<PAGE>
PROSPECTUS
NEWCOURT RECEIVABLES ASSET TRUST 1997-1
$127,076,485 5.815% CLASS A-1 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$88,284,716 6.040% CLASS A-2 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$107,011,777 6.110% CLASS A-3 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$167,205,901 6.193% CLASS A-4 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$18,727,061 6.320% CLASS B RECEIVABLE-BACKED NOTES, SERIES 1997-1
$10,701,178 6.560% CLASS C RECEIVABLE-BACKED NOTES, SERIES 1997-1
NEWCOURT RECEIVABLES CORPORATION II,
TRUST DEPOSITOR
NEWCOURT FINANCIAL USA INC.
SERVICER
------------------------------
The Newcourt Receivables Asset Trust 1997-1 (the "Trust" or the "Issuer"), a
limited purpose Delaware business trust, was formed pursuant to a Trust
Agreement, dated as of November 1, 1997, between Newcourt Receivables
Corporation II ("NRC II"), as Trust Depositor (in such capacity, the "Trust
Depositor"), and Chase Manhattan Bank Delaware, as Owner Trustee (the "Owner
Trustee"). The Trust Depositor is a wholly-owned, limited purpose, bankruptcy
remote subsidiary of Newcourt Credit Group USA Inc.; Newcourt Credit Group USA
Inc. is a wholly-owned subsidiary of Newcourt Credit Group Inc. ("Newcourt").
The Trust will issue $127,076,485 aggregate principal amount of 5.815% Class A-1
Receivable-Backed Notes, Series 1997-1 (the "Class A-1 Notes"), $88,284,716
aggregate principal amount of 6.040% Class A-2 Receivable-Backed Notes, Series
1997-1 (the "Class A-2 Notes"), $107,011,777 aggregate principal amount of
6.110% Class A-3 Receivable-Backed Notes, Series 1997-1 (the "Class A-3 Notes"),
$167,205,901 aggregate principal amount of 6.193% Class A-4 Receivable-Backed
Notes, Series 1997-1 (the "Class A-4 Notes;" and together with the Class A-1
Notes, the Class A-2 Notes and the Class A-3 Notes, the "Class A Notes"),
$18,727,061 aggregate principal amount of 6.320% Class B Receivable-Backed
Notes, Series 1997-1 (the "Class B Notes") and $10,701,178 aggregate principal
amount of 6.560% Class C Receivable-Backed Notes, Series 1997-1 (the "Class C
Notes;" and together with the Class A-1 Notes, the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes and the 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 November 1, 1997 (the "Indenture") to be
entered into between the Trust and Manufacturers and Traders Trust Company, as
Indenture Trustee (the "Indenture Trustee"). The Trust will concurrently issue
(COVER CONTINUED ON NEXT PAGE)
----------------------------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS
SET FORTH UNDER "RISK FACTORS" ON PAGE 21 OF THIS PROSPECTUS.
THE NOTES ARE SECURED BY THE ASSETS OF THE TRUST. THE PROCEEDS OF THE ASSETS
OF THE TRUST AND AMOUNTS ON DEPOSIT IN THE RESERVE FUND ARE THE ONLY SOURCES OF
PAYMENTS ON THE NOTES. 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, NEWCOURT USA, NEWCOURT 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.
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND
PRICE TO PUBLIC COMMISSIONS (2)
<S> <C> <C>
Per Class A-1 Note................................................ 100.000% 0.135%
Per Class A-2 Note................................................ 99.997% 0.175%
Per Class A-3 Note................................................ 99.998% 0.200%
Per Class A-4 Note................................................ 100.000% 0.250%
Per Class B Note.................................................. 100.000% 0.350%
Per Class C Note.................................................. 99.993% 0.500%
Total............................................................. $519,001,580 $1,077,140
<CAPTION>
PROCEEDS TO ISSUER
(1)(3)
<S> <C>
Per Class A-1 Note................................................ 99.865%
Per Class A-2 Note................................................ 99.822%
Per Class A-3 Note................................................ 99.798%
Per Class A-4 Note................................................ 99.750%
Per Class B Note.................................................. 99.650%
Per Class C Note.................................................. 99.493%
Total............................................................. $517,924,440
</TABLE>
(1) Plus accrued interest, if any, at the applicable Interest Rate from November
20, 1997.
(2) The Issuer, Newcourt and Newcourt Financial USA Inc. have agreed to
indemnify the Underwriters against certain liabilities, including under the
Securities Act of 1933.
(3) Before deducting expenses of this Offering estimated to be $850,000.
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by them and subject to their 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 though Cedel Bank, S.A. or the Euroclear System, on or about
November 26, 1997.
UNDERWRITERS OF THE CLASS A NOTES
FIRST UNION CAPITAL MARKETS CORP.
DEUTSCHE MORGAN GRENFELL
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
UNDERWRITER OF THE CLASS B NOTES AND CLASS C NOTES
FIRST UNION CAPITAL MARKETS CORP.
THE DATE OF THIS PROSPECTUS IS NOVEMBER 24, 1997.
<PAGE>
(COVER PAGE CONTINUED)
$16,051,766 aggregate principal amount of 9.210% Class D Receivable-Backed
Notes, Series 1997-1 (the "SUBORDINATED NOTES"), as well as the Class E
Receivable-Backed Certificate, Series 1997-1 (the "CERTIFICATE"). The
Certificate will not bear interest and have certain rights to the monies in the
Reserve Fund (as defined in "SUMMARY OF TERMS - RESERVE FUND") and certain other
excess funds after the payment of all principal and interest on the Notes and
Subordinated Notes (the Certificate, together with the Subordinated Notes, being
collectively the "SUBORDINATED SECURITIES"). The Subordinated Notes will be
issued pursuant to the Indenture and the Certificate will represent fractional
undivided beneficial equity interests in the Trust and will be issued pursuant
to the Trust Agreement. The Subordinated Securities are not being offered
pursuant to this Prospectus.
The property of the Trust (the "TRUST ASSETS") will include (a) a pool of
contracts originated or acquired by Newcourt Financial USA Inc. ("NEWCOURT USA",
a wholly-owned subsidiary of Newcourt Credit Group USA Inc.) 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 -TRUST ASSETS - THE
CONTRACTS", collectively, the "CONTRACTS") consisting of (i) conditional sale
agreements, promissory notes with related security agreements, operating and
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 a wide variety of new
and used information technology equipment (such as mainframe and mini computers,
computer work stations, personal computers, data storage devices and other
computer related peripheral equipment), communications equipment (such as
telephone switching and networking systems), commercial business and industrial
equipment (such as printing presses, machine tools and other manufacturing
equipment, photocopiers, facsimile machines and other office equipment, energy
savings and control equipment, automotive diagnostic and automated testing
equipment), medical equipment (such as diagnostic and therapeutic examination
equipment for radiology, nuclear medicine and ultrasound and laboratory analysis
equipment), resources equipment (such as feller-bunchers and grapplers), and
transportation and construction equipment (such as heavy and medium duty trucks
and highway trailers, school buses, bulldozers, loaders, graters, excavators,
forklifts and other materials handling equipment, golf carts and other road and
off-road machinery) (collectively, 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 Newcourt USA under finance program agreements and assignments
with Vendors (as defined in "SUMMARY OF TERMS - TRUST ASSETS - VENDOR
AGREEMENTS") of the Financed Items, as well as the Equipment or a security
interest in the Equipment, as more fully described herein, 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 on and after October 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", excluding collections relating to Scheduled Payments due prior to the
related Cutoff Date, and (c) monies, to the extent available, in the Reserve
Fund. The Contracts and related interests will be conveyed by Newcourt USA (in
such capacity, the "SELLER") to the Trust Depositor pursuant to a Transfer and
Sale Agreement dated as of November 1, 1997 (the "TRANSFER AND SALE AGREEMENT")
by and between Newcourt USA 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 November 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 Newcourt USA in its capacity as
Servicer thereunder (Newcourt USA being, in such capacity, the "SERVICER").
Interest on the Notes and Subordinated Notes will be payable monthly in
arrears on the twentieth (20th) day of the month (or, if such day is not a
Business Day the next succeeding Business Day) beginning on December 22, 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 to holders of record as of
the last day of the prior Collection Period (the "RECORD DATE"). The
Certificate does not bear interest. Principal payments with respect to the
Notes and Subordinated Notes will be payable on each Distribution Date to the
holders thereof as of the related Record Date as described herein. The stated
maturity date with respect to the Class A-1 Notes, the Class A-2 Notes and the
Class A-3 Notes is the December 1998 Distribution Date, the June 2000
Distribution Date and the May 2001 Distribution Date, respectively, and with
respect to all other Notes and Subordinated Securities is the May 2005
Distribution Date. The actual payment in full, however, of the Notes or
Subordinated
2
<PAGE>
Securities could and is expected to occur earlier than such stated maturity
dates. See "SUMMARY OF TERMS--TERMS OF THE NOTES--B. PRINCIPAL" and
"C.--OPTIONAL REDEMPTION" herein.
The Notes and the Subordinated Securities 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 and the Subordinated 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 A-3 Notes, the Class A-4
Notes, the Class B Notes and the Class C Notes. Payments of interest due on
Class C Notes will be subordinated in priority to payments of interest on the
Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes
and the Class B Notes. Payments of interest due on the Class B Notes will be
subordinated in priority to payments of interest due on the Class A-1 Notes, the
Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes. Payments of
interest due on the Class A-4 Notes will be subordinated in priority to payments
of interest due on the Class A-3 Notes, the Class A-2 Notes and the Class A-1
Notes, subject to the limitation described in the second succeeding sentence.
Payments of interest due on the Class A-3 Notes, will be subordinated in
priority to payments of interest due on the Class A-2 Notes and the Class A-1
Notes, subject to the limitation described in the next succeeding sentence.
