<PAGE>
THIS PROSPECTUS IS BEING FILED PURSUANT TO RULE 424(b)(4) OF THE
SECURITIES ACT OF 1933 AND RELATES TO THE REGISTRATION STATEMENT
ON FORM S-1 (FILE NO. 333-30207)
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
$ 62,980,096 5.7325% CLASS A-1 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$191,678,552 6.3900% CLASS A-2 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$ 8,214,795 6.5000% CLASS B RECEIVABLE-BACKED NOTES, SERIES 1997-1
$ 5,476,530 6.6800% CLASS C RECEIVABLE-BACKED NOTES, SERIES 1997-1
HELLER FUNDING CORPORATION,
Trust Depositor
HELLER FINANCIAL, INC.,
Servicer
------------------------
The Heller Equipment Receivables Trust 1997-1 (the "Trust" or the
"Issuer"), a limited purpose Delaware business trust, has been formed pursuant
to a Trust Agreement, dated as of September 1, 1997, between Heller Funding
Corporation ("Heller Funding"), as Trust Depositor (in such capacity, the
"Trust Depositor"), and Wilmington Trust Company, as Owner Trustee (the "Owner
Trustee"). The Trust Depositor is a wholly owned, limited purpose bankruptcy
remote subsidiary of Heller Financial, Inc. ("Heller Financial"). The Trust
will issue $62,980,096 aggregate principal amount of 5.7325% Class A-1
Receivable-Backed Notes, Series 1997-1 (the "Class A-1 Notes"), $191,678,552
aggregate principal amount of 6.3900% Class A-2 Receivable- Backed Notes, Series
1997-1 (the "Class A-2 Notes"), $8,214,795 aggregate principal amount of 6.5000%
Class B Receivable-Backed Notes, Series 1997-1 (the "Class B Notes") and
$5,476,530 aggregate principal amount of 6.6800% Class C Receivable-Backed
Notes, Series 1997-1 (the "Class C Notes"; and together with the Class A-1
Notes, Class A-2 Notes and Class B Notes, the "Notes"). The Notes will
represent debt obligations of the Trust, and will be issued pursuant to and
secured by an Indenture dated as of September 1, 1997 (the "Indenture") to be
entered into between the Trust and Norwest Bank Minnesota, National
Association, as Indenture Trustee (the "Indenture Trustee"). The Trust will
concurrently issue $5,476,530 aggregate principal amount of 7.6300% Class
(cover continued on next page)
------------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
UNDER "RISK FACTORS" ON PAGE 17 OF THIS PROSPECTUS.
THE NOTES WILL REPRESENT OBLIGATIONS OF THE TRUST ONLY AND WILL NOT
REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT GUARANTEED OR INSURED
BY, THE TRUST DEPOSITOR, THE OWNER TRUSTEE, HELLER FINANCIAL OR ANY OF THEIR
RESPECTIVE AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
------------------------
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
------------------------
<PAGE>
<TABLE>
<CAPTION>
Price to Public Underwriting Discounts Proceeds to Issuer (2)
and Commissions (1)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note 100.0000% 0.1500% 99.8500%
----------------------------------------------------------------------------------------------------------
Per Class A-2 Note 99.9975% 0.2200% 99.7775%
----------------------------------------------------------------------------------------------------------
Per Class B Note 99.9825% 0.3500% 99.6325%
----------------------------------------------------------------------------------------------------------
Per Class C Note 99.9925% 0.5000% 99.4925%
----------------------------------------------------------------------------------------------------------
Total $268,343,333 $572,297 $267,771,035
==========================================================================================================
</TABLE>
(1) The Issuer has agreed to indemnify the Underwriter against certain
liabilities, including under the Securities Act of 1933.
(2) Before deducting expenses of this Offering estimated to be $541,000.
The Notes are offered by the Underwriter, subject to prior sale,
when, as and if issued to and accepted by it and subject to its right to
reject any order in whole or in part or to withdraw, cancel or modify any
order without notice. It is expected that delivery of the Notes will be made
in book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company, or through Cedel Bank, S.A. or the Euroclear System,
on or about September 4, 1997.
UNDERWRITERS OF THE CLASS A-1 NOTES AND THE CLASS A-2 NOTES
FIRST UNION CAPITAL MARKETS CORP.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
UNDERWRITER OF THE CLASS B NOTES AND THE CLASS C NOTES
FIRST UNION CAPITAL MARKETS CORP.
The date of this Prospectus is August 27, 1997.
(cover page continued)
-2-
<PAGE>
D Receivable-Backed Notes Series 1997-1 (the "Subordinated Notes"), as well as
Class E Receivable-Backed Certificates, Series 1997-1 (the "Certificates" and
together with the Subordinated Notes, the "Subordinated Securities") which
will not bear interest and have certain rights to the monies in the Reserve
Fund and certain other excess funds (as defined in "Summary of Terms-Reserve
Fund") after the payment of all principal and interest on the Notes and
Subordinated Notes. The Subordinated Notes will be issued pursuant to the
Indenture; the Certificates will represent fractional undivided beneficial
equity interests in the Trust and will be issued pursuant to the Trust
Agreement. Neither the Subordinated Notes nor the Certificates are being
offered and sold hereunder.
The property of the Trust (the "Trust Assets") will include (a) a
pool of contracts originated or acquired by Heller Financial or its
wholly-owned subsidiary, Heller Financial Leasing, Inc. ("HFLI") as described
herein (inclusive of any Additional Contracts or Substitute Contracts added to
the Trust from time to time as defined in "Summary of Terms--The Contracts",
collectively, the "Contracts") consisting of (i) conditional sale agreements,
promissory notes with related security agreements, finance leases, installment
payment agreements, and similar types of financing agreements with end-users
(each, an "End-User") of the Equipment, Software and Services described below
(such Contracts, "End-User Contracts") and meeting certain eligibility
criteria specified herein, relating to printing, pre-press, machine tool,
plastics, computer hardware, computer software, restaurant, transportation,
energy related, medical, and industrial equipment (the "Equipment"), certain
computer software (the "Software") and related support and consulting services
(the "Services"; together with Equipment and Software, the "Financed Items"),
together with certain rights of Heller Financial or HFLI under finance program
agreements and assignments with Vendors (as defined in "Summary of
Terms--Vendor Agreements") of the Financed Items, as well a security interest
in the Equipment, and (ii) limited recourse contractual payment obligations
(which may take the form of promissory notes) payable by Vendors (such payment
obligations, "Vendor Loans") and secured by the Vendor's interest in End-User
Contracts originated by such Vendor (End-User Contracts securing Vendor Loans
being collectively referred to as "Secondary Contracts"), and by the Equipment
related to such End-User Contracts, (b) collections on such Contracts due or
received after July 31, 1997 (the "Cutoff Date") or, in the case of Additional
Contracts or Substitute Contracts, their applicable Cutoff Dates as defined in
"Summary of Terms-- Cutoff Dates" and (c) monies, to the extent available, in
the Reserve Fund. The Contracts and related interests will be conveyed by
Heller Financial or HFLI (either, in such capacity, a "Seller") to the Trust
Depositor pursuant to a Transfer and Sale Agreement dated as of September 1,
1997 (the "Transfer and Sale Agreement") by and between Heller Financial, HFLI
and the Trust Depositor. The Trust Depositor will concurrently convey such
assets to the Trust pursuant to the Sale and Servicing Agreement, dated as of
September 1, 1997 (the "Sale and Servicing Agreement"), among the Trust
Depositor, the Trust, the Indenture Trustee (as defined in "Summary of
Terms--Indenture Trustee") and Heller Financial, in its separate capacity as
Servicer thereunder (Heller Financial being, in such capacity, the
"Servicer").
Interest on the Notes and the Subordinated Notes will be payable
monthly in arrears on the 25th day of the month (or if such day is not a
Business Day the next succeeding Business Day) beginning on September 25, 1997
(each, a "Distribution Date") with respect to the period from and including
the immediately preceding Distribution Date (or with respect to the initial
Distribution Date, the date of issuance of the Notes and Subordinated Notes)
to the period to and excluding such Distribution Date. Principal payments
with respect to the Notes and the Subordinated Securities will be payable to
the holders thereof on each Distribution Date, as described herein. The
stated maturity date with respect to the Class A-1 Notes is the September 1998
Distribution Date and the stated maturity date with respect to the other Notes
and the Subordinated Securities is the May 2005 Distribution Date. The actual
payment in full, however, of the Notes or the Subordinated Securities could
and is expected to occur earlier than such stated maturity date. See "Summary
of Terms--Terms of the Notes--B. Principal" and "--Optional Redemption"
herein.
The Notes and the Subordinated Notes will be payable primarily from
collections of payments due under the Contracts (including payments from
Vendors pursuant to certain recourse arrangements, where applicable, and as
further described below), certain amounts received upon the prepayment or
purchase of Contracts or liquidation of the Contracts and disposition of the
related Equipment upon defaults thereunder, and the proceeds of Servicer
Advances (as defined in "Summary of Terms--Servicing; Servicing Fee; Servicer
Advances"), if any.
Payments of interest due on the Notes on any given Distribution Date
will be made prior to making any payments of principal on any of the Notes or
the Subordinated Notes. Payments of interest due on the Subordinated Notes
will be subordinated in priority to payments of interest due on the Class A-1
Notes, the Class A-2 Notes, the Class B Notes and the Class C Notes. Payments
of interest due on Class C Notes will be subordinated in priority to payments
of interest on the Class A-1 Notes, the Class A-2 Notes and the Class B Notes.
Payments of interest due on Class B Notes will be subordinated in priority to
payments of interest due on the Class A-1 Notes and Class A-2 Notes. Payments
of interest due on the Class A-2 Notes will be subordinated in priority to
payments of interest due on the Class A-1 Notes; provided, however, after the
occurrence and during
-2-
<PAGE>
the continuance of a Restricting Event or the occurrence of an Event of
Default payments of interest on the Class A-2 Notes and Class A-1 Notes, will
be made pro rata. Payments of principal on the Subordinated Notes will be
subordinated in priority to payments of principal on the Class A-1 Notes, the
Class A-2 Notes, the Class B Notes and Class C Notes. Payments of principal on
the Class C Notes will be subordinated in priority to payments of principal on
the Class A-1 Notes, the Class A-2 Notes and the Class B Notes. Payments of
principal on the Class B Notes will be subordinated in priority to payments of
principal on the Class A-1 Notes and the Class A-2 Notes. Payments of
principal on the Class A-2 Notes will be subordinated in priority to payments
of principal on the Class A-1 Notes. See "Summary of Terms--Terms of the
Notes", as well as "Description of the Notes--Allocations" herein.
The Notes are being offered pursuant to this Prospectus. Sales of
the Notes may not be consummated unless the purchaser has received this
Prospectus. The Certificates are not being offered hereby.
The Issuer does not intend to apply for listing of the Notes on any
securities exchange or for the inclusion of the Notes on any automated
quotation system.
There currently is no secondary market for the Notes and there is no
assurance that one will develop, or if one does develop, that it will continue
or provide sufficient liquidity.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, periodic and
annual unaudited reports, containing information concerning the Trust, the
Contracts, the Notes and the Certificates, will be prepared by the Servicer
and sent on behalf of the Trust to Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC"), and the Euroclear System ("Euroclear") or
Cedel Bank, S.A. ("CEDEL") as registered holders of the Notes. Such reports
will be made available by DTC, Euroclear or CEDEL and its participants to
holders of interests in the Notes in accordance with the rules, regulations
and procedures creating and affecting DTC, Euroclear and CEDEL, respectively.
See "Description of the Notes--Book Entry Registration" and "-- Reports"
below. Such reports will not constitute financial statements prepared in
accordance with generally accepted accounting principles or that have been
examined and reported upon by, with an opinion expressed by, an independent or
certified public accountant. Upon the issuance of fully registered,
certificated Notes, such reports will be sent to each registered Noteholder.
AVAILABLE INFORMATION
The Trust Depositor, as originator of the Trust, has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes offered pursuant to this Prospectus and
described herein. For further information, reference is made to the
Registration Statement which may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; Citicorp Center, 500 West Madison, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of the Registration Statement may be obtained
from the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
public access site on the Internet through the World Wide Web at which site
reports, information statements and other information, including all
electronic filings, regarding the Trust Depositor and the Trust may be viewed.
The Internet address of such World Wide Web site is http://www.sec.gov. The
Servicer, on behalf of the Trust, will also file or cause to be filed with the
Commission such periodic reports as are required under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the rules and regulations of
the Commission thereunder. Copies of such reports can be obtained as
described above.
UPON RECEIPT OF A REQUEST BY AN INVESTOR, OR HIS OR HER
REPRESENTATIVE, WITHIN THE PERIOD DURING WHICH THERE IS AN OBLIGATION TO
DELIVER A PROSPECTUS, THE UNDERWRITER WILL PROMPTLY DELIVER, OR CAUSE TO BE
DELIVERED, WITHOUT CHARGE AND IN ADDITION TO ANY SUCH DELIVERY REQUIREMENTS, A
PAPER COPY OF THIS PROSPECTUS AND A PROSPECTUS ENCODED IN AN ELECTRONIC
FORMAT.
-3-
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this summary are defined elsewhere in this
Prospectus on the pages indicated in the "Index of Terms" on page 87.
There are material risks associated with an investment in the Notes. See
"Risk Factors" on page 17 for a discussion of certain factors that investors
should consider before making an investment in the Notes.
Issuer . . . . . . . . . . . . . Heller Equipment Asset Receivables Trust
1997-1 (the "Issuer" or the "Trust"), a
Delaware business trust formed by the
Trust Depositor and the Owner Trustee
pursuant to the Trust Agreement dated as
of September 1, 1997 (the "Trust
Agreement") between the Trust Depositor
and the Owner Trustee. The principal
executive offices of the Trust are in
Wilmington, Delaware, in care of the
Owner Trustee, at the address of the
Owner Trustee specified below.
Trust Depositor . . . . . . . . . Heller Funding Corporation (the "Trust
Depositor"), a Delaware corporation and a
wholly owned, limited purpose subsidiary
of Heller Financial, Inc. The Trust
Depositor's principal executive offices
are located at 500 West Monroe Street,
Chicago, Illinois 60661 and its telephone
number is (312) 441-7246.
Seller/Servicer . . . . . . . . . Heller Financial, Inc., a Delaware
corporation ("Heller Financial"; or, in
its separate capacities as a Seller under
the Transfer and Sale Agreement described
herein, a "Seller", or as Servicer under
the Sale and Servicing Agreement
described herein, the "Servicer").
Heller Financial's offices are located at
500 West Monroe Street, Chicago, Illinois
60661 and its telephone number is (312)
441-7000.
Additional Seller . . . . . . . . In addition to Heller Financial, Heller
Financial's wholly-owned subsidiary,
Heller Financial Leasing, Inc. ("HFLI")
will be an additional Seller (in such
capacity, also a "Seller') under the
Transfer and Sale Agreement described
herein.
Indenture Trustee . . . . . . . . Norwest Bank Minnesota, National
Association, as indenture trustee under
the Indenture described herein (the
"Indenture Trustee"). The Indenture
Trustee's offices are located at 6th
Street and Marquette Avenue, Minneapolis,
Minnesota 55479-0069.
Owner Trustee . . . . . . . . . . Wilmington Trust Company, as owner
trustee under the Trust Agreement (the
"Owner Trustee"). The Owner Trustee's
offices are located at Rodney Square
North, 1100 North Market Street,
Wilmington, Delaware 19890-0001.
Cutoff Dates . . . . . . . . . . With respect to the Contracts transferred
to the Trust on the Closing Date, July
31, 1997, and with respect to any
Additional Contract or Substitute
Contract (see "Summary of Terms--The
Contracts") transferred to the Trust
thereafter, the close of business on the
first day of the calendar month in which
such transfer occurs (each of such dates
a "Cutoff Date", an "Additional Contract
Cutoff Date", or a "Substitute Contract
Cutoff Date", respectively). The term
"Cutoff Date" when used herein in the
context of general references to the pool
of Contracts held by the Trust, should be
deemed to include a reference to the
Additional Contract Cutoff Date and
Substitute Contract Cutoff Date of any
Additional Contract or Substitute
Contract contained within such pool of
Contracts, unless otherwise specified or
unless the context otherwise clearly
requires.
Closing Date . . . . . . . . . . On or about September 4, 1997 (the
"Closing Date").
-4-
<PAGE>
Collection Periods, . . . . . . . A Collection Period is the period from
Calculation Dates, and including the first day of each
Distribution Dates calendar month to and including the last
and Record Dates day of the calendar month (such first
day, the "Calculation Date" and each such
period, a "Collection Period"). A
Distribution Date is the 25th day (or if
any such date is not a "Business Day",
i.e., a day other than a Saturday, a
Sunday or a day on which banking
institutions in Chicago, Illinois,
Wilmington, Delaware or New York, New
York are authorized or obligated by any
law or regulation to be closed, then on
the next succeeding Business Day) of each
calendar month (each, a "Distribution
Date") commencing September 25, 1997.
The Collection Period relating to any
particular Distribution Date shall be the
Collection Period occurring during the
calendar month preceding the month in
which such Distribution Date occurs.
With respect to any Distribution Date and
the Notes, the "Record Date" is the
calendar day immediately preceding each
Distribution Date (or, with respect to
any Definitive Note as defined in
"Description of the Notes -- Definitive
Notes", the last calendar day of the
month preceding the month in which such
Distribution Date occurs).
The Notes . . . . . . . . . . . . $62,980,096 aggregate principal amount
(the "Initial Class A-1 Note Principal
Balance") of 5.7325% Class A-1
Receivable-Backed Notes, Series 1997-1
(the "Class A-1 Notes"); $191,678,552
aggregate principal amount (the "Initial
Class A-2 Note Principal Balance") of
6.3900% Class A-2 Receivable-Backed Notes,
Series 1997-1 (the "Class A-2 Notes");
$8,214,795 aggregate principal amount
(the "Initial Class B Note Principal
Balance") of 6.5000% Class B
Receivable-Backed Notes, Series 1997-1
(the "Class B Notes"); and $5,476,530
aggregate principal amount (the "Initial
Class C Note Principal Balance") of 6.6800%
Class C Receivable-Backed Notes, Series
1997-1 (the "Class C Notes"; and together
with the Class A-1 Notes, Class A-2 Notes
and Class B Notes, the "Notes"). The
Initial Class A-1 Note Principal Balance
is equal to approximately 23.00% of the
initial Aggregate Discounted Contract
Balance (as defined in "Description of
the Notes -- Principal") of the
Contracts, the Initial Class A-2 Note
Principal Balance is equal to
approximately 70.00% of the initial
Aggregate Discounted Contract Balance of
the Contracts, the Initial Class B Note
Principal Balance is equal to
approximately 3.00% of the initial
Aggregate Discounted Contract Balance of
the Contracts, and the Initial Class C
Note Principal Balance is equal to
approximately 2.00% of the Initial
Aggregate Discounted Contract Balance of
the Contracts.
The Notes will be issued by the Trust
pursuant to an Indenture to be dated as
of September 1, 1997 (the "Indenture"),
between the Trust and the Indenture
Trustee. The Notes will be secured by
the assets of the Trust. The Notes will
be available for purchase in book-entry
form only in minimum denominations of
$1,000 and integral multiples thereof
(except for one Note of each Class which,
for rounding purposes, may be less than
an integral multiple thereof). The
holders of beneficial interests in the
Notes held in book-entry form ("Note
Owners") will not be entitled to receive
Definitive Notes except in the limited
circumstances described herein. See
"Description of the Notes--General" and
"--Definitive Notes" and "--Book-Entry
Registration" herein. The Class A-2
Notes, the Class B Notes, the Class C
Notes and the Subordinated Securities
will be subordinated to the Class A-1
Notes to the extent described herein; the
Class B Notes, the Class C Notes and the
Subordinated Securities will be
subordinated to the Class A-2 Notes to
the extent described herein; the Class C
Notes and the Subordinated Securities
will be subordinated to the Class B Notes
to the extent described herein; and the
Subordinated Securities will be
subordinated to the Class C Notes to the
extent described herein. See
"Description of the Notes -- Allocations"
herein.
-5-
<PAGE>
The Subordinated Securities . . . On the Closing Date, the Trust will also
issue 7.6300% Class D Receivables Backed
Notes Series 1997-1 (the "Subordinated
Notes" ) with an aggregate principal
balance of $5,476,530 (the "Initial Class
D Note Principal Balance"), as well as
Class E Receivables Backed Certificates
Series 1997-1 (the "Certificates", and,
together with the Subordinated Notes, the
"Subordinated Securities") with an
initial certificate balance of
$2,738,265; the Certificates will not
bear interest. The rights of the holders
of the Subordinated Securities to receive
distributions will be subordinated to the
rights of the Noteholders to receive
distributions with respect to the Notes
to the extent described herein. See
"Description of the Notes - Allocations"
herein.
A. Class D Notes . . . . . . . . The Initial Class D Note Principal
Balance is equal to approximately 2.00%
of the initial Aggregate Discounted
Balance of the Contracts and will be
issued pursuant to the Indenture. The
Subordinated Notes are not being offered
and sold hereunder and are expected to be
sold concurrently with the Notes in a
private placement.
B. Certificates . . . . . . . . The Certificates will represent
fractional undivided beneficial equity
interests in the Trust and residual
interests in amounts in the Reserve Fund
(after the payment of all outstanding
interest and principal on the Notes and
Subordinated Notes) and will be issued
pursuant to the Trust Agreement. The
Certificates are not being offered and
sold hereunder. The Trust Depositor is
expected initially to retain the
Certificates, although the Certificates
could be subsequently conveyed in a
separate transaction subject to certain
restrictions to ensure the Trust is not
treated as a taxable entity for federal
income tax purposes.
The Trust . . . . . . . . . . . . The Trust is a business trust established
under the laws of the State of Delaware
pursuant to the Trust Agreement. The
activities of the Trust are limited by
the terms of the Trust Agreement to
acquiring, owning and managing the
Contracts and related assets, issuing and
making payments on the Notes and the
Certificates and other activities related
thereto.
Trust Assets . . . . . . . . . . The property of the Trust (the "Trust
Assets") will include (i) the Contracts
transferred to the Trust on the Closing
Date with an Aggregate Discounted
Contract Balance of $273,826,503 as of
the Cutoff Date (together with Additional
Contracts and/or Substitute Contracts
that may be transferred to the Trust from
time to time as described herein), (ii)
all monies at any time paid or payable
thereunder or in respect thereof after
the Cutoff Date applicable to such
Contracts, in the form of (A) Scheduled
Payments inclusive of such payments
received through Vendor recourse or
support arrangements, but excluding the
Excluded Amounts, (B) Prepayments, and
(C) Recoveries (including any derived
from the disposition of related
Equipment) received with respect to
Defaulted Contracts and Expired Lease
Proceeds (in each case as such terms are
defined in this "Summary of Terms"),
(iii) the applicable Seller's interest in
the related Equipment, (iv) with respect to
Contracts which are Vendor Loans, the
Applicable Security related thereto, (v)
such amounts as from time to time may be
held in the Collection Account or any
related Account or Subaccount under the
Sale and Servicing Agreement or the
Indenture, together with earnings on funds
therein, (vi) the rights of the Trust
Depositor under the Transfer and Sale
Agreement, (vii) any late charges relating
to a Contract which were included in the
Contract's terms as of the Cutoff Date
("Late Charges") (viii) amounts available,
if any, in the Reserve Fund and (ix)
proceeds of any of the foregoing. "Expired
Lease Proceeds" means any and all cash
proceeds or rents realized from the sale or
re-lease of Equipment under an expired
lease (net of liquidation expenses).
A. Contracts . . . . . . . All of the Contracts to be included in
the Trust (sometimes referred to herein,
collectively, as the "Contracts Pool" or
the "Transferred Contracts") consist of
conditional sale agreements (each, a
"CSA"), promissory notes with related
security agreements (each, a "Secured
Note"), finance leases (each, a
-6-
<PAGE>
"Lease"), installment payment agreements
(each, an "IPA") or other similar types
of financing agreements (each, a
"Financing Agreement") covering Financed
Items or, in the case of Vendor Loans,
secured by End-User Contracts which, in
turn, cover Financed Items.
With respect to the Contracts, the
Sellers will jointly and severally make
certain representations and warranties in
the Transfer and Sale Agreement,
including that: (i) the information with
respect to the Contracts, Secondary
Contracts and Equipment securing such
Contracts is true and correct in all
material respects; (ii) immediately prior
to the transfer of each Contract and the
interest in any related Equipment to the
Trust Depositor, such Contract was owned
by the Seller free and clear of any
adverse claim; (iii) each Contract did
not have any delinquent payment thereon
where such payment was delinquent for
more than 30 days and the Contract is not
otherwise in default; (iv) each Contract
is a valid and binding payment obligation
of the obligor and is enforceable in
accordance with its terms; and (v) no
adverse selection procedure was used in
selecting the Contracts for transfer
(i.e. the Contracts sold, assigned and
transferred to the Trust were not
intentionally chosen by the Sellers to be
of lesser credit quality or
characteristics as those Contracts
retained by the Sellers and not conveyed
to the Trust). With respect to Leases,
the Sellers will jointly and severally
represent in the Transfer and Sale
Agreement either (i) that such Leases are
"net leases" and contain "hell or high
water" provisions in favor of the Seller,
which unconditionally obligate each
applicable lessee (each, a "Lessee") to
make all payments scheduled under its
Lease, without setoff, or (ii) with
respect to certain Leases with Lessees
that are governmental entities or
municipalities, if such Lease is
cancelled in accordance with its terms,
either (x) the Vendor (as defined in this
"Summary of Terms") which assigned such
Lease to the Seller is unconditionally
obligated to repurchase such Lease from
the Seller for a purchase price not less
than the Discounted Contract Balance of
such Lease (as of the date of purchase)
plus interest thereon at the weighted
average of the Discount Rates through the
Distribution Date following such date of
repurchase or (y) pursuant to the
Transfer and Sale Agreement, the Sellers
have jointly and severally indemnified
the Trust Depositor (and any assignee
thereof) against such cancellation in an
amount equal to the Discounted Contract
Balance of such Lease (as of the date of
purchase) plus interest thereon at the
Discount Rate through the Distribution
Date following such cancellation less any
amounts paid by the Vendor pursuant to
clause (x). See "The Contracts
Generally" and "The Transfer and Sale
Agreement and Sale and Servicing
Agreement Generally--Representations and
Warranties" herein.
The Transferred Contracts have been
selected by the Seller from its portfolio
of CSAs, Secured Notes, Leases, IPAs,
Financing Agreements and Vendor Loans,
have the characteristics specified in the
Transfer and Sale Agreement and Sale and
Servicing Agreement and described herein,
and (except for Additional Contracts or
Substitute Contracts as defined in this
"Summary of Terms") will be purchased by
the Trust Depositor from the applicable
Seller on the Closing Date pursuant to
the Transfer and Sale Agreement. See
"The Transfer and Sale Agreement and Sale
and Servicing Agreement
Generally--Representations and
Warranties", "Use of Proceeds" and "The
Contracts Pool" herein.
As of the Cutoff Date, the Contract Pool
had the following characteristics (unless
otherwise noted, percentages are
calculated by reference to Discounted
Contract Balances of the related
Contracts as a percentage of the
Aggregate Discounted Contract Balance of
the Contract Pool. The Discounted
Contract Balances and the Aggregate
Discounted Contract Balance utilized in
clauses (i) through (vii) below were
calculated utilizing the Statistical
Discount Rate (as defined in this
section):
(i) there were 1,841 Contracts in the
Contract Pool;
-7-
<PAGE>
(ii) the Aggregate Discounted Contract
Balance, or ADCB (as defined in this
"Summary of Terms") of the Transferred
Contracts, calculated at the Discount
Rate (as defined in this "Summary of
Terms"), was $273,826,503;
(iii) the final scheduled
payment date of the Transferred Contract
with the latest maturity or expiration as
of the Cutoff Date was April 30, 2004;
(iv) the average Discounted Contract
Balance was approximately $148,738;
(v) all of the Contracts had (A)
original terms to maturity of not less
than 17 months and not more than 120
months, with a weighted average original
term to maturity of approximately 65.38
months, and (B) a remaining term to
maturity of not less than 4 months and
not more than 81 months, with a weighted
average remaining term to maturity of
approximately 43.46 months;
(vi) of such Contracts, no more than
1.26% were Vendor Loans; and
(vii) the Obligors (as defined in
this "Summary of Terms") with respect to
approximately 17.73% of the Contracts
were located in the state of California;
approximately 7.81% were located in New
York; approximately 5.80% were located in
Massachusetts; approximately 5.67% were
located in Illinois; approximately 5.46%
were located in Florida. No other state
represented more than 5.00% of the
Contracts.
See "The Transfer and Sale Agreement and
the Sale and Servicing Agreement
Generally--Concentration Amounts" herein.
The Statistical Discount Rate is equal to
6.7261% (the "Statistical Discount
Rate"). While the Discounted Contract
Balances and the Aggregate Discounted
Contract Balance calculated at the
Discount Rate will vary somewhat from the
Discounted Contract Balances and
Aggregate Discounted Contract Balance
calculated at the Statistical Discount
Rate, such variance will not be material.
For further information regarding the
Transferred Contracts, see "The Contracts
Pool" and "The Contracts Generally", as
well as "The Transfer and Sale Agreement
and Sale and Security Agreement
Generally--Representations and
Warranties" and "--Concentration Amounts"
herein.
Between the Cutoff Date and the Closing
Date some amortization of the pool is
expected to occur. In addition, certain
Contracts included in the pool as of the
Cutoff Date may be determined not to meet
the eligibility requirements for the
final pool, and may not be included in
the final pool. To the extent a Contract
is determined not to meet the eligibility
requirements for the pool, the Sellers,
through the Trust Depositor, may pursue
one of two options: (1) substitute a new
Contract for the ineligible Contract or
(2) repurchase the ineligible Contract.
To the extent, the Sellers, through the
Trust Depositor, replace an ineligible
Contract, the replacement Contract must
meet the terms and conditions of a
Substitute Contract, (see The Transfer
and Sale Agreement and Sale and Service
Agreement Generally-- Representations and
Warranties). While the statistical
distribution of the characteristics as of
the Closing Date for the initial
Contracts Pool will vary somewhat from
the statistical distribution of such
characteristics as of the Cutoff Date as
presented in this Prospectus, such
variance will not be material.
Generally, the Contracts not constituting
Leases are prepayable by their terms by
the Obligors thereon; in many (but not
all) instances, such terms require a
prepayment penalty. The Contracts
constituting Leases generally will be
non-cancellable by the Obligors. The
Sellers have from time to time, however,
and the Servicer may, under the terms of
the Sale and Servicing Agreement, permit
or agree to the early termination or full
prepayment of any such Contract
-8-
<PAGE>
included in the Contract Pool in certain
circumstances, and on the terms and
subject to the conditions more fully
specified in, the Sale and Servicing
Agreement (any prepayment of a Contract,
whether pursuant to its terms or in the
Servicer's discretion being an "Early
Termination", with the Contract related
thereto being an "Early Termination
Contract" or "Prepaid Contract"). Such
circumstances may include, without
limitation, a full or partial buyout of
the Equipment which is the subject of the
Contract, or an equipment upgrade.
In the event of an Early Termination
which has been prepaid in full, the Trust
Depositor will have the option to cause
the Trust to reinvest the proceeds of
such Early Termination in one or more
Contracts having similar characteristics
to such terminated Contract (each, an
"Additional Contract").
In addition, the Sellers will have the
option under the Transfer and Sale
Agreement to cause the Trust Depositor,
pursuant to the terms of the Sale and
Servicing Agreement, to substitute into
the Trust one or more Contracts having
similar characteristics (each, a
"Substitute Contract") for Defaulted
Contracts (as defined "Description of the
Notes -- Defaulted Contracts"), and
Contracts following a material
modification to or adjustment of the
terms of such Contract which modification
or adjustment would not otherwise be
permissible under the Sale and Servicing
Agreement (unless the Contract was to be
prepaid in full to the Trust and
refinanced by the Seller with a new,
modified Contract outside the Trust)
(each, an "Adjusted Contract"). For the
periods reflected in the twelve-month
period ended December 31, 1996 and ending
June 30, 1997, the Sellers have
recognized (i) delinquencies of 2.78% and
2.94%, respectively with respect to their
portfolio and (ii) losses of .02% and
.03% with respect to their portfolio.
(See "The Contracts Pool -- Delinquency
and Loan Loss Information"). With
respect to replacing either a Defaulted
Contract or an Adjusted Contract with a
Substitute Contract (which substitution
is not an obligation of the Sellers but
is in their sole and absolute
discretion), such Substitute Contract
must meet the Contracts Pool
concentration limitation as described in
"The Transfer and Sale Agreement and Sale
and Servicing Agreement Generally" as
well as the other substitution
requirements described herein. The
Aggregate Discounted Contract Balance of
the Defaulted Contracts and Adjusted
Contracts for which the Seller may cause
the substitution of Substitute Contracts
is limited to an amount not in excess of
10% of the Aggregate Discounted Contract
Balance of the Contracts as of the Cutoff
Date. The Sellers will also be permitted
to substitute a Substitute Contract for a
Contract which the Seller would otherwise
be required to repurchase due to certain
representations or warranties relating
thereto proving to have been incorrect (a
"Warranty Contract"), without regard to
the 10% limitation described above. See
"The Transfer and Sale Agreement and The
Sale and Servicing Agreement
Generally--Representations and
Warranties" herein.
The terms of a Contract may be subjected
to material modifications or adjustments
for administrative reasons or at the
request of the Obligor or related Vendor
for such Contract due to a variety of
circumstances. Such material
modifications may result in adjustments
to the Contract commencement date, the
stated periodic payment date for payments
due, the amount of the periodic payment
or the equipment subject to the Contract.
There may also occasionally be
non-material adjustments or modifications
in Contract terms which may be effected
by the Servicer on behalf of the Trust
without Noteholder consent and without
affecting the Contract's status as part
of the Trust.
Additional Contracts and Substitute
Contracts will be originated and added to
the Trust using the same credit criteria
and eligibility standards as the
Contracts in the Contracts Pool on the
Closing Date. Information with respect to
such Additional Contracts or Substitute
Contracts, to the extent deemed material,
will be included in periodic reports
required under the Exchange Act filed by
the Servicer on behalf of the Trust.
-9-
<PAGE>
In no event will the aggregate scheduled
payments of the Contracts, after the
inclusion in the Trust of the Substitute
Contracts and reinvestment in Additional
Contracts, be materially less than the
aggregate scheduled payments of the
Contracts prior to such substitution or
reinvestment. In addition, either the
final payment on such Substitute Contract
or Additional Contract will be on or
prior to April 30, 2004, or, to the
extent the final payment on such Contract
is due after April 30, 2004, only
scheduled payments due on or prior to
such date may be included in the
Discounted Contract Balance of such
Contract for purpose of making any
calculation under the Indenture or the
Sale and Servicing Agreement.
The Servicer is not authorized to permit
an Early Termination, without the
addition to the Trust of a related
Additional Contract, unless the amount
to be prepaid (whether by the related
Obligor, or through a combination of
payments from the related Obligor and
from the Seller/Servicer) on such
terminated Contract is equal at least to
the then Discounted Contract Balance of
the Contract, plus any delinquent
payments thereon.
The Sellers' define Contract delinquency
as a payment which is not made consistent
with the Contract terms and a Defaulted
Contract as a Contract for which a full
contractual payment has not been received
from the Obligor (or the Vendor if Vendor
recourse is applicable) for 120 days or
such shorter period as the Sellers may
determine consistent with their
respective collection policy. Contract
terms require payment by the Obligor
within thirty (30) days from the "due
date" provided in the associated invoice.
(See "Heller Financial, Inc. and Heller
Financial Leasing, Inc.-Vendor
Finance-Collection Process/Vendor
Recourse" and "Heller Financial, Inc.,
and Heller Financial Leasing,
Inc.-Commercial Equipment Finance -
Collection/Servicing" and "The Contracts
Pool - Delinquency and Loan Loss
Information."
B. Equipment and Other . . . . All of the applicable Seller's right, title
Financed Items and interest in the Equipment, if any,
subject to each Lease and the security
interest of the applicable Seller in the
Equipment, if any, subject to each CSA,
Secured Note, IPA, Financing Agreement and
Vendor Loan included in the Contract Pool
will be transferred to the Trust. Equipment
will include, but shall not be limited to,
printing, pre-press, machine tool,
plastics, computer hardware, computer
software, restaurant, transportation,
energy related, medical, and industrial
equipment. See "The Contracts Generally--
Equipment" and "The Contracts Pool" herein.
In the event the party obligated to make
payments under any Contract (as to a
Contract, the "Obligor") defaults in such
payments, the Servicer will follow its
customary and usual collection procedures,
which may include the repossession and sale
of any related Equipment on behalf of the
Trust. Any Recoveries from such sale shall
constitute Available Amounts (as defined in
"Description of the Notes --Allocations").
See "The Contracts Generally--Equipment",
and "Description of the Notes--Defaulted
Contracts" herein.
Certain End-User Contracts cover Financed
Items other than Equipment, including
computer software ("Software") and
related support and consulting services
(collectively, "Services") and will
represent approximately 3.88% of the ADCB
of the Contracts Pool on the Closing
Date. The Trust will not have title to
or a security interest in such Software,
nor will it own such Services (which will
be retained by the Obligor), and would
not be able to realize any value
therefrom under a related Contract upon a
default by the Obligor. See "The
Contracts Generally--Software and
Services" herein.
C. Collection Account . . . . . A trust account will be established by
the Servicer in the name of and
maintained by the Indenture Trustee (the
"Collection Account") into which all
amounts that will be collected for the
Trust will be deposited in accordance
with
-10-
<PAGE>
the Indenture and the Sale and Servicing
Agreement. See "Description of the
Notes--Collection Account" herein.
D. Vendor Agreements . . . . . Each of the Sellers' Vendor finance
program agreements (each, a "Program
Agreement") are agreements with equipment
manufacturers, dealers and distributors
or computer software licensors or
distributors or other persons located in
the United States ("Vendors") which, in
each case, provide the Seller with the
opportunity to finance transactions
relating to the acquisition or use by an
End-User of a Vendor's Equipment,
Software, Services or other products.
Some of these Program Agreements take the
form of a referral relationship, which
may or may not include credit support
from the Vendor. All rights (but not
obligations) of the Sellers under the
Program Agreements with respect to the
Contracts are generally assignable and
will be so assigned by the Sellers to the
Trust Depositor and in turn conveyed by
the Trust Depositor to the Trust. Such
rights may include various forms of
support to the Sellers under such Program
Agreements including representations and
warranties by the Vendor in respect of
the End-User Contracts assigned by the
Vendor to the Seller and related
Equipment, Software or Services, credit
support with respect to defaults by
End-Users and equipment repurchase and
remarketing arrangements upon early
termination of End-User Contracts upon a
default by the End-User. See "The
Contracts Generally--Vendor Agreements"
herein.
In addition to the foregoing, the Seller
may enter into assignment agreements
(each a "Vendor Assignment";
collectively, with the Program
Agreements, "Vendor Agreements") from
time to time with Vendors pursuant to
which individual End-User Contracts
originated by Vendors are assigned to the
Seller, rather than pursuant to a Program
Agreement. Each Vendor Assignment will
be made either with or without recourse
against the Vendor for End-User defaults
and will generally contain many, if not
all, of the representations, warranties
and covenants typically contained in
Program Agreements, as well as a Vendor
repurchase requirement in the event of a
breach by the Vendor of such
representations, warranties or covenants.
Vendor Assignments may or may not provide
for any Vendor remarketing support in the
event of an End-User default.
E. Reserve Fund . . . . . . . A trust account has been established by
the Trust Depositor in the name of, and
maintained by, the Indenture Trustee (the
"Reserve Fund"). On the Closing Date the
Trust Depositor will deposit $2,738,265
in the Reserve Account which is equal to
1.00% of the ADCB of the Contracts Pool
as of the Cutoff Date. The Reserve Fund
will be required to be maintained at the
lesser of (i) 1.00% of the ADCB of the
Contracts as of the Cutoff Date and (ii)
the outstanding Principal Amounts of the
Notes and the Subordinated Notes (the
"Reserve Fund Amount"). On each
Distribution Date, amounts on deposit in
the Reserve Account will be applied as
described in the Prospectus under
"Description of the Notes--Allocations"
and "--Reserve Account." As so
described, on each Distribution Date
amounts on deposit in the Reserve Account
in excess of the Reserve Fund Amount will
be paid to the Certificateholder.
Terms of the Notes . . . . . . . The principal terms of the Notes will be
as described below:
A. Interest . . . . . . . . . . The Class A-1 Notes will bear interest at
the rate of 5.7325% per annum (the "Class
A-1 Interest Rate"), the Class A-2 Notes
will bear interest at the rate of 6.3900%
per annum (the "Class A-2 Interest
Rate"), the Class B Notes will bear
interest at the rate of 6.5000% per annum
(the "Class B Interest Rate"), the Class
C Notes will bear interest at the rate of
6.6800% per annum (the "Class C Interest
Rate"), and the Subordinated Notes will
bear interest at the rate of 7.6300% per
annum (the "Subordinated Note Interest
Rate" or "Class D Interest Rate")
Interest with respect to the Class A-1
Notes is calculated on the basis of
actual days elapsed over a year of 360
days; interest with respect to all other
Notes will be calculated on the basis of
a year of 360 days consisting of twelve
30 day months.
