<PAGE>
As filed with the Securities and Exchange Commission on August 21, 1997
Registration No. 333-30207
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
(Issuer with respect to the Securities)
HELLER FUNDING CORPORATION
(Depositor of the Trust described herein)
HELLER FUNDING CORPORATION HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
(Exact name of Registrants as specified in their respective charters)
Delaware
(State or other jurisdiction of incorporation or organization)
6799
(Primary Standard Industrial Classification Code Number)
36-4165546
(I.R.S. Employer Identification No.)
Heller Funding Corporation
500 West Monroe Street
Chicago, Illinois 60661
(312) 441-7246
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Debra H. Snider, Esq.
Executive Vice President,
Chief Administrative Officer
and General Counsel
Heller Funding Corporation
c/o Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
(312) 441-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
M. David Galainena, Esq. Stephan J. Feder, Esq.
Winston & Strawn Simpson Thacher & Bartlett
35 West Wacker Drive 425 Lexington Avenue
Chicago, Illinois 60601 New York, New York 10017
(312) 558-5600 (212) 455-2000
----------------------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT HAS
BECOME EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated , 1997
PRELIMINARY PROSPECTUS
- ----------------------
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
$ 63,206,000 [ ]% Class A-1 Receivable-Backed Notes, Series 1997-1
$192,365,000 [ ]% Class A-2 Receivable-Backed Notes, Series 1997-1
$ 8,244,220 [ ]% Class B Receivable-Backed Notes, Series 1997-1
$ 5,496,000 [ ]% 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 $63,206,000 aggregate principal amount of [ ]% Class A-1 Receivable-Backed
Notes, Series 1997-1 (the "Class A-1 Notes"), $192,365,000 aggregate principal
amount of [ ]% Class A-2 Receivable-Backed Notes, Series 1997-1 (the "Class A-2
Notes"), $8,244,220 aggregate principal amount of [ ]% Class B Receivable-Backed
Notes, Series 1997-1 (the "Class B Notes") and $5,496,000 aggregate principal
amount of [ ]% 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 $5,496,000 aggregate principal amount of [ ]%
Class
(cover continued on next page)
----------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH
UNDER "RISK FACTORS" ON PAGE 19 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 Proceeds to Issuer (2)
Discounts
and Commissions (1)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class A-1 Note $ $ $
- -------------------------------------------------------------------------------------
Per Class A-2 Note $ $ $
- -------------------------------------------------------------------------------------
Per Class B Note $ $ $
- -------------------------------------------------------------------------------------
Per Class C Note $ $ $
- -------------------------------------------------------------------------------------
Total $ $ $
=====================================================================================
</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 $_________
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 3, 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 [ ], 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 as the Equipment or 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
-3-
<PAGE>
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 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.
-4-
<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 89.
There are material risks associated with an investment in the Notes. See "Risk
Factors" on page 19 for a discussion of certain factors that investors should
consider before making an investment in the Notes.
<TABLE>
<CAPTION>
<S> <C>
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 3, 1997 (the
"Closing Date").
</TABLE>
- -------------------------------------------------------------------------------
-5-
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
Collection Periods,.................. A Collection Period is the period
Calculation Dates, from and including the first day of
Distribution Dates each calendar month to and including
and Record Dates the last 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............................ $63,206,000 aggregate principal amount
(the "Initial Class A-1 Note Principal
Balance") of [ ]% Class A-1 Receivable-
Backed Notes, Series 1997-1 (the "Class
A-1 Notes"); $192,365,000 aggregate
principal amount (the "Initial Class A-2
Note Principal Balance") of [ ] Class A-
2 Receivable-Backed Notes, Series 1997-1
(the "Class A-2 Notes"); $8,244,220
aggregate principal amount (the "Initial
Class B Note Principal Balance") of [ ]%
Class B Receivable-Backed Notes, Series
1997-1 (the "Class B Notes"); and
$5,496,000 aggregate principal amount
(the "Initial Class C Note Principal
Balance") of [ ]% 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.
</TABLE>
- -------------------------------------------------------------------------------
-6-
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
The Subordinated Securities.......... On the Closing Date, the Trust will
also issue [ ]% Class D Receivables-
Backed Notes Series 1997-1 (the
"Subordinated Notes") with an aggregate
principal balance of $5,496,000 (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
$2,748,073; 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 $274,807,342 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 (in each case as such terms
are defined in this "Summary of Terms"),
(iii) the related Equipment (or a
security interest therein), (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") (ix) amounts available, if
any, in the Reserve Fund and (x)
proceeds of any of the foregoing.
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
"Lease"), installment payment agreements
(each, an "IPA") or other similar types
of financing agreements (each, a
"Financing Agreement") covering Financed
Items
</TABLE>
- --------------------------------------------------------------------------------
-7-
<PAGE>
<TABLE>
<S> <C>
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;
</TABLE>
- -------------------------------------------------------------------------------
-8-
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(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 $274,807,342;
(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
$149,271.00;
(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
</TABLE>
- --------------------------------------------------------------------------------
-9-
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
or agree to the early termination or
full prepayment of any such Contract
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 1.40% and 1.48%,
respectively with respect to their
portfolio and (ii) losses of .02% and
.01% 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
</TABLE>
- --------------------------------------------------------------------------------
-10-
<PAGE>
be included in periodic reports required
under the Exchange Act filed by the
Servicer on behalf of the Trust.
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.
(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,
Financed Items title and interest (which may be
limited to a security 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, information technology,
communications, commercial, industrial,
transportation, health care and
construction 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 the Indenture and
-11-
<PAGE>
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.
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
$2,748,073 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 [ ]% per annum
(the "Class A-1 Interest Rate"), the
Class A-2 Notes will bear interest at
the rate of [ ]% per annum (the
"Class A-2 Interest Rate"), the Class B
Notes will bear interest at the rate of
[ ]% per annum (the "Class B
Interest Rate") and the Class C Notes
will bear interest at the rate of
[ ]% per annum (the "Class C
Interest Rate"), and the Subordinated
Notes will bear interest at
"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.
-12-
<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 and any
amounts realized from Residuals), 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.
-13-
<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 amount of such
Class bore to the ADCB of the Contract
Pool as of the Cutoff Date (which was
23.00% for the Class A-1 Notes, 70.00%
for the Class A-2 Notes, 3.00% for the
Class B Notes, 2.00% for the Class C
Notes, and 2.00% 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-1 Notes, the Class A-2
Notes, the Class B Notes and the Class C
Notes (as well as the Subordinated
Notes); provided, however, the Class A-1
Principal Payment Amount shall be paid
prior to the Class A-2 Principal Payment
Amount, the Class B Principal Payment
Amount, the Class C Principal Payment
Amount and, the Subordinated Note
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 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").
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 Poolat such time is less than
10% of the initial ADCB of the Contract
Pool as of the
-14-
<PAGE>
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, ___% which is equal to
the sum of (i) the weighted average
of the Class A-1 Interest Rate, 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. 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
-15-
<PAGE>
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 previous 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.
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
And Warranties under 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 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
-16-
<PAGE>
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
Conditions are 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.
Certain Legal Risks................. 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
described in "Risk Factors -- Certain
Legal Risks -- Legal Risks Associated
with Servicer's or Vendor's Retention
of Contract Files -- Legal Risks
Associated with Transfers of
Interests in Financed Equipment
--Legal Risks Associated with
Transfer of Contracts -- Risk of
Ineffective Sale in Vendor Bankruptcy
-- Risk of Ineffective Sale in Seller
Bankruptcy -- Risk Associated with
Insolvency of the Trust Depositor or
the Trust -- Risks Associated with
Insolvency of the Vendors -- Risks
Associated with Required Sale of
Contracts Resulting from Trust
Depositor Bankruptcy -- Risk of Loss
Associated With End-User and Vendor
Bankruptcy -- Certain States May
Limit the Enforceability of Certain
Lease Provisions".
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 "A2" 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
-17-
<PAGE>
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.
-18-
<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 Underwriter expects, but is 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 of
-19-
<PAGE>
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 46.47% 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
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. See "--Maturity and Prepayment
Considerations" and "The Contracts Generally--Equipment", "--Leases" and "--
Installment Payment Agreements and Financing Agreements".
Declines in Market Value of Equipment
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.
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
-20-
<PAGE>
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. 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 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 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
-21-
<PAGE>
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 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
-22-
<PAGE>
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 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
-23-
<PAGE>
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.
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".
-24-
<PAGE>
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 ownes 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 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.
-25-
<PAGE>
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."
-26-
<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, the Trust is not
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 $274,807,342,
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 $149,271.00. The
Discount Rate for the Transferred Contracts is [ ]% 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 $274,807,342.
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
-27-
<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.
-28-
<PAGE>
COMPOSITION OF THE CONTRACT POOL
<TABLE>
<CAPTION>
<S> <C>
Aggregate Discounted Contract Balance $274,807,342
Number of Contracts 1,841
Weighted Average Original Term 65.83
(Range) (in months) 17 - 120
Weighted Average Remaining Term 43.46
(Range) (in months) 4 - 81
Average Discounted Contract Balance 149,271
</TABLE>
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
<TABLE>
<CAPTION>
Percentage of Aggregate
Percentage of Number Discounted Contract Discounted Contract
Type Number of Contracts of Contracts Balance Balance
<S> <C> <C> <C> <C>
End-User Loans 384 21.00% $126,324,002 46.00%
Vendor Loans 1 0.00% $ 3,449,772 1.00%
Finance Leases 1,456 79.00% $145,033,569 53.00%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-29-
<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
Number of Percentage of Number Aggregate Discounted
State Contracts of Contracts Discount Contract 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 99.99% $274,807,342 100.00%
</TABLE>
-30-
<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
As of the Cutoff Date
(ordered by percentage of Aggregate Discounted Contract Balance)
<TABLE>
<CAPTION>
Percentage of Number Discounted Contract Percentage of Aggregate
Equipment Type Number of Contracts of Contracts Balance Discounted 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 Fixtures 55 2.99% 18,678,339 6.80%
Computer Software 5 0.27% 10,650,213 3.88%
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>
-31-
<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
Data as of Cutoff Date
(ordered by percentage of Aggregate Discounted Contract Balance)
<TABLE>
<CAPTION>
Discounted Percentage of Aggregate
Percentage of Number Contract Discounted Contract
Industry Number of Contracts of Contracts Balance Balance
<S> <C> <C> <C> <C>
Commercial Printing 244 13.25% $73,979,541.02 26.92%
Industrial Machinery 278 15.10% 18,467,939.78 6.72%
Plastic Products 220 11.95% 15,435,912.01 5.62%
Semiconductors and
related devices 8 0.43% 15,190,822.77 5.53%
Eating places 19 1.03% 10,491,925.57 3.82%
Grocery stores 7 0.38% 8,551,948.54 3.11%
Medical / Surgical 29 1.58% 5,744,884.05 2.09%
Data Processing /
Preparation 3 0.16% 5,142,482.18 1.87%
Dies / Tools Jigs / Fixtures 78 4.24% 4,758,478.47 1.73%
Fabricated Metal Products 100 5.43% 4,724,783.53 1.72%
Other 855 46.44% 112,318,624 40.87%
----- ------ -------------- ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF CONTRACTS BY ORIGINAL CONTRACT BALANCE
Data as of Cutoff Date
Aggregate Percentage of
Discounted Percentage of Original 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%
$1,500,001 - $1,750,000 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>
-33-
<PAGE>
DISTRIBUTION OF CONTRACTS BY REMAINING CONTRACT BALANCE
Data as of Cutoff Date
<TABLE>
<CAPTION>
Aggregate Percentage of
Discounted Percentage of Original 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%
$1,500,001 - $1,750,000 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 2 0.11% 6,203,010 2.26%
$3,750,000 - $3,999,999 3 0.16% 10,238,600 3.73%
$4,000,000 - $4,249,999 2 0.11% 6,705,478 2.44%
$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 Percentage of
Original Term of Numbers of Discounted Aggregate Discounted
(Months) Contracts Contracts Contract Balance Contract Balance
<S> <C> <C> <C> <C>
Less than = 5 0 0.00% $ 0 0.00%
5 - 9 0 0.00% 0 0.00%
10 - 14 0 0.00% 0 0.00%
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 6.84% 15,096,171 5.49%
40 - 44 69 3.80% 2,892,970 1.05%
45 - 49 115 6.35% 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 60.07% 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 2.33% 11,036,261 4.02%
Greater than 90 48 2.60% 32,794,576 11.93%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-34-
<PAGE>
Remaining Months
Distribution of Contracts By Remaining Months To Stated Maturity
Data as of 7/31/97
<TABLE>
<CAPTION>
Remaining Term Number Percentage of Percentage of
(Months) of Numbers of Aggregate Discounted Aggregate Discounted
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%
more than 80 2 0.11% 1,622,368 0.59%
----- ------ ------------ ------
Total: 1,841 100.00% $274,807,342 100.00%
</TABLE>
-35-
<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").
Contract Portfolio
Delinquency Experience
(Dollars in Thousands)
At
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
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......
61-90 days. 5.60 0.33% 4.00 0.31% 3.50 0.22% 11.60 0.97% 9.30 1.05%
Over 90 days 19.60 1.15% 16.60 1.29% 18.70 1.18% 12.20 1.02% 7.20 0.81%
----- ---- ----- ---- ----- ---- ----- ---- ---- ----
Total 25.20 1.48% 20.60 1.60% 22.20 1.40% 23.80 1.99% 16.50 1.86%
</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) Annualized.
-36-
<PAGE>
<TABLE>
<CAPTION>
Contract Portfolio
Contract Loss Experience
(Dollars in Thousands)
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% $1,289.00 100.00% $1,584.00 100.00% $1,193.00 100.00% $889.00 100.00%
Gross Losses
(as % of
Average
Adjusted
Deployed
Funds 0.47 0.03% 0.48 0.04% 0.65 0.04% 0.89 0.07% 1.08 0.12%
Gross
Recoveries
(as % of
Average
Adjusted
Deployed
Funds) 0.26 0.02% 0.30 0.02% 0.36 0.02% 0.32 0.03% 0.36 0.04%
Net Losses
(as % of
Average
Adjusted
Deployed
Funds 0.21 0.01% 0.18 0.02% 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.
-37-
<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
-38-
<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 a refinancing transaction, the Seller
pays off an End-User's existing financing source, and the initial financing or
refinancing
-39-
<PAGE>
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.
-40-
<PAGE>
Program Agreements With Vendors
It is expected that a substantial portion of the End-User Contracts to be
included from time to time 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
-41-
<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.
-42-
<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 3, 1997.
-43-
<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 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
September 25, 1997 89.95% 100.00% 100.00% 100.00% 88.14% 100.00% 100.00% 100.00%
October 20, 1997 79.23% 100.00% 100.00% 100.00% 75.70% 100.00% 100.00% 100.00%
November 25, 1997 68.17% 100.00% 100.00% 100.00% 63.03% 100.00% 100.00% 100.00%
December 25, 1997 57.55% 100.00% 100.00% 100.00% 50.89% 100.00% 100.00% 100.00%
January 25, 1998 47.26% 100.00% 100.00% 100.00% 39.19% 100.00% 100.00% 100.00%
February 25, 1998 34.81% 100.00% 100.00% 100.00% 25.45% 100.00% 100.00% 100.00%
March 25, 1998 24.36% 100.00% 100.00% 100.00% 13.78% 100.00% 100.00% 100.00%
April 25, 1998 14.07% 100.00% 100.00% 100.00% 2.34% 100.00% 100.00% 100.00%
May 25, 1998 3.04% 100.00% 100.00% 100.00% 0.00% 97.10% 97.10% 97.10%
June 25, 1998 0.00% 97.92% 97.92% 97.92% 0.00% 93.82% 93.82% 93.82%
July 25, 1998 0.00% 94.48% 94.48% 94.48% 0.00% 90.14% 90.14% 90.14%
August 25, 1998 0.00% 89.80% 89.80% 89.80% 0.00% 85.31% 85.31% 85.31%
September 25, 1998 0.00% 86.60% 86.60% 86.60% 0.00% 81.92% 81.92% 81.92%
October 25, 1998 0.00% 83.56% 83.56% 83.56% 0.00% 78.70% 78.70% 78.70%
November 25, 1998 0.00% 80.51% 80.51% 80.51% 0.00% 75.51% 75.51% 75.51%
December 25, 1998 0.00% 77.78% 77.78% 77.78% 0.00% 72.64% 72.64% 72.64%
January 25, 1999 0.00% 74.87% 74.87% 74.87% 0.00% 69.62% 69.62% 69.62%
February 25, 1999 0.00% 71.93% 71.93% 71.93% 0.00% 66.61% 66.61% 66.61%
March 25, 1999 0.00% 69.11% 69.11% 69.11% 0.00% 63.71% 63.71% 63.71%
April 25, 1999 0.00% 66.47% 66.47% 66.47% 0.00% 61.03% 61.03% 61.03%
May 25, 1999 0.00% 63.79% 63.79% 63.79% 0.00% 58.31% 58.31% 58.31%
June 25, 1999 0.00% 61.39% 61.39% 61.39% 0.00% 55.88% 55.88% 55.88%
July 25, 1999 0.00% 58.47% 58.47% 58.47% 0.00% 52.99% 52.99% 52.99%
August 25, 1999 0.00% 54.15% 54.15% 54.15% 0.00% 48.87% 48.87% 48.87%
September 25, 1999 0.00% 51.84% 51.84% 51.84% 0.00% 46.59% 46.59% 46.59%
October 25, 1999 0.00% 49.41% 49.41% 49.41% 0.00% 44.21% 44.21% 44.21%
November 25, 1999 0.00% 47.08% 47.08% 47.08% 0.00% 41.95% 41.95% 41.95%
December 25, 1999 0.00% 44.92% 44.92% 44.92% 0.00% 39.85% 39.85% 39.85%
January 25, 2000 0.00% 42.60% 42.60% 42.60% 0.00% 37.64% 37.64% 37.64%
February 25, 2000 0.00% 40.46% 40.46% 40.46% 0.00% 35.59% 35.59% 35.59%
March 25, 2000 0.00% 38.52% 38.52% 38.52% 0.00% 33.74% 33.74% 33.74%
April 25, 2000 0.00% 36.68% 36.68% 36.68% 0.00% 31.99% 31.99% 31.99%
May 25, 2000 0.00% 34.66% 34.66% 34.66% 0.00% 30.10% 30.10% 30.10%
June 25, 2000 0.00% 32.94% 32.94% 32.94% 0.00% 28.48% 28.48% 28.48%
July 25, 2000 0.00% 31.26% 31.26% 31.26% 0.00% 26.91% 26.91% 26.91%
August 25, 2000 0.00% 29.55% 29.55% 29.55% 0.00% 25.33% 25.33% 25.33%
September 25, 2000 0.00% 28.04% 28.04% 28.04% 0.00% 23.94% 23.94% 23.94%
October 25, 2000 0.00% 26.40% 26.40% 26.40% 0.00% 22.45% 22.45% 22.45%
November 25, 2000 0.00% 24.84% 24.84% 24.84% 0.00% 21.02% 21.02% 21.02%
December 25, 2000 0.00% 23.46% 23.46% 23.46% 0.00% 19.77% 19.77% 19.77%
January 25, 2001 0.00% 22.18% 22.18% 22.18% 0.00% 18.61% 18.61% 18.61%
February 25, 2001 0.00% 20.81% 20.81% 20.81% 0.00% 17.39% 17.39% 17.39%
March 25, 2001 0.00% 19.52% 19.52% 19.52% 0.00% 16.24% 16.24% 16.24%
April 25, 2001 0.00% 17.71% 17.71% 17.71% 0.00% 14.67% 14.67% 14.67%
May 25, 2001 0.00% 16.47% 16.47% 16.47% 0.00% 13.59% 13.59% 13.59%
June 25, 2001 0.00% 15.39% 15.39% 15.39% 0.00% 12.65% 12.65% 12.65%
July 25, 2001 0.00% 14.29% 14.29% 14.29% 0.00% 11.69% 11.69% 11.69%
August 25, 2001 0.00% 13.14% 13.14% 13.14% 0.00% 10.71% 10.71% 10.71%
September 25, 2001 0.00% 12.18% 12.18% 12.18% 0.00% 9.87% 9.87% 9.87%
October 25, 2001 0.00% 11.20% 11.20% 11.20% 0.00% 9.05% 9.05% 9.05%
November 25, 2001 0.00% 10.23% 10.23% 10.23% 0.00% 8.23% 8.23% 8.23%
December 25, 2001 0.00% 9.37% 9.37% 9.37% 0.00% 7.50% 7.50% 7.50%
January 25, 2002 0.00% 7.79% 7.79% 7.79% 0.00% 6.21% 6.21% 6.21%
February 25, 2002 0.00% 7.04% 7.04% 7.04% 0.00% 5.59% 5.59% 5.59%
March 25, 2002 0.00% 6.15% 6.15% 6.15% 0.00% 4.86% 4.86% 4.86%
April 25, 2002 0.00% 5.58% 5.58% 5.58% 0.00% 4.39% 4.39% 4.39%
May 25, 2002 0.00% 5.01% 5.01% 5.01% 0.00% 3.93% 3.93% 3.93%
June 25, 2002 0.00% 4.51% 4.51% 4.51% 0.00% 3.52% 3.52% 3.52%
0.00% 4.04% 4.04% 4.04% 0.00% 3.14% 3.14% 3.14%
</TABLE>
-44-
<PAGE>
<TABLE>
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>
August 25, 2002 0.00% 3.62% 3.62% 3.62% 0.00% 2.80% 2.80% 2.80%
September 25, 2002 0.00% 3.20% 3.20% 3.20% 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% 2.47% 2.47% 2.47% 0.00% 1.89% 1.89% 1.89%
December 25, 2002 0.00% 2.00% 2.00% 2.00% 0.00% 1.52% 1.52% 1.52%
January 25, 2003 0.00% 1.40% 1.40% 1.40% 0.00% 1.06% 1.06% 1.06%
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% 0.88% 0.88% 0.88% 0.00% 0.66% 0.66% 0.66%
May 25, 2003 0.00% 0.75% 0.75% 0.75% 0.00% 0.55% 0.55% 0.55%
June 25, 2003 0.00% 0.64% 0.64% 0.64% 0.00% 0.47% 0.47% 0.47%
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 Life 0.36 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 .36 years and .36 years, the average life of
the Class A-2 Notes would be 2.44 years and 2.28 years, the average life of
the Class B Notes would be 2.44 years and 2.28 years, and the average life
of the Class C Notes would be 2.44 years and 2.28 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.
