Advances. Not later than 10:00 a.m.
(Minneapolis time) on the Determination Date prior to each Payment
Date, the Servicer shall make an advance (a "Servicer Advance") on
such date by remitting to the Trustee for deposit in the Collection
Account the lesser of (i) an amount equal to the Scheduled Payments
or portion thereof for each Lease Contract which is a Delinquent
Lease Contract and which were due in the prior Due Period but not
received and deposited in the Collection Account on or prior to such
Determination Date and (ii) the shortfall, if any, between the Lease
payments then held in the Collection Account and the amount required
to make all distributions under Section 12.02(d)(i) through (xvii) of
the Trust and Security Agreement; provided, however, that the
Servicer shall not be obligated to make any Servicer Advance under
clause (i) or (ii) above pursuant to this Section 3.04 that the
Servicer determines in good faith, and in accordance with its
customary servicing practices, is unlikely to be eventually repaid
from Scheduled Payments made by or on behalf of the related Customer;
provided, further, that the Servicer may not make a Servicer Advance
with respect to a Lease Contract once it has become a Defaulted Lease
Contract. On each Determination Date, the Servicer shall deliver to
the Back-up Servicer, the Trustee, MBIA and the Placement Agent the
Monthly Servicer's Report, which shall include a listing of the
aggregate amount of Scheduled Payments not received for the
immediately prior Due Period, the amount of Servicer Advances, and
the amounts which it has determined in its sole discretion, and in
accordance with its customary servicing practices, are unlikely to be
recoverable from the related Customers.
Section 3.05 Financing Statements. The Servicer will make all
Uniform Commercial Code filings and recordings as may be required
pursuant to the terms of the Trust and Security Agreement. The
Servicer shall, in accordance with its customary servicing procedures
and at its own expense, be responsible for taking such steps as are
necessary to maintain perfection of such security interests. The
Trustee hereby authorizes the Servicer to re-perfect or to cause the
re-perfection of such security interest on its behalf as Trustee, as
necessary.
Section 3.06 Maintenance of Insurance Policy; Insurance
Proceeds. The Servicer shall have the obligation to verify, monitor
and enforce the acquisition and maintenance of a Customer's Insurance
Policies in a manner consistent with past practice, provided that the
Servicer shall do so in a manner consistent with that practiced by
other lessors in the industry with similar lease contracts and
equipment owned or serviced by them. In the event that a Customer
fails to maintain an Insurance Policy as required by the terms of the
related Lease Contract, and the cost of the Equipment is in excess of
$50,000, the Servicer shall procure and maintain such insurance in an
amount not less than the amount required by such Lease Contract. The
Servicer may satisfy its obligations under this Section 3.06 by
maintaining a blanket insurance policy covering all of the Equipment.
Any Insurance Proceeds shall be remitted to the Trustee for deposit
in the Collection Account pursuant to Section 3.03.
Section 3.07 Personal Property and Sales Taxes. The Servicer
shall, on behalf of the Transferor, pay or cause to be paid all
personal property, sales and use taxes on or with respect to the
Equipment, or the acquisition or leasing thereof, as and when such
taxes become due, to the extent a Customer has paid amounts to the
Servicer or into the Lockbox Account for such taxes. The Servicer
shall also cause to be filed in a timely manner any and all returns
and reports required in connection with the payment of such taxes.
Section 3.08 Servicing Compensation.
(a) As compensation for the performance of its obligations
under this Agreement the Servicer shall be entitled to receive the
Servicer Fee and the Additional Servicer Fee, if applicable. The
Servicer Fee with respect to any Lease Contract shall be paid
monthly, commencing on the related Initial Payment Date and
terminating on the first to occur of (i) the receipt of the last
Scheduled Payment and related Residual Proceeds with respect to the
last remaining Lease Contract, (ii) the receipt of Recoveries and
Insurance Proceeds with respect to the last remaining Lease Contract,
or (iii) the date on which the Transferor or MBIA purchases the last
remaining Lease Contract. The Servicer Fee shall be paid to the
Servicer at the times and in the priority as set forth in the Trust
and Security Agreement. The Servicer shall pay all expenses incurred
by it in connection with its servicing activities hereunder,
including, without limitation, payment of the fees and disbursements
of the Independent Accountants and payment of expenses incurred in
connection with distributions and reports to the Trustee, the Back-up
Servicer, MBIA, the Rating Agencies and Certificateholders, payment
of the fee of the Lockbox Bank under the Lockbox Agreement and any
payment of any fees in connection with the ACH Account and shall not
be entitled to reimbursement for such expenses; provided, however,
that the Servicer will be entitled to reimbursement pursuant to
Section 12.02(d)(i)(B) for reasonable costs and expenses incurred by
the Servicer (including reasonable attorney's fees and out-of-pocket
expenses) in connection with the realization, attempted realization
or enforcement of rights and remedies upon Defaulted Lease Contracts,
from amounts received as Recoveries from such Defaulted Lease
Contracts.
(b) In connection with any transfer of the servicing
obligations to a successor Servicer in accordance with Section 6.02
hereof, the Back-up Servicer shall be entitled to reimbursement of
Transition Costs as provided therein and in the Trust and Security
Agreement.
Section 3.09 Substitution or Purchase of Lease Contracts.
(a) The Servicer shall not allow termination of a Lease
Contract prior to the scheduled expiration date or prepayment of any
Lease Contract (except as may be specifically required under such
Lease Contract in connection with a casualty to the related
Equipment), unless the Transferor or the applicable Seller has
(i) conveyed to the Trustee a Substitute Lease Contract, the Lease
Receivables under such Substitute Lease Contract and the Transferor's
or the applicable Seller's interest in the related Equipment and
delivered to the Trustee the original executed counterpart of the
Substitute Lease Contract or (ii) removed such prepaid Lease Contract
and the related Equipment from the Trust Estate by remittance of the
Removal Price to the Servicer for deposit in the Collection Account
in accordance with Section 3.03 hereof; provided, however, that
removals and substitutions of Lease Contracts pursuant to this
subparagraph (a) shall comply with the requirements of Section 4.04
of the Trust and Security Agreement, the criteria set forth in
Section 3.04 of the Lease Acquisition Agreement and the criteria set
forth in Section 6 of the applicable Lease Sale Agreement.
(b) The Servicer shall permit the Transferor to (i) remove any
Defaulted Lease Contract or Delinquent Lease Contract from the Trust
Estate by remittance by the Transferor to the Servicer, for deposit
in the Collection Account in accordance with Section 3.03 hereof, of
the Removal Price for such Lease Contract or (ii) substitute for any
Defaulted Lease Contract or Delinquent Lease Contract, a Substitute
Lease Contract and the Lease Receivables under such Substitute Lease
Contract and the Transferor's interest in the related Equipment and,
upon the delivery to the Trustee of the original executed counterpart
of the Substitute Lease Contract and the related Lease Contract File;
provided that removals and substitutions of Lease Contracts pursuant
to this subparagraph (b) shall comply with the requirements of
Section 4.04 of the Trust and Security Agreement and the criteria set
forth in Section 3.04 of the Lease Acquisition Agreement.