-11-
<PAGE>
Interest on the outstanding principal
amount of the Notes will accrue from and
including the most recent Distribution
Date on which interest has been paid (or,
in the case of the initial Distribution
Date, from and including the Closing
Date) to but excluding the following
Distribution Date (each period for which
interest accrues on the Notes, an
"Accrual Period"). Interest on the Notes
will be payable on each Distribution
Date, commencing September 25, 1997, to
the holders of record of the Class A-1
Notes (the "Class A-1 Noteholders"), the
holders of record of the Class A-2 Notes
(the "Class A-2 Noteholders") the holders
of record of the Class B Notes (the
"Class B Noteholders") and the holders of
record of the Class C Notes (the "Class C
Noteholders"; together with the Class A-1
Noteholders, the Class A-2 Noteholders
and Class B Noteholders, the
"Noteholders") as of the related Record
Date. See "Description of the
Notes--General" and "The Indenture--
Payments of Principal and Interest"
herein.
Interest on the Class A-1 Notes is
payable on a Distribution Date from
Available Amounts available on such date
(and after application of such Available
Amounts to repay any outstanding
Servicer Advances and to pay the
Servicing Fee, each as defined in this
"Summary of Terms"). Such Available
Amounts represent primarily collections
of payments due under the Contracts
(including realization of amounts from
Vendor recourse, if applicable), Late
Charges, certain amounts received upon
the prepayment or purchase of Contracts
or liquidation of the Contracts and
disposition of the related Equipment upon
defaults thereunder, and proceeds of
Servicer Advances, if any as well as
earnings on amounts held in the
Collection Account. Interest on the
Class A-2 Notes is payable on a
Distribution Date from the Available
Amounts on such date, but after
application of such Available Amounts to
repay any outstanding Servicer Advances,
to pay the Servicing Fee and to pay
interest on the Class A-1 Notes;
provided, however, in the event a
Restricting Event has occurred and is
continuing or an Event of Default has
occurred, interest on the Class A-1 Notes
and the Class A-2 Notes (to the extent
Available Amounts are insufficient to pay
the entire amount of accrued interest on
both the Class A-1 Notes and the Class
A-2 Notes) will be paid from Available
Amounts pro rata based on the then
outstanding Principal Amounts of such
Class A-1 Notes and Class A-2 Notes.
Interest on the Class B Notes is payable
on a Distribution Date from the Available
Amounts on such date, but after
application of such Available Amounts to
repay any outstanding Servicer Advances,
to pay the Servicing Fee, and to pay
interest on the Class A-1 Notes and Class
A-2 Notes. Interest on the Class C Notes
is payable on a Distribution Date from
Available Amounts on such date, but after
application of such Available Amounts to
repay any outstanding Servicer Advances,
to pay the Servicing Fee, and to pay
interest on the Class A-1 Notes, the
Class A-2 Notes and the Class B Notes.
See "Description of the
Notes--Allocations" herein.
B. Principal
General . . . . . . . . . . . Principal of the Class A-1 Notes will be
payable on each Distribution Date in an
amount equal to the Class A-1 Principal
Payment Amount (as defined in
"Description of the Notes") for such
Distribution Date, to the extent
Available Amounts are available therefor,
but after payment of unpaid Servicer
Advances, the Servicing Fee, interest
payments on the Notes and the
Subordinated Notes.
Principal of the Class A-2 Notes will be
payable on each Distribution Date in an
amount equal to the Class A-2 Principal
Payment Amount (as defined in
"Description of the Notes") for such
Distribution Date, to the extent
Available Amounts are available therefor,
but after payment of unpaid Servicer
Advances, the Servicing Fee, interest
payments on the Notes and Subordinated
Notes and the Class A-1 Principal Payment
Amount.
-12-
<PAGE>
Principal of the Class B Notes will be
payable on each Distribution Date in an
amount equal to the Class B Principal
Payment Amount (as defined in
"Description of the Notes") for such
Distribution Date, to the extent
Available Amounts are available therefor,
but after payment of unpaid Servicer
Advances, the Servicing Fee, interest
payments on the Notes, interest payments
on the Subordinated Notes, and the
payment of the Class A-1 Principal
Payment Amount and the Class A-2
Principal Payment Amount.
Principal of the Class C Notes will be
payable on each Distribution Date in an
amount equal to the Class C Principal
Payment Amount (as defined in
"Description of the Notes") for such
Distribution Date, to the extent
Available Amounts are available therefor,
but after payment of unpaid Servicer
Advances, the Servicing Fee, interest
payments on the Notes, and Subordinated
Notes, and the payment of the Class A-1
Principal Payment Amount, the Class A-2
Principal Payment Amount and Class B
Principal Payment Amount. See
"Description of the Notes--Allocations"
herein.
The Class A-1 Principal Payment Amount,
the Class A-2 Principal Payment Amount,
Class B Principal Payment Amount and
Class C Principal Payment Amount
represent, in each case, a calculation of
the amount to be payable from otherwise
Available Amounts on a Distribution Date
in respect of principal on the Class A-1
Notes, the Class A-2 Notes, Class B
Notes or Class C Notes, as applicable.
Such amount generally is calculated, for
each Class of Notes (as will be the
corresponding principal payment amount
for Subordinated Notes as well), as a
fractional percentage of the amount that
the ADCB of the Contract Pool has
declined or been deemed to decline
(whether through payment, prepayment,
default and writeoff, determination of
ineligibility or other mechanism as
described further herein) during the most
recent Collection Period (i.e., full
calendar month), with the fractional
percentage for each Class determined
based on the proportion that the Initial
Principal Balance of such Class bore to
Initial Principal Balance of all Classes
of Notes (excluding the Class A-1 Notes)
and the Subordinated Notes as of the
Cutoff Date provided, however, the Class
A-1 Notes will receive 100% of Available
Amounts with respect their principal
prior to the payment of any principal on
the Class A-2 Notes, Class B Notes, Class
C Notes and Subordinated Notes. Assuming
payment in full of the Class A-1 Notes,
(as of the Cutoff Date) such percentages
are 90.9% for the Class A-2 Notes, 3.9%
for the Class B Notes, 2.6% for the Class
C Notes, and 2.6% for Subordinated Notes.
Accordingly, if sufficient Available
Amounts exist, a proportionate amount of
principal would be repaid on any given
Distribution Date on each of the Class
A-2 Notes, the Class B Notes and the
Class C Notes (as well as the
Subordinated Notes); after payment of the
Class A-1 Principal Payment Amount.
Upon the occurrence of an Event of
Default, or upon the occurrence and
during the continuance of a Restricting
Event (each as defined in "Description of
the Notes"), however, the formula for
determining such principal payment
amount, after payment in full of the
Class A-1 Notes, will change with the
result that, for any Distribution Date
occurring after such adverse event,
principal on the Class A-2 Notes, Class B
Notes and Class C Notes (and also the
Subordinated Notes) will be accelerated
and paid sequentially, i.e., no principal
will be paid on the Class B Notes, Class
C Notes or the Subordinated Notes, until
the Class A-2 Notes have been repaid in
full; no principal will be paid on the
Class C Notes or the Subordinated Notes,
until the Class B Notes have been repaid
in full; and no principal will be paid on
the Subordinated Notes until the Class C
Notes have been repaid in full. See
"Description of the Notes--Allocations"
herein.
Stated Maturity Date . . . . . The stated maturity date of the Class A-1
Notes (the "Class A-1 Note Maturity
Date") is the September 1998 Distribution
Date and the stated maturity date for the
other Notes and the Subordinated
Securities is the May 2005 Distribution
Date (the "Maturity Date").
-13-
<PAGE>
C. Optional Redemption . . . . Notes remaining outstanding may be
redeemed in whole, but not in part, on
any Distribution Date at the Trust
Depositor's option if the ADCB of the
Contract Pool at such time is less than
10% of the initial ADCB of the Contract
Pool as of the Cutoff Date (the "Cleanup
Call Condition"). The redemption price
for such outstanding Notes to be redeemed
in such event (the "Redemption Price")
will be equal to the unpaid principal
amount of the Notes plus accrued and
unpaid interest thereon through the date
of redemption. The Trust Depositor will
fund such redemption through concurrent
receipt of a payment from the applicable
Seller pursuant to such Seller's right
under the Transfer and Sale Agreement to
repurchase from the Trust Depositor for
the Redemption Price, and concurrently
cause the Trust Depositor to redeem and
repurchase from the Trust, the remaining
Contracts held in the Trust when the
Cleanup Call Condition has been
satisfied.
Aggregate Discounted . . . . . . The "Aggregate Discounted Contract
Contract Balance Balance" or "ADCB" with respect to the
Contracts means the sum of the Discounted
Contract Balances of each Contract
included in the group of Contracts for
which an ADCB determination is being
made.
"Discounted Contract Balance" means with
respect to any Contract, (A) as of the
related Cutoff Date, the present value of
all of the remaining Scheduled Payments
becoming due under such Contract after
the applicable Cutoff Date discounted
monthly at the Discount Rate, and (B) as
of any other date of determination, the
sum of (1) the present value of all of
the remaining Scheduled Payments becoming
due under such Contract after such date
of determination discounted monthly at
the Discount Rate, and (2) the aggregate
amount of all Scheduled Payments due and
payable under such Contract after the
applicable Cutoff Date and prior to such
date of determination (other than
Scheduled Payments related to Defaulted
Contracts and Early Termination
Contracts) that have not then been
received by the Servicer.
The Discounted Contract Balance for each
Contract shall be calculated assuming:
(a) All payments due in any
Collection Period are due
on the last day of the
Collection Period;
(b) Payments are discounted on
a monthly basis using a 30
day month and a 360 day
year; and
(c) All security deposits and
drawings under letters of
credit, if any, issued in
support of a Contract are
applied to reduce Scheduled
Payments in inverse order
of the due date thereof.
"Discount Rate" means, at any date of
determination, 6.9239% which is equal to
the sum of (i) the weighted average of
the Class A-2 Interest Rate (weighted at
the sum of the Initial Class A-1 Note
Principal Balance and the Initial Class
A-2 Note Principal Balance), Class B
Interest Rate, Class C Interest Rate, and
the Subordinated Note Interest Rate, and
(ii) the Servicing Fee Percentage. The
Statistical Discount Rate is equal to
6.7261%. See "The Contracts Pool".
"Scheduled Payments" means, with respect
to any Contract, the monthly or quarterly
or semi-annual or annual rent or
financing (whether principal or principal
and interest) payment scheduled to be
made by the related Obligor under the
terms of such Contract after the related
Cutoff Date (it being understood that
Scheduled Payments do not include any
Excluded Amounts).
Subordination . . . . . . . . . . The Class A-1 Notes will be senior in
right of payment to the Class A-2 Notes
(except as to interest in certain
circumstances; see "... Terms of the
Notes: A.
-14-
<PAGE>
Interest" above), Class B Notes, Class C
Notes and the Subordinated Securities;
the Class A-2 Notes will be senior in
right of payment to the Class B Notes,
the Class C Notes and the Subordinated
Securities. The Class B Notes will be
senior in right of payment to the Class C
Notes and the Subordinated Securities;
and the Class C Notes will be senior in
right of payment to the Subordinated
Securities; in each case to the extent
described herein. See "Description of
the Notes--Allocations" and "The
Indenture-- Payments of Principal and
Interest" herein.
Servicing; Servicing Fee; . . . . The Servicer will be responsible for
Servicer Advances servicing, managing and administering the
Transferred Contracts and related
interests, and enforcing and making
collections on the Contracts. The
Servicer will be required to exercise the
degree of skill and care in performing
these functions that it customarily
exercises with respect to similar
property owned or serviced by the
Servicer in its individual capacity. The
Sellers have in some cases delegated
servicing and collection functions to an
applicable Vendor (or, in certain limited
instances, to a subservicer acceptable to
the Seller) with respect to End-User
Contracts originated through such Vendor,
but in such instances the Servicer (on
behalf of the Trust, in the Trust's
capacity as assignee of the Seller
through the Trust Depositor) retains
ultimate contractual control over the
servicing and collection functions
through provisions in the applicable
Vendor Agreements (or agreement with such
subservicer) giving the Seller (and hence
the Servicer, on behalf of the Trust as
assignee) the right to determine or veto
certain servicing decisions and/or to
replace or take over servicing and
collection functions from the Vendor in
the event of the Vendor's default or
non-compliance with its servicing or
other obligations.
The Servicer will be entitled to receive
(a) a monthly fee (the "Servicing Fee")
equal to the product of (i) one-twelfth
of .50% (the "Servicing Fee Rate") and
(ii) the Aggregate Discounted Contract
Balance of all Contracts as of the
beginning of the immediately preceding
Collection Period, payable out of (a) the
Collection Account and (b) certain other
fees paid by the Obligors ("Servicing
Charges"), as compensation for acting as
Servicer.
Under certain limited circumstances, the
Servicer may resign or be removed, in
which event either the Indenture Trustee
or a third party meeting the requirements
set forth in the Sale and Servicing
Agreement will be appointed as successor
Servicer. See "The Transfer and Sale
Agreement and the Sale and Servicing
Agreement Generally--Certain Other
Matters Regarding the Servicer" and
"--Servicer Default" herein.
The Servicer will be required to cause
amounts collected on the Contracts on
behalf of the Trust to be deposited to
the Collection Account maintained by the
Indenture Trustee no later than two
Business Days following the Servicer's
determination that such amounts relate to
the Contracts or the Financed Items;
provided, however, in no event shall such
deposit be made later than five (5) days
after receipt. The Servicer may also, at
its option, make advances (each, a
"Servicer Advance") for delinquent
Scheduled Payments, to the extent it
determines in its sole discretion that
such advances will be recoverable in
future periods. Such Servicer Advances
are reimbursable from Available Amounts
as described herein. See "The Transfer
and Sale Agreement and The Sale and
Servicing Agreement Generally--Collection
and Other Servicing Procedures" herein.
Repurchase for Certain . . . . . The Trust Depositor under the Sale and
Breaches Of Representations Servicing Agreement and the Sellers under
And Warranties the Transfer and Sale Agreement will be
obligated to accept the reconveyance of a
Contract and the interest in the related
Equipment from the Indenture Trustee and
the Trust, and to deposit the
corresponding Transfer Deposit Amount (as
defined in "The Transfer and Sale
Agreement and Sale and Servicing
Agreement Generally"), if the interest of
the Trust in any of the related
-15-
<PAGE>
Equipment, the related Contract, or the
related Contract File (as defined in "The
Transfer and Sale Agreement and Sale and
Servicing Agreement Generally") is
materially adversely affected by a breach
of a representation or warranty made by
such party with respect to such Contract
and if such breach has not been cured
within thirty (30) days of discovery of
such breach. See also "Summary of
Terms--Prepayment Considerations" below.
In the alternative, and at the Trust
Depositor's and applicable Seller's
option, the affected Contract may be
replaced with a Substitute Contract of
similar characteristics under the
standards applicable generally to
Substitute Contracts as described herein.
Maturity and Prepayment . . . . . As noted above, non-Lease Contracts are
Conditions generally prepayable by their terms, and
the Servicer will be authorized to accept
prepayments on Leases in certain
circumstances. Each prepayment on a
Contract, if such Contract is not
replaced by the Trust's reinvestment in a
comparable Additional Contract as
described herein, will shorten the
weighted average remaining term of the
Contracts and the weighted average life
of the Notes. Such prepayments of
principal will be included in the
Available Amounts and will be payable to
Noteholders on the Distribution Date
following the Collection Period in which
such prepayment was received, as set
forth herein. The rate of prepayments on
the Contracts may also be affected under
certain circumstances relating to
breaches of representations, warranties
or covenants with respect to the
Contracts, since the Trust Depositor
will be obligated to repurchase adversely
affected Contracts from the Trust (to be
funded through a corresponding obligation
of the Seller to repurchase such
Contracts from the Trust Depositor). A
higher than anticipated rate of
prepayments will reduce the ADCB of the
Contracts more quickly than expected and
thereby reduce anticipated aggregate
interest payments on the Notes. Any
reinvestment risks resulting from a
faster or slower incidence of prepayment
of Contracts will be borne entirely by
the Noteholders. Such reinvestment risks
include the risk that interest rates may
be lower at the time such holders
received payments from the Trust than
interest rates would otherwise have been
had such prepayments not been made or had
such prepayments been made at a different
time.
Risk Factors . . . . . . . . . . See "Risk Factors" for a discussion of
certain material risks that should be
considered in connection with an
investment in the Notes offered hereby,
including certain legal risks.
Federal Income Tax . . . . . . . In the opinion of Winston & Strawn,
Considerations federal tax counsel to the Trust
Depositor, for federal income tax
purposes, the Notes will be characterized
as debt, and the Trust will not be
characterized as an association (or a
publicly traded partnership) taxable as a
corporation. Each Noteholder, by the
acceptance of a Note, will agree to treat
the Notes as indebtedness. See "Federal
Income Tax Considerations" herein.
ERISA Considerations . . . . . . Subject to the considerations discussed
under "ERISA Considerations" herein, the
Notes will be eligible for purchase by
employee benefit plans. See "ERISA
Considerations" herein.
Rating . . . . . . . . . . . . . It is a condition to the issuance of the
Notes offered hereunder that the Class
A-1 Notes be rated at least "P-1" and
"F-1+", that the Class A-2 Notes rated at
least "Aaa" and "AAA", that the Class B
Notes be rated at least "A1" and "A+",
and that the Class C Notes be rated at
least "Baa2" and "BBB" by Moody's
Investors Service, Inc. and Fitch
Investors Service, L. P. respectively
(collectively, the "Rating Agencies"). A
rating is not a recommendation to
purchase, hold or sell Notes inasmuch as
such rating does not comment as to market
price or suitability for a particular
investor. Ratings address the likelihood
of timely payment of interest and the
ultimate payment of principal on the
Notes pursuant to their terms. Ratings
will not address the likelihood of an
early return of invested principal.
There can be no assurance that any rating
will remain for a given period of time or
that a rating will not be lowered or
withdrawn entirely if, in the judgment of
any Rating Agency, circumstances in the
future so warrant. See "Rating of the
Notes" herein.
-16-
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk
factors before investing in the Notes.
ABSENCE OF PUBLIC MARKET; LIMITED LIQUIDITY
There is currently no public market for the Notes and there is no
assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Notes. There is no assurance that any such
market will be created or, if so created, will continue. If no public market
develops, the Noteholders may not be able to liquidate their investment in the
Notes prior to maturity.
PREPAYMENTS ON THE CONTRACTS AFFECT THE YIELD OF THE NOTES
Because the rate of payment of principal on the Notes will depend, among
other things, on the rate of payment on the Contracts, the rate of payment of
principal on the Notes cannot be assured. Payments on the Contracts will
include Scheduled Payments as well as partial and full prepayments (including
any Scheduled Payment (or portion thereof) which the Servicer has received,
and expressly permitted the related Obligor to make, in advance of its
scheduled due date and which will be applied on such due date) (any such
prepayment of a Scheduled Payment, an "Optional Prepayment"), and any and all
cash proceeds or rents realized from the sale, lease, re-lease or re-financing
of Equipment under a Prepaid Contract (net of liquidation expenses), payments
upon the liquidation of Defaulted Contracts, payments upon repurchases by the
applicable Seller through the Trust Depositor as a result of the breach of
certain representations and warranties or covenants in the Transfer and Sale
Agreement and the Sale and Servicing Agreement, and payments upon an optional
termination of the Trust (any such voluntary or involuntary prepayment,
purchase or termination, a "Prepayment"). The occurrence of an Event of
Default or a Restricting Event may also result in the receipt by Noteholders
of principal payments on the Notes in excess of the expected principal payment
amount and result in earlier than anticipated repayment of the Notes.
Noteholders may not be able to reinvest distributions of principal at yields
equivalent to the yield on the Notes. See "Description of the
Notes--Principal", "--Additions of Trust Assets" and "--Restricting Events"
herein. Further, the Servicer may permit the Obligor under a Contract to make
an Optional Prepayment in an amount which is less than the amount sufficient
to repay the portion of such Contract financed by the Noteholders (together
with accrued interest thereon) so long as the Trust is indemnified for any
such insufficiency by the Vendor or the Seller. See "Description of the
Notes--Prepaid Contracts".
The rate of early terminations of Contracts due to Prepayments,
including defaults, is influenced by various factors, including technological
change, changes in customer requirements, the level of interest rates, the
level of casualty losses, and the overall economic environment. Many
prepayments occur at the request of customers, whose motivations may not be
known to the Seller. No assurance can be given that Prepayments (including
Optional Prepayments) on the Contracts will conform to any historical
experience, and no prediction can be made as to the actual rate of Prepayments
which will be experienced on the Contracts. Noteholders will bear all
reinvestment risk resulting from the rate of Prepayments on the Contracts.
See "Prepayment and Yield Considerations."
NO ASSURANCES GIVEN AS TO CHANGES IN THE RATINGS OF THE NOTES
A rating is not a recommendation to purchase, hold or sell Notes inasmuch
as such rating does not comment as to market price or suitability for a
particular investor. Ratings of Notes will address the likelihood of the
payment of principal and interest thereon pursuant to their terms. The
ratings of Notes will not address the likelihood of an early return of
invested principal. In addition, any such rating will not address the
possibility of the occurrence of an Event of Default or Restricting Event.
There can be no assurance that a rating will remain for a given period of time
or that a rating will not be lowered or withdrawn entirely by a Rating Agency
if in its judgment circumstances in the future so warrant. In the event that
the rating initially assigned to any Note is subsequently lowered for any
reason, no person or entity is obligated to provide any additional credit
support therefor. For more detailed information regarding the ratings
assigned to any Class of the Notes, see "Rating of the Notes."
SUBORDINATION OF THE CLASS A-2 NOTES, CLASS B NOTES, THE CLASS C NOTES AND THE
SUBORDINATED SECURITIES
To the extent described herein under "Description of the
Notes--Allocations", (i) payments of interest and principal on the Class A-2
Notes, Class B Notes, Class C Notes and the Subordinated Securities will be
subordinated in priority of payment to interest and principal, respectively on
the Class A-1 Notes, (ii) payments of interest and principal on the Class B
Notes, Class C Notes and the Subordinated Securities will be subordinated in
priority of payment to interest and principal, respectively, on the Class A-2
Notes, (iii) payments of interest and principal on the Class C Notes and the
Subordinated Securities, will be subordinated in priority of payment to
interest and principal, respectively, on the Class B Notes and (iv) payments
of interest and principal on the Subordinated Securities will be subordinated
in priority
-17-
<PAGE>
of payment to interest and principal, respectively on the Class C Notes. The
Subordinated Notes initially will represent the right to receive principal in
an amount equal to 2.00% of the initial ADCB, but such amount will be reduced
as a result of principal payments made on the Subordinated Notes prior to an
Event of Default or Restricting Event (see "Description of the
Notes--Principal"), which will reduce the benefit to the Notes of the
subordination of the Subordinated Notes.
Delinquencies and defaults on the Contracts could eliminate the
protection afforded the Noteholders by the subordination of the Subordinated
Notes and the Reserve Fund, and the Class C Noteholders could incur losses on
their investment as a result. Further delinquencies and defaults on the
Contracts could eliminate the protection offered to the Class B Noteholders by
the subordination of the Class C Notes, the Subordinated Notes and the Reserve
Fund, and such Noteholders could also incur losses on their investment as a
result. Additionally, delinquencies and defaults on the Contracts could
eliminate the protection offered the Class A-2 Noteholders by the
subordination of the Class B Notes, the Class C Notes, the Subordinated Notes
and the Reserve Fund, and such Noteholders could also incur losses on their
interest as a result. Furthermore, delinquencies and defaults on the
Contracts could eliminate the protection offered to the Class A-1 Noteholders
by the subordination of the Class A-2 Notes, the Class B Notes, the Class C
Notes, the Subordinated Notes and the Reserve Fund.
CERTAIN RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATIONS OF CONTRACTS
The Contracts constituting the initial Contract Pool reflect
concentrations of Obligors thereon located in the States of California, New
York, Florida, Massachusetts and Illinois in excess of 5.00% of the ADCB of
the Contract Pool as of the Cutoff Date; no other State accounts for more than
5.00% of the Contract Pool. The aggregate Contracts in such States represent
42.47% of the ADCB of the Contract Pool. To the extent adverse events or
economic conditions were particularly severe in such geographic region or in
the event Obligors under a large amount of Contracts within such region were
to experience financial difficulties, the delinquency and default experience
of the Contract Pool could be adversely impacted with corresponding negative
implications for the timing and amount of collections on the Contracts and
possible delays or insufficiencies in payments due to Certificateholders or
Noteholders. The Trust Depositor, however, is unable to determine and has no
basis to predict, with respect to any state or region, whether any such
events have occurred or may occur, or to what extent any such events may
affect the Contracts or the payment of the Notes.
CERTAIN RISKS ASSOCIATED WITH CONCENTRATION OF CONTRACTS RELATING TO THE
PRINTING INDUSTRY
Contracts constituting approximately 27.00% of the Contracts Pool ADCB as
of the Closing Date relate to Equipment used in the printing industry. No
other industry accounts for more than 6.72% of the Contract Pool. To the
extent the printing industry were to experience adverse events or economic
conditions, the delinquency and default experience of the Contract Pool could
be adversely impacted and accordingly, the timing and amount of collections on
the Contracts may be adversely effected and thus result in delays or reduced
payments to the Noteholders.
RATE AT WHICH EQUIPMENT BECOMES OBSOLETE AFFECTS PREPAYMENT RATE OF THE
CONTRACTS AND THE NOTES; REINVESTMENT RISK
Technological change could affect the Noteholders. For example, to the
extent that technological change results in increased prepayment activity, it
may increase Prepayments of the Contracts. Such Prepayments may result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts and such distributions
may require the Noteholders to reinvest such Prepayments in a less attractive
interest rate environment. See "--Maturity and Prepayment Considerations" and
"The Contracts Generally--Equipment", "--Leases" and "--Installment Payment
Agreements and Financing Agreements".
DECLINES IN MARKET VALUE OF EQUIPMENT; SHORTFALLS WITH RESPECT TO AVAILABLE
AMOUNTS TO PAY THE NOTES
In the event a Contract becomes a Defaulted Contract, the only source of
payment for amounts expected to be paid on such Contract will be the income
and proceeds from the disposition of any related Equipment and a deficiency
judgment, if any, against the Obligor under the Defaulted Contract. Since the
market value of the Equipment may decline faster than the Discounted Contract
Balance, the Servicer may not recover the entire amount due on the Contract
and might not receive any Recoveries on the Equipment. To the extent such
deficiencies deplete the Reserve Fund and the protection afforded by the
Subordinated Notes, such deficiencies may create a shortfall with respect to
payments on the Notes.
-18-
<PAGE>
CERTAIN LEGAL RISKS
Legal Risks Associated With Servicer's or Vendor's Retention of Contract
Files. To facilitate servicing and reduce administrative costs, the Contract
Files will be retained in the possession of the Servicer and not be deposited
with the Indenture Trustee or any other agent or custodian for the benefit of
the Noteholders (except for a limited number of End-User Contracts evidenced
by, in addition to a related Financing Agreement, "instruments" not
constituting chattel paper within the meaning of the UCC, which instruments
will be delivered to the custody and possession of the Indenture Trustee as
pledgee of the Trust). The Servicer will, however, physically segregate the
Contract Files from other similar documents that are in the Servicer's
possession, and will stamp or mark the Contract Files to reflect the transfer
of the Contracts to the related Trust. Also, UCC financing statements will be
filed reflecting the sale and assignment of the Contracts and related
interests (the "Transferred Property") by Heller Financial or HFLI, as
applicable, to the Trust Depositor, and by the Trust Depositor to the Trust,
and the Servicer's accounting records and computer files will be marked to
reflect such sales and assignments. Because the Contract Files will remain in
the Servicer's possession, if a subsequent purchaser were able to take
physical possession of the Contract Files without knowledge of such
assignment, the Indenture Trustee's priority interest in the Contracts (as
assignee of the Seller's, Trust Depositor's and the Trust's interest) could be
defeated. In the event that the Trust must rely upon repossession and sale of
the related Equipment and other assets securing Defaulted Contracts to
recover principal and interest due thereon, the Trust's ability to realize
upon such assets may be limited due to the existence of a senior security
interest in the Contracts. In such event, distributions to Noteholders could
be adversely affected.
Similarly, with respect to Secondary Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing
such Vendor Loan. Although UCC financing statements are filed reflecting the
pledge of such Contracts to the applicable Seller as security for the Vendor
Loans, because these contract files will remain in the Vendor's possession, if
a subsequent purchaser were able to take physical possession of such contract
files without knowledge of the pledge to the Seller, the Indenture Trustee's
priority security interest in the such Secondary Contracts (as assignee of the
Seller's, Trust Depositor's and the Trust's interest) could be defeated. In
such event, distributions to Noteholders could be adversely affected. Each
Vendor represents, warrants and covenants in the applicable agreement
evidencing a Vendor Loan, however, that it has not and will not sell, pledge
or otherwise assign or convey to any other party (other than the applicable
Seller) any interest in the Secondary Contracts securing such Vendor Loan, and
agrees that it will maintain possession of the related contract files as
custodian for the benefit of the Seller as secured party with respect to such
Secondary Contracts.
Legal Risks Associated With Transfers of Interests in Financed Equipment.
In connection with the conveyance of the Contracts to the Trust, security
interests in the related financed Equipment securing such Contracts (or, in
connection with Leases, the Seller's ownership interest in or title to such
Equipment) will be assigned by the applicable Seller to the Trust Depositor
and by the Trust Depositor to the Trust. It has been the general policy of
the Sellers to file or cause to be filed UCC financing statements with respect
to the Equipment relating to the Contracts. Due to the administrative
burden and expense associated with amending and paying the filing fee for the
assignment of approximately 1800 UCC Financing Statements in 50 states where
Equipment is located, no assignments of the UCC financing statements
evidencing the security interest of the Sellers in the Equipment will be
filed to reflect the Trust Depositor's, the Trust's or the Indenture Trustee's
interests therein. While failure to file such assignments does not affect the
Trust's interest in the Contracts (including the related Seller's security
interest in the related Equipment) or perfection of the Indenture Trustee's
interest in such Contracts and related Equipment, it does expose the Trust
(and thus Noteholders) to the risk that the Servicer could inadvertently
release its security interest in the Equipment of record, and it could
complicate the Trust's enforcement, as assignee, of the Seller's security
interest in the Equipment. While these risks should not affect the perfection
or priority of the interest of the Indenture Trustee in the Contracts or
rights to payment thereunder, they may adversely affect the right of the
Indenture Trustee to receive proceeds of a disposition of the Equipment
related to a Defaulted Contract. Additionally, statutory liens for repairs or
unpaid taxes and other liens arising by operation of law may have priority
even over prior perfected security interests in the Equipment assigned to the
Indenture Trustee.
Also, the transfer to the Trust Depositor of the applicable Seller's
security interest in aircraft ("Title Registry Equipment") securing certain
Contracts, or its ownership interest in Title Registry Equipment subject to
Leases, and the transfer of such interests by the Trust Depositor to the
Trust, is subject to certain federal title registration statutes, regulations
and procedures. Due to the significant administrative burden and expense
associated with re-registering security interests with respect to such Title
Registry Equipment, the registrations of title with respect to Title Registry
Equipment securing Contracts, and to Title Registry Equipment subject to
Leases, will not identify the Trust as secured party or owner, as the case may
be, of such Equipment. There exists a risk in not so identifying the Trust as
the new secured party or owner that, through fraud or negligence, a third
party could acquire an interest in the Title Registry Equipment superior to
that of the Trust. In addition, statutory liens for repairs or unpaid taxes
may have priority even over a perfected security interest in the Title
Registry Equipment. The Sellers will jointly and severally represent that
-19-
<PAGE>
as of the Cutoff Date, in the Sellers' reasonable judgment, the Discounted
Contract Balance of End-User Contracts in the Contract Pool that are secured
by Title Registry Equipment, does not exceed 1.37% of the ADCB of the
Contract Pool.
In addition, some of the Equipment related to the Contracts may
constitute "fixtures" under the real estate or UCC provisions of the
jurisdiction in which such Equipment is located. In order to perfect a
security interest in such Equipment, the holder of the security interest must
file either a "fixture filing" under the provisions of the UCC or a real
estate mortgage under the real estate laws of the state where the Equipment is
located. These filings must be made in the real estate records office of the
county in which such Equipment is located. So long as the Obligor does not
permanently attach the Equipment to the real estate, a security interest in
the Equipment will be governed by the UCC, and the filing of a UCC-1 financing
statement will be effective to maintain the priority of the applicable
Seller's security interest in such Equipment. Except for a small portion of
such Equipment, the Trust Depositor does not believe that any of the Equipment
will be permanently affixed to the related real estate. If, however, any
Equipment is permanently attached to the real estate in which it is located,
other parties could obtain an interest in the Equipment which is prior to the
security interest originally obtained by the applicable Seller and transferred
to the Trust Depositor. Based on the representation of the Sellers, the Trust
Depositor, however, believes that with respect to Equipment which constitutes
a "fixture", it has obtained a perfected first priority security interest,
through assignment of such security interest by the Seller, by virtue of the
Seller's proper filing of UCC-1 financing statements naming the Seller as
secured party in the real estate records office of the county in which the
Equipment is located. Also, the Sellers will jointly and severally represent
that as of the Cutoff Date, in the Sellers' reasonable judgment, the
Discounted Contract Balance of End-User Contracts in the Contract Pool that
are secured by fixtures, does not exceed 6.80% of the ADCB of the Contract
Pool.
The Trust Depositor will be obligated to reacquire any Contract
transferred to the Trust (subject to the Seller's reacquisition thereof) in
the event it is determined that a first priority perfected security interest,
or ownership interest in the case of Leases, in the name of the Trustee in the
Equipment related to such Contract did not exist as of the date such Contract
was conveyed to the Trust, if (i) such breach shall materially adversely
affect such Contract and (ii) such failure or breach shall not have been cured
by the last day of the second (or, if the Trust Depositor elects, the first)
month following the discovery by or notice to the Trust Depositor of such
breach, and the Sellers will be jointly and severally obligated to reacquire
such Contract from the Trust Depositor contemporaneously with the Trust
Depositor's reacquisition from the Trust. If there is any Equipment as to
which the applicable Seller failed to perfect its security interest, such
Seller's security interest, and the security interests of the Trust Depositor
and the related Trust (and the Indenture Trustee as assignee), would be
subordinated to, among others, subsequent purchasers of the Equipment and
holders of perfected security interests with respect thereto. To the extent
the security interest of the Seller in the related Equipment is perfected,
subject to the exceptions set forth in the following sentence, the Trust will
have a prior claim over subsequent purchasers from the Obligor of such
Equipment and holders of subsequently perfected security interests granted by
Obligors. However, as against Mechanics' Liens or liens for taxes and other
non-consensual liens unpaid by an Obligor under a Contract, or in the event of
fraud or negligence of the Seller or Servicer, the Trust could lose the
priority of its interest or its interest in such Equipment following the
conveyance of such Contract to the Trust. See "Certain Legal Aspects of the
Contracts" herein. Neither the Trust Depositor nor the Servicer nor any
Seller will have any obligation to reacquire a Contract if any of the
occurrences described in the foregoing sentence (other than fraud or
negligence of the Seller) result in the Trust's losing the priority of its
security interest or its security interest in such Equipment after the date
such Contract is conveyed to the Trust.
Legal Risks Associated With Transfer of Contracts. There are certain
limited circumstances under the Uniform Commercial Code (the "UCC") and
applicable federal law in which prior or subsequent transferees of Contracts
or Secondary Contracts could have an interest in such contracts with priority
over the Trust's interest. See "Certain Legal Aspects of the
Contracts--Transfer of Contracts." Under each Vendor Agreement, the Vendor
(i) has or will warrant to the applicable Seller that the Contracts
transferred to the Seller thereunder will be transferred free and clear of the
lien of any third party and that the interests in Secondary Contracts
transferred thereunder will be transferred free and clear of the lien of any
third party and (ii) has or will also covenant that it will not sell, pledge,
assign, transfer or grant any lien on any Contract (or Secondary Contract)
transferred thereunder to the Seller. Under the Transfer and Sale Agreement,
the Sellers will jointly and severally warrant to the Trust Depositor and,
under the Sale and Servicing Agreement, the Trust Depositor will warrant to
the Trust, that the Contracts and security interests in Secondary Contracts
transferred thereunder will be transferred free and clear of the lien of any
third party. Also, under the Transfer and Sale Agreement, the Sellers will
jointly and severally covenant to the Trust Depositor and, under the Sale and
Servicing Agreement, the Trust Depositor will also covenant to the Trust, that
it will not sell, pledge, assign, transfer or grant any lien on any Contract
or Secondary Contract transferred to the Trust Depositor or the Trust.
Risk of Ineffective Sale in Vendor Bankruptcy. The Sellers will
either (i) originate Contracts or (ii) acquire End-User Contracts from a
Vendor, which Contracts will be transferred to the Trust Depositor. If the
acquisition of an End-User Contract by a Seller is treated as a sale of such
Contract from the applicable Vendor to such Seller, except in certain limited
circumstances, such Contract would not be part of such Vendor's bankruptcy
estate and would not be available
-20-
<PAGE>
to such Vendor's creditors. If a Vendor became a debtor in a bankruptcy case
and, in the case of End-User Contracts acquired as described in clause (ii)
above, if an unpaid creditor of such Vendor or a representative of creditors
of such Vendor, such as a trustee in bankruptcy, or such Vendor acting as a
debtor-in-possession, were to take the position that the sale of such
Contracts to a Seller was ineffective to remove such Contracts from such
Vendor's estate (for instance, that such sale should be recharacterized as a
pledge of Contracts to secure borrowings of such Vendor), then delays in
payments under the Contracts to the Trust could occur or, should the court
rule in favor of such creditor, representative or Vendor, reductions in the
amount of such payments could result. If the transfer of End-User Contracts
to a Seller as described in clause (ii) above is recharacterized as a pledge,
a tax or government lien on the property of the pledging Vendor arising before
the Contracts came into existence may have priority over such Seller's (and
hence the Trust Depositor's, the Trust's and the Indenture Trustee's) interest
in the Contracts. No law firm will, in connection with the offering of the
Notes, express any opinion as to the issues discussed in this paragraph. See
"Certain Legal Aspects of the Contracts--Certain Matters Relating to
Bankruptcy".
Risk of Ineffective Sale in Seller Bankruptcy. In the Transfer and Sale
Agreement, the Sellers will jointly and severally warrant to the Trust
Depositor that the conveyance of the Contracts to the Trust Depositor
thereunder is a valid sale and transfer of such Contracts to the Trust
Depositor. In addition, the Sellers and the Trust Depositor have covenanted
that they will each treat the transactions described herein as a sale of the
Contracts to the Trust Depositor, and the Sellers will take all actions that
are required under applicable law to perfect the Trust Depositor's ownership
interest in the Contracts sold by the Sellers and the Trust Depositor's
security interest (as assignee of the Seller's security interest) in the
Secondary Contracts securing Vendor Loans sold by the Sellers. See "Certain
Legal Aspects of the Contracts--Transfer of Contracts". Moreover, Winston &
Strawn, special counsel to the Sellers and the Trust Depositor, will render a
reasoned opinion to the effect that in the event a Seller became a debtor
under the United States Bankruptcy Code, the transfer of the Contracts from
the Seller to the Trust Depositor in accordance with the Transfer and Sale
Agreement would be treated as a sale and not as a pledge to secure borrowings.
If, however, the transfer of the Contracts from a Seller to the Trust
Depositor were treated as a pledge to secure borrowings by the Seller, the
distribution of proceeds of the Contracts to the Trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of such proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the Contracts if
the proceeds of such sale could satisfy the amount of the debt deemed owed by
the Seller, or the bankruptcy trustee could substitute other collateral in
lieu of the Contracts to secure such debt, or such debt could be subject to
adjustment by the bankruptcy court if the Seller were to file for
reorganization under Chapter 11 of the United States Bankruptcy Code. A case
decided by the United States Court of Appeals for the Tenth Circuit contains
language to the effect that accounts sold by a debtor under Article 9 of the
Uniform Commercial Code ("UCC") would remain property of the debtor's
bankruptcy estate. If, following a bankruptcy of the Seller, a court were to
follow the reasoning of the Tenth Circuit and apply such reasoning to chattel
paper, then similar reductions or delays in payments of collections on or in
respect of the Contracts could occur. Additionally, because the Sellers have
purchased Contracts from Vendors located in the Tenth Circuit which could
become debtors in a bankruptcy proceeding, the rationale of such case could be
applicable to such Vendors' sales of Contracts to the Sellers and the
corresponding negative implications for receipt of payments with respect to
such Contracts may occur.
Risks Associated with Insolvency of the Trust Depositor or the Trust.
Certain restrictions have been imposed on the Trust Depositor and the Trust
and certain other parties to the transactions described herein which are
intended to reduce the risk of an insolvency proceeding involving the Trust
Depositor or the Trust. These restrictions include incorporating the Trust
Depositor as a separate, special purpose corporation pursuant to a certificate
of incorporation containing certain restrictions on the nature and scope of
its business. Additionally, the Trust Depositor may commence a voluntary case
or proceeding under any bankruptcy or insolvency law, or cause the Trust to
commence a voluntary case or proceeding under any bankruptcy or insolvency
law, only upon the affirmative vote of all its directors, including its
independent directors, as long as the Trust Depositor is solvent and does not
reasonably foresee becoming insolvent. The Trust Depositor's certificate of
incorporation requires that the Trust Depositor have at all times at least two
independent directors. In addition, the Trust Depositor has no intent to
file, and the Seller has represented that it has no intent to cause the filing
of, a voluntary application under the insolvency laws with respect to the
Trust Depositor, as long as the Trust Depositor is solvent and does not
reasonably foresee becoming insolvent. However, no assurance can be given
that insolvency proceedings involving either the Trust Depositor or the Trust
will not occur. In the event the Trust Depositor becomes subject to
insolvency proceedings, the Trust, the Trust's interest in the Trust Assets
and the Trust's obligation to make payments on the Notes might also become
subject to such insolvency proceedings. In the event of insolvency
proceedings involving the Trust, the Trust's interest in the Trust Assets and
the Trust's obligation to make payments on the Notes would become subject to
such insolvency proceedings. No assurance can be given that insolvency
proceedings involving the Seller would not lead to insolvency proceedings of
either, or both, of the Trust Depositor or the Trust. In either such event,
or if an attempt were made to litigate any of the foregoing issues, delays of
distributions on the Notes, possible reductions in the amount of payment of
principal of and interest on the Notes and limitations (including a stay) on
the exercise of remedies under the Indenture and the Sale and Servicing
Agreement
-21-
<PAGE>
could occur, although the Noteholders would continue to have the benefit of
the Indenture Trustee's security interest in the Trust Assets under the
Indenture.