-45-
<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.
-46-
<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
-47-
<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 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.
-48-
<PAGE>
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 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.
-49-
<PAGE>
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-1 Notes and the
Class A-2 Notes, (A) until each such Class has been repaid in full, the
ratio (expressed as a percentage) that the aggregate Principal Amount of
such Class of Notes on the date on which such Event of Default or
Restricting Event commences, bears to the sum of such aggregate Principal
Amounts for both such Classes of Notes, and (B) 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.
"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
-50-
<PAGE>
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, [ ]% 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 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:
-51-
<PAGE>
(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 in respect of such Class A-1
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;
(D) pay to the Indenture Trustee, on behalf of the Class A-2 Notes,
an amount equal to interest accrued in respect of such 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;
(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 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 Notes pro rata based on the outstanding principal
amount thereof;
(H) pay to the Indenture Trustee, on behalf of the Class A-1 Notes,
the lesser of (i) the Class A-1 Principal Payment Amount for such
Distribution Date, and (ii) the remaining outstanding Principal
Amount of the Class A-1 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 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 lesser of (i) the Class A Principal Payment Amount for such
Distribution Date, and (ii) the remaining outstanding Principal
Amount of the Class A-2 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 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 lesser of (i) the Class B Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class B 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
Class B Note pro rata
-52-
<PAGE>
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 lesser of (i) the Class C Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class C 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
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 lesser of (i)
the Class D-1 Principal Payment Amount for such Distribution Date
and (ii) the remaining outstanding Principal Amount of the
Subordinate 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;
(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; (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
-53-
<PAGE>
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 (M) hereof;
(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 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;
(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 lesser of (i) the Class A-1 Principal Payment Amount for such
Distribution Date, and (ii) the remaining outstanding Principal
Amount of the Class A-1 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 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 lesser of (i) the Class A-2 Principal Payment Amount for such
Distribution Date, and (ii) the remaining outstanding Principal
Amount of the Class A-2 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 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 lesser of (i) the Class B Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class B Notes; provided (i)
that if the Available Amounts remaining to be allocated pursuant
to this clause is less than the full amount
-54-
<PAGE>
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 lesser of (i) the Class C Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class C 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
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-1 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 Account 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
-55-
<PAGE>
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 in addition 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
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.
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
-56-
<PAGE>
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.
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
-57-
<PAGE>
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.
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 ADCB of the Contract Pool as of any
date of determination) 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
-58-
<PAGE>
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.
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.
-59-
<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 case may be,
-60-
<PAGE>
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 in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific
-61-
<PAGE>
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.
-62-
<PAGE>
THE SUBORDINATED NOTES
On the Closing Date, the Trust will also issue the [ ]% Class D
Receivables-Backed Notes (the "Subordinated Notes") with an aggregate principal
balance of $5,496,000. 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 $2,748,073 (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.
-63-
<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 origination or acquisition of such Contract
by
-64-
<PAGE>
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 Obligor's billing address is in the United States and the
Contract is a U.S. dollar-denominated obligation; (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 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.
-65-
<PAGE>
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.
Concentration Amounts
-66-
<PAGE>
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 as of the date of
determination) 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 as of the date of
determination) 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
-67-
<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
-68-
<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 conducted
-69-
<PAGE>
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 trustee
-70-
<PAGE>
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.
-71-
<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
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
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 principal amount of each
Class A-2 Note bears to the aggregate unpaid principal amount of all
Class A-2 Notes;
-72-
<PAGE>
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 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 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 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, 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;
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
-73-
<PAGE>
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.
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
-74-
<PAGE>
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,
(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.
-75-
<PAGE>
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
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
-76-
<PAGE>
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 6.73% 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 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
-77-
<PAGE>
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 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
-78-
<PAGE>
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.
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
-79-
<PAGE>
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 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
-80-
<PAGE>
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.
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
-81-
<PAGE>
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 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
-82-
<PAGE>
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.
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
-83-
<PAGE>
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 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
-84-
<PAGE>
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 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.
-85-
<PAGE>
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. (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>
<S> <C>
Aggregate Principal Amount
to be Purchased
---------------------------
Class A-1 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp. $______________
Bear, Stearns & Co. Inc. $______________
Lehman Brothers $______________
Aggregate Principal Amount
to be Purchased
---------------------------
Class A-2 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp. $______________
Bear, Stearns & Co. Inc. $______________
Lehman Brothers $______________
Aggregate Principal Amount
to be Purchased
---------------------------
Class B Receivable-Backed Notes, Series 1997-1
----------------------------------------------
First Union Capital Markets Corp. $______________
Aggregate Principal Amount
to be Purchased
---------------------------
Class C Receivable-Backed Notes, Series 1997-1
----------------------------------------------
</TABLE>
-86-
<PAGE>
First Union Capital Markets Corp. $__________
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 [ ]% of the initial principal amount of the Class A-1 Notes
and the Class A-2 Notes. The Class A-1 and the Class A-2 Underwriters may allow
and such dealers may reallow a concession not in excess of [ ]% of the
initial principal amount of the 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
[ ]% of the initial principal amount of the Class B Notes and the Class C
Notes. The Class B and the Class C Underwriter may allow and such dealers may
reallow a concession not in excess of [ ]% of the initial principal amount
of the 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 "A2" 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 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.
-87-
<PAGE>
INDEX OF TERMS
<TABLE>
<CAPTION>
Term(s) Page(s)
<S> <C>
ADCB................................................................... 15, 50
Accrual Period......................................................... 13, 49
Acquisition Premium.................................................... 83
Additional Contract.................................................... 10, 43
Additional Contract Cutoff Date........................................ 5
Adjusted Contract...................................................... 10
Adjusted Deployed Funds................................................ 36
Administration Fee..................................................... 60
Administrator.......................................................... 60
Aggregate Discounted Contract Balance.................................. 15, 50
Aggregate Principal Amount............................................. 50
Applicable Class Percentage............................................ 50
Article 2A............................................................. 25, 80
Available Amounts...................................................... 11, 53
Average Cumulative Net Loss Ratio...................................... 58
Business Day........................................................... 6
Calculation Date....................................................... 6
Cede................................................................... 4
Cedel Participants..................................................... 61
CEF.................................................................... 47
Certificates........................................................... 3, 7, 63
Class A-1 and Class A-2 Underwriters................................... 86
Class A-1 Interest Rate................................................ 12
Class A-1 Noteholder................................................... 61
Class A-1 Noteholders.................................................. 13
Class A-1 Notes........................................................ 1, 6
Class A-1 Notes Maturity Date.......................................... 14
Class A-1 Principal Payment Amount..................................... 50
Class A-2 Noteholder................................................... 61
Class A-2 Noteholders.................................................. 13
Class A-2 Notes........................................................ 1, 6
Class A-2 Principal Payment Amount..................................... 50
Class B and the Class C Underwriter.................................... 86
Class B Interest Rate.................................................. 12
Class B Noteholder..................................................... 61
Class B Noteholders.................................................... 13, 73
Class B Notes.......................................................... 1, 6
Class B Principal Payment Amount....................................... 51
Class C Interest Rate.................................................. 12
Class C Noteholder..................................................... 61
Class C Noteholders.................................................... 13
Class C Notes.......................................................... 1, 6
Class C Principal Payment Amount....................................... 51
Class D Interest Rate.................................................. 12
Class D Principal Payment Amount....................................... 51
Cleanup Call Condition................................................. 15, 59
Closing Date........................................................... 5
Code................................................................... 81
Code Plans............................................................. 85
Collection Account..................................................... 11, 56
Collection Period...................................................... 6
Commission............................................................. 4
Conditional Payment Rate............................................... 43
Contract Files......................................................... 64
Contracts.............................................................. 3
Contracts Pool......................................................... 7
Cooperative............................................................ 61
CPR.................................................................... 43
CSA.................................................................... 7
Cumulative Net Loss Ratio.............................................. 58
Cutoff Date............................................................ 3, 5
</TABLE>
-88-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Defaulted Contract................................................... 56
Definitive Notes..................................................... 62
Depositaries......................................................... 60
Depository........................................................... 49
Determination Date................................................... 51
Discount Rate........................................................ 15, 51, 65
Discounted Contract Balance.......................................... 15, 51
Distribution......................................................... 59
Distribution Date.................................................... 3, 6
DTC.................................................................. 4
Early Termination.................................................... 10
Early Termination Contract........................................... 10
Eligible Contract.................................................... 65, 66
Eligible Investments................................................. 56
Eligible Secondary Contract.......................................... 66
Eligible Secondary Contracts......................................... 66
End-Use.............................................................. 66
End-User............................................................. 3
End-User Contracts................................................... 3
Equipment............................................................ 3, 40
ERISA................................................................ 85
ERISA Considerations................................................. 17
ERISA Plans.......................................................... 85
Euroclear............................................................ 4
Euroclear Operator................................................... 61
Euroclear Participants............................................... 61
Event of Default..................................................... 57
Excess Concentration Amount.......................................... 67
Excess Contract...................................................... 67
Exchange Act......................................................... 4
Excluded Amounts..................................................... 38
Expected Class A-1 Payment........................................... 50
FDIC................................................................. 56
Financed Items....................................................... 3, 40
Financing Agreement.................................................. 7
First Union.......................................................... 87
Foreign Person....................................................... 84
Heller Financial..................................................... 1, 5
Heller Funding....................................................... 1
HFLI................................................................. 3, 5
Holders.............................................................. 62
Indemnitees.......................................................... 75
Indenture............................................................ 1, 6
Indenture Trustee.................................................... 1, 5
Indirect Participants................................................ 60
Ineligible Contract.................................................. 66
Initial Class A-1 Note Principal Balance............................. 6
Initial Class A-2 Note Principal Balance............................. 6
Initial Class B Note Principal Balance............................... 6
Initial Class C Note Principal Balance............................... 6
Initial Class D Note Principal Balance............................... 7
Insolvency Event..................................................... 24
Insurance Proceeds................................................... 64
IPA.................................................................. 7
IRS.................................................................. 81
Issuer............................................................... 1, 5
Late Charges......................................................... 7, 53
Lease................................................................ 7
Lessee............................................................... 8
Majority in Interest................................................. 76
Maturity Date........................................................ 14
MLA.................................................................. 38
MLA Supplement....................................................... 38
</TABLE>
-89-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Monthly Report........................................................ 59
Note Owners........................................................... 6
Noteholders........................................................... 13
Notes................................................................. 1, 6
Obligor............................................................... 11, 66
Obligor Event......................................................... 58
OID................................................................... 82
Operative Documents................................................... 48
Optional Prepayment................................................... 19
Owner Trustee......................................................... 1, 5
Participants.......................................................... 60
Permitted Liens....................................................... 65
Plans................................................................. 85
Prepaid Contract...................................................... 10
Prepayment............................................................ 19
Prepayment Amount..................................................... 65
Principal Amount...................................................... 51
Program Agreement..................................................... 12
Program Assignment.................................................... 24
PTCE.................................................................. 86
Qualified Institution................................................. 56
Rating Agencies....................................................... 17
Record Date........................................................... 6
Recoveries............................................................ 56
Redemption Price...................................................... 15
Registration Statement................................................ 4
Required Holders...................................................... 58
Reserve Account....................................................... 12
Reserve Account Initial Deposit....................................... 12
Reserve Fund.......................................................... 12
Restricting Event..................................................... 58
S&P................................................................... 17
Sale and Servicing Agreement.......................................... 3
Scheduled Payments.................................................... 15, 51
Secondary Contracts................................................... 3
Secured Note.......................................................... 7, 39
Securities............................................................ 7
Securities Act........................................................ 4
Seller................................................................ 3, 5
Service Transfer...................................................... 69
Servicer.............................................................. 3, 5
Servicer Advance...................................................... 16, 68
Servicer Default...................................................... 69
Services.............................................................. 3, 11, 40
Servicing Charges..................................................... 16
Servicing Fee......................................................... 16, 58
Servicing Fee Percentage.............................................. 58
Servicing Fee Rate.................................................... 16
Software.............................................................. 3, 11, 40
Statistical Discount Rate............................................. 9
Subordinate Certificates.............................................. 7
Subordinated Note Interest Rate....................................... 12
Subordinated Notes.................................................... 3, 7, 63
Subordinated Securities............................................... 3, 7
Substitute Contract................................................... 10, 43
Substitute Contract Cutoff Date....................................... 5
Tax Counsel........................................................... 81
Termination Notice.................................................... 68
Terms and Conditions.................................................. 62
TIA................................................................... 75
Title Registry Equipment.............................................. 21, 77
Transfer and Sale Agreement........................................... 3, 27, 63
Transfer Deposit Amount............................................... 66
</TABLE>
-90-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Transferred Assets....................................................... 64
Transferred Contracts.................................................... 7
Transferred Property..................................................... 21
Trust.................................................................... 1, 5
Trust Agreement.......................................................... 5
Trust Assets............................................................. 3, 7
Trust Company............................................................ 66
Trust Depositor.......................................................... 1, 5
Trust Termination Date................................................... 63
UCC...................................................................... 22, 23
UNL Pool................................................................. 41
Vendor Agreements........................................................ 12
Vendor Assignment........................................................ 12
Vendor Loans............................................................. 3, 40
Vendors.................................................................. 12, 41
VFD...................................................................... 47
Warranty Contract........................................................ 10, 67
</TABLE>
-91-
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF TERMS........................................................... 5
RISK FACTORS............................................................... 19
USE OF PROCEEDS............................................................ 27
THE TRUST.................................................................. 27
THE CONTRACTS POOL......................................................... 27
THE CONTRACTS GENERALLY.................................................... 38
PREPAYMENT AND YIELD CONSIDERATIONS........................................ 43
HELLER FINANCIAL, INC. AND HELLER FINANCIAL
LEASES, INC. ............................................................ 46
THE TRUST DEPOSITOR........................................................ 48
DESCRIPTION OF THE NOTES................................................... 48
THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT GENERALLY................................... 63
THE INDENTURE.............................................................. 72
CERTAIN LEGAL ASPECTS OF THE CONTRACTS..................................... 76
FEDERAL INCOME TAX CONSEQUENCES............................................ 81
ERISA CONSIDERATIONS....................................................... 85
PLAN OF DISTRIBUTION....................................................... 86
RATING OF THE NOTES........................................................ 87
LEGAL MATTERS.............................................................. 88
</TABLE>
-----------------
Until ___________, 199_, all dealers effecting transactions in the
registered securities, whether or not participating 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 FUNDING CORPORATION
-----------------
-----------------------
-----------------------------
PROSPECTUS
-----------------------------
______________, 199_
================================================================================
-92-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee......................................... $ 82,878.00
Printing and Engraving Expenses.............................. 45,000.00
Trustee's Fees and Expenses.................................. 20,000.00
Legal Fees and Expenses...................................... 200,000.00
Blue Sky Fees and Expenses................................... 8,000.00
Accountants' Fees and Expenses............................... 45,000.00
Rating Agency Fees........................................... 107,000.00
Miscellaneous Fees........................................... 32,500.00
Total........................................................ $540,378.00
</TABLE>
Item 14. Indemnification of Directors and Officers
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes said corporation to buy director's
and officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
Heller Financial has also purchased liability policies which indemnify the
Registrant's officers and directors against loss arising from claims by reason
of their legal liability for acts as officers and directors, subject to
limitations and conditions as set forth in the policies.
Pursuant to agreements which the Registrant may enter into with underwriters or
agents (forms of which will be included as exhibits to this Registration
Statement), officers and directors of the Registrant, and affiliates thereof,
may be entitled to indemnification by such underwriters or agents against
certain liabilities, including liabilities under the Securities Act of 1933,
arising from information which has been or will be furnished to the Registrant
by such underwriters or agents that appears in the Registration Statement or any
Prospectus.
Item 15. Recent Sales of Unregistered Securities
None
<PAGE>
Item 16. Exhibits and Financial Statements
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of Trust Agreement (including form of Certificates)
4.2+ Form of Indenture (including form of Notes)
5.1** Opinion of Winston & Strawn with respect to legality
8.1** Opinion of Winston & Strawn with respect to tax matters
10.1* Form of Sale and Servicing Agreement
10.2* Form of Administration Agreement
10.3* Form of Transfer and Sale Agreement
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
24.1* Power of Attorney (included on signature page to the initial filing of
this Registration Statement)
25.1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of Indenture Trustee
________________________
+The Form of Indenture filed with Amendment No. 1 to this Registration Statement
is hereby amended by adding a cross-reference sheet filed with this Amendment
No. 2.
* Previously filed.
** The forms of opinion filed with Amendment No. 1 to this Registration
Statement are hereby replaced in their entirety with executed opinions.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 14
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(c) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on August 21, 1997.
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1 HELLER FUNDING CORPORATION
By: Heller Funding Corporation, as
Depositor of the Registrant
By: /s/ David Schmuck By: /s/ David Schmuck
----------------------------------- ----------------------------
Name: David Schmuck Name: David Schmuck
Title: Vice President Title: Vice President
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ** Chief Executive Officer and Director (Principal August 21, 1997
- ------------------------ Executive Officer)
/s/ ** Chief Financial Officer (Principal Financial and August 21, 1997
- ------------------------ Accounting Officer)
/s/ ** Director August 21, 1997
- ------------------------
/s/ ** Director August 21, 1997
- ------------------------
/s/ ** Director August 21, 1997
- ------------------------
</TABLE>
**By: /s/ David Schmuck
--------------------------
David Schmuck
Attorney-in-fact
-3-
<PAGE>
Registration No. 333-30207
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
HELLER FUNDING CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
EXHIBIT VOLUME
================================================================================
<PAGE>
EXHIBIT INDEX
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of Trust Agreement (including form of Certificates)
4.2+ Form of Indenture (including form of Notes)
5.1** Opinion of Winston & Strawn with respect to legality
8.1** Opinion of Winston & Strawn with respect to tax matters
10.1* Form of Sale and Servicing Agreement
10.2* Form of Administration Agreement
10.3* Form of Transfer and Sale Agreement
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)
24.1* Power of Attorney (included on signature page to the initial filing of
this Registration Statement)
25.1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of Indenture Trustee
________________________
+ The Form of Indenture filed with Amendment No. 1 to this Registration
Statement is hereby amended by adding a cross-reference sheet filed with
this Amendment No. 2.
* Previously filed.
** The forms of opinion filed with Amendment No. 1 to this Registration
Statement are hereby replaced in their entirety with executed opinions.