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 due on the Class A-4 Notes, the
Class A-3 Notes, the Class A-2 Notes and the 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 A-3 Notes, the Class A-4 Notes, the Class B Notes and the 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,
the Class A-3 Notes, the Class A-4 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, the Class A-2 Notes, the Class A-3 Notes and
the Class A-4 Notes. Payments of principal on the Class A-4 Notes will be
subordinated in priority to payments of principal on the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes. Payments of principal on the Class A-3
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 Subordinated Securities 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 UNDERWRITERS 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
3
<PAGE>
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 UNDERWRITERS 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 101.
There are material risks associated with an investment in the Notes. See "RISK
FACTORS" on page 21 for a discussion of certain factors that investors should
consider before making an investment in the Notes.
Issuer . . . . . . . . . . . Newcourt Receivables Asset 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 November 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. . . . . . . Newcourt Receivables Corporation II, a
Delaware corporation (the "TRUST DEPOSITOR")
and a wholly-owned, limited purpose
subsidiary of Newcourt Credit Group USA Inc.
The Trust Depositor's principal executive
offices are located at 2700 Bank One Tower,
111 Monument Circle, Suite 300, Indianapolis,
Indiana 46204 and its telephone number is
(317) 229-3406.
Seller/Servicer. . . . . . . Newcourt Financial USA Inc., a Delaware
corporation ("NEWCOURT USA"; or, in its
separate capacities as a Seller under the
Transfer and Sale Agreement, the "SELLER", or
as Servicer under the Sale and Servicing
Agreement described herein, the "SERVICER"),
which is a wholly-owned subsidiary of
Newcourt Credit Group USA Inc. which, in turn
is a wholly owed subsidiary of Newcourt
Credit Group Inc. ("NEWCOURT"). Newcourt
USA's offices are located at 2700 Bank One
Tower, 111 Monument Tower Circle, Suite 2700
Indianapolis, Indiana 46204 and its telephone
number is (317) 767-0077. The servicing
obligations of Newcourt USA under the Sale
and Servicing Agreement will be guaranteed by
Newcourt.
Indenture Trustee. . . . . . Manufacturers and Traders Trust Company, as
indenture trustee under the Indenture
described herein (the "INDENTURE TRUSTEE").
The Indenture Trustee's offices are located
at 1 M&T Plaza, Buffalo, New York 14203.
Owner Trustee. . . . . . . . Chase Manhattan Bank Delaware, as owner
trustee under the Trust Agreement (the "OWNER
TRUSTEE"). The Owner Trustee's offices are
located at 1201 Market Street, Wilmington,
Delaware, 19801.
Cutoff Dates . . . . . . . . With respect to the Contracts transferred to
the Trust on the Closing Date, October 31,
1997, and with respect to any Additional
Contract or Substitute Contract (see "SUMMARY
OF TERMS--A. 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 November 26, 1997 (the "CLOSING
DATE").
5
<PAGE>
Collection Periods,. . . . . A Collection Period is the period from and
Calculation Dates, including the first day of each calendar
Distribution Dates month to and including the last day of the
and Record Dates . . . . . . calendar month (such first day, the
"CALCULATION DATE" and each such period, a
"COLLECTION PERIOD"). A Distribution Date is
the twentieth (20th) 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 Indianapolis,
Indiana, Toronto, Ontario, Canada 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 December 22, 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. . . . . . . . . . $127,076,485 aggregate principal amount (the
"INITIAL CLASS A-1 NOTE PRINCIPAL BALANCE")
of 5.815% Class A-1 Receivable-Backed Notes,
Series 1997-1 (the "CLASS A-1 NOTES");
$88,284,716 aggregate principal amount (the
"INITIAL CLASS A-2 NOTE PRINCIPAL BALANCE")
of 6.040% Class A-2 Receivable-Backed
Notes, Series 1997-1 (the "CLASS A-2 NOTES");
$107,011,777 aggregate principal amount (the
"INITIAL CLASS A-3 NOTE PRINCIPAL BALANCE")
of 6.110% Class A-3 Receivable-Backed Notes,
Series 1997-1 (the "CLASS A-3 NOTES");
$167,205,901 aggregate principal amount (the
"INITIAL CLASS A-4 NOTE PRINCIPAL BALANCE")
of 6.193% Class A-4 Receivable-Backed
Notes, Series 1997-1 (the "CLASS A-4 NOTES";
AND TOGETHER WITH THE CLASS A-1 NOTES, CLASS
A-2 NOTES AND CLASS A-3 NOTES, THE "CLASS A
NOTES"); $18,727,061 aggregate principal
amount (the "INITIAL CLASS B NOTE PRINCIPAL
BALANCE") of 6.320% Class B
Receivable-Backed Notes, Series 1997-1 (the
"CLASS B NOTES"); and $10,701,178 aggregate
principal amount (the "INITIAL CLASS C NOTE
PRINCIPAL BALANCE") of 6.560% Class C
Receivable-Backed Notes, Series 1997-1 (the
"CLASS C NOTES"; and together with the Class
A-1 Notes, the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes and the Class B
Notes, the "NOTES"). The Initial Class A-1
Note Principal Balance is equal to
approximately 23.75% of the initial Aggregate
Discounted Contract Balance (as defined
herein) of the Contracts, the Initial Class
A-2 Note Principal Balance is equal to
approximately 16.50% of the initial Aggregate
Discounted Contract Balance, the Initial
Class A-3 Note Principal Balance is equal to
approximately 20.00% of the initial Aggregate
Discounted Contract Balance of the Contracts,
the Initial Class A-4 Note Principal Balance
is equal to approximately 31.25% of the
initial Aggregate Discounted Contract Balance
of the Contracts, the Initial Class B Note
Principal Balance is equal to approximately
3.50% 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
November 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
6
<PAGE>
circumstances described herein. See
"DESCRIPTION OF THE NOTES--GENERAL" and
"--DEFINITIVE NOTES" and "--BOOK-ENTRY
REGISTRATION" herein. The Class A-2 Notes,
the Class A-3 Notes, the Class A-4 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 A-3 Notes, the
Class A-4 Notes, 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 A-4
Notes, the Class B Notes, the Class C Notes
and the Subordinated Securities will be
subordinated to the Class A-3 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-4 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.
The Subordinated Securities. On the Closing Date, the Trust will also
issue 9.210% Class D Receivables-Backed
Notes (the "SUBORDINATED NOTES" ) with an
aggregate principal balance of $16,051,766
(the "INITIAL CLASS D NOTE PRINCIPAL
BALANCE"), as well as the Class E Certificate
(the "CERTIFICATE", and, together with the
Subordinated Notes, the "SUBORDINATED
SECURITIES") with an initial certificate
balance of $8,025,883; the Certificate 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 3.00%
of the initial Aggregate Discounted
Contract Balance and will be issued
pursuant to the Indenture. The
Subordinated Notes are not being offered
and sold hereby and are expected to be
sold concurrently with the Notes in a
private placement.
B. Class E Certificate. . . The Certificate will represent
fractional undivided beneficial equity
interests in the Trust, including the
residual interest in amounts in the
Reserve Fund (after the payment of all
outstanding interest and principal on
the Notes and the Subordinated Notes),
and will be issued pursuant to the Trust
Agreement. The Certificates are not
being offered and sold hereby. The
Trust Depositor is expected initially to
retain the Certificate, although the
Certificate 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 Subordinated Securities 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 $535,058,884 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 from
and after the Cutoff Date applicable to such
Contracts, in the form of (A) Scheduled
Payments (as defined herein) inclusive of
such payments received through Vendor
recourse or support arrangements, but
excluding the Excluded Amounts,
(B) Prepayments (as defined herein), and
(C) Recoveries (including any derived from
the disposition of related Equipment)
received with respect to Defaulted Contracts
(in each case
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<PAGE>
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 amounts received
with respect to the Guaranteed Residual
Investments, (viii) 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, together with earnings on
the funds therein, up to the Reserve Fund
Amount 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"),
operating and 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 (which
may or may not be secured by such Financed
Items) or, in the case of Vendor Loans,
secured by End-User Contracts which, in turn,
cover Financed Items.
With respect to the Contracts, the Seller
will 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 other than Permitted Liens; (iii) each
Contract did not have any delinquent payment
thereon where such payment was delinquent for
more than 60 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 other than for a discharge in the
bankruptcy of the Obligor; 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 Seller
to be of lesser credit quality or
characteristics as those Contracts retained
by the Seller and not conveyed to the Trust).
With respect to Leases, the Seller will
represent in the Transfer and Sale Agreement
(i) that such Leases are "NET LEASES" and
contain "HELL OR HIGH WATER" provisions in
favor of the Seller, which obligates each
applicable lessee at various levels (each, a
"LESSEE") to make all payments scheduled
under its Lease, without setoff (to the
extent a Lease is not a "NET LEASE" which
contains a "HELL OR HIGH WATER" provision, in
which such instance, such Lease will receive
the benefit of a Vendor Guarantee (See "THE
CONTRACTS--PROGRAM AGREEMENTS WITH
VENDORS")), or (ii) with respect to 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 Discount Rate through the Distribution
Date following such date of repurchase or (y)
pursuant to the Transfer and Sale Agreement,
the Seller has 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.