(c) Notwithstanding any other provision contained in this
Agreement, the Servicer shall not, with respect to a Defaulted Lease
Contract, (i) negotiate or enter into a new lease with the Customer
relating to the Equipment or the Customer's obligations under such
Defaulted Lease Contract or (ii) allow the Customer thereunder to
resume its rights under such Defaulted Lease Contract, unless the
Transferor has removed or made a substitution for such Defaulted
Lease Contract in the manner set forth in subsection (b) hereof.
(d) In the event that the Company is required to repurchase or
substitute a Lease Contract pursuant to Sections 2.06 or 3.03 of the
Lease Acquisition Agreement, or a Seller is required to repurchase or
substitute a Lease Contract pursuant to Section 5 of the Lease Sale
Agreement, the Servicer shall permit such repurchase or substitution
only in accordance with the terms of Sections 3.03 and 3.04 of the
Lease Acquisition Agreement or Section 6 of the Lease Sale Agreement,
as applicable.
Section 3.10 No Offset. Prior to the termination of this
Agreement, the obligations of the Servicer under this Agreement shall
not be subject to any defense, counterclaim or right of offset that
the Servicer has or may have against the Transferor, whether in
respect of this Agreement, any Lease Contract, Lease Receivable,
Equipment or otherwise.
Section 3.11 Required Audits. The Servicer shall cause the
Independent Accountants to perform all Required Audits on a timely
basis and report the results of such audits to MBIA and the Rating
Agencies.
ARTICLE 4
ACCOUNTINGS, STATEMENTS AND REPORTS
Section 4.01 Monthly Servicer's Reports. No later than 10:00
a.m. (Minneapolis time) on each Determination Date, the Servicer
shall deliver the Monthly Servicer's Report to the Transferor, the
Back-up Servicer, the Trustee, and the Placement Agent, and the
Trustee will deliver the Monthly Servicer's Report to each
Certificateholder, MBIA, and the Rating Agencies in the form attached
as Exhibit A hereto with respect to the activity in the immediately
preceding Due Period. In the course of preparing the Monthly
Servicer's Report, the Servicer shall seek direction from the
Transferor as to remittance of any funds to be paid pursuant to
Section 12.02(d)(xviii) of the Trust and Security Agreement. Lease
Contracts which have been substituted for or purchased by the Company
or the Transferor shall be identified by Customer lease number on the
Monthly Servicer's Report. On each Payment Date, the Servicer shall
deliver to the Back-up Servicer and MBIA a Computer Tape in a format
acceptable to the Back-up Servicer containing the information from
which the Servicer prepared the Monthly Servicer's Report, as well as
any additional information reasonably requested by the Back-up
Servicer prior to such Payment Date.
Section 4.02 Financial Statements; Certification as to
Compliance; Notice of Default.
(a) The Servicer (and the Company if the initial Servicer is no
longer the Servicer) will deliver to the Trustee, the Placement
Agent, MBIA, the Back-up Servicer, the Rating Agencies and each
Certificateholder of Outstanding Certificates (and, upon the request
of any Certificateholder, to any prospective transferee of any
Certificate which has executed an agreement with the Transferor and
the Servicer containing terms substantially similar to those set
forth in Section 4.04(f) hereof):
(i) within 120 days after the end of each fiscal year of
the Reported Companies, a copy of the Reported Companies'
Financial Statements, all in reasonable detail and accompanied
by an opinion of a firm of Independent Accountants stating that
such financial statements present fairly the financial condition
of the Reported Companies (or, in the case of a successor
Servicer, such successor Servicer's financial condition) and
have been prepared in accordance with generally accepted
accounting principles consistently applied (except for changes
in application in which such accountants concur), and that the
examination of such accountants in connection with such
financial statements has been made in accordance with generally
accepted auditing standards, and accordingly included such tests
of the accounting records and such other auditing procedures as
were considered necessary in the circumstances;
(ii) with each set of Reported Companies' Financial
Statements delivered pursuant to subsection (a)(i) above, the
Servicer will deliver an Officer's Certificate stating that such
officer has reviewed the relevant terms of the Trust and
Security Agreement, the Lease Acquisition Agreement, the
Insurance Agreement and this Agreement and has made, or caused
to be made, under such officer's supervision, a review of the
transactions and conditions of the Reported Companies during the
period covered by the Reported Companies Financial Statements
then being furnished, that the review has not disclosed the
existence of any Servicer Default or Servicer Event of Default
or, if a Servicer Default or a Servicer Event of Default exists,
describing its nature and what action the Servicer has taken and
is taking with respect thereto, and that on the basis of such
review the officer signing such certificate is of the opinion
that during such period the Servicer has serviced the Lease
Contracts in compliance with the procedures hereof except as
disclosed in such certificate.
(iii) immediately upon becoming aware of the existence
of any condition or event which constitutes a Servicer Default
or a Servicer Event of Default, a written notice describing its
nature and period of existence and what action the Servicer is
taking or proposes to take with respect thereto;
(iv) promptly upon the Servicer's becoming aware of:
(A) any proposed or pending investigation of it or
the Transferor by any governmental authority or agency, or
(B) any pending or proposed court or administrative
proceeding which involves or may involve the probability of
materially and adversely affecting the properties,
business, prospects, profits or condition (financial or
otherwise) of the Servicer or the Transferor or the Trust
Estate,
a written notice specifying the nature of such investigation or
proceeding and what action the Servicer is taking or proposes to take
with respect thereto and evaluating its merits;
(v) with reasonable promptness any other data and
information with respect to the Servicer or the Lease Assets
which may be reasonably requested from time to time, including
without limitation any information required to be made available
at any time to any prospective transferee of any Certificates in
order to satisfy the requirements of Rule 144A under the
Securities Act of 1933, as amended;
(vi) quarterly, unaudited versions of the Reported
Companies' consolidating balance sheet and income statement and
consolidated sources and uses of funds within 45 days after the
end of each quarter; and
(vii) such other information as may be specified
in the Trust and Security Agreement.
(b) On or before each November 5, commencing November 5, 1997,
so long as any of the Certificates are outstanding, the Servicer
shall furnish to MBIA, each Certificateholder and the Trustee an
Officer's Certificate either stating that such action has been taken
with respect to the recording, filing, and rerecording and refiling
of any financing statements and continuation statements as necessary
to maintain the interest of the Trustee created by the Trust and
Security Agreement with respect to the Trust Estate and reciting the
details of such action or stating that no such action is necessary to
maintain such interest. Such Officer's Certificate shall also
describe the recording, filing, rerecording and refiling of any
financing statements and continuation statements that will be
required to maintain the interest of the Trustee in the Trust Estate
until the date such next Officer's Certificate is due.
Section 4.03 Independent Accountants' Reports; Annual Federal
Tax Lien Search.