-i-
<PAGE>
EXHIBIT 4.2
================================================================================
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1,
as Issuer,
and
[___________],
not in its individual capacity but solely in its capacity
as Indenture Trustee
-----------------------------------
INDENTURE
Dated as of August [__], 1997
-----------------------------------
$[______] Receivable Backed Notes, Class A-1
$[______] Receivable Backed Notes, Class A-2
$[______] Receivable Backed Notes, Class B
$[______] Receivable Backed Notes, Class C
$[______] Receivable Backed Notes, Class D
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions....................................................... 1
Section 1.02. Incorporation by Reference of Trust Indenture Act................. 5
Section 1.03. Rules of Construction............................................. 5
ARTICLE TWO
THE NOTES
Section 2.01. Form.............................................................. 7
Section 2.02. Execution, Authentication and Delivery............................ 7
Section 2.03. Temporary Notes................................................... 7
Section 2.04. Registration; Registration of Transfer and Exchange............... 7
Section 2.05. Mutilated, Destroyed, Lost or Stolen Notes........................ 9
Section 2.06. Persons Deemed Owner.............................................. 9
Section 2.07. Payment of Principal and Interest; Defaulted Interest............. 9
Section 2.08. Cancellation...................................................... 10
Section 2.09. Book-Entry Notes.................................................. 10
Section 2.10. Notices to Clearing Agency........................................ 11
Section 2.11. Definitive Notes.................................................. 11
Section 2.12. Release of Collateral............................................. 11
Section 2.13. Tax Treatment..................................................... 11
ARTICLE THREE
COVENANTS
Section 3.01. Payment of Principal and Interest................................. 12
Section 3.02. Maintenance of Office or Agency................................... 12
Section 3.03. Money for Payments to be Held in Trust............................ 12
Section 3.04. Existence......................................................... 13
Section 3.05. Protection of Collateral.......................................... 13
Section 3.06. Opinions as to Collateral......................................... 14
Section 3.07. Performance of Obligations; Servicing of Contracts................ 14
Section 3.08. Negative Covenants................................................ 15
Section 3.09. Issuer May Consolidate, etc. Only on Certain Terms................ 15
Section 3.10. Successor or Transferee........................................... 17
Section 3.11. No Other Business................................................. 17
Section 3.12. No Borrowing...................................................... 17
Section 3.13. Notice of Events of Default....................................... 17
Section 3.14. Further Instruments and Acts...................................... 17
Section 3.15. Compliance with Laws.............................................. 17
Section 3.16. Amendments of Sale and Servicing Agreement and Trust Agreement.... 17
Section 3.17. Removal of Administrator.......................................... 17
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture........................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 4.02. Application of Trust Money........................................ 19
Section 4.03. Repayment of Moneys Held by Paying Agent.......................... 19
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default................................................. 20
Section 5.02. Rights Upon Event of Default...................................... 20
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee; Authority of Indenture Trustee................. 21
Section 5.04. Remedies.......................................................... 22
Section 5.05. Optional Preservation of the Contracts............................ 23
Section 5.06. Priorities........................................................ 23
Section 5.07. Limitation of Suits............................................... 23
Section 5.08. Unconditional Rights of Noteholders to Receive
Principal and Interest............................................ 24
Section 5.09. Restoration of Rights and Remedies................................ 24
Section 5.10. Rights and Remedies Cumulative.................................... 24
Section 5.11. Delay or Omission Not a Waiver.................................... 24
Section 5.12. Control by Noteholders............................................ 24
Section 5.13. Waiver of Past Defaults........................................... 25
Section 5.14. Undertaking for Costs............................................. 25
Section 5.15. Waiver of Stay or Extension Laws.................................. 25
Section 5.16. Action on Notes................................................... 25
Section 5.17. Performance and Enforcement of Certain Obligations................ 25
ARTICLE SIX
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee....................................... 27
Section 6.02. Rights of Indenture Trustee....................................... 28
Section 6.03. Individual Rights of Indenture Trustee............................ 28
Section 6.04. Indenture Trustee's Disclaimer.................................... 28
Section 6.05. Notice of Defaults................................................ 29
Section 6.06. Reports by Indenture Trustee to Holders........................... 29
Section 6.07. Compensation and Indemnity........................................ 29
Section 6.08. Replacement of Indenture Trustee.................................. 29
Section 6.09. Successor Indenture Trustee by Merger............................. 30
Section 6.10. Appointment of Co-Indenture Trustee or Separate
Indenture Trustee................................................. 30
Section 6.11. Eligibility....................................................... 31
Section 6.12. Preferential Collection of Claims Against Issuer.................. 32
ARTICLE SEVEN
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and
Addresses of Noteholders.......................................... 33
Section 7.02. Preservation of Information: Communication to Noteholders......... 33
Section 7.03. Reports by Issuer................................................. 33
Section 7.04. Reports by Indenture Trustee...................................... 33
ARTICLE EIGHT
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money............................................... 35
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 8.02. Trust Accounts.................................................... 35
Section 8.03. General Provisions Regarding Accounts............................. 35
Section 8.04. Release of Collateral............................................. 36
Section 8.05. Opinion of Counsel................................................ 36
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders............ 37
Section 9.02. Supplemental Indentures With Consent of Noteholders............... 38
Section 9.03. Execution of Supplemental Indentures.............................. 39
Section 9.04. Effect of Supplemental Indenture.................................. 39
Section 9.05. Conformity With Trust Indenture Act............................... 39
Section 9.06. Reference in Notes to Supplemental Indentures..................... 39
ARTICLE TEN
REDEMPTION OF NOTES
Section 10.01. Redemption........................................................ 40
Section 10.02. Form of Redemption Notice......................................... 40
Section 10.03. Notes Payable on Redemption Date.................................. 40
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc......................... 41
Section 11.02. Form of Documents Delivered to Indenture Trustee.................. 42
Section 11.03. Acts of Noteholders............................................... 42
Section 11.04. Notices........................................................... 43
Section 11.05. Notices to Noteholders; Waiver.................................... 43
Section 11.06. Alternate Payment and Notice Provisions........................... 44
Section 11.07. Effect of Headings and Table of Contents.......................... 44
Section 11.08. Successors and Assigns............................................ 44
Section 11.09. Separability...................................................... 44
Section 11.10. Benefits of Indenture............................................. 44
Section 11.11. Legal Holidays.................................................... 44
Section 11.12. Governing Law..................................................... 44
Section 11.13. Counterparts...................................................... 44
Section 11.14. Recording of Indenture............................................ 44
Section 11.15. Trust Obligation.................................................. 44
Section 11.16. No Petition....................................................... 45
Section 11.17. Inspection........................................................ 45
Section 11.18. Conflict with Trust Indenture Act................................. 45
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A - Form of Sale and Servicing Agreement........................ A-1
Exhibit B - Form of Class A-1 Note...................................... B-1
Exhibit C - Form of Class A-2 Note...................................... C-1
Exhibit D - Form of Class B Note........................................ D-1
Exhibit E - Form of Class C Note........................................ E-1
Exhibit F - Form of Class D Note........................................ F-1
Exhibit G - Form of Note Assignment..................................... G-1
Exhibit H - Form of Note Depository Agreement........................... H-1
</TABLE>
iv
<PAGE>
This Indenture, dated as of August [__], 1997 (this "Indenture"), is
between Heller Equipment Asset Receivables Trust 1997-1, a Delaware business
trust (the "Issuer") and [________] in its capacity as indenture trustee (the
"Indenture Trustee") and not in its individual capacity.
Each party agrees as follows for the benefit of the other parties and for
the equal and ratable benefit of the Holders of the Issuer's [___]% Equipment
Receivable Backed Notes, Class A-1 (the "Class A-1 Notes"), [__]% Equipment
Receivable Backed Notes, Class A-2, (the "Class A-2 Notes"), [___]% Equipment
Receivable Backed Notes, Class B (the "Class B Notes") and [___]% Equipment
Receivable Backed Notes, Class C (the "Class C Notes"); [___]% Equipment
Receivable Backed Notes, Class D (the "Class D Notes" and, together with the
Class A-1 Notes, Class A-2 Notes and Class C Notes, the "Notes"):
GRANTING CLAUSE
The Issuer hereby grants, transfers, assigns and otherwise conveys to the
Indenture Trustee on the Closing Date, on behalf of and for the benefit of the
Holders of the Notes, without recourse, all of the Issuer's right, title and
interest in, to and under the Transferred Assets as may be held from time to
time by the Issuer (as each such defined term is defined in Section 1.01)
(collectively, the "Collateral").
The foregoing Grant is made in trust to secure the payment of principal of
and interest on, and any other amounts owing in respect of, the Notes, equally
and ratably without prejudice, priority or distinction and all other sums owing
by the Issuer hereunder or under any other Transaction Document, and to secure
compliance with the provisions of this Indenture, all as provided in this
Indenture.
The Indenture Trustee, as Indenture Trustee on behalf of the Holders of the
Notes, acknowledges such Grant, accepts the trust under this Indenture in
accordance with the provisions of this Indenture and agrees to perform its
duties required in this Indenture to the best of its ability to the end that the
interests of the Holders of the Notes may be adequately and effectively
protected.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
(a) Except as otherwise specified herein or as the context may otherwise
require, the following terms have the respective meanings set forth below for
all purposes of this Indenture.
"Act" shall have the meaning specified in Section 11.03(a).
"Administration Agreement" means the Administration Agreement, dated as of
the date hereof, among the Administrator, the Issuer, the Trust Depositor and
the Indenture Trustee.
"Administrator" means Heller Financial, Inc. or any successor Administrator
under the Administration Agreement.
"Authorized Officer" means, with respect to the Issuer, any officer of the
Owner Trustee who is authorized to act for the Owner Trustee in matters relating
to the Issuer and who is identified on the list of Authorized Officers delivered
by the Owner Trustee to the Indenture Trustee on the Closing Date (as such list
may be modified or supplemented from time to time thereafter) and, so long as
the Administration Agreement is in effect, any Vice President or more senior
officer of the Administrator who is authorized to act for the Administrator in
matters relating to the Issuer and to be acted upon by the Administrator
pursuant to the Administration Agreement and who is identified on the list of
Authorized Officers delivered by the Administrator to the Indenture Trustee on
the Closing Date (as such list may be modified or supplemented from time to time
thereafter).
<PAGE>
"Book Entry Notes" means a beneficial interest in the Notes, ownership and
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 2.09.
"Business Day" means any day other than a Saturday, Sunday or other day on
which banking institutions in the city of Chicago, Illinois, Wilmington,
Delaware or New York, New York are authorized or obligated by law, executive
order or governmental decree to be closed.
"Certificate of Trust" means the Certificate of Trust of the Issuer
substantially in the form of Exhibit B to the Trust Agreement.
"Class" means all Notes whose form is identical except for variation in
denomination, principal amount or owner.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency effects
book-entry transfers and pledges of securities deposited with the Clearing
Agency.
"Collateral" means the Collateral Granted to the Indenture Trustee under
this Indenture, including all proceeds thereof.
"Corporate Trust Office" means the principal office of the Indenture
Trustee at which at any particular time its corporate trusts business shall be
administered which office at date of the execution of this Agreement is located
at [__________], Attention: Indenture Trust Administration; or at such other
address as the Indenture Trustee may designate from time to time by notice to
the Noteholders and the Issuer, or the principal corporate trust office of any
successor Indenture Trustee (the address of which the successor Indenture
Trustee will notify the Noteholders and the Issuer).
"Default" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes" shall have the meaning specified in Section 2.09.
"DTC" means The Depository Trust Company, and its successors.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended.
"Event of Default" shall have the meaning specified in Section 5.01.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, the Secretary or the Treasurer of
such corporation; and with respect to any partnership, any general partner
thereof.
"General Partner" means each Certificateholder obligated to pay the
expenses of the Issuer pursuant to Section 2.07 of the Trust Agreement.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Collateral or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other moneys
2
<PAGE>
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the granting party or otherwise and generally to do
and receive anything that the granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Holder" or "Noteholder" or "Note Owner" means, with respect to a Book-
Entry Note, the Person who is the owner of such Book-Entry Note, as reflected on
the books of the Clearing Agency, or on the books of a Person maintaining an
account with such Clearing Agency (directly as a Clearing Agency participant or
as an indirect participant, in each case in accordance with the rules of such
Clearing Agency) and with respect to a Definitive Note the Person in whose name
a Note is registered on the Note Register.
"Indenture Securities" means the Notes.
"Indenture Security Holder" means a Noteholder.
"Indenture Trustee" means [__________], as Indenture Trustee under this
Indenture, or any successor Indenture Trustee under this Indenture.
"Independent" means, when used with respect to any specified Person, that
the Person (i) is in fact independent of the Issuer, any other obligor upon the
Notes, the Trust Depositor, the Seller and any of their respective Affiliates,
(ii) does not have any direct financial interest or any material indirect
financial interest in the Issuer, any such other obligor, the Sellers or any of
their respective Affiliates, and (iii) is not connected with the Issuer, any
such other obligor, the Sellers or any Affiliate of any of the foregoing Persons
as an officer, employee, promoter, underwriter, trustee, partner, director or
person performing similar functions.
"Independent Certificate" means a certificate or opinion to be delivered to
the Indenture Trustee under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, made by an
Independent appraiser or other expert appointed by an Issuer Order and approved
by the Indenture Trustee in the exercise of reasonable care, and such opinion or
certificate shall state that the signer has read the definition of "Independent"
in this Indenture and that the signer is Independent within the meaning thereof.
"Issuer Order" and "Issuer Request" means a written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Indenture Trustee.
"Note Depository Agreement" means the agreement dated as of the Closing
Date, among the Issuer, the Administrator, the Indenture Trustee and DTC, as the
initial Clearing Agency, relating to the Notes, substantially in the form of
Exhibit G hereto.
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 2.04.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to,
the Indenture Trustee. Unless otherwise specified, any reference in this
Indenture to an Officer's Certificate shall be to an Officer's Certificate of
any Authorized Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and who shall be satisfactory to the Indenture Trustee and
which shall comply with any applicable requirements of Section 11.01, and shall
be in form and substance satisfactory to the Indenture Trustee.
"Outstanding" means, as of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
3
<PAGE>
(i) Notes theretofore cancelled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture Trustee
or any Paying Agent in trust for the Holders of such Notes (provided,
however, that if such Notes are to be redeemed, notice of such redemption
has been duly given pursuant to this Indenture or provision for such notice
has been made, satisfactory to the Indenture Trustee, has been made); and
(iii) Notes in exchange for or in lieu of other Notes which have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser;
provided, however, that in determining whether the Holders of the requisite
Outstanding Amount have given any request, demand, authorization, direction,
notice, consent or waiver hereunder or under any other Transaction Document,
Notes owned by the Issuer, any other obligor upon the Notes, the Trust
Depositor, any Seller or any of their respective Affiliates shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the
Indenture Trustee knows to be so owned shall be so disregarded. Notes so owned
that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes, the Trust Depositor, any Seller or any
of their respective Affiliates.
"Outstanding Amount" means the aggregate principal amount of all Notes of
one Class or of all Classes, as the case may be, Outstanding at the date of
determination.
"Owner Trustee" means [ ], not in its individual
capacity but solely as Owner Trustee under the Trust Agreement, or any successor
trustee under the Trust Agreement.
"Paying Agent" means the Indenture Trustee or any other Person that meets
the eligibility standards for the Indenture Trustee specified in Section 6.11
and is authorized by the Issuer to make the distributions from the Note
Distribution Account, including payment of principal of or interest on the Notes
on behalf of the Issuer.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and for the purpose of this definition, any Note
authenticated and delivered under Section 2.05 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Redemption Date" means in the case of a redemption of the Notes pursuant
to Section 10.01(a) or a payment to Noteholders pursuant to Section 10.01(b),
the Distribution Date specified by the Servicer or the Issuer pursuant to
Section 10.01(a) or 10.01(b), as the case may be.
"Redemption Date Amount" means (i) in the case of a redemption of the Notes
pursuant to Section 10.01(a), an amount equal to the unpaid principal amount of
the Notes redeemed plus accrued and unpaid interest thereon at the weighted
average of the Interest Rate for each Class of Notes being so redeemed to but
excluding the Redemption Date, or (ii) in the case of a payment made to
Noteholders pursuant to Section 10.01(b), the amount on deposit in the Note
Distribution Account, but not in excess of the amount specified in clause (i)
above.
"Registered Holder" means the Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
4
<PAGE>
"Responsible Officer" means, with respect to the Indenture Trustee, any
officer within the Corporate Trust Office (or any successor group of the
Indenture Trustee), including any Vice President, assistant secretary or other
officer or assistant officer of the Indenture Trustee customarily performing
functions similar to those performed by the people who at such time shall be
officers, respectively, or to whom any corporate trust matter is referred at the
Corporate Trust Office of the Indenture Trustee because of his knowledge of and
familiarity with the particular subject.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
dated as of the date hereof, among the Issuer, the Trust Depositor and the
Servicer, substantially in the form of Exhibit A hereto.
"State" means any one of the 50 states of the United States, or the
District of Columbia or any of its territories.
"Successor Servicer" shall have the meaning specified in Section 3.07(e).
"Termination Date" means the date on which the Indenture Trustee shall have
received payment and performance of all amounts and obligations which the Issuer
may owe to or on behalf of the Indenture Trustee for the benefit of the
Noteholders under this Indenture or the Notes.
"Trust Agreement" means the Trust Agreement, dated as of the date hereof,
between the Trust Depositor and the Owner Trustee.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939.
"UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
(b) Except as otherwise specified herein or as the context may otherwise
require, capitalized terms used herein that are not otherwise defined shall have
the meanings ascribed thereto in the Sale and Servicing Agreement.
Section 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Indenture Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
Section 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
5
<PAGE>
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the
plural include the singular.
(vi) any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or
instruments) references to all attachments thereto and instruments
incorporated therein; references to a Person are also to its permitted
successors and assigns; and
(vii) the words "hereof," "herein" and "hereunder" and words of
similar import when used in this Indenture shall refer to this Indenture as
a whole and not to any particular provision of this Indenture; Section,
subsection and Schedule references contained in this Indenture are
references to Sections, subsections and Schedules in or to this Indenture
unless otherwise specified.
6
<PAGE>
ARTICLE TWO
THE NOTES
Section 2.01. Form. The Notes, in each case together with the Indenture
Trustee's certificate of authentication, shall be in substantially the forms set
forth as Exhibits to this Indenture with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may, consistently herewith,
be determined by the officers executing such Notes, as evidenced by their
execution of the Notes. Any portion of the text of any Note may be set forth on
the reverse thereof, with an appropriate reference thereto on the face of the
Note.
Each Note shall be dated the date of its authentication. The terms of the
Notes set forth in Exhibits hereto are part of the terms of this Indenture.
Section 2.02. Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile. Notes bearing the manual or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall, upon receipt of an Issuer Order, authenticate
and deliver for original issue (i) Class A-1 Notes in an aggregate principal
amount of $[______], (ii) Class A-2 Notes in an aggregate principal amount of
$[_______], (iii) Class B Notes in an aggregate principal amount of $[_______],
(iv) Class C Notes in an aggregate principal amount of $[_______] and (v) Class
D Notes in an aggregate principal amount of $[______]. The aggregate principal
amount of such Classes of Notes Outstanding at any time may not exceed such
respective amounts, except as otherwise provided in Section 2.05.
Each Note shall be dated the date of its authentication. The Notes shall be
issuable as registered Notes in the minimum denomination of $1,000 and in
integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein by the Indenture
Trustee by the manual signature of one of its authorized signatories, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
Section 2.03. Temporary Notes. Pending the preparation of Book-Entry
Notes or Definitive Notes, the Issuer may execute, and upon receipt of an Issuer
Order the Indenture Trustee shall authenticate and deliver, temporary Notes that
are printed, lithographed, typewritten, mimeographed or otherwise produced, of
the tenor of the definitive Notes in lieu of which they are issued and with such
variations not inconsistent with the terms of this Indenture as the officers
executing such Notes may determine, as evidenced by their execution of such
Notes.
If temporary Notes are issued, the Issuer will cause Book-Entry Notes or
Definitive Notes to be prepared without unreasonable delay. After the
preparation of Book-Entry Notes or Definitive Notes, the temporary Notes shall
be exchangeable for Book-Entry Notes or Definitive Notes upon surrender of the
temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender for
cancellation of any one or more Notes, the Issuer shall execute and the
Indenture Trustee shall authenticate and deliver in exchange therefor a like
tenor and principal amount of definitive Notes of authorized denominations.
Until so exchanged, the temporary Notes shall in all respects be entitled to the
same benefits under this Indenture as Book-Entry Notes or Definitive Notes.
Section 2.04. Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Indenture Trustee shall be "Note Registrar"
7
<PAGE>
for the purpose of registering Notes and transfers of Notes as herein provided.
Upon any resignation of any Note Registrar, the Issuer shall promptly appoint a
successor or, if it elects not to make such an appointment, assume the duties of
Note Registrar.
If a Person other than the Indenture Trustee is appointed by the Issuer as
Note Registrar, the Issuer will give the Indenture Trustee prompt written notice
of the appointment of such Note Registrar and of the location, and any change in
the location, of the Note Register, and the Indenture Trustee shall have the
right to inspect the Note Register at all reasonable times and to obtain copies
thereof, and the Indenture Trustee shall have the right to rely upon a
certificate executed on behalf of the Note Registrar by an Executive Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and the amounts and number of such Notes.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Issuer
shall execute, and the Indenture Trustee shall authenticate and the Noteholder
shall obtain from the Indenture Trustee, in the name of the designated
transferee or transferees, one or more new Notes of the same Class in any
authorized denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes of the
same Class in any authorized denominations, of a like aggregate amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Issuer shall execute, and the
Indenture Trustee shall authenticate and the Noteholder shall obtain from the
Indenture Trustee, the Notes which the Noteholder making the exchange is
entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Indenture Trustee duly executed by, the
Holder thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by a commercial bank or trust company located, or having a
correspondent located in the city in which the Corporate Trust Office is
located, or by a member firm of a national securities exchange, and such other
documents as the Indenture Trustee may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer or the Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Notes, other than exchanges pursuant to Section 2.03 not involving
any transfer.
The preceding provisions of this Section notwithstanding, the Issuer shall
not be required to make and the Note Registrar need not register transfers or
exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to the Note.
(i) the Note Registrar and the Trustee will be entitled to deal with the
Clearing Agency for all purposes of this Indenture (including the payment of
principal of and interest on the Notes and the giving of instructions or
directions hereunder) as the sole holder of the Notes, and shall have no
obligation to the Note Owners;
(ii) the rights of Note Owners will be exercised only through the Clearing
Agency and will be limited to those established by law and agreements between
such Note Owners and the Clearing Agency and/or the Clearing Agency Participants
pursuant to the Depository Agreement;
(iii) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a specified
percentage of the Outstanding Amount of the Notes, the Clearing Agency will be
deemed to represent such percentage only to the extent that it has received
instructions to such effect from Note
8
<PAGE>
Owners and/or Clearing Agency Participants owning or representing, respectively,
such required percentage of the beneficial interest in the Notes and has
delivered such instructions to the Trustee; and
(iv) without the consent of the Issuer and the Trustee, no such Note may
be transferred by the Depository except to a successor Depository that agrees to
hold such Note for the account of the Owners or except upon the election of the
Owner thereof or a subsequent transferee to hold such Note in physical form.