The right of the Indenture Trustee, as a secured party under the
Indenture for the benefit of the Noteholders, to foreclose upon and sell the
Trust Assets is likely to be significantly impaired by applicable bankruptcy
laws, including the automatic stay pursuant to Section 362 of the Bankruptcy
Code, if a bankruptcy proceeding were to be commenced by or against the Trust,
and possibly the Trust Depositor, before or possibly even after the Indenture
Trustee has foreclosed upon and sold the Trust Assets. Under the bankruptcy
laws, payments on debts are not made and secured creditors are prohibited from
repossessing their security from a debtor in a bankruptcy case or from
disposing of security repossessed from such a debtor, without bankruptcy court
approval. Moreover, the bankruptcy laws generally permit the debtor to
continue to retain and to use collateral even though the debtor is in default
under the applicable debt instruments, provided generally that the secured
creditor has the right to seek "adequate protection". The meaning of the term
"adequate protection" may vary according to circumstances, but it is intended
in general to protect the value of the security from any diminution in the
value of the collateral as a result of the use of the collateral by the debtor
during the pendency of the bankruptcy case. In view of the lack of a precise
definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, it is impossible to predict whether or to what
extent the holders of the Notes would be compensated for any diminution in
value of the Trust Assets. Furthermore, in the event a bankruptcy court
determines that the value of the Trust Assets is not sufficient to repay all
amounts due on the Notes, the Noteholders would hold secured claims only to
the extent of the value of the Trust Assets to which the holders are entitled,
and unsecured claims with respect to such shortfall. The bankruptcy laws do
not permit the payment or accrual of post-petition interest, costs and
attorneys' fees during a debtor's bankruptcy case unless, and then only to the
extent, the claims are oversecured.
Risks Associated with Insolvency of the Vendors. In the event a Vendor
under a Vendor Loan becomes subject to insolvency proceedings, the Secondary
Contracts and other Applicable Security for such Vendor Loan as well as such
Vendor's obligation to make payments thereon would also become subject to such
insolvency proceedings. In such event, delays of distributions on the Notes,
possible reductions in the amount of payment of principal of and interest on
the Notes and limitations (including a stay) on the exercise of remedies under
the Indenture and the Sale and Servicing Agreement could occur, although the
Noteholders would continue to have the benefit of the Indenture Trustee's
security interest in the Vendor Loans and Applicable Security therefor under
the Indenture.
The right of the Indenture Trustee, as secured party under the Indenture
for the benefit of the Noteholders, to foreclose upon and sell any Secondary
Contracts is likely to be significantly impaired by applicable bankruptcy
laws, including the automatic stay pursuant to Section 362 of the Bankruptcy
Code, if a bankruptcy proceeding were to be commenced by or against a Vendor
obligated on a Vendor Loan, before or possibly even after the Indenture
Trustee has foreclosed upon and sold such Secondary Contracts or Applicable
Security. Under the bankruptcy laws, payments on debts are not made and
secured creditors are prohibited from repossessing their security from a
debtor in a bankruptcy case or from disposing of security repossessed from
such a debtor, without bankruptcy court approval. Moreover, the bankruptcy
laws generally permit the debtor to continue to retain and to use collateral
even though the debtor is in default under the applicable debt instruments,
provided generally that the secured creditor has the right to seek "adequate
protection". The meaning of the term "adequate protection" may vary according
to circumstances, but it is intended in general to protect the value of the
security from any diminution in the value of the collateral as a result of the
use of the collateral by the debtor during the pendency of the bankruptcy
case. In view of the lack of a precise definition of the term "adequate
protection" and the broad discretionary powers of a bankruptcy court, it is
impossible to predict whether or to what extent the holders of the Notes would
be compensated for any diminution in value of the Secondary Contracts.
Furthermore, in the event a bankruptcy court determines that the value of the
Secondary Contracts is not sufficient to repay all amounts due on the related
Vendor Loans, the Noteholders would hold secured claims in a Vendor bankruptcy
only to the extent of the value of the Secondary Contracts to which the
holders are entitled, and unsecured claims with respect to such shortfall. The
bankruptcy laws do not permit the payment or accrual of post-petition
interest, costs and attorneys' fees during a debtor's bankruptcy case unless,
and then only to the extent, the claims are oversecured.
Certain Vendor Assignments and certain assignments executed under various
Program Agreements (each, a "Program Assignment") provide that the Seller has
recourse to the related Vendor for all or a portion of the losses the Seller
may incur as a result of a default under the End-User Contracts sold under
such Vendor Assignment or Program Assignment. In the event of a Vendor's
bankruptcy, a bankruptcy trustee, a creditor or the Vendor as debtor in
possession might attempt to characterize sales to the Seller pursuant to such
Vendor Assignments or Program Assignments as loans to the Vendor from the
Seller secured by the Contracts sold thereunder. If such an attempt is
successful, such Vendor Assignment or Program Assignment would be subject to
the risks described herein for Vendor Loans. In such case the Contracts sold
under such Vendor Assignment or Program Assignment would constitute Secondary
Contracts under the recharacterized Vendor Assignment or Program Assignment.
-22-
<PAGE>
Risks Associated with Required Sale of Contracts Resulting from Trust
Depositor Bankruptcy. If a conservator, receiver or liquidator of the Trust
Depositor was appointed or if certain other events relating to the bankruptcy,
insolvency or receivership of the Trust Depositor were to occur (an
"Insolvency Event"), then an Event of Default would occur with respect to the
Notes and, pursuant to the terms of the Indenture and the Sale and Servicing
Agreement, and assuming the Trust was not then a debtor in a bankruptcy case,
the Indenture Trustee would be required to sell the Contracts, thereby causing
early termination of the Trust and a possible loss to the Noteholders if the
sum of (i) the proceeds of the sale allocable to the Noteholders and (ii) the
proceeds of any collections on the Contracts in the Collection Account
allocable to the Noteholders, is insufficient to pay the Noteholders in full.
See "Certain Legal Aspects of the Contracts--Transfer of Contracts" and
"--Certain Matters Relating to Bankruptcy".
Risk of Loss Associated with End-User and Vendor Bankruptcy. Application
of federal and state bankruptcy and insolvency laws in the event of bankruptcy
of End-Users could affect the interests of the Noteholders in the Contracts
and Secondary Contracts if such laws result in any such contracts being
written off as uncollectible or result in delay in payments due on any
Contracts. See "Description of the Notes--Defaulted Contracts" and "Certain
Legal Aspects of the Contracts--Certain Matters Relating to Bankruptcy". In
addition, application of federal and state bankruptcy and insolvency laws in
the event of bankruptcy of Vendors could affect the interests of the
Noteholders in the Vendor Loans and Secondary Contracts if such laws result in
any such Vendor Loans or Secondary Contracts being written off as
uncollectible or result in delay in payments due on any such Vendor Loans or
Secondary Contracts. See "--Insolvency of the Vendors". State laws impose
requirements and restrictions relating to foreclosure sales and obtaining
deficiency judgments following such sales. In the event that the Noteholders
must rely on repossession and disposition of Equipment to recover amounts due
on Defaulted Contracts, such amounts may not be realized because of the
application of these requirements and restrictions. Other factors that may
affect the ability of the Noteholders to realize the full amount due on a
Contract or a Secondary Contract include the failure to file financing
statements to perfect the Seller's, Trust Depositor's, Trust's or the
Indenture Trustee's security interest, as applicable, in the Equipment or
other Applicable Security and the depreciation, obsolescence, damage or loss
of any item of Equipment. As a result, the Noteholders may be subject to
delays in receiving payments and losses if the over collateralization
represented by the Subordinated Securities is insufficient to absorb such
losses.
Certain States may Limit the Enforceability of Certain Lease Provisions.
Certain states have adopted a version of Article 2A of the UCC ("Article 2A"),
which purports to codify many provisions of existing common law. Although
there is little precedent regarding how Article 2A will be interpreted, it
may, among other things, limit enforceability of any "unconscionable" lease or
"unconscionable" provision in a lease, provide a lessee with remedies,
including the right to cancel the lease contract, for certain lessor breaches
or defaults, and may add to or modify the terms of "consumer leases" and
leases in which the lessee is a "merchant lessee". However, in the Transfer
and Sale Agreement, the Sellers will jointly and severally represent that (I)
no End-User Contract is a "consumer lease" as defined in Section 2A-103(1)(e)
of the UCC; and (ii) to the best of the Sellers' knowledge, each End-User has
accepted the Equipment leased to it and, after reasonable opportunity to
inspect and test, has not notified the Seller of any defects therein. Article
2A, moreover, recognizes typical commercial lease "hell or high water" rental
payment clauses (which clauses unconditionally obligate the lessee to make all
scheduled payments, without setoff) and validates reasonable liquidated
damages provisions in the event of lessor or lessee defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context a wide degree of latitude to vary from the provisions of
the law.
CERTAIN CONTRACTS RELATING TO SOFTWARE OR SERVICES ARE NOT SECURED BY SUCH
SOFTWARE OR SERVICES
Certain Contracts will relate not to Equipment but rather to Software or
Services that are not owned by the Seller (the Vendor or a licensor
traditionally owns the same) and in which no related interest will be
transferred to the Trust (i.e. the Trust owns solely the associated Contracts'
cash flow). See "The Contracts Generally". Accordingly, if any such Contract
becomes a Defaulted Contract, the Trust will not realize any proceeds from the
related Software or Services from which to satisfy any related outstanding
Scheduled Payments.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF THE OFFERED NOTES - NO RECOURSE
TO THE SELLER, SERVICER OR ITS AFFILIATES; LIMITED VENDOR RECOURSE
Neither the Sellers, the Servicer nor any of their affiliates is
generally obligated to make any payments in respect of the Notes or the
Contracts. However, in connection with the sale of Contracts by a Seller to
the Trust Depositor, and the concurrent conveyance of such Contracts by the
Trust Depositor to the Trust, the Sellers will jointly and severally make
representations and warranties with respect to the characteristics of such
Contracts and, in certain circumstances, the Sellers may be required to
repurchase Contracts from the Trust Depositor (and the Trust Depositor
concurrently from the Trust) with respect to which such representations and
warranties have been breached. See "The Transfer and Sale Agreement and The
Sale and Servicing Agreement Generally-- Representations and Warranties"
herein. Moreover, if Heller Financial were to cease acting as Servicer,
delays in processing payments on the Contracts and information in respect
thereof could occur and result in delays in payments to the Noteholders.
Because the Trust is a limited purpose
-23-
<PAGE>
trust with limited assets, the Noteholders must rely solely upon the
Contracts, the Equipment and related security described herein for payment of
principal of and interest on the Notes. Moreover, in respect of Vendor Loans,
the Noteholders must generally rely solely upon the Secondary Contracts
securing such Vendor Loans (together with the Equipment and related security
securing such Secondary Contracts, should the End-User default in its
obligation to pay such Secondary Contracts), since Vendor Loans are generally
non-recourse to the Vendors (i.e., the holder of such Vendor Loan is limited
to recovering amounts solely from the Secondary Contracts and related security
therefor) except for certain Vendor Loans which are covered by a form of
limited Vendor recourse. If payments made or realized from the Contracts
(including Secondary Contracts securing Vendor Loans) and the disposition
proceeds of the Equipment are insufficient to make payments on the Notes, no
other assets will be available for the payment of the deficiency.
BOOK-ENTRY REGISTRATION-NOTEHOLDERS LIMITED TO EXERCISING THEIR RIGHTS THROUGH
DTC, EUROCLEAR OR CEDEL
The Notes offered hereby initially will be represented by one or more
Notes registered in the name of Cede & Co. and will not be registered in the
names of the beneficial owners or their nominees. As a result of this, unless
and until Definitive Notes are issued, beneficial owners will not be
recognized by the Issuer or the Indenture Trustee as Noteholders, as that term
is used in the Indenture. Hence, until such time, beneficial owners will only
be able to exercise the rights of Noteholders indirectly, through DTC,
Euroclear or CEDEL and their respective participating organizations, and will
receive reports and other information provided for under the Indenture only
if, when and to the extent provided by DTC, Euroclear or CEDEL, as the case
may be, and its participating organizations. See "Description of the
Notes--Book-Entry Registration."
-24-
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes and the Certificates will be
paid to the Trust Depositor in consideration of the transfer to the Trust of
the Contracts. Such proceeds will be applied by the Trust Depositor to the
purchase price of the Contracts to be sold to the Trust Depositor by the
applicable Seller pursuant to the Transfer and Sale Agreement. The Sellers
will use the proceeds received to pay down preexisting debt and for other
general corporate purposes.
THE TRUST
The Notes offered hereby will be issued by the Trust which has been
established by the Trust Depositor pursuant to the Trust Agreement. The
Contract Pool will be formed and transferred to the Trust pursuant to the Sale
and Servicing Agreement and pledged to the Indenture Trustee pursuant to the
Indenture.
The Trust will be organized as a business trust to be formed in
accordance with the laws of the State of Delaware, pursuant to the Trust
Agreement, solely for the purpose of effectuating the transactions described
herein. Prior to formation, the Trust will have had no assets or obligations
and no operating history. Upon formation, the Trust will not engage in any
business activity other than (a) acquiring, managing and holding the Contracts
and related interests described herein, (b) issuing the Notes and
Certificates, (c) making distributions and payments thereon and (d) engaging
in those activities, including entering into agreements, that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto
or connected therewith. As a consequence, the Trust is not expected to have
any source of capital resources other than the Trust Assets. As of the date
of this Prospectus, neither the Trust Depositor nor the Trust is subject to
any legal proceedings.
THE CONTRACTS POOL
The Transferred Contracts. The Transferred Contracts will consist of
Contracts purchased from the Seller by the Trust Depositor on the Closing Date
(and as of the Cutoff Date) under the Transfer and Sale Agreement dated as of
September 1, 1997 (the "Transfer and Sale Agreement"), as well as any
Additional Contracts or Substitute Contracts conveyed thereunder as described
herein as of their applicable Cutoff Dates. The Transferred Contracts have
been and will be selected by the Sellers from their portfolio of Contracts
based on the criteria specified in the Transfer and Sale Agreement and the
Sale and Servicing Agreement. See "The Sale and Servicing Agreement
Generally--Representations and Warranties" and "--Concentration Amounts"
herein which specifically describe the criteria for eligibility in the
Contracts Pool. The representations of the Sellers include a representation
that no adverse selection with respect to the Contracts has occurred. The
Sellers will jointly and severally represent that all of the Contracts are
commercial, rather than consumer, leases or loans/financings, and that no
adverse selection process was employed in the Sellers' selection of Contracts
for sale under the Transfer and Sale Agreement. As of the Cutoff Date, the
ADCB of the Transferred Contracts was $273,826,503, the weighted average
remaining term to maturity for the Transferred Contracts was approximately
43.46 months, the final scheduled payment date of the Transferred Contract
with the latest maturity or expiration was April 30, 2004 and the average
Discounted Contract Balance was approximately $148,738. The Discount Rate for
the Transferred Contracts is 6.9239% per annum.
For further information regarding the Transferred Contracts, see "The
Contracts Generally" herein and "The Contracts Pool--Other Pool Data" below.
Other Pool Data. As of the Cutoff Date, there are 1,841 Transferred
Contracts, with an ADCB (calculated at the Discount Rate) of $273,826,503.
Approximately 5.51% of the ADCB of the Transferred Contracts provide for
payments by the Obligor thereunder on a basis other than monthly payments.
The composition and distribution of the Transferred Contracts by remaining
term, original term, Discounted Contract Balance, End-User industry,
geographic distribution, type of equipment and type of End-User Contract are
set forth in the following tables and are reported as of the Cutoff Date.
Subschedules to Transferred Contracts reflecting amounts billed to separate
billing locations are treated as separate Transferred Contracts.
Classification by industry is based on Heller Financial's customary procedures
for determining obligor industry. Percentages and amounts set forth in the
following tables may not total due to rounding. The largest End-User industry
concentration (including End-User Obligors on Contracts originated by the
Sellers directly, as well as Contracts originated through Vendors with or
without Vendor recourse, and Secondary Contracts securing Vendor Loans), which
represents an ADCB of approximately 27.00% as of the Cutoff Date, relates to
printing equipment. See "Risk Factors--Certain Risks Associated with
Geographic or Industry Concentrations of Contracts" herein, and "The Contracts
Pool - Contract Loss Experience" below.
The statistical information concerning the Contracts set forth below is
based upon information as of the opening of business on the Cutoff Date and
the Statistical Discount Rate. Certain Contracts included in the pool as of
the Cutoff Date may be determined not to meet the eligibility requirements for
the final pool, and may not be included in the final
-25-
<PAGE>
Contract Pool. While the statistical distribution of the characteristics as
of the Closing Date for the final Contract Pool and calculated at the actual
Discount Rate will vary somewhat from the statistical distribution of such
characteristics as of the Cutoff Date and calculated at the Statistical
Discount Rate as presented in this Prospectus, such variance will not be
material. The percentages and balances set forth in each of the following
tables may not total due to rounding.
-26-
<PAGE>
COMPOSITION OF THE CONTRACT POOL
Aggregate Discounted Contract Balance $274,807,342
Number of Contracts 1,841
Weighted Average Original Term 65.38
(Range) (in months) 17 -120
Weighted Average Remaining Term 43.46
(Range) (in months) 4 - 81
Average Discounted Contract Balance 149,271
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
<TABLE>
<CAPTION>
PERCENTAGE OF
TYPE PERCENTAGE OF NUMBER DISCOUNTED CONTRACT AGGREGATE DISCOUNTED
NUMBER OF CONTRACTS OF CONTRACTS BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
End-User Loans 384 20.86% $126,324,002 45.97%
Vendor Loans 1 0.05% $3,449,772 1.26%
Finance Leases 1,456 79.09% $145,033,569 52.78%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-27-
<PAGE>
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED
AS OF THE CUTOFF DATE
(ORDERED BY PERCENTAGE OF AGGREGATE DISCOUNTED CONTRACT BALANCE)
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
STATE NUMBER OF NUMBER OF DISCOUNTED CONTRACT AGGREGATE DISCOUNTED
CONTRACTS CONTRACTS BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
California 269 14.61% 48,711,462 17.73%
New York 168 9.13% 21,454,709 7.81%
Massachusetts 196 10.65% 15,951,953 5.80%
Illinois 71 3.86% 15,592,602 5.67%
Florida 94 5.11% 15,009,496 5.46%
Pennsylvania 61 3.31% 11,589,607 4.22%
North Carolina 39 2.12% 11,111,764 4.04%
Texas 97 5.27% 10,359,997 3.77%
Tennessee 18 0.98% 10,247,642 3.73%
Wisconsin 34 1.85% 10,039,789 3.65%
Georgia 40 2.17% 9,725,251 3.54%
Oregon 66 3.59% 8,458,893 3.08%
New Jersey 87 4.73% 7,854,028 2.86%
Arizona 23 1.25% 7,661,766 2.79%
Washington 30 1.63% 6,304,757 2.29%
Missouri 64 3.48% 5,882,701 2.14%
Ohio 89 4.83% 5,085,076 1.85%
Michigan 51 2.77% 5,042,526 1.83%
Idaho 8 0.43% 4,885,190 1.76%
Minnesota 21 1.14% 4,601,943 1.67%
Colorado 16 0.87% 4,011,347 1.46%
Connecticut 63 3.42% 3,787,278 1.38%
Kentucky 30 1.63% 3,652,915 1.33%
British Columbia 2 0.11% 3,601,251 1.31%
Indiana 17 0.92% 3,482,254 1.27%
South Carolina 12 0.65% 2,567,804 0.93%
Virginia 12 0.65% 2,128,787 0.77%
New Hampshire 29 1.58% 2,013,458 0.73%
Utah 4 0.22% 1,948,454 0.71%
Maryland 22 1.20% 1,675,884 0.61%
Arkansas 8 0.43% 1,566,332 0.57%
Alabama 15 0.81% 1,365,348 0.50%
Iowa 14 0.76% 1,031,889 0.38%
Nebraska 5 0.27% 975,697 0.36%
Vermont 10 0.54% 936,210 0.34%
Louisiana 7 0.38% 852,328 0.31%
Delaware 2 0.11% 669,600 0.24%
Rhode Island 12 0.65% 612,943 0.22%
Oklahoma 11 0.60% 600,834 0.22%
South Dakota 3 0.16% 334,072 0.12%
Kansas 2 0.11% 318,372 0.12%
District of Columbia 7 0.38% 315,639 0.11%
Nevada 2 0.11% 307,656 0.11%
New Mexico 3 0.16% 274,585 0.10%
West Virginia 1 0.05% 79,818 0.03%
Wyoming 3 0.16% 62,622 0.02%
Mississippi 1 0.05% 36,056 0.01%
Alaska 1 0.05% 20,390 0.01%
Montana 1 0.05% 6,364 0.00%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-28-
<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
AS OF THE CUTOFF DATE
(ORDERED BY PERCENTAGE OF AGGREGATE DISCOUNTED CONTRACT BALANCE)
<TABLE>
<CAPTION>
Percentage of
PERCENTAGE OF NUMBER DISCOUNTED CONTRACT AGGREGATE DISCOUNTED
EQUIPMENT TYPE NUMBER OF CONTRACTS OF CONTRACTS BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
Printing 216 11.73% $74,406,960 27.08%
Machine Tool 429 23.30% 34,266,665 12.47%
Computer Hardware 160 8.69% 27,159,340 9.88%
Industrial Equipment 24 1.30% 24,886,291 9.06%
Plastics 256 13.91% 21,688,102 7.89%
Furniture and 55 2.99% 18,678,339 6.80%
Fixtures
Computer 5 0.27% 10,650,213 3.88%
Software/Services
Pre-Press 104 5.65% 10,586,288 3.85%
Food Processing 10 0.54% 7,339,057 2.67%
Other/Miscellaneous 582 31.61% 45,146,087 16.43%
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-29-
<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
DATA AS OF CUTOFF DATE
(ORDERED BY PERCENTAGE OF AGGREGATE DISCOUNTED CONTRACT BALANCE)
<TABLE>
<CAPTION>
Percentage of
PERCENTAGE OF NUMBER DISCOUNTED CONTRACT AGGREGATE DISCOUNTED
INDUSTRY NUMBER OF CONTRACTS OF CONTRACTS BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
Commercial Printing 244 13.25% $73,979,541 26.92%
Industrial Machinery 278 15.10% 18,467,940 6.72%
Plastic Products 220 11.95% 15,435,912 5.62%
Semiconductors and 8 0.43% 15,190,823 5.53%
related devices
Eating places 19 1.03% 10,491,926 3.82%
Grocery stores 7 0.38% 8,551,949 3.11%
Medical / Surgical 29 1.58% 5,744,884 2.09%
Hospitals
Data Processing / 3 0.16% 5,142,482 1.87%
Preparation
Special Dies, Tools, 78 4.24% 4,758,478 1.73%
Jigs & Fixtures
Fabricated Metal 100 5.43% 4,724,784 1.72%
Products
Other 855 46.44% 112,318,624 40.87%
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-30-
<PAGE>
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT BALANCE
DATA AS OF CUTOFF DATE
<TABLE>
<CAPTION>
Percentage of
ORIGINAL PERCENTAGE OF DISCOUNTED AGGREGATE
CONTRACT NUMBER OF NUMBER OF CONTRACT DISCOUNTED
BALANCE CONTRACTS CONTRACTS BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
0 - $249,999 1420 77.13% $60,627,000 22.06%
$250,000 - $499,999 226 12.28% 36,410,686 13.25%
$500,000 - $749,999 56 3.04% 17,940,479 6.53%
$750,000 - $999,999 35 1.90% 15,076,907 5.49%
$1,000,000 - $1,249,999 21 1.14% 12,558,072 4.57%
$1,250,000 - $1,499,999 18 0.98% 13,437,826 4.89%
$1,500,000 - $1,749,999 16 0.87% 14,358,506 5.22%
$1,750,000 - $1,999,999 9 0.49% 9,205,327 3.35%
$2,000,000 - $2,249,999 4 0.22% 5,574,592 2.03%
$2,250,000 - $2,499,999 3 0.16% 4,342,330 1.58%
$2,500,000 - $2,749,999 7 0.38% 11,024,156 4.01%
$2,750,000 - $2,999,999 5 0.27% 9,737,212 3.54%
$3,000,000 - $3,249,999 3 0.16% 6,267,267 2.28%
$3,250,000 - $3,499,999 3 0.16% 5,265,320 1.92%
$3,500,000 - $3,749,999 4 0.22% 11,013,587 4.01%
$3,750,000 - $3,999,999 0 0.00% 0 0.00%
$4,000,000 - $4,249,999 1 0.05% 3,294,784 1.20%
$4,250,000 - $4,499,999 2 0.11% 6,359,855 2.31%
$4,500,000 - $4,749,999 1 0.05% 3,450,590 1.26%
$4,750,000 - $4,999,999 0 0.00% 0 0.00%
$5,000,000 - $5,249,999 2 0.11% 8,634,374 3.14%
$5,250,000 - $5,499,999 1 0.05% 3,449,772 1.26%
$5,500,000 - $5,749,999 0 0.00% 0 0.00%
$5,750,000 - $5,999,999 1 0.05% 3,973,338 1.45%
$6,000,000 - $6,249,999 1 0.05% 4,658,430 1.70%
$6,250,000 - $6,499,999 1 0.05% 3,494,044 1.27%
$6,500,000 - $6,749,999 0 0.00% 0 0.00%
$6,750,000 - $6,999,999 0 0.00% 0 0.00%
$7,000,000 - $7,249,999 0 0.00% 0 0.00%
$7,250,000 (greater than) 1 0.05% 4,652,887 1.69%
----- ------------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-31-
<PAGE>
DISTRIBUTION OF CONTRACTS BY REMAINING CONTRACT BALANCE
DATA AS OF CUTOFF DATE
<TABLE>
<CAPTION>
PERCENTAGE OF
REMAINING PERCENTAGE OF DISCOUNTED AGGREGATE
CONTRACT NUMBER OF NUMBER OF CONTRACT DISCOUNTED
BALANCE CONTRACTS CONTRACTS BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
0 - $249,999 1614 87.67% $87,413,968 31.81%
$250,000 - $499,999 101 5.49% 29,365,628 10.69%
$500,000 - $749,999 44 2.39% 23,689,853 8.62%
$750,000 - $999,999 23 1.25% 17,712,881 6.45%
$1,000,000 - $1,249,999 6 0.33% 5,746,072 2.09%
$1,250,000 - $1,499,999 12 0.65% 13,543,055 4.93%
$1,500,000 - $1,749,999 8 0.43% 11,125,510 4.05%
$1,750,000 - $1,999,999 6 0.33% 9,853,270 3.59%
$2,000,000 - $2,249,999 7 0.38% 12,569,973 4.57%
$2,250,000 - $2,499,999 1 0.05% 1,927,161 0.70%
$2,500,000 - $2,749,999 4 0.22% 8,878,310 3.23%
$2,750,000 - $2,999,999 2 0.11% 4,810,577 1.75%
$3,000,000 - $3,249,999 0 0.00% 0 0.00%
$3,250,000 - $3,499,999 1 0.05% 3,104,967 1.13%
$3,500,000 - $3,749,999 1 0.05% 3,036,713 1.11%
$3,750,000 - $3,999,999 3 0.16% 10,238,600 3.73%
$4,000,000 - $4,249,999 3 0.16% 9,871,775 3.59%
$4,250,000 - $4,499,999 1 0.05% 3,957,444 1.44%
$4,500,000 - $4,749,999 1 0.05% 3,973,338 1.45%
$4,750,000 - $4,999,999 0 0.00% 0 0.00%
$5,000,000 - $5,249,999 0 0.00% 0 0.00%
$5,250,000 - $5,499,999 2 0.11% 9,335,360 3.40%
$5,500,000 (greater than) 1 0.05% 4,652,887 1.69%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
DISTRIBUTIONS OF CONTRACTS BY
ORIGINAL CONTRACT TERM
DATA AS OF CUTOFF DATE
<TABLE>
<CAPTION>
NUMBER PERCENTAGE OF PERCENTAGE OF
ORIGINAL TERM OF NUMBERS OF DISCOUNTED AGGREGATE DISCOUNTED
(MONTHS) CONTRACTS CONTRACTS CONTRACT BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
15 - 19 5 0.27% 114,272 0.04%
20 - 24 4 0.22% 772,717 0.28%
25 - 29 18 0.98% 10,971,891 3.99%
30 - 34 58 3.15% 3,158,778 1.15%
35 - 39 127 6.90% 15,096,171 5.49%
40 - 44 69 3.75% 2,892,970 1.05%
45 - 49 115 6.25% 11,390,343 4.14%
50 - 54 25 1.36% 2,359,736 0.86%
55 - 59 75 4.07% 24,806,313 9.03%
60 - 64 1,107 60.13% 103,910,066 37.81%
65 - 69 38 2.06% 7,571,767 2.76%
70 - 74 44 2.39% 11,270,189 4.10%
75 - 79 18 0.98% 4,971,395 1.81%
80 - 84 47 2.55% 31,689,897 11.53%
85 - 89 43 2.34% 11,036,261 4.02%
(greater than) 90 48 2.61% 32,794,576 11.93%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-32-
<PAGE>
DISTRIBUTION OF CONTRACTS BY REMAINING MONTHS TO STATED MATURITY
DATA AS OF THE CUTOFF DATE
<TABLE>
<CAPTION>
NUMBER PERCENTAGE OF PERCENTAGE OF
REMAINING TERM OF NUMBERS OF AGGREGATE DISCOUNTED AGGREGATE DISCOUNTED
(MONTHS) CONTRACTS CONTRACTS CONTRACT BALANCE CONTRACT BALANCE
<S> <C> <C> <C> <C>
(less than) = 5 1 0.05% $137,153 0.05%
5 - 9 140 7.60% 2,917,125 1.06%
10 - 14 211 11.46% 7,456,224 2.71%
15 - 19 193 10.48% 13,859,441 5.04%
20 - 24 225 12.22% 21,848,988 7.95%
25 - 29 207 11.24% 23,321,220 8.49%
30 - 34 246 13.36% 20,977,987 7.63%
35 - 39 188 10.21% 25,377,044 9.23%
40 - 44 138 7.50% 24,857,457 9.05%
45 - 49 70 3.80% 18,060,706 6.57%
50 - 54 75 4.07% 40,466,162 14.73%
55 - 59 87 4.73% 21,830,856 7.94%
60 - 64 24 1.30% 20,582,806 7.49%
65 - 69 18 0.98% 19,120,246 6.96%
70 - 74 12 0.65% 7,733,358 2.81%
75 - 79 4 0.22% 4,638,201 1.69%
(greater than) 80 2 0.11% 1,622,368 0.59%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-33-
<PAGE>
DELINQUENCY AND LOAN LOSS INFORMATION
The following tables set forth the Sellers' delinquency and loss experience
on their aggregate portfolio of owned Contracts for the below described
periods. For purposes of this table such experience is described in terms of
the Sellers' funds deployed for the acquisition of the related Contracts less
associated unearned finance charges (hereinafter "Adjusted Deployed Funds").
<TABLE>
<CAPTION>
CONTRACT PORTFOLIO
DELINQUENCY EXPERIENCE (1)
(DOLLARS IN MILLIONS)
AT
------------------------------------------------------------------------------------------------------
Six Months Six Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended Ended
June 30, June 30, December 31, December 31, December 31,
1997(2) 1996(2) 1996 1995 1994
--------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ending
Adjusted
Deployed
Funds . . $1,700.00 100.00% $1,289.00 100.00% $1,584.00 100.00% $1,193.00 100.00% $889.00 100.00%
No. of
Delinquent
Days (% of
Ending
Adjusted
Deployed
Funds . .
31-60 days 24.50 1.44% 10.80 0.84% 21.80 1.38% 22.40 1.88% 3.40 0.38%
61-90 days 5.80 0.34% 3.60 0.28% 3.50 0.22% 11.60 0.97% 2.20 0.25%
Over 90
days . . 19.70 1.16% 16.60 1.29% 18.70 1.18% 12.20 1.02% 14.30 1.61%
----- ---- ----- ---- ----- ---- ----- ---- ----- ----
Total 50.00 2.94% 31.00 2.41% 44.00 2.78% 46.20 3.87% 19.90 2.24%
</TABLE>
(1) The period of delinquency is based on the number of days
payments are contractually past due (assuming 30 day months).
A contract is considered delinquent when payments are not
received according to Contract terms notwithstanding the
existence of Vendor recourse; see the "Contract Portfolio -
Contract Loss Experience" for the impact of Vendor recourse
on the Contracts' loss experience.
(2) Not Annualized.
-34-
<PAGE>
<TABLE>
<CAPTION>
CONTRACT PORTFOLIO
CONTRACT LOSS EXPERIENCE
(DOLLARS IN MILLIONS)
AT
----------------------------------------------------------------------------------------------------
Six Months Six Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended Ended
June 30, June 30, December 31, December 31, December 31,
1997(1) 1996(1) 1996 1995 1994
--------- ---------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average
Adjusted
Deployed
Funds
(of all
Contracts
Serviced) $1,700.00 100.00% $1,289.00 100% $1,584.00 100% $1,193.00 100% $889.00 100%
Gross
Losses (as
% of
Average
Adjusted
Deployed
Funds (2) 0.47 0.06% 0.48 0.07% 0.65 0.04% 0.89 0.07% 1.08 0.12%
Gross
Recoveries
(as % of
Average
Adjusted
Deployed
Funds) 0.26 0.03% 0.30 0.05% 0.36 0.02% 0.32 0.03% 0.36 0.04%
Net Losses
(as % of
Average
Adjusted
Deployed
Funds (3) 0.22 0.03% 0.18 0.03% 0.29 0.02% 0.58 0.05% 0.72 0.08%
</TABLE>
(1) Annualized.
(2) With respect to Contracts representing over 90% of the
adjusted deployed funds for Contracts secured by printing
equipment, defaults would have been approximately $7
million in the twelve months ended December 31, 1996 and
$7 million for the twelve months ended December 31, 1995;
after vendor recourse actual losses aggregated $42,000
over the period.
(3) The calculation of net loss includes actual charge-offs,
deficiency balances remaining after liquidation of
repossessed Equipment and expenses of repossession and
liquidation, net of recoveries inclusive of Vendor
recourse.
The data presented in the foregoing tables are for illustrative
purposes only and there is no assurance that the delinquency or
loss experience of the Contracts will be similar to that set forth
above.
-35-
<PAGE>
THE CONTRACTS GENERALLY
The Trust will be entitled to all collections on account of the
Contracts in the Contract Pool and related Equipment and Applicable Security,
except for (i) collections on deposit in the Collection Account or otherwise
received by the Servicer on or with respect to the Contract Pool or related
Equipment, which collections are attributable to any taxes, fees or other
charges imposed by any governmental authority, and (ii) collections
representing reimbursements of insurance premiums or payments for certain
services that were not financed by the Seller, and (iii) any proceeds from the
sale or other disposition of Equipment in excess of the difference between (x)
the Discounted Contract Balance of the related Contract as of the applicable
Cutoff Date, over (y) the present value as of the applicable Cutoff Date of
all amounts (other than Excluded Amounts) actually received by the Trust in
respect of such Contract, discounted monthly at the Discount Rate (amounts
described in clauses (i), (ii) and (iii), "Excluded Amounts") due on or after
the applicable Cutoff Date for such Contracts.
END-USER CONTRACTS
The following discussion describes the End-User Contracts (including
End-User Contracts which are Secondary Contracts). All of the End-User
Contracts to be included from time to time in the Trust are CSAs, Leases,
Secured Notes, IPAs and Financing Agreements in respect of Equipment, Software
and Services. There is no limit on the number of Contracts in the Contract
Pool which may consist of any of the foregoing types. Each Contract is
required, however, to be an Eligible Contract (as defined in "The Transfer and
Sale Agreement and Sale and Servicing Agreement Generally") as of the Cutoff
Date.
Conditional Sale Agreements. The Sellers offer financing for
Equipment under CSAs assigned to the Seller by Vendors. It is expected that
most of the CSAs in the Contract Pool will consist of either the Sellers'
standard pre-printed form, or of the Vendors' standard, pre-printed forms
(which in each case have been reviewed and approved for use by the applicable
Seller). The CSA sets forth the description of each Financed Item and the
schedule of installment payments. Generally, loans under CSAs are fixed rate
and are for a one to five year term. Payments under CSAs generally are due
monthly. CSA terms (i) provide for a grant by the End-User thereunder of a
security interest in any related Equipment (which security interest is
assigned by the Vendor to the Seller), (ii) may allow prepayment of the
obligation upon payment, where allowed by applicable state law, of an
additional prepayment fee, (iii) require the End-User to maintain the
Equipment, keep it free and clear of liens and encumbrances and pay all taxes
related to the Equipment, (iv) restrict the modification or disposal of the
Equipment without the seller's, or its assignee's, consent, (v) include a
disclaimer of warranties, (vi) include the End-User's indemnity against
liabilities arising from the use, possession or ownership of the Equipment,
(vii) include the End-User's absolute (except as provided in clause (ii)) and
unconditional obligation to pay the installment payments thereunder and (viii)
include specifically identifiable events of default and remedies therefor. The
CSA also requires each End-User to maintain insurance, the terms of which may
vary. The terms of a CSA may be modified at its inception at the End-User's
request. Such modifications must either be approved by the Seller's legal
department and certain levels of management before the Seller will agree to
accept an assignment of the CSA from a Vendor, or the Vendor must indemnify
the Seller against any losses or damages it may suffer as a result of such
modifications.
Leases. The Sellers, either directly or by assignment from Vendors,
offer financing of Equipment under Leases. Leases may consist of individual
lease agreements relating to a single, separate transaction and Financed Item,
or may consist of individual transactions written under and governed by a
master lease agreement (each, an "MLA") which contains the general terms and
conditions of the transaction. Specific terms and conditions, such as
descriptions of the specific Equipment being leased or financed and the
schedule of related rental payments, are contained in a supplement or schedule
to the MLA (each an "MLA Supplement"), which is signed by the End-User as
lessee, and either the Vendor or the Seller, as lessor. The MLA Supplement
incorporates the MLA by reference, and is treated by the Seller as a separate
Lease. Each Lease is originated in the ordinary course of business by either
the Seller or a Vendor (and assigned to the Seller pursuant to a Vendor
Agreement).
The initial terms of the Leases in the Contract Pool generally range
from one to five years. Each Lease provides for the periodic payment by the
End-User of rent in advance or arrears, generally monthly or quarterly. Such
periodic payments represent the amortization, generally on a level basis, of
the total amount that an End-User is required to pay throughout the term of a
Lease.
The Leases to be included in the Contract Pool are "net leases" under
which the End-User assumes responsibility for the Financed Items, including
operation, maintenance, repair, insurance or self-insurance, return of any
Equipment at the expiration or termination of the Lease and the payment of all
sales and use and property taxes relating to the Financed Items during the
Lease term. The End-User further agrees to indemnify the lessor for any
liabilities arising out of the use or operation of the Financed Items. In
most cases, the lessor is also authorized to perform the
-36-
<PAGE>
End-User's obligations under the Lease at the End-User's expense, if it so
elects, in cases where the End-User has failed to perform. In addition, the
Leases generally contain "hell or high water" clauses unconditionally
obligating the End-User to make periodic payments, without setoff, at the
times and in the amounts specified in the Lease. If the Seller is the lessor,
the Lease contains no express or implied warranties with respect to the
Financed Items other than a warranty of quiet enjoyment. If a Vendor is the
lessor, the Lease or a related agreement may contain certain representations
and warranties with respect to the Financed Items in addition to a warranty of
quiet enjoyment; however, the End-User agrees not to assert any warranty
claims against any assignee of the Vendor (which would include the Seller) by
way of setoff, counterclaim or otherwise, and further agrees that it may only
bring such claims against the Vendor. All Leases of Equipment require the
End-User to maintain, at its expense, casualty insurance covering damage to or
loss of the Equipment during the Lease term or to self-insure against such
risks, if approved in advance by the Seller.
The Sellers will represent that the Leases include only leases
intended for security as defined in Section 1-201(37) of the UCC. Under
leases intended for security, the lessor in effect finances the "purchase" of
the leased property by the lessee and retains a security interest in the
leased property. The lessee retains the leased property for substantially all
its economic life and the lessor retains no significant residual interest.
Such leases are considered conditional sales type leases for federal income
tax purposes and, accordingly, the lessor does not take any federal tax
benefits associated with the ownership of depreciable property. End of lease
options for such Leases depend on the terms of the related individual lease
agreement or MLA Supplement, but generally such terms provide for the purchase
of the Equipment at a prestated price, which may be nominal.
End-Users under a Lease are either prohibited from altering or
modifying the Equipment or may alter or modify the Equipment only to the
extent the alterations or modifications are readily removable without damage
to the Equipment. Under certain MLAs, the End-User may assign its rights and
obligations under the Lease, but only upon receiving the prior written consent
of the lessor, or may relocate the Equipment upon giving the lessor prompt
written notice of such relocation. The right to grant or deny such consent or
to receive such written notice will be exercised by the Servicer pursuant to
the authority delegated to it in the Sale and Servicing Agreement. Certain
Leases permit the End-User to substitute substantially identical leased
Equipment for leased Equipment scheduled to be returned to the lessor under
the Lease.