(a) Promptly at the end of the Servicer's fiscal year, the
Servicer at its expense shall cause the Independent Accountants (who
may also render and deliver other services to the Servicer and its
Affiliates) to prepare a statement to the Back-up Servicer, the
Trustee, the Certificateholders, MBIA, the Rating Agencies and the
Placement Agent, dated as of the close of such period, to the effect
that the Independent Accountants have examined the servicing
procedures, manuals, guides and records of the Servicer, and the
accounts and records of the Servicer relating to the Lease Contracts
and any files or documentation pertaining to the Lease Assets (which
procedures, manuals, guides and records shall be described in one or
more schedules to such statement), that such Independent Accountants
have compared the information contained in the Monthly Servicer's
Reports delivered in the relevant period with information contained
in the accounts and records for such period, and that, on the basis
of such examination and comparison, nothing has come to the
Independent Accountants' attention to indicate that the Servicer has
not, during the relevant period, serviced the Lease Contracts in
compliance with such servicing procedures, manual and guides and in
the same manner required by the Servicer's standards and with the
same degree of skill and care consistent with that which the Servicer
customarily exercises with respect to similar Lease Contracts owned
by it and otherwise in compliance with this Agreement, that such
accounts and records have not been maintained in accordance with
Section 4.04 hereof, that the information contained in the Monthly
Servicer's Reports does not reconcile with the information contained
in the accounts and records or that such certificates, accounts and
records have not been properly prepared and maintained in all
material respects or in accordance with the requirements of this
Agreement, except in each case for (i) such exceptions as the
Independent Accountants shall believe to be immaterial and (ii) such
other exceptions as shall be set forth in such statement. The
Servicer shall deliver to the Back-up Servicer, the Trustee, the
Certificateholders, the Placement Agent, the Rating Agencies and MBIA
a copy of any such statement within 120 days of the close of the
relevant period.
(b) Promptly after the end of the Servicer's fiscal year,
commencing with the fiscal year ending June 30, 1997, the Servicer,
at its expense, shall cause a search of any and all federal tax liens
against the Company and the Transferor and any Affiliates as of the
end of such fiscal year to be conducted and shall deliver to the Back-
up Servicer, the Trustee, the Certificateholders and MBIA on or
before July 31 of each year, commencing July 31, 1997, an officer's
certificate signed by a Servicing Officer (i) stating that there are
no outstanding federal tax liens filed against any portion of the
Trust Estate, the Company, the Transferor, or any Affiliate or
(ii) listing the outstanding federal tax liens filed against any
portion of the Trust Estate, the Company, the Transferor, or any
Affiliate. In the event any such certificate shall disclose any such
federal tax liens, the Servicer shall promptly thereafter, satisfy
any such federal tax liens.
Section 4.04 Access to Certain Documentation and Information.
(a) The Servicer shall provide to the Back-up Servicer, MBIA,
the Trustee, or any Certificateholder and their duly authorized
representatives, attorneys or accountants access to any and all
documentation regarding the Trust Estate (including the Series Lease
Schedule) that the Servicer may possess, such access being afforded
without charge but only upon reasonable request and during normal
business hours so as not to interfere unreasonably with the
Servicer's normal operations or customer or employee relations, at
offices of the Servicer designated by the Servicer.
(b) At all times during the term hereof, the Servicer shall
keep available at its principal executive office for inspection by
Certificateholders, the Trustee, the Back-up Servicer and MBIA a list
of all Lease Contracts then held as a part of the Trust Estate,
together with a reconciliation of such list to that set forth in the
Series Lease Schedules and each of the Monthly Servicer's Reports,
indicating the cumulative addition and removal of Lease Contracts
from the Trust Estate.
(c) The Servicer will maintain accounts and records as to each
respective Lease Contract serviced by the Servicer that are accurate
and sufficiently detailed as to permit (i) the reader thereof to know
as of the most recent Calculation Date the status of such Lease
Contract, including any payments, Insurance Proceeds, Residual
Proceeds and Recoveries received or owing (and the nature of each)
thereon and (ii) the reconciliation between payments, Insurance
Proceeds, Residual Proceeds or Recoveries on (or with respect to)
each Lease Contract and the amounts from time to time deposited in
the Collection Account in respect of such Lease Contract.
(d) The Servicer will maintain all of its computerized accounts
and records so that, from and after each Acquisition Date and the
conveyance of the related Lease Contract, Lease Receivables and
Equipment to the Trustee, the Servicer's accounts and records
(including any back-up computer archives) that refer to any such
Lease Contracts, Lease Receivables or Equipment indicate clearly that
the Lease Contracts, Lease Receivables and Equipment are owned by the
Trustee for the benefit of MBIA and the Certificateholders.
Indication of the Trustee's interest in a Lease Contract will be
deleted from or modified on the Servicer's accounts and records when,
and only when, the Lease Contract has been paid in full, replaced
with a Substitute Lease Contract or purchased by the Company or the
Transferor or conveyed to the Servicer pursuant to this Agreement.
(e) Nothing in this Section 4.04 shall affect the obligation of
the Servicer to observe any applicable law prohibiting disclosure of
information regarding the Customers, and the failure to provide
information otherwise required by this Section 4.04 as a result of
such observance by the Servicer, shall not constitute a breach of
this Section 4.04.
(f) All information obtained by the Trustee, the Back-up
Servicer, MBIA or any Certificateholder regarding the Customers and
the Lease Contracts, whether upon exercise of its rights under this
Section 4.04 or otherwise, shall be maintained by the Trustee, the
Back-up Servicer, MBIA or the Certificateholder, as applicable, in
confidence and shall not be disclosed to any other Person, unless
such disclosure shall not violate any applicable law or regulation
or any proprietary rights of the Company, the Transferor or the
Servicer unless ordered by a court of applicable jurisdiction;
provided that MBIA may make disclosures with respect to any of the
above matters to the Rating Agencies, reinsurers or any entity having
regulatory authority over MBIA and provided further that the
Certificateholders may disclose such information to the extent
permitted by Section 14 of the applicable Certificate Purchase
Agreement.
Section 4.05 Other Necessary Data. The Servicer shall, on
request of the Back-up Servicer, the Trustee or MBIA, (i) on
reasonable notice, furnish the Trustee, the Back-up Servicer or MBIA
such data necessary for the administration of the Trust Estate as can
be reasonably generated by the Servicer's existing data processing
systems, and (ii) on and after a Servicer Event of Default, within 5
Business Days, provide the Trustee and the Back-up Servicer with
access to the Servicer's existing data processing systems and any
files or records with respect to the Lease Assets that it may have.
Section 4.06 Trustee to Cooperate. Upon payment (including
through application of any prepayment) in full of any Lease Contract,
the Servicer will notify the Trustee on the next succeeding
Determination Date by written certification (which certification
shall include a statement to the effect that all amounts received in
connection with such payments in full which are required to be
deposited in the Collection Account pursuant to Section 3.03 hereof
have been so deposited) of a Servicing Officer and shall request
delivery of the Lease Contract to the Servicer. Upon receipt of such
delivery request, the Trustee shall within 7 days of such request by
the Servicer release such Lease Contract to the Servicer. Upon
release of such Lease Contract, the Servicer is authorized to execute
an instrument in satisfaction of such Lease Contract and to do such
other acts and execute such other documents as it deems necessary to
discharge the Customer thereunder and, if applicable, release any
security interest in the Equipment related thereto. The Servicer
shall determine when a Lease Contract has been paid in full. Upon
the written request of a Servicing Officer and subject to the
Trustee's rights to indemnity contained herein and in the Trust and
Security Agreement, the Trustee shall perform such other acts as
reasonably requested in writing by the Servicer and otherwise
cooperate with the Servicer in enforcement of the Certificateholders'
rights and remedies with respect to Lease Contracts.