Neither the Trustee nor the Registrar shall have any responsibility to monitor
or restrict the transfer of beneficial ownership in any Note an interest in
which is transferable through the facilities of the Depository.
Section 2.05. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee such security or
indemnity as may be required by them to hold the Issuer and the Indenture
Trustee, then, in the absence of notice to the Issuer, the Note Registrar or the
Indenture Trustee that such Note has been acquired by a bona fide purchaser, the
Issuer shall execute and upon its request the Indenture Trustee shall
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Note, a replacement Note of the same Class; provided,
however, that if any such destroyed, lost or stolen Note, but not a mutilated
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, instead of issuing a replacement Note, the
Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without surrender thereof. If, after the delivery of
such replacement Note or payment of a destroyed, lost or stolen Note pursuant to
the proviso to the preceding sentence, a bona fide purchaser of the original
Note in lieu of which such replacement Note was issued presents for payment such
original Note, the Issuer, and the Indenture Trustee shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such Person to whom
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the Issuer or
the Indenture Trustee may require the payment by the Holder of such Note of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other reasonable expenses (including the fees and
expenses of the Indenture Trustee or the Note Registrar) connected therewith.
Every replacement Note issued pursuant to this Section in replacement of
any mutilated, destroyed, lost of stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
Section 2.06. Persons Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Indenture Trustee, and any
of their respective agents may treat the Person in whose name any Note is
registered (as of the day of determination) as the owner of such Note for the
purpose of receiving payments of principal of and interest, if any, on such Note
and for all other purposes whatsoever, whether or not such Note be overdue, and
none of the Issuer, the Indenture Trustee nor any of their respective agents
shall be affected by notice to the contrary.
Section 2.07. Payment of Principal and Interest; Defaulted Interest.
(a) Each Class of Notes shall accrue interest at the related Interest
Rate, and such interest shall be payable on each Distribution Date as specified
therein, subject to Section 3.01. Any installment of interest or principal, if
any, payable on any Note which is punctually paid or duly provided for by the
Issuer on the applicable Distribution Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered on the Record
Date,
9
<PAGE>
by wire transfer in immediately available funds to the account designated by
such nominee and except for the final installment of principal payable with
respect to such Note on a Distribution Date or on the related Final Distribution
Date, as the case may be (and except for the Redemption Price for any Note
called for redemption pursuant to Section 10.01(a)), which shall be payable as
provided below. The funds represented by any such checks returned undelivered
shall be held in accordance with Section 3.03.
(b) The principal of each Note shall be payable on each Distribution Date
to the extent provided in the form of the related Note set forth as an Exhibit
hereto. Notwithstanding the foregoing, the entire unpaid principal amount of the
Notes shall be due and payable, if not previously paid, on the date on which an
Event of Default shall have occurred and be continuing, unless the Required
Holders have waived such Event of Default in the manner provided in Section
5.02. All principal payments on each Class of Notes shall be made pro rata to
the Noteholders of such Class entitled thereto. The Indenture Trustee shall
notify the Person in whose name a Note is registered at the close of business on
the Record Date preceding the Distribution Date on which the Issuer expects that
the final installment of principal of and interest on such Note will be paid.
Such notice shall be mailed within five Business Days of receipt of notice of
termination of the Trust pursuant to Section 9.01(c) of the Trust Agreement and
shall specify that such final installment will be payable only upon presentation
and surrender of such Note and shall specify the place where such Note may be
presented and surrendered for payment of such installment. Notices in connection
with redemptions of Notes shall be mailed to Noteholders as provided in Section
10.02.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) at the applicable Interest Rate in any lawful manner. The
Issuer may pay such defaulted interest to the Persons who are Noteholders on a
subsequent special record date, which date shall be at least five Business Days
prior to the related payment date. The Issuer shall fix or cause to be fixed any
such special record date and payment date, and, at least 15 days before any such
special record date, the Issuer shall mail to the Indenture Trustee and each
Noteholder a notice that states the special record date, the payment date and
the amount of defaulted interest to be paid.
Section 2.08. Cancellation. All Notes surrendered for payment,
registration of transfer, exchange or redemption shall, if surrendered to any
Person other than the Indenture Trustee, be delivered to the Indenture Trustee
and shall be promptly cancelled by the Indenture Trustee. The Issuer may at any
time deliver to the Indenture Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Issuer may have acquired in any
manner whatsoever, and all Notes so delivered shall be promptly cancelled by the
Indenture Trustee. No Notes shall be authenticated in lieu of or in exchange for
any Notes cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Notes may be held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time unless the Issuer shall direct by an Issuer Order that
they be destroyed or returned to it; provided that such Issuer Order is timely
and the Notes have not been previously disposed of by the Indenture Trustee.
Section 2.09. Book-Entry Notes. The Notes, upon original issuance, will
be issued in the form of a typewritten Note or Notes representing the Book-Entry
Notes, to be delivered to DTC, the initial Depository, by, or on behalf of, the
Issuer. Such Notes shall initially be registered on the Note Register in the
name of Cede & Co., the nominee of the initial Clearing Agency, and no
Noteholder will receive a Definitive Note representing such Noteholder's
interest in such Note, except as provided in Section 2.11. Unless and until
definitive, fully registered Notes (the "Definitive Notes") have been issued to
Noteholders pursuant to Section 2.11:
(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be
entitled to deal with the Clearing Agency for all purposes of this
Indenture (including the payment of principal of and interest on the Notes
and the giving of instructions or directions hereunder) as the sole holder
of the Notes, and shall have no obligation to the Noteholders;
10
<PAGE>
(iii) to the extent that the provisions of this Section conflict
with any other provisions of this Indenture, the provisions of this Section
shall control;
(iv) the rights of Noteholders shall be exercised only through
the Clearing Agency and shall be limited to those established by law and
agreements between such Noteholders and the Clearing Agency and/or the
Clearing Agency Participants. Pursuant to the Note Depository Agreement,
unless and until Definitive Notes are issued pursuant to Section 2.11, the
Clearing Agency will make book-entry transfers among the Clearing Agency
Participants and receive and transmit payments of principal of and interest
on the Notes to such Clearing Agency Participants; and
(v) whenever this Indenture requires or permits actions to be
taken based upon instructions or directions of Noteholders evidencing a
specified percentage of the Outstanding Amount, the Clearing Agency shall
be deemed to represent such percentage only to the extent that it has
received instructions to such effect from Noteholders and/or Clearing
Agency Participants owning or representing, respectively, such required
percentage of the beneficial interest in the Notes and has delivered such
instructions to the Indenture Trustee.
Section 2.10. Notices to Clearing Agency. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Noteholders pursuant to Section
2.11, the Indenture Trustee shall give all such notices and communications
specified herein to be given to Noteholders of the Notes to the Clearing Agency,
and shall have no obligation to the Noteholders.
Section 2.11. Definitive Notes. If (i)(A) the Administrator advises the
Indenture Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities as described in the Note
Depository Agreement, and (B) Indenture Trustee or the Administrator is unable
to locate a qualified successor, (ii) the Administrator at its option advises
the Indenture Trustee in writing that it elects to terminate the book-entry
system through the Clearing Agency, or (iii) after the occurrence of an Event of
Default, the Noteholders representing not less than 66 2/3% of the Outstanding
Amount of such Class of Notes advises the Indenture Trustee and the Clearing
Agency through the Clearing Agency Participants in writing that the continuation
of a book-entry system through the Clearing Agency is no longer in the best
interests of the related Noteholders, then the Indenture Trustee shall notify
all Noteholders of the related Class of Notes, through the Clearing Agency, of
the occurrence of any such event and of the availability of Definitive Notes of
the related Class of Notes to Noteholders requesting the same. Upon surrender to
the Indenture Trustee of the Note or Notes representing the Book-Entry Notes by
the Clearing Agency, accompanied by registration instructions, the Issuer shall
execute and the Indenture Trustee shall authenticate the Definitive Notes in
accordance with the instructions of the Clearing Agency. None of the Issuer, the
Note Registrar or the Indenture Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes of a Class, the Indenture Trustee shall recognize the Noteholders of the
Definitive Notes as Noteholders hereunder.
The Indenture Trustee shall not be liable if the Indenture Trustee or the
Administrator is unable to locate a qualified successor Clearing Agency. The
Definitive Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
Section 2.12. Release of Collateral. Subject to Section 11.01 and the
terms of the Transaction Documents, the Indenture Trustee shall release property
from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate.
Section 2.13. Tax Treatment. The Issuer and the purchasers of the Notes
intend, and will take all actions consistent with the intention, that the Notes
be treated as indebtedness which is solely secured by the assets of the Trust
for all federal, state, local, and foreign income and franchise tax purposes and
that, pursuant to Treasury Regulations Section 301.7701-3(b)(1)(ii) as in effect
for periods after January 1, 1997, the Trust be disregarded as a separate entity
from the Trust Depositor for federal income tax purposes. The Issuer, by
entering into this Indenture, and each
11
<PAGE>
Noteholder, by its acceptance of its Note agree to treat the Notes for federal,
state and local income, single business and franchise tax purposes as
indebtedness.
ARTICLE THREE
COVENANTS
Section 3.01. Payment of Principal and Interest. The Issuer will duly and
punctually pay the principal of and interest, if any, on the Notes in accordance
with the terms of the Notes and this Indenture. Without limiting the foregoing,
subject to Section 8.02(c), the Issuer will cause to be distributed all amounts
on deposit in the Note Distribution Account on a Distribution Date deposited
therein pursuant to the Sale and Servicing Agreement (i) for the benefit of the
Class A-1 Notes, to the Class A-1 Noteholders, (ii) for the benefit of the Class
A-2 Notes, to the Class A-2 Noteholders, (iii) for the benefit of the Class B
Notes, to the Class B Noteholders, (iv) for the benefit of the Class C Notes, to
the Class C Noteholders and (v) for the benefit of the Class D Notes, to the
Class D Noteholders. Amounts properly withheld under the Code by any Person from
a payment to any Noteholder of interest and/or principal shall be considered as
having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
Section 3.02. Maintenance of Office or Agency. The Issuer will maintain in
Wilmington, Delaware, an office or agency where Notes may be surrendered for
registration of transfer or exchange, and where notices and demands to or upon
the Issuer in respect of the Notes and this Indenture may be served. The Issuer
hereby initially appoints the Indenture Trustee to serve as its agent for the
foregoing purposes. The Issuer will give prompt written notice to the Indenture
Trustee of the location, and of any change in the location, of any such office
or agency. If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Indenture Trustee with the address thereof,
such surrenders, notices and demands may be made or served at the Corporate
Trust Office, and the Issuer hereby appoints the Indenture Trustee as its agent
to receive all such surrenders, notices and demands.
Section 3.03. Money for Payments to be Held in Trust. As provided in
Section 8.02, all payments of amounts due and payable with respect to any Notes
that are to be made from amounts withdrawn from the Collection Account and the
Note Distribution Account pursuant to Section 8.02(b) shall be made on behalf of
the Issuer by the Indenture Trustee or by another Paying Agent, and no amounts
so withdrawn from the Collection Account and the Note Distribution Account for
payments of Notes shall be paid over to the Issuer except as provided in this
Section.
On or before the Business Day immediately preceding each Distribution Date
and Redemption Date, the Issuer shall deposit or cause to be deposited in the
Note Distribution Account an aggregate sum sufficient to pay the amounts then
becoming due, such sum to be held in trust for the benefit of the Persons
entitled thereto and (unless the Paying Agent is the Indenture Trustee) shall
promptly notify the Indenture Trustee of its action or failure so to act.
The Issuer will cause each Paying Agent other than the Indenture Trustee to
execute and deliver to the Indenture Trustee an instrument in which such Paying
Agent shall agree with the Indenture Trustee (and if the Indenture Trustee acts
as Paying Agent, it hereby so agrees), subject to the provisions of this
Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
(ii) give the Indenture Trustee notice of any default by the
Issuer (or any other obligor upon the Notes) in the making of any payment
required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default,
upon the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Paying Agent;
12
<PAGE>
(iv) immediately resign as a Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Indenture Trustee all sums held in trust by such
Paying Agent, such sums to be held by the Indenture Trustee upon the same trusts
as those upon which the sums were held by such Paying Agent; and upon such
payment by any Paying Agent to the Indenture Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money held
by the Indenture Trustee or any Paying Agent in trust for the payment of any
amount due with respect to any Note and remaining unclaimed for two years after
such amount has become due and payable shall be discharged from such trust and
upon receipt of an Issuer Request shall be deposited by the Indenture Trustee in
the Collection Account; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof, and all
liability of the Indenture Trustee or such Paying Agent with respect to such
trust money shall thereupon cease; provided, however, that if such money or any
portion thereof had been previously deposited by the Issuer with the Indenture
Trustee for the payment of principal or interest on the Notes, and provided,
further, that the Indenture Trustee or such Paying Agent, before being required
to make any such repayment, may at the expense of the Issuer cause to be
published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in The City of New
York, notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to or for the
account of the Issuer. The Indenture Trustee may also adopt and employ, at the
expense of the Issuer, any other reasonable means of notification of such
repayment (including, but not limited to, mailing notice of such repayment to
Holders whose Notes have been called but not have not been surrendered for
redemption or whose right to or interest in moneys due and payable but not
claimed is determinable from the records of the Indenture Trustee or of any
Paying Agent, at the last address of record for each such Holder).
Section 3.04. Existence. The Issuer will keep in full effect its
existence, rights and franchises as a business trust under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States, in which
case the Issuer will keep in full effect its existence, rights and franchises
under the laws of such other jurisdiction) and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of this
Indenture, the Notes, the Collateral and each other instrument or agreement
included in the Collateral.
Section 3.05. Protection of Collateral. The Issuer intends the security
interest Granted pursuant to this Indenture in favor of the Indenture Trustee on
behalf of the Noteholders to be prior to all other liens in respect of the
Collateral, and the Issuer shall take all actions necessary to obtain and
maintain, for the benefit of the Indenture Trustee on behalf of the Noteholders,
a first lien on and a first priority, perfected security interest in the
Collateral. The Issuer will from time to time execute and deliver all such
supplements and amendments hereto and all such financing statements,
continuation statements, instruments of further assurance and other instruments,
all as prepared by the Servicer and delivered to the Issuer, and will take such
other action necessary or advisable to:
(i) Grant more effectively all or any portion of the Collateral;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) created by this Indenture or carry out more effectively
the purposes hereof;
13
<PAGE>
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the Collateral;
(v) preserve and defend title to the Collateral and the rights of
the Indenture Trustee and the Noteholders in such Collateral against the
claims of all persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the
Collateral when due.
The Issuer hereby designates the Indenture Trustee its agent and attorney-in-
fact to execute all financing statements, continuation statements or other
instruments required to be executed pursuant to this Section.
Section 3.06. Opinions as to Collateral.
(a) Promptly after the execution and delivery of this Indenture, the
Issuer shall furnish to the Indenture Trustee an Opinion of Counsel to the
effect that, in the opinion of such counsel, either (i) all financing statements
and continuation statements have been executed and filed that are necessary to
create and continue the Indenture Trustee's first priority perfected security
interest in the collateral for the benefit of the Noteholders, and reciting the
details of such filings or referring to prior Opinions of Counsel in which such
details are given, or (ii) no such action shall be necessary to perfect such
security interest; and
(b) Within 90 days after beginning of each calendar year beginning with
the first calendar year beginning more than three months after the Initial
Cutoff Date, the Issuer shall furnish to the Indenture Trustee an Opinion of
Counsel, dated as of a date during such 90-day period, to the effect that, in
the opinion of such counsel, either (i) all financing statements and
continuation statements have been executed and filed that are necessary to
create and continue the Indenture Trustee's first priority perfected security
interest in the collateral (subject to the rights of the Insurer under the
Insurance Agreement) for the benefit of the Noteholders, and reciting the
details of such filings or referring to prior Opinions of Counsel in which such
details are given, or (ii) no such action shall be necessary to perfect such
security interest.
Section 3.07. Performance of Obligations; Servicing of Contracts.
(a) The Issuer will not take any action and will use its best efforts not
to permit any action to be taken by others that would release any Person from
any such Person's material covenants or obligations under any instrument or
agreement included in the Collateral or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in the Transaction Documents or such other instrument or
agreement.
(b) The Issuer may contract with other Persons to assist it in performing
its duties and obligations under this Indenture, and any performance of such
duties by a Person identified to the Indenture Trustee in an Officer's
Certificate shall be deemed to be action taken by the Issuer. The Indenture
Trustee shall not be responsible for the action or inaction of the Servicer or
the Administrator. Initially, the Issuer has contracted with the Servicer and
the Administrator to assist the Issuer in performing its duties under this
Indenture.
(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the other Transaction Documents and
in the instruments and agreements included in the Collateral, including but not
limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Sale and Servicing Agreement in accordance with and within the time periods
provided for herein and therein. Except as otherwise expressly provided therein,
the Issuer shall not waive, amend, modify, supplement or terminate any
Transaction Document or any provision thereof without the consent of the
Indenture Trustee or the Holders of at least a majority of the Outstanding
Amount.
14
<PAGE>
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Default, the Issuer shall promptly notify the Indenture Trustee and each Rating
Agency thereof. Upon any termination of the Servicer's rights and powers
pursuant to the Sale and Servicing Agreement, the Issuer shall promptly notify
the Indenture Trustee. As soon as a successor Servicer is appointed, the Issuer
shall notify the Indenture Trustee and the Rating Agencies of such appointment,
specifying in such notice the name and address of such successor Servicer.
(e) The Issuer agrees that it will not waive timely performance or
observance by the Servicer or the Sellers of their respective duties under the
Transaction Documents if the effect thereof would adversely affect the Holders
of the Notes.
Section 3.08. Negative Covenants. Until the Termination Date, the Issuer
shall not:
(i) except as expressly permitted by the Transaction Documents,
sell, transfer, exchange or otherwise dispose of any of the properties or
assets of the Issuer, including those included in the Collateral, unless
directed to do so by the Indenture Trustee;
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code or applicable state law) or
assert any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Collateral; or
(iii) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien created by this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any Person
to be released from any covenant; or obligations with respect to the Notes
under this Indenture except as may be expressly permitted hereby, (B)
permit any lien, charge, excise, claim, security interest, mortgage or
other encumbrance (other than the lien of this Indenture) to be created on
or extend to or otherwise arise upon or burden the Collateral or any part
thereof or any interest therein or the proceeds thereof (other than
Permitted Liens), (C) permit the lien created by this Indenture not to
constitute a valid first priority (other than with respect to any such tax,
mechanics' or other lien) security interest in the Collateral, or (D)
amend, modify or fail to comply with the provisions of the Transaction
Documents without the prior written consent of the Indenture Trustee,
except where the Transaction Documents allow for amendment or modification
without the consent or approval of the Indenture Trustee; or
(iv) dissolve or liquidate in whole or in part.
Section 3.09. Issuer May Consolidate, etc. Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other
Person, unless:
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing under
the laws of the United States or any State and shall expressly assume, by
an indenture supplemental hereto, executed and delivered to the Indenture
Trustee, in form and substance satisfactory to the Indenture Trustee, the
due and punctual payment of the principal of and interest on all Notes and
the performance or observance of every agreement and covenant of this
Indenture and each other Transaction Document on the part of the Issuer to
be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
15
<PAGE>
(iv) the Issuer shall have received an Opinion of Counsel which
shall be delivered to and shall be satisfactory to the Indenture Trustee to
the effect that such transaction will not have any material adverse tax
consequence to the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel (which shall describe the
actions taken as required by clause (v) above or that no such actions will
be taken) each stating that such consolidation or merger and such
supplemental indenture comply with this Article Three and that all
conditions precedent herein provided for relating to such transaction have
been compiled with; and
(vii) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger has a net worth, immediately after such
consolidation or merger, that is (A) greater than zero and (B) not less
than the net worth of the Issuer immediately prior to giving effect to such
consolidation or merger.
(b) The Issuer shall not convey or transfer all or substantially all of
its properties or assets, including those included in the Collateral, to any
Person (except as expressly permitted by the Transaction Documents), unless:
(i) the Person that acquires by conveyance or transfer the
properties and assets of the Issuer shall (A) be a United States citizen or
a Person organized and existing under the laws of the United States or any
State, (B) expressly assume, by an indenture supplemental hereto, executed
and delivered to the Indenture Trustee, in form and substance satisfactory
to the Indenture Trustee, the due and punctual payment of the principal of
and interest on all Notes and the performance or observance of every
agreement and covenant of this Indenture and each other Transaction
Document on the part of the Issuer to be performed or observed, all as
provided herein, (C) expressly agree by means of such supplemental
indenture that all right, title and interest so conveyed or transferred
shall be subject and subordinate to the rights of Holders of the Notes and
(D) unless otherwise provided in such supplemental indenture, expressly
agree to indemnify, defend and hold harmless the Issuer against and from
any loss, liability or expense arising under or related to this Indenture
and the Notes;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel which shall
be delivered to and shall be satisfactory to the Indenture Trustee to the
effect that such transaction will not have any material adverse tax
consequence to the Trust, any Noteholder or any Certificateholder;
(v) any action as is necessary to maintain the lien and security
interest created by this Indenture shall have been taken;
(vi) the Issuer shall have delivered to the Indenture Trustee an
Officer's Certificate and an Opinion of Counsel (which shall describe the
actions taken as required by clause (v) above or that no such actions will
be taken) each stating that such conveyance or transfer and such
supplemental indenture comply with this Article Three and that all
conditions precedent herein provided for relating to such transaction have
been complied with (including any filings required by Exchange Act); and
16
<PAGE>
(vii) the Issuer has a net worth, immediately after such conveyance or
transfer, that is (A) greater than zero and (B) not less than the net worth
of the Issuer immediately prior to giving effect to such conveyance or
transfer.