While the terms and conditions of the Leases do not generally permit
cancellation by the End-User, certain Leases may be modified or terminated
before the end of the Lease term. Modifications to a Lease term or early
Lease terminations may be permitted by the Seller, or by a Vendor, with the
consent of the Seller, and are generally associated with additional financing
opportunities from the same End-User. In some circumstances, early
termination of a Lease may be permitted in connection with the acquisition of
new technology requiring replacement of the Equipment. In such cases, the
related Equipment is returned to the Vendor or Seller and an amount generally
equal to the present value of the remaining rental payments under the Lease
plus an early termination fee is paid by the End-User to the Seller.
Modifications usually involve repricing a Lease or modification of the Lease
term. Occasionally a Lease may be modified in connection with an increase in
the capacity or performance of Equipment by adding additional Equipment that
includes new technology. Coincident with the financing of an upgrade to such
Equipment, the Seller may reprice and extend the related base Lease term to be
coterminous with the desired term of the Lease relating to the upgrade. In
certain cases, subject to certain conditions described under "Description of
the Notes--Prepaid Contracts," such base lease extensions may remain in the
Contract Pool. Heller Financial expects, as Servicer, to continue to permit
these modifications and terminations with respect to Leases included in the
Contract Pool pursuant to the authority delegated to it in the Sale and
Servicing Agreement, subject to certain conditions and covenants of the
Servicer described under "Description of the Notes--Prepaid Contracts."
In certain circumstances, the standard terms and conditions of the MLA
are modified at the inception of a Lease at the request of the End-User. Such
modifications must either be approved by the Seller's legal department and
certain levels of management before the Seller will agree to enter into the
Lease or accept an assignment of the Lease from a Vendor, or the Vendor must
indemnify the Seller against any losses or damages it may suffer as a result
of such modifications. Common permitted modifications include, but are not
limited to, (i) a one dollar purchase option at the end of the Lease term,
(ii) prearranged mid-Lease purchase options, early termination options and
lease extension options as described above, (iii) modifications to the
lessor's equipment inspection rights, (iv) modifications to the End-User's
insurance requirements permitting the End-User to self-insure against casualty
to the Equipment, (v) the End-User's right to assign the Lease or sub-lease
the Financed Items to an affiliated entity, so long as the End-User remains
liable under the Lease and promptly notifies the lessor or its assignee of
such assignment or sublease and (vi) extended grace periods for late payments
of rent.
Secured Notes. The Sellers also provides direct initial financing or
refinancing of Equipment under secured promissory notes (each a "Secured
Note"), which consist of an installment note and a separate security
agreement. In an initial financing transaction, the applicable Seller pays to
the Vendor the purchase price for the Equipment and in
-37-
<PAGE>
a refinancing transaction, the Seller pays off an End-User's existing
financing source, and the initial financing or refinancing is documented as a
direct loan by the Seller to the End-User of the Equipment using a Secured
Note. In the case of a refinancing transaction, upon payment to the existing
financing source, the Seller obtains a release of such party's lien on the
financed Equipment. In either case, the Seller records its own lien against
the financed Equipment and takes possession of the Secured Note, which
constitutes chattel paper under the UCC. Except for the lack of references to
"sale" or "purchase" of Equipment, the terms and conditions contained in a
Secured Note are substantially similar to those contained in a CSA.
Installment Payment Agreements. The Sellers provide financing for
certain Software license fees and related support and consulting services
under installment payment supplements to software license agreements, separate
IPAs other forms of Financing Agreements assigned to the applicable Seller by
Vendors of Software. Each such Financing Agreement is an unsecured obligation
of the End-User; generally provides for a fixed schedule of payments with no
End-User right of prepayment; is noncancellable for its term and generally
contains a "hell or high water" clause unconditionally obligating the End-User
to make periodic payments, without setoff, at the times and in the amounts
specified therein; permits the Vendor to assign the payment agreement to a
third party (including the Seller) and include the End-User's agreement, upon
such assignment, not to assert against such assignee any claims or defenses
the End-User may have against the Vendor; and contains default and remedy
provisions that generally include acceleration of amounts due and to become
due and, in certain cases, the right of the Vendor, or the Seller by
assignment, to terminate the underlying Software license and all related
support and consulting activities.
EQUIPMENT
The End-User Contracts and Secondary Contracts cover a wide variety of
new and used equipment, including, but not limited to, the following:
printing, pre-press, machine tool, plastics, computer hardware, computer
software, restaurant, transportation, energy related, medical, and industrial
equipment (collectively, "Equipment"). All of the interests of the applicable
Seller in the Equipment subject to each related End-User Contract (which
consists or will consist of either title to the Equipment or a security
interest in the Equipment) will be transferred to the Trust.
SOFTWARE AND SERVICES
Certain of the End-User Contracts (in the form of other Financing
Agreements) cover license fees and other fees owed by the End-Users under
either perpetual or term software license agreements and other related
agreements in connection with the use by such End-Users of computer software
programs ("Software"), and such End-User Contracts may also cover related
support and consulting services which are provided by the Vendor, an affiliate
thereof or a third party contract party and which facilitate the Obligors use
of such software ("Services"). No interest in the Software, the Software
license agreement (other than the right to collect the payment of Software
license fees and, in certain cases, to exercise certain rights and remedies
under the Software license agreement or other agreements related thereto) or
the related Services has been or will be conveyed to the Sellers by either the
Vendors or licensors of the Software or by the End-Users under the related
End-User Contracts. Consequently, the Trust will not have title to or a
security interest in such Software, nor will it own such Services, and would
not be able to realize any value therefrom under a related End-User Contract
upon a default by the End-User. Equipment, Software and Services are
collectively referred to as "Financed Items". It is a condition to the
issuance of the Notes that as of the Closing Date, no more than 3.88% of the
ADCB of the Contract Pool will consist of Software transactions.
VENDOR LOANS
The Contracts may include limited recourse loan or repayment
obligations (which may take the form of promissory notes with related security
agreements) ("Vendor Loans") each of which is payable by a Vendor and secured
by all of the Vendor's interest in an individual End-User Contract originated
by such Vendor and by the Equipment related to such End-User Contract.
Vendor Loans may be originated through, and incorporate terms and
conditions of, a Program Agreement (including a Program Agreement under which
End-User Contracts also are or may be originated by the Seller directly, or
purchased by the Seller from the Vendor, in separate transactions not giving
rise to Vendor Loans). Vendor Loans generally are non-recourse to the Vendor,
i.e., the applicable Seller may obtain repayment solely from the proceeds of
the End-User Contracts and related Equipment securing the Vendor Loan. In a
few instances, however, recourse to a Vendor for nonpayment of a Vendor Loan
may be available through a limited recourse arrangement included in the
related Program Agreement. The repayment terms under a Vendor Loan, including
periodic amounts payable and schedule of payments, correspond to the payment
terms of the End-User under the End-User Contract collaterally assigned under
such Vendor Loan. Each Vendor Loan either includes most, if not all, of the
representations and warranties regarding the End-User Contract and related
Equipment typically included in a Vendor Agreement, or incorporates such
representations and warranties included in any related Program Agreement by
reference.
-38-
<PAGE>
PROGRAM AGREEMENTS WITH VENDORS
It is expected that a substantial portion of the End-User Contracts to
be included in the Trust will consist of End-User Contracts originated by
Vendors and assigned or pledged to the Seller pursuant to Program Agreements.
Also, as described above, Vendor Loans may be originated through Program
Agreements with the related Vendor. The Sellers' Program Agreements are
agreements with Equipment manufacturers, dealers and distributors, or Software
licensors or distributors, located in the United States ("Vendors") which
provide the Sellers with the opportunity to finance transactions relating to
the acquisition or use by an End-User of a Vendor's Equipment, Software,
Services or other products. Vendor finance arrangements provide the Sellers
with a steady, sustainable flow of new business, generally with lower costs of
origination than asset-based financings marketed directly to end-users. Many
of the Program Agreements provide various forms of support to the applicable
Seller, including representations and warranties by the Vendor in respect of
the End-User Contracts assigned by the Vendor to the Seller and related
Equipment, Software or Services, credit support with respect to defaults by
End-Users and equipment repurchase and remarketing arrangements upon early
termination of End-User Contracts upon a default by the End-User. Some of the
Program Agreements take the form of a referral relationship which is less
formal, and may or may not include credit or remarketing support to the Seller
from the Vendor. Each Program Agreement (other than Program Agreements that
only establish a referral relationship) generally includes the following
provisions, among others:
1. Vendor representations, warranties and covenants
regarding each End-User Contract assigned to the Seller, including
among other things that: the obligations of the End-User under the
assigned End-User Contract are absolute, unconditional,
noncancellable, enforceable in accordance with its terms and free from
any rights of offset, counterclaim or defense; the Seller holds the
sole original of the End-User Contract and has either title to or a
first priority perfected security interest in the Equipment; the
Equipment and the End-User Contract are free and clear of all liens,
claims or encumbrances; the Equipment or the Software has been
irrevocably accepted by the End-User and will perform as warranted to
the End-User; and the assigned End-User Contract was duly authorized
and signed by the End-User.
2. Remedies in the event of a misrepresentation or
breach of a warranty or covenant by the Vendor regarding an assigned
End-User Contract, which usually require the Vendor to repurchase the
affected End-User Contract for the Seller's investment balance in the
End-User Contract plus costs incurred by the Seller in breaking any
underlying funding arrangement (which may or may not be calculated in
accordance with a specified formula).
3. In the case of End-User Contracts covering
Equipment, remarketing support from the Vendor in the event of an
End-User default and subsequent repossession or return of the
Equipment under the End-User Contract (to assist the Seller in
realizing proceeds from the Equipment assigned as collateral security
to support the obligations of the End-User under the End-User
Contract).
4. The right of the Seller to further assign its
interests in assigned End-User Contracts, all payments thereunder and
any related interest in Equipment.
5. With respect to End-User Contracts for which the
Vendor (or, in certain limited instances a subservicer acceptable to
the Seller) will perform ongoing administrative duties on behalf of
and for the benefit of the applicable Seller relating to servicing,
processing of collections and actual substantive collection remedies,
as such duties are delegated by the Seller to the Vendor (or, in
certain limited instances a subservicer acceptable to the Seller)
pursuant to the Program Agreement, provisions governing the Vendor's
(or subservicer's) performance of such duties, and providing the
Seller with the right to assume such duties in the event of breach or
inadequate performance by the Vendor (or subservicer, if applicable).
In addition to the foregoing, a Program Agreement may include recourse
against the Vendor with respect to End-User defaults under certain identified
End-User Contracts, either by specifying that the assignment of the End-User
Contract from the Vendor to the Seller is with full recourse against the
Vendor, by specifying that the Vendor will absorb a limited fixed dollar or
percentage amount of "first losses" on the Contract, or by inclusion of the
End-User Contract in an "ultimate net loss pool" ("UNL Pool") created under
the Program Agreement. In the event of an End-User default under an End-User
Contract which was assigned by the Vendor to the Seller subject to the UNL
Pool, the Seller may draw against the UNL Pool up to the amount of the
Seller's remaining unpaid investment balance in the defaulted End-User
Contract, but not in excess of the UNL Pool balance then available. Drawings
may also be made against the UNL Pool with respect to End-User Contracts that
are not included in the Contract Pool and, accordingly, there can be
-39-
<PAGE>
no assurance that any amounts contributed by a Vendor to the UNL Pool will be
available in the event of an End-User default under a End-User Contract
included in the Contract Pool.
The manner in which End-User Contracts are assigned to the Seller by
the Vendors differs under each Program Agreement, depending upon the nature of
the Financed Items, the form of the End-User Contract, the accounting
treatment sought by the Vendor and the End-User, and certain tax
considerations.
For example, the Seller might either accept a Vendor Loan and
collateral assignment of the End-User Contract and related Equipment (or
security interest therein) from the Vendor, or accept a full assignment of
such End-User Contract and either (i) a collateral assignment of the related
Equipment (or security interest therein) from the Vendor, which collateral
assignment secures the End-User's obligations under the End-User Contract or
(ii) in the case of Leases, title to the Equipment. The Seller also may
receive, from a Vendor with respect to Software, a full assignment of leases,
installment payment agreements, installment payment supplements to license
agreements, and other types of financing agreements used in financing Software
license payments and related support and consulting services. Such
assignments may include an assignment of the Software Vendor's or licensor's
right, or the agreement of the Vendor or licensor (at the Seller's
instructions), to terminate the software license covered by the End-User
Contract and suspend related support in the event of an End-User default under
the End-User Contract. In some cases, the Software Vendor also agrees not to
relicense the same or similar software to a defaulted End-User for some period
of time (e.g., one year) unless the End-User cures its default.
It is also expected that some portion of the End-User Contracts
included in the Contract Pool, especially in the case of CSAs, will consist of
End-User Contracts originated by Vendors and assigned to the Seller pursuant
to Vendor Assignments, each of which relates to an individual End-User
Contract, rather than pursuant to a Program Agreement. Each Vendor Assignment
will either be made with or without recourse against the Vendor for End-User
defaults and will generally contain many, if not all, of the representations,
warranties and covenants typically contained in Program Agreements, as well as
a Vendor repurchase requirement in the event of a breach by the Vendor of such
representations, warranties or covenants. Vendor Assignments may or may not
provide for any Vendor remarketing support in the event of an End-User
default. CONTRACT FILES
The applicable Seller will indicate in its books and records,
including the appropriate computer files relating to the Transferred
Contracts, that such Contracts have been transferred to the Trust for the
benefit of the Noteholders, and will stamp, or permit the Servicer to stamp,
the related Contract Files or otherwise mark such Contracts with a legend to
the effect that such Contracts have been transferred to the Trust for the
benefit of the Noteholders. The Sellers will also deliver to the Indenture
Trustee a computer file or microfiche or written list containing a true and
complete list of all Contracts which have been transferred to the Trust,
identified by account number and by the Discounted Contract Balance as of the
Cutoff Date.
COLLECTIONS ON CONTRACTS
All collections received with respect to the Contracts will be
allocated as described herein. See "Description of the Notes--Allocations".
Prepayments will be given effect as of the last day of the Collection Period
in which they are received for purposes of calculating Available Amounts.
Scheduled Payments of principal made in advance of their due date will be
given effect at the end of the Collection Period in which such principal
payments were received.
-40-
<PAGE>
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Contracts. The
payments on such Contracts may be in the form of Scheduled Payments,
Prepayments or liquidations due to default, casualty and other events, which
cannot be specified at present. Any such payments may result in distributions
to Noteholders of amounts which would otherwise have been distributed over the
remaining term of the Contracts. In general, the rate of such payments may be
influenced by a number of other factors, including general economic
conditions. The rate of principal payments with respect to any Class may also
be affected by any repurchase by the Trust Depositor pursuant to the Sale and
Servicing Agreement (and contemporaneously therewith by the applicable Seller
from the Trust Depositor pursuant to the Transfer and Sale Agreement), whether
as a result of a breach of representation or warranty as to such Contract
constituting a Warranty Contract, or at the Trust Depositor's and Seller's
option upon satisfaction of the Cleanup Call Condition (and, in the case of
Warranty Contracts, such rate of prepayment would also be influenced by the
Trust Depositor's decision not to repurchase such Warranty Contract and
instead, to accept a Substitute Contract therefore as described below). In
the event of a repurchase, the repurchase price will decrease the Discounted
Contract Balance of the Contracts, leading to a principal repayment and
causing the corresponding weighted average life of the Notes to decrease. See
"Risk Factors -- Maturity and Prepayment Considerations."
In the event a Contract becomes a Defaulted Contract, an Adjusted
Contract or a Warranty Contract, the Seller will have the option to substitute
for the affected Contract another of similar characteristics (a "Substitute
Contract"), subject to an overall limitation, in respect of Defaulted
Contracts or Adjusted Contracts only, of an aggregate amount not to exceed 10%
of the ADCB of the Contracts as of the Cutoff Date. In addition, in the
event of an Early Termination Contract which has been prepaid in full, the
Seller will have the option to transfer to the Trust through the Trust
Depositor, and the Trust Depositor may cause the Trust to reinvest such
prepayment proceeds in, an additional Contract of similar characteristics (an
"Additional Contract"). The Substitute Contracts and Additional Contracts
will have a Discounted Contract Balance equal to or greater than that of the
Contracts being modified and/or replaced and the monthly payments on the
Substitute Contracts or Additional Contracts will be at least equal to those
of the replaced Contracts through the term of such replaced Contracts. In the
event that an Early Termination is allowed by the Servicer and an Additional
Contract is not provided, the amount prepaid (whether by the related Obligor,
or through a combination of payments from the related Obligor and the
Seller/Servicer) will be equal to at least the Discounted Contract Balance of
the terminated Contract, plus any delinquent payments.
The effective yield to holders of the Notes will depend upon, among
other things, the amount of and rate at which principal is paid to such
Noteholders. The after-tax yield to Noteholders may be affected by lags
between the time interest income accrues to Noteholders and the time the
related interest income is received by the Noteholders.
The following chart sets forth the percentage of the Initial Principal
Amount of the Class A-1 Notes, Class A-2 Notes, Class B Notes and Class C
Notes which would be outstanding on the Distribution Dates set forth below
assuming a conditional payment rate (a "Conditional Payment Rate" or "CPR")
of 0.00% and 5.00%, respectively. Such information is hypothetical and is set
forth for illustrative purposes only. The CPR assumes that a fraction of the
outstanding Contract Pool is prepaid on each Distribution Date, which implies
that each Contract in the Contract Pool is equally likely to prepay. This
fraction, expressed as a percentage, is annualized to arrive at the
Conditional Payment Rate for the Contract Pool. The CPR measures prepayments
based on the outstanding Discounted Contract Balances of the Contracts, after
the payment of all Scheduled Payments on the Contracts during such Collection
Period. The CPR further assumes that all Contracts are the same size and
amortize at the same rate and that each Contract will be either paid as
scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of scheduled monthly Contract payments as of the Cutoff Date,
assumes that the Trust Depositor does not exercise its option to cause a
redemption of the Notes in connection with the Cleanup Call Condition, and
assumes the Closing Date is September 4, 1997.
-41-
<PAGE>
PERCENTAGE OF THE
INITIAL CLASS A-1 PRINCIPAL AMOUNT,
INITIAL CLASS A-2 PRINCIPAL AMOUNT,
INITIAL CLASS B PRINCIPAL AMOUNT,
AND INITIAL CLASS C PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
0.00% CPR 5.00% CPR
--------- ---------
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS A-1 CLASS A-2 CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
September 25, 1997 89.98% 100.00% 100.00% 100.00% 88.17% 100.00% 100.00% 100.00%
October 25, 1997 79.28% 100.00% 100.00% 100.00% 75.75% 100.00% 100.00% 100.00%
November 25, 1997 68.24% 100.00% 100.00% 100.00% 63.10% 100.00% 100.00% 100.00%
December 25, 1997 57.64% 100.00% 100.00% 100.00% 50.98% 100.00% 100.00% 100.00%
January 25, 1998 47.38% 100.00% 100.00% 100.00% 39.29% 100.00% 100.00% 100.00%
February 25, 1998 34.93% 100.00% 100.00% 100.00% 25.57% 100.00% 100.00% 100.00%
March 25, 1998 24.50% 100.00% 100.00% 100.00% 13.91% 100.00% 100.00% 100.00%
April 25, 1998 14.23% 100.00% 100.00% 100.00% 2.49% 100.00% 100.00% 100.00%
May 25, 1998 3.21% 100.00% 100.00% 100.00% 0.00% 97.15% 97.15% 97.15%
June 25, 1998 0.00% 97.97% 97.97% 97.97% 0.00% 93.88% 93.88% 93.88%
July 25, 1998 0.00% 94.53% 94.53% 94.53% 0.00% 90.19% 90.19% 90.19%
August 25, 1998 0.00% 89.86% 89.86% 89.86% 0.00% 85.36% 85.36% 85.36%
September 25, 1998 0.00% 86.65% 86.65% 86.65% 0.00% 81.97% 81.97% 81.97%
October 25, 1998 0.00% 83.61% 83.61% 83.61% 0.00% 78.76% 78.76% 78.76%
November 25, 1998 0.00% 80.57% 80.57% 80.57% 0.00% 75.56% 75.56% 75.56%
December 25, 1998 0.00% 77.84% 77.84% 77.84% 0.00% 72.70% 72.70% 72.70%
January 25, 1999 0.00% 74.93% 74.93% 74.93% 0.00% 69.68% 69.68% 69.68%
February 25, 1999 0.00% 72.00% 72.00% 72.00% 0.00% 66.67% 66.67% 66.67%
March 25, 1999 0.00% 69.17% 69.17% 69.17% 0.00% 63.77% 63.77% 63.77%
April 25, 1999 0.00% 66.54% 66.54% 66.54% 0.00% 61.09% 61.09% 61.09%
May 25, 1999 0.00% 63.85% 63.85% 63.85% 0.00% 58.37% 58.37% 58.37%
June 25, 1999 0.00% 61.45% 61.45% 61.45% 0.00% 55.94% 55.94% 55.94%
July 25, 1999 0.00% 58.53% 58.53% 58.53% 0.00% 53.05% 53.05% 53.05%
August 25, 1999 0.00% 54.21% 54.21% 54.21% 0.00% 48.92% 48.92% 48.92%
September 25, 1999 0.00% 51.90% 51.90% 51.90% 0.00% 46.64% 46.64% 46.64%
October 25, 1999 0.00% 49.46% 49.46% 49.46% 0.00% 44.28% 44.28% 44.28%
November 25, 1999 0.00% 47.14% 47.14% 47.14% 0.00% 42.00% 42.00% 42.00%
December 25, 1999 0.00% 44.97% 44.97% 44.97% 0.00% 39.90% 39.90% 39.90%
January 25, 2000 0.00% 42.66% 42.66% 42.66% 0.00% 37.68% 37.68% 37.68%
February 25, 2000 0.00% 40.51% 40.51% 40.51% 0.00% 35.63% 35.63% 35.63%
March 25, 2000 0.00% 38.58% 38.58% 38.58% 0.00% 33.79% 33.79% 33.79%
April 25, 2000 0.00% 36.73% 36.73% 36.73% 0.00% 32.04% 32.04% 32.04%
May 25, 2000 0.00% 34.71% 34.71% 34.71% 0.00% 30.15% 30.15% 30.15%
June 25, 2000 0.00% 32.99% 32.99% 32.99% 0.00% 28.52% 28.52% 28.52%
July 25, 2000 0.00% 31.30% 31.30% 31.30% 0.00% 26.95% 26.95% 26.95%
August 25, 2000 0.00% 29.59% 29.59% 29.59% 0.00% 25.37% 25.37% 25.37%
September 25, 2000 0.00% 28.09% 28.09% 28.09% 0.00% 23.98% 23.98% 23.98%
October 25, 2000 0.00% 26.45% 26.45% 26.45% 0.00% 22.48% 22.48% 22.48%
November 25, 2000 0.00% 24.88% 24.88% 24.88% 0.00% 21.08% 21.08% 21.08%
December 25, 2000 0.00% 23.50% 23.50% 23.50% 0.00% 19.81% 19.81% 19.81%
January 25, 2001 0.00% 22.22% 22.22% 22.22% 0.00% 18.65% 18.65% 18.65%
February 25, 2001 0.00% 20.85% 20.85% 20.85% 0.00% 17.42% 17.42% 17.42%
March 25, 2001 0.00% 19.55% 19.55% 19.55% 0.00% 16.27% 16.27% 16.27%
April 25, 2001 0.00% 17.74% 17.74% 17.74% 0.00% 14.70% 14.70% 14.70%
May 25, 2001 0.00% 16.51% 16.51% 16.51% 0.00% 13.62% 13.62% 13.62%
June 25, 2001 0.00% 15.43% 15.43% 15.43% 0.00% 12.67% 12.67% 12.67%
July 25, 2001 0.00% 14.32% 14.32% 14.32% 0.00% 11.71% 11.71% 11.71%
August 25, 2001 0.00% 13.17% 13.17% 13.17% 0.00% 10.73% 10.73% 10.73%
September 25, 2001 0.00% 12.19% 12.19% 12.19% 0.00% 9.89% 9.89% 9.89%
October 25, 2001 0.00% 11.23% 11.23% 11.23% 0.00% 9.07% 9.07% 9.07%
November 25, 2001 0.00% 10.25% 10.25% 10.25% 0.00% 8.24% 8.24% 8.24%
December 25, 2001 0.00% 9.39% 9.39% 9.39% 0.00% 7.52% 7.52% 7.52%
January 25, 2002 0.00% 7.81% 7.81% 7.81% 0.00% 6.23% 6.23% 6.23%
February 25, 2002 0.00% 7.06% 7.06% 7.06% 0.00% 5.60% 5.60% 5.60%
March 25, 2002 0.00% 6.16% 6.16% 6.16% 0.00% 4.87% 4.87% 4.87%
April 25, 2002 0.00% 5.59% 5.59% 5.59% 0.00% 4.40% 4.40% 4.40%
May 25, 2002 0.00% 5.03% 5.03% 5.03% 0.00% 3.94% 3.94% 3.94%
</TABLE>
-42-
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION DATE CLASS A-1 CLASS A-2 CLASS B CLASS C CLASS A-1 CLASS A-2 CLASS B CLASS C
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 25, 2002 0.00% 4.52% 4.52% 4.52% 0.00% 3.53% 3.53% 3.53%
July 25, 2002 0.00% 4.05% 4.05% 4.05% 0.00% 3.15% 3.15% 3.15%
August 25, 2002 0.00% 3.63% 3.63% 3.63% 0.00% 2.81% 2.81% 2.81%
September 25, 2002 0.00% 3.21% 3.21% 3.21% 0.00% 2.47% 2.47% 2.47%
October 25, 2002 0.00% 2.83% 2.83% 2.83% 0.00% 2.17% 2.17% 2.17%
November 25, 2002 0.00% 2.48% 2.48% 2.48% 0.00% 1.90% 1.90% 1.90%
December 25, 2002 0.00% 2.01% 2.01% 2.01% 0.00% 1.53% 1.53% 1.53%
January 25, 2003 0.00% 1.41% 1.41% 1.41% 0.00% 1.07% 1.07% 1.07%
February 25, 2003 0.00% 1.21% 1.21% 1.21% 0.00% 0.91% 0.91% 0.91%
March 25, 2003 0.00% 1.04% 1.04% 1.04% 0.00% 0.78% 0.78% 0.78%
April 25, 2003 0.00% 0.89% 0.89% 0.89% 0.00% 0.66% 0.66% 0.66%
May 25, 2003 0.00% 0.75% 0.75% 0.75% 0.00% 0.56% 0.56% 0.56%
June 25, 2003 0.00% 0.64% 0.64% 0.64% 0.00% 0.48% 0.48% 0.48%
July 25, 2003 0.00% 0.54% 0.54% 0.54% 0.00% 0.40% 0.40% 0.40%
August 25, 2003 0.00% 0.44% 0.44% 0.44% 0.00% 0.32% 0.32% 0.32%
September 25, 2003 0.00% 0.36% 0.36% 0.36% 0.00% 0.27% 0.27% 0.27%
October 25, 2003 0.00% 0.32% 0.32% 0.32% 0.00% 0.23% 0.23% 0.23%
November 25, 2003 0.00% 0.08% 0.08% 0.08% 0.00% 0.06% 0.06% 0.06%
December 25, 2003 0.00% 0.06% 0.06% 0.06% 0.00% 0.04% 0.04% 0.04%
January 25, 2004 0.00% 0.04% 0.04% 0.04% 0.00% 0.03% 0.03% 0.03%
February 25, 2004 0.00% 0.03% 0.03% 0.03% 0.00% 0.02% 0.02% 0.02%
March 25, 2004 0.00% 0.01% 0.01% 0.01% 0.00% 0.01% 0.01% 0.01%
April 25, 2004 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
May 25, 2004 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
June 25, 2004 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
July 25, 2004 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Weighted Average 0.41 2.44 2.44 2.44 0.36 2.28 2.28 2.28
</TABLE>
WEIGHTED AVERAGE LIFE (YEARS)
If the Trust Depositor exercises its option to cause a redemption of the
Notes in connection with the Cleanup Call Condition, the average life of
the Class A-1 Notes would be .41 years and .36 years, the average life
of the Class A-2 Notes would be 2.35 years and 2.18 years, the average
life of the Class B Notes would be 2.35 years and 2.18 years, and the
average life of the Class C Notes would be 2.35 years and 2.18 years for
the 0.00% CPR and 5.00% CPR scenarios, respectively.
The weighted average life of a Class A-1 Note, Class A-2 Note, a Class B
Note or a Class C Note is determined by (a) multiplying the amount of
cash distributions in reduction of the outstanding Class A-1 Principal
Amount, outstanding Class A-2 Principal Amount, outstanding Class B
Principal Amount or outstanding Class C Principal Amount, as the case
may be, by the number of years from the Closing Date to the respective
Distribution Date on which each such Class of Notes is repaid in full,
(b) adding the results, and (c) dividing the sum by the Initial Class
A-1 Principal Amount, Initial Class A-2 Principal Amount, Initial Class
B Principal Amount or Initial Class C Principal Amount, as the case may
be.
-43-
<PAGE>
HELLER FINANCIAL, INC.
AND
HELLER FINANCIAL LEASING, INC.
GENERAL
The Seller/Servicer was incorporated in 1919 under the laws of the State
of Delaware and is engaged in various aspects of the commercial finance
business. The Seller/Servicer and its consolidated subsidiaries employ
approximately 1,500 people; its executive offices are located at 500 West
Monroe Street, Chicago, Illinois 60661 (telephone: (312) 441-7000). All of
the outstanding Common Stock of the Seller/Servicer is owned by Heller
International Corporation, a wholly-owned subsidiary of The Fuji Bank,
Limited, headquartered in Tokyo, Japan. All of the outstanding Common Stock
of the Additional Seller is owned by the Seller/Servicer. The Seller/Servicer
is a diversified financial services company which provides a broad array of
commercial financial products and services primarily to middle-market
companies in the United States and internationally and provides its products
and services through five product categories: (1) asset based finance, (2)
cash flow lending, (3) real estate finance, (4) international asset based
finance and factoring and (5) specialized finance. The middle-market segment
served includes entities primarily in the manufacturing and service sectors
with annual sales in the range of $15 million to $200 million and in the real
estate sector with property values generally in the range of $5 million to $40
million. The Additional Seller is a non-operating subsidiary which through the
Commercial Equipment Finance and the Vendor Finance (both as described below)
originates Contracts.
As of June 30, 1997, the Seller/Servicer had total assets of
$11,608,000,000 compared with $9,926,000,000 as of December 31, 1996, total
liabilities of $9,907,000,000 compared with $8,402,000,000 as of December 31,
1996, shareholder's equity of $1,643,000,000 compared with $1,467,000,000 as
of December 31, 1996 and total revenues and net income of $587,000,000 and
$83,000,000, respectively, for the period ended June 30, 1997, compared with
$483,000,000 and $69,000,000, respectively, for the period ended June 30,
1996. For the fiscal year ended December 31, 1996, the Seller/Servicer had
total assets of $9,926,000,000 compared with $9,638,000,000 as of December 31,
1995, total liabilities of $8,402,000,000 compared with $8,208,000,000 as of
December 31, 1995, shareholder's equity of $1,467,000,000 compared with
$1,384,000,000 as of December 31, 1995 and total revenues and net income of
$985,000,000 and $133,000,000, respectively, for the fiscal year ended
December 31, 1996 compared with $1,084,000,000 and $125,000,000, respectively,
for the fiscal year ended December 31, 1995.
The Seller/Servicer and the Additional Seller originated the Contracts
under two separate operating divisions: Commercial Equipment Finance and
Vendor Finance. Originations from either Commercial Equipment Finance or
Vendor Finance must meet Heller Financial's Credit Risk Management System as
hereinafter described.
CREDIT RISK MANAGEMENT SYSTEM
Heller's Financial's Credit Risk Management System provides credit
functions within the Sellers' origination groups (including Commercial
Equipment Finance and Vendor Finance) as well as credit oversight at the
Seller's/Servicer's corporate level. The system provides established,
consistent and documented credit policies at both the corporate and group
level. The first line of credit risk management is the origination groups
where substantially all originations, due diligence and primary credit
analysis are performed. Credit determinations are separate from origination
and are staffed with experienced credit and portfolio officers in the
origination groups.
Headed by the Seller's Chief Credit Officer, oversight over the credit
process is maintained at the Seller's/Servicer's corporate level. Corporate
Credit is responsible for ensuring that the credit risk management system is
appropriately implemented. The Seller's/Servicer's Chief Executive Officer
approves all new transactions and modifications that exceed origination group
authority. Additionally, the Seller/Servicer Credit Committee approves new
lending programs and performs ongoing reviews of existing lending programs and
strategies as well as identifies strategic credit issues (including review of
the portfolio mix) and the credit policies and procedures throughout the
Seller/Servicer.
The Credit Risk Management System emphasizes active portfolio management
in an effort to ensure: (1) individual accounts are appropriately managed;
(2) portfolio reporting to management is accurate and timely; (3) problem
accounts are identified and reported on a timely basis to ensure prompt
corrective action. Each origination group has portfolio practices which
enhance in early identification of account issues through account performance
analysis, risk rating systems and regular group portfolio reviews. Management
of risk accounts is transferred to corporate workout specialists where
appropriate. Quarterly or semi-annual portfolio reviews are held with the
Chairman and Chief Credit Officer. The Seller's Internal Audit Department
performs extensive loan reviews on an independent basis to ensure (1)
compliance with group and corporate credit policies and procedures, (2) the
integrity of the risk ratings, (3) the effectiveness of problem loan
identification, and (4) the adequacy of loan loss reserves.
-44-
<PAGE>
VENDOR FINANCE
General Description. Vendor Finance ("VF") provides customized equipment
finance programs to manufacturers and distributors of a wide variety of
commercial, industrial and technology-based products. These programs are
generally made with partial, or in some cases, full recourse to the Vendor.
The Vendor Finance portfolio is well diversified with an average transaction
size of $150,000. With respect to originations, transactions generally range
in size from $50,000 to approximately $3 Million. Vendor Finance's annual
originations increased 30% in 1996 to over $400 Million.
VF's Credit Analysis. The primary factors involved in credit extensions
by VF are developed by determining the appropriate balance between the
following facts (in order of importance): (1) Vendor support and the Seller's
reliance on such support, (2) the credit strength of the underlying End-User,
and (3) the value of the Equipment.
Notwithstanding the type of program (i.e. Vendor credit extension or
Vendor End-User transactions) and their respective credit analysis, the
following discipline is applied to all VF originations: (1) a complete
underwriting is required for each new Vendor program evaluating financial
information, equipment value, quality of Obligor customer base, review of
relevant industry data and the value of recourse, (2) tiered credit approval
authorities have been implemented for each Vendor Program and the transactions
originated under such programs, (3) a comprehensive credit policies and
procedures manual is maintained to ensure consistent compliance with the
Seller's credit standards, (4) an independent internal audit function exists
within VF to conduct due diligence on new client relationships and which
conducts ongoing audits of the client relationship, (5) financial performance
of each Vendor is periodically reviewed, (6) VF's portfolio is reviewed
semiannually with the Seller's Chairman and Chief Credit Officer, and (7)
there is an independent internal audit function.
Collection Process/Vendor Recourse. Vendor recourse ranges from limited
remarketing assistance to full recourse programs. Vendor credit support
includes direct recourse, holdbacks, funded reserves, remarketing agreements
as well as representations and warranties provided in the Contract
documentation. Direct Vendor recourse may be provided with respect to a
"pool" of numerous underlying transactions or on an individual,
transaction-by-transaction basis. In certain circumstances the Vendor and/or
another leasing company originates, documents and performs servicing while in
other circumstances the Seller/Servicer originates, documents and performs
servicing with respect to the Contracts. From a servicing perspective a Vendor
Program may be structured with the Vendor generating documents and the bills
as well as collecting payments from the End-User and remitting payment to the
Servicer. In such instances and the Servicer's involvement is transparent to
the End-User and is motivated by a variety of Vendor marketing considerations.
In other situations, the Vendor simply sources the origination and the
Servicer performs the servicing with respect to the Vendor. In general, the
servicing function of the Vendor is an important factor in the pricing
characteristics for the respective Vendor program. A write-down or write-off
of a loan or lease receivable is governed by Heller policy, with the amount of
the write-off or write-down based on the principal amount outstanding; plus
unpaid service charges which have not been suspended; less the fair market
value of collateral or the amount of dealer/vendor recourse. Accounts are
reviewed and appropriate write-offs made when an obligor is past due or when
an obligor is in bankruptcy.
In those situations in which the Vendor is providing a substantial
portion of the servicing functions, the Servicer undertakes extensive due
diligence with respect to the Vendor's internal operating procedures with
additional emphasis on billing, collection, reporting and remittance. The due
diligence analysis will take on various levels of scrutiny depending on the
degree of servicing handled by the Vendor, the Vendor's credit strength, the
volume generated by the Program, and the history and relationship with the
Vendor.
COMMERCIAL EQUIPMENT FINANCE
General Description. Commercial Equipment Finance ("CEF") offers
expansion, replacement and modernization equipment financing directly to a
broad range of industries where the financing is primarily collateralized by
the financed equipment. The portfolio is well diversified with financings
that generally range from $500,000 to $15 Million. As of December 31, 1996
the average transaction size was approximately $4 Million. New business
volume in 1996 was approximately $500 Million representing a 37% increase over
1995.
CEF's Credit Analysis. CEF's approach to lending concentrates on three
critical factors: (1) cash flow of the Obligor (i.e. evaluate the quality of
the underlying obligor's cash flow by analyzing the related industry dynamics,
the Obligor's competitive strengths and weaknesses, the role of external
factors in the obligor's business as well as the financial profile of the
Obligor), (2) the importance/value of the Equipment to the obligor's overall
operations (i.e. in a downside/workout scenario, the more important/valuable
the Equipment, the more likely it is that the Seller will be paid), and (3)
the Seller's position in the overall capital structure of the company (i.e.
the smaller the role that CEF plays in a company's overall capital structure,
the more likely it is that the Seller will be paid) in a negative economic
environment).
Notwithstanding the type of program or related credit analysis, the
following discipline is applied to all CEF originations: (1) the CEF credit
approval process requires complete financial due diligence, collateral review,
management/strategy
-45-
<PAGE>
evaluation, review of all industry relevant data as well as review of all
legal aspects of the credit, (2) reliance on the CEF Policy Manual, (3)
approval authority tiered to provide prompt responses to the customer at lower
exposure levels and ensure divisional involvement at higher exposure levels;
(i.e. for all regional office origination, approval by both the region manager
and the area region credit manager is required), (4) quarterly/annual
financial reviews of each account are prepared by CEF credit staff, (5)
quarterly reviews of the portfolio are conducted with the Chairman and Chief
Credit Officer of the Seller, (6) monthly distribution of key reports
(delinquency, flash reports, risk ratings changes, etc.) to the Seller's
senior management (this helps ensure prompt communication of material credit
issues), and (6) industry and geographic diversity is maintained with respect
to CEF's originations.
Collection/Servicing. A delinquency report for each region must be
prepared by the Region Credit Manager on a monthly basis. The
Seller's/Servicer's key to successful resolution of a problem contract is
early recognition. Each region is responsible for detecting signs of potential
problem contracts through proactive portfolio management, including review of
delinquency reports, the Financial Statement and Covenant Compliance Checklist
for each account, Account Risk Rating Memos, Flash Reports, Annual Reviews,
and the quarterly portfolio reviews held in Chicago. Within ten business days
of the point in time at which an account is both 60 days past due or
delinquent and is put on a "watch list", an in-person collateral inspection
must be performed. If an in-person inspection is impractical, an updated UCC
search must be performed within the same ten day period.
CEF transactions are required to contain a provision for assessing late
charges in the event that an Obligor fails to make a payment on the Contract
on the related due date. The charge is generally between 1% and 5% of the
amount due and is incurred within one to fifteen days after the due date
depending upon the documentation (at times calculated on a per diem basis). An
account is delinquent when a payment is not made according to Contract terms.
A write-down or write-off of a loan or lease receivable is governed by Heller
policy, with the amount of the write-off or write-down based on the principal
amount outstanding; plus unpaid service charges which have not been suspended;
less the fair market value of collateral or the amount of dealer/vendor
recourse. Accounts are reviewed and appropriate write-offs made when an
obligor is past due or when an obligor is in bankruptcy.
All obligors are required by the terms of the Contracts to maintain the
Equipment and install the Equipment at a place of business approved by CEF
personnel. Delivery, transportation, repairs and maintenance are obligations
of obligors, and obligors are required to carry, at their own expense,
liability and replacement cost insurance under terms acceptable to CEF. Any
lease payment defaults permit CEF to declare immediately due and payable all
remaining lease payments. At the end of a lease term, Lessees must return the
leased equipment to the Seller in good working order unless the lease is
renewed or the leased equipment is purchased by the Obligor.