ARTICLE 5
THE SERVICER
Section 5.01 Servicer Indemnification.
(a) The Servicer shall indemnify and hold harmless the Trustee,
the Transferor, the Back-up Servicer, MBIA, and the
Certificateholders, from and against any loss, liability, claim,
expense, damage or injury suffered or sustained to the extent that
such loss, liability, claim, expense, damage or injury arose out of
or was imposed by reason of the failure by the Servicer to perform
its duties in accordance with the terms of this Agreement or are
attributable to errors or omissions of the Servicer related to such
duties or a breach of the representations and warranties made by the
Servicer in Section 2.01 hereof; provided, however, that the Servicer
shall not indemnify any party to the extent that acts of fraud, gross
negligence or breach of fiduciary duty by such party contributed to
such loss, liability, claim, expense, damage or injury.
(b) The Servicer shall not be liable for any settlement of any
action or claim effected without its consent. If the Servicer has
made any indemnity payments to MBIA, the Trustee, the Back-up
Servicer or the Certificateholders pursuant to this Section and such
party thereafter collects any of such amounts from others, such party
will promptly repay such amounts collected to the Servicer, without
interest. The provisions of this Section 5.01 shall survive any
expiration or termination of this Agreement.
Section 5.02 Corporate Existence; Reorganizations.
(a) The Servicer shall keep in full effect its existence and
good standing as a corporation in the State of Delaware and will
obtain and preserve its qualification to do business as a foreign
corporation in each jurisdiction in which such qualification is or
shall be necessary to enable the Servicer to perform its duties under
this Agreement, except where the failure to so qualify would not have
a material adverse effect on the Trust Estate or the ability of the
Servicer to perform its duties hereunder; provided, however, that the
Servicer may reorganize as a corporation in another state, if to do
so would be in the best interests of the Servicer and would not have
a material adverse effect upon the Certificateholders or MBIA.
(b) The Servicer shall not (i) (other than pursuant to one or
more additional lease pool financings) convey, transfer or lease
substantially all of its assets as an entirety to any Person, or
(ii) merge or consolidate with another Person, unless (A) such Person
or the merged or consolidated entity acquires substantially all the
assets of the Servicer as an entirety, has adequate servicing skills
and personnel, is substantially involved in the equipment financing
lease business and executes and delivers to the Transferor, MBIA and
the Trustee an agreement, in form and substance reasonably
satisfactory to the Transferor, MBIA, the Controlling Holders and the
Trustee, which contains an assumption by such Person or entity of the
due and punctual performance and observance of each covenant and
condition to be performed or observed by the Servicer under this
Agreement, (B) no Default, Event of Default or Servicer Default (or
an event that due to the lapse of time or failure to act would become
a Servicer Default) has occurred and is continuing, and (C) MBIA
shall have given its prior written consent. The Servicer shall
provide prompt written notice of such event to the Rating Agencies
and shall provide to the Trustee, for the benefit of MBIA and the
Certificateholders, an Opinion of Counsel confirming the
enforceability of such assumption agreement.
Section 5.03 Limitation on Liability of the Servicer and
Others. Except as provided in Section 5.01 hereof, neither the
Servicer nor any of the officers, directors, employees or agents of
the Servicer shall be under any liability for any action taken or for
refraining from the taking of any action in its capacity as Servicer
pursuant to this Agreement; provided, however, that this provision
shall not protect the Servicer or any such person against any
liability which would otherwise be imposed by reason of willful
misconduct, bad faith or gross negligence (which includes negligence
with respect to the duties of the Servicer explicitly set forth in
this Agreement) in the performance of its duties hereunder. The
Servicer and any officer, director, employee or agent of the Servicer
may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person with respect to any
matters arising hereunder. No implied covenants or obligations shall
be read into this Agreement against the Servicer. In the event the
Servicer performs any activities beyond the requirements of this
Agreement, the Servicer shall have the option but will not be
required to perform such activities in the future.
Section 5.04 The Servicer Not to Resign.
(a) The Servicer shall not resign from the duties and
obligations hereby imposed on it except upon a determination by its
Board of Directors that by reason of change in applicable legal
requirements, with which the Servicer cannot reasonably comply, the
continued performance by the Servicer of its duties under this
Agreement would cause it to be in violation of such legal
requirements, said determination to be evidenced by a resolution from
its Board of Directors to such effect, accompanied by an Opinion of
Counsel to such effect and reasonably satisfactory to the Trustee and
MBIA.
(b) No such resignation shall become effective until a
successor Servicer shall have assumed the responsibilities and
obligations of the Servicer hereunder.
(c) Except as provided in Sections 5.02 and 6.01 hereof, the
duties and obligations of the Servicer under this Agreement shall
continue until this Agreement shall have been terminated as provided
in Section 8.01 hereof, and shall survive the exercise by the
Transferor or the Trustee of any right or remedy under this
Agreement, or the enforcement by the Transferor, MBIA, the Trustee or
any Certificateholder of any provision of the Certificates or this
Agreement.
ARTICLE 6
SERVICING TERMINATION
Section 6.01 Servicer Events of Default.
(a) Any of the following acts or occurrences shall constitute a
Servicer Event of Default:
(i) Any failure by the Servicer to deliver to the Trustee
for payment to Certificateholders any proceeds or payments
received from a Customer or in respect of the Trust Estate and
required to be so delivered under the terms of the Trust and
Security Agreement and this Agreement that continues unremedied
until 10:00 a.m. (Minneapolis time) on the following Business
Day; provided, however, that the Trustee, upon receiving actual
knowledge of such failure, shall give the Servicer prompt
written, telecopied or telephonic notice of such failure.
Notwithstanding the foregoing, any failure by the Trustee to
deliver such notice to the Servicer shall not prevent the
occurrence of a Servicer Event of Default; or
(ii) Any failure by the Servicer to deliver a Monthly
Servicer's Report pursuant to Section 4.01 hereof that continues
unremedied until 10:00 a.m., Minneapolis time, the following
Business Day; provided, however, that if the Servicer has not
delivered the Monthly Servicer's Report by 12:00 noon
(Minneapolis time) on the Determination Date, the Trustee shall
give the Servicer notice of such failure. Notwithstanding the
foregoing, any failure by the Trustee to deliver such notice to
the Servicer shall not prevent the occurrence of a Servicer
Event of Default; or
(iii)Any failure by the Servicer to make a Servicer Advance
pursuant to Section 3.04 hereof or to deposit any Removal Price
received by it that continues unremedied until 10:00 a.m.