8
<PAGE>
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 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 12,326 Contracts in
the Contract Pool;
(ii) the Aggregate Discounted Contract
Balance, or ADCB (as defined in this "SUMMARY
OF TERMS") of the Transferred Contracts was
$535,019,738;
(iii) the final scheduled payment date
of the Transferred Contract with the latest
maturity or expiration as of the Cutoff Date
was October 31, 2004;
(iv) the average Discounted Contract
Balance was approximately $43,406;
(v) all of the Contracts had (A)
original terms to maturity of not less than 2
months and not more than 96 months, with a
weighted average original term to maturity of
approximately 50.32 months, and (B) a
remaining term to maturity of not less than 1
month and not more than 83 months, with a
weighted average remaining term to maturity
of approximately 43.78 months;
(vi) of such Contracts, approximately
3.66% were Vendor Loans; and
(vii) the Obligors (as defined in this
"SUMMARY OF TERMS") on approximately 11.98%
of the Contracts were located in the State
of Texas; approximately 6.70% were located
in the State of California; approximately
6.45% were located in the State of New York;
and in 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.
For the twelve-month periods ended December
31, 1996 and ending December 31, 1995, the
Seller has recognized (i) delinquencies of
4.54% and 5.22%, respectively with respect to
its portfolio and (ii) net losses of 0.32%
and 0.00% with respect to its portfolio. See
"THE CONTRACTS POOL -- DELINQUENCY AND LOAN
LOSS INFORMATION".
The Statistical Discount Rate is equal to
6.878% (the "STATISTICAL DISCOUNT RATE").
Although 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.
9
<PAGE>
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
Seller, 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 Seller, through the Trust
Depositor, replaces 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-cancelable by the
Obligors. The Seller may, under the terms of
the Sale and Servicing Agreement, permit 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 Seller 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 in "DESCRIPTION OF
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"). The Aggregate
Discounted Contract Balance (as defined
herein) 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
initial Cutoff Date. The Seller 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") or an Early
Termination Contract, without regard to the
10% limitation described above. With respect
to replacing either a Defaulted Contract
10
<PAGE>
or an Adjusted Contract with a Substitute
Contract (which substitution is not an
obligation of the Seller but is in its 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. 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. With respect to a Contract which
has been materially modified or adjusted,
such Contract will either be prepaid by the
Obligor or shall be substituted for by the
Seller consistent with the conditions
described in the preceding paragraph. There
may also occasionally be non-material
adjustments or modifications in Contract
terms which may be effected by the Servicer
on behalf of the Trust without Noteholder
consent and without affecting the Contract's
status as part of the Trust.
Additional Contracts and Substitute Contracts
will be originated and added to the Trust
using the same credit criteria and
eligibility standards as the Contracts in the
Contracts Pool on the Closing Date.
Information with respect to such Additional
Contracts or Substitute Contracts, to the
extent deemed material, will be included in
periodic reports under the Exchange Act filed
by the Servicer with the Commission on behalf
of the Trust as are required under the
Exchange Act.
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 scheduled
payment on such Substitute Contract or
Additional Contract will be on or prior to
the November 2004 Distribution Date or, to
the extent the final payment on such Contract
is due after the November 2004 Distribution
Date, 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 (inclusive of
interest) thereon.
The Seller defines Contract delinquency as a
payment which is not made consistent with the
Contract terms and a Defaulted Contract as a
Contract for which (i) the Obligor thereunder
is subject to an Insolvency Event, or (ii) 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 Seller may
determine consistent with its collection
policy. (See "NEWCOURT CREDIT GROUP INC. AND
NEWCOURT FINANCIAL USA INC.--CONTRACT
COLLECTIONS."
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<PAGE>
B. Equipment and Other. . . All of the Seller's right, title and interest
Financed Items (which may be limited to a security interest)
in the Equipment, if any, subject to each
Lease and the security interest of the Seller
in the Equipment, if any, subject to each
CSA, Secured Note, IPA, Financing Agreement
and Vendor Obligation included in the
Contract Pool will be transferred to the
Trust. Equipment will include, but shall not
be limited to, a wide variety of new and used
information technology equipment (such as
mainframe and mini computers, computer work
stations, personal computers, data storage
devices and other computer related peripheral
equipment), communications equipment (such as
telephone switching and networking systems),
commercial business and industrial equipment
(such as printing presses, machine tools and
other manufacturing equipment, photocopiers,
facsimile machines and other office
equipment, energy savings and control
equipment, automotive diagnostic and
automated testing equipment), medical
equipment (such as diagnostic and therapeutic
examination equipment for radiology, nuclear
medicine and ultrasound and laboratory
analysis equipment), resources equipment
(such as feller-bunchers and grapplers), and
transportation and construction equipment
(such as heavy and medium duty trucks and
highway trailers, school buses, bulldozers,
loaders, graters, excavators, forklifts and
other materials handling equipment, golf
carts and other road and off-road machinery).
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 (as defined herein) from such sale
shall constitute Available Amounts (as
defined in "DESCRIPTION OF THE
NOTES--ALLOCATIONS") "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 11.54% 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 licensed under or
securing a Contract or the proceeds thereof
nor will it own such Services, and may 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 the Sale
and Servicing Agreement. See "DESCRIPTION OF
THE NOTES--COLLECTION ACCOUNT" herein.
D. Vendor Agreements. . . . Each of the Seller's Vendor finance program
agreements (each, a "PROGRAM AGREEMENT") are
agreements with equipment manufacturers,
dealers and distributors or computer software
licensors or distributors as well as finance
companies which extend credit to such parties
("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 Seller
under the Program Agreements with respect to
the Contracts are generally assignable and
will be so assigned by the Seller 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
Seller 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
12
<PAGE>
remarketing arrangements upon early
termination of End-User Contracts upon a
default by the End-User. See "THE CONTRACTS
GENERALLY--VENDOR AGREEMENTS" herein.
In addition to the foregoing, the Seller may
enter into assignment agreements (each a
"VENDOR ASSIGNMENT"; collectively, with the
Program Agreements, "VENDOR AGREEMENTS") from
time to time with Vendors pursuant to which
individual End-User Contracts originated by
Vendors are assigned to the Seller, rather
than pursuant to a Program Agreement. Each
Vendor Assignment will be made either with or
without recourse against the Vendor for
End-User defaults and will generally contain
many, if not all, of the representations,
warranties and covenants typically contained
in Program Agreements, as well as a Vendor
repurchase requirement in the event of a
breach by the Vendor of such representations,
warranties or covenants. Vendor Assignments
may or may not provide for any Vendor
remarketing support in the event of an
End-User default.
E. Reserve Fund . . . . . . A trust account has been established by the
Trust Depositor in the name of, and
maintained by, the Indenture Trustee (the
"RESERVE FUND"). On the Closing Date the
Trust Depositor will deposit $8,025,000 in
the Reserve Fund which is equal to 1.50% of
the ADCB of the Contracts Pool as of the
initial Cutoff Date (the "RESERVE FUND
AMOUNT"). Amounts in the Reserve Fund may be
released to the Certificateholder in the
event amounts therein exceed the then
outstanding Principal Amounts of the Notes
and the Subordinated Notes. Additionally,
amounts on deposit in the Reserve Fund in
excess of the Reserve Fund Amount will be
paid to the Certificateholder. On each
Distribution Date, amounts on deposit in the
Reserve Fund will be applied as described
under "DESCRIPTION OF THE NOTES--ALLOCATIONS"
and "--RESERVE FUND."
Terms of the Notes . . . . . The principal terms of the Notes will be as
described below:
A. Interest . . . . . . . . The Class A-1 Notes will bear interest at the
rate of 5.815% per annum (the "CLASS A-1
INTEREST RATE"), the Class A-2 Notes will
bear interest at the rate of 6.040% per
annum (the "CLASS A-2 INTEREST RATE"), the
Class A-3 Notes will bear interest at the
rate of 6.110% per annum (the "CLASS A-3
INTEREST RATE"), the Class A-4 Notes will
bear interest at the rate of 6.193% per annum
(the "CLASS A-4 INTEREST RATE"), the Class B
Notes will bear interest at the rate of 6.320%
per annum (the "CLASS B INTEREST RATE"), the
Class C Notes will bear interest at the rate
of 6.560% per annum (the "CLASS C INTEREST
RATE") and the Subordinated Notes will bear
interest at the rate of 9.210% per annum (the
"SUBORDINATED NOTE INTEREST RATE" or "CLASS D
INTEREST RATE"). Interest with respect to
the Class A-1 Notes will be calculated on the
basis of actual days elapsed over a year of
360 days; interest with respect to all other
Notes and the Subordinated Notes will be
calculated on the basis of a year of 360 days
consisting of twelve 30 day months.
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) 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 December 22, 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 A-3 Notes (the "CLASS A-3
NOTEHOLDERS"), the holders of record of the
Class A-4 Notes (the "CLASS A-4
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
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<PAGE>
the Class A-1 Noteholders, the Class A-2
Noteholders, the Class A-3 Noteholders, the
Class A-4 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 (after application of
such Available Amounts to repay any
outstanding Servicer Advances as defined
herein, 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 Guaranteed Residual
Investments), 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 (as defined herein), if any, amounts
available in the Reserve Fund, if any, (up to
the Reserve Fund Amount) as well as earnings
on amounts held in the Collection Account and
the Reserve Fund. Interest on the Class A-2
Notes is payable on a Distribution Date from
the Available Amounts available on such date,
(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) subject to the
proviso in the second succeeding sentence.
Interest on the Class A-3 Notes is payable on
a Distribution Date from the Available
Amounts on such date, (after application of
such Available Amounts to repay any
outstanding Servicer Advances, to pay the
Servicing Fee, to pay interest on the Class
A-1 Notes and the Class A-2 Notes) subject to
the proviso in the succeeding sentence.