THE TRUST DEPOSITOR
The Trust Depositor is a wholly-owned bankruptcy-remote subsidiary of
Heller Financial, formed solely for the purpose of acquiring from the Sellers
Contracts and Equipment as well as certain other financial assets from time to
time and either issuing debt securities secured by identifiable fixed or
revolving pools of such assets, or conveying or depositing the same into
trusts or other securitization vehicles. As a bankruptcy-remote entity, the
Trust Depositor's operations will be restricted so that (a) it does not engage
in business with, or incur liabilities to, any other entity (other than the
Indenture Trustee on behalf of the Noteholders and the trustees or collateral
agents on behalf of other securityholders under indentures, security
agreements, pooling agreements or similar agreements or undertakings which
provide for essentially nonrecourse, asset-backed financings) which may bring
bankruptcy proceedings against the Trust Depositor and (b) the risk that it
will be consolidated into the bankruptcy proceedings of any other entity is
diminished. The Trust Depositor will have no other assets available to pay
amounts owing under the Indenture except the Trust Assets, including the
Contracts and the interests in the Equipment, the proceeds thereof and the
amounts on deposit in the Collection Account. The Trust Depositor's address
is 500 West Monroe Street, Chicago, Illinois 60661, and its phone number is
(312) 441-7246.
DESCRIPTION OF THE NOTES
The statements under this caption are summaries, do not purport to be
complete and are subject to and qualified in their entirety by reference to
the Sale and Servicing Agreement and the Indenture ( the "Operative
Documents"). Copies of the Sale and Servicing Agreement and the Indenture have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part.
GENERAL
The Notes will consist of four Classes, the Class A-1 Notes, the Class
A-2 Notes, the Class B Notes and the Class C Notes. The Notes will be issued
pursuant to the Indenture between the Trust and the Indenture Trustee. The
following
-46-
<PAGE>
summary describes the material terms of the Notes and is qualified in its
entirety by reference to the Sale and Servicing Agreement and the Indenture.
The Class A-1 Notes, Class A-2 Notes, Class B Notes and Class C Notes
will initially be represented by one or more certificates registered in the
name of the nominee of DTC (together with any successor depository selected by
the Trust Depositor, the "Depository"), except as set forth below. The Notes
will be available for purchase in minimum denominations of $1,000 and in
integral multiples thereof in book-entry form. The Trust Depositor has been
informed by DTC that DTC's nominee will be Cede. See "--Book-Entry
Registration" and "--Definitive Notes" below. Only the Notes will be offered
hereby.
The Indenture Trustee will be granted a lien of the first priority on
the Trust Assets to secure the Notes; provided, that distributions on the
Notes (and each Class thereof) will be allocated as provided herein. The
Notes are nonrecourse obligations of the Trust only and do not represent
interests in or obligations of either the Sellers, the Servicer or the Trust
Depositor, or any affiliate thereof.
INTEREST
Interest on the Notes will be payable on each of the Distribution Dates
occurring on or prior to the earlier of (i) the date of payment in full of
such Notes and (ii) the Maturity Date for the Notes. Interest will accrue at
the applicable Class A-1 Interest Rate, Class A-2 Interest Rate, Class B
Interest Rate or Class C Interest Rate, for the period from and including the
most recent Distribution Date on which interest has been paid (or, in the case
of the initial Distribution Date, from and including the Closing Date) to but
excluding the following Distribution Date (each period for which interest
accrues on the Notes, an "Accrual Period") on the outstanding principal amount
of such Notes as of the first day of such Accrual Period.
Interest on the Class A-1 Notes is payable on a Distribution Date from
Available Amounts on such date (and after application of such Available
Amounts to repay any outstanding Servicer Advances and to pay the Servicing
Fee). Such Available Amounts represent primarily collections of payments due
under the Contracts, certain amounts received upon the prepayment or purchase
of Contracts or liquidation of the Contracts and disposition of the related
Equipment upon defaults thereunder, and proceeds of Servicer Advances, if any.
Interest on the Class A-2 Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes.
Interest on the Class B Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes and Class A-2 Notes.
Interest on the Class C Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes, the Class A-2 and the Class B
Notes.
PRINCIPAL
The stated maturity of the Class A-1 Notes is the September 1998
Distribution Date. The Class A-2 Notes, the Class B Notes and the Class C
Notes will have a stated maturity which is the May 2005 Distribution Date.
However, if all payments on the Contracts are made as scheduled, final payment
with respect to the Notes would occur prior to stated maturity.
Principal of the Class A-1 Notes will be payable on each Distribution
Date in an amount equal to the Class A-1 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee and interest payments on the Notes and the Subordinated Notes.
Principal of the Class A-2 Notes will be payable on each Distribution
Date in an amount equal to the Class A-2 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from
-47-
<PAGE>
such Available Amounts of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated Notes and the payment of
the Class A-1 Principal Payment Amount. See "Description of the
Notes--Allocations" herein.
Principal of the Class B Notes will be payable on each Distribution Date
in an amount equal to the Class B Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and the Subordinated Notes, and
the payment of the Class A-1 Principal Payment Amount and the Class A-2
Principal Payment Amount. See "Description of the Notes--Allocations" herein.
Principal of the Class C Notes will be payable on each Distribution Date
in an amount equal to the Class C Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and the Subordinated Notes, and
the payment of the Class A-1 Principal Payment Amount, the Class A-2 Principal
Payment Amount, and the Class B Principal Payment Amount. See "Description of
the Notes--Allocations" herein.
The Notes will mature and be due and payable on their respective Maturity
Dates. Prior thereto, amounts to be applied in reduction of the outstanding
Principal Amount of any Note, including the payment of the Class A-1 Principal
Payment Amount, Class A-2 Principal Payment Amount, Class B Principal Payment
Amount or Class C Principal Payment Amount payable on any Distribution Date,
will not be due and payable, although the failure of the Trust Depositor or
Servicer to remit any Available Amounts (including Available Amounts to be
used to make a Class A-1 Principal Payment Amount, a Class A-2 Principal
Payment Amount, a Class B Principal Payment Amount or a Class C Principal
Payment Amount) will, after the applicable grace period, constitute an Event
of Default under the Indenture. See "Description of the Notes--Events of
Default".
As used herein, the following terms shall have the following meanings:
The "ADCB" or "Aggregate Discounted Contract Balance" with
respect to the Contracts means the sum of the Discounted Contract
Balances of each Contract included in the group of Contracts for which an
ADCB determination is being made.
"Aggregate Principal Amount" means, for any group of Notes at
any date of determination, the sum of the Principal Amounts of such Notes
at such date.
"Applicable Class Percentage" means (a) prior to the occurrence
of an Event of Default, or prior to the occurrence and during the
continuance of a Restricting Event, for any outstanding Class of Notes
for which a determination of Applicable Class Percentage is required to
be made hereunder (i) prior to the payment in full of the Class A-1
Notes, 0%; and (ii) thereafter, the ratio (expressed as a percentage)
that the Initial Principal Amount of such Class of Notes or Subordinated
Notes bears to the sum of the Initial Principal Amount of all Classes of
Notes and Subordinated Notes (other than the Class A-1 Notes); and (b)
following the occurrence of an Event of Default, or following the
occurrence and during the continuance of a Restricting Event (i) for the
Class A-2 Notes, 0% until all outstanding principal of the Class A-1
Notes has been paid in full, then 100% until all outstanding principal of
the Class A-2 Notes has been paid in full and thereafter 0%; (ii) for
the Class B Notes, 0% until all outstanding principal of the Class A-1
Notes and Class A-2 Notes has been paid in full, then 100% until all
outstanding principal of the Class B Notes has been paid in full, and
thereafter 0%; (iii) for the Class C Notes, 0% until all outstanding
principal of the Class A-1 Notes, Class A-2 Notes and Class B Notes has
been paid in full, then 100% until all outstanding principal of the Class
C Notes has been paid in full, and thereafter 0%; and (iv) for the Class
D Notes, 0% until all outstanding principal of the Class A-1 Notes, Class
A-2 Notes, Class B Notes and Class C Notes has been paid in full, then
100% until all outstanding principal of the Class D Notes has been paid
in full, and thereafter 0%.
"Class A-1 Principal Payment Amount" means, with respect to any
Distribution Date and the Class A-1 Notes the lesser of (i) the
outstanding Principal Amount of the Class A-1 Notes, and (ii) the sum of
(A) the excess of (x) the ADCB for all Contracts held by the Trust as of
the last day of the second Collection Period preceding such Distribution
Date (or, in the case of Contracts that were first added to the Contract
pool during the Collection Period immediately preceding such Distribution
Date, as of the applicable Cutoff Date for such Contracts) over (y) the
ADCB for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date (such
amount described in this clause (A) being, the "Expected Class A-1
Payment"), plus (B) the aggregate amount of Expected Class A-1 Payments
which were not paid on each preceding Distribution Date.
"Class A-2 Principal Payment Amount" means, with respect to any
Distribution Date and the Class A-2 Notes, the lesser of (i) the
outstanding Principal Amount of the Class A-2 Notes, and (ii) the
difference between (A) the Principal Amount of the Class A-2 Notes
immediately prior to such Distribution Date, and (B) the product of (x)
the Applicable Class Percentage for such Notes and (y) the ADCB for all
Contracts held by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date.
-48-
<PAGE>
"Class B Principal Payment Amount" means, with respect to any
Distribution Date and the Class B Notes, the lesser of (i) the
outstanding Principal Amount of the Class B Notes, and (ii) the
difference between (A) the Principal Amount of the Class B Notes
immediately prior to such Distribution Date, and (B) the product of (x)
the Applicable Class Percentage for such Notes and (y) the ADCB for all
Contracts held by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date.
"Class C Principal Payment Amount" means, with respect to any
Distribution Date and the Class C Notes, lesser of (i) the outstanding
Principal Amount of the Class C Notes, and (ii) the difference between
(A) the Principal Amount of the Class C Notes immediately prior to such
Distribution Date, and (B) the product of (x) the Applicable Class
Percentage for such Notes and (y) the ADCB for all Contracts held by the
Trust as of the last day of the Collection Period immediately preceding
such Distribution Date.
"Class D Principal Payment Amount" means, with respect to any
Distribution Date and the Class D Notes, lesser of (i) the outstanding
Principal Amount of the Class D Notes, and (ii) the difference between
(A) the Principal Amount of the Class D Notes immediately prior to such
Distribution Date, and (B) the product of (x) the Applicable Class
Percentage for such Notes and (y) the ADCB for all Contracts held by the
Trust as of the last day of the Collection Period immediately preceding
such Distribution Date.
"Discounted Contract Balance" means with respect to any
Contract, (A) as of the related Cutoff Date, the present value of all of
the remaining Scheduled Payments becoming due under such Contract after
the applicable Cutoff Date discounted monthly at the Discount Rate and
(B) as of any other date of determination, the sum of (1) the present
value of all of the remaining Scheduled Payments becoming due under such
Contract after such date of determination discounted monthly at the
Discount Rate, and (2) the aggregate amount of all Scheduled Payments due
and payable under such Contract after the applicable Cutoff Date and
prior to such date of determination (other than Scheduled Payments
related to Contracts that have become Defaulted Contracts or Prepaid
Contracts, and which have not been replaced with an Additional Contract
or Substitute Contract) that have not then been received by the Servicer.
The Discounted Contract Balance for each Contract shall be
calculated assuming:
(a) All payments due in any Collection Period are due on
the last day of the Collection Period;
(b) Payments are discounted on a monthly basis using a 30 day
month and a 360 day year; and
(c) All security deposits and drawings under letters of
credit, if any, issued in support of a Contract are
applied to reduce Scheduled Payments in inverse order of
the due date thereof.
"Discount Rate" means, 6.9239% which is equal to the sum of (i)
the weighted average of the Class A-2 Interest Rate (weighted at the sum
of the Initial Class A-1 Note Principal Balance and the Initial Class A-2
Note Principal Balance), the Class B Interest Rate, the Class C Interest
Rate, and the Subordinated Note Interest Rate, and (ii) the Servicing Fee
Percentage.
"Principal Amount" of a Class of Notes or Subordinated Notes
means the aggregate initial principal amount thereof reduced by (i) the
aggregate amount of any Distributions applied in reduction of such
principal amount and (ii) the aggregate amount of any Distributions then
on deposit in the note or certificate payment account, if any, for such
Class of Notes or Subordinated Notes established in accordance with the
Indenture or the Sale and Servicing Agreement and to be applied in
reduction of such principal amount in accordance therewith.
"Scheduled Payments" means, with respect to any Contract, the
monthly or quarterly or semi-annual or annual rent or financing (whether
principal or principal and interest) payment scheduled to be made by the
related Obligor under the terms of such Contract after the related Cutoff
Date (it being understood that Scheduled Payments do not include any
Excluded Amounts).
ALLOCATIONS
Prior to an Event of Default or Restricting Event. On the third Business
Day prior to each Distribution Date (each, a "Determination Date"), prior to
the occurrence of an Event of Default or the occurrence and continuance of a
Restricting Event, the Servicer shall instruct the Indenture Trustee to
withdraw, and on the succeeding Distribution Date the Indenture Trustee acting
in accordance with such instructions shall withdraw, the amounts required to
be withdrawn from the
-49-
<PAGE>
Collection Account in order to make the following payments or allocations from
the Available Amounts for the related Distribution Date (in each case, such
payment or transfer to be made only to the extent funds remain available
therefor after all prior payments and transfers for such Distribution Date
have been made), in the following order of priority:
(A) pay to the Servicer, the amount of any unreimbursed
Servicer Advances;
(B) pay to the Servicer, the monthly Servicing Fee for the
preceding monthly period together with any amounts in
respect of the Servicing Fee that were due in respect of
prior monthly periods that remain unpaid; provided,
however, that upon the occurrence and during the
continuance of an Obligor Event as defined below (see
"Description of the Notes - Servicing Compensation and
Payment of Expenses"), the Servicing Fee shall instead
be paid after the allocation described in clause (M)
hereof;
(C) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, an amount equal to interest accrued thereon for
the Accrual Period immediately preceding such
Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which no
allocation was previously made;
(D) pay to the Indenture Trustee, on behalf of the Class A-2
Notes, an amount equal to interest accrued thereon for
the Accrual Period immediately preceding such
Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which no
allocation was previously made;
(E) pay to the Indenture Trustee, on behalf of the Class B
Notes, an amount equal to the interest accrued thereon
for the Accrual Period immediately preceding such
Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which no
allocation was previously made;
(F) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to the interest accrued thereon
for the Accrual Period immediately preceding such
Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which no
allocation was previously made;
(G) pay to the holders of the Subordinated Notes an amount
equal to the interest accrued in respect of the
Subordinated Notes for the Accrued Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made;
(H) pay to the Indenture Trustee, on behalf of the Class A-1
Notes the Class A-1 Principal Payment Amount for such
Distribution Date; provided (i) that if the Available
Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so
paid, such remaining Available Amounts shall be
allocated to each Class A-1 Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay outstanding Class A-1 Note
principal in full, then such excess shall be applied in
repayment of principal on the Class A-2 Notes;
(I) pay to the Indenture Trustee, on behalf of the Class A-2
Notes the Class A-2 Principal Payment Amount for such
Distribution Date; provided (i) that if the Available
Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so
paid, such remaining Available Amounts shall be
allocated to each Class A-2 Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay outstanding Class A-2 Note
principal in full, then such excess shall be applied in
repayment of principal on the Class B Notes;
(J) pay to the Indenture Trustee, on behalf of the holders
of the Class B Notes the Class B Principal Payment
Amount for such Distribution Date; provided (i) that if
the Available Amounts remaining to be allocated pursuant
to this clause is less than the full amount required to
be so paid, such remaining Available Amounts shall be
allocated to each Class B Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay outstanding
-50-
<PAGE>
Class B Note principal in full, then such excess shall
be applied in repayment of principal on the Class C
Notes;
(K) pay to the Indenture Trustee, on behalf of the holders
of the Class C Notes the Class C Principal Payment
Amount for such Distribution Date; provided (i) that if
the Available Amounts remaining to be allocated pursuant
to this clause is less than the full amount required to
be so paid, such remaining Available Amounts shall be
allocated to each Class C Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay outstanding Class C Note
principal in full, then such excess shall be applied in
repayment of principal on the Subordinated Notes;
(L) pay to the holders of the Subordinated Notes the Class D
Principal Payment Amount for such Distribution Date;
provided (i) that if the Available Amounts remaining to
be allocated pursuant to this clause is less than the
full amount required to be so paid, such remaining
Available Amounts shall be allocated to each
Subordinated Notes pro rata based on the outstanding
principal amount thereof, and (ii) if the amount to be
allocated pursuant to this clause exceeds the amount
needed to repay outstanding Subordinated Notes
principal in full;
(M) pay to the Indenture Trustee for deposit into the
Reserve Fund from any Available Amounts not necessary to
make the payments described in paragraph (A) through (L)
above, such amount as is necessary to meet the Reserve
Fund Amount; and
(N) any excess shall be paid to the holder of the
Certificates.
As used herein,"Available Amounts" means as of any Distribution Date, the
sum of (i) all amounts on deposit in the Collection Account as of the
immediately preceding Determination Date on account of Scheduled Payments
inclusive of such payments received through Vendor recourse or support and
agreements, but excluding the Excluded Amounts due on or before, as well as
Prepayments received on or before, the last day of the Collection Period
immediately preceding such Distribution Date (other than Excluded Amounts);
(ii) Recoveries on account of previously Defaulted Contracts received as of
the immediately preceding Determination Date as well as Expired Lease
Proceeds; (iii) such amounts as from time to time may be held in the
Collection Account, together with earnings on funds therein, (iv) the rights
of the Trust Depositor under the Transfer and Sale Agreement, (v) any late
charges relating to a Contract provided such late charges were included in the
Contract's terms as of the Cutoff Date ("Late Charges") and (vi) proceeds of
any of the foregoing. Available Amounts will not include any amounts (such as
Residuals) payable on an account of the Financed Items which exceeds the sum
of the Scheduled Payments and Late Charges payable under the related Contract.
Pursuant to the Indenture, the Indenture Trustee will distribute amounts
received from the Indenture Trustee in accordance with the foregoing to the
Class A-1 Noteholders, Class A-2 Noteholders, Class B Noteholders, Class C
Noteholders and the holders of the Subordinated Notes represented thereby pro
rata in accordance with the respective amounts owed thereto.
Following an Event of Default or Restricting Event. On each
Determination Date after the occurrence of an Event of Default, or after the
occurrence of, and during the continuance of, a Restricting Event, the
Servicer shall instruct the Indenture Trustee to withdraw, and on the
succeeding Distribution Date the Indenture Trustee acting in accordance with
such instructions shall withdraw, the amounts required to be withdrawn from
the Collection Account in order to make the following payments or allocations
from the Available Amounts for the related Distribution Date (in each case,
such payment or transfer to be made only to the extent funds remain available
therefor after all prior payments and transfers for such Distribution Date
have been made), in the following order of priority:
(A) pay to the Indenture Trustee, the amount of any unpaid
fees, expenses, late charges or other losses;
(B) pay to the Servicer, the amount of any unreimbursed
Servicer Advance;
(C) pay to the Servicer, the monthly Servicing Fee for the
preceding monthly period together with any amounts in
respect of the Servicing Fee that were due in respect of
prior monthly periods that remain unpaid; provided,
however, that upon the occurrence and during the
continuance of an Obligor Event as defined below (see
"Description of the Notes - Servicing Compensation and
Payment of Expenses") the Servicing Fee shall be paid
after the allocation described in clause (L) hereof;
-51-
<PAGE>
(D) pay to the Indenture Trustee, on behalf of the Class A-1
Notes and the Class A-2 Notes, an amount equal to
interest accrued in respect of such Class A-1 Notes and
the Class A- 2 Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made; provided,
that if the Available Amounts remaining to be allocated
pursuant to this clause is less than the full amount
required to be so paid, such remaining Available
Amounts shall be allocated to each Class A-1 Note and
the Class A-2 Note pro rata based on the then
outstanding principal amount thereof;
(E) pay to the Indenture Trustee, on behalf of the Class B
Notes, an amount equal to the interest accrued thereon
for the Accrual Period immediately preceding such
Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which
no allocation was previously made; provided, that if the
Available Amount remaining to be allocated pursuant to
this clause is less than the full amount required to be
so paid, such remaining Available Amounts shall be
allocated to each Class B Note pro rata based on the
outstanding principal amount thereof;
(F) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to interest accrued in respect of
the Class C Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made; provided,
that if the Available Amounts remaining to be allocated
pursuant to this clause is less than the full amount
required to be so paid, such remaining Available
Amounts shall be allocated to each Class C Note pro rata
based on the outstanding principal amount thereof;
(G) pay to the Indenture Trustee, on behalf of the
Subordinated Notes, an amount equal to interest accrued
in respect of the Subordinated Notes for the Accrual
Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made; provided, that if the Available Amounts
remaining to be allocated pursuant to this clause is
less than the full amount required to be so paid, such
remaining Available Amounts shall be allocated to each
Subordinated Note pro rata based on the outstanding
principal amount thereof;
(H) pay to the Indenture Trustee, on behalf of the Class A-1
Notes the Class A-1 Principal Payment Amount for such
Distribution Date; provided (i) that if the Available
Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so
allocated, such remaining Available Amounts shall be
allocated to each Class A-1 Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay the outstanding Class A-1
Note principal in full, then such excess shall be
applied in repayment of principal on the Class A-2
Notes;
(I) pay to the Indenture Trustee, on behalf of the Class A-2
Notes the Class A-2 Principal Payment Amount for such
Distribution Date; provided (i) that if the Available
Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so
allocated, such remaining Available Amounts shall be
allocated to the Class A- 2 Note, respectively pro rata
based on the outstanding principal amount thereof, and
(ii) if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay the
outstanding Class A-2 Note principal in full, then such
excess shall be applied in repayment of principal on
the Class B Notes;
(J) pay to the Indenture Trustee, on behalf of the holders
of the Class B Notes the Class B Principal Payment
Amount for such Distribution Date; provided (i) that if
the Available Amounts remaining to be allocated pursuant
to this clause is less than the full amount required to
be so paid, such remaining Available Amounts shall be
allocated to each Class B Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay outstanding Class B Note
principal in full, then such excess shall be applied in
repayment of principal on the Class C Notes;
(K) pay to the Indenture Trustee, on behalf of the holders
of the Class C Notes the Class C Principal Payment
Amount for such Distribution Date; provided (i) that if
the Available
-52-
<PAGE>
Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so
paid, such remaining Available Amounts shall be
allocated to each Class C Note pro rata based on the
outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds
the amount needed to repay outstanding Class C Note
principal in full, then such excess shall be applied in
repayment of principal on the Prior Certificates; and
(L) pay to the holders of the Subordinated Notes the lesser
of (i) the Class D Principal Payment Amount for such
Distribution Date and (ii) the remaining outstanding
Principal Amount of the Subordinated Notes; provided (i)
that if the Available Amounts remaining to be allocated
pursuant to this clause is less than the full amount
required to be so paid, such remaining Available Amounts
shall be allocated to each Subordinated Notes pro rata
based on the outstanding principal amount thereof, and
(ii) if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay outstanding
Subordinated Notes principal in full, then such excess
shall be paid to the holder of the Certificates.
Pursuant to the Indenture, the Indenture Trustee will distribute
amounts received from the Indenture Trustee in accordance with the foregoing
to the Noteholders represented thereby pro rata in accordance with the
respective amounts owed thereto.
RESERVE FUND
GENERAL
The Reserve Fund will be an account in the name of the Indenture Trustee
on behalf of the Noteholders and the holders of the Subordinated Notes. The
Reserve Fund will be created with an initial deposit by the Trust Depositor on
the Closing Date of an amount equal to the Reserve Fund Amount.
If the amount on deposit in the Reserve Fund on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Reserve Fund Amount, the Indenture
Trustee will distribute any excess to the holder of the Certificates. Upon
any such distributions to the holder of the Certificates, the Noteholders and
the holders of the Subordinated Notes will have no further rights in, or
claims to, such amounts.
If on any Distribution Date the principal balance of the Subordinated
Notes equals zero and amounts on deposit in the Reserve Fund have been
depleted as a result of losses in respect of the Contracts, the protection
afforded to the Noteholders by the Subordinated Notes and by the Reserve Fund
will be exhausted and the Noteholders will bear directly the risks associated
with the ownership of the Contracts.
None of the Noteholders, the Indenture Trustee, the Owner Trustee, the
Seller nor the Trust Depositor will be required to refund any amounts properly
distributed or paid to them whether or not there are sufficient funds on any
subsequent Distribution Date to make full distributions to the Noteholders.
The Servicer may, from time to time after the date of this Prospectus
request each Rating Agency that rated the Notes to, at the request of the
Trust Depositor, approve a formula for determining the Reserve Fund Amount
that is different from the formula described above and would result in a
decrease in the amount of the Reserve Fund Amount or the manner by which the
Reserve Fund is funded. If each Rating Agency delivers a letter to the
Indenture Trustee and the Owner Trustee to the effect that the use of any such
new formulation will not in and of itself result in a qualification, reduction
or withdrawal of its then-current rating of any Class of Notes then the
Reserve Fund Amount will be determined in accordance with such new formula.
The Agreement will accordingly be amended to reflect such new calculation
without the consent of any Noteholder.
WITHDRAWALS FROM THE RESERVE FUND
Amounts held from time to time in the Reserve Fund will continue to be
held for the benefit of the Noteholders and the holders of the Subordinated
Notes. On each Distribution Date, funds will be withdrawn from the Reserve
Fund to the extent that Available Amounts with respect to any Distribution
Date are less than the amount necessary to pay interest on the Notes and the
Subordinated Notes; provided, however, upon the occurrence of an Event of
Default or upon the occurrence and continuance of Restricting Event amounts in
the Reserve Fund shall be available to pay the principal on the most senior
outstanding Class of Notes or if no Notes are outstanding the Subordinated
Notes; provided further, in the event the Available Amounts are insufficient
to pay outstanding principal on the Class A-1 Notes on the Class A-1 Maturity
Date amounts in the Reserve Fund may be utilized to make principal payments on
the Class A-1 Notes. Additionally, to the extent monies are present in the
Reserve Fund as of the Maturity Date, to the extent necessary, such monies
shall be
-53-
<PAGE>
applied to pay the principal of the most senior outstanding Class of Notes, or
if no Notes are outstanding, the Subordinated Notes.
DEFAULTED CONTRACTS
A Contract will automatically be deemed to be in default (a "Defaulted
Contract") if (i) it is more than 120 days past due (or, with respect to
Contracts for which there exists sufficient available payment recourse to a
Vendor to cover the amounts in default, and which recourse was not available
or had not yet been paid by the Vendor prior to the end of such 120 day
period, at such time thereafter as the Vendor shall have failed to pay such
defaulted amount in accordance with the provisions of the applicable Program
Agreement providing such recourse); or (ii) if at any time the Servicer
determines, in accordance with its customary and usual practices, that such
Contract is not collectible (and taking into account any available Vendor
recourse). The current policy of the Servicer with respect to writing off
Contracts is described in "Heller Financial, Inc. and Heller Financial
Leasing, Inc. --- Vendor Finance --- Collection Process/Vendor Recourse" and
"Heller Financial, Inc. and Heller Financial Leasing, Inc. --Commercial
Equipment Finance -- Collection/Servicing" above.
Upon classification as a Defaulted Contract, the Servicer shall
accelerate all payments due thereunder or take such other action as the
Servicer reasonably believes will maximize the amount of Recoveries in respect
thereof and shall otherwise follow its customary and usual collection
procedures, which may include the repossession and sale of any related
Equipment or other Applicable Security on behalf of the Trust. Any recoveries
on account of a previously Defaulted Contract (including proceeds of
repossessed Equipment or other Applicable Security or other property,
Insurance Proceeds, amounts representing late fees and penalties and amounts
subsequently received pursuant to a Program Agreement with a Vendor, but net
of amounts representing costs and expenses of liquidation incurred by the
Servicer; such recoveries net of such amounts, "Recoveries") shall be deemed
to be Available Amounts. "Expired Lease Proceeds" means any and all Cash
proceeds or rents realized from the sale or re-lease of Equipment under an
expired lease (net of Liquidation Expenses).
COLLECTION ACCOUNT
The Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained in the name of the Indenture Trustee, with an
office or branch of a depository institution or trust company (which may
include the Indenture Trustee) organized under the laws of the United States
of America or any one of the states thereof and located in the state
designated by the Servicer, a non-interest bearing segregated corporate trust
account (the "Collection Account") bearing a designation clearly indicating
that the funds deposited therein are held in trust for the benefit of the
Noteholders; provided, however, that at all times such depository institution
or trust company shall be (a) the corporate trust department of the Indenture
Trustee or, (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i)(A) which has either
(1) a long-term unsecured debt rating acceptable to the Rating Agencies or (2)
a short-term unsecured debt rating or certificate of deposit rating acceptable
to the Rating Agencies, (B) the parent corporation of which has either (1) a
long-term unsecured debt rating acceptable to the Rating Agencies or (2) a
short-term unsecured debt rating or certificate of deposit rating acceptable
to the Rating Agencies or (C) is otherwise acceptable to the Rating Agencies
and (ii) whose deposits are insured by the Federal Deposit Insurance
Corporation (the "FDIC"; any such depository institution or trust company, a
"Qualified Institution"). Funds in the Collection Account generally will be
invested in (i) obligations fully guaranteed by the United States of America,
(ii) demand deposits, time deposits or certificates of deposit of depository
institutions or trust companies having commercial paper with the highest
rating from each Rating Agency, (iii) commercial paper (or other short term
obligations) having, at the time of the Trust's investment therein, the
highest rating from each Rating Agency, (iv) demand deposits, time deposits
and certificates of deposit which are fully insured by the FDIC, (v) notes or
bankers' acceptances issued by any depository institution or trust company
described in (ii) above, (vi) money market funds which have the highest rating
from, or have otherwise been approved in writing by, each Rating Agency, (vii)
time deposits with an entity, the commercial paper of which has the highest
rating from the Rating Agency, (viii) eligible repurchase agreements, and (ix)
any other investments approved in writing by the Rating Agency (collectively,
"Eligible Investments"). Such funds may be invested in debt obligations of
Heller Financial or its affiliates so long as such obligations qualify as
Eligible Investments. Any earnings (net of losses and investment expenses) on
funds in the Collection Account will be held therein and be treated as
Available Amounts. The Servicer will have the revocable power to instruct the
Indenture Trustee to make withdrawals and payments from the Collection Account
for the purpose of carrying out its duties under the Sale and Servicing
Agreement.
REPLACEMENT ACCOUNTS
If any institution with which any of the accounts established
pursuant to the Sale and Servicing Agreement or the Indenture are established
ceases to be a Qualified Institution, the Servicer or the Owner Trustee (as
the case may be) shall within ten Business Days establish a replacement
account at a Qualified Institution after notice thereof.
-54-
<PAGE>
EVENTS OF DEFAULT
Allocations of Available Amounts will be made as described above under
"--Allocations; Prior to an Event of Default or Restricting Event" unless and
until an Event of Default or Restricting Event has occurred, in which case
allocations of Available Amounts will be made as described above under
"--Allocations; Following an Event of Default or Restricting Event". An
"Event of Default" refers to any of the following events:
(a) failure to pay on each Distribution Date the full amount
of accrued interest on any Note;
(b) failure to pay the then outstanding principal amount of
any Note, if any, on its related Maturity Date;
(c) (i) failure on the part of any Seller to make any
payment or deposit required under the Sale and Servicing
Agreement or Transfer and Sale Agreement within three
Business Days after the date the payment or deposit is
required to be made, or (ii) failure on the part of any
Seller, the Trust Depositor, the Trust or the Owner
Trustee to observe or perform any other covenants or
agreements of such entity set forth in the Transfer and
Sale Agreement, Sale and Servicing Agreement or the
Indenture, which failure has a material adverse effect
on the Noteholders and which continues unremedied for a
period of 60 days after written notice; provided, that
no such 60-day cure period shall apply in the case of a
failure by the Sellers to perform their joint and
several agreement to accept reassignment of Ineligible
Contracts, and further provided, that only a five day
cure period shall apply in the case of a failure by any
Seller, the Trustee or the Owner Trustee to observe
their respective covenants not to grant a security
interest in or otherwise intentionally create a lien on
the Contracts;
(d) any representation or warranty made by any Seller, the
Trust Depositor, the Trustee or the Owner Trustee in the
Sale and Servicing Agreement or the Indenture or any
information required to be given by any Seller or the
Trust Depositor to the Indenture Trustee to identify the
Contracts proves to have been incorrect in any material
respect when made and continues to be incorrect in any
material respect for a period of 60 days after written
notice and as a result of which the interests of the
Noteholders are materially and adversely affected;
provided, however, that an Event of Default shall not be
deemed to occur thereunder if the Seller has repurchased
the related Contracts through the Trust Depositor during
such period in accordance with the provisions of the
Sale and Servicing Agreement and the Transfer and Sale
Agreement;
(e) the occurrence of an Insolvency Event relating to any
Seller, the Trust Depositor, the Trust or the Servicer;
or
(f) the Trust becomes an "investment company" within the
meaning of the Investment Company Act of 1940, as
amended.
In the case of any event described in clause (a), (b), (c), (d), (e) or
(f) above, an Event of Default with respect to the Notes will be deemed to
have occurred provided such Event of Default may be waived if the Required
Holders provide written notice to the Trust Depositor and the Servicer of such
waiver. In the event the Indenture Trustee has actual knowledge of an Event
of Default, it will be required to notify, among others, the Trust Depositor,
each Seller, the Servicer and the Owner Trustee.
If an Insolvency Event relating to the Trust Depositor occurs, pursuant
to the Sale and Servicing Agreement, on the day of such Insolvency Event, the
Trust Depositor will promptly give notice to the Indenture Trustee of the
Insolvency Event, and the Indenture Trustee will, unless notified to the
contrary by the Controlling Party, promptly act to sell, dispose of or
otherwise liquidate the Contracts in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from any such sale, disposition
or liquidation of Contracts will be deposited in the Collection Account and
allocated as described in the Sale and Servicing Agreement and herein. If the
proceeds of any collections on Contracts in the Collection Account allocated
to Noteholders of any Class is not sufficient to pay the Principal Amount of
the Notes of such Class in full, such Noteholders will incur a loss.
-55-
<PAGE>
As used herein, "Required Holders" means (i) prior to the payment in full
of the Class A-1 Notes and Class A-2 Notes outstanding, Class A-1 Noteholders
and Class A-2 Noteholders holding Class A-1 Notes and Class A-2 Notes,
respectively evidencing more than 66 2/3% of the Aggregate Principal Amount of
the Class A-1 Notes and Class A-2 Notes voting as a single class, and (ii)
from and after the payment in full of the Class A-1 Notes and Class A-2 Notes
outstanding, Class B Noteholders holding Class B Notes evidencing more than 66
2/3% of the Aggregate Principal Amount of the Class B Notes outstanding, and
(iii) from and after the payment in full of the Class B Notes outstanding,
Class C Noteholders holding Class C Notes evidencing more than 66 2/3% of the
Aggregate Principal Amount of the Class C Notes outstanding.
RESTRICTING EVENTS
Prior to the occurrence of a Restricting Event, allocations of Available
Amounts will be made as described above under "--Allocations; Prior to an
Event of Default or Restricting Event" unless a Restricting Event has occurred
and is continuing in which case allocations will be made as described above
under "--Allocations; Following an Event of Default or Restricting Event". A
"Restricting Event" refers to any of the following events:
(a) As of any Calculation Date, the Average Cumulative Net
Loss Ratio (as defined below) exceeds 1.00%; or
(b) A Servicer Default (as defined in "The Transfer and Sale
Agreement and Sale and Servicing Agreement Generally")
or an Event of Default has occurred and is continuing.
"Average Cumulative Net Loss Ratio" means, for any date of determination
following the conclusion of the three full Collection Period occurring since
the Closing Date, the average of the sum of the Cumulative Net Loss Ratios
determined for each of the three most recent full Collection Periods occurring
prior to such date of determination.
"Cumulative Net Loss Ratio" means, for any date of determination, the
fraction (expressed as a percentage) determined by dividing (i) the ADCB of
all Contracts in the Trust which have become Defaulted Contracts since the
Initial Cutoff Date, net of aggregate Recoveries received by the Trust during
such same period, by (ii) the ADCB of all Contracts in the Contract Pool as of
the Initial Cutoff Date.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer's compensation with respect to its servicing activities and
reimbursement for its expenses for any Collection Period will be a servicing
fee (the "Servicing Fee") calculated monthly, and payable on each Distribution
Date, in an amount equal to the product of (i) one-twelfth, (ii) .50% (such
percentage, the "Servicing Fee Percentage") and (iii) the ADCB of the Contract
Pool as of the beginning of the related Collection Period. The Servicing Fee
will be funded from Available Amounts and will be paid on the Distribution
Date with respect to each Collection Period from the Collection Account. See
"Description of the Notes -- Allocations" above.
After the occurrence and during the continuance of an Obligor Event, the
servicing fee will be subordinated in priority of payment from Available
Amounts as described in "Description of Notes -- Allocations" above. An
"Obligor Event" shall occur if a Contract associated with one of the five (5)
largest Obligors (as measured by the respective Obligor's percentage of the
ADCB of the total Contract Pool as of the Cutoff Date) becomes a Defaulted
Contract within sixteen (16) months from the Closing Date; provided, however
an Obligor Event shall be deemed no longer continuing in the event (i) the
Sellers have replaced the Defaulted Contract with a Substitute Contract
consistent with the terms and conditions described herein, (ii) a Recovery has
been received with respect to the Defaulted Contract, and the Servicer, in its
reasonable judgment, has determined that no further Recoveries are obtainable,
or (iii) a Successor Servicer has been appointed.
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Contracts including, without
limitation, expenses related to the enforcement of the Contracts, payment of
the fees and disbursements of the Indenture Trustee and Owner Trustee and
independent accountants, casualty insurance on Equipment (to the extent the
Contracts provide for the Seller to pay such insurance) and other fees which
are not expressly stated in the Sale and Servicing Agreement to be payable by
the Trust, the Noteholders or the Trust Depositor (other than federal, state,
local and foreign income, franchise or other taxes based on income, if any, or
any interest or penalties with respect thereto, imposed upon the Trust). In
the event that Heller Financial is acting as Servicer and fails to pay the
fees and disbursements of the Indenture Trustee or Owner Trustee (the
"Trustees"), such Trustee will be entitled to receive the portion of the
Servicing Fee that is equal to such unpaid amounts. In no event will the
Noteholders be liable to the Trustees for the Servicer's failure to pay such
amounts, and any such amounts so paid to the Trustees will be treated as paid
to the Servicer for all other purposes of the Sale and Servicing Agreement.
-56-
<PAGE>
RECORD DATE
Payments on the Notes will be made as described herein to the Noteholders
in whose names the Notes were registered (expected to be Cede, as nominee of
DTC) at the close of business on the Record Date. However, the final payment
on the Notes offered hereby will be made only upon presentation and surrender
of such Notes. All payments with respect to the principal of and interest on
the Notes (each, a "Distribution") will be made to DTC in immediately
available funds. See "Description of the Notes--Book-Entry Registration".
OPTIONAL TERMINATION
On any Distribution Date occurring on or after the date on which the ADCB
of the Contract Pool is less than 10% of the initial ADCB of the Contract
Pool as of the Cutoff Date (the "Cleanup Call Condition"), the Trust Depositor
will have the option to cause the Trust to purchase (without penalty) all, but
not less than all, of the remaining outstanding Notes and Certificates. The
redemption price will be equal to the sum of the outstanding principal amount
of the Notes and Certificates, together with accrued interest thereon through
the date of redemption, and shall be payable to the holders of the Notes and
Certificates on such Distribution Date from the proceeds of the Trust's sale
to the Trust Depositor (and the Trust Depositor's concurrent resale to the
applicable Sellers), for a repurchase price equal to such redemption price, of
the remaining Contracts Pool and other Trust Assets held by the Trust.
Following any redemption, the Noteholders will have no further rights with
respect to the Trust Assets.
REPORTS
No later than the third Business Day prior to each Distribution Date, the
Servicer will forward to the Indenture Trustee and each Rating Agency a
statement (the "Monthly Report") prepared by the Servicer setting forth
certain information with respect to the Trust and the Notes and Certificates,
including: (i) the ADCB (A) as of the end of the related Collection Period and
(B) as of the end of the second Collection Period preceding such Distribution
Date (or, in the case of Contracts that were first added to the Contract Pool
during the related Collection Period, as of the Cutoff Date for such
Contracts); (ii) the Class A Principal Payment Amount, Class B Principal
Payment Amount, Class C Principal Payment Amount and Class D Principal Payment
Amount (including the calculations utilized in the determination thereof);
(iii) the ADCB of Contracts held by the Trust which were 30, 60 and 90 days or
more delinquent as of the end of such Collection Period; (iv) the Discounted
Contract Balance of each Contract in the Contract Pool that became a Defaulted
Contract during such Collection Period and cumulatively for each preceding
Collection Periods; (v) the monthly Servicing Fee for such Collection Period;
and (vi) the Available Amounts with respect to the related Collection Period
(including the calculation utilized in the determination thereof).
With respect to each Distribution Date, the Monthly Report also will
include the following information with respect to the Notes: (i) the total
amount distributed; (ii) the amount allocable to principal on the Notes and
each Class thereof; (iii) the amount allocable to interest on the Notes and
each Class thereof; and (iv) the amount, if any, by which the unpaid principal
amount of the Notes of each Class exceeds the Principal Amount of such Class
as of the Record Date with respect to such Distribution Date. On each
Distribution Date, the Indenture Trustee (or an agent on its behalf), will
forward to each Noteholder of record a copy of the Monthly Report.
On or before January 31 of each calendar year, commencing January 31,
1998, the Indenture Trustee (or an agent on its behalf) will furnish (or cause
to be furnished) to each person who at any time during the preceding calendar
year was a Noteholder of record, a statement containing the information
required to be provided by an issuer of indebtedness under the Code for such
preceding calendar year or the applicable portion thereof during which such
person was a Noteholder, together with such other customary information as is
necessary to enable the Noteholders to prepare their tax returns. See
"Certain Federal Income Tax Matters".