Section 3.10. Successor or Transferee.
(a) Upon any consolidation or merger of the Issuer in accordance with
Section 3.10(a), the Person formed by or surviving such consolidation or merger
(if other than the Issuer) shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with same
effect as if such Person has been named as the Issuer herein.
(b) Upon a conveyance or transfer of all or substantially all the assets
or properties of the Issuer pursuant to Section 3.10(b), the Issuer will be
released from every covenant and agreement of this Indenture to be observed or
performed on the part of the Issuer with respect to the Notes immediately upon
the delivery of written notice to the Indenture Trustee stating that the Issuer
is to be so released.
Section 3.11. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Contracts in the manner contemplated by this Indenture and the other Transaction
Documents and activities incidental thereto.
Section 3.12. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes and (ii) any other Indebtedness permitted
by or arising under the other Transaction Documents. The proceeds of the Notes
and the Certificates shall be used exclusively to fund the Issuer's purchase of
the Contracts and the other assets specified in the Sale and Servicing
Agreement, to fund the Reserve Fund and to pay the transactional expenses of the
Issuer.
Section 3.13. Notice of Events of Default. The Issuer agrees to give the
Indenture Trustee and each Rating Agency prompt written notice of each Event of
Default hereunder and a Servicer Default under the Sale and Servicing Agreement.
Section 3.14. Further Instruments and Acts. Upon request of the Indenture
Trustee, the Issuer will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
Section 3.15. Compliance with Laws. The Issuer shall comply with the
requirements of all applicable laws, the non-compliance with which would,
individually or in the aggregate, materially and adversely affect the ability of
the Issuer to perform its obligations under the Notes, this Indenture or any
other Transaction Document.
Section 3.16. Amendments of Sale and Servicing Agreement and Trust
Agreement. The Issuer shall not agree to any amendment to Section 11.01 of the
Trust Agreement to eliminate the requirements thereunder that the Indenture
Trustee or the Holders of the Notes consent to amendments thereto as provided
therein.
Section 3.17. Removal of Administrator. So long as any Notes are issued
and outstanding, the Issuer shall not remove the Administrator without cause
unless the Rating Agency Condition shall have been satisfied in connection with
such removal.
17
<PAGE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
Section 4.01. Satisfaction and Discharge of Indenture. This Indenture shall
cease to be of further effect with respect to the Notes except as to (i) rights
of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal thereof and interest thereon, (iv) Sections [3.01, 3.03, 3.04,
3.05, 3.07, 3.08, 3.10, 3.12, 3.13, 3.15 and 3.16], (v) the rights, obligations
and immunities of the Indenture Trustee hereunder (including the rights of the
Indenture Trustee under Section 6.07 and the obligations of the Indenture
Trustee under Section 4.02) and (vi) the rights of Noteholders as beneficiaries
hereof with respect to the property so deposited with the Indenture Trustee
payable to all or any of them, and the Indenture Trustee, on demand of and at
the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture with respect to the Notes,
when
(A) either
(1) all Notes theretofore authenticated and delivered (other
than (i) Notes that have been destroyed, lost or stolen and that have
been replaced or paid as provided in Section 2.05 and (ii) Notes for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Issuer and thereafter repaid to
the Issuer or discharged from such trust, as provided in Section 3.03)
have been delivered to the Indenture Trustee for cancellation;
(2) all Notes not theretofore delivered to the Indenture Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at the applicable
Maturity Date within one year, or
(iii) are to be called for redemption within one year
under arrangements satisfactory to the Indenture Trustee for the
giving of notice of redemption by the Indenture Trustee in the
name, and at the expense, of the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited with the
Indenture Trustee cash or direct obligations of or obligations
guaranteed by the United States (which will mature prior to the date
such amounts are payable), in trust in an Eligible Deposit Account
(which shall be the Collection Account or Note Distribution Account)
for such purpose, in an amount sufficient to pay and discharge the
entire indebtedness on such Note not theretofore delivered to the
Indenture Trustee for cancellation when due to the final scheduled
Distribution Date (if Notes shall have been called for redemption
pursuant to Section 10.01(a)), as the case may be;
(B) the Issuer has paid or performed or caused to be paid or performed
all amounts and obligations which the Issuer may owe to or on behalf of the
Indenture Trustee for the benefit of the Noteholders under this Indenture
or the Notes; and
(C) the Issuer has delivered to the Indenture Trustee an Officer's
Certificate and an Opinion of Counsel and (if required by the TIA or the
Indenture Trustee) an Independent Certificate from a firm of certified
public accountants, each meeting the applicable requirements of Section
11.01(a) and, subject to Section 11.02, stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with and the Rating Agency Condition has
been satisfied.
18
<PAGE>
Section 4.02. Application of Trust Money. All moneys deposited with the
Indenture Trustee pursuant to Section 4.01 shall be held in trust and applied by
it, in accordance with the provisions of the Notes and this Indenture, to the
payment, either directly or through any Paying Agent, as the Indenture Trustee
may determine, to the Holders of the particular Notes for the payment or
redemption of which such moneys have been deposited with the Indenture Trustee,
of all sums due and to become due thereon for principal and interest; but such
moneys need not be segregated from other funds except to the extent required
herein or in the Sale and Servicing Agreement or required by law.
Section 4.03. Repayment of Moneys Held by Paying Agent. In connection
with the satisfaction and discharge of this Indenture with respect to the Notes,
all moneys then held by any Paying Agent other than the Indenture Trustee under
the provisions of this Indenture with respect to such Notes shall, upon demand
of the Issuer, be paid to the Indenture Trustee to be held and applied according
to Section 3.03 and thereupon such Paying Agent shall be released from all
further liability with respect to such moneys.
Section 4.04. Release of Collateral. Subject to Section 11.01 and the
terms of the Transaction Documents, the Indenture Trustee shall release property
from the lien of this Indenture only upon receipt of an Issuer Request
accompanied by an Officer's Certificate and an Opinion of Counsel and
Independent Certificates in accordance with TIA (S)(S)314(c) and 314(d)(1) or an
Opinion of Counsel in lieu of such Independent Certificates to the effect that
the TIA does not require any such Independent Certificates.
19
<PAGE>
ARTICLE FIVE
REMEDIES
Section 5.01. Events of Default. "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(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
repurchase or substitute for 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.
Section 5.02. Rights Upon Event of Default
If an Event of Default referred to in subparagraph (e) of Section 5.01has
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.
In the case of any event described in clause (a), (b), (c), (d), 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, Indenture Trustee and the
Servicer of such waiver. In the event the Indenture Trustee has actual
knowledge of an Event of Default, it shall give written notice thereof to the
Trust Depositor, each Seller, the Servicer, the Owner Trustee and the Rating
Agencies.
If an Insolvency Event relating to the Trust Depositor occurs, pursuant to
the Trust Agreement and the Sale and Servicing Agreement, on the day of such
Insolvency Event, the Trust Depositor shall promptly give notice to the
Indenture Trustee of the Insolvency Event, and the Indenture Trustee shall,
unless notified to the contrary by the Controlling Party, promptly act pursuant
to and in accordance with the terms thereof 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.
20
<PAGE>
Section 5.03. Collection of Indebtedness and Suits for Enforcement by
Indenture Trustee; Authority of Indenture Trustee.
(a) The Issuer covenants that if the Notes are accelerated following the
occurrence of an Event of Default, the Issuer will, upon demand of the Indenture
Trustee, pay to it, for the benefit of the Holders of the Notes, the whole
amount then due and payable on such Notes for principal and interest, with
interest, with interest upon the overdue principal, and, to the extent payment
at such rate of interest shall be legally enforceable, upon overdue installments
of interest, at the applicable Interest Rate and in addition thereto such
further amount as shall be sufficient to cover costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Indenture Trustee and its agents and counsel.
(b) The Indenture Trustee following the occurrence of an Event of Default,
shall have full right, power and authority to take, or defer from taking, any
and all acts with respect to the administration, maintenance or disposition of
the Collateral.
(c) If an Event of Default occurs and is continuing, the Indenture Trustee
may in its discretion (except as provided in Section 5.03(d)), proceed to
protect and enforce its rights and the rights of the Noteholders, by such
appropriate Proceedings as the Indenture Trustee shall deem most effective to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy or legal or equitable
right vested in the Indenture Trustee by this Indenture or by law.
(d) Notwithstanding anything to the contrary contained in this Indenture
if an Event of Default shall have occurred and be continuing, if the Issuer
fails to perform its obligations under Section 10.01(b) when and as due, the
Indenture Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Noteholders by such appropriate proceedings as the
Indenture Trustee shall deem most effective to protect and enforce any such
rights, whether for specific performance of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy or legal or equitable right vested in the Indenture
Trustee by this Indenture or by law, provided that the Indenture Trustee shall
only be entitled to take any such actions to the extent such actions (i) are
taken only to enforce the Issuer's obligations to redeem the principal amount of
Notes, and (ii) are taken only against the Collateral any investments therein
and any proceeds thereof.
(e) In case there shall be pending, relative to the Issuer or any other
obligor upon the Notes or any Person having or claiming an ownership interest in
the Collateral, Proceedings under Title 11 of the United States Code or any
other applicable federal or state bankruptcy, insolvency or other similar law,
or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor or Person,
or in case of any other comparable judicial Proceedings relative to the Issuer
or other obligor upon the Notes, or to the creditors or property of the Issuer
or such other obligor, the Indenture Trustee, irrespective of whether the
principal of any Notes shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Indenture Trustee shall
have made any demand pursuant to the provisions of this Section, shall be
entitled and empowered, by intervention in such Proceedings or otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Indenture Trustee (including any claim for
reasonable compensation to the Indenture Trustee and each predecessor
Indenture Trustee, and their respective agents, attorneys and counsel, and
for reimbursement of all expenses and liabilities incurred, and all
advances made, by the Indenture Trustee and each predecessor Indenture
Trustee, except as a result of negligence or bad faith) and of the
Noteholders allowed in such Proceedings;
21
<PAGE>
(ii) unless prohibited by applicable law and regulations, to vote
on behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Indenture Trustee on
their behalf; and
(iv) to file such proofs of claim and other papers or documents as
may be necessary or advisable in order to have the claims of the Indenture
Trustee or the Holders of Notes allowed in any judicial proceedings
relative to the Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Indenture Trustee, and, in the event that the Indenture Trustee
shall consent to the making of payments directly to such Noteholders, to pay to
the Indenture Trustee such amounts as shall be sufficient to cover reasonable
compensation to the Indenture Trustee, each predecessor Indenture Trustee and
their respective agents, attorneys and counsel, and all other expenses and
liabilities incurred, and all advances made, by the Indenture Trustee and each
predecessor Trustee except as a result of negligence or bad faith.
(f) Nothing herein contained shall be deemed to authorize the Indenture
Trustee to authorize or consent to or vote for or accept or adopt on behalf of
any Noteholder any plan of reorganization, arrangement, adjustment or
compensation affecting the Notes or the rights of any Holder thereof or to
authorize the Indenture Trustee to vote in respect of the claim of any
Noteholder in any such proceeding except, as aforesaid, to vote for the election
of a trustee in bankruptcy or similar Person.
(g) All rights of action and of asserting claims under this Indenture or
under any of the Notes, may be enforced by the Indenture Trustee without the
possession of any of the Notes or the production thereof in any trial or other
Proceedings relative thereto, and any such action or Proceedings instituted by
the Indenture Trustee shall be brought in its own name as trustee of an express
trust, and any recovery of judgment, subject to the payment of the expenses,
disbursements and compensation of the Indenture Trustee, each predecessor
Indenture Trustee and their respective agents and attorneys, shall be for the
ratable benefit of the Holders of the Notes.
(h) In any Proceedings brought by the Indenture Trustee (including any
Proceedings involving the interpretation of any provision of this Indenture),
the Indenture Trustee shall be held to represent all of the Holders of the
Notes, and it shall not be necessary to make any Noteholder a party to any such
proceedings.
Section 5.04. Remedies. If an Event of Default shall have occurred and
be continuing the Indenture Trustee (subject to Section 5.05) shall:
(i) institute Proceedings in its own name and as or on behalf of a
trustee of an express trust for the collection of all amounts then payable
on the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Collateral;
(iii) exercise any remedies of a secured party under the UCC and any
other remedy available to the Indenture Trustee and take any other
appropriate action to protect and enforce the rights and remedies of the
Indenture Trustee on behalf of the Noteholders under this Indenture or the
Notes; and
(iv) direct the Owner Trustee to sell the Collateral or any portion
thereof or rights or interest therein, at one or more public or private
sales called and conducted in any manner permitted by law;
22
<PAGE>
provided, however, that the Indenture Trustee may not sell or otherwise
liquidate the Collateral following an Event of Default, other than an Event
of Default described in Section 5.01(i) or (ii), unless (A) the Holders of
100% of the Principal Amount of the Notes consent thereto, (B) the proceeds
of such sale or liquidation distributable to the Noteholders are sufficient
to discharge in full all amounts then due and unpaid upon such Notes for
principal and interest or (C) the Indenture Trustee determines that the
Collateral will not continue to provide sufficient funds for the payment of
principal of and interest on the Notes as they would have become due if the
Notes had not been declared due and payable, and the Indenture Trustee
provides prior written notice to each Rating Agency and obtains the consent
of the Required Holders. In determining such sufficiency or insufficiency
with respect to clauses (B) and (C), the Indenture Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking
or accounting firm or national reputation as to the feasibility of such
proposed action and as to the sufficiency of the Collateral for such
purpose; provided, however, upon the occurrence of an Event of Default
described in Section 5.01(e), caused solely from an event described in such
subparagraph occurring with respect to the Trust Depositor, the related
Contracts of the Trust will be liquidated by the Indenture Trustee and the
Trust will be terminated 90 days after the date of such Insolvency Event,
unless, before the end of such 90-day period, the related Trustee shall
have received written instructions from the Required Holders to the effect
that each such Required Holders disapprove of the liquidation of such
Contracts and termination of such Trust.
Section 5.05. Optional Preservation of the Contracts. Following an Event of
Default and if such Event of Default has not been rescinded and annulled, and
except as otherwise provided above, the Indenture Trustee may, but need not,
elect to maintain possession of the Collateral. It is the desire of the parties
hereto and the Noteholders that there be at all times sufficient funds for the
payment of principal and interest on the Notes, and the Indenture Trustee shall
take such desire into account when determining whether or not to maintain
possession of the Collateral. In determining whether to maintain possession of
the Collateral, the Indenture Trustee may, but need not, obtain and rely upon an
opinion of an Independent investment banking or accounting firm of national
reputation as to the feasibility of such proposed action and as to the
sufficiency of the Collateral for such purpose.
Section 5.06. Priorities.
(a) If the Indenture Trustee collects any money or property pursuant to
this Article Five, it shall pay out the money or property in the following order
and priority:
first, so much of such payment as shall be required to reimburse the
Indenture Trustee for any tax, expense, 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 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;
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 Class D Notes shall be distributed to the Class D
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 D Note over any other Class D Note, in the
proportion that the aggregate amount of all accrued but unpaid interest to
the date of distribution on each Class D Note bears to the aggregate amount
of all accrued but unpaid interest to the date of distribution on all Class
D Notes;
seventh, the balance, if any, of such payment remaining thereafter
shall be distributed to the Class A-1 Noteholders and the Class A-2
Noteholders in order to pay in full the outstanding aggregate amount of
principal of the Class A-1 Notes and 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-
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 unpaid principal
amount of each Class A-1 Note and Class A-2 Note bears to the aggregate
unpaid principal amount of all Class A-1 Notes and Class A-2 Notes;
eighth, 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;
ninth, 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
tenth, the balance, if any, of such payment remaining thereafter shall
be distributed ratably to the Class D Noteholders to pay in full the
aggregate amount of principal of the Class D Notes, then due pursuant to or
in respect of the Class D 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 D Note over any
other Class D Note, in the proportion that the aggregate unpaid principal
amount of each Class D Note bears to the aggregate unpaid principal amount
of all Class D Notes.
(b) The Indenture Trustee may fix a record date and payment date for any
payment to Noteholders pursuant to this Section. At least 15 days before such
record date, the Issuer shall mail to each Noteholder and the Indenture Trustee
a notice that states the record date, the payment date and the amount to be
paid.
Section 5.07. Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to the Indenture
Trustee of a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding Amount of
the Notes have made written request to the Indenture Trustee to institute
such Proceeding in respect of such Event of Default in its own name as
Indenture Trustee hereunder;
23
<PAGE>
(iii) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
Proceedings; and
(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders of
a majority of the Outstanding Amount of the Notes, voting together as a
single class.
It is understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine that action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
Section 5.08. Unconditional Rights of Noteholders to Receive Principal
and Interest. Notwithstanding any other provisions in the Indenture, the Holder
of any Note shall have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on such Note on or after the
respective due dates thereof expressed in such Note or in this Indenture (or, in
the case of redemption, on or after the Redemption Date) and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder.
Section 5.09. Restoration of Rights and Remedies. If the Indenture
Trustee or any Noteholders has instituted any Proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason or has been determined adversely to the Indenture
Trustee or to such Noteholder, then and in every such case the Indenture Trustee
and the Noteholders shall, subject to any determination in such Proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Indenture Trustee and the Noteholders
shall continue as through no such Proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Indenture Trustee or to the Noteholders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not a Waiver. No delay or omission of
the Indenture Trustee or any Holder of any Note to exercise any right or remedy
accruing upon any Default of Event of Default shall impair any such right or
remedy or constitute a waiver of any such Default or Event of Default or an
acquiescence therein. Every right and remedy given by this Article Five or by
law to the Indenture Trustee or to the Noteholders may be exercised from time to
time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
Section 5.12. Control by Noteholders. The Controlling Party of a majority
of the Outstanding Amount of the Notes shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Indenture Trustee with respect to the Notes or exercising any trust or power
conferred on the Indenture Trustee; provided that:
(i) such direction shall not be in conflict with any rule of law or
with any other provision of this Indenture;
24
<PAGE>
(ii) subject to the terms of Section 5.04, any direction to the
Indenture Trustee to sell or liquidate the Collateral shall be by the
Holders of Notes representing not less than 100% of the Outstanding Amount
of the Notes;
(iii) if the conditions set forth in Section 5.05 have been satisfied
and the Indenture Trustee elects to retain the Collateral pursuant to such
Section, then any direction to the Indenture Trustee by Holders of Notes
representing less than 100% of the Outstanding Amount of the Notes to sell
or liquidate the Collateral shall be of no force and effect; and
(iv) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee that is not inconsistent with such direction.
Notwithstanding the rights of Noteholders set forth in this Section, subject to
Section 6.01, the Indenture Trustee need not take any action that it determines
might involve it in liability or might materially and adversely affect the
rights of any Noteholders not consenting to such action.
Section 5.13. Waiver of Past Defaults. In the case of any waiver of an
Event of Default, the Issuer, the Indenture Trustee and the Holders of the notes
shall be restored to their former positions and rights hereunder, respectively;
but no such waiver shall extend to any subsequent or other Event of Default or
impair any right consequent thereto. Upon any such waiver, such Event of Default
shall cease to exist and be deemed to have been cured and not to have occurred,
for every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other Event of Default or impair any right consequent thereto.
Section 5.14. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (i) any suit instituted by the
Indenture Trustee, (ii) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (iii) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
Section 5.15. Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waivers
all benefit or advantages of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Indenture Trustee, but will suffer and permit the execution of every such power
as though no such law had been enacted.
Section 5.16. Action on Notes. The Indenture Trustee's right to seek and
recover judgment on the Notes or under this Indenture shall not be affected by
the seeking, obtaining or application of any other relief under or with respect
to this Indenture. Neither the lien of this Indenture nor any rights or remedies
of the Indenture Trustee or the Noteholders shall be impaired by the recovery of
any judgment by the Indenture Trustee against the Issuer or by the levy of any
execution under such judgment upon any portion of the Collateral or upon any of
the assets of the Issuer. Any money or property collected by the Indenture
Trustee shall be applied in accordance with Section 5.06.
Section 5.17. Performance and Enforcement of Certain Obligations.
25
<PAGE>
(a) Promptly following a request from the Indenture Trustee to do so and
at the Administrator's expense, the Issuer shall take all such lawful action as
the Indenture Trustee may request to compel or secure the performance and
observance by the Trust Depositor and the Servicer as applicable, of each of
their obligations to the Issuer under or in connection with the Sale and
Servicing Agreement in accordance with the terms thereof, and to exercise any
and all rights, remedies, powers and privileges lawfully available to the Issuer
under or in connection with the Sale and Servicing Agreement to the extent and
in the manner directed by the Indenture Trustee, including the transmission of
notices of default on the part of the Trust Depositor or the Servicer thereunder
and the institution of legal of administrative actions or proceedings to compel
or secure performance by the Trust Depositor or the Servicer of each of their
obligations under the Sale and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the Indenture
Trustee may, and at the direction (which direction shall be in writing,
including facsimile) of the Required Holders shall exercise all rights,
remedies, powers, privileges and claims of the Issuer against the Trust
Depositor or the Servicer under or in connection with the Sale and Servicing
Agreement, including the right or power to take any action to compel or secure
performance or observance by the Trust Depositor or the Servicer of each of
their obligations to the Issuer thereunder and to give any consent, request,
notice, direction, approval, extension or waiver under the Sale and Servicing
Agreement, and any right of the Issuer to take such action shall be suspended.