Interest on the Class A-4 Notes is payable on
a Distribution Date from the Available
Amounts on such date, (after application of
such Available Amounts to repay any
outstanding Servicer Advances, to pay the
Servicing Fee, to pay interest on the Class
A-1 Notes, the Class A-2 Notes and the Class
A-3 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,
the Class A-2 Notes, the Class A-3 Notes and
the Class A-4 Notes (to the extent Available
Amounts are insufficient to pay the entire
amount of accrued interest on the Class A-1
Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes) will be paid
from Available Amounts PRO RATA based on the
then outstanding Principal Amounts of such
Class A-1 Notes Class A-2 Notes, Class A-3
Notes and Class A-4 Notes. Interest on the
Class B Notes is payable on a Distribution
Date from the Available Amounts available on
such date, (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,
Class A-2 Notes, Class A-3 Notes and Class
A-4 Notes). Interest on the Class C Notes is
payable on a Distribution Date from Available
Amounts available on such date, (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, Class A-2 Notes, Class
A-3 Notes, Class A-4 Notes and the Class B
Notes). Interest on the Subordinated Notes
is payable on a Distribution Date from
Available Amounts available on such date,
(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, Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the
Class B Notes and the Class C 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
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<PAGE>
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.
Principal of the Class A-3 Notes will be
payable on each Distribution Date in an
amount equal to the Class A-3 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, the Class A-1 Principal
Payment Amount and the Class A-2 Principal
Payment Amount.
Principal of the Class A-4 Notes will be
payable on each Distribution Date in an
amount equal to the Class A-4 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, the Class A-1 Principal
Payment Amount, the Class A-2 Principal
Payment Amount and the Class A-3 Principal
Payment Amount.
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 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, and the
payment of the Class A-1 Principal Payment
Amount, the Class A-2 Principal Payment
Amount, the Class A-3 Principal Payment
Amount and the Class A-4 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 herein) 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, and the payment
of the Class A-1 Principal Payment Amount,
the Class A-2 Principal Payment Amount, the
Class A-3 Principal Payment Amount, the Class
A-4 Principal Payment Amount and the Class B
Principal Payment Amount. See "DESCRIPTION
OF THE NOTES--ALLOCATIONS" herein.
Principal of the Subordinated Notes will be
payable on each Distribution Date in an
amount equal to the Class D Principal Payment
Amount (as defined in the "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, and the payment of the
Class A-1 Principal Payment Amount, the Class
A-2 Principal Payment Amount, the Class A-3
Principal Payment Amount, the Class A-4
Principal Payment Amount, the Class B
Principal Payment Amount and the Class C
Principal Payment Amount. See "DESCRIPTION
OF THE NOTES --ALLOCATIONS" herein.
The Class A-1 Principal Payment Amount, the
Class A-2 Principal Payment Amount, the Class
A-3 Principal Payment Amount, the Class A-4
Principal
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<PAGE>
Payment Amount, the Class B Principal Payment
Amount, the Class C Principal Payment Amount
and the Class D 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, the Class A-3 Notes, the Class
A-4 Notes, the Class B Notes, the Class C
Notes or the Subordinated Notes. Such amount
generally is calculated, for the Subordinated
Notes and each Class of Notes other than the
Class A-1 Notes, as a fractional percentage
of the amount that the ADCB of the Contract
Pool has declined or been deemed to decline
(whether through payment, prepayment, default
and writeoff, determination of ineligibility
or other mechanism as described further
herein) during the most recent Collection
Period (I.E., full calendar month), with the
fractional percentage for each Class
determined based on the proportion that the
Initial Principal Balance of such Class
(treating, for purposes of this calculation
only, Class A-2 Notes, Class A-3 Notes and
Class A-4 Notes as one Class) bore to Initial
Principal Balance of all Classes of Notes
(excluding the Class A-1 Notes) and the
Subordinated Notes as of the Cutoff Date;
PROVIDED, HOWEVER, the Class A-1 Notes will
receive 100% of Available Amounts with
respect to their principal prior to the
payment of any principal on the Class A-2
Notes, the Class A-3 Notes, the Class A-4
Notes, the Class B Notes, the Class C Notes
and Subordinated Notes. Assuming payment in
full of the Class A-1 Notes, (as of the
Cutoff Date) such percentages are: (i) 88.85%
for the Class A-2 Notes, the Class A-3 Notes,
and the Class A-4 Notes; (ii) 4.59% for the
Class B Notes until the outstanding principal
of the Class A Notes (as defined in
"DESCRIPTION OF THE NOTES") has been paid in
full and 41.18% thereafter; (iii) 2.62% for
the Class C Notes until the outstanding
principal of the Class A Notes has been paid
in full, 23.53% until the outstanding
principal of the Class B Notes has been paid
in full and 40.00% thereafter; and (iv) 3.93%
for Subordinated Notes until the outstanding
principal amount of the Class A Notes has
been paid in full, 35.29% until the
outstanding principal amount of the Class B
Notes has been paid in full, 60.00% until
the outstanding principal amount of the Class
C Notes have been paid in full and 100%
thereafter. Accordingly, if sufficient
Available Amounts exist, a proportionate
amount of principal would be repaid on any
given Distribution Date on each of the Class
A-2 Notes, the Class A-3 Notes, the Class A-4
Notes, the Class B Notes and the Class C
Notes (as well as the Subordinated Notes)
after payment of the Class A-1 Principal
Payment Amount. Upon the occurrence of an
Event of Default, or upon the occurrence and
during the continuance of a Restricting Event
(each as defined in "DESCRIPTION OF THE
NOTES"), however, the formula for determining
such principal payment amount, after payment
in full of the Class A-1 Notes, will change
with the result that, for any Distribution
Date occurring after such adverse event,
principal on the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes, the Class B
Notes and the Class C Notes (and also the
Subordinated Notes) will be accelerated and
paid sequentially, I.E., no principal will be
paid on the Class A-3 Notes, the Class A-4
Notes, the Class B Notes, the Class C Notes
or the Subordinated Notes, until the Class
A-2 Notes have been paid in full; no
principal will be paid on the Class A-4
Notes, the Class B Notes, the Class C Notes
or the Subordinated Notes, until the Class
A-3 Notes have been repaid in full; no
principal will be paid on the Class B Notes,
Class C Notes or the Subordinated Notes until
the Class A-4 Notes have been paid in full;
no principal will be paid on the Class C
Notes or the Subordinated Notes, until the
Class B Notes have been paid 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 NOTES MATURITY DATE")
is the December 1998 Distribution Date; the
stated maturity date of the Class A-2 Notes
(the "Class A-2 Notes Maturity Date") is the
June 2000 Distribution Date; the stated
maturity date of the Class A-3 Notes (the
"Class A-3 Notes Maturity Date") is the May
2001 Distribution Date and the stated maturity
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<PAGE>
date for the other Notes and the Subordinated
Securities (the "OTHER NOTES MATURITY DATE")
is the May 2005 Distribution Date (each of
the Class A-1 Notes Maturity Date, the Class
A-2 Notes Maturity Date, the Class A-3 Notes
Maturity Date and the Other Notes Maturity
Date, the "Maturity Date").
Expected Amortization. . . . The expected amortization schedule for the
Schedule Notes is set forth herein under "DESCRIPTION
OF THE NOTES--PAYMENTS OF PRINCIPAL".
Although the Maturity Date for the A-1 Notes,
A-2 Notes, A-3 Notes, and all other Notes and
Subordinated Notes is the December 1998
Distribution Date, June 2000 Distribution
Date, May 2001 Distribution Date and May 2005
Distribution Date, respectively, the expected
final payment date for the A-1 Notes, A-2
Notes, A-3 Notes and all other Notes and
Subordinated Notes is the July 1998
Distribution Date, February 1999 Distribution
Date, December 1999 Distribution Date and June
2001 Distribution Date, respectively, assuming
a CPR of 11% and that the Trust Depositor
redeems the Notes upon satisfaction of the
Cleanup Call Condition.
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 (as defined herein) of the
Contract Pool at such time is less than 10%
of the initial ADCB of the Contract Pool as
of the Cutoff Date (the "CLEANUP CALL
CONDITION"). The redemption price for such
outstanding Notes to be redeemed in such
event (the "REDEMPTION PRICE") will be equal
to the unpaid principal amount of the Notes
and Subordinated 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 Seller pursuant to the
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 BALANCE"
Contract 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 on
or after such date of determination
discounted monthly at the Discount Rate, and
(2) the aggregate amount of all Scheduled
Payments due and payable under such Contract
after the applicable Cutoff Date and prior to
such date of determination (other than
Scheduled Payments related to Defaulted
Contracts and Early Termination Contracts)
that have not then been received by the
Servicer.
The Discounted Contract Balance for each
Contract shall be calculated assuming:
(a) All payments due in any
Collection Period are due
on the last day of the
Collection Period;
(b) Payments are discounted
on a monthly basis using
a 30 day month and a 360
day year; and
(c) All security deposits and
drawings under letters of
credit, if any, issued in
support of a Contract are
applied to reduce
Scheduled Payments in
inverse order of the due
date thereof.
"DISCOUNT RATE" means, at any date of
determination, 6.874% which is equal to the
sum of (i) the weighted average of the Class
A-1 Interest Rate, Class A-2 Interest Rate,
Class A-3 Interest Rate, Class A-4 Interest
Rate, Class B Interest Rate, Class C Interest
Rate and Class D Interest
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<PAGE>
Rate, each weighted by (x) the Initial Class
A-1 Note Principal Balance, Initial Class A-2
Note Principal Balance, Initial Class A-3
Note Principal Balance, Initial Class A-4
Note Principal Balance, Initial Class B Note
Principal Balance, Initial Class C Note
Principal Balance or Initial Class D Note
Principal Balance, as applicable, and (y) the
expected weighted average life of each Class
of Notes or the Subordinated Notes, as
applicable, assuming a CPR of 11%, and
(ii) the Servicing Fee Percentage. The
Statistical Discount Rate is equal to 6.878%.
See "THE CONTRACTS POOL".