(Minneapolis time) the following Business Day; provided,
however, that if the Servicer has not made the Servicer Advance
or deposited any Removal Price received by it by 12:00 noon
(Minneapolis time) on the Determination Date and the Trustee has
received written notification from the Servicer by way of the
Monthly Servicer's Report or otherwise that such Servicer
Advance or Removal Price is to be paid, the Trustee shall give
the Servicer prompt written, telecopied or telephonic notice of
such failure. Notwithstanding the foregoing, any failure by the
Trustee to deliver such notice to the Servicer shall not prevent
the occurrence of a Servicer Event of Default; or
(iv) Any failure on the part of the Servicer in its
capacity as such duly to observe or perform in any material
respect any other covenants or agreements of the Servicer set
forth in this Agreement or the Trust and Security Agreement, as
the case may be, or if any representation or warranty of the
Servicer set forth in Section 2.01 of this Agreement shall prove
to be incorrect, which failure or breach (A) materially and
adversely affects or could affect the interest or rights of
MBIA, the Trustee, or the Certificateholders and (B) continues
unremedied for a period of 30 days after the date on which the
Servicer becomes aware of such failure or breach or written
notice of such failure or breach, requiring the situation giving
rise to such breach or non-conformity to be remedied, shall have
been given to a Servicing Officer of the Servicer by the
Trustee, MBIA, the Transferor, or the Back-up Servicer, or to a
Servicing Officer of the Servicer, MBIA and the Trustee by
Holders of Certificates representing not less than 25% of the
Outstanding Principal Amount of all Series; or
(v) Any assignment by the Servicer to a delegate of its
duties or rights under this Agreement, except as specifically
permitted hereunder, or any attempt to make such an assignment;
or
(vi) The entry of a decree or order for relief by a court
having jurisdiction in respect of the Servicer or a petition
against the Servicer in an involuntary case under any federal
bankruptcy laws, as now or hereafter in effect, or any other
present or future federal or state bankruptcy insolvency or
similar law, or appointing a receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official for
the Servicer or for any substantial part of its property, or
ordering the winding up or liquidation of the affairs of the
Servicer and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days; or
(vii)The commencement by the Servicer of a voluntary case
under any federal bankruptcy laws, as now or hereafter in
effect, or any other present or future federal or state
bankruptcy, insolvency, reorganization or similar law, or the
consent by the Servicer to the appointment of or taking
possession by a conservator, receiver, liquidator, assignee,
trustee, custodian, sequestrator or other similar official in
any insolvency, readjustment of debt, marshaling of assets and
liabilities, bankruptcy or similar proceedings of or relating to
the Servicer or relating to a substantial part of its property,
or the making by the Servicer of an assignment for the benefit
of creditors, or the failure by the Servicer generally to pay
its debts as such debts become due or if the Servicer shall
admit in writing its inability to pay its debts as they become
due, or the taking of corporate action by the Servicer in
furtherance of any of the foregoing; or
(viii)The occurrence of a Trigger Event if the initial
Servicer is the Servicer.
(b) So long as a Servicer Event of Default shall not have been
remedied within the period set forth in (i), (ii), (iii), (iv) or
(vi) above, as applicable, or if a Servicer Event of Default
described in (v), (vii) or (viii) above occurs, the Trustee, at the
direction of MBIA shall, or if there has been an MBIA Default or
Termination, the Trustee, the Transferor, or the Back-up Servicer may
and shall at the request of the Controlling Holders, by notice (the
"Servicer Termination Notice") then given in writing to the Servicer
and the Back-up Servicer, terminate all, but not less than all, of
the rights and obligations of the Servicer under this Agreement.
(c) Upon the occurrence of a Trigger Event, the Trustee shall,
at the direction of MBIA, or if there has been an MBIA Default or
Termination, the Trustee, the Transferor, or the Back-up Servicer may
and shall at the request of the Controlling Holders, by Servicer
Termination Notice then given in writing to the Servicer and the Back-
up Servicer, terminate all but not less than all of the rights and
obligations of the Servicer under this Agreement.
(d) On or after the receipt by the Servicer of a Servicer
Termination Notice, all authority and power of the Servicer under
this Agreement, whether with respect to the Certificates or the Lease
Contracts or otherwise, shall pass to and be vested in the successor
Servicer appointed pursuant to Section 6.02 hereof, and, without
limitation, such successor Servicer is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as
attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer of the Lease Contracts
and related documents, or otherwise. The Servicer agrees to
cooperate with the Trustee, the Back-up Servicer and the successor
Servicer in effecting the termination of the responsibilities and
rights of the Servicer hereunder, including, without limitation, the
transfer to the successor Servicer for administration by it of all
cash amounts that shall at the time be held by the Servicer for
deposit, or have been deposited by the Servicer, in the Collection
Account or thereafter received with respect to any of the Lease
Contracts. To assist the successor Servicer in enforcing all rights
under the Lease Contracts and the Insurance Polices to the extent
they relate to the Lease Contracts, the outgoing Servicer, at its own
expense, shall transfer its records (electronic and otherwise)
relating to such Lease Contracts to the successor Servicer in such
form as the successor Servicer may reasonably request and shall
transfer the related Lease Contracts and Lease Contract Files (to the
extent not held by the Trustee) and all other records, correspondence
and documents relating to the Lease Contracts that it may possess to
the successor Servicer in the manner and at such times as the
successor Servicer shall reasonably request. In addition to any
other amounts that are then payable to the Servicer under this
Agreement, the Servicer shall be entitled to receive reimbursements
for any unreimbursed Servicer Advance made during the period prior to
the delivery of a Servicer Termination Notice pursuant to this
Section 6.01 which terminates the obligations and right of the
Servicer under this Agreement.
Section 6.02 Back-up Servicer to Act; Taking of Bids;
Appointment of Successor Servicer.
(a)(i) Except as provided in Section 6.02(d) hereof, on
and after the time the Servicer resigns pursuant to Section 5.04
hereof or receives a Servicer Termination Notice pursuant to
Section 6.01(b) or (c) hereof, the Back-up Servicer shall,
unless prevented by law, automatically and without further
action be the successor Servicer. If the Back-up Servicer
cannot serve as successor Servicer, MBIA, or if an MBIA Default
or Termination has occurred and is continuing, the Trustee,
shall appoint another firm acceptable to it and the Controlling
Holders.
(ii) The successor Servicer shall, upon the execution of a
written agreement to be bound by all of the provisions of this
Agreement, be the successor in all respects to the Servicer in
its capacity as Servicer under this Agreement and the
transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and
provisions hereof; provided, however, that the successor
Servicer (x) shall not be required to make any Servicer Advance
if such Servicer Advance would be prohibited by applicable law
and (y) shall not be liable for any acts or omissions of the
outgoing Servicer or for any breach by the outgoing Servicer of
any of its representations and warranties contained herein or in
any related document or agreement. With the prior written
consent of MBIA (which consent shall not be unreasonably
withheld), the successor Servicer may subcontract with another
firm to act as subservicer so long as the successor Servicer
remains fully responsible and accountable for performance of all
obligations of the Servicer on and after the time the Servicer
receives the Servicer Termination Notice. The successor
Servicer shall be entitled to the Servicer Fee and any
Additional Servicer Fee, subject to the taking of bids as
described in subsection (b) below.