26
<PAGE>
ARTICLE SIX
THE INDENTURE TRUSTEE
Section 6.01. Duties of Indenture Trustee.
(a) If an Event of Default has occurred and is continuing, the Indenture
Trustee shall exercise the rights and powers vested in it by this Indenture and
in the same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform to the requirements of this Indenture and the other Transaction
Documents to which the Indenture Trustee is a party.
(c) The Indenture Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(i) this paragraph does not limit the effect of Section 6.01(b);
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts; and
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.12.
(d) Every provision of this Indenture that in any way relates to the
Indenture Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Indenture Trustee shall not be liable for interest on any money
received by it except as the Indenture Trustee may agree in writing with the
Issuer.
(f) Money held in trust by the Indenture Trustee need not be segregated
from other funds except to the extent required by law or the terms of this
Indenture or the Sale and Servicing Agreement.
(g) No provision of this Indenture shall require the Indenture Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayments
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) The Indenture Trustee shall have no discretionary duties other than
performing those ministerial acts set forth above necessary to accomplish the
purpose of this Trust as set forth in this Indenture.
27
<PAGE>
(i) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Indenture Trustee shall be
subject to the provisions of this section and to the provisions of the TIA.
Section 6.02. Rights of Indenture Trustee.
(a) The Indenture Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper person. The Indenture
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate (with respect to factual matters) or an Opinion
of Counsel, as applicable. The Indenture Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on the Officer's
Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee, and the Indenture Trustee shall
not be responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed with
due care by it hereunder.
(d) The Indenture Trustee shall not be liable for any action it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct does
not constitute wilful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
(f) The Indenture Trustee shall be under no obligation to institute,
conduct or defend any litigation under this Indenture or in relation to this
Indenture, at the request, order or direction of any of the Holders of Notes,
pursuant to the provisions of this Indenture, unless such Holders of Notes shall
have offered to the Indenture Trustee reasonable security or indemnity against
the costs, expenses and liabilities that may be incurred therein or thereby;
provided, however, that the Indenture Trustee shall, upon the occurrence of an
Event of Default (that has not been cured), exercise the rights and powers
vested in it by this Indenture in a manner consistent with Section 6.01.
(g) The Indenture Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless so requested by the Holders of Notes evidencing
not less than 25% of the Outstanding Amount of the Notes; provided, however,
that if the payment within a reasonable time to the Indenture Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of
such investigation is, in the opinion of the Indenture Trustee, not reasonably
assured to the Indenture Trustee by the security afforded to it by the terms of
this Indenture or the Sale and Servicing Agreement, the Indenture Trustee may
require reasonable indemnity against such cost, expense or liability as a
condition to so proceeding; the reasonable expense of every such examination
shall be paid by the Person making such request, or, if paid by the Indenture
Trustee, shall be reimbursed by the Person making such request upon demand.
Section 6.03. Individual Rights of Indenture Trustee. The Indenture
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Paying Agent, Note
Registrar, co-registrar or co-paying agent may do the same with like rights.
However, the Indenture Trustee is required to comply with Section 6.11.
Section 6.04. Indenture Trustee's Disclaimer. The Indenture Trustee
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture, the Collateral or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the
28
<PAGE>
Issuer in this Indenture or in any document issued in connection with the sale
of the Notes or in the Notes other than the Indenture Trustee's certificate of
authentication.
Section 6.05. Notice of Defaults. If a Default occurs and is continuing
and if it is known to a Responsible Officer of the Indenture Trustee, the
Indenture Trustee shall mail to each Noteholder notice of the Default within 90
days after it occurs. Except in the case of a Default in payment of principal of
or interest on any Note (including payments pursuant to the redemption of such
Notes), the Indenture Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Noteholders.
Section 6.06. Reports by Indenture Trustee to Holders. The Indenture
Trustee shall deliver to each Noteholder such information, including without
limitation, IRS Form 1099, as may be required to enable such holder to prepare
its federal and state income tax returns.
Section 6.07. Compensation and Indemnity. The Issuer shall pay or shall
cause the Administrator to pay to the Indenture Trustee from time to time
reasonable compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Administrator to reimburse the
Indenture Trustee for all reasonable out-of-pocket expenses incurred or made by
it, including costs of collection, in addition to the compensation for its
services. Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall indemnify or shall cause the
Administrator to indemnify the Indenture Trustee against any and all loss,
liability or expense (including attorneys' fees) incurred by it in connection
with the administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the Administrator
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Issuer and the Administrator shall not relieve the
issuer or the Administrator of its obligations hereunder. The Issuer shall
defend or shall cause the Administrator to defend any such claim, and the
Indenture Trustee may have separate counsel and the Issuer shall pay or shall
cause the Administrator to pay the fees and expenses of such counsel. Neither
the Issuer nor the Administrator need reimburse any expense or indemnify against
any loss, liability or expense incurred by the Indenture Trustee through the
Indenture Trustee's own willful misconduct, negligence or bad faith.
The issuer's payment obligations to the Indenture Trustee pursuant to this
Section shall survive the discharge of this Indenture. When the Indenture
Trustee incurs expenses after the occurrence of a Default specified in Section
5.01(iv) or (v) with respect to the Issuer, the expenses are intended to
constitute expenses of administration under Title 11 of the United States Code
or any other applicable federal or state bankruptcy, insolvency or similar law.
Section 6.08. Replacement of Indenture Trustee. The Indenture Trustee may
resign at any time by so notifying the Issuer and the Servicer. The Issuer may
remove the Indenture Trustee if:
(i) the Indenture Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect of
the Indenture Trustee in an involuntary case or proceeding under federal or
state banking or bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar
law, shall have entered a decree or order granting relief or appointing a
receiver, liquidator, assignee, custodian, trustee, conservator,
sequestrator (or similar official) for the Indenture Trustee or for any
substantial part of the Indenture Trustee's property, or ordering the
winding-up or liquidation of the Indenture Trustee's affairs, provided any
such decree or order shall have continued unstayed and in effect for a
period of 30 consecutive days;
(iii) the Indenture Trustee commences a voluntary case under any
federal or state banking or bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
conservator, sequestrator or other similar official for the Indenture
Trustee or for
29
<PAGE>
any substantial part of the Indenture Trustee's property, or makes any
assignment for the benefit of creditors or fails generally to pay its debts
as such debts become due or takes any corporate action in furtherance of
any of the foregoing; or
(iv) the Indenture Trustee otherwise becomes incapable of acting.
A successor Indenture Trustee shall deliver a written acceptance of its
appointment to the retiring Indenture Trustee and to the Issuer. Thereupon the
resignation or removal of the retiring Indenture Trustee shall become effective,
and the successor Indenture Trustee shall have all the rights, powers and duties
of the Indenture Trustee under this Indenture. The Issuer or the successor
Indenture Trustee shall mail a notice of its succession to Noteholders. The
retiring Indenture Trustee shall promptly transfer all property held by it as
Indenture Trustee to the successor Indenture Trustee.
If a successor Indenture Trustee does not take office within 60 days after
the retiring Indenture Trustee resigns or is removed, the retiring Indenture
Trustee, the Issuer or the Holders of a majority in Outstanding Amount of the
Notes may petition any court of competent jurisdiction for the appointment of a
successor Indenture Trustee.
If the Indenture Trustee fails to comply with Section 6.11, any Noteholder
may petition any court of competent jurisdiction for the removal of the
Indenture Trustee and the appointment of a successor Indenture Trustee.
Any resignation or removal of the Indenture Trustee and appointment of a
successor Indenture Trustee pursuant to any of the provisions of this Section
shall not become effective until acceptance of appointment by the successor
Indenture Trustee pursuant to this Section and payment of all fees and expenses
owed to the outgoing Indenture Trustee. Notwithstanding the replacement of the
Indenture Trustee pursuant to this Section, the retiring Indenture Trustee shall
be entitled to payment or reimbursement of such amounts as such Person is
entitled pursuant to Section 6.07.
Section 6.09. Successor Indenture Trustee by Merger. If the Indenture
Trustee consolidates with, merges or converts into, or transfers all or
substantially all its corporate trust business or assets to, another corporation
or banking association, the resulting, surviving or transferee corporation
without any further act shall be the successor Indenture Trustee; provided, that
such corporation or banking association shall be otherwise qualified and
eligible under Section 6.11. The Indenture Trustee shall provide the Insurer
and each Rating Agency prompt notice of any such transaction.
In case at the time such successor or successors by merger, conversion or
consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor Indenture Trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
Section 6.10. Appointment of Co-Indenture Trustee or Separate Indenture
Trustee.
(a) Notwithstanding any other provision of this Indenture, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Collateral may at the time be located, the Indenture Trustee and
the Administrator acting jointly shall have the power and may execute and
deliver all instruments to appoint one or more Persons to act as a co-Indenture
Trustee or co-Indenture Trustees, jointly with the Indenture Trustee, or
separate Indenture Trustee or separate Indenture Trustees, of all or any part of
the Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Collateral, or any part hereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee and the Administrator
may consider necessary or desirable. If the Administrator shall not have joined
in such appointment within 15 days after the receipt by it of a request so to
do, the Indenture Trustee alone shall have the power to make such appointment.
No co-Indenture Trustee or separate Indenture Trustee hereunder shall be
required to meet the terms of
30
<PAGE>
eligibility of a successor Indenture Trustee under Section 6.11 and no notice to
Noteholders of the appointment of any co-Indenture Trustee or separate Indenture
Trustee shall be required under Section 6.08
(b) Every separate Indenture Trustee and co-Indenture Trustee shall, to
the extent permitted by law, be appointed and act subject to the following
provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate Indenture Trustee
or co-Indenture Trustee jointly (it being understood that such separate
Indenture Trustee or co-Indenture Trustee is not authorized to act
separately without the Indenture Trustee joining in such act), except to
the extent that under any law of any jurisdiction in which any particular
act or acts are to be performed the Indenture Trustee shall be incompetent
or unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate Indenture Trustee or co-Indenture
Trustee, but solely at the direction of the Indenture Trustee;
(ii) no Indenture Trustee hereunder shall be personally liable by
reason of any act or omission of any other Indenture Trustee hereunder; and
(iii) the Indenture Trustee and the Administrator may at any
time accept the resignation of or remove any separate Indenture Trustee or
co-Indenture Trustee.
(c) Any notice, request or other writing given to the Indenture Trustee
shall be deemed to have been given to each of the then separate Indenture
Trustees and co-Indenture Trustees, as effectively as if given to each of them.
Every instrument appointing any separate Indenture Trustee or co-Indenture
Trustee shall refer to this Agreement and the conditions of this Article. Each
separate Indenture Trustee and co-Indenture Trustee, upon its acceptance of the
trusts conferred, shall be vested with the estates or property specified in its
instrument of co-appointment, either jointly with the Indenture Trustee or
separately, as may be provided therein, subject to all the provisions of this
Indenture, specifically including every provision of this Indenture relating to
the conduct of, affecting the liability of or affording protection to, the
Indenture Trustee. Every such instrument shall be filed with the Indenture
Trustee and a copy thereof given to the Administrator.
(d) Any separate Indenture Trustee or co-Indenture Trustee may at any time
constitute the Indenture Trustee, its agent or attorney-in-fact with full power
and authority, to the extent not prohibited by law, to do any lawful act under
or in respect of this Agreement on its behalf and in its name. If any separate
Indenture Trustee or co-Indenture Trustee shall die, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall vest in and be exercised by the Indenture Trustee, to the extent
permitted by law, without the appointment of a new or successor Indenture
Trustee. Notwithstanding anything to the contrary in this Indenture, the
appointment of any separate Indenture Trustee or co-Indenture Trustee shall not
relieve the Indenture Trustee of its obligations and duties under this
Indenture.
Section 6.11. Eligibility. The Indenture Trustee shall at all times
satisfy the requirements of TIA (S)310(a). The Indenture Trustee hereunder shall
at all times be a financial institution organized and doing business under the
laws of the United States of America or any state, authorized under such laws to
exercise corporate trust powers, whose long term unsecured debt is rated at
least Baa3 by Moody's and shall have a combined capital and surplus of at least
$50,000,000 or shall be a member of a bank holding system the aggregate combined
capital and surplus of which is $50,000,000 and subject to supervision or
examination by federal or state authority, provided that the Trustee's separate
capital and surplus shall at all times be at least the amount required by
Section 310(a)(2) of the TIA. If such Person publishes reports of condition at
least annually, pursuant to law or to the requirements of a supervising or
examining authority, then for the purposes of this Section 6.ll, the combined
capital and surplus of such Person shall be deemed to be its combined capital
and surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 6.ll, the Trustee shall resign immediately in the
manner and with the effect specified in Section 6.08. The Indenture Trustee
shall comply with TIA
31
<PAGE>
(S)310(b); provided, however, that there shall be excluded from the operation of
TIA (S)310(b)(1) any indenture or indentures under which other securities of the
Issuer are outstanding if the requirements for such exclusion set forth in TIA
(S)310(b)(1) are met.
Section 6.12. Preferential Collection of Claims Against Issuer. The
Indenture Trustee shall comply with TIA (S)311(a), excluding any creditor
relationship listed in TIA (S)311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA (S)311(a) to the extent indicated.
32
<PAGE>
ARTICLE SEVEN
NOTEHOLDERS' LISTS AND REPORTS
Section 7.01. Issuer to Furnish Indenture Trustee Names and Addresses of
Noteholders. The Issuer will furnish or cause to be furnished to the Indenture
Trustee (i) not more than five days after the earlier of (a) each Record Date
and (b) three months after the last Record Date, a list, in such form as the
Indenture Trustee may reasonably require, of the names and addresses of the
Noteholders as of such Record Date and (ii) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
ten days prior to the time such list is furnished; provided, however, that so
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished.
Section 7.02. Preservation of Information: Communication to Noteholders.
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Noteholders contained in
the most recent list furnished to the Indenture Trustee as provided in Section
7.01 and the names and addresses of Noteholders received by the Indenture
Trustee in its capacity as Note Registrar and shall otherwise comply with TIA
(S)312(a). The Indenture Trustee may destroy any list furnished to it as
provided in such Section 7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA (S) 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall have
the protection of TIA (S) 312(c).
Section 7.03. Reports by Issuer. (a) The Issuer shall:
(i) file with the Indenture Trustee, within 15 days after the Issuer is
required (if at all) to file the same with the Commission, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) that the Issuer may be required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in accordance
with rules and regulations prescribed from time to time by the Commission such
additional information, documents and reports with respect to compliance by the
Issuer with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations;
(iii) supply to the Indenture Trustee (and the Indenture Trustee shall
transmit by mail to all Noteholders described in TIA (S)313(c)) such summaries
of any information, documents and reports required to be filed by the issuer
pursuant to clauses (i) and (ii) of this Section 7.03(a) and by rules and
regulations prescribed from time to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the Issuer
shall end on December 31 of each year.
Section 7.04. Reports by Indenture Trustee. If required by TIA (S)313(a),
within 60 days after January 31 beginning with January 31, 1998, the Indenture
Trustee shall mail to each Noteholder as required by TIA (S)313(c) a brief
report dated as of such date that complies with TIA (S)313(a). The Indenture
Trustee also shall comply with TIA (S)313(b).
33
<PAGE>
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Indenture Trustee with the Commission and each stock exchange, if
any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
34
<PAGE>
ARTICLE EIGHT
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 8.01. Collection of Money. Except as otherwise expressly provided
herein, the Indenture Trustee may demand payment or delivery of, and shall
receive and collect, directly and without intervention or assistance of any
fiscal agent or other intermediary, all money and other property payable to or
receivable by the Indenture Trustee pursuant to this Indenture and the Sale and
Servicing Agreement. The Indenture Trustee shall apply all such money received
by it as provided in this Indenture. Except as otherwise expressly provided in
this Indenture, if any default occurs in the making of any payment or
performance under any agreement or instrument that is part of the Collateral,
the Indenture Trustee may take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
Proceedings. Any such action shall be without prejudice to any right to claim a
Default or Event of Default under this Indenture and any right to proceed
thereafter as provided in Article Five.
Section 8.02. Trust Accounts.
(a) On or prior to the Closing Date, the Issuer shall cause the Servicer
to establish and maintain, in the name of the Indenture Trustee, for the benefit
of the Noteholders and the Certificateholders, the Trust Accounts as provided in
Section 7.01 of the Sale and Servicing Agreement.
(b) On or before each Distribution Date, all amounts required to be
deposited in the Note Distribution Account with respect to the preceding Due
Period pursuant to Section 7.01 of the Sale and Servicing Agreement will be
transferred from the Collection Account and/or the Reserve Fund to the Note
Distribution Account.
(c) On each Distribution Date, the Indenture Trustee shall distribute all
amounts on deposit in the Note Distribution Account to Noteholders in respect of
the Notes to the extent of amounts due and unpaid on the Notes for principal and
interest as follows and 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 Class D Notes shall be distributed to the Class D Noteholders ratably,
without priority of any one Class D Note over any other Class D Note, in
the proportion that the aggregate amount of all accrued but unpaid interest
to the date of distribution on each Class D Note bears to the aggregate
amount of all accrued but unpaid interest to the date of distribution on
all Class D 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 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 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 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 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;
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 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; and
tenth, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the Class D Noteholders to pay
in full the aggregate amount of the Class D Principal Payment then due
pursuant to or in respect of the Class D Notes, without priority of any one
Class D Note over any other Class D Note, in the proportion that the
aggregate unpaid principal amount of each Class D Note bears to the
aggregate unpaid principal amount of all Class D Notes.
Section 8.03. General Provisions Regarding Accounts.
(a) So long as no Default or Event of Default shall have occurred and be
continuing, all or a portion of the funds in the Trust Accounts shall be
invested in accordance with the provisions of Section 7.03 of the Sale and
Servicing Agreement. Except as otherwise provided in Section 7.03 of the Sale
and Servicing Agreement, all income or other gain from investments of moneys
deposited in such Trust Accounts shall be deposited by the Indenture Trustee in
the Collection Account, and any loss resulting from such investments shall be
charged to the related Trust Account. The Issuer will not direct the Indenture
Trustee to make any investment of any funds or to sell any investment held in
any of the Trust Accounts unless the security interest granted and perfected in
such account will continue to be perfected in such investment or the proceeds of
such sale, in either case without any further action by any Person, and, in
connection with any direction to the Indenture Trustee to make any such
investment or sale, if requested by the Indenture Trustee, the Issuer shall
deliver to the Indenture Trustee an Opinion of Counsel, acceptable to the
Indenture Trustee, to such effect.
(b) Subject to Section 6.01(c), the Indenture Trustee shall not in any way
be held liable by reason of any insufficiency in any of the Trust Accounts
resulting from any loss on any Eligible Investment included therein except for
losses attributable to the Indenture Trustee's failure to make payments on such
Eligible Investments issued by the
35
<PAGE>
Indenture Trustee, in its commercial capacity as principal obligor and not as
Indenture Trustee, in accordance with their terms.
(c) If (i) the Issuer shall have failed to give investment directions for
any funds on deposit in the Trust Accounts to the Indenture Trustee by 11:00
a.m., New York City time (or such other time as may be agreed by the Issuer and
Indenture Trustee), on any Business Day or (ii) a Default or Event of Default
shall have occurred and be continuing with respect to the Notes but the Notes
shall not have been declared due and payable pursuant to Section 5.02 or (iii)
if such Notes shall have been declared due and payable following an Event of
Default, but amounts collected or receivable from the Collateral are being
applied in accordance with Section 5.05 as if there had not been such a
declaration, then the Indenture Trustee shall, to the fullest extent
practicable, invest and reinvest funds in the Trust Accounts in one or more
Qualified Eligible Investments.
Section 8.04. Release of Collateral.
(a) Subject to the payment of its fees and expenses pursuant to Section
6.07, the Indenture Trustee may, and when required by the provisions of this
Indenture or the Sale and Servicing Agreement shall, execute instruments to
release property from the lien of this Indenture, or convey the Indenture
Trustee's interest in the same, in a manner and under circumstances that are not
inconsistent with the provisions of this Indenture. No party relying upon an
instrument executed by the Indenture Trustee as provided in this Article shall
be bound to ascertain the Indenture Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) The Indenture Trustee shall, at such time as there are no Notes
Outstanding and all sums due the Indenture Trustee pursuant to Section 6.07 have
been paid, release any remaining portion of the Collateral that secured the
Notes from the lien of this Indenture and release to the Issuer or any other
Person entitled thereto any funds then on deposit in the Trust Accounts. The
Indenture Trustee shall release property from the lien of this Indenture
pursuant to this Section 8.04(b) only upon receipt of an Issuer Request
accompanied by an Officer's Certificate, an Opinion of Counsel and (if required
by the TIA as so stated in the Opinion of Counsel) Independent Certificates in
accordance with TIA (S)(S)314(c) and 314(d)(1) meeting the applicable
requirements of Section 11.01.