"SCHEDULED PAYMENTS" means, with respect to
any Contract, the monthly, quarterly,
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 as defined
herein or payments with respect to Residual
Investments other than Guaranteed Residual
Investments as defined herein).
Subordination. . . . . . . . The Class A-1 Notes will be senior in right
of payment to the Class A-2 Notes, Class A-3
Notes, Class A-4 Notes (except as described
herein; 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 A-3 Notes, the Class A-4
Notes, the Class B Notes, the Class C Notes
and the Subordinated Securities. The Class
A-3 Notes will be senior in right of payment
to the Class A-4 Notes, the Class B Notes,
the Class C Notes and the Subordinated
Securities; the Class A-4 Notes will be
senior in right of payment of the Class B
Notes, the Class C Notes and the Subordinated
Securities. The Class B Notes will be senior
in right of payment to the Class C Notes and
the Subordinated Securities; and the Class C
Notes will be senior in right of payment to
the Subordinated Securities; in each case to
the extent described herein. See
"DESCRIPTION OF THE NOTES--ALLOCATIONS" and
"THE INDENTURE--PAYMENTS OF PRINCIPAL AND
INTEREST" herein.
Servicing; Servicing Fee;. . The Servicer will be responsible for
Servicer Advances servicing, managing and administering the
Transferred Contracts and related interests,
and enforcing and receiving 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 Seller has 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 and responsibility 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 .60% (the
"SERVICING FEE RATE") and (ii) the Aggregate
Discounted Contract Balance of all Contracts
as of the beginning of the immediately
preceding Collection Period, payable out of
(a) the Collection Account and (b) certain
other fees paid by the Contract 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
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<PAGE>
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 Seller under
And Warranties the Transfer and Sale Agreement will be
obligated to accept the reconveyance of a
Contract and the interest in the related
Equipment from the Indenture Trustee and the
Trust, and to deposit the corresponding
Transfer Deposit Amount (as defined in "THE
TRANSFER AND SALE AGREEMENT AND SALE AND
SERVICING AGREEMENT GENERALLY"), if the
interest of the Trust in any of the related
Equipment, the related Contract, or the
related Contract File (as defined in the "THE
TRANSFER AND SALE AGREEMENT AND SALE AND
SERVICING AGREEMENT GENERALLY") is materially
adversely affected by a breach of a
representation or warranty made by such party
with respect to such Contract and if such
breach has not been cured within thirty (30)
days of discovery of such breach. See also
"SUMMARY OF TERMS--PREPAYMENT CONSIDERATIONS"
below. In the alternative, and at the Trust
Depositor's and Seller's option, the affected
Contract may be replaced with a Substitute
Contract of similar characteristics under the
standards applicable generally to Substitute
Contracts as described herein.
Maturity and Prepayment. . . As noted above, non-Lease Contracts are
Conditions generally prepayable by their terms, and the
Servicer will be authorized to accept
prepayments on Leases in certain
circumstances. Each prepayment on a
Contract, if such Contract is not replaced by
the Trust's reinvestment in a comparable
Additional Contract as described herein, will
shorten the weighted average remaining term
of the Contracts and the weighted average
life of the Notes. Such prepayments of
principal will be included in the Available
Amounts and will be payable to Noteholders on
the Distribution Date following the
Collection Period in which such prepayment
was received, as set forth herein. The rate
of prepayments on the Contracts will 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 materially adversely affected
Contracts from the Trust (to be funded
through a corresponding obligation of the
Seller to repurchase such Contracts from the
Trust Depositor) unless the Seller provides a
Substitute Contract for the Contract related
to the breached representation or warranty.
Additionally, the rate of payments on the
Contracts will also be affected by the timing
of Recoveries on Defaulted Contracts unless
the Seller, through the Trust Depositor,
provides a Substitute Contract for the
Defaulted Contract, which substitution is in
the sole and absolute discretion of the
Seller. 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 and the
holders of the Subordinated Securities. 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.
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<PAGE>
Risk Factors . . . . . . . . See "RISK FACTORS" for a discussion of
certain material risks that should be
considered in connection with an investment
in the Notes offered hereby, including
certain legal risks.
Federal Income Tax . . . . . In the opinion of Winston & Strawn, federal
Considerations 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 "CERTAIN 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. Any benefit plan fiduciary
considering purchase of the Notes should,
however, consult with its counsel regarding
the consequences of such purchase under ERISA
and the Code. See "ERISA CONSIDERATIONS"
herein.
20
<PAGE>
Rating . . . . . . . . . . . It is a condition to the issuance of the
Notes offered hereunder that the Class A-1
Notes be rated at least "A-1+" and "P-1",
that the Class A-2 Notes be rated at least
"AAA" and "AAA", the Class A-3 Notes be rated
at least "AAA" and "AAA", that the Class A-4
Notes be rated at least "AAA" and "AAA" ,
that the Class B Notes be rated at least "A"
and "A1", and that the Class C Notes be rated
at least "BBB" and "Baa3" by Standard &
Poor's and Moody's Investors Service,
respectively (collectively, the "RATING
AGENCIES"). A rating is not a recommendation
to purchase, hold or sell Notes inasmuch as
such rating does not comment as to market
price or suitability for a particular
investor. Ratings address the likelihood of
timely payment of interest and the ultimate
payment of principal on the Notes pursuant to
their terms. Ratings will not address the
likelihood of an early return of invested
principal. There can be no assurance that
any rating will remain for a given period of
time or that a rating will not be lowered or
withdrawn entirely if, in the judgment of any
Rating Agency, circumstances in the future so
warrant. See "RATING OF THE NOTES" herein.
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<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk
factors before investing in the Notes.
ABSENCE OF PUBLIC MARKET; LIMITED LIQUIDITY
There is currently no public market for the Notes and there is no
assurance that one will develop. The Underwriters expect, but are not
obligated, to make a market in the Notes. There is no assurance that any such
market will be created or, if so created, will continue. If no public market
develops, the Noteholders may not be able to liquidate their investment in the
Notes prior to maturity.
PREPAYMENTS ON THE CONTRACTS AFFECT THE YIELD OF THE NOTES
Because the rate of payment of principal on the Notes will depend,
among other things, on the rate of payment on the Contracts, the rate of payment
of principal on the Notes cannot be assured. Payments on the Contracts will
include Scheduled Payments as well as partial and full prepayments (including
any Scheduled Payment (or portion thereof) which the Servicer has received, and
expressly permitted the related Obligor to make, in advance of its scheduled due
date and which will be applied on such due date) (any such prepayment of a
Scheduled Payment, an "OPTIONAL PREPAYMENT"), and any and all cash proceeds or
rents realized from the sale, lease, re-lease or re-financing of Equipment under
a Prepaid Contract (net of liquidation expenses), payments upon the liquidation
of Defaulted Contracts, payments upon repurchases by the 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 (as
defined herein) may also result in the receipt by Noteholders of principal
payments on the Notes on a Distribution Date in excess of the expected
principal payment amount for such Distribution Date 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
paid 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 Prepayments caused by defaults on Contracts) 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 timely
payment of interest and the ultimate payment of principal on the Notes 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 (i.e., such as the performance of the
Contracts or the Servicer) 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-4 NOTES, THE CLASS A-3 NOTES, THE CLASS A-2 NOTES,
THE 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, the Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the 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 A-3 Notes, the Class A-4 Notes,
the Class B Notes, the Class C Notes and the Subordinated Securities will be
subordinated in priority of payment to interest and
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<PAGE>
principal, respectively, on the Class A-2 Notes, (iii) payments of interest and
principal on the Class A-4 Notes, the Class B Notes, the Class C Notes and the
Subordinated Securities, will be subordinated in priority of payment to interest
and principal, respectively, on the Class A-3 Notes, (iv) payments of interest
and principal on the Class B Notes, the Class C Notes and the Subordinated
Securities will be subordinated in priority of payment to interest and
principal, respectively on the Class A-4 Notes, (v) 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 (vi) payments of interest and principal on the
Subordinated Securities will be subordinated in priority of payment to interest
and principal, respectively, on the Class C Notes. The Subordinated Notes
initially will represent the right to receive principal in an amount equal to
3.00% 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, Class A-3
Noteholders and Class A-4 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. Similarly,
delinquencies and defaults on the Contracts could eliminate the protection
offered the Class A-3 Noteholders by the subordination of the Class A-4 Notes,
the Class B Notes, the Class C Notes, the Subordinated Notes and the Reserve
Fund, and such Noteholders could incur losses on their interest as a result.
Delinquencies and defaults on the Contracts could eliminate the protection
offered the Class A-4 Noteholders by the subordination of the Class B Notes, the
Class C Notes, the Subordinated Notes and the Reserve Fund, and such Noteholders
could 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 and such
Noteholders could also incur losses on their interest as a result.
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 Texas, California
and New York in excess of 11.98%, 6.70% and 6.45%, respectively, 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. To the extent adverse events or economic conditions
were particularly severe in such geographic region or in the event an Obligor
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 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
TRANSPORTATION INDUSTRY
Contracts constituting approximately 40.24% of the Contract Pool's
ADCB as of the Closing Date relate to Equipment used in the transportation
industry. No other industry accounts for more than 13.73% of the Contract Pool.
To the extent the transportation 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 affected and thus result in delays
or reduced payments to the Noteholders.
RATE AT WHICH EQUIPMENT OR SOFTWARE BECOMES OBSOLETE AFFECTS PREPAYMENT RATE OF
THE CONTRACTS AND THE NOTES; REINVESTMENT RISK
Technological change could affect the Noteholders. For example, to
the extent that technological change results in increased prepayment activity,
it may increase Prepayments of the Contracts. Such Prepayments may result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts and such distributions may
require the Noteholders to reinvest such Prepayments in a less attractive
interest
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rate environment. See "--PREPAYMENTS ON THE CONTRACTS AFFECT THE YIELD OF THE
NOTES" and "THE CONTRACTS GENERALLY--EQUIPMENT", "--LEASES" and "--INSTALLMENT
PAYMENT AGREEMENTS AND FINANCING AGREEMENTS".