LIST OF NOTEHOLDERS
At such time, if any, as Definitive Notes have been issued, upon written
request of any Noteholder or group of Noteholders of record holding Notes
evidencing not less than 10% of the aggregate unpaid principal amount of the
Notes, the Indenture Trustee will afford such Noteholders access during normal
business hours to the current list of Noteholders for purpose of communicating
with other Noteholders with respect to their rights under the Indenture, the
Sale and Servicing Agreement or the Notes. While the Notes are held in
book-entry form, holders of beneficial interests in the Notes will not have
access to a list of other holders of beneficial interests in the Notes, which
may impede the ability of such holders of beneficial interests to communicate
with each other. See "--Book-Entry Registration" below.
-57-
<PAGE>
ADMINISTRATION AGREEMENT
Heller Financial, in its capacity as administrator (in such capacity, the
"Administrator" ), will enter into an agreement (the "Administration
Agreement") with the Trust, the Trust Depositor and the Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in the
Administration Agreement, to provide the notices and to perform other
administrative obligations required to be provided or performed by the Trust
or the Owner Trustee under the Indenture. The Administrator in the
Administration Agreement agrees to perform certain accounting functions of the
Trust which the Owner Trustee is required to perform pursuant to the Trust
Agreement, including but not limited to maintaining the books of the trust,
filing tax returns for the trust, and delivering tax related reports to each
Noteholder (except the Owner Trustee shall retain responsibility for
distributing the Schedule K-1s). As compensation for the performance of the
Administrator's obligations under the Administration Agreement and as
reimbursement for its expenses related thereto, the Administrator will be
entitled to a monthly administration fee (the "Administration Fee"), which fee
will be paid by the Servicer.
BOOK-ENTRY REGISTRATION
Noteholders may only hold their Notes through DTC (in the United States)
or Cedel or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Class A-1 Note or Notes,
the global Class A-2 Note or Notes, the global Class B Note or Notes, and the
global Class C Note or Notes. Cedel and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities accounts in
Cedel's and Euroclear's names on the books of their respective Depositaries
(as defined below) which in turn will hold such positions in customers'
securities accounts in the Depositaries' names on the books of DTC. Citibank
will act as depositary for Cedel and Morgan Guaranty Trust will act as
depositary for Euroclear (in such capacities, the "Depositaries").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations
("Participants") and facilitate the settlement of securities transactions
between Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of notes.
Participants include the Underwriter, securities brokers and dealers, banks,
trust companies and clearing corporations and may include certain other
organizations. Indirect access to the DTC system also is available to others
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants (as defined in this section) and
Euroclear Participants (as defined in this section) will occur in accordance
with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected through
DTC in accordance with DTC rules on behalf of the relevant European
international clearing systems by its Depositary. Cross-market transactions
will require delivery of instructions to the relevant European international
clearing system by the counterparty in such system in accordance with its
rules and procedures and within its established deadlines (European time). The
relevant European international clearing system will, if the transaction meets
its settlement requirements, deliver instructions to its Depositary to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Cedel
Participants and Euroclear Participants may not deliver instructions directly
to the Depositaries.
Because of time-zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Cedel Participants on such business day. Cash received in Cedel
or Euroclear as a result of sales of securities by or through a Cedel
Participant or a Euroclear Participant to a Participant will be received with
value on the DTC settlement date but will be available in the relevant Cedel
or Euroclear cash account only as of the business day following settlement in
DTC. For information with respect to tax documentation procedures relating to
the Notes, see "Certain Federal Income Tax Considerations."
Noteholders that are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of, or other interests in,
Notes may do so only through Participants and Indirect Participants. In
addition, Noteholders will receive all distributions of principal and interest
on the Notes from the Indenture Trustee through DTC and its Participants.
Under a book-entry format, Noteholders will receive payments after the related
Distribution Date, as the
-58-
<PAGE>
case may be, because, while payments are required to be forwarded to Cede, as
nominee for DTC, on each such date, DTC will forward such payments to its
Participants which thereafter will be required to forward them to Indirect
Participants or holders of beneficial interests in the Notes. It is
anticipated that the only "Class A-1 Noteholder", "Class A-2 Noteholder",
"Class B Noteholder" and "Class C Noteholder" will be Cede, as nominee of DTC,
and that holders of beneficial interests in the Class A-1 Notes, Class A-2
Notes, Class B Notes or Class C Notes, respectively, under the Indenture will
only be permitted to exercise the rights of Class A-1 Noteholders, Class A-2
Noteholders, Class B Noteholders or Class C Noteholders, respectively, under
the Indenture indirectly through DTC and its Participants who in turn will
exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Notes and is required
to receive and transmit distributions of principal of and interest on the
Notes. Participants and Indirect Participants with which holders of
beneficial interests in the Notes have accounts similarly are required to make
book-entry transfers and receive and transmit such payments on behalf of these
respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Notes, may be limited due to the lack of a Definitive Note for such
Notes.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Class A-1 Noteholder, Class A- 2 Noteholder, Class B Noteholder or
Class C Noteholder under the Indenture only at the direction of one or more
Participants to whose account with DTC the Class A-1 Notes, Class A-2 Notes,
Class B Notes or Class C Notes are credited. Additionally, DTC has advised
the Issuer that it may take actions with respect to percentage interests in
any particular Class of the Notes represented by holders of beneficial
interests evidencing that percentage, which actions may conflict with other of
its actions with respect to other percentage interests therein.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes
in accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by
the Luxembourg Monetary Institute. Cedel Participants are recognized
financial institutions around the world, including underwriters, securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations and may include the Underwriter. Indirect access to Cedel
is also available to others, such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a Cedel
Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement
of certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may now be settled in any of 29 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by
the Euroclear Operator and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries and may include the Underwriter. Indirect access to
Euroclear is also available to other firms that clear through or maintain a
custodial relationship with a Euroclear Participant, either directly or
indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear
and the related Operating Procedures of the Euroclear System and applicable
Belgian law (collectively, the "Terms and Conditions"). The Terms and
Conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with respect to securities
-59-
<PAGE>
in Euroclear. All securities in Euroclear are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants, and has no record of or relationship with
persons holding through Euroclear Participants.
Distributions with respect to Notes held through Cedel or Euroclear will
be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Considerations." Cedel or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by an Noteholder under the Indenture on behalf of a Cedel
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, Cedel and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Except as required by law, none of the Servicer, any Seller, the Owner
Trustee, the Trust Depositor or the Indenture Trustee will have any liability
for any aspect of the records relating to, actions taken or implemented by, or
payments made on account of, beneficial ownership interests in the Notes held
through DTC, or for maintaining, supervising or reviewing any records or
actions relating to such beneficial ownership interests .
DEFINITIVE NOTES
The Notes will be issued in fully registered, authenticated form to
beneficial owners or their nominees (the "Definitive Notes"), rather than to
DTC or its nominee, only if (a) the Trust advises the Indenture Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depository with respect to such Notes, and the Indenture
Trustee or the Issuer is unable to locate a qualified successor or (b) the
Issuer at its option elects to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all
beneficial owners for each Class of Notes held through DTC of the availability
of Definitive Notes for such Class. Upon surrender by DTC of the Definitive
Note representing the Notes and instructions for reregistration, the Indenture
Trustee will issue such Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Noteholders under the
Indenture (the "Holders"). The Indenture Trustee will also notify the Holders
of any adjustment to the Record Date with respect to the Notes necessary to
enable the Indenture Trustee to make distributions to Holders of the
Definitive Notes for such Class of record as of each Distribution Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check,
mailed to the address of such Holder as it appears on the Note register. Upon
at least 10 days' notice to Noteholders for such Class, however, the final
payment on any Note (whether the Definitive Notes or the Note for such Class
registered in the name of Cede representing the Notes of such Class) will be
made only upon presentation and surrender of such Note at the office or agency
specified in the notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and exchangeable at
the offices of the Indenture Trustee or its agent in New York, New York, which
the Indenture Trustee shall designate on or prior to the issuance of any
Definitive Notes with respect to such Class. No service charge will be
imposed for any registration of transfer or exchange, but the Indenture
Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith.
-60-
<PAGE>
THE SUBORDINATED NOTES
On the Closing Date, the Trust will also issue the 7.63% Class D
Receivables-Backed Notes (the "Subordinated Notes") with an aggregate
principal balance of $5,476,530. The Subordinated Notes will be issued
pursuant to the Indenture.
The Subordinated Notes are not being offered and sold hereunder.
Distributions with respect to the Subordinated Notes will be subordinated to
the rights of the Noteholders and the holders of the Subordinated Notes to the
extent described herein. See "Description of the Notes--Allocations" herein.
THE CERTIFICATES
On the Closing Date, the Trust will also issue the Certificates with an
initial certificate balance of $2,738,265 (the "Certificates"); the
Certificates will not bear interest and shall have the right to monies in the
Reserve Fund and to certain other excess funds (after the payment of all
principal and interest on the Notes and the Subordinated Notes). The
Certificates will represent fractional undivided beneficial equity interests
in the Trust and will be issued pursuant to the Trust Agreement. The
Certificates are not being offered and sold hereunder. The Trust Depositor
is expected initially to retain the Certificates, although the Certificates
could be transferred at some later date in a transaction separate from this
offering provided the Owner Trustee and Indenture Trustee receive an opinion
of Independent Counsel that such transfer will not cause the Trust to become a
taxable entity or otherwise adversely affect the Noteholders or the holders of
the Subordinated Notes. Distributions with respect to the Certificates will
be subordinated to the rights of the Noteholders and the holders of the
Subordinated Notes to the extent described herein. See "Description of the
Notes--Allocations" herein.
THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT GENERALLY
The following is a summary of the material terms of the Transfer and Sale
Agreement and the Sale and Servicing Agreement, the forms of which were filed
as exhibits to the Registration Statement of which this Prospectus is a part,
and this summary is qualified in its entirety by reference to the Transfer and
Sale Agreement and Sale and Servicing Agreement, respectively.
TERMINATION OF TRUST
Unless the Trust Depositor instructs the Owner Trustee otherwise, the
Trust will terminate only on the earliest to occur of (i) the day following
the day on which the Aggregate Principal Amount of all Notes and Certificates
is zero (provided, that the Trust Depositor shall have delivered a written
notice to the Owner Trustee electing to terminate the Trust), (ii) December
25, 2005, or (iii) if the Contracts are sold, disposed of or liquidated
following the occurrence of an Insolvency Event as described under
"Description of the Notes--Events of Default", immediately following such
sale, disposition or liquidation (the "Trust Termination Date"). Upon
termination of the Trust, all right, title and interest in the Trust Assets
(other than amounts in accounts maintained by the Trust for the final payment
of principal and interest to Noteholders or Certificateholders) will be
conveyed and transferred to the holder of the Subordinate Certificate and any
permitted assignee.
CONVEYANCE OF CONTRACTS
The Contracts, and interests in the Equipment and other Applicable
Security, to be sold or contributed to the Trust by the Trust Depositor will
be acquired by the Trust Depositor from the Sellers pursuant to the Transfer
and Sale Agreement dated as of September 1, 1997 among the Trust Depositor,
Heller Financial and HFLI (each as a Seller thereunder) (the "Transfer and
Sale Agreement"). A form of Transfer and Sale Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part.
Under the Transfer and Sale Agreement, each Seller will sell to the
Trust Depositor, to the extent of the Seller's interest therein, (i) the
Contracts and its interest in any related Equipment and Applicable Security as
of the Cutoff Date, and (ii) the proceeds thereof (except Excluded Amounts).
Pursuant to the Sale and Servicing Agreement, such interests in the related
Contracts, the Equipment, the Applicable Security and the proceeds thereof
will then be sold by the Trust Depositor to the Trust, and pursuant to the
Indenture a lien thereon will be granted by the Trust in favor of the
Indenture Trustee, and the Trust Depositor will also assign its rights in, to
and under the Transfer and Sale Agreement with respect to the Contracts and
Equipment and Applicable Security to the Trust and the Trust will assign such
rights to the Indenture Trustee.
-61-
<PAGE>
Pursuant to the Transfer and Sale Agreement, each Seller will sell,
transfer, assign, set over and otherwise convey to the Trust Depositor,
without recourse (except as expressly set forth in such Transfer and Sale
Agreement) all of such Seller's right, title and interest in and to (i)
specified Contracts and all monies due or to become due in payment of such
Contracts on or after the related Cutoff Date, including all Scheduled
Payments thereunder due on or after such Cutoff Date, any Prepayment Amounts,
any payments in respect of a casualty or early termination, and any Recoveries
received with respect thereto but excluding any Scheduled Payments due prior
to the Cutoff Date or any Excluded Amounts, (ii) the related Equipment and, in
the case of any Vendor Loan, Applicable Security, including all proceeds from
any sale or other disposition of such Equipment or Applicable Security, (iii)
any documents delivered to the Trust Depositor or held by the Servicer on its
behalf with respect to each such Contract (the "Contract Files"), (iv) all
payments made or to be made in the future with respect to each such Contract
and the Vendor thereunder under any Vendor Agreements with the applicable
Seller and under any other guarantee or similar credit enhancement with
respect to such Contracts, (v) all payments made with respect to each such
Contract under any insurance policy covering physical damage to the related
Equipment (the "Insurance Proceeds") and (vi) all income and proceeds of the
foregoing (the foregoing are referred to collectively as the "Transferred
Assets"). As of the Cutoff Date the Trust Depositor will transfer and assign,
among other things, the Transferred Assets to the Trust for the benefit of the
Noteholders and holders of the Subordinated Notes and the Trust will grant a
lien on such Transferred Assets in favor of the Indenture Trustee, pursuant to
the Sale and Servicing Agreement and the Indenture.
Heller Financial, as Servicer under the Sale and Servicing Agreement,
will retain custody of (but not title to) the Contracts, the Contract Files
and any related evidence of insurance payments, Scheduled Payments and any
other similar payments under the Contracts. Prior to the conveyance of any
Contracts to the Trust Depositor, Heller Financial caused (in the case of the
Contracts sold under the Transfer and Sale Agreement on the Closing Date) or
will cause (in the case of Substitute Contracts conveyed after the Closing
Date) its and/or HFLI's computer accounting systems to be marked to show that
the Contracts transferred thereunder have been conveyed to the Trust
Depositor, and prior to each transfer of any Trust Assets to the Trust
pursuant to the Sale and Servicing Agreement, Heller Financial or the Trust
Depositor, as appropriate, will file UCC financing statements reflecting (A)
the conveyance of the Transferred Assets to the Trust Depositor, (B) each sale
of Trust Assets to the Trust pursuant to the Sale and Servicing Agreement and
(C) the grant of a lien thereon in favor of the Indenture Trustee (except that
financing statements will be filed with respect to each conveyance of an
interest in Equipment to the Trust Depositor by Heller Financial and each sale
of an interest in Equipment to the Trust by the Trust Depositor, and each
transfer of an interest in Equipment to the Indenture Trustee by the Trust, in
each case, only to the extent the same may be viewed as inventory of Heller
Financial (or HFLI, as applicable), the Trust Depositor and the Trust,
respectively). Each Seller and the Trust Depositor will mark its books and
records, including the appropriate computer files relating to the Contracts,
to indicate that all interests in the Contracts have been conveyed (i) to the
Trust Depositor, (ii) by the Trust Depositor to the Trust, and (iii) by the
Trust to the Indenture Trustee. See "Certain Legal Aspects of the Contracts".
REPRESENTATIONS AND WARRANTIES
The Seller/Servicer and HFLI have, jointly and severally, made certain
representations and warranties in the Transfer and Sale Agreement with respect
to the Contracts transferred thereunder as of the Cutoff Date, and the Sellers
will similarly make or be deemed to have made certain representations and
warranties with respect to each Additional Contract or Substitute Contract
transferred by either of them as of its related Cutoff Date, including that:
(i) the information with respect to the Contract, any Secondary Contract
securing the obligations under such Contract, and the Equipment, if any,
subject to the Contract delivered under the Transfer and Sale Agreement is
true and correct in all material respects; (ii) immediately prior to the
transfer of a Contract and any related Equipment (or security interest
therein) or Applicable Security (or security interest therein) to the Trust
Depositor, such Contract was owned by the applicable Seller free and clear of
any adverse claim; (iii) the Contract did not have a Scheduled Payment that
was a delinquent payment for more than 30 days, and the Contract is not
otherwise a Defaulted Contract; (iv) no provision of the Contract has been
waived, altered or modified in any respect, except by instruments or documents
contained in the Contract File (other than payment delinquencies permitted
under clause (iii) above); (v) the Contract is a valid and binding payment
obligation of the Obligor and is enforceable in accordance with its terms
(except as may be limited by applicable insolvency, bankruptcy, moratorium,
reorganization, or other similar laws affecting enforceability of creditors'
rights generally and the availability of equitable remedies); (vi) the
Contract is not and will not be subject to rights of rescission, setoff,
counterclaim or defense and, to the Sellers' knowledge, no such rights have
been asserted or threatened with respect to the Contract; (vii) the Contract,
at the time it was made, did not violate the laws of the United States or any
state, except for any such violations which do not materially and adversely
affect the collectibility of the Contracts in the Contract Pool taken as a
whole; (viii) (x) the Contract and any related Equipment have not been sold,
transferred, assigned or pledged by the applicable Seller to any other person
(other than the sale of the Equipment to the End-User in connection with CSAs,
Secured Notes and "non-true leases") and any Equipment related to such
Contract is free and clear of any liens and encumbrances of any third parties
other than liens in favor of the applicable Seller and Permitted Liens (as
defined below), and (y) either (A) such Contract is secured by a fully
perfected Lien of the first priority on the related Equipment or, in the case
of any Vendor Loan, related Applicable Security or (B) in the case of a
Contract secured by Title Registry Equipment, within 30 calendar days of the
-62-
<PAGE>
origination or acquisition of such Contract by the Seller all applicable
federal registration or recording procedures were initiated, and such interest
will be so noted or recorded within 180 days of such acquisition or
origination; (ix) if the Contract constitutes either an "instrument" or
"chattel paper" for purposes of the UCC, there is not more than one "secured
party's original" counterpart of the Contract; (x) all filings necessary to
evidence the conveyance or transfer of the Contract to the Trust Depositor
have been made in all appropriate jurisdictions; (xi) the Obligor is not to
the Sellers' knowledge, subject to bankruptcy or other insolvency proceedings;
(xii) the Contract is a U.S. dollar-denominated obligation and the associated
Equipment is located in the United States; (xiii) the Contract does not
require the prior written consent of an Obligor or contain any other
restriction on the transfer or assignment of the Contract (other than a
consent or waiver of such restriction that has been obtained prior to the date
of such Contract's conveyance to the Trust); (xiv) either (A) the obligations
of the related Obligor under such Contract are irrevocable and unconditional
and non-cancelable (or, if prepayable by its terms, such Contract meets the
criteria described in clause (xxiv) below) or (B) with respect to certain
Leases with Lessees that are governmental entities or municipalities, if such
Lease is cancelled in accordance with its terms, either (1) the Vendor which
assigned such Lease to the Seller is unconditionally obligated to repurchase
such Lease from the Seller for a purchase price not less than the Discounted
Contract Balance of such Lease (as of the date of purchase) plus interest
thereon at the Discount Rate through the Distribution Date following such date
of repurchase or (2) pursuant to the Transfer and Sale Agreement, the Sellers
have indemnified the Trust Depositor against such cancellation in an amount
equal to the Discounted Contract Balance of such Lease (as of the date of
purchase) plus interest thereon at the Discount Rate through the Distribution
Date following such cancellation less any amounts paid by the Vendor pursuant
to clause (1); (xv) the Contract has an original maturity of not greater than
the term specified in the Sale and Servicing Agreement; (xvi) no adverse
selection procedure was used in selecting the Contract for transfer; (xvii)
the Obligor under the Contract is required to maintain casualty insurance with
respect to the related Equipment or to self-insure against casualty with
respect to the related Equipment in accordance with the Servicer's normal
requirements; (xviii) the Contract constitutes chattel paper, an account, an
instrument or a general intangible as defined under the UCC; (xix) no Lease is
a "consumer lease" as defined in Section 2A-103(1)(e) of the UCC and each
Lease is a Lease intended for security as defined in Section 1-201(39) of the
UCC; (xx) each Lessee has represented to the Seller or the Vendor that it has
accepted the related Equipment and that it has had a reasonable opportunity to
inspect and test such Equipment and the Seller has not been notified of any
defects therein; (xxi) the Contract is not subject to any guarantee by any
Seller nor has the Seller established any specific credit reserve with respect
to the related Obligor; (xxii) each Lease is a "triple net lease" under which
the Obligor is responsible for the maintenance of the related Equipment in
accordance with general industry standards applicable to such item of
Equipment; (xxiii) each Vendor Loan is secured by an Eligible Secondary
Contract having an aggregate Discounted Contract Balance for such Eligible
Secondary Contract equal to the outstanding principal amount of such Vendor
Loan (and assuming the interest rate specified in such Vendor Loan is the
"Discount Rate" for purposes of calculating such Discounted Contract Balance);
(xxiv) no provision of such Contract provides for a Prepayment Amount less
than the amount calculated in accordance with the definition thereof (unless
otherwise indemnified by the Vendor or the Sellers in an amount equal to the
excess of the "Prepayment Amount" as calculated in accordance with the
definition thereof over the amount otherwise payable upon a prepayment under
such Contract).
The foregoing representations and warranties, as appropriate, will be
reaffirmed by the Sellers with respect to any Additional Contract or
Substitute Contract transferred by any Seller to the Trust Depositor. A
Contract which satisfies all of the above representations and warranties shall
be termed an "Eligible Contract" and Contracts with respect to which the
representations in clauses (iii), (xv) and (xxiv) are not true shall also be
Eligible Contracts if the Trust Depositor shall have received confirmation
from each Rating Agency that the discrepancy will not result in a Ratings
Effect. In addition, the Sellers will jointly and severally represent and
warrant to the Trust Depositor that the conveyance pursuant to the Transfer
and Sale Agreement constitutes a valid sale and assignment to the Trust
Depositor of all right, title and interest of the applicable Seller in the
related Contracts, whether then existing or thereafter created, and the
proceeds thereof, which is effective as of the date of conveyance of such
Contract.
As used above, "Permitted Liens" shall mean (a) with respect to
Contracts in the Contract Pool: (i) liens for state, municipal or other local
taxes if such taxes shall not at the time be due and payable or if the Trust
Depositor shall currently be contesting the validity thereof in good faith by
appropriate proceedings and shall have set aside on its books adequate
reserves with respect thereto, (ii) liens in favor of the Trust Depositor
created pursuant to the Transfer and Sale Agreement and transferred to the
Trust pursuant to the Sale and Servicing Agreement, (iii) liens in favor of
the Trust created pursuant to the Sale and Servicing Agreement, and (iv) liens
in favor of the Indenture Trustee created pursuant to the Sale and Servicing
Agreement and the Indenture; and (b) with respect to the related Equipment:
(i) materialmen's, warehousemen's, mechanics' and other liens arising by
operation of law in the ordinary course of business for sums not due, (ii)
liens for state, municipal or other local taxes if such taxes shall not at the
time be due and payable or if the Trust Depositor shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto,
(iii) liens in favor of the Trust Depositor created pursuant to the Transfer
and Sale Agreement and transferred to the Trust pursuant to the Sale and
Servicing Agreement, (iv) liens in favor of the Trust created pursuant to the
Sale and Servicing Agreement; (v) liens in favor of the Indenture Trustee
created pursuant to the Sale and Servicing Agreement and the Indenture, (vi)
other subordinated liens which are subordinated to the prior payment of the
Notes and
-63-
<PAGE>
Subordinated Notes on terms described in the Sale and Servicing Agreement and
(vii) liens granted by the End-Users or Vendors which are subordinated to the
interest of the Trust in such Equipment.
In addition to the foregoing, the Sellers will jointly and severally
represent and warrant in the Transfer and Sale Agreement with respect to each
Secondary Contract securing a Vendor Loan transferred by either Seller under
the Transfer and Sale Agreement as of the related Cutoff Date (unless
otherwise indicated), among other things, (i) that each such Secondary
Contract satisfies the representations set forth in the third preceding
paragraph (other than the representations set forth in clauses (ii), (viii)
(with respect to ownership by the Seller of the Contract) and (xxiii), and
except that the term "Obligor" shall be deemed to be "End-User" in all such
representations), (ii) that the Seller holds a duly perfected lien of the
first priority on such Secondary Contract and (iii) that the transfer of the
Seller's security interest in such Secondary Contract and the proceeds thereof
to the Trust Depositor is effective to create in favor of the Trust Depositor
a lien thereon and that such lien has been duly perfected (Secondary Contracts
which satisfy all of the foregoing representations shall be termed "Eligible
Secondary Contracts").
The Trust Depositor will represent and warrant in the Sale and Servicing
Agreement, among other things, (i) that the transfer of the related Contracts,
whether then existing or thereafter created, and the proceeds thereof is a
valid sale, transfer and assignment to the Trust of all right, title and
interest of the Trust Depositor therein and that all filings necessary to
evidence the conveyance or transfer of the Contracts to the Trust have been
made in all appropriate jurisdictions; (ii) that each Contract transferred by
it to the Trust is an "Eligible Contract"; (iii) that each Secondary Contract
(or interest therein) transferred by it to the Trust is an "Eligible Secondary
Contract"; (iv) that the security interest granted on the related Contracts,
whether then existing or thereafter created, and the proceeds thereof by the
Trust to the Indenture Trustee is effective to create in favor of the
Indenture Trustee a lien thereon and that such lien has been duly perfected;
(v) that the Trust Depositor holds a duly perfected lien of the first priority
on each Secondary Contract and (vi) that the transfer of the Trust Depositor's
security interest in each Secondary Contract and the proceeds thereof by the
Trust to the Indenture Trustee is effective to create in favor of the
Indenture Trustee a lien thereon and that such lien has been duly perfected.
None of the Indenture Trustee, the Trust, the Owner Trustee or any of
them in their individual capacities (in such capacity, the "Trust Company"),
shall make or be deemed to have made any representations or warranties,
express or implied, regarding the Trust Assets or the transfers thereof by the
Sellers, the Trust Depositor or the Trust.
Under the terms of the Transfer and Sale Agreement and the Sale and
Servicing Agreement, each Contract must be an Eligible Contract as of its date
of transfer to the Trust. The Indenture Trustee shall reassign to the Trust
Depositor, and the Sellers will be concurrently obligated, jointly and
severally, to purchase from the Trust Depositor, any Contract transferred by a
Seller and any interest in Equipment transferred that is subject to such
Contract no later than 90 days after any Seller becomes aware, or receives
written notice from the Servicer or the Trust Depositor, of the breach of any
representation or warranty made by the Seller in the Transfer and Sale
Agreement that materially adversely affects the interests of the Trust
Depositor or the Trust or their successors or assigns in any Contract or the
related Contract File, which breach has not been cured or waived in all
material respects (an "Ineligible Contract"). This purchase obligation will
constitute the sole remedy against the Sellers available to the Trust
Depositor, the Indenture Trustee and the Noteholders or holders of the
Subordinated Notes for a breach of a representation or warranty under the
Transfer and Sale Agreement made by the Sellers with respect to such a
Contract. This purchase obligation also will constitute the sole remedy
against the Trust Depositor available to the Indenture Trustee and the
Noteholders or holders of the Subordinated Notes for a breach of a
representation or warranty under the Sale and Servicing Agreement made by the
Trust Depositor with respect to such a Contract.
Pursuant to the Sale and Servicing Agreement, an Ineligible Contract
shall be reassigned to the Trust Depositor and the Trust Depositor shall make
a deposit in the Collection Account in immediately available funds in an
amount equal to the sum of the Discounted Contract Balance of the Ineligible
Contract (utilizing, for purposes of calculating the Discounted Contract
Balance, the Discount Rate at the time such Ineligible Contract was
transferred to the Trust) and any outstanding Servicer Advances thereon. Any
amount deposited into the Collection Account in connection with the
reassignment of an Ineligible Contract (the amount of such deposit being
referred to herein as a "Transfer Deposit Amount") shall be considered payment
in full of the Ineligible Contract. Any such Transfer Deposit Amount shall be
treated as an Available Amount. In the alternative, the Trust Depositor may
instead cause the Sellers, or either of them, to convey to the Trust
Depositor, for concurrent conveyance to the Trust and concurrent pledge to the
Indenture Trustee, a Substitute Contract (otherwise satisfying the terms and
conditions generally applicable to Substitute Contracts in other situations
described herein) in replacement for the affected Ineligible Contract, which
shall thereupon be deemed released by the Trust (and Indenture Trustee) and
reconveyed through the Trust Depositor to the Seller thereof.
-64-
<PAGE>
CONCENTRATION AMOUNTS
In addition to the representations and warranties made by the Sellers and
the Trust Depositor with respect to the Contracts as described above under
"--Representations and Warranties", the Trust Depositor will represent and
warrant as of the initial Cutoff Date as follows:
(i) the ADCB of all End-User Contracts with Obligors that are
governmental entities or municipalities does not exceed 1.13% of
the ADCB of the Contract Pool;
(ii) the ADCB of all End-User Contracts which finance, lease or are
related to Software will not exceed 3.88% of the ADCB of the
Contract Pool;
(iii) the ADCB of all End-User Contracts with Obligors who comprise
the three (3) largest Obligors (measured by ADCB) does not
exceed 5.09% of the ADCB of the Contract Pool;
(iv) the ADCB of all End-User Contracts with Obligors who comprise
the twenty (20) largest Obligors (measured by ADCB) does not
exceed 24.79% of the ADCB of the Contract Pool;
(v) the ADCB of all End-User Contracts related to a single Vendor,
or representing a Vendor Loan of such Vendor or affiliate
thereof does not exceed 23.01% of the ADCB of the Contract Pool;
(vi) the ADCB of all End-User Contracts with Obligors or affiliates
thereof located in a single State of the United States does not
exceed 17.73% of the ADCB of the Contract Pool.
On the date an Additional Contract or Substitute Contract is added to the
Contract Pool the Trust Depositor will make the foregoing representations and
warranties as of the initial Closing Date provided, that, for purposes thereof
(i) the Contract Pool on the initial Closing Date shall be deemed to include
such Additional Contract or Substitute Contract in lieu of the Contract being
replaced or substituted and (ii) the Discounted Contract Balance of such
Additional Contract or Substitute Contract shall be equal to the Discounted
Contract Balance thereof as of the related Cutoff Date.
The Indenture Trustee shall reassign to the Trust Depositor, and the
Sellers will be jointly and severally obligated to purchase from the Trust
Depositor, any Contract transferred by a Seller (and any related Equipment or
Applicable Security) (an "Excess Contract"; any such Contract, together with
any Ineligible Contract as described and defined above, being sometimes
referred to herein, collectively, as a "Warranty Contract") selected by the
Servicer at such time as there is a breach of any of the foregoing
representations or warranties, which breach has not been cured or waived in
all material respects, the removal of which shall remedy such breach. Such
purchase shall occur no later than 90 days after the Trust Depositor or any
Seller becomes aware, or receives written notice from the Servicer or the
Trust Depositor, of such breach. This purchase obligation will constitute the
sole remedy against the Sellers available to the Trust Depositor, the
Indenture Trustee and the Noteholders or Certificateholders for a breach of
one of the foregoing representations or warranties.
Pursuant to the Sale and Servicing Agreement, an Excess Contract shall be
reassigned to the Trust Depositor and the Trust Depositor shall make a deposit
in the Collection Account in immediately available funds in an amount (an
"Excess Concentration Amount") equal to the sum of the Discounted Contract
Balance of the Excess Contract (together with accrued interest thereon at the
Discount Rate) and any outstanding Servicer Advances thereon. Any amount
deposited into the Collection Account in connection with the reassignment of
an Excess Contract shall be considered payment in full of the Ineligible
Contract. Any such amount shall be considered a Transfer Deposit Amount and
shall be treated as an Available Amount. In the alternative, the Trust
Depositor may instead cause the Sellers, or either of them, to convey to the
Trust Depositor, for concurrent conveyance to the Trust and concurrent pledge
to the Indenture Trustee, a Substitute Contract (otherwise satisfying the
terms and conditions generally applicable to Substitute Contracts in other
situations described herein) in replacement for the affected Excess Contract,
which shall thereupon be deemed released by the Trust (and Indenture Trustee)
and reconveyed through the Trust Depositor to the Seller thereof.
INDEMNIFICATION
The Sale and Servicing Agreement provides that the Servicer will
indemnify the Trust Depositor, the Trust, the Owner Trustee, and the Indenture
Trustee from and against any loss, liability, expense, damage or injury
suffered or sustained arising out of the Servicer's actions or omissions with
respect to the Trust pursuant to the Sale and Servicing Agreement. Pursuant
to the Sale and Servicing Agreement, the Servicer, irrevocably and
unconditionally, (i) submits for itself and its property in any legal action
arising out of the Sale and Servicing Agreement and the other Operative
Documents, to the nonexclusive general jurisdiction of the courts of the
United States of America for the Northern District of Illinois, and appellate
courts therefrom and (ii) waives any objection it may have that any action
therein was brought in an inconvenient
-65-
<PAGE>
court. Notwithstanding the foregoing, a court may determine, on its own
motion, that an action brought against the Servicer in any such court was
brought in an inconvenient forum.
Under the Sale and Servicing Agreement, the Trust Depositor has agreed to
be liable directly to an injured party for the entire amount of any losses,
claims, damages or liabilities (other than those incurred by a Noteholder or
Certificateholder in the capacity of an investor in the Notes or Certificates)
arising out of or based on the arrangement created by the Sale and Servicing
Agreement as though such agreement created a partnership under the Illinois
Uniform Limited Partnership Act in which the Trust Depositor was a general
partner. In the event of a Service Transfer, the successor Servicer will
indemnify and hold harmless the Trust Depositor for any losses, claims,
damages and liabilities of the Trust Depositor as described in this paragraph
arising from the actions or omissions of such successor Servicer. Except as
provided in the two preceding paragraphs, the Sale and Servicing Agreement
provides that none of the Trust Depositor, the Servicer or any of their
directors, officers, employees or agents will be under any other liability to
the Trust, the Owner Trustee, the Indenture Trustee, the holders of Notes or
Subordinated Notes or any other person for any action taken, or for refraining
from taking any action, in good faith pursuant to the Sale and Servicing
Agreement. However, none of the Trust Depositor, the Servicer or any of their
directors, officers, employees or agents will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance,
bad faith or gross negligence of any such person in the performance of their
duties or by reason of reckless disregard of their obligations and duties
thereunder.
In addition, the Sale and Servicing Agreement provides that the Servicer
is not under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its servicing responsibilities under the Sale and
Servicing Agreement. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
holders of Notes or Subordinated Notes with respect to the Sale and Servicing
Agreement and the rights and duties of the parties thereto and the interest of
Noteholders or holders of the Subordinated Notes thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Sale and Servicing Agreement, the Servicer is responsible
for servicing, collecting, enforcing and administering the Contracts in
accordance with its customary and usual procedures for servicing contracts
comparable to the Contracts.
The Servicer pursuant to the Sale and Servicing Agreement also may
advance Scheduled Payments with respect to any Contract (a "Servicer Advance")
which were due in a Collection Period and were not received and identified to
a Contract by the close of business on the Determination Date, to the extent
that the Servicer, in its sole discretion, expects to recover the Servicer
Advance from subsequent payments on or with respect to the Contract. The
Servicer shall be entitled to reimbursement of Servicer Advances from
subsequent payments on or with respect to the Contract, including collections
of any Prepayment Amount, Transfer Deposit Amount or Recoveries with respect
to such Contract, and, if the Servicer determines that Servicer Advances will
not be recovered from the Contracts to which the Servicer Advances were
related, from other Contracts included in the Trust.
CERTAIN OTHER MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Sale and Servicing Agreement, except upon determination that such duties are
no longer permissible under applicable law. No such resignation will become
effective until the Indenture Trustee or a successor to the Servicer has
assumed the Servicer's responsibilities and obligations under the Sale and
Servicing Agreement.
Any person into which, in accordance with the Sale and Servicing
Agreement, Heller Financial or the Servicer may be merged or consolidated or
any person resulting from any merger or consolidation to which Heller
Financial or the Servicer is a party, or any person succeeding to the business
of Heller Financial or the Servicer, will be the successor to Heller
Financial, as the Servicer, under the Sale and Servicing Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, either the Indenture Trustee or the
Required Holders, by written notice to the Servicer and the Owner Trustee (and
to the Indenture Trustee, if given by the Noteholders) (a "Termination
Notice"), may terminate all of the rights and obligations of the Servicer, as
servicer, under the Sale and Servicing Agreement. If the Indenture Trustee
within 60 days of receipt of a Termination Notice is unable to obtain any bids
from eligible Servicers and the Servicer delivers an officer's certificate to
the effect that the Servicer cannot in good faith cure the Servicer Default
which gave rise to the Termination Notice, then the Indenture Trustee shall
offer the Trust Depositor the right at its option to accept retransfer of the
Trust Assets. The purchase price for such a retransfer shall be equal to the
sum of the Aggregate Principal Amount of all Notes and Certificates on such
Distribution Date plus accrued and unpaid interest thereon at the applicable
-66-
<PAGE>
interest rate (together with, if applicable, interest on interest amounts that
were due and not paid on a prior date), through the date of such retransfer.
The Indenture Trustee shall, as promptly as possible after giving a
Termination Notice, appoint a successor Servicer (a "Service Transfer"), and
if no successor Servicer has been appointed by the Indenture Trustee and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all rights, authority, power and obligations of the Servicer under the Sale
and Servicing Agreement shall pass to and be vested in the Indenture Trustee.
Prior to any Service Transfer, the Indenture Trustee will seek to obtain bids
from potential Servicers meeting certain eligibility requirements set forth in
the Sale and Servicing Agreement to serve as a successor Servicer for
servicing compensation not in excess of the Servicing Fee. The rights and
interest of the Trust Depositor under the Sale and Servicing Agreement as
holder of the Certificate will not be affected by any Termination Notice or
Service Transfer.
A "Servicer Default" refers to any of the following events:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Owner Trustee
or the Indenture Trustee pursuant to the Sale and Servicing
Agreement on or before the date occurring three Business Days
after the date such payment, transfer, deposit, or such
instruction or notice or report is required to be made or given,
as the case may be, under the terms of the Sale and Servicing
Agreement; or
(b) failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the
Servicer set forth in the Sale and Servicing Agreement which has
a material adverse effect on the Noteholders or holders of the
Subordinated Notes, which continues unremedied for a period of
30 days after the first to occur of (i) the date on which
written notice of such failure requiring the same to be remedied
shall have been given to the Servicer by the Indenture Trustee
or to the Servicer and the Indenture Trustee by the Noteholders
or holders of the Subordinated Notes or the Indenture Trustee on
behalf of such Noteholders of Notes aggregating not less than
25% of the Principal Amount of any Class adversely affected
thereby and (ii) the date on which the Servicer becomes aware
thereof and such failure continues to materially adversely
affect such Noteholders or holders of the Subordinated Notes for
such period; or
(c) any representation, warranty or certification made by the
Servicer in the Sale and Servicing Agreement or in any
certificate delivered pursuant to the Sale and Servicing
Agreement shall prove to have been incorrect when made, which
has a material adverse effect on the Noteholders or the holders
of the Subordinated Notes and which continues to be incorrect in
any material respect for a period of 30 days after the first to
occur of (i) the date on which written notice of such
incorrectness requiring the same to be remedied shall have been
given to the Servicer and the Owner Trustee by the Indenture
Trustee, or to the Servicer, the Owner Trustee and the Indenture
Trustee by Noteholders or the holders of the Subordinated Notes
or by the Indenture Trustee on behalf of Noteholders of Notes
aggregating not less than 25% of the Principal Amount of any
Class adversely affected thereby and (ii) the date on which the
Servicer becomes aware thereof, and such incorrectness continues
to materially adversely affect such Holders for such period; or
(d) an Insolvency Event shall occur with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of five Business Days or
referred to under clause (b) or (c) for a period of 60 days (in addition to
any period provided in (a), (b) or (c)) shall not constitute a Servicer
Default until the expiration of such additional five Business Days or 60 days,
respectively, if such delay or failure could not be prevented by the exercise
of reasonable diligence by the Servicer and such delay or failure was caused
by an act of God or other similar occurrences. Upon the occurrence of any
such event the Servicer shall not be relieved from using its best efforts to
perform its obligations in a timely manner in accordance with the terms of the
Sale and Servicing Agreement and the Servicer shall provide the Owner Trustee,
the Indenture Trustee and the Trust Depositor prompt notice of such failure or
delay by it, together with a description of its efforts to so perform its
obligations. The Servicer shall immediately notify the Indenture Trustee in
writing of any Servicer Default.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement provides that on or before June 30 of
each calendar year the Servicer will cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer or the Trust Depositor) to furnish a report to the effect that such
firm has applied certain procedures agreed upon with the Servicer and examined
certain documents and records relating to the servicing of the related
Contracts and that, on the basis of such procedures, nothing came to the
attention of such firm that caused them to believe that such servicing was not
-67-
<PAGE>
conducted in compliance with the Sale and Servicing Agreement except for such
exceptions or errors as such firm shall believe to be immaterial and such
other exceptions as shall be set forth in such statement.
The Sale and Servicing Agreement provides for delivery to the Indenture
Trustee and each Rating Agency on or before June 30 of each calendar year of a
statement signed by an officer of the Servicer to the effect that, to the best
of such officer's knowledge, the Servicer has performed its obligations in all
material respects under the Sale and Servicing Agreement throughout the
preceding year or, if there has been a default in the performance of any such
obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the
Indenture Trustee may be obtained by a request in writing delivered to the
Indenture Trustee.
AMENDMENTS
The Sale and Servicing Agreement may be amended from time to time by
agreement of the Owner Trustee, the Indenture Trustee and the Trust Depositor
without the consent of the Noteholders or Certificateholders (or the
Indenture Trustee) (i) to cure any ambiguity or (ii) to add any consistent
provisions; provided, that such action shall not, as evidenced by an Opinion
of Counsel, adversely affect in any material respect the interests of any
Noteholder or Certificateholder.