(b) Solely for purposes of establishing the fee to be paid to
the successor Servicer upon receipt of a Servicer Termination Notice,
the Back-up Servicer shall solicit written bids, with a copy to MBIA
(such bids to include a proposed servicer fee and servicing transfer
costs) from not less than three entities experienced in the servicing
of Lease Contracts similar to the Lease Contracts and that are not
affiliates of the Trustee, the Back-up Servicer, the Servicer or the
Transferor and are reasonably acceptable to MBIA. The Transferor may
also solicit additional bids from other such entities. Any such
written solicitation shall prominently indicate that bids should
specify any applicable subservicing fees required to be paid from the
Servicer Fee and that any fees and transfer costs in excess of the
Servicer Fee shall be paid only pursuant to Section 12.02(d)(ix) of
the Trust and Security Agreement as the Additional Servicer Fee. The
successor Servicer shall act as Servicer hereunder and shall, subject
to the availability of sufficient funds in the Collection Account
pursuant to Section 12.02(d)(i) (up to the Servicer Fee) and
Section 12.02(d)(ix) (up to any Additional Servicer Fee and any
successor Servicer's Transition Costs) and Section 12.02(d)(xi) (up
to any additional Transition Costs) of the Trust and Security
Agreement, receive as compensation therefor a fee equal to the fee
proposed in the bid so solicited which provides for the lowest
combination of servicer fee and transition costs, as reasonably
determined by MBIA.
(c) The Servicer, the Back-up Servicer, the Transferor, the
Trustee and such successor Servicer shall take such action,
consistent with this Agreement, as shall be necessary to effectuate
any such succession. The Back-up Servicer (or the Trustee or the
Certificateholders if such Certificateholders have previously
reimbursed the Back-up Servicer and the Trustee therefor) shall be
reimbursed for Transition Costs, if any, incurred in connection with
the assumption of responsibilities of the successor Servicer, upon
receipt of documentation of such costs and expenses and in accordance
with Section 12.02(d)(ix) of the Trust and Security Agreement. The
Back-up Servicer shall have no claim against the Transferor or the
Trust Estate for any costs and expenses incurred in effecting such
succession in excess of the amount specified in the definition of
"Transition Costs."
(d) Upon written notification to the Trustee that on any
Determination Date following the solicitation of bids provided for in
Section 6.02(b) hereof, the sum of the aggregate Implicit Principal
Balance for all Lease Contracts plus the amount on deposit in the
Cash Collateral Account less the Outstanding Principal Amount of all
Series is less than the lesser of (1) $50,000 or (2) the proposed
servicing transfer costs set forth in the lowest bid solicited
pursuant to Section 6.02(b) hereof, then the Back-up Servicer shall
be relieved of its obligation under Section 6.02(a)(i) hereof, and
MBIA, or if there is an MBIA Default or Termination, the Transferor
shall appoint a successor Servicer. In such event, MBIA shall be
reimbursed for any Transition Costs incurred solely pursuant to
Section 6.02(b) hereof in the manner and to the extent provided for
in Section 12.02(d)(ix) of the Trust and Security Agreement.
Section 6.03 Notification to Certificateholders. The Servicer
shall promptly notify the successor Servicer (if specified in the
Trust and Security Agreement), Back-up Servicer, MBIA, the
Transferor, the Rating Agencies and the Trustee of any Servicer Event
of Default upon actual knowledge thereof by a Servicing Officer.
Upon any termination of, or appointment of a successor to, the
Servicer pursuant to this Article 6, the Trustee shall give prompt
written notice thereof to the Rating Agencies and the
Certificateholders at their respective addresses appearing in the
Certificate Register.
Section 6.04 Waiver of Past Defaults. The Trustee shall, at
the direction of MBIA or at the direction of the Controlling Holders,
on behalf of all Certificateholders, with the written consent of
MBIA, so long as there is no MBIA Default or Termination, waive any
default by the Servicer in the performance of its obligations
hereunder and its consequences, other than a default with respect to
required deposits and payments in accordance with Article 3 or a
default of the type set forth in clause (vii) or (viii) of Section
6.01(a) hereof, which waiver shall require the consent of each
Certificateholder and MBIA. Upon any such waiver of a past default,
such default shall cease to exist, and any Servicer Event of Default
arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon
except to the extent expressly waived. The Trustee shall provide to
the Rating Agencies notification of any such waiver.
Section 6.05 Effects of Termination of Servicer.
(a) Upon the appointment of the successor Servicer, the
predecessor Servicer shall remit any Scheduled Payments, Overdue
Payments and any other payments or proceeds that it may receive
pursuant to any Lease Contract or otherwise to the successor Servicer
after such date of appointment.
(b) After the delivery of a Servicer Termination Notice, the
outgoing Servicer shall have no further obligations with respect to
the management, administration, servicing, enforcement, custody or
collection of the Lease Contracts and the successor Servicer shall
have all of such obligations, except that the outgoing Servicer will
transmit or cause to be transmitted directly to the successor
Servicer, promptly on receipt and in the same form in which received,
any amounts held by the outgoing Servicer (properly endorsed where
required for the successor Servicer to collect them) received as
payments upon or otherwise in connection with the Lease Contracts.
The outgoing Servicer's indemnification obligations pursuant to
Section 5.01 hereof will survive the termination of the Servicer but
will not extend to any acts or omissions of a successor Servicer.
Section 6.06 No Effect on Other Parties. Upon any termination
of the rights and powers of the Servicer pursuant to Section 6.01
hereof, or upon any appointment of a successor Servicer, all the
rights, powers, duties and obligations of the other parties under
this Agreement, the Trust and Security Agreement, and the Lease
Acquisition Agreement shall remain unaffected by such termination or
appointment and shall remain in full force and effect thereafter.
ARTICLE 7
THE BACK-UP SERVICER
Section 7.01 Representations of Back-up Servicer. The Back-up
Servicer makes the following representations and warranties:
(a) The Back-up Servicer has been duly organized and is validly
existing as a national banking association in good standing under the
laws of the United States of America, with power and authority to own
its properties and to conduct its business as such properties shall
be currently owned and such business is presently conducted.
(b) The Back-up Servicer has the power and authority to execute
and deliver this Agreement, the Trust and Security Agreement and the
Insurance Agreement and to carry out their respective terms; and the
execution, delivery, and performance of this Agreement, the Trust and
Security Agreement and the Insurance Agreement shall have been duly
authorized by the Back-up Servicer by all necessary corporate action.
(c) Each of this Agreement, the Trust and Security Agreement
and the Insurance Agreement constitutes a legal, valid, and binding
obligation of the Back-up Servicer enforceable in accordance with its
respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, or other similar laws
affecting the enforcement of creditors' rights in general and by
general principles of equity, regardless of whether such
enforceability shall be considered in a proceeding in equity or at
law.