DECLINES IN MARKET VALUE OF EQUIPMENT OR SOFTWARE; SHORTFALLS WITH RESPECT TO
AVAILABLE AMOUNTS TO PAY THE NOTES
In the event a Contract becomes a Defaulted Contract, the only source
of payment for amounts expected to be paid on such Contract will be the income
and proceeds from the disposition of any related Equipment and a deficiency
judgment, if any, against the Obligor under the Defaulted Contract. Since the
market value of the Equipment may decline faster than the Discounted Contract
Balance, the Servicer may not recover the entire amount due on the Contract and
might not receive any Recoveries on the Equipment. Typically, the Trust will
have no interest in any software and may therefore only have a deficiency claim
against the Obligor. To the extent such deficiencies deplete the Reserve Fund
and the protection afforded by the Subordinated Notes, such deficiencies may
create a shortfall with respect to payments on the Notes.
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 (as defined herein) 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 Uniform
Commercial Code ("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 notate on the
appropriate electronic records the transfer of the Contracts to the Trust.
Also, UCC financing statements will be filed reflecting the sale and assignment
of the Contracts and related interests (the "TRANSFERRED PROPERTY") by the
Seller, to the Trust Depositor, and by the Trust Depositor to the Trust, and the
Servicer's accounting records and computer files will be marked to reflect such
sales and assignments. Because the Contract Files will remain in the Servicer's
possession, if a subsequent purchaser were able to take physical possession of
the Contract Files without knowledge of such assignment, the Indenture Trustee's
priority interest in the Contracts (as assignee of the Seller's, Trust
Depositor's and the Trust's interest) could be defeated. In the event that the
Trust must rely upon repossession and sale of the related Equipment and other
assets securing Defaulted Contracts to recover principal and interest due
thereon, the Trust's ability to realize upon such assets may be limited due to
the existence of a senior security interest in the Contracts. In such event,
distributions to Noteholders could be adversely affected.
Similarly, with respect to Secondary Contracts securing Vendor Loans,
in some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing such
Vendor Loan. Although UCC financing statements generally are filed reflecting
the pledge of such Contracts to the 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 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 that are operating leases, the Seller's ownership
interest in or title to such Equipment) will be assigned by the Seller to the
Trust Depositor and by the Trust Depositor to the Trust. It has been the
general policy of the Seller to file or cause to be filed UCC financing
statements with respect to Equipment relating to the Contracts; PROVIDED,
HOWEVER, the Seller may not file UCC financing statements (i) with respect to
Equipment relating to a single Obligor in a single jurisdiction with an
aggregate value less than $15,000, (ii) with respect to Equipment relating to
Contracts originated by a specific division of Newcourt USA to a single Obligor
in a single jurisdiction with a value of less than $25,000 or (iii) with
respect to Equipment relating to a single Obligor in a single jurisdiction which
relates to Contracts purchased from third parties the individual value of which
is less than $35,000. 5,575 Contracts in the Contract Pool aggregating 6.13% of
the ADCB are represented by the Contracts described in clauses (i), (ii) and
(iii) of the preceding sentence. Additionally, 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
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evidencing the security interest of the Seller 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 Seller's security
interest in motor vehicles ("VEHICLES") securing certain Contracts, or its
ownership interest in Vehicles subject to Leases, Loans or CSA's, and the
transfer of the same as well as interests by the Trust Depositor to the Trust,
is subject to state vehicle registration laws in the case of the Vehicles. Due
to the significant administrative burden and expense associated with
re-registering transfers of titles and of security interests with respect to the
Vehicles, the certificates of title or similar instruments or registrations of
title with respect to the Vehicles securing Contracts, and to Vehicles 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 Vehicles 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 Vehicles. The Seller will represent
that as of the Cutoff Date, in the Seller's reasonable judgment, the Discounted
Contract Balance of End-User Contracts in the Contract Pool that are secured by
Vehicles, does not exceed 46.17% 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 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
Seller and transferred to the Trust Depositor. Based on the representation of
the Seller, the Trust Depositor, however, believes that with respect to the
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-2 financing statements
naming the Seller as secured party in the real estate records office of the
county in which the Equipment is located or by obtaining waivers from landlords
or mortgagees. Also, the Seller will represent that as of the Cutoff Date, in
the Seller's reasonable judgment, the Discounted Contract Balance of End-User
Contracts in the Contract Pool that are secured by fixtures, does not exceed
1.80% 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 Seller will be 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 Seller failed to perfect its security
interest, the Seller's security interest, and the security interests of the
Trust Depositor and the 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 the 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
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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 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 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 Seller will 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 Seller will 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 Seller 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 the 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 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 Seller will 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 Seller
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 Seller will take all actions that are required under applicable law to
perfect the Trust Depositor's ownership interest in the Contracts sold by the
Seller 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
Seller. See "CERTAIN LEGAL ASPECTS OF THE CONTRACTS--TRANSFER OF CONTRACTS".
Moreover, Winston & Strawn, special counsel to the Seller and the Trust
Depositor, will render a reasoned opinion to the effect that in the event the
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 the 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 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 Seller
has 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 End User Contracts to the Seller and the
corresponding negative implications for receipt of payments with respect to such
Contracts may occur.
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RISK OF REJECTION OF "TRUE LEASES". A bankruptcy trustee or debtor in
possession under the United States Bankruptcy Code (Title 11 U.S.C. 101 et
seq.) (the "BANKRUPTCY CODE") has the right to elect to assume or reject any
executory contract or unexpired lease which is considered to be a "TRUE LEASE"
(and not a financing) under applicable law. Any rejection of such a contract or
lease would constitute a breach of such contract or lease, as applicable, as of
the day preceding the commencement of the applicable bankruptcy case, entitling
the nonbreaching party to a pre-petition claim for damages.
Certain End-User Contracts will be "TRUE LEASES" and thus subject to
rejection by the lessor under the Bankruptcy Code. Any such End-User Contract
originated by the Seller or acquired by the Seller in a transaction whereby the
Seller is the "LESSOR" thereunder, will be subject to rejection by the Seller,
as debtor in possession, or by the Seller's bankruptcy trustee. Upon any such
rejection, Scheduled Payments under such rejected End-User Contract may
terminate and the Noteholders may be subject to losses if proceeds realizable
from security interests in the related Equipment are insufficient to cover the
losses. In addition, any End-User Contract which is a "TRUE LEASE" originated
by a Vendor and transferred to the Seller in a transaction whereby such Vendor
continues to be the "LESSOR" thereunder (such as a transfer by a Vendor to the
Seller of a security interest in such End-User Contract or a transfer by a
Vendor to the Seller of an interest in the right to payments only under any such
End-User Contract), will be subject to rejection by such Vendor, as debtor in
possession, or by such Vendor's bankruptcy trustee. Upon any such rejection,
Scheduled Payments under such rejected End-User Contract may terminate and the
Noteholders may be subject to losses if the proceeds realizable from security
interests in the related Equipment are insufficient to cover the losses.
The Seller will represent as of the Cutoff Date that, in the Seller's
reasonable judgment, the Discounted Contract Balance of End-User Contracts in
the Contract Pool that are "TRUE LEASES" does not exceed 7.70% of the ADCB of
the Contract Pool as of such date.
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.
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 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
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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 or Applicable Security 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 for the reasons described above in the second
preceding paragraph.
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, at the direction of the Required Holders (as defined in "DESCRIPTION OF
THE NOTES -- EVENTS OF DEFAULT"), will be required to sell the Contracts,
thereby causing early termination of the Trust and a possible loss to the
Noteholders if the sum of (i) the proceeds of the sale allocable to the
Noteholders and (ii) the proceeds of any collections on the Contracts in the
Collection Account allocable to the Noteholders, is insufficient to pay the
Noteholders in full. See "CERTAIN LEGAL ASPECTS OF THE CONTRACTS--TRANSFER OF
CONTRACTS" and "--CERTAIN MATTERS RELATING TO BANKRUPTCY".
RISK OF LOSS ASSOCIATED WITH END-USER AND VENDOR BANKRUPTCY.
Application of federal and state bankruptcy and insolvency laws in the event of
bankruptcy of End-Users could affect the interests of the Noteholders in the
Contracts and Secondary Contracts if such laws result in any such contracts
being written off as uncollectible or result in delay in payments due on any
Contracts. See "DESCRIPTION OF THE NOTES--DEFAULTED CONTRACTS" and "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS--CERTAIN MATTERS RELATING TO BANKRUPTCY". In
addition, application of federal and state bankruptcy and insolvency laws in the
event of bankruptcy of Vendors could affect the interests of the Noteholders in
the Vendor Loans and Secondary Contracts if such laws result in any such Vendor
Loans or Secondary Contracts being written off as uncollectible or result in
delay in payments due on any such Vendor Loans or Secondary Contracts. See
"--INSOLVENCY OF THE VENDORS". State laws impose requirements and restrictions
relating to foreclosure sales and obtaining deficiency judgments following such
sales. In the event that the Noteholders must rely on repossession and
disposition of Equipment to recover amounts due on Defaulted Contracts, such
amounts may not be realized because of the application of these requirements and
restrictions. Other factors that may affect the ability of the Noteholders to
realize the full amount due on a Contract or a Secondary Contract include the
failure to file financing statements to perfect the Seller's, Trust Depositor's,
Trust's or the Indenture Trustee's security interest, as applicable, in the
Equipment or other Applicable Security and the depreciation, obsolescence,
damage or loss of any item of Equipment. As a result, the Noteholders may be
subject to delays in receiving payments and losses if the over collateralization
represented by each Class of Notes that is subordinated thereto, the
Subordinated Securities or the Reserve Fund 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
28
<PAGE>
"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 Seller will 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 Seller's 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.