The Sale and Servicing Agreement may also be amended from time to time by
the Trust Depositor, the Servicer, the Indenture Trustee and the Owner Trustee
with the consent of the Noteholders holding Notes evidencing not less than 66
2/3% of the Principal Amount of the Notes and the Subordinated Notes for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of the Sale and Servicing Agreement or of modifying in
any manner the rights of Noteholders. No such amendment, however, may
(i) reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Note without
the consent of each Noteholder affected thereby;
(ii) change the definition of (or that of any definition included
within the definition of) or the manner of calculating the
"Applicable Class Percentage", the "Controlling Party", the
"Class A-1 Principal Payment Amount", the "Class A-2 Principal
Payment Amount", the "Class B Principal Payment Amount", the
"Class C Principal Payment Amount", the "Subordinated Note
Principal Payment Amount", the "Discounted Contract Balance",
the "Principal Amount", or the "Available Amount" without the
consent of each Noteholder and Prior Certificateholder; or
(iii) reduce the aforesaid percentage required to consent to any such
amendment without the consent of each Noteholder affected
thereby; or
(iv) modify, amend or supplement the provisions of the Sale and
Servicing Agreement relating to the allocation of Available
Amounts (see "Description of the Notes--Allocations") without
the consent of each Noteholder; or
(v) make any Note or Certificate payable in money other than Dollars
without the consent of each Noteholder affected thereby.
Promptly following the execution of any such amendment (other than an
amendment described in the preceding paragraph), the Owner Trustee will
furnish written notice of the substance of such amendment to each affected
Noteholder and Certificateholder.
THE OWNER TRUSTEE
Wilmington Trust Company will be the Owner Trustee under the Sale and
Servicing Agreement. Heller Financial and its affiliates may from time to
time enter into banking and trustee relationships with the Owner Trustee and
its affiliates. Heller Financial and its affiliates may hold Notes in their
own names; however, any Notes so held shall not be entitled to participate in
any decisions made or instructions given to the Owner Trustee by the
Noteholders as a group. The Owner Trustee's address is Rodney Square, 1100
North Market Street, Wilmington, Delaware 19890-0001, Attention: Trust
Department.
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust Assets may at the time be located, the Owner
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust Assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Owner Trustee
will be conferred or imposed upon and exercised or performed by the Owner
Trustee and such separate
-68-
<PAGE>
trustee or co-trustee jointly, or, in any jurisdiction in which the Owner
Trustee will be incompetent or unqualified to perform certain acts, singly
upon such separate trustee or co-trustee who shall exercise and perform such
rights, powers, duties and obligations solely at the direction of the Owner
Trustee.
The Owner Trustee may resign at any time, in which event a successor
Owner Trustee will be appointed as provided in the Sale and Servicing
Agreement. The Servicer may also remove the Owner Trustee if such Owner
Trustee ceases to be eligible to continue as such under the Sale and Servicing
Agreement. In such circumstances, a successor Owner Trustee will be appointed
as provided in the Sale and Servicing Agreement. Any resignation or removal
of the Owner Trustee and appointment of a successor Owner Trustee does not
become effective until acceptance of the appointment by the successor Owner
Trustee.
-69-
<PAGE>
THE INDENTURE
GENERAL
The Notes will be issued pursuant to an Indenture between the Trust and
the Indenture Trustee. Pursuant to the Sale and Servicing Agreement the
Indenture Trustee will obtain the benefits of the Sale and Servicing Agreement
for itself and the Noteholders represented thereby.
PAYMENTS OF PRINCIPAL AND INTEREST
Pursuant to the Indenture, each payment received by the Indenture Trustee
as described above under "Description of the Notes--Allocations; Prior to an
Event of Default or Restricting Event" shall be promptly distributed in the
following order of priority:
first, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then
due on or in respect of the Class A-1 Notes shall be distributed
to the Class A-1 Noteholders ratably, without priority of any
one Class A-1 Note over any other Class A-1 Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class A-1 Note
bears to the aggregate amount of all accrued but unpaid interest
to the date of distribution on all Class A-1 Notes;
second, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then
due on or in respect of the Class A-2 Notes shall be distributed
to the Class A-2 Noteholders ratably, without priority of any
one Class A-2 Note over any other Class A-2 Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class A-2 Note
bears to the aggregate amount of all accrued but unpaid interest
to the date of distribution on all Class A-2 Notes;
third, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then
due on or in respect of the Class B Notes shall be distributed
to the Class B Noteholders ratably, without priority of any one
Class B Note over any other Class B Note, in the proportion that
the aggregate amount of all accrued but unpaid interest to the
date of distribution on each Class B Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class B Notes;
fourth, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then
due on or in respect of the Class C Notes shall be distributed
to the Class C Noteholders ratably, without priority of any one
Class C Note over any other Class C Note, in the proportion that
the aggregate amount of all accrued but unpaid interest to the
date of distribution on each Class C Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class C Notes;
fifth, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then
due on or in respect of the Subordinated Notes shall be
distributed to the Subordinated Noteholders ratably, without
priority of any one Subordinated Note over any other
Subordinated Note, in the proportion that the aggregate amount
of all accrued but unpaid interest to the date of distribution
on each Subordinated Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on all
Subordinated Notes;
sixth, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class
A-1 Noteholders to pay in full the aggregate amount of the Class
A-1 Principal Payment Amount then due pursuant to or in respect
of the Class A-1 Notes, without priority of any one Class A-1
Note over any other Class A-1 Note, in the proportion that the
aggregate unpaid principal amount of each Class A-1 Note bears
to the aggregate unpaid principal amount of all Class A-1 Notes;
seventh, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class
A-2 Noteholders to pay in full the aggregate amount of the Class
A-2 Principal Payment Amount then due pursuant to or in respect
of the Class A-2 Notes, without priority of any one Class A-2
Note over any other Class A-2 Note, in the proportion that the
aggregate unpaid
-70-
<PAGE>
principal amount of each Class A-2 Note bears to the aggregate
unpaid principal amount of all Class A-2 Notes;
eighth, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class B
Noteholders to pay in full the aggregate amount of the Class B
Principal Payment Amount then due pursuant to or in respect of
the Class B Notes, without priority of any one Class B Note over
any other Class B Note, in the proportion that the aggregate
unpaid principal amount of each Class B Note bears to the
aggregate unpaid principal amount of all Class B Notes; and
ninth, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class C
Noteholders to pay in full the aggregate amount of the Class C
Principal Payment Amount then due pursuant to or in respect of
the Class C Notes, without priority of any one Class C Note over
any other Class C Note, in the proportion that the aggregate
unpaid principal amount of each Class C Note bears to the
aggregate unpaid principal amount of all Class C Notes.
tenth, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the
Subordinated Noteholders to pay in full the aggregate amount of
the Subordinated Principal Payment Amount then due pursuant to
or in respect of the Subordinated Notes, without priority of any
one Subordinated Note over any other Subordinated Note, in the
proportion that the aggregate unpaid principal amount of each
Subordinated Note bears to the aggregate unpaid principal amount
of all Subordinated Notes.
Pursuant to the Indenture, each payment received by the Indenture Trustee
as described above under "Description of the Notes--Allocations; Following an
Event of Default or Restricting Event" shall be promptly distributed in the
following order of priority:
first, so much of such payment as shall be required to reimburse
the Indenture Trustee for any tax, expense, unpaid fees, charge
or other loss incurred by the Indenture Trustee (to the extent
not previously reimbursed), (including, without limitation, the
expense of sale, taking or other proceeding, attorneys' fees and
expenses, court costs, and any other expenditures incurred or
expenditures or advances made by the Indenture Trustee in the
protection, exercise or enforcement of any right, power or
remedy or any damages sustained by the Indenture Trustee,
liquidated or otherwise, upon the Indenture Event of Default
giving rise to such expenditures or advances) shall be applied
by the Indenture Trustee in reimbursement of such expenses;
second, so much of such payment remaining as shall be required
to reimburse the Noteholders in full for certain indemnity
payments, if any, made by such Noteholders to the Indenture
Trustee (to the extent not previously reimbursed) shall be
distributed to the Noteholders, and, if the aggregate amount
remaining shall be insufficient to reimburse all such payments
in full, it shall be distributed ratably, without priority of
any Noteholder over any other, in the proportion that the
aggregate amount of such unreimbursed indemnity payments made by
each such Noteholder bears to the aggregate amount of such
unreimbursed indemnity payments made by all Noteholders;
third, so much of such payment remaining as shall be required to
pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Class A-1 Notes and
the Class A-2 Notes shall be distributed to the Class A-1
Noteholders and the Class A-2 Noteholders, and, if the aggregate
amount remaining shall be insufficient to pay all such amounts
in full, it shall be distributed ratably, without priority of
any one Class A-1 Note and one Class A-2 Note over any other
Class A-1 Note or over any other Class A-2 Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class A-1 Note or
Class A-2 Note bears to the aggregate amount of all accrued but
unpaid interest to the date of distribution on all Class A-1
Notes and Class A-2 Notes;
fourth, so much of such payment remaining as shall be required
to pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Class B Notes shall
be distributed to the Class B Noteholders, and, if the aggregate
amount remaining shall be insufficient to pay all such amounts
in full, it shall be distributed ratably, without priority of
any one Class B Note over any other Class B Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class B Note bears
to the aggregate amount of all accrued but unpaid interest to
the date of distribution on all Class B Notes;
-71-
<PAGE>
fifth, so much of such payment remaining as shall be required to
pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Class C Notes shall
be distributed to the Class C Noteholders, and, if the aggregate
amount remaining shall be insufficient to pay all such amounts
in full, it shall be distributed ratably, without priority of
any one Class C Note over any other Class C Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class C Note bears
to the aggregate amount of all accrued but unpaid interest to
the date of distribution on all Class C Notes;
sixth, so much of such payment remaining as shall be required to
pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Subordinated Notes
shall be distributed to the Subordinated Noteholders, and, if
the aggregate amount remaining shall be insufficient to pay all
such amounts in full, it shall be distributed ratably, without
priority of any one Subordinated Note over any other
Subordinated Note, in the proportion that the aggregate amount
of all accrued but unpaid interest to the date of distribution
on each Subordinated Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on all
Subordinated Notes;
seventh, the balance, if any, of such payment remaining
thereafter shall be distributed to the Class A-1 Noteholders in
order to pay in full the outstanding aggregate amount of
principal of the Class A-1 Notes, and if the aggregate amount
remaining shall be insufficient to pay all such amounts in full,
it shall be distributed ratably, without priority of any one
Class A-1 Note over any other Class A-1 Note, in the proportion
that the aggregate unpaid principal amount of each Class A-1
Note bears to the aggregate unpaid principal amount of all Class
A-1 Notes;
eighth, the balance, if any, of such payment remaining
thereafter shall be distributed to the Class A-2 Noteholders in
order to pay in full the outstanding aggregate amount of
principal of the Class A-2 Notes, and if the aggregate amount
remaining shall be insufficient to pay all such amounts in full,
it shall be distributed ratably, without priority of any one
Class A-2 Note over any other Class A-2 Note, in the proportion
that the aggregate unpaid principal amount of each Class A-2
Note bears to the aggregate unpaid principal amount of all Class
A-2 Notes;
ninth, the balance, if any, of such payment remaining thereafter
shall be distributed ratably to the Class B Noteholders to pay
in full the aggregate amount of principal of the Class B Notes,
then due pursuant to or in respect of the Class B Notes, and if
the aggregate amount remaining shall be insufficient to pay all
such amounts in full, it shall be distributed ratably, without
priority of any one Class B Note over any other Class B Note, in
the proportion that the aggregate unpaid principal amount of
each Class B Note bears to the aggregate unpaid principal amount
of all Class B Notes;
tenth, the balance, if any, of such payment remaining thereafter
shall be distributed ratably to the Class C Noteholders to pay
in full the aggregate amount of principal of the Class C Notes,
then due pursuant to or in respect of the Class C Notes, and if
the aggregate amount remaining shall be insufficient to pay all
such amounts in full, it shall be distributed ratably, without
priority of any one Class C Note over any other Class C Note, in
the proportion that the aggregate unpaid principal amount of
each Class C Note bears to the aggregate unpaid principal amount
of all Class C Notes; and
eleventh, the balance, if any, of such payment remaining
thereafter shall be distributed ratably to the Subordinated
Noteholders to pay in full the aggregate amount of principal of
the Subordinated Notes, then due pursuant to or in respect of
the Subordinated Notes, and if the aggregate amount remaining
shall be insufficient to pay all such amounts in full, it shall
be distributed ratably, without priority of any one Subordinated
Note over any other Subordinated Note, in the proportion that
the aggregate unpaid principal amount of each Subordinated Note
bears to the aggregate unpaid principal amount of all
Subordinated Notes.
EVENTS OF DEFAULT AND RESTRICTING EVENTS; REMEDIES
If an Event of Default referred to in subparagraphs (d) or (e) (see
"Description of the Notes--Events of Default") has occurred, then and in every
such case the unpaid principal of the Notes, together with interest accrued
but unpaid thereon, and all other amounts due to the Noteholders under the
Indenture, shall immediately and without further act become due and payable.
-72-
<PAGE>
If any other Event of Default shall have occurred and be continuing, then
and in every such case, the Notes shall be accelerated with accrued but unpaid
interest thereon; provided, however, such Event of Default may be waived if
the Required Holders may provide the Trustee and the Trust Depositor written
notice of such waiver.
THE INDENTURE TRUSTEE
The Indenture Trustee with respect to the Notes is Norwest Bank
Minnesota, National Association. Heller Financial and its affiliates may
from time to time enter into banking and trustee relationships with the
Indenture Trustee and its affiliates. Heller Financial and its affiliates may
hold Notes in their own names; however, any Notes so held shall not be
entitled to participate in any decisions made or instructions given to the
Indenture Trustee by the Noteholders as a group.
The Indenture Trustee's responsibilities will be generally ministerial in
nature, consisting principally of the distribution of monies received pursuant
to the Sale and Servicing Agreement, the authentication and registration of
transfer of Notes under the Indenture, and the delivery of certain information
received from the Trust Depositor. The Indenture Trustee also, as pledgee of
the Trust under the Indenture, will take and maintain possession of any
Contracts constituting "instruments" (for purposes of the UCC) not otherwise
part of chattel paper.
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust Assets may at the time be located, the Indenture
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust Assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Indenture Trustee
will be conferred or imposed upon and exercised or performed by the Indenture
Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Indenture Trustee will be incompetent or unqualified
to perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Indenture Trustee.
The Indenture Trustee may resign at any time, in which event a successor
Indenture Trustee which meets the requirements of Section 310(a) of the Trust
Indenture Act of 1939, as amended (the "TIA"), will be appointed by the
Servicer. The Servicer may also remove the Indenture Trustee if the
Indenture Trustee ceases to be eligible to continue as such under the
Indenture. In such circumstances, a successor Indenture Trustee which meets
the requirements of Section 310(a) of the TIA will be appointed by the
Servicer. Any resignation or removal of the Indenture Trustee and appointment
of a successor Indenture Trustee does not become effective until acceptance of
the appointment by the successor Indenture Trustee.
GOVERNING LAW
The Indenture will be governed by the laws of the State of New York.
AMENDMENTS
At any time and from time to time, (i) the Owner Trustee, the Trust
Depositor, and the Indenture Trustee, with the written consent of a Majority
in Interest of the Noteholders represented thereby, may execute a supplement
to the Indenture for the purpose of adding provisions to, or changing or
eliminating provisions of, the Indenture (including any appendix or schedule
hereto) and (ii) the Indenture Trustee, with the written consent of a Majority
in Interest of the Noteholders represented thereby, may consent to or execute
a written amendment of or supplement to, or waiver or consent under, the Sale
and Servicing Agreement; provided, however, that, without the consent of each
Noteholder under the Indenture, no such amendment, supplement, waiver or
consent shall
(I) reduce the amount or extend the time of payment
of any amount owing or payable under any Note or (except as
provided in the Indenture) increase or reduce the interest
payable on any Note (except that only the consent of the
affected Noteholder shall be required for any decrease in an
amount of or the rate of interest payable on such Note or any
extension for the time of payment of any amount payable under
such Note), or alter or modify the provisions of the Sale and
Servicing Agreement with respect to the order of priorities in
which distributions thereunder shall be made or with respect to
the amount or time of payment of any such distribution,
(ii) reduce, modify or amend any indemnities in
favor of any Noteholder or in favor of or to be paid by the
Trust Depositor, or alter the definition of "Indemnitees" to
exclude any Noteholder (except as consented to by each Person
adversely affected thereby),
(iii) make any Note payable in money other than U.S.
dollars,
-73-
<PAGE>
(iv) modify, amend or supplement the provisions of
the Sale and Servicing Agreement relating to amendments, waivers
and supplements to the Indenture, the Sale and Servicing
Agreement or any other document, or
(v) modify the definition of "Majority in Interest"
(as defined in the Indenture) or the percentage of Noteholders
required to effect any modification of the Indenture.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
Transfer of Contracts. As of the Cutoff Date, Heller Financial or HFLI,
as Sellers, will sell the Contracts to the Trust Depositor, which Contracts
will be immediately conveyed to the Trust pursuant to the Sale and Servicing
Agreement. Under commercial law, the transfer of the Contracts to the Trust
is either a sale of the Contracts to the Trust or a grant of a security
interest in such property to the Trust. The Trust Depositor has taken and
will take all actions that are required under applicable law to perfect the
Trust's interest in the Contracts in the event the transfer by the Trust
Depositor to the Trust is deemed to be a loan for commercial law purposes, and
it is the intent of the Trust Depositor that the Trust will at all times have
a first priority perfected security interest in the Contracts and in the
proceeds thereof, with certain exceptions. The Trust Depositor will represent
and warrant upon the execution of the Sale and Servicing Agreement and as of
the Closing Date and, with respect to Additional Contracts or Substitute
Contracts, as of each date of conveyance thereof, that such sale to the Trust
constitutes a valid sale to the Trust of all right, title and interest of the
Trust Depositor in and to such Contracts. The Trust Depositor will also
represent and warrant to the Trust that, in the event the sale of such
Contracts by the Trust Depositor to the Trust is deemed to create a security
interest under the UCC, there will exist a valid, subsisting and enforceable
first priority perfected security interest in the Contracts, in existence at
the time of the formation of the Trust with respect to Contracts conveyed on
the Closing Date or at the date of conveyance of any Additional Contracts or
Substitute Contracts, in favor of the Trust. For a discussion of the Trust's
rights arising from these representations and warranties not being satisfied,
see "The Transfer and Sale Agreement and The Sale and Servicing Agreement
Generally--Representations and Warranties".
Financing statements covering the Contracts will be filed under the UCC
by the Trust Depositor, the Trust and the Indenture Trustee to perfect their
respective interests in the Contracts and continuation statements will be
filed as required to continue the perfection of such interests. In addition,
each Seller will indicate in its books and records, including the appropriate
computer files relating to the Contracts, that such Contracts have been
transferred by such Seller to the Trust Depositor, by the Trust Depositor to
the Trust and by the Trust to the Indenture Trustee, and each Seller will
physically separate from its general files relating to similar Contracts, and
stamp the related Contract Files or otherwise mark such Contracts with a
legend to the effect that such Contracts have been transferred to the Trust
and assigned to the Indenture Trustee, and deliver to the Indenture Trustee a
computer file or microfiche or written list containing a true and complete
list of all Contracts then being transferred to the Trust and all Secondary
Contracts in which a security interest is then being transferred to the Trust,
identified by account number and by the Discounted Contract Balance as of the
related Cutoff Date. To facilitate servicing and reduce administrative costs,
however, the Contract Files will be retained in the possession of the Servicer
and not deposited with the Indenture Trustee or any other agent or custodian
for the benefit of the Noteholders (except for a limited number of End-User
Contracts evidenced by, in addition to a related Financing Agreement,
"instruments" not constituting part of chattel paper within the meaning of the
UCC, which instruments will be delivered to the custody and possession of the
Indenture Trustee as pledgee of the Trust). Because the Contract Files will
remain in the Servicer's possession, if a subsequent purchaser were able to
take physical possession of the Contract Files without knowledge of such
assignment, the Indenture Trustee's priority interest in the Contracts (as
assignee of the Seller's, Trust Depositor's and the Trust's interest) could be
defeated. In such event, distributions to Noteholders could be adversely
affected. The segregation and stamping of Contract Files should, however,
mitigate this risk.
Similarly, with respect to Secondary Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing
such Vendor Loan. Although UCC financing statements are filed reflecting the
pledge of such Contracts to the applicable Seller as security for the Vendor
Loans, because these contract files will remain in the Vendor's possession, if
a subsequent purchaser were able to take physical possession of such contract
files without knowledge of the pledge to the Seller, the Indenture Trustee's
priority security interest (as assignee of the Seller's, Trust Depositor's and
the Trust's interest) in the such Secondary Contracts, as security for the
related Vendor Loan, could be defeated. In such event, distributions to
Noteholders could be adversely affected. Each Vendor represents, warrants
and covenants in the applicable agreement evidencing a Vendor Loan, however,
that it has not and will not sell, pledge or otherwise assign or convey to any
other party (other than the applicable Seller) any interest in the Secondary
Contracts securing such Vendor Loan, and agrees that it will maintain
possession of the related contract files as custodian for the benefit of the
Seller as secured party with respect to such Secondary Contracts.
There are also certain limited circumstances under applicable federal or
state law in which prior transferees of Contracts or Secondary Contracts could
have an interest in such contracts with priority over the Indenture Trustee's
-74-
<PAGE>
interest. A tax or other government lien on property of the Seller or the
Trust Depositor arising prior to the time a Contract or interest in a
Secondary Contract is conveyed to the Trust may also have priority over the
interest of the Trust and the Indenture Trustee in such contract. Under the
Transfer and Sale Agreement, the Sellers will jointly and severally warrant to
the Trust Depositor, and, under the Sale and Servicing Agreement, the Trust
Depositor will warrant to the Indenture Trustee, that the Contracts have been
transferred free and clear of the lien of any third party and that the
interests in Secondary Contracts transferred thereunder have been transferred
free and clear of the lien of any third party. Each Seller, the Trust
Depositor, the Owner Trustee and the Trust will also covenant that it will
not sell, pledge, assign, transfer or grant any lien on any Contract or
Secondary Contract included in the Trust, other than transfers to the Trust
and by the Trust to the Indenture Trustee. In addition, as described above
under "The Trust Depositor", the Trust Depositor has been organized as a
"bankruptcy-remote" entity which is not engaged in any business or activities
unrelated to the transactions described herein.
Transfers of Interests in Financed Equipment. In connection with the
conveyance of the Contracts to the Trust, security interests in the related
financed Equipment securing such Contracts (or, in connection with Leases, the
Seller's ownership interest in or title to such Equipment) will be assigned by
the applicable Seller to the Trust Depositor and by the Trust Depositor to the
Trust. It has been the general policy of the Sellers to file or cause to be
filed UCC financing statements with respect to the Equipment relating to the
Contracts. Due to the administrative burden and expense associated with
amending many filings in numerous states where Equipment is located, no
assignments of the UCC financing statements evidencing the security interest
of the Sellers in the Equipment will be filed to reflect the Trust
Depositor's, the Trust's or the Indenture Trustee's interests therein. While
failure to file such assignments does not affect the Trust's interest in the
Contracts or perfection of the Indenture Trustee's interest in such Contracts
(including the related Seller's security interest in the related Equipment),
it does expose the Trust (and thus Noteholders) to the risk that the Servicer
could inadvertently release its security interest in the Equipment of record,
and it could complicate the Trust's enforcement, as assignee, of the Seller's
security interest in the Equipment. While these risks should not affect the
perfection or priority of the interest of the Indenture Trustee in the
Contracts or rights to payment thereunder, they may adversely affect the right
of the Indenture Trustee to receive proceeds of a disposition of the Equipment
related to a Defaulted Contract. Additionally, statutory liens for repairs or
unpaid taxes and other liens arising by operation of law may have priority
even over prior perfected security interests in the Equipment assigned to the
Indenture Trustee.
Also, the transfer to the Trust Depositor of the applicable Seller's
security interest in aircraft ("Title Registry Equipment") securing certain
Contracts, or its ownership interest in Title Registry Equipment subject to
Leases, and the transfer of such interests by the Trust Depositor to the
Trust, is subject to certain federal title registration statutes, regulations
and procedures (in the case of other Title Registry Equipment). Due to the
significant administrative burden and expense associated with reregistering
transfers of titles and of security interests with respect to such Title
Registry Equipment, the registrations of title with respect to Title Registry
Equipment securing Contracts, and to Title Registry Equipment subject to
Leases, will not identify the Trust as secured party or owner, as the case may
be, of such Equipment. There exists a risk in not so identifying the Trust as
the new secured party or owner that, through fraud or negligence, a third
party could acquire an interest in the Title Registry Equipment superior to
that of the Trust. In addition, statutory liens for repairs or unpaid taxes
may have priority even over a perfected security interest in the Title
Registry Equipment. The Sellers will jointly and severally represent that as
of the Cutoff Date, in the Sellers' reasonable judgment, the Discounted
Contract Balance of End-User Contracts in the Contract Pool that are secured
by Title Registry Equipment, does not exceed 1.37% of the ADCB of the Contract
Pool.
In addition, some of the Equipment related to the Contracts may
constitute "fixtures" under the real estate or UCC provisions of the
jurisdiction in which such Equipment is located. In order to perfect a
security interest in such Equipment, the holder of the security interest must
file either a "fixture filing" under the provisions of the UCC or a real
estate mortgage under the real estate laws of the state where the Equipment is
located. These filings must be made in the real estate records office of the
county in which such Equipment is located. So long as the Obligor does not
permanently attach the Equipment to the real estate, a security interest in
the Equipment will be governed by the UCC, and the filing of a UCC-1 financing
statement will be effective to maintain the priority of the applicable
Seller's security interest in such Equipment. Except for a small portion of
such Equipment, the Trust Depositor does not believe that any of the Equipment
will be permanently affixed to the related real estate. If, however, any
Equipment is permanently attached to the real estate in which it is located,
other parties could obtain an interest in the Equipment which is prior to the
security interest originally obtained by the applicable Seller and transferred
to the Trust Depositor. Based on the representation of the Sellers, the Trust
Depositor, however, believes that with respect to Equipment which constitutes
a "fixture", it has obtained a perfected first priority security interest,
through assignment of such security interest by the Seller, by virtue of the
Seller's proper filing of UCC-1 financing statements naming the Seller as
secured party in the real estate records office of the county in which the
Equipment is located. Also, the Sellers will jointly and severally represent
that as of the Cutoff Date, in the Sellers' reasonable judgment, the
Discounted Contract Balance of End-User Contracts in the Contract Pool that
are secured by fixtures, does not exceed 6.80% of the ADCB of the Contract
Pool.
-75-
<PAGE>
The Trust Depositor will be obligated to reacquire any Contract
transferred to the Trust (subject to the Seller's reacquisition thereof) in
the event it is determined that a first priority perfected security interest,
or ownership interest in the case of Leases, in the name of the Seller in the
Equipment related to such Contract did not exist as of the date such Contract
was conveyed to the Trust, if (i) such breach shall materially adversely
affect such Contract and (ii) such failure or breach shall not have been cured
by the last day of the second (or, if the Trust Depositor elects, the first)
month following the discovery by or notice to the Trust Depositor of such
breach, and the Sellers will be jointly and severally obligated to reacquire
such Contract from the Trust Depositor contemporaneously with the Trust
Depositor's reacquisition from the Trust. If there is any Equipment as to
which the applicable Seller failed to perfect its security interest, such
Seller's security interest, and the security interests of the Trust Depositor
and the related Trust (and the Indenture Trustee as assignee), would be
subordinated to, among others, subsequent purchasers of the Equipment and
holders of perfected security interests with respect thereto. To the extent
the security interest of the Seller in the related Equipment is perfected,
subject to the exceptions set forth in the following sentence, the Trust will
have a prior claim over subsequent purchasers from the Obligor of such
Equipment and holders of subsequently perfected security interests granted by
Obligors. However, as against Mechanics' Liens or liens for taxes and other
non-consensual liens unpaid by an Obligor under a Contract, or in the event of
fraud or negligence of the Seller or Servicer, the Trust could lose the
priority of its interest or its interest in such Equipment following the
conveyance of such Contract to the Trust. Neither the Trust Depositor nor the
Servicer not any Seller will have any obligation to reacquire a Contract if
any of the occurrences described in the foregoing sentence (other than fraud
or negligence of the Seller) result in the Trust's losing the priority of its
security interest or its security interest in such Equipment after the date
such Contract is conveyed to the Trust.
Certain other federal and state statutory provisions, including
bankruptcy law, insolvency laws, and other laws affecting the rights of
creditors and debtors generally as well as general equitable principles may
limit or delay the ability of a lender to repossess and resell collateral or
enforce a deficiency judgment.
Certain Matters Relating to Bankruptcy. The Sellers will either (i)
originate Contracts or (ii) acquire End-User Contracts from a Vendor, which
Contracts will be transferred to the Trust Depositor. If the acquisition of
an End-User Contract by a Seller is treated as a sale of such Contract from
the applicable Vendor to such Seller, such Contract generally would not be
part of such Vendor's bankruptcy estate and would not be available to such
Vendor's creditors. If a Vendor became a debtor in a bankruptcy case then, in
the case of End-User Contracts acquired as described in clause (ii) above, if
an unpaid creditor of such Vendor or a representative of creditors of such
Vendor, such as a trustee in bankruptcy, or such Vendor acting as a
debtor-in-possession, were to take the position that the sale of such
Contracts to the Seller was ineffective to remove such Contracts from such
Vendor's estate (for instance, that such sale should be recharacterized as a
pledge of Contracts to secure borrowings of such Vendor), then delays in
payments under the Contracts to the Trust could occur or, should the court
rule in favor of such creditor, representative or Vendor, reductions in the
amount of such payments could result. Further, if the transfer of End-User
Contracts to the Seller as described in clause (ii) above is recharacterized
as a pledge, a tax or government lien on the property of the pledging Vendor
arising before the Contracts came into existence may have priority over the
respective Seller's (and its assignee's) interest in the Contracts. No law
firm will, in connection with any offering of the Notes, express any opinion
as to the issues discussed above.
In the Transfer and Sale Agreement, the Sellers will jointly and
severally warrant to the Trust Depositor that the conveyance of the Contracts
by a Seller to the Trust Depositor is a valid sale and transfer of such
Contracts to the Trust Depositor. In addition, each Seller and the Trust
Depositor will treat the transactions described herein as a sale of the
Contracts to the Trust Depositor and the Seller will take all actions that are
required under applicable law to perfect the Trust Depositor's ownership
interest in the Contracts sold by it and the Trust Depositor's security
interest in the Secondary Contracts securing Vendor Loans sold by it.
Notwithstanding the foregoing, if the Seller became a debtor in a bankruptcy
case and an unpaid creditor of the Seller or a representative of creditors of
the Seller, such as a trustee in bankruptcy, or the Seller acting as a
debtor-in-possession, were to take the position that the sale of Contracts to
the Trust Depositor was ineffective to remove such Contracts from the Seller's
estate (for instance, that such sale should be recharacterized as a pledge of
Contracts to secure borrowings of the Seller), then delays in payments under
the Contracts to the Trust could occur or, should the court rule in favor of
such creditor, representative or Seller, reductions in the amount of such
payments could result. If the transfer of Contracts to the Trust Depositor is
recharacterized as a pledge, a tax or government lien on the property of the
Seller arising before the Contracts came into existence may have priority over
the Trust Depositor's interest in the Contracts. If the transactions
contemplated herein are treated as a sale of Contracts to the Trust Depositor,
generally the Contracts would not be part of the Seller's bankruptcy estate
and would not be available to the Seller's creditors.
In Octagon Gas Systems, Inc. v. Rimmer, 995 F.2d 948 (10th Cir. 1993),
the United States Court of Appeals for the Tenth Circuit held that, under the
UCC, accounts sold by a debtor remain property of the debtor's estate under
Section 541 of the Bankruptcy Code. In the event of a bankruptcy of a Seller,
or, in the case of Contracts originated by a Vendor and purchased by a Seller,
a bankruptcy of a Vendor, and a determination by a court that the sale of the
Contracts to the Trust Depositor or to the Seller, respectively, should be
recharacterized as a pledge of such Contracts to secure a borrowing, not as a
"true sale," including as a result of the application by a court of the
Octagon court's reasoning to the Seller's sale
-76-
<PAGE>
of Contracts to the Trust Depositor or to a Vendor's sale of Contracts to the
Seller, delays in distributions on Notes, and possible reductions in the
amount of distributions, could occur.
The Trust Depositor will warrant in the Sale and Servicing Agreement (i)
that the conveyance of the Contracts to the Trust is a valid sale of the
Contracts to the Trust and (ii) that the security interest thereon granted by
the Trust in favor of the Indenture Trustee is a valid and duly perfected
security interest, and will take all actions that are required under
applicable law to perfect the Trust's and the Indenture Trustee's respective
interests in the Contracts and the Secondary Contracts securing Vendor Loans
sold by it. Nevertheless, if the Trust Depositor were to become a debtor in a
bankruptcy case and an unpaid creditor of the Trust Depositor or a
representative of creditors of the Trust Depositor, such as a trustee in
bankruptcy, or the Trust Depositor acting as a debtor-in-possession, were to
take the position that the sale of Contracts to the Trust was ineffective to
remove such Contract's from the Trust Depositor's estate (for instance, that
such sale should be recharacterized as a pledge of Contracts to secure
borrowings of the Trust Depositor), then delays in payments under the
Contracts to the Trust could occur or, should the court rule in favor of such
creditor, representative or Trust Depositor, reductions in the amount of such
payments could result. If the transfer of Contracts to the Trust is
recharacterized as a pledge, a tax or government lien on the property of the
Trust Depositor arising before the Contracts came into existence may have
priority over the Noteholder's interest in the Contracts. If the transactions
are treated as a sale of Contracts, generally, the Contracts would not be part
of the Trust Depositor's estate and would not be available to the Trust
Depositor's creditors.
Certain restrictions have been imposed on the Trust Depositor and the
Trust and certain other parties to the transactions described herein which are
intended to reduce the risk of an insolvency proceeding involving the Trust
Depositor or the Trust. These restrictions include incorporating the Trust
Depositor as a separate, special purpose company pursuant to a certificate of
incorporation containing certain restrictions on the nature of its business.
Additionally, the Trust Depositor may commence a voluntary case or proceeding
under any bankruptcy or insolvency law, or cause the Trust to commence a
voluntary case or proceeding under any bankruptcy or insolvency law, only upon
the affirmative vote of all its directors, including its independent
directors, as long as the Trust Depositor is solvent and does not reasonably
foresee becoming insolvent. The Trust Depositor's certificate of
incorporation requires that the Trust Depositor have at all times at least two
independent directors. In addition, the Trust Depositor has no intent to
file, and Heller Financial has represented that it has no intent to cause the
filing of, a voluntary application under the insolvency laws with respect to
the Trust Depositor, as long as the Trust Depositor is solvent and does not
reasonably foresee becoming insolvent. However, no assurance can be given
that insolvency proceedings involving either the Trust Depositor or the Trust
will not occur. In the event the Trust Depositor becomes subject to
insolvency proceedings, the Trust, the Trust's interest in the Trust Assets,
and the Trust's obligation to make payments on the Notes might also become
subject to such insolvency proceedings. In the event of insolvency
proceedings involving the Trust, the Trust's interest in the Trust Assets and
the Trust's obligation to make payments on the Notes would become subject to
such insolvency proceedings. No assurance can be given that insolvency
proceedings involving Heller Financial would not lead to insolvency
proceedings of either, or both, of the Trust Depositor or the Trust. In
either such event, or if an attempt were made to litigate any of the foregoing
issues, delays of distributions on the Notes, possible reductions in the
amount of payment of principal of and interest on the Notes and limitations
(including a stay) on the exercise of remedies under the Indenture and the
Sale and Servicing Agreement could occur, although the Noteholders would
continue to have the benefit of the Indenture Trustee's security interest in
the Trust Assets under the Sale and Servicing Agreement.
The right of the Indenture Trustee, as secured party under the Sale and
Servicing Agreement for the benefit of the Noteholders, to foreclose upon and
sell the Trust Assets is likely to be significantly impaired by applicable
bankruptcy laws, including the automatic stay pursuant to Section 362 of the
Bankruptcy Code, if a bankruptcy proceeding were to be commenced by or against
the Trust, and possibly the Trust Depositor, before or possibly even after the
Indenture Trustee has foreclosed upon and sold the Trust Assets. Under the
bankruptcy laws, payments on debts are not made and secured creditors are
prohibited from repossessing their security from a debtor in a bankruptcy case
or from disposing of security repossessed from such a debtor, without
bankruptcy court approval. Moreover, the bankruptcy laws generally permit the
debtor to continue to retain and to use collateral even though the debtor is
in default under the applicable debt instruments, provided generally that the
secured creditor has the right to seek "adequate protection". The meaning of
the term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the security from any diminution
in the value of the collateral as a result of the use of the collateral by the
debtor during the pendency of the bankruptcy case. In view of the lack of a
precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict
whether or to what extent the holders of the Notes would be compensated for
any diminution in value of the Trust Assets. Furthermore, in the event a
bankruptcy court determines that the value of the Trust Assets is not
sufficient to repay all amounts due on the Notes, the Noteholders would hold
secured claims only to the extent of the value of the Trust Assets to which
the holders are entitled, and unsecured claims with respect to such shortfall.
The bankruptcy laws do not permit the payment or accrual of post-petition
interest, costs and attorneys' fees during a debtor's bankruptcy case unless,
and then only to the extent, the claims are oversecured.
-77-
<PAGE>
If an Insolvency Event with respect to the Trust Depositor were to occur,
then an Event of Default would occur with respect to the Notes and, pursuant
to the terms of the Sale and Servicing Agreement, and assuming the Trust
Assets were not then subject to being involved in a bankruptcy case, the
Indenture Trustee would sell the Contracts, thereby causing early termination
of the Trust and would use the proceeds of such sale to pay the outstanding
principal of and accrued interest on the Notes to the extent and in the order
of priority described under "Description of the Notes--Allocations; Following
an Event of Default or Restricting Event". The Noteholders would suffer a
loss if the sum of (i) the proceeds of the sale allocable to the Noteholders
and (ii) the proceeds of any collections on the Contracts in the Collection
Account allocable to the Noteholders is insufficient to pay the Noteholders in
full.
The occurrence of certain events of bankruptcy, insolvency or
receivership with respect to the Servicer will result in a Servicer Default.
If no other Servicer Default other than the occurrence of an Insolvency Event
with respect to the Servicer exists, an unpaid creditor of the Servicer or a
representative of creditors of the Servicer, such as a trustee in bankruptcy,
or the Servicer acting as a debtor-in-possession, would have the power to
prevent either the Indenture Trustee or the Noteholders from appointing a
successor Servicer.
State laws impose requirements and restrictions relating to foreclosure
sales and obtaining deficiency judgments following such sales. In the event
that the Noteholders must rely on repossession and disposition of any
Equipment to recover amounts due on Defaulted Contracts, such amounts may not
be realized because of the application of these requirements and restrictions.
Other factors that may affect the ability of the Noteholders to realize the
full amount due on a Contract or Secondary Contract include the failure to
file financing statements to perfect the applicable Seller's, the Trust
Depositor's, the Trust's or Indenture Trustee's security interest, as
applicable, in the Equipment or other Applicable Security, depreciation,
obsolescence, damage or loss of any item of Equipment, and the application of
federal and state bankruptcy and insolvency laws. As a result, the
Noteholders may be subject to delays in receiving payments and losses if the
remaining unaffected Contracts are insufficient to cover such losses.
If a court, in a lawsuit by an unpaid creditor of a Seller or by a
representative of creditors of such Seller, such as a trustee in bankruptcy,
or by the Seller acting as a debtor-in-possession, were to find that, at the
time of or as a result of any transfer by such Seller of Contracts to the
Trust Depositor, (i) (A) the Seller entered into such transaction with the
intent of hindering, delaying or defrauding creditors or (B) the Seller
received less than a reasonably equivalent value or fair consideration as a
result of such transfer and (ii) the Seller (A) was insolvent or would be
rendered insolvent by such transfer, (B) was engaged in a business or
transaction for which its assets constituted unreasonably small capital after
such transfer or (C) intended to incur, or believed that it would incur,
indebtedness beyond its ability to pay as the obligations under such
indebtedness matured (as the foregoing terms are defined in or interpreted
under the relevant fraudulent conveyance statutes), such court could
invalidate such transfer to the Trust Depositor or to the Trust, or
substantively consolidate the Trust Depositor, the Trust and the Seller, or
subordinate the rights of the Noteholders to the rights of unsecured creditors
of the Seller, or take other actions that would be adverse to the Noteholders.
The measure of insolvency for purposes of the foregoing will vary
depending on the law of the jurisdiction that is being applied. Generally,
however, an entity would be considered insolvent if the fair saleable value of
its assets is less than the amount of its liabilities (including contingent
liabilities) or the amount that will be required to pay its probable
liabilities on its existing debts as they become absolute and matured. The
Sellers believe that they are entering into these transactions (including the
transfers of Contracts pursuant to the Transfer and Sale Agreement) for proper
purposes and in good faith and that the purchase price for the Contracts
identified in the Transfer and Sale Agreement will represent reasonably
equivalent value or fair consideration for the transfers of such Contracts by
the Sellers to the Trust Depositor.