(d) The consummation of the transactions contemplated by this
Agreement, the Trust and Security Agreement and the Insurance
Agreement and the fulfillment of the terms thereof shall not conflict
with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under,
the articles of incorporation or by-laws of the Back-up Servicer, or
any indenture, agreement, or other instrument to which the Back-up
Servicer is a party or by which it shall be bound; nor result in the
creation or imposition of any lien upon any of its properties
pursuant to the terms of any such indenture, agreement, or other
instrument; nor violate any law or any order, rule, or regulation
applicable to the Back-up Servicer of any court or of any Federal or
state regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Back-up Servicer or its
properties.
(e) There are no proceedings or investigations pending or, to
the Back-up Servicer's best knowledge, threatened before any court,
regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over the Back-up Servicer or its
properties (i) asserting the invalidity of the Servicing Agreement,
the Trust and Security Agreement or the Insurance Agreement,
(ii) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement, the Trust and Security Agreement or
the Insurance Agreement, (iii) seeking any determination or ruling
that might materially and adversely affect the performance by the
Back-up Servicer of its obligations under, or the validity or
enforceability of, this Agreement, the Trust and Security Agreement
or the Insurance Agreement.
Section 7.02 Merger or Consolidation of, or Assumption of the
Obligations of, Back-up Servicer. Any Person (i) into which the
Back-up Servicer may be merged or consolidated, (ii) which may result
from any merger or consolidation to which the Back-up Servicer shall
be a party, or (iii) which may succeed to the properties and assets
of the Back-up Servicer substantially as a whole, which Person in any
of the foregoing cases executes an agreement of assumption to perform
every obligation of the Back-up Servicer hereunder, shall be the
successor to the Back-up Servicer under this Agreement with the prior
written consent of MBIA and without any further act on the part of
any of the parties to this Agreement. In the event that the
resulting entity does not meet the eligibility requirements for the
Trustee set forth in the Trust and Security Agreement, the Back-up
Servicer, upon the written request of MBIA, shall resign from its
obligations and duties under this Agreement.
Section 7.03 Back-up Servicer Resignation. The Back-up
Servicer shall not resign from its obligations and duties under this
Agreement, the Trust and Security Agreement or the Insurance
Agreement except (i) as provided in Section 7.02 above, or (ii) upon
determination that the performance of its duties shall no longer be
permissible under applicable law (any such determination permitting
the resignation of the Back-up Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee and MBIA).
Upon the Back-up Servicer's resignation or termination pursuant to
Sections 7.02 hereof or this Section 7.03, notice thereof shall be
provided to the Rating agencies and the Back-up Servicer shall comply
with the provisions of this Agreement until the acceptance of a
successor servicer.
Section 7.04 Oversight of Servicing.
(a) Prior to each Payment Date, the Back-up Servicer shall
review the Monthly Servicer's Report related thereto and shall
determine the following:
(i) that such Monthly Servicer's Report is complete on its
face;
(ii) that the amount credited to and withdrawn from the
Lockbox Account is the same as the amount set forth in the
Monthly Servicer's Report as so credited; and
(iii) that the amounts credited to and withdrawn from
the Collection Account and the Cash Collateral Account, and the
balance of such accounts, as set forth in the records of the
Back-up Servicer, are the same as the amount set forth in the
Monthly Servicer's Report.
(b) The Back-up Servicer shall, within 30 days of the receipt
thereof, load the Computer Tape received from the Servicer pursuant
to the Section 4.01 hereof, make sure such Computer Tape is in
readable form and shall calculate and check the following:
(i) the Aggregate IPB as of the most recent Calculation
Date;
(ii) each Series IPB as of the most recent Calculation
Date;
(iii) the Class A Principal Distribution Amount and the
Class B Principal Distribution Amount for each Series of
Certificates as of the most recent Payment Date; and
(iv) the Annualized Gross Default Rate, the Cumulative
Gross Default Rate, the 1-30 Day Delinquency Rate and the 61-90
Day Delinquency Rate for the related Due Period as set forth in
the most recent Monthly Servicer's Report.
In addition, the Back-up Servicer shall confirm that the items set
forth in the Monthly Servicer's Report, other than the items listed
in the section entitled "Deposits by or on behalf of the Servicer"
are accurate based solely on a comparison to the Computer Tape
referred to above.
(c) In the event of any discrepancy between the information set
forth in subparagraphs (a) and (b) as calculated by the Servicer from
that determined or calculated by the Back-up Servicer, the Back-up
Servicer shall promptly notify the Servicer, the Trustee, the
Certificateholders and MBIA of such discrepancy. If within 30 days
of such notice being provided to the Servicer, the Back-up Servicer
and the Servicer are unable to resolve such discrepancy, the Back-up
Servicer shall promptly notify the Rating Agencies, MBIA and the
Holders of the Certificates of such discrepancy.
(d) Based solely on the information included in the Series
Lease Schedule delivered on each Acquisition Date and the Computer
Tapes provided each Payment Date thereafter, the Back-up Servicer
shall determine that any Additional Lease Contracts and Substitute
Lease Contracts satisfy the criterion set forth in Section 3.04(b) of
the Lease Acquisition Agreement and that the acquisition of such
Additional Lease Contracts and Substitute Lease Contracts do not
violate the Concentration Limits set forth in the Lease Acquisition
Agreement.
(e) The Back-up Servicer will make a site visit to the offices
of the Servicer on an annual basis for the purpose of reviewing the
operations of the Servicer. The reasonable out-of-pocket costs and
expenses of the Back-up Servicer incurred in connection with this
Agreement, including without limitation, the site visit referred to
in the preceding sentence will be reimbursed to the Back-up Servicer
by the Servicer.
(f) Other than as specifically set forth elsewhere in this
Agreement, the Back-up Servicer shall have no obligation to
supervise, verify, monitor or administer the performance of the
Servicer and shall have no liability for any action taken or omitted
by the Servicer.
(g) The Back-up Servicer shall consult fully with the Servicer
as may be necessary from time to time to perform or carry out the
Back-up Servicer's obligations hereunder, including the obligation to
succeed at any time to the duties and obligations of the Servicer as
servicer under Section 6.02 hereof.
Section 7.05 Back-up Servicer Compensation. As compensation
for the performance of its obligations as Back-up Servicer under this
Agreement the Back-up Servicer shall be entitled to receive the Back-
up Servicer Fee.
Section 7.06 Duties and Responsibilities.
(a) The Back-up Servicer shall perform such duties and only
such duties as are specifically set forth in this Agreement, and no
implied covenants or obligations shall be read into this Agreement
against the Back-up Servicer; and
(b) In the absence of bad faith or negligence on its part, the
Back-up Servicer may conclusively rely as to the truth of the
statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to the Back-up Servicer and
conforming to the requirements of this Agreement; but in the case of
any such certificates or opinions, which by any provision hereof are
specifically required to be furnished to the Back-up Servicer, the
Back-up Servicer shall be under a duty to examine the same and to
determine whether or not they conform to the requirements of this
Agreement.