RISK OF STATE TAXES. Because of the inclusion of "TRUE LEASES" in
the Trust, a risk exists that certain states may attempt to impose taxes on the
Trust.
CERTAIN CONTRACTS RELATING TO SOFTWARE OR SERVICES ARE NOT SECURED BY SUCH
SOFTWARE OR SERVICES
Certain Contracts will relate not to Equipment but rather to Software
or Services that are not owned by the Seller (the Vendor or a licensor
traditionally owns the same) and in which no related interest will be
transferred to the Trust (I.E. the Trust owns solely the associated Contracts'
cash flow). It is a condition to the issuance of the Notes that as of the
Closing Date that the ADCB of all Contracts which finance, lease or are related
to Software does not exceed 11.54% of the ADCB of the Contracts Pool. 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.
Furthermore, because Software is generally eligible for protection under the
Federal copyright laws, a security interest in Software generally cannot be
perfected without a filing at the U.S. Copyright Office. Some legal authority
indicates that this filing requirement also extends to a sale or grant of a
security interest in software licenses and the proceeds thereof, while some
other legal authority suggests that where there is an outright assignment of
certain payments (such as royalties) associated with copyrightable materials,
the rights to receive such payments constitute property separate from the
copyrightable material and that no filing in the U.S. Copyright Office is
required in connection with such assignment.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF THE OFFERED NOTES - NO RECOURSE TO
THE SELLER, SERVICER OR ITS AFFILIATES; LIMITED VENDOR RECOURSE
Neither the Seller, 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 the Seller to
the Trust Depositor, and the concurrent conveyance of such Contracts by the
Trust Depositor to the Trust, the Seller will make representations and
warranties with respect to the characteristics of such Contracts and, in certain
circumstances, the Seller 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. 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 as well as
amounts in the Reserve Fund, to the extent available, for payment of principal
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 UNL Pool (as defined herein). If
payments made or realized from the Contracts (including Secondary Contracts
securing Vendor Loans) and the disposition proceeds of the Equipment are
insufficient to make payments on the Notes, no other assets will be available
for the payment of the deficiency.
BOOK-ENTRY REGISTRATION-NOTEHOLDERS LIMITED TO EXERCISING THEIR RIGHTS THROUGH
DTC, EUROCLEAR OR CEDEL
The Notes offered hereby initially will be represented by one or more
Notes registered in the name of Cede & Co. and will not be registered in the
names of the beneficial owners or their nominees. As a result of this, unless
and until Definitive Notes are issued, beneficial owners will not be recognized
by the Issuer or the Indenture Trustee as Noteholders, as that term is used in
the Indenture. Hence, until such time, beneficial owners will only be able to
exercise the rights of Noteholders indirectly, through DTC, Euroclear or CEDEL
and their respective participating organizations, and will receive reports and
other information provided for under the Indenture only if, when and to the
extent provided by DTC, Euroclear or CEDEL, as the case may be, and its
participating organizations. See "DESCRIPTION OF THE NOTES--BOOK-ENTRY
REGISTRATION."
29
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Notes and the Subordinated
Securities 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 pursuant to the Transfer and Sale Agreement by the Seller as well as
for other general corporate purposes. The Seller has previously sold certain
lease and finance contracts to the Trust Depositor which has resold them (or
interests therein) to Variable Funding Capital Corporation ("VFCC"). It is
expected that these contracts will be repurchased from VFCC by the Trust
Depositor and from the Trust Depositor by the Seller simultaneously with (and
with the proceeds of) the issuance of the Notes and the Subordinated Securities
contemplated hereby and that certain of such contracts will be included in the
Contract Portfolio. VFCC is a special purpose company the business of which is
limited, generally, to the purchase of, or the making of loans against
receivables or interests in financial assets. First Union Capital Markets Corp.
is the Administrator of VFCC, an entity which is not affiliated with First Union
Corporation, First Union Capital Markets Corporation or any of their respective
affiliates.
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 was organized as a business trust 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. 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 the Subordinated Securities, (c) making
distributions and payments thereon and (d) engaging in those activities,
including entering into agreements, that are necessary, suitable or convenient
to accomplish the foregoing or are incidental thereto or connected therewith.
As a consequence, the Trust is not expected to have any source of capital
resources other than the Trust Assets. As of the date of this Prospectus,
neither the Trust Depositor nor the Trust is subject to any legal proceedings.
THE CONTRACTS POOL
THE TRANSFERRED CONTRACTS. The Transferred Contracts will consist of
Contracts purchased from the Seller by the Trust Depositor on the Closing Date
(and as of the Cutoff Date) under the Transfer and Sale Agreement dated as of
November 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 Seller from its 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
Seller include a representation that no adverse selection with respect to the
Contracts has occurred. The Seller will 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 Seller's selection of Contracts
for sale under the Transfer and Sale Agreement. As of the Cutoff Date, the ADCB
of the Transferred Contracts was $535,058,884, the weighted average remaining
term to maturity for the Transferred Contracts was approximately 43.78 months,
the final scheduled payment date of the Transferred Contract with the latest
maturity or expiration was October 31, 2004 and the average Discounted Contract
Balance was approximately $43,409.
For further information regarding the Transferred Contracts, see "THE
CONTRACTS GENERALLY" herein and "THE CONTRACTS POOL--OTHER POOL DATA" below.
OTHER POOL DATA. Approximately 15.49% 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 Newcourt's customary procedures for
determining the obligor's industry. The largest End-User industry concentration
(including End-User Obligors on Contracts originated by the Seller directly, as
well as Contracts originated through Vendors with or without Vendor
30
<PAGE>
recourse, and Secondary Contracts securing Vendor Loans), which represents an
ADCB of $215,315,121 or 40.24% of the ADCB of the Contracts Pool as of the
Cutoff Date, relates to the transportation industry. 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 Contract Pool. While the
statistical distribution of the characteristics as of the Closing Date for the
final Contract Pool and calculated at the actual Discount Rate will vary
somewhat from the statistical distribution of such characteristics as of the
Cutoff Date and calculated at the Statistical Discount Rate as presented in this
Prospectus, such variance will not be material. The percentages and balances
set forth in each of the following tables may not total due to rounding.
31
<PAGE>
COMPOSITION OF THE CONTRACT POOL
Aggregate Discounted Contract Balance $535,019,738
Number of Contracts 12,326
Weighted Average Original Term (Range) 50.32
(in months) 2 - 96
Weighted Average Remaining Term 43.78
(Range)(in months) 1 - 83
Average Discounted Contract Balance $43,406
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
<TABLE>
<CAPTION>
Percentage of Aggregate
Percentage of Number of Aggregate Discounted Discounted Contract
Number of Contracts Contracts Contract Balance Balance
<S> <C> <C> <C> <S>
CSAs 5,348 43.39% $319,476,582 59.71%
True Leases 402 3.26% $41,204,481 7.70%
Finance Leases 6,412 52.02% $94,905,800 17.74%
IPAs 46 0.37% $27,494,360 5.14%
Secured Notes 12 0.10% $11,849,594 2.21%
Unsecured Notes 0 0.00% $0 0.00%
Other Financing 106 0.86% $40,088,921 7.49%
Agreements
Total 12,326 100.00% $535,019,738 100.00%
</TABLE>
32
<PAGE>
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED
<TABLE>
<CAPTION>
Percentage of
Aggregate
Percentage of Discounted Discounted
State Number of Number of Contract Contract
Contracts Contracts Balance Balance
<S> <C> <C> <C> <C>
Alabama 253 2.05% $21,419,041 4.00%
Alaska 19 0.15% $223,291 0.04%
Arizona 351 2.85% $9,041,987 1.69%
Arkansas 237 1.92% $11,797,407 2.21%
California 1,140 9.25% $35,854,922 6.70%
Colorado 169 1.37% $5,165,482 0.97%
Connecticut 194 1.57% $13,563,699 2.54%
Delaware 52 0.42% $4,577,001 0.86%
District of Columbia 19 0.15% $423,954 0.08%
Florida 436 3.54% $19,888,200 3.72%
Georgia 284 2.30% $16,662,398 3.11%
Hawaii 47 0.38% $1,590,702 0.30%
Idaho 85 0.69% $3,977,190 0.74%
Illinois 294 2.39% $19,638,967 3.67%
Indiana 239 1.94% $14,868,671 2.78%
Iowa 94 0.76% $3,347,465 0.63%
Kansas 75 0.61% $2,507,744 0.47%
Kentucky 245 1.99% $12,405,034 2.32%
Louisiana 287 2.33% $7,498,138 1.40%
Maine 105 0.85% $6,589,775 1.23%
Maryland 240 1.95% $5,808,433 1.09%