The Trust Depositor will receive, on the Closing Date, a certificate from
each Seller to the effect that (i) the Seller did not intend, in entering into
the Transfer and Sale Agreement and consummating the transactions contemplated
thereby, to hinder, delay or defraud either then present or future creditors
or any other person to which such Seller was or would thereafter become, as of
or after the consummation of such transactions, indebted and (ii) the purchase
price for the Contracts sold under the Transfer and Sale Agreement represented
reasonably equivalent value or fair consideration as a result of the transfers
of such Contracts to the Trust Depositor. There can be no assurance, however,
that a court would reach the same conclusion.
No law firm will, in connection with any offering of the Notes, express
any opinion as to federal or state laws relating to fraudulent transfers.
Certain states have adopted a version of Article 2A of the UCC ("Article
2A"), which purports to codify many provisions of existing common law.
Although there is little precedent regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" lease or "unconscionable" provision in a lease, provide a
lessee with remedies, including the right to cancel the lease contract, for
certain lessor breaches or defaults, and may add to or modify the terms of
"consumer leases" and leases where the lessee is a "merchant lessee". However,
in the Transfer and Sale Agreement, the Sellers will jointly and severally
represent that (i) no Contract is a "consumer lease" and (ii) each Obligor
-78-
<PAGE>
has accepted the equipment leased to it and, after reasonable opportunity to
inspect and test, has not notified Heller Financial of any defects therein.
Article 2A, moreover, recognizes typical commercial lease "hell or high water"
rental payment clauses and validates reasonable liquidated damages provisions
in the event of lessor or lessee defaults. Article 2A also recognizes the
concept of freedom of contract and permits the parties in a commercial context
wide degree of latitude to vary provisions of the law.
Vendor Loans and Vendor Recourse Contracts. The Vendor Loans are, by
their terms, payable solely from the proceeds of the Secondary Contracts
securing such Vendor Loans, and do not generally represent obligations of the
Vendor (except that Secondary Contracts may be covered by such Vendor's UNL
Pool or other forms of Vendor recourse). Consequently, Noteholders must rely
solely upon the Secondary Contracts and any other Applicable Security, if any,
for the payment of principal of, and interest on, the related Vendor Loans. As
noted above, any Secondary Contract which is a "true lease" originated by a
Vendor will be subject to rejection by such Vendor, as debtor in possession,
or by such Vendor's bankruptcy trustee. Upon any such rejection Scheduled
Payments under such rejected Secondary Contract may terminate and the
Noteholders may be subject to losses if the remaining unaffected Contract, and
security interests in the related Equipment, are insufficient to cover the
losses. Further, as noted under above, a tax or government lien on the
property of the pledging Vendor arising before a Secondary Contract came into
existence may have priority over the applicable Seller's (and hence its
assignee's) interest in such Secondary Contract.
Certain Vendor Assignments and certain Program Agreements provide that
the applicable Seller has recourse to the related Vendor for all or a portion
of the losses the Seller may incur as a result of a default under the End-User
Contracts sold under such Vendor Assignment or Program Agreement. In the
event of a Vendor's bankruptcy, a bankruptcy trustee, a creditor or the Vendor
as debtor in possession might attempt to characterize sales to the Seller
pursuant to such Vendor Assignments or Program Agreements as loans to the
Vendor from the Seller secured by the Contracts sold thereunder. If such an
attempt is successful, such Vendor Assignment or Program Agreement would be
subject to the risks described herein for Vendor Loans. In such case the
Contracts sold under such Vendor Assignment or Program Agreement would
constitute Secondary Contracts under the recharacterized Vendor Assignment or
Program Agreement.
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general and brief discussion of material United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes. The discussion that follows, and the opinion set forth below of
Winston & Strawn, special tax counsel to the Trust Depositor ("Tax Counsel"),
are based upon current provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated thereunder, current
administrative rulings, judicial decisions and other applicable authorities in
effect as of the date hereof, all of which are subject to change, possibly
with retroactive effect. There are no cases, regulations, or Internal Revenue
Service ("IRS") rulings on comparable transactions or instruments to those
described herein. As a result, there can be no assurance that the IRS will
not challenge the conclusions reached herein, and no ruling from the IRS has
been or will be sought on any of the issues discussed below. Furthermore,
legislative, judicial or administrative changes may occur, perhaps with
retroactive effect, which could affect the accuracy of the statements and
conclusions set forth herein as well as the tax consequences to Noteholders.
This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to Noteholders in light of their personal
investment or tax circumstances nor to certain types of holders who may be
subject to special treatment under the federal income tax laws (including,
without limitation, financial institutions, broker-dealers, insurance
companies, foreign persons, tax-exempt organizations, and persons who hold
the Notes as part of a straddle, hedging, or conversion transaction). The
discussion is generally directed to prospective purchasers who purchase Notes
at the time of original issue, who are citizens or residents of the United
States, and who hold the Notes as "capital assets" within the meaning of
Section 1221 of the Code. Taxpayers and preparers of tax returns (including
those filed by any partnership or other issuer) should be aware that under
applicable Treasury Regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice is (i) given
with respect to events that have occurred at the time the advice is rendered
and is not given with respect to the consequences of contemplated actions, and
(ii) is directly relevant to the determination of an entry on a tax return.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where
the anticipated tax treatment has been discussed herein. PROSPECTIVE INVESTORS
SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL, STATE, LOCAL,
FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES.
-79-
<PAGE>
OPINION
In the opinion of Tax Counsel, for federal income tax purposes, although
no transaction closely comparable to that contemplated herein has been the
subject of any Treasury Regulation, revenue ruling, or judicial decision,
based on the application of existing law to the facts as set forth in the
applicable agreements, (i) the Trust will not be treated as an association (or
publicly traded partnership) taxable as a corporation and (ii) the Notes will
be treated as indebtedness. Such opinion assumes that the Servicer, the Trust
Depositor, the Certificateholders and all the Noteholders will consistently
treat the Notes for all tax purposes as indebtedness secured by the assets of
the Trust and that the Trust will be disregarded as a separate entity for
federal income tax purposes pursuant to Treasury Regulations Section
301.7701-3(b)(1)(ii). An opinion of counsel does not foreclose the
possibility of a contrary determination by the IRS or by a court of competent
jurisdiction, or of a contrary position by the IRS or Treasury Department in
regulations or rulings issued in the future.
Although it is the opinion of Tax Counsel that the Trust will not be
treated as an association (or publicly traded partnership) taxable as a
corporation and the Notes will be characterized as indebtedness for federal
income tax purposes, no assurance can be given that such characterization of
the Trust and the Notes will prevail. If the Trust were taxable as a
corporation for federal income tax purposes, it would be subject to corporate
income tax on its taxable income. The Trust's taxable income would include
all its income on the related Contracts and other assets, which may be reduced
by its interest expense on the Notes if the Notes are respected as debt of
such corporation. Any such corporate income tax could materially reduce cash
available to make payments on the Notes. If, contrary to the opinion of Tax
Counsel, the IRS also successfully asserted that one or more of the Notes did
not represent debt for federal income tax purposes, the Notes might be treated
as equity interests in the Trust. If so treated, the Trust might be taxable
as corporation with the adverse tax consequences described above (and the
resulting taxable corporation would not be able to reduce its taxable income
by deductions for interest expense on the Notes recharacterized as equity).
Alternatively, if the IRS treated the Notes as equity, it is also possible
that the Trust might by treated as a publicly traded partnership that would
not be taxable as a corporation because the Trust would meet certain
qualifying income tests. Nonetheless, treatment of the Notes as equity
interests in such publicly traded partnership could have adverse tax
consequences to certain holders. For example, income to certain tax-exempt
entities (including pension funds) may constitute "unrelated business taxable
income," income to foreign holders generally would be subject to U.S. tax and
U.S. tax return filing and withholding requirements, individual holders might
be subject to certain limitations on their ability to deduct their share of
Trust expenses, and income from the Trust's assets would be taxable to
Noteholders without regard to whether cash distributions are made from the
Trust or the Noteholders' method of tax accounting.
The discussion that follows assumes that the Notes will be treated as
indebtedness for federal income tax purposes. The following discussion is
also based in part upon Treasury Regulations interpreting the original issue
discount ("OID") provisions of the Code. The OID regulations, however, are
subject to varying interpretations and do not address all issues that would
affect Noteholders.
TAXATION OF INTEREST INCOME TO NOTEHOLDERS
Based upon Tax Counsel's interpretation of (i) the definition of
"qualified stated interest" and (ii) other provisions of the OID Code sections
and regulations, it is not expected that the Notes will be issued with OID
(i.e., any excess of the stated redemption price at maturity over their issue
price), other than perhaps with a de minimis amount (i.e., 1/4 of the Notes
stated redemption price at maturity multiplied by the number of full years to
maturity). In such case, the stated interest on each class of Notes should be
treated as qualified stated interest and will be taxable as ordinary income
for federal income tax purposes when received or accrued in accordance with
the Noteholder's general method of tax accounting.
OID
If Notes were issued at a discount from their principal amounts or if the
stated interest were not treated as "qualified stated interest," the Notes
would be treated as having OID. Under the OID regulations currently in
effect, in order to have qualified stated interest, the stated interest must
be "unconditionally payable" in cash or property at least once annually.
Interest is unconditionally payable only if reasonable legal remedies exist
to compel timely payment or the debt instrument otherwise provides terms and
conditions that make the likelihood of late payment (other than a late payment
that occurs within a reasonable grace period) or nonpayment a remote
contingency. Tax Counsel believes that the likelihood of late payment or
nonpayment of the stated interest on the Notes should constitute a remote
contingency; the IRS, however, may disagree. In such case, the stated
interest on the Notes would not be qualified stated interest and the Notes
would be considered to have been issued with OID.
If the Notes are in fact issued with a greater than de minimis amount of
OID or are otherwise treated as having been issued with OID, the following
rules should apply. The excess of the "stated redemption price at maturity"
of a Note (generally equal to its principal amount as of the date of issuance
plus all interest other than "qualified stated interest" payable prior to or
at maturity) over the original issue price (in this case, the initial offering
price at which a substantial
-80-
<PAGE>
amount of the Notes are sold to the public) will constitute OID. A Noteholder
must include OID in income as interest over the term of the Note under a
constant yield method. OID must be included in income in advance of the
receipt of cash representing that income. In general, the amount of OID
included in income is the sum of the "daily portions" of the OID with respect
to the Note for each day during the taxable year the Noteholder held the Note.
The daily portion generally is determined by allocating to each day in an
accrual period a ratable portion of the OID allocable to such accrual period.
The "accrual period" for an OID Note may be of any length and may vary in
length over the term of the Note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or interest
occurs on the first day or the final day of an accrual period. The amount of
OID allocable to an accrual period is generally equal to the difference
between (i) the product of the Note's adjusted issue price and its yield to
maturity and (ii) the amount of qualified stated interest payments allocable
to such accrual period. The "adjusted issue price" of an OID Note at the
beginning of any accrual period is the sum of its issue price plus the amount
of OID allocable to prior accrual periods minus the amount of prior payments
that were not qualified stated interest.
Alternatively, because the payments on the Notes may be accelerated by
reason of prepayments on the Contracts, OID, other than de minimis OID, on the
Notes, if any, may have to be accrued under Code section 1272(a)(6), which
allocates OID to each day in an accrual period by taking the ratable portion
of the excess of (i) the sum of the present value of the remaining payments on
a Note as of the close of the accrual period and the payments made during the
accrual period that were included in stated redemption price at maturity, over
(ii) the adjusted issue price of the Note at the beginning of the accrual
period. No regulations have been issued under Code section 1272(a)(6) so it
is not clear if such section would apply to the Notes if they are treated as
having OID. Legislation has been proposed which if enacted, would require any
OID (or interest) on the Notes to be computed in accordance with the rules of
Section 1272(a)(6) and certain prepayment assumptions.
A holder of a Note issued with de minimis OID must include such OID in
income proportionately as principal payments are made on such Note.
Acquisition Premium
A holder that purchases a Note for an amount less than or equal to the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest but in excess of its adjusted issue
price (any such excess being "acquisition premium") and that does not make the
election described below under "Election to Treat All Interest as Original
Issue Discount" is permitted to reduce the daily portions of OID, if any, by a
fraction, the numerator of which is the excess of the holder's adjusted basis
in the Note immediately after its purchase over the adjusted issue price of
the Note, and the denominator of which is the excess of the sum of all amounts
payable on the Note after the purchase date, other than payments of qualified
stated interest, over the Note's adjusted issue price.
Market Discount
Whether or not the Notes are issued with OID, a subsequent purchaser
(i.e., a purchaser who acquires a Note not at the time of original issue) of a
Note at a discount will be subject to the "market discount rules" of Sections
1276 through 1278 of the Code. In general, these rules provide that if the
holder of a Note purchases the Note at a market discount (i.e., a discount
from its original issue price plus any accrued OID that exceeds a de minimis
amount specified in the Code) and thereafter recognizes gain upon a
disposition (or receives a principal payment), the lesser of (i) such gain (or
the principal payment) or (ii) the accrued market discount (not previously
included in income) will be taxed as ordinary income. Generally, the accrued
market discount will be the total market discount on the Note multiplied by a
fraction, the numerator of which is the number of days the holder held the
Note and the denominator of which is the number of days from the date the
holder acquired the Note until its maturity date. The holder may elect,
however, to determine accrued market discount under the constant yield method.
The adjusted basis of a Note subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a subsequent sale or taxable disposition. Holders
should consult with their own tax advisors as to the effect of making this
election.
Limitations imposed by the Code, which are intended to match deductions
with the taxation of income, may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder who elects to include market
discount in gross income as it accrues, however, is exempt from this rule.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is .25% of
the remaining principal balance of the Note multiplied by its expected
weighted average remaining life. If market discount is de minimis, the actual
amount of discount must be allocated to the remaining principal distributions
on the Note, and when such distribution is received, capital gain will be
recognized equal to discount allocated to such distribution.
-81-
<PAGE>
Amortizable Bond Premium
In general, if a subsequent purchaser acquires a Note at a premium (i.e.,
an amount in excess of the amount payable upon the maturity thereof), such
Noteholder will be considered to have purchased the Note with "amortizable
bond premium" equal to the amount of such excess. A Noteholder may elect to
deduct the amortizable bond premium as it accrues under a constant yield
method over the remaining term of the Note. Under proposed regulations, if
finalized, accrued amortized bond premium may only be used as an offset
against qualified stated interest income when such income is included in the
holder's gross income under the holder's normal accounting system.
Election to Treat All Interest as Original Issue Discount
A holder may elect to include in gross income all interest that accrues
on a Note using the constant yield method described above under the heading
"OID," with modifications described below. For purposes of this election,
interest includes stated interest, OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. In applying the constant yield method to
a Note with respect to which this election has been made, the issue price of
the Note will equal the electing holder's adjusted basis in the Note
immediately after its acquisition, the issue date of the Note will be the date
of its acquisition by the electing holder, and no payments on the Note will be
treated as payments of qualified stated interest. This election, if made, may
not be revoked without the consent of the IRS. Holders should consult with
their own tax advisors as to the effect of making this election in light of
their individual circumstances.
DISPOSITION OF NOTES
Generally, capital gain or loss will be recognized on a sale or other
taxable disposition of the Notes in an amount equal to the difference between
the amount realized (other than amounts attributable to, and taxable as,
accrued interest) and the seller's tax basis in the Notes. A Noteholder's tax
basis in a Note will generally equal his or her cost increased by any OID and
market discount, with respect to the Note and decreased by any bond premium
previously amortized and any principal payments previously received by such
Noteholder with respect to the Note. Subject to the market discount rules of
the Code, any such gain or loss will be capital gain or loss if the Note was
held as a capital asset. Capital gain or loss will be long-term if the Note
was held by the holder for more than one year and otherwise will be
short-term. Any capital losses realized generally may be used by a corporate
taxpayer only to offset capital gains, and by an individual taxpayer only to
the extent of capital gains plus $3,000 of other income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Indenture Trustee will be required to report annually to the IRS, and
to each Noteholder, the amount of interest paid on the Notes (and the amount
withheld for federal income taxes, if any) for each calendar year, except as
to exempt recipients (generally, corporations, tax-exempt organizations,
qualified pension and profit-sharing trusts, individual retirement accounts,
or nonresident aliens who provide certification as to their status). Each
holder (other than holders who are not subject to the reporting requirements)
will be required to provide, under penalties of perjury, a certificate (Form
W-9) containing the holder's name, address, correct federal taxpayer
identification number and a statement that the holder is not subject to backup
withholding. Should a non-exempt Noteholder fail to provide the required
certification, the Trustee will be required to withhold (or cause to be
withheld) 31% of the interest otherwise payable to the holder, and remit the
withheld amounts to the IRS as a credit against the holder's federal income
tax liability.
TAX CONSEQUENCES TO FOREIGN INVESTORS
Based upon Tax Counsel's opinion that the Notes will be treated as
indebtedness for federal income tax purposes, the following information
describes the general U.S. federal income tax treatment of investors that are
not U.S. persons (each a "Foreign Person"). The term "Foreign Person" means
any person other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or the
income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust:
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business
within the United States by the Foreign Person, will generally
be considered "portfolio interest" and generally will not be
subject to United States federal income tax and withholding tax,
as long as the Foreign Person (i) is not actually or
constructively a "10 percent
-82-
<PAGE>
shareholder" of the Trust, Trust Depositor or HFI or a
"controlled foreign corporation" with respect to which the Trust
Depositor is a "related person" within the meaning of the Code,
and (ii) provides an appropriate statement (Form W-8) to the
Trustee or paying agent (generally the clearing agency,
financial intermediary, or broker) that is signed under
penalties of perjury, certifying that the beneficial owner of
the Note is a Foreign Person and providing that Foreign Person's
name and address. If the information provided in this statement
changes, the Foreign Person must provide a new Form W-8 within
30 days. The Form W-8 is generally effective for three years.
If such interest were not portfolio interest, then it would be
subject to United States federal income and withholding tax at a
rate of 30 percent unless reduced or eliminated pursuant to an
applicable income tax treaty. To qualify for any reduction as
the result of an income tax treaty, the Foreign Person must
provide the paying agent with Form 1001. This form is also
effective for three years.
(b) Any capital gain realized on the sale or other taxable
disposition of a Note by a Foreign Person will be exempt from
United States federal income and withholding tax, provided that
(i) the gain is not effectively connected with the conduct of a
trade or business in the United States by the Foreign Person,
and (ii) in the case of an individual Foreign Person, the
Foreign Person is not present in the United States for 183 days
or more in the taxable year. If an individual Foreign Person is
present in the U.S. for 183 days or more during the taxable
year, the gain on the disposition of the Notes could be subject
to a 30% withholding tax unless reduced by treaty.
(c) If the interest, gain or income on a Note held by a Foreign
Person is effectively connected with the conduct of a trade or
business in the United States by the Foreign Person, the holder
(although exempt from the withholding tax previously discussed
if an appropriate statement (Form 4224) is furnished to the
paying agent) generally will be subject to United States federal
income tax on the interest, gain or income at regular federal
income tax rates. Form 4224 is effective for only one calendar
year. In addition, if the Foreign Person is a foreign
corporation, it may be subject to a branch profits tax equal to
30 percent of its "effectively connected earnings and profits"
within the meaning of the Code for the taxable year, as adjusted
for certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Notes. ACCORDINGLY, PURCHASERS OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISERS REGARDING THE STATE TAX CONSEQUENCES OF
PURCHASING ANY NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on employee benefit plans subject to
ERISA ("ERISA Plans") and prohibits certain transactions between ERISA Plans
and persons who are "parties in interest" (as defined under ERISA) with
respect to assets of such Plans. Section 4975 of the Code prohibits a similar
set of transactions between certain plans or individual retirement accounts
("Code Plans," and together with ERISA Plans, "Plans") and persons who are
"disqualified persons" (as defined in the Code) with respect to Code Plans.
Certain employee benefit plans, such as governmental plans and church plans
(if no election has been made under Section 410(d) of the Code), are not
subject to the requirements of ERISA or Section 4975 of the Code, and assets
of such plans may be invested in the Notes, subject to the provisions of other
applicable federal and state law. Any such plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of
the Code is, however, subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance
with the documents governing the ERISA Plan. Before investing in the Notes,
an ERISA Plan fiduciary should consider, among other factors, whether to do so
is appropriate in view of the overall investment policy and liquidity needs of
the ERISA Plan.
PROHIBITED TRANSACTIONS
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to ERISA Plans and
Code Plans from engaging in certain transactions involving such Plans or "plan
assets" of such Plans, unless a statutory or administrative exemption applies
to the transaction. Section 4975 of the Code and Sections 502(i) and 502(1)
of ERISA provide for the imposition of certain excise taxes and civil
penalties on certain persons that engage or participate in such prohibited
transactions. The Trust Depositor, the Underwriter, the Servicer, the
Indenture
-83-
<PAGE>
Trustee or the Owner Trustee or certain affiliates thereof may be considered
or may become parties in interest or disqualified persons with respect to a
Plan. If so, the acquisition or holding of the Notes by, on behalf of or with
"plan assets" of such Plan may be considered to give rise to a "prohibited
transaction" within the meaning of ERISA and/or Section 4975 of the Code,
unless an administrative exemption described below or some other exemption is
available.
The Notes may not be purchased with the assets of a Plan if the Trust
Depositor, the Underwriter, the Servicer, the Indenture Trustee, or the Owner
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets; or (b)
has authority or responsibility to give, or regularly gives, investment advice
with respect to such assets pursuant to an agreement or understanding that
such advice will serve as a primary basis for investment decisions with
respect to such assets and that such advice will be based on the particular
needs of the Plan; or (c) is an employer of employees covered under the Plan
unless such investment is made through an insurance company general or pooled
separate account or a bank collective investment fund and an exemption is
available.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the Notes - for
example, Prohibited Transaction Class Exemption ("PTCE") 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager;" PTCE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest; PTCE 91-38, which exempts
certain transactions between bank collective investment funds and parties in
interest; PTCE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager." There can be no assurance that any of these
exemptions will apply with respect to any Plan's investment in the Notes or,
even if an exemption were deemed to apply, that any exemption would apply to
all prohibited transactions that may occur in connection with such investment.
Due to the complexity of these rules and the penalties imposed, any
fiduciary or other Plan investor who proposes to invest assets of a Plan in
the Notes should consult with its counsel with respect to the potential
consequences under ERISA and Section 4975 of the Code of doing so.
PLAN OF DISTRIBUTION
GENERAL
Subject to the terms and conditions set forth in an (i) underwriting
agreement dated September __, 1997 for the sale of the Class A-1 Notes and the
Class A-2 Notes, the Trust Depositor has agreed to sell to First Union Capital
Markets Corp, Bear, Stearns & Co. Inc., and Lehman Brothers Inc. (the "Class
A-1 and Class A-2 Underwriters") and each of the Class A-1 and the Class A-2
Underwriters has separately agreed to purchase from the Trust Depositor, the
principal amount of the Class A-1 Notes and the Class A-2 Notes set forth
opposite its name below and (ii) an Underwriting Agreement dated September __,
1997 for the sale of the Class B Notes and the Class C Notes, the Trust
Depositor has agreed to sell to First Union Capital Markets Corp. the Class B
Notes and the Class C Notes (the "Class B and the Class C Underwriter") and
the Class B and Class C Underwriter to purchase from the Trust Depositor, the
principal Amounts of the Class B Notes and the Class C Notes set forth
opposite its name below:
<TABLE>
<CAPTION>
Aggregate Principal Amount
to be Purchased
---------------------------------
Class A-1 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
<S> <C>
First Union Capital Markets Corp. $24,980,096
Bear, Stearns & Co. Inc. $19,000,000
Lehman Brothers $19,000,000
</TABLE>
<TABLE>
<CAPTION>
Aggregate Principal Amount
to be Purchased
---------------------------------
Class A-2 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
<S> <C>
First Union Capital Markets Corp. $75,678,552
Bear, Stearns & Co. Inc. $58,000,000
Lehman Brothers $58,000,000
</TABLE>
-84-
<PAGE>
<TABLE>
<CAPTION>
Aggregate Principal Amount
to be Purchased
---------------------------------
Class B Receivable-Backed Notes, Series 1997-1
------------------------------------------------
<S> <C>
First Union Capital Markets Corp. $8,214,795
</TABLE>
<TABLE>
<CAPTION>
Aggregate Principal Amount
to be Purchased
---------------------------------
Class C Receivable-Backed Notes, Series 1997-1
------------------------------------------------
<S> <C>
First Union Capital Markets Corp. $5,476,530
</TABLE>
In the respective Underwriting Agreements, the Class A-1 and the Class
A-2 Underwriters and the Class B and the Class C Underwriter, respectively
have agreed, subject to the terms and conditions set forth therein, to
purchase all the Notes offered hereby if any of such Notes are purchased.
The Class A-1 and the Class A-2 Underwriters have advised the Issuer that
the Class A-1 and Class A-2 Underwriters propose initially to offer the Class A-
1 Notes and the Class A-2 Notes to the public at the price set forth on the
cover page hereof and to certain dealers at such price less a selling concession
not in excess of 0.100% and 0.150% of the initial principal amount of the Class
A-1 Notes and the Class A-2 Notes, respectively. The Class A-1 and the Class A-2
Underwriters may allow and such dealers may reallow a concession not in excess
of 0.050% of the initial principal amount of the Class A-1 Notes and 0.075% of
the initial principal amount of the Class A-2 Notes.
The Class B and the Class C Underwriter has advised the Issuer that the
Class B and Class C Underwriter propose initially to offer the Class B Notes and
the Class C Notes to the public at the price set forth on the cover page hereof
and to certain dealers at such price less a selling concession not in excess of
0.250% and 0.350% of the initial principal amount of the Class B Notes and the
Class C Notes, respectively. The Class B and the Class C Underwriter may allow
and such dealers may reallow a concession not in excess of 0.125% of the initial
principal amount of the Class B Notes and 0.175% of the initial principal amount
of the Class C Notes.
The respective Underwriting Agreements provide that Heller Financial and
the Trust Depositor, jointly and severally, will indemnify the Class A-1 and
Class A-2 Underwriters and Class B and Class C Underwriter against certain civil
liabilities, including liabilities under the Securities Act of 1933, as amended,
or contribute to payments the respective Underwriters may be required to make in
respect thereof.
In addition, First Union Capital Markets Corp. will act as the private
placement agent for the Trust Depositor in connection with the sale of the
Subordinated Notes and will receive compensation therefor.
In the ordinary course of its business, the Underwriters and their
affiliates have engaged and may engage in commercial banking and investment
banking transactions with Heller Financial and its affiliates, including the
Trust Depositor and HFLI.
RATING OF THE NOTES
It is a condition to the issuance of the Notes that the Class A-1 Notes
be rated at least "P-1" and "F-1+" , that the Class A-2 Notes be noted at
least "Aaa and "AAA" that the Class B Notes be rated at least "A1" and "A+" ,
and that the Class C Notes be rated at least "Baa2" and "BBB", by Moody's
Investors Service, Inc. and Fitch Investors Service, L.P., respectively.
Such rating will reflect only the views of the Rating Agency and will be
based primarily on the subordination of the Class A-2 Notes, Class B Notes,
Class C Notes and the Subordinated Securities (in the case of the Class A-1
Notes), the subordination of the Class B Notes, Class C Notes and the
Subordinated Securities (in the case of the Class A-2 Notes), the
subordination of the Class C Notes and the Subordinated Securities (in the
case of the Class B Notes) and the subordination of the Subordinated
Securities (in the case of the Class C Notes), as well as the value and
creditworthiness of the Contracts and Equipment. The ratings are not a
recommendation to purchase, hold or sell the Notes, inasmuch as such ratings
do not comment as to market price or suitability for a particular investor.
Each rating may be subject to revision or withdrawal at any time by the
assigning Rating Agency. There is no assurance that any such rating will
continue for any period of time or that it will not be lowered or withdrawn
entirely by the Rating Agency if, in its judgment, circumstances so warrant. A
revision or withdrawal of such rating may have an adverse affect on the market
price of the Notes. The rating
-85-
<PAGE>
of the Notes addresses the likelihood of the timely payment of interest and
the ultimate payment of principal on the Notes pursuant to their terms. The
rating does not address the rate of Prepayments that may be experienced on the
Contracts and, therefore, does not address the effect of the rate of
Prepayments on the return of principal to the Noteholders.
LEGAL MATTERS
Certain legal matters relating to the Notes, including certain federal
income tax matters, as well as other matters, will be passed upon for the
Trust, the Trust Depositor, the Seller/Servicer and the Administrator by
Winston & Strawn, Chicago, Illinois. Certain legal matters for the
Underwriters will be passed upon by Simpson Thacher & Bartlett (a partnership
which includes professional corporations), New York, New York.
-86-
<PAGE>
INDEX OF TERMS
Term(s) Page(s)
ADCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 48
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . 12, 47
Acquisition Premium . . . . . . . . . . . . . . . . . . . . . 81
Additional Contract . . . . . . . . . . . . . . . . . . . . . 9, 41
Additional Contract Cutoff Date . . . . . . . . . . . . . . . 4
Adjusted Contract . . . . . . . . . . . . . . . . . . . . . . 9
Adjusted Deployed Funds . . . . . . . . . . . . . . . . . . . 34
Administration Fee . . . . . . . . . . . . . . . . . . . . . . 58
Administrator . . . . . . . . . . . . . . . . . . . . . . . . 58
Aggregate Discounted Contract Balance . . . . . . . . . . . . 14, 48
Aggregate Principal Amount . . . . . . . . . . . . . . . . . . 48
Applicable Class Percentage . . . . . . . . . . . . . . . . . 48
Article 2A . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 78
Available Amounts . . . . . . . . . . . . . . . . . . . . . . 10, 51
Average Cumulative Net Loss Ratio . . . . . . . . . . . . . . 56
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . 5
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . 5
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . 59
CEF . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6, 61
Class A-1 and Class A-2 Underwriters . . . . . . . . . . . . . 84
Class A-1 Interest Rate . . . . . . . . . . . . . . . . . . . 11
Class A-1 Noteholder . . . . . . . . . . . . . . . . . . . . . 59
Class A-1 Noteholders . . . . . . . . . . . . . . . . . . . . 12
Class A-1 Notes . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Class A-1 Notes Maturity Date . . . . . . . . . . . . . . . . 13
Class A-1 Principal Payment Amount . . . . . . . . . . . . . . 48
Class A-2 Noteholder . . . . . . . . . . . . . . . . . . . . . 59
Class A-2 Noteholders . . . . . . . . . . . . . . . . . . . . 12
Class A-2 Notes . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Class A-2 Principal Payment Amount . . . . . . . . . . . . . . 48
Class B and the Class C Underwriter . . . . . . . . . . . . . 84
Class B Interest Rate . . . . . . . . . . . . . . . . . . . . 11
Class B Noteholder . . . . . . . . . . . . . . . . . . . . . . 59
Class B Noteholders . . . . . . . . . . . . . . . . . . . . . 12, 71
Class B Notes . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Class B Principal Payment Amount . . . . . . . . . . . . . . . 49
Class C Interest Rate . . . . . . . . . . . . . . . . . . . . 11
Class C Noteholder . . . . . . . . . . . . . . . . . . . . . . 59
Class C Noteholders . . . . . . . . . . . . . . . . . . . . . 12
Class C Notes . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Class C Principal Payment Amount . . . . . . . . . . . . . . . 49
Class D Interest Rate . . . . . . . . . . . . . . . . . . . . 11
Class D Principal Payment Amount . . . . . . . . . . . . . . . 49
Cleanup Call Condition . . . . . . . . . . . . . . . . . . . . 14, 57
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 4
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Code Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Collection Account . . . . . . . . . . . . . . . . . . . . . . 10, 54
Collection Period . . . . . . . . . . . . . . . . . . . . . . 5
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Conditional Payment Rate . . . . . . . . . . . . . . . . . . . 41
Contract Files . . . . . . . . . . . . . . . . . . . . . . . . 62
Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Contracts Pool . . . . . . . . . . . . . . . . . . . . . . . . 6
Cooperative . . . . . . . . . . . . . . . . . . . . . . . . . 59
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
CSA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Cumulative Net Loss Ratio . . . . . . . . . . . . . . . . . . 56
-87-
<PAGE>
Cutoff Date . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4
Defaulted Contract . . . . . . . . . . . . . . . . . . . . . . 54
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . 60
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . 58
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Determination Date . . . . . . . . . . . . . . . . . . . . . . 49
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . .14, 49, 63
Discounted Contract Balance . . . . . . . . . . . . . . . . . 14, 49
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 57
Distribution Date . . . . . . . . . . . . . . . . . . . . . . 2, 5
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Early Termination . . . . . . . . . . . . . . . . . . . . . . 9
Early Termination Contract . . . . . . . . . . . . . . . . . . 9
Eligible Contract . . . . . . . . . . . . . . . . . . . . . . 63, 64
Eligible Investments . . . . . . . . . . . . . . . . . . . . . 54
Eligible Secondary Contract . . . . . . . . . . . . . . . . . 64
Eligible Secondary Contracts . . . . . . . . . . . . . . . . . 64
End-Use . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
End-User . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
End-User Contracts . . . . . . . . . . . . . . . . . . . . . . 2
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 38
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . 16
ERISA Plans . . . . . . . . . . . . . . . . . . . . . . . . . 83
Euroclear . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . 59
Euroclear Participants . . . . . . . . . . . . . . . . . . . . 59
Event of Default . . . . . . . . . . . . . . . . . . . . . . . 55
Excess Concentration Amount . . . . . . . . . . . . . . . . . 65
Excess Contract . . . . . . . . . . . . . . . . . . . . . . . 65
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . 3
Excluded Amounts . . . . . . . . . . . . . . . . . . . . . . . 36
Expected Class A-1 Payment . . . . . . . . . . . . . . . . . . 48
Expired Lease Proceeds . . . . . . . . . . . . . . . . . . . . 6, 54
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Financed Items . . . . . . . . . . . . . . . . . . . . . . . . 2, 38
Financing Agreement . . . . . . . . . . . . . . . . . . . . . 7
First Union . . . . . . . . . . . . . . . . . . . . . . . . . 85
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . 82
Heller Financial . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Heller Funding . . . . . . . . . . . . . . . . . . . . . . . . 1
HFLI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Indemnitees . . . . . . . . . . . . . . . . . . . . . . . . . 73
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . 1, 4
Indirect Participants . . . . . . . . . . . . . . . . . . . . 58
Ineligible Contract . . . . . . . . . . . . . . . . . . . . . 64
Initial Class A-1 Note Principal Balance . . . . . . . . . . . 5
Initial Class A-2 Note Principal Balance . . . . . . . . . . . 5
Initial Class B Note Principal Balance . . . . . . . . . . . . 5
Initial Class C Note Principal Balance . . . . . . . . . . . . 5
Initial Class D Note Principal Balance . . . . . . . . . . . . 6
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . 23
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . 62
IPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . 6, 51
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Majority in Interest . . . . . . . . . . . . . . . . . . . . . 74
-88-
<PAGE>
Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . 13
MLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
MLA Supplement . . . . . . . . . . . . . . . . . . . . . . . . 36
Monthly Report . . . . . . . . . . . . . . . . . . . . . . . . 57
Note Owners . . . . . . . . . . . . . . . . . . . . . . . . . 5
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . 12
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Obligor . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 64
Obligor Event . . . . . . . . . . . . . . . . . . . . . . . . 56
OID . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Operative Documents . . . . . . . . . . . . . . . . . . . . . 46
Optional Prepayment . . . . . . . . . . . . . . . . . . . . . 17
Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Participants . . . . . . . . . . . . . . . . . . . . . . . . . 58
Permitted Liens . . . . . . . . . . . . . . . . . . . . . . . 63
Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Prepaid Contract . . . . . . . . . . . . . . . . . . . . . . . 9
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Prepayment Amount . . . . . . . . . . . . . . . . . . . . . . 63
Principal Amount . . . . . . . . . . . . . . . . . . . . . . . 49
Program Agreement . . . . . . . . . . . . . . . . . . . . . . 11
Program Assignment . . . . . . . . . . . . . . . . . . . . . . 22
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Qualified Institution . . . . . . . . . . . . . . . . . . . . 54
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . 16
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . 14
Registration Statement . . . . . . . . . . . . . . . . . . . . 3
Required Holders . . . . . . . . . . . . . . . . . . . . . . . 56
Reserve Account . . . . . . . . . . . . . . . . . . . . . . . 11
Reserve Account Initial Deposit . . . . . . . . . . . . . . . 11
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . 11
Restricting Event . . . . . . . . . . . . . . . . . . . . . . 56
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . 2
Scheduled Payments . . . . . . . . . . . . . . . . . . . . . . 14, 49
Secondary Contracts . . . . . . . . . . . . . . . . . . . . . 2
Secured Note . . . . . . . . . . . . . . . . . . . . . . . . . 6, 37
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . 3
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4
Service Transfer . . . . . . . . . . . . . . . . . . . . . . . 67
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 4
Servicer Advance . . . . . . . . . . . . . . . . . . . . . . . 15, 66
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . 67
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 10, 38
Servicing Charges . . . . . . . . . . . . . . . . . . . . . . 15
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . 15, 56
Servicing Fee Percentage . . . . . . . . . . . . . . . . . . . 56
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . 15
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 10, 38
Statistical Discount Rate . . . . . . . . . . . . . . . . . . 8
Subordinate Certificates . . . . . . . . . . . . . . . . . . . 6
Subordinated Note Interest Rate . . . . . . . . . . . . . . . 11
Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . 2, 6, 61
Subordinated Securities . . . . . . . . . . . . . . . . . . . 2, 6
Substitute Contract . . . . . . . . . . . . . . . . . . . . . 9, 41
Substitute Contract Cutoff Date . . . . . . . . . . . . . . . 4
Tax Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 79
Termination Notice . . . . . . . . . . . . . . . . . . . . . . 66
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . 59
-89-
<PAGE>
TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Title Registry Equipment . . . . . . . . . . . . . . . . . . . 19, 75
Transfer and Sale Agreement . . . . . . . . . . . . . . . . . 2, 25, 61
Transfer Deposit Amount . . . . . . . . . . . . . . . . . . . 64
Transferred Assets . . . . . . . . . . . . . . . . . . . . . . 62
Transferred Contracts . . . . . . . . . . . . . . . . . . . . 6
Transferred Property . . . . . . . . . . . . . . . . . . . . . 19
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Trust Agreement . . . . . . . . . . . . . . . . . . . . . . . 4
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Trust Company . . . . . . . . . . . . . . . . . . . . . . . . 64
Trust Depositor . . . . . . . . . . . . . . . . . . . . . . . 1, 4
Trust Termination Date . . . . . . . . . . . . . . . . . . . . 61
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 21
UNL Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Vendor Agreements . . . . . . . . . . . . . . . . . . . . . . 11
Vendor Assignment . . . . . . . . . . . . . . . . . . . . . . 11
Vendor Loans . . . . . . . . . . . . . . . . . . . . . . . . . 2
Vendor Obligations . . . . . . . . . . . . . . . . . . . . . . 38
Vendors . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 39
VFD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Warranty Contract . . . . . . . . . . . . . . . . . . . . . . 9, 65
-90-
<PAGE>
----------------------------------------------------------------
No dealer, salesman or other person is authorized to
give any information or to make any representation not
contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as
having been authorized by the Trust Depositor or the
Underwriter. This Prospectus does not constitute an offer
to sell or a solicitation of any offer to buy any security
other than the Securities offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to
buy any of the Securities to any person in any jurisdiction
in which the person making such offer or solicitation is not
qualified to do so or to anyone whom it is unlawful to make
such an offer or solicitation to such person. Neither the
delivery of this Prospectus nor any sale made hereunder
shall under any circumstance create any implication that the
information contained herein is correct as of any date
subsequent to the date hereof.
_________________
TABLE OF CONTENTS
Page
----
SUMMARY OF TERMS . . . . . . . . . . . . . . . . . . . 4
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . 17
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . 25
THE TRUST . . . . . . . . . . . . . . . . . . . . . . . 25
THE CONTRACTS POOL . . . . . . . . . . . . . . . . . . 25
THE CONTRACTS GENERALLY . . . . . . . . . . . . . . . . 36
PREPAYMENT AND YIELD CONSIDERATIONS . . . . . . . . . . 41
HELLER FINANCIAL, INC.AND
HELLER FINANCIAL LEASING, INC. . . . . 44
THE TRUST DEPOSITOR . . . . . . . . . . . . . . . . . . 46
DESCRIPTION OF THE NOTES . . . . . . . . . . . . . . . 46
THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT GENERALLY 61
THE INDENTURE . . . . . . . . . . . . . . . . . . . . . 70
CERTAIN LEGAL ASPECTS OF THE CONTRACTS . . . . . . . . 74
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . 79
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . 83
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . 84
RATING OF THE NOTES . . . . . . . . . . . . . . . . . . 85
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . 86
____________________
UNTIL NOVEMBER 27, 1997, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PATICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
----------------------------------------------------------------
----------------------------------------------------------------
HELLER EQUIPMENT ASSET
RECEIVABLES TRUST 1997-1
$ 62,980,096 5.7325% CLASS A-1 RECEIVABLE-BACKED
NOTES, SERIES 1997-1
$ 191,678,552 6.3900% CLASS A-2 RECEIVABLE-BACKED
NOTES, SERIES 1997-1
$ 8,214,795 6.5000% CLASS B RECEIVABLE-BACKED
NOTES, SERIES 1997-1
$ 5,476,530 6.6800% CLASS C RECEIVABLE-BACKED
NOTES, SERIES 1997-1
____________________________
PROSPECTUS
____________________________
Underwriters of the Class A-1 Notes and Class A-2 Notes
FIRST UNION CAPITAL MARKETS CORP.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
Underwriters of the Class B Notes and Class C Notes
FIRST UNION CAPITAL MARKETS CORP.
AUGUST 27, 1997
----------------------------------------------------------------