ARTICLE 8
MISCELLANEOUS PROVISIONS
Section 8.01 Termination.
(a) Except with respect to a particular party under Sections
5.01, 5.04, 5.05, 6.01, 7.02 or 7.03 hereof, the respective duties
and obligations of the Servicer, the Transferor, the Back-up Servicer
and the Trustee created by this Agreement shall terminate upon the
discharge of the Trust and Security Agreement in accordance with its
terms; and the respective duties and obligations of the Trustee shall
terminate with respect to the Trustee in the event the Trustee
resigns or is replaced under Section 7.09 of the Trust and Security
Agreement; provided, however, that no resignation or removal of the
Trustee and no appointment of a successor Trustee shall become
effective until the acceptance of appointment by the successor
Trustee under Section 7.10 of the Trust and Security Agreement. Upon
the termination of this Agreement pursuant to this Section 8.01(a),
the Servicer shall pay all monies with respect to the Lease Assets
held by the Servicer and to which the Servicer is not entitled to the
Transferor or upon the Transferor's order.
(b) This Agreement shall not be automatically terminated as a
result of an Event of Default under the Trust and Security Agreement
or any action taken by the Trustee thereafter with respect thereto,
and any liquidation or preservation of the Trust Estate by the
Trustee thereafter shall be subject to the rights of the Servicer to
service the Lease Receivables and to collect servicing compensation
as provided hereunder.
Section 8.02 Amendments.
(a) Subject to paragraph (b) of this Section 8.02, this
Agreement may be amended from time to time by the Transferor, the
Servicer, the Back-up Servicer, and the Trustee, with the consent of
MBIA but without the consent of any of the Certificateholders, to
cure any ambiguity, to correct or supplement any provisions herein
that may be inconsistent with any other provisions herein and
therein, as the case may be.
(b) The provisions of this Agreement may be waived from time to
time and this Agreement may be amended from time to time by the
Transferor, the Servicer and the Back-up Servicer, with the consent
of the Trustee, MBIA and the Controlling Holders, for the purpose of
adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement; provided, however, that no such
amendment or waiver shall, without the consent of each
Certificateholder, (i) alter the priorities with which any allocation
of funds shall be made under this Agreement, (ii) permit the creation
of any lien on the Trust Estate (other than the lien of the Trust and
Security Agreement) or any portion thereof or deprive any such
Certificateholder of the benefit of this Agreement with respect to
the Trust Estate or any portion thereof, (iii) modify this Section
8.02 or (iv) modify any of the items referred to in clauses (i)
through (viii) of Section 9.02 (a) of the Trust and Security
Agreement.
(c) Promptly after the execution of any amendment, the Servicer
shall send to the Trustee, MBIA, each Holder of the Certificates and
each Rating Agency a conformed copy of each such amendment.
(d) Any amendment or modification effected contrary to the
provisions of this Section 8.02 shall be void.
(e) The manner of obtaining any consents from the
Certificateholders and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such
reasonable regulations as the Trustee may prescribe.
Section 8.03 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.
Section 8.04 Notices. All demands, notices and communications
hereunder shall be in writing and shall be delivered or mailed by
registered or certified United States mail, postage prepaid, and
addressed, in each case as follows: (a) if to the Transferor, at
6424 W. 91st Avenue, Suite B, Westminster, CO 80030; (b) if the
Servicer, at 6424 W. 91st Avenue, Westminster, CO 80030; (c) if to
the Trustee, at Sixth Street and Marquette Avenue, Minneapolis,
Minnesota 55479-0070; (d) if to MBIA, at 113 King Street, Armonk,
New York 10504, Attention: Structured Finance - Insured Portfolio
Management (SF-IPM); or (e) if to the Certificateholders at the
address set forth on Exhibit A to the applicable Certificate Purchase
Agreement. All notices and demands shall be deemed to have been
given either at the time of the delivery thereof to any officer of
the Person entitled to receive such notices and demands at the
address of such Person for notices hereunder, or on the third day
after the mailing thereof to such address, as the case may be.
Section 8.05 Severability of Provisions. If one or more of
the provisions of this Agreement shall be for any reason whatever
held invalid, such provisions shall be deemed severable from the
remaining covenants and provisions of this Agreement, and shall in no
way affect the validity or enforceability of such remaining
provisions, the rights of any parties hereto, or the rights of the
Trustee, MBIA or any Certificateholder. To the extent permitted by
law, the parties hereto waive any provision of law which renders any
provision of this Agreement prohibited or unenforceable in any
respect.
Section 8.06 Binding Effect. All provisions of this Agreement
shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereto, and all such provisions
shall inure to the benefit of the Certificateholders. This Agreement
may not be modified except by a writing signed by all parties hereto.
Section 8.07 Article Headings and Captions. The article
headings and captions in this Agreement are for convenience of
reference only, and shall not limit or otherwise affect the meaning
hereof.
Section 8.08 Legal Holidays. In the case where the date on
which any action required to be taken, document required to be
delivered or payment required to be made is not a Business Day, such
action, delivery or payment need not be made on such date, but may be
made on the next succeeding Business Day.
Section 8.09 Assignment for Security for the Certificates.
The Servicer and the Back-up Servicer understand that the Transferor
will convey to the Trustee all its right, title and interest to this
Agreement. The Servicer and the Back-up Servicer consent to such
conveyance and further agree that all representations, warranties,
covenants and agreements of the Servicer and the Back-up Servicer
made herein shall also be for the benefit of and inure to the Trustee
and all Holders from time to time of the Certificates.
Section 8.10 No Servicing Assignment. Notwithstanding
anything to the contrary contained herein, except as provided in
Sections 5.02, 5.04 and 8.09 hereof, this Agreement may not be
assigned by the Transferor or the Servicer without the prior written
consent of MBIA and the Controlling Holders.
Section 8.11 MBIA Default or Termination. If an MBIA Default
or Termination occurs and is continuing, MBIA's right to consent
hereunder and to direct the Trustee shall be voided and, in such
event, in all provisions of this Agreement wherein MBIA's consent or
direction is required or permitted, the consent or direction of the
Controlling Holders shall be required or permitted.
Section 8.12 Third Party Beneficiary. Each of MBIA and the
Holders of the Certificates are express third party beneficiaries to
this Agreement.
Section 8.13 Counterparts. This Agreement may be executed in
any number of counterparts, each of which so executed shall be deemed
to be an original, but all such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Transferor, the Servicer, the Trustee
and the Back-up Servicer have caused this Servicing Agreement to be
duly executed by their respective officers thereunto duly authorized
as of the date and year first above written.
GF FUNDING CORP. II, Transferor
By: s/ William W. Wehner
Name: William W. Wehner
Title: President
GRANITE FINANCIAL, INC., Servicer
By: s/ William W. Wehner
Name: William W. Wehner
Title: President
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, as Trustee and Back-
up Servicer
By: s/ Bonnie Seideman
Name: Bonnie Seideman
Title: Assistant Vice President