Section 8.05. Opinion of Counsel. The Indenture Trustee shall receive at
least seven days notice when requested by the Issuer to take any action pursuant
to Section 8.04(a), accompanied by copies of any instruments involved, and the
Indenture Trustee shall also require, as a condition to such action, an Opinion
of Counsel, in form and substance satisfactory to the Indenture Trustee, stating
the legal effect of any such action, outlining the steps required to complete
the same, and concluding that all conditions precedent to the taking of such
action have been complied with and such action will not materially and adversely
impair the security for the Notes or the rights of the Noteholders in
contravention of the provisions for this Indenture; provided, however, that such
Opinion of Counsel shall not be required to express an opinion as to the fair
value of the Collateral. Counsel rendering any such opinion may rely, without
independent investigation, on the accuracy and validity of any certificate or
other instrument delivered to the Indenture Trustee in connection with any such
action.
36
<PAGE>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 9.01. Supplemental Indentures Without Consent of Noteholders.
Without the consent of the Holders of any Notes and with prior notice to
each Rating Agency, the Issuer and the Indenture Trustee, when authorized by an
Issuer Order, and the other parties hereto at any time from time to time, may
enter into one or more indentures supplemental hereto (which shall conform to
the provisions of the TIA as in force at the date of the execution thereof), in
form satisfactory to the Indenture Trustee, for any of the following
purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien created by this Indenture, or to subject to the lien
created by this Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another Person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be inconsistent with any
other provision herein or in any supplemental indenture or the Transaction
Documents or to make any other provisions with respect to matters or
questions arising under this Indenture or in any supplemental indenture;
provided that such action shall not adversely affect the interests of the
Holders of the Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor Indenture Trustee with respect to the Notes and to
add to or change any of the provisions of this Indenture as shall be
necessary to facilitate the administration of the trusts hereunder by more
than one Indenture Trustee, pursuant to the requirements of Article Six;
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA; and
(viii) to elect into the FASIT provisions of the Code, provided an
Opinion of Counsel to the effect that such election will not adversely affect
the Noteholders, is delivered to the Issuer and Indenture Trustee.
The Indenture Trustee is hereby authorized to join in the exemption of any
such supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
37
<PAGE>
Section 9.02. Supplemental Indentures With Consent of Noteholders. The
Issuer and the Indenture Trustee, when authorized by an Issuer Order, also may,
with prior notice to each Rating Agency, and with the consent of the Required
Holders, by Act of such Holders delivered to the Issuer and the Indenture
Trustee, enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to, or changing in any manner or eliminating
any of the provisions of, this Indenture or of modifying in any manner the
rights of the Holders of the Notes under this Indenture; provided, however,
that, no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal of or
interest on any Note, or reduce the principal amount thereof, the interest
rate thereon or the Redemption Date Amount with respect thereto, change the
provisions of this Indenture relating to the application of collections on,
or the proceeds of the sale of, the Collateral to payment of principal of
or interest on the Notes, or change any place of payment where, or the coin
or currency in which, any Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of the provisions of
this Indenture requiring the application of funds available therefor, as
provided in Article Five, to the payment of any such amount due on the
Notes on or after the respective due dates thereof (or, in the case of
redemption, on or after the Redemption Date);
(ii) reduce the percentage of the Outstanding Amount of the Notes,
the consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
(iii) modify or alter the provisions of the second proviso to the
definition of the term "Outstanding";
(iv) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to sell or liquidate the
Collateral pursuant to Section 5.04 or amend the provisions of this Article
which specify the percentage of the Outstanding Amount of the Notes
required to amend this Indenture or the other Transaction Documents;
(v) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the other Transaction Documents cannot be
modified or waived without the consent of the Holder of each Outstanding
Note affected thereby; or
(vi) permit the creation of any lien ranking prior to or on a parity
with the lien created by this Indenture with respect to any part of the
Collateral or, except as otherwise permitted or contemplated herein,
terminate the lien created by this Indenture on any property at any time
subject hereto or deprive the Holder of any Note of the security provided
by the lien created by this Indenture.
The Indenture Trustee may in its discretion determine whether or not any
Notes would be affected by any supplemental indenture and any such determination
shall be conclusive upon the Holders of the Notes, whether theretofore or
thereafter authenticated and delivered hereunder. The Indenture Trustee shall
not be liable for any such determination made in good faith.
It shall not be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
38
<PAGE>
Promptly after the execution by the parties hereto of any supplemental
indenture pursuant to this Section, the Indenture Trustee shall mail to the
Holders of the Notes to which such amendment or supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Indenture Trustee to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
Section 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article or the modifications thereby of the trusts created by
this Indenture, the Indenture Trustee shall be entitled to receive, and subject
to Sections 6.01 and 6.02 shall be fully protected in relying upon, an Opinion
of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Indenture Trustee may, but shall
not be obligated to, enter into any such supplemental indenture that affects the
Indenture Trustee's own rights, duties, liabilities or immunities under this
Indenture or otherwise.
Section 9.04. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to the Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
parties hereto and the Holders of the Notes shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
Section 9.05. Conformity With Trust Indenture Act. Every amendment of
this Indenture and every supplemental indenture executed pursuant to this
Article shall conform to the requirements of the Trust Indenture Act as then in
effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
Section 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture. If
the Issuer or the Indenture Trustee shall so determine, new notes so modified as
to conform, in the opinion of the Indenture Trustee and the Issuer, to any such
supplemental indenture may be prepared and executed by the Issuer and
authenticated and delivered by the Indenture Trustee in exchange for Outstanding
Notes.
39
<PAGE>
ARTICLE TEN
REDEMPTION OF NOTES
Section 10.01. Redemption.
(a) In the event that the Seller pursuant to Section 7.08 of the Sale and
Servicing Agreement purchases the corpus of the Trust, the Notes are subject to
redemption in whole, but not in part, on the Distribution Date on which such
repurchase occurs, for a purchase price equal to the outstanding principal, and
accrued interest on the Notes; provided, however, that the Issuer has available
funds sufficient to pay such amounts. Seller, the Servicer or the Issuer shall
furnish each Rating Agency notice of such redemption. If the Notes are to be
redeemed pursuant to this Section 10.01(a), the Servicer or the Issuer shall
furnish notice of such election to the Indenture Trustee not later than 20 days
prior to the Redemption Date and the Issuer shall deposit with the Indenture
Trustee in the Note Distribution Account the Redemption Price of the Notes to be
redeemed whereupon all such Notes shall be due and payable on the Redemption
Date upon the furnishing of a notice complying with Section 10.02 to each Holder
of the Notes.
(b) In the event that the assets of the Trust are sold pursuant to Section
9.02 of the Trust Agreement or Section 5.02(b) of this Indenture, the proceeds
of such sale shall be distributed as provided in Section 5.06. If amounts are to
be paid to Noteholders pursuant to this Section 10.01(b), the Servicer or the
Issuer shall, to the extent practicable, furnish notice of such event to the
Indenture Trustee not later than 20 days prior to the Redemption Date whereupon
all such amounts shall be payable on the Redemption Date.
Section 10.02. Form of Redemption Notice. Notice of redemption under
section 10.01(a) shall be given by the Indenture Trustee by first-class mail,
postage prepaid, mailed not less than five days prior to the applicable
Redemption Date to each Holder of Notes, as of the close of business on the
Record Date preceding the applicable Redemption Date, at such Holder's address
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Date Amount; and
(iii) the place where such Notes are to be surrendered for payment of
the Redemption Date Amount (which shall be the office or agency of the
Issuer to be maintained as provided in Section 3.02).
Notice of redemption of the Notes shall be given by the Indenture Trustee
in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
Section 10.03. Notes Payable on Redemption Date. The Notes or portions
thereof to be redeemed shall, following notice of redemption (if any) as
required by Section 10.02, on the Redemption Date become due and payable at the
Redemption Date Amount and (unless the Issuer shall default in the payment of
the Redemption Date Amount) no interest shall accrue on the Redemption Date
Amount for any period after the date to which accrued interest is calculated for
purposes of calculating the Redemption Date Amount.
40
<PAGE>
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01. Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Issuer to the Indenture Trustee
to take any action under any provision of this Indenture, the Issuer shall
furnish to the Indenture Trustee (i) an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, (ii) an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, and (iii) (if required by the TIA as so stated in the Opinion of
Counsel) an Independent Certificate from a firm of certified public accountants
meeting the applicable requirements of this section and TIA (S)314(c), except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished. No additional
certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion has
read or has caused to be read such covenant or condition and the definitions
herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to enable
such signatory to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any Collateral or other property or
securities with the Indenture Trustee that is to be made the basis for
authentication and delivery of the Notes or the release of any property subject
to the lien created by this Indenture, the Issuer shall, in addition to any
obligation imposed in Section 11.01(a) or elsewhere in this Indenture, furnish
to the Indenture Trustee an Officer's Certificate certifying or stating the
opinion of the signer thereof such certificate as to the fair value (within 90
days of such deposit) to the Issuer of the Collateral or other property or
securities to be so deposited.
(ii) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer shall also
deliver to the Indenture Trustee an Independent Certificate as to the named
matters, if the fair value to the Issuer of the property to be so deposited and
of all other such property made the basis of any such withdrawal or release
since the commencement of the then-current fiscal year of the Issuer, as set
forth in the certificates delivered pursuant to clause (i) above and this clause
(ii), is 10% or more of the Outstanding Amount of the Notes, but such a
certificate need not be furnished with respect to any property so deposited, if
the fair value thereof to the Issuer as set forth in the related Officer's
Certificate is less than $25,000 or less than one percent of the Outstanding
Amount of the Notes.
(iii) Other than with respect to any release described in clause (A)
or (B) of Section 11.01(b)(v), whenever any property or securities are to be
released from the lien created by this Indenture, the Issuer shall also furnish
to the Indenture Trustee an Officer's Certificate certifying or stating the
opinion of each person signing such certificate as to the fair value (within 90
days of such release) of the property or securities proposed to be released and
stating that
41
<PAGE>
in the opinion of such person the proposed release will not impair the security
created by this Indenture in contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Indenture
Trustee an Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer shall also
furnish to the Indenture Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property or securities (other than property described in clauses (A) or (B) of
Section 11.01(b)(v)) released from the lien created by this Indenture since the
commencement of the then current fiscal year, as set forth in the certificates
required by clause (iii) above and this clause (iv), equals 10% or more of the
Outstanding Amount of the Notes, but such certificate need not be furnished in
the case of any release of property or securities if the fair value thereof as
set forth in the related Officer's Certificate is less than $25,000 or less than
one percent of the then Outstanding Amount of the Notes.
(v) Notwithstanding any other provision of this Section, the Issuer
may, without compliance with the other provisions of this Section, (A) collect,
liquidate, sell or otherwise dispose of the Contracts as and to the extent
permitted or required by the Transaction Documents, (B) make cash payments out
of the Trust Accounts as and to the extent permitted or required by the
Transaction Documents, so long as the Issuer shall deliver to the Indenture
Trustee every six months, commencing December 15, 1997, an Officer's Certificate
stating that all the dispositions of Collateral described in clauses (A) or (B)
that occurred during the preceding six calendar months were in the ordinary
course of the Issuer's business and that the proceeds thereof were applied in
accordance with the Transaction Documents.
Section 11.02. Form of Documents Delivered to Indenture Trustee. In any
case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Person as to other matters, and any such Person may certify or given an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Servicer, the
Seller or the Issuer, stating that the information with respect to such factual
matters is in the possession of the Servicer, the Seller or the Issuer, unless
such counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, opinions or other instruments
under this Indenture, they may, but need not, be consolidated and form one
instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article Six.
Section 11.03. Acts of Noteholders.
(b) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Noteholders
may be embodied in and evidenced by one or more instruments of
42
<PAGE>
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly required,
to the Issuer. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.01) conclusive in
favor of the Indenture Trustee and the Issuer, if made in the manner provided in
this Section.
(c) The fact and date of the execution by any person of any such
instrument or writing may be proved in any manner that the Indenture Trustee
deems sufficient.
(d) The ownership of Notes shall be proved by the Note Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Notes shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Indenture
Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Note.
Section 11.04. Notices. All notices, demands, certificates, requests
and communications hereunder ("notices") shall be in writing and shall be
effective (a) upon receipt when sent through the U.S. mails, registered or
certified mail, return receipt requested, postage prepaid, with such receipt to
be effective the date of delivery indicated on the return receipt, or (b) one
Business Day after delivery to an overnight courier, or (c) on the date
personally delivered to an Authorized Officer of the party to which sent, or (d)
on the date transmitted by legible telecopier transmission with a confirmation
of receipt, in all cases addressed to the recipient as follows at the address
specified in the Sale and Servicing Agreement for such recipient.
Each party hereto may, by notice given in accordance herewith to each of the
other parties hereto, designate any further or different address to which
subsequent notices shall be sent.
Section 11.05. Notices to Noteholders; Waiver. Where this Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event, at his address as it appears on the Note Register, not later than the
latest date, and not earlier than the earliest date, prescribed for the giving
of such notice. In any case where notice to Noteholders is given by mail,
neither the failure to mail such notice nor any defect in any notice so mailed
to any particular Noteholder shall affect the sufficiency of such notice with
respect to other Noteholders, and any notice that is mailed in the manner herein
provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall be filed with the Indenture Trustee but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event of Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Indenture Trustee shall be deemed to be a
sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure to
give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
43
<PAGE>
Section 11.06. Alternate Payment and Notice Provisions. Notwithstanding
any provisions of this Indenture or any of the Notes to the contrary, the Issuer
may enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Indenture Trustee or any Paying Agent to such Holder,
that is different from the methods provided for in this Indenture for such
payments or notices. The Issuer will furnish to the Indenture Trustee a copy of
each such agreement and the Indenture Trustee will cause payments to be made and
notices to be given in accordance with such agreements.
Section 11.07. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
Section 11.08. Successors and Assigns. All covenants and agreements in
this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors, co-Indenture Trustees and agents.
Section 11.09. Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 11.10. Benefits of Indenture. Nothing in this Indenture or in
the Notes, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder, and the Noteholders, and any other party
secured hereunder, and any other Person with an ownership interest in any part
of the Collateral, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
Section 11.11. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
Section 11.12. Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF [DELAWARE] AND THE OBLIGATIONS, RIGHTS,
AND REMEDIES OF THE PARTIES UNDER THE AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
Section 11.13. Counterparts. This Indenture may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
Section 11.14. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Indenture Trustee or any other counsel reasonably
acceptable to the Indenture Trustee and the Insurer) to the effect that such
recording is necessary either for the protection of the Noteholders or any other
Person secured hereunder or for the enforcement of any right or remedy granted
to the Indenture Trustee under this Indenture.
Section 11.15. Trust Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer, the Owner Trustee or
the Indenture Trustee on the Notes or under Indenture or any certificate or
other writing delivered in connection herewith or therewith, against (i) the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficiary interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Indenture Trustee or the Owner Trustee in its
individual capacity, except as any such Person may have expressly agreed (it
being understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity. For all purposes of
this Indenture, in the performance of any duties or obligations of the Issuer
hereunder,
44
<PAGE>
the Owner Trustee shall be subject to, and entitled to the benefits of, the
terms and provisions of Article Six, Seven and Eight of the Trust Agreement.
Section 11.16. No Petition. The parties hereto, by entering into this
Indenture, and each Noteholder, by accepting a Note or a beneficial interest in
a Note, hereby covenant and agree that they will not at any time institute
against the Seller, the Issuer or any General Partner, or join in any
institution against the Sellers, the Issuer or any General Partner thereof, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the other Transaction Documents.
Section 11.17. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Indenture Trustee, during the
Issuer's normal business hours, to examine all the books of account, records,
reports and other papers of the Issuer, to make copies and extracts therefrom,
to cause such books to be audited by independent certified public accountants,
and to discuss the Issuer's affairs, finances and accounts with the Issuer's
officers, employees and independent certified public accountants, all at such
reasonable times and as often as may be reasonably requested, the Indenture
Trustee shall and shall cause its representatives to hold in confidence all such
information except to the extent disclosure may be required by law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Indenture Trustee may reasonably determine that such
disclosure is consistent with its obligations hereunder.
Section 11.18. Conflict with Trust Indenture Act. If any provision
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this Indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA (S)(S)310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed and delivered as of the day and year first above written.
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
By: [ ], not in its
individual capacity but solely on behalf
of the Issuer as Owner Trustee under the
Trust Agreement
By:
-------------------------------------
Printed Name:
---------------------
Title:
----------------------------
[_________], , not in its individual
capacity but solely as Indenture Trustee
By:
-----------------------------------------
Printed Name:
--------------
Title: Vice President
46
<PAGE>
STATE OF ________ )
) ss
COUNTY OF ____ )
On_______________before me,______________________________________________,
[insert date] [Here insert name and title of notary]
personally appeared __________________________________________________________,
[_] personally known to me, or
[_] proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument,
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ties), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which such person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature__________________________ [Seal]
47
<PAGE>
STATE OF ________ )
) ss
COUNTY OF ____ )
On_______________before me,______________________________________________,
[insert date] [Here insert name and title of notary]
personally appeared __________________________________________________________,
[_] personally known to me, or
[_] proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument,
and acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ties), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which such person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature______________________ [Seal]
48
<PAGE>
EXHIBIT A
FORM OF SALE AND SERVICING AGREEMENT
A-1
<PAGE>
EXHIBIT B
FORM OF CLASS A-1 NOTE
THIS SECURITY IS NOT A SAVINGS ACCOUNT OR DEPOSIT AND IT IS NOT INSURED BY
THE UNITED STATES OR ANY AGENCY OF FUND OF THE UNITED STATES.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN FULL ON THE DATE SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
___% EQUIPMENT RECEIVABLE BACKED NOTES, CLASS A-1
REGISTERED $ ______________________________
No. R-
Heller Equipment Asset Receivables Trust 1997-1, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [________], or
registered assigns, the principal sum of ___________ ($_____) payable on the
earlier of _______, 199__ (the "Class A-1 Maturity Date") and the Redemption
Date, if any, pursuant to Sections 10.01 of the Indenture referred to on the
reverse hereof.
The Issuer will pay interest on this Note at the rate per annum shown above
on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in Section 3.01 of the Indenture. Interest on this Note will accrue
for each Distribution Date from the most recent Distribution Date on which
interest has been paid to but excluding such Distribution Date or, if no
interest has yet been paid, from the Closing Date. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. Such principal of and
interest on this Note shall be paid the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note shall
not be entitled to any benefit under the indenture referred to on the reverse
hereof, or be valid or obligatory for any purpose.
B-1
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by an Authorized Officer, as of the date set forth
below.
Date: August ___, 1997 HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
By: [________________________], not in its
individual capacity but solely on behalf
of the Issuer as Owner Trustee, under the
Trust Agreement
By:
-------------------------------------
Printed Name:
------------------------
Title:
-------------------------------
B-2
<PAGE>
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-
mentioned Indenture.
[_______________________]
not in its individual capacity but solely as
Indenture Trustee
By:
------------------------------------------
Authorized Signatory
B-3
<PAGE>
[REVERSE OF CLASS A-1 NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its ___% Equipment Receivable Backed Notes, Class A-1 (the "Class
A-1 Notes"), all issued under an Indenture, dated as of August [__], 1997 (the
"Indenture"), among the Issuer and [_____], as Indenture Trustee (the "Indenture
Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a statement of the respective rights and obligations
thereunder of the Issuer, the Indenture Trustee and the Holders of the Notes.
The Class A-1 Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Class A-1 Notes and the other Notes described in the Indenture
(collectively, the "Notes") are and will be equally and ratably secured by the
collateral pledged as security therefor as provided in the Indenture subject to
the subordination of certain Classes of Notes under certain circumstances as
described in the Indenture and the Sale and Servicing Agreement.
Principal of the Class A-1 Notes will be payable on the earlier of the
Class A-1 Maturity Date and the Redemption Date, if any, selected pursuant to
the Indenture. Notwithstanding the foregoing, the entire unpaid principal
amount of the Class A-1 Notes shall be due and payable on the date on which an
Event of Default shall have occurred and be continuing and the Indenture Trustee
or the Holders of the Notes representing not less than 66 - 2/3% of the
Outstanding Amount of the Notes, voting together as a single class, have
declared the Notes to be immediately due and payable in the manner provided in
the Indenture. All principal payments on the Class A-1 Notes shall be made pro
rata to the Class A-1 Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution Date
shall be made by wire transfer to the account to the Person whose name appears
as the Registered Holder of this Note (or one or more Predecessor Notes) on the
Note Register as of the close of business on each Record Date, payments will be
made by wire transfer in immediately available funds to the account designated
by such nominee. Such checks shall be mailed to the Person entitled thereto at
the address of such Person as it appears on the Note Register as of the
applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) affected by any payments made on any Distribution
Date shall be binding upon all future Holders of this Note and of any Note
issued upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be available, as
provided in the Indenture, for payment in full of the then remaining unpaid
principal amount of this Note on a Distribution Date, then the Indenture
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Registered Holder hereof as of the Record Date preceding such
Distribution Date by notice mailed within five days of such Distribution Date
and the amount then due and payable shall be payable only upon presentation and
surrender of this Note at the Corporate Trust Office of the Indenture Trustee or
at the office of the Indenture Trustee's agent appointed for such purposes
located in the City of Chicago, Illinois.
The Issuer shall pay interest on overdue installments of interest at the
Class A-1 Interest Rate to the extent lawful.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an eligible guarantor
institution which is a participant in the Securities Transfer Agent's Medallion
Program (STAMP) or similar signature guarantee program, and such other documents
as the Indenture Trustee may require, and thereupon one or more new program, and
such other documents as the Indenture Trustee may require, and thereupon one or
more new Notes of authorized denominations and in the same aggregate principal
amount will be issued to the designated transferee or transferees. No service
charge will be charged for any
B-4
<PAGE>
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder by acceptance of a Note or a beneficial interest in a Note
covenants and agrees that no recourse may be taken, directly or indirectly, with
respect to the obligations of the Issuer, the Owner Trustee or the Indenture
Trustee on the Notes or under the Indenture or any certificate or other writing
delivered in connection therewith, against (i) the Indenture Trustee or the
Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of the Indenture Trustee or the Owner Trustee in its
individual capacity, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in its individual capacity, except as any
such Person may have expressly agreed and except that any such partner, owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Each Noteholder, by acceptance of a Note or a beneficial interest in a Note
covenants and agrees that by accepting the benefits of the Indenture and such
Note that such Noteholder will not at any time institute against the Seller or
the Issuer, or join in any institution against the Trust Depositor or the Issuer
of, any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, the Indenture or the
Transaction Documents.
The Issuer has entered into the Indenture, and this Note is issued with the
intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness which is solely
secured by the Collateral 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). Each Noteholder, by acceptance of a Note (and each
Noteholder by acceptance of a beneficial interest in a Note), agrees to treat
the Notes for the federal, state and local income, single business and franchise
tax purposes as indebtedness.
Prior to the due presentment for registration of transfer of this Note, the
Issuer and the Indenture Trustee and any agent of the Issuer and the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Noteholders under the Indenture at any time by the
Issuer and the Noteholders representing 66 2/3% of the Outstanding Amount of the
Notes. The Indenture also contains provisions permitting the Noteholders
representing specified percentages of the Outstanding Amount of the Notes, on
behalf of the Noteholders, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Noteholder (or any one
of more Predecessor Notes) shall be conclusive and binding upon such Holders and
upon all future Noteholders and of any Note issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent or waiver is made upon this Note. The Indenture also permits
the Indenture Trustee to amend or waive certain terms and conditions set forth
in the Indenture without the consent of Noteholders issued thereunder.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the laws
of the State of Illinois, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
A-5
<PAGE>
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
A-6
<PAGE>
EXHIBIT C
FORM OF CLASS A-2 NOTE
THIS SECURITY IS NOT A SAVINGS ACCOUNT OR DEPOSIT AND IT IS NOT INSURED BY
THE UNITED STATES OR ANY AGENCY OF FUND OF THE UNITED STATES.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN FULL ON THE DATE SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
HELLER EQUIPMENT ASSET RECEIVABLES TRUST 1997-1
___% RECEIVABLE BACKED NOTES, CLASS A-2
REGISTERED $____________
No. R-
Heller Equipment Asset Receivables Trust 1997-1, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [___________], or
registered assigns, the principal sum of ___________ ($__________) payable on
the earlier of _______, ____ (the "Class A-2 Maturity Date") and the Redemption
Date, if any, pursuant to Section 10.01 of the Indenture referred to on the
reverse hereof. No payments of principal of the Class A-2 Notes shall be made
until the principal on the Class A-1 Notes have been paid in full.
The Issuer will pay interest on this Note at the rate per annum shown above
on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date), subject to certain limitations
contained in the Indenture. Interest on this Note will accrue for each
Distribution Date from the most recent Distribution Date on which interest has
been paid to but excluding such Distribution Date or, if no interest has yet
been paid, from the Closing Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months. Such principal of and interest on this
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Indenture Trustee whose name appears below by manual signature, this Note shall
not be entitled to any benefit under the indenture referred to on the reverse
hereof, or be valid or obligatory for any purpose.
C-1
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
Date: August ___, 1997 HELLER EQUIPMENT ASSET RECEIVABLES
TRUST 1997-1
By: [________________________], not in
its individual capacity but solely on
behalf of the Issuer as Owner
Trustee, under the Trust Agreement
By: _________________________________
Printed Name: ___________________
Title: __________________________
INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the within-
mentioned Indenture.
[________________]
not in its individual capacity but
solely as Indenture Trustee
By: _________________________________
Authorized Signatory
C-2
<PAGE>
[REVERSE OF CLASS A-2 NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its ___% Equipment Receivable Backed Notes, Class A-2 (the "Class
A-2 Notes"), all issued under an Indenture, dated as of August [__], 1997 (the
"Indenture"), among the Issuer and [________], as Indenture Trustee (the
"Indenture Trustee"), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Class A-2 Notes and the other Classes of Notes described in the
Indenture (collectively, the "Notes") are and will be equally and ratably
secured by the Collateral pledged as security therefor as provided in the
Indenture subject to _________.
Principal of the Class A-2 Notes will be payable on the earlier of the
Class A-2 Maturity Date and the Redemption Date, if any, pursuant to Section
10.01 of the Indenture. Notwithstanding the foregoing, the entire unpaid
principal amount of the Class A-2 Notes shall be due and payable on the date on
which an Event of Default shall have occurred and be continuing unless the
Holders of the Notes representing not less than 66 2/3 of the Outstanding Amount
of the Notes, voting together as a single class, waive such Event of Default.
All principal payments on the Class A-2 Notes shall be made pro rata to the
Class A-2 Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution Date
shall be made by check mailed to the Person whose name appears as the Registered
Holder of this Note (or one or more Predecessor Notes) on the Note Register as
of the close of business on each Record Date, except that with respect to Notes
registered on the Record Date in the name of nominee of the Clearing Agency
(initially, such nominee to be Cede & Co.), payments will be made by wire
transfer in immediately available funds to the account designated by such
nominee. Such checks shall be mailed to the Person entitled thereto at the
address of such Person as it appears on the Note Register as of the applicable
Record Date without requiring that this Note be submitted for notation of
payment. Any reduction in the principal amount of this Note (or any one or more
Predecessor Notes) affected by any payments made on any Distribution Date shall
be binding upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon. If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Note on a Distribution Date, then the Indenture Trustee, in the name of and
on behalf of the Issuer, will notify the Person who was the Registered Holder
hereof as of the Record Date preceding such Distribution Date by notice mailed
within five days of such Distribution Date and the amount then due and payable
shall be payable only upon presentation and surrender of this Note at the
Indenture Trustee's principal Corporate Trust Office or at the office of the
Indenture Trustee's agent appointed for such purposes located in the City of
Chicago, Illinois.
The Issuer shall pay interest on overdue installments of interest at the
Class A-2 Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to Section
10.01 of the Indenture, in whole, but not in part, at the option of the Sellers,
on any Distribution Date on or after the date on which the ADCB of all Contracts
then in the Contracts Pool is less than 10% of the initial ADCB of Contracts in
the Contracts Pool as of the Initial Cutoff Date.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an eligible guarantor
institution which is a participant in the Securities Transfer Agent's Medallion
Program (STAMP) or similar signature guarantee program, and such other documents
as the Indenture Trustee may require, and thereupon one or more new program, and
such other documents as the Indenture
C-3
<PAGE>
Trustee may require, and thereupon one or more new Class A-2 Notes of authorized
denomination and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder, by acceptance of a Note or a beneficial interest in a Note
covenants and agrees that no recourse may be taken, directly or indirectly, with
respect to the obligations of the Issuer, the Owner Trustee or the Indenture
Trustee on the Notes or under the Indenture or any certificate or other writing
delivered in connection therewith, against (i) the Indenture Trustee or the
Owner Trustee in their individual capacities, (ii) any owner of a beneficial
interest in the Issuer or (iii) any partner, owner, beneficiary, agent, officer,
director or employee of the Indenture Trustee or the Owner Trustee in their
individual capacities, any holder of a beneficial interest in the Issuer, the
Owner Trustee or the Indenture Trustee or of any successor or assign of the
Indenture Trustee or the Owner Trustee in their individual capacities, except as
any such Person may have expressly agreed and except that any such partner,
owner or beneficiary shall be fully liable, to the extent provided by applicable
law, for any unpaid consideration for stock, unpaid capital contribution or
failure to pay any installment or call owing to such entity.
Each Noteholder, by acceptance of a Note or a beneficial interest in a Note
covenants and agrees that by accepting the benefits of the Indenture and such
Note that such Noteholder will not at any time institute against the Seller or
the Issuer, or join in any institution against the Trust Depositor or the Issuer
of any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under any United States federal or state bankruptcy or similar law
in connection with any obligations relating to the Notes, the Indenture or the
Transaction Documents.
The Issuer has entered into the Indenture, and this Note is issued with the
intention that, for federal, state and local income, single business and
franchise tax purposes, the Notes will qualify as indebtedness which is solely
secured by the Collateral 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). Each Noteholder, by acceptance of a Note or of a
beneficial interest in a Note, agrees to treat the Notes for the federal, state
and local income, single business and franchise tax purposes as indebtedness.
Prior to the due presentment for registration of transfer of this Note, the
Issuer and the Indenture Trustee and any agent of the Issuer, the Indenture
Trustee may treat the Person in whose name this Note (as of the day of
determination or as of such other date as may be specified in the Indenture) is
registered as the owner hereof for all purposes, whether or not this Note be
overdue, and neither the Issuer, the Indenture Trustee nor any such agent shall
be affected by notice to the contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the of Holders of Notes representing 66
2/3% of the Outstanding Amount of all of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of Notes representing
specified percentages of the Outstanding Amount of the Notes, on behalf of the
Holders of all the Notes, to waive compliance by the Issuer with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note (or
any one of more Predecessor Notes) shall be conclusive and binding upon such
Holders and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
C-4
<PAGE>
This Note and the Indenture shall be construed in accordance with the laws
of the State of Illinois, and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
C-5
<PAGE>
EXHIBIT D
FORM OF CLASS B NOTE
D-1
<PAGE>
EXHIBIT E
FORM OF CLASS C NOTE
E-1
<PAGE>
EXHIBIT F
FORM OF CLASS D NOTE
F-1
<PAGE>
EXHIBIT G
FORM OF NOTE ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Note, and all rights thereunder, hereby irrevocably constituting and
appointing
- --------------------------------------------------------------------------------
to transfer said Note on the books kept for registration thereof, with full
power of substitution in the premises.
Dated:
---------------
Signature Guaranteed:
- ----------------------------------- ----------------------------------
Signature must be guaranteed by an Notice: The signature(s) on this
eligible guarantor institution which assignment must correspond with the
is a participant in the Securities name(s) as it appears on the face of
Transfer Agent's Medallion Program the within Note in every particular,
(STAMP) or similar signature without alteration or enlargement or
guarantee program. any change whatsoever.
- --------------------------------------
(Authorized Officer)
G-1
<PAGE>
EXHIBIT H
FORM OF NOTE DEPOSITORY AGREEMENT
H-1
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
Trust Indenture
Act of 1939 Indenture
Section Section
- --------------- ---------
<S> <C>
310(a)............................................................... 6.11
310(b)............................................................... 6.11
310(c)............................................................... N.A.
311(a)............................................................... 6.12
311(b)............................................................... 6.12
311(c)............................................................... N.A.
312(a)............................................................... 7.01, 7.02
312(b)............................................................... 7.02
312(c)............................................................... 7.02
313(a)............................................................... 7.04
313(b)............................................................... 7.04
313(c)............................................................... 7.04
314(a)............................................................... 7.03
314(b)............................................................... 3.06
314(c)............................................................... 11.01
314(d)............................................................... 11.01
314(e)............................................................... 11.01
314(f)............................................................... N.A.
315(a)............................................................... 6.01
315(b)............................................................... 6.05
315(c)............................................................... 6.01
315(d)............................................................... 6.01
315(e)............................................................... 5.14
316(a)............................................................... 2.07, 5.04
316(b)............................................................... 9.02
316(c)............................................................... 1.01
317(a)............................................................... 5.03
317(b)............................................................... 3.03
318(a)............................................................... 11.18
</TABLE>
<PAGE>
Exhibit 5.1
August 21, 1997
Heller Funding Corporation
c/o Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Re: Class A-1, Class A-2, Class B and Class C Receivable-Backed Notes
Ladies and Gentlemen:
We have acted as special counsel to the Heller Equipment Assets
Receivables Trust 1997-1 (the "Trust") in connection with the filing by Heller
Funding Corporation (the "Company"), as trust depositor of the Trust, of the
registration statement on Form S-1 (File No. 333-30207) (such registration
statement, together with the exhibits and any amendments thereto, the
"Registration Statement"), registering $270,497,000 aggregate principal amount
of receivable-backed notes (the "Notes"). The Registration Statement has been
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act"). As described in the Registration
Statement, the Notes will be issued under and pursuant to the terms of a Sale
and Servicing Agreement, Trust Agreement and Indenture (collectively, the
"Agreements" and each, individually, an "Agreement"). Capitalized terms used but
not defined herein have the meanings given to them in the Registration
Statement.
This opinion letter is being delivered to you pursuant to the
requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
We are familiar with the proceedings to date with respect to the
proposed issuance and delivery of the Notes and have examined copies of the
Certificate of Incorporation and By-Laws of the Company, the Registration
Statement and the Prospectus included therein, the form of each Agreement and
such other documents, records and questions of law, and satisfied ourselves as
to such matters of fact, as we have considered relevant and necessary as a basis
for this opinion letter.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents that will be executed in connection with the issuance
of the Notes, we have assumed that the parties to such documents will have at
the time of execution of such documents, the power, corporate or other, to enter
into and perform all obligations thereunder and have also assumed the
<PAGE>
August 21, 1997
Page 2
due authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
of such documents. As to any facts material to the opinions expressed herein
which we did not independently establish or verify, we have relied upon oral and
written statements and representations of officers and other representatives of
the Company and others. In addition, we have also relied upon the accuracy and
completeness of all certificates and other statements, representations,
documents, records, financial statements and papers reviewed by us, and the
accuracy and completeness of all representations, warranties, schedules and
exhibits contained in such documents, with respect to the factual matters set
forth therein.
Based on the foregoing, we are of the opinion that when (i) the
Registration Statement, as finally amended, has become effective under the
Securities Act, (ii) the amount, price, interest rate and other principal terms
of the Notes have been duly approved by Board of Directors of the Company, (iii)
the applicable Agreements relating to such Notes have been duly executed and
delivered by the parties thereto in substantially the form filed as exhibits to
the Registration Statement, (iv) with respect to the Trust, the Certificate of
Trust has been duly executed and filed by the Owner Trustee with the Secretary
of State of the State of Delaware, (v) the Indenture has been qualified under
the Trust Indenture Act of 1939, as amended, and (vi) the Notes have been duly
executed and authenticated in accordance with the applicable Agreements, the
Notes will constitute legally valid and binding obligations of the Trust as
issuer thereof enforceable in accordance with their terms, and entitled to the
benefits of the applicable Agreements (subject to the effect of bankruptcy,
fraudulent conveyance or transfer, insolvency, reorganization, arrangement,
liquidation, conservatorship and moratorium laws and subject to the limitations
imposed by other laws and judicial decisions relating to or affecting the rights
of creditors generally, to general principles of equity, regardless of whether
enforcement is considered in proceedings in equity or at law, and to an implied
covenant of good faith and fair dealing).
We do not find it necessary for the purposes of this opinion letter to
cover, and accordingly we express no opinion as to, the application of the
securities or blue sky laws of the various states to the offering of the Notes.
This opinion letter is limited to the laws of the United States of
America, the State of Illinois and Title 12, Chapter 38 of the Delaware Code,
and we express no opinion with respect to the laws of any state or other
jurisdiction.
Our opinions set forth in this letter are based on the facts in
existence and the laws in effect on the date hereof and we expressly disclaim
any obligation to update our opinions herein, regardless of whether changes in
such facts or laws come to our attention after the delivery hereof.
We hereby consent to the filing of this opinion letter as an Exhibit
to the Registration Statement and to all references to our firm included in or
made a part of the Registration Statement.
<PAGE>
August 21, 1997
Page 3
In giving such consent, we do not concede that we are experts within the meaning
of the Securities Act or the rules and regulations thereunder or that this
consent is required by Section 7 of the Securities Act.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
Exhibit 8.1
Opinion of Winston & Strawn
with respect to Tax Matters
August 21, 1997
Re: Heller Funding Corporation
Registration Statement on Form S-1 (Reg. No. 333-30207)
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel to Heller Funding
Corporation, a Delaware corporation (the "Registrant"), in connection with the
proposed issuance and sale of its Class A-1 Receivable-Backed Notes, Series
1997-1, Class A-2 Receivable-Backed Notes, Series 1997-1, Class B
Receivable-Backed Notes, Series 1997-1, and Class C Receivable-Backed Notes,
Series 1997-1 (collectively the "Notes") to be issued from the Heller Equipment
Asset Receivables Trust, 1997-1, a limited purpose Delaware business trust (the
"Trust"). The property of the Trust will include certain conditional sale
agreements, finance leases, installment payment agreements with respect to
business equipment and computer software and other property. The Notes will be
issued pursuant to an indenture (the "Indenture") between the Trust and an
indenture trustee.
We have advised the Registrant with respect to the material federal
income tax consequences of the proposed issuance of the Notes to the holders
thereof. This advice is described under the headings "Summary of Terms--Federal
Income Tax Considerations" and "Federal Income Tax Consequences" in the
prospectus relating to the Notes (the "Prospectus"), which is a part of the
Registration Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") initially on June 27,
1997, under the Securities Act of 1933, as amended (the "Act"), for the
registration of the Notes under the Act. Such description does not purport to
discuss all possible federal income tax ramifications of the proposed issuance
of the Notes to the holders thereof in light of their own investment or tax
circumstances, but with respect to those tax consequences that are discussed, in
our opinion, the description fairly summarizes the federal income tax
considerations that are likely to be material to a holder of Notes. Furthermore,
we hereby confirm, as specified in the Prospectus, that for federal income tax
purposes (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.
<PAGE>
Our opinion is based upon the current provisions of the Code, Treasury
Regulations promulgated thereunder, current administrative rulings, judicial
decisions, and other applicable authorities, all as in effect on the date of
such opinions. All of the foregoing authorities are subject to change or new
interpretation, both prospectively and retroactively, and such changes or
interpretation, as well as the changes in the facts as they have been
represented to us or assumed by us, could affect our opinions. Our opinion does
not foreclose the possibility of a contrary determination by the Internal
Revenue Service (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. Furthermore, our opinion assumes that all the transactions
contemplated by the Prospectus will be consummated in accordance with the terms
of the Prospectus, including without limitation, that holders of Notes will
treat such Notes as indebtedness.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as counsel to the
Registrant) under the headings "Summary of Terms --Federal Income Tax
Considerations," "Federal Income Tax Consequences," and "Legal Matters" in the
Prospectus forming a part of the Registration Statement, without implying or
admitting that we are "experts" within the meaning of the Act or the rules and
regulations of the Commission issued thereunder, with respect to any part of the
Registration Statement, including this exhibit.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____________________________
x CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
- ------ SECTION 305(b)(2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Name,address and telephone number of Agent for Service)
_____________________________
Heller Equipment Asset Receivables Trust 1997-1
(Exact name of obligor as specified in its charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Wilmington Trust Company
Attn: Corporate Trust Administration
Rodney Square North
1100 North Market Square
Wilmington, DE 19890-0001
(Address of principal executive offices) (Zip code)
_____________________________
Receivable Backed Notes of Heller Equipment Asset Receivables Trust 1997-1
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1, pursuant to General
Instruction B, because the obligor is not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
Item 16. List of Exhibits. List below all exhibits filed as a part of this
Statement of Eligibility.
Exhibit 1. a. A copy of the Articles of Association of the trustee now in
effect.*
Exhibit 2. a. A copy of the certificate of authority of the trustee to
commence business issued June 28, 1872, by the Comptroller
of the Currency to The Northwestern National Bank of
Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the consolidation
of The Northwestern National Bank of Minneapolis and The
Minnesota Loan and Trust Company of Minneapolis, with the
surviving entity being titled Northwestern National Bank
and Trust Company of Minneapolis.*
c. A copy of the certificate of the Acting Comptroller of the
Currency dated January 12, 1943, as to change of corporate
title of Northwestern National Bank and Trust Company of
Minneapolis to Northwestern National Bank of Minneapolis.*
d. A copy of the letter dated May 12, 1983 from the Regional
Counsel, Comptroller of the Currency, acknowledging receipt
of notice of name change effective May 1, 1983 from
Northwestern National Bank of Minneapolis to Norwest Bank
Minneapolis, National Association.*
<PAGE>
e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller of the
Currency certifying approval of consolidation and merger
effective January 1, 1988 of Norwest Bank Minneapolis,
National Association with various other banks under the
title of "Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the Federal
Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.
Exhibit 7. Consolidated Reports of Condition and Income of the trustee as
of June 30, 1997.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to the corresponding numbered exibits to the
form T-1 filed as Exhibit 25 to registration statement number
33-66026.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 21st day of August, 1997.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Gary L. Nelson
------------------------------
Gary L. Nelson
Assistant Vice President
<PAGE>
EXHIBIT 6
August 21, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Marianna C. Stershic
------------------------------
Marianna C. Stershic
Corporate Trust Officer