Massachusetts 229 1.86% $9,633,582 1.80%
Michigan 241 1.96% $10,060,785 1.88%
Minnesota 143 1.16% $12,586,427 2.35%
Mississippi 205 1.66% $10,808,611 2.02%
Missouri 159 1.29% $7,480,061 1.40%
Montana 41 0.33% $2,106,063 0.39%
Nebraska 58 0.47% $1,731,278 0.32%
Nevada 64 0.52% $2,713,436 0.51%
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Aggregate
Percentage of Discounted Discounted
State Number of Number of Contract Contract
Contracts Contracts Balance Balance
<S> <C> <C> <C> <C>
New Hampshire 98 0.80% $2,514,144 0.47%
New Jersey 499 4.05% $20,642,184 3.86%
New Mexico 73 0.59% $3,265,604 0.61%
New York 722 5.86% $34,511,402 6.45%
North Carolina 203 1.65% $5,573,286 1.04%
North Dakota 16 0.13% $490,783 0.09%
Ohio 433 3.51% $21,750,214 4.07%
Oklahoma 209 1.70% $9,547,768 1.78%
Oregon 171 1.39% $5,278,053 0.99%
Pennsylvania 704 5.71% $21,419,748 4.00%
Rhode Island 21 0.17% $270,565 0.05%
South Carolina 90 0.73% $2,818,521 0.53%
South Dakota 23 0.19% $1,247,426 0.23%
Tennessee 235 1.91% $11,529,891 2.16%
Texas 1,297 10.52% $64,115,075 11.98%
Utah 205 1.66% $10,630,349 1.99%
Vermont 73 0.59% $4,888,422 0.91%
Virginia 184 1.49% $18,454,477 3.45%
Washington 222 1.80% $7,719,196 1.44%
West Virginia 67 0.54% $3,773,200 0.71%
Wisconsin 751 6.09% $9,748,510 1.82%
Wyoming 25 0.20% $879,176 0.16%
Total 12,326 100.00% $535,019,738 100.00%
</TABLE>
34
<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Number Discounted Contract Aggregate Discounted
Equipment Type Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
Transportation 3,897 31.62% $247,042,912 46.17%
Construction 718 5.83% $45,114,216 8.43%
Computer Hardware 1,767 14.34% $58,333,010 10.90%
Computer Software 109 0.88% $61,720,035 11.54%
Resources 168 1.36% $15,976,298 2.99%
Printing 23 0.19% $8,954,372 1.67%
Presses/Equipment
Healthcare Equipment 149 1.21% $17,410,032 3.25%
Industrial Equipment 209 1.70% $8,035,260 1.50%
Commercial/Retail 37 0.30% $9,610,950 1.80%
Fixtures
Automotive Diagnostic 4,220 34.24% $36,988,719 6.91%
Equipment
Manufacturing 109 0.88% $8,604,045 1.61%
Equipment
Other/Miscellaneous 920 7.46% $17,229,886 3.22%
Total 12,326 100.00% $535,019,738 100.00%
</TABLE>
35
<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
<TABLE>
<CAPTION>
Percentage of
Percentage of Number Discounted Contract Aggregate Discounted
Industry Number of Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
Transportation 3,541 28.73% $215,298,014 40.24%
Resources 206 1.67% $18,636,687 3.48%
Construction 778 6.31% $52,183,250 9.75%
Printing 36 0.29% $8,237,529 1.54%
Financial Management 151 1.23% $24,856,117 4.65%
Distribution 4,901 39.76% $73,439,450 13.73%
Manufacturing 249 2.02% $31,526,528 5.89%
Government 13 0.11% $2,456,808 0.46%
Commercial 130 1.05% $23,597,332 4.41%
Small Business 1,157 9.39% $6,685,024 1.25%
Other/Miscellaneous 1,164 9.44% $78,102,998 14.60%
Total 12,326 100.00% $535,019,738 100.00%
</TABLE>
36
<PAGE>
DISTRIBUTION OF CONTRACTS BY CONTRACT BALANCE
<TABLE>
<CAPTION>
Percentage of
Discounted Contract Number Percentage of Number Discounted Contract Aggregate Discounted
Balance of Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
$ 0
less than or equal to
$25,000 7,727 62.69% $64,394,840 12.04%
$ 25,001
less than or equal to
$50,000 1,593 12.92% $56,797,913 10.62%
$50,001
less than or equal to
$75,000 1,013 8.22% $62,977,757 11.77%
$75,001
less than or equal to
$100,000 1,083 8.79% $93,979,689 17.57%
$100,001
less than or equal to
$200,000 621 5.04% $80,881,458 15.12%
$200,001
less than or equal to
$300,000 94 0.76% $23,067,072 4.31%
$300,001
less than or equal to
$400,000 57 0.46% $19,291,539 3.61%
$400,001
less than or equal to
$500,000 34 0.28% $15,242,635 2.85%
$500,001
less than or equal to
$1,000,000 70 0.57% $49,929,990 9.33%
$1,000,001
less than or equal to
$4,000,000 29 0.24% $42,716,438 7.98%
greater than $4,000,000 5 0.04% $25,740,408 4.81%
TOTAL 12,326 100.00% $535,019,738 100.00%
</TABLE>
37
<PAGE>
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of
Remaining Term Percentage of Number Discounted Contract Aggregate Discounted
(Months) Number of Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
1 less than or equal to 12 661 5.36% $16,759,620 3.13%
13 less than or equal to 24 1,937 15.71% $41,917,533 7.83%
25 less than or equal to 36 3,766 30.55% $102,734,270 19.20%
37 less than or equal to 48 2,182 17.70% $120,541,855 22.53%
49 less than or equal to 60 3,692 29.95% $231,284,531 43.23%
61 less than or equal to 72 56 0.45% $13,535,778 2.53%
73 less than or equal to 84 32 0.26% $8,246,150 1.54%
greater than 84 0 0.00% $0 0.00%
Total 12,326 100.00% $535,019,738 100.00%
</TABLE>
DISTRIBUTIONS OF CONTRACTS BY
ORIGINAL CONTRACT TERM
<TABLE>
<CAPTION>
Percentage of
Original Term Number of Percentage of Number Discounted Contract Aggregate Discounted
(Months) Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
1 less than or equal to 12 347 2.82% $8,885,142 1.66%
13 less than or equal to 24 1,670 13.55% $32,090,114 6.00%
25 less than or equal to 36 3,479 28.22% $82,759,274 15.47%
37 less than or equal to 48 2,255 18.29% $105,713,727 19.76%
49 less than or equal to 60 3,858 31.30% $226,452,648 42.33%
61 less than or equal to 72 672 5.45% $62,535,027 11.69%
73 less than or equal to 84 43 0.35% $9,914,604 1.85%
greater than 84 2 0.02% $6,669,203 1.25%
Total 12,326 100.00% $535,019,738 100.00%
</TABLE>
38
<PAGE>
DELINQUENCY AND LOAN LOSS INFORMATION
Set forth below is certain information regarding the delinquency and loss
experience of Newcourt USA with respect to its portfolio of financing agreements
(including Contracts and other financing agreements that it previously sold but
continues to service) for users of a wide variety of new and used information
technology equipment (such as mainframe and mini computers, computer work
stations, personal computers, data storage devices and other computer related
peripheral equipment), communications equipment (such as telephone switching and
networking systems), commercial business and industrial equipment (such as
printing presses, machine tools and other manufacturing equipment,
photocopiers, facsimile machines and other office equipment, energy savings and
control equipment, automotive diagnostic and automated testing equipment),
medical equipment (such as diagnostic and therapeutic examination equipment for
radiology, nuclear medicine and ultrasound and laboratory analysis equipment),
resources equipment (such as feller-bunchers and grapplers), and transportation
and construction equipment (such as heavy and medium duty trucks and highway
trailers, school buses, bulldozers, loaders, graters, excavators, forklifts and
other materials handling equipment, golf carts and other road and off-road
machinery). The information set forth below includes delinquency and loss
experience of Newcourt USA with respect to financing agreements for
"micro-ticket" items which are included in Newcourt USA's portfolio but which
are not being, and will not be, transferred to the Trust. There can be no
assurance that the levels of delinquency and loss experience on the Contracts
will be comparable to that set forth below. The contracts to which the
following tables relate (the "SUBJECT CONTRACTS") were, prior to the end of the
first quarter of 1996, serviced to a limited extent (specifically, the
invoicing, cash application and sales and tax reporting with respect thereto) by
Parrish Financial Servicing L.P., an unaffiliated independent servicing
contractor. In addition, certain of the Subject Contracts which were purchased
by Newcourt USA are or continue to be serviced by the Person (or an affiliate of
the Person) that sold them to Newcourt (each, a "THIRD-PARTY SERVICER") pursuant
to arrangements permitting the substitution by Newcourt USA of itself as
servicer with respect to the applicable Subject Contracts upon default (as
prescribed under such arrangement) by the applicable Third-Party Servicer. Of
the Contracts included in the Contract Portfolio approximately 211 such
Contracts, with an ADCB as of the date hereof of $2,421,181 or 0.45% of the ADCB
of the Contracts Pool are being serviced by Third-Party Servicers. Due to the
acquisition of Contract portfolios from various Vendors and the development of
additional finance programs with various Vendors, the data set forth is not
necessarily comparable on a year-to-year basis. Data set forth for the six
months ended June 30, 1997 is not indicative of results for the full year.
39
<PAGE>
NEWCOURT USA PORTFOLIO
DELINQUENCY EXPERIENCE (a), (b), (c) and (d)
AT
---------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
June 30, December 31, December 31, December 31,
1997 1996 1995 1994
<S> <C> <C> <C> <C>
Outstanding
Investment in $1,339,937,827 $1,056,983,682 $354,193,858 $117,147,359
Contracts
31-60 days 2.01% 2.86% 4.14% 0.33%
61-90 days 0.50% 1.27% 0.93% 0.07%
Over 90 days 0.31% 0.41% 0.15% 0.00%
Total (% of
Outstanding 2.82% 4.54% 5.22% 0.40%
Investment in
Contracts)
</TABLE>
(a) Outstanding Investment is equal to the outstanding funds deployed for
the acquisition of the financing agreements less any associated
payments made under such financing agreement relating to the principal
component of such financing agreement.
(b) Newcourt USA classifies accounts as delinquent at the time a payment
(or a portion thereof) remains unpaid 31 days or more following the
date on which such payment is due. The amount classified as
delinquent is the present value of all remaining scheduled payments
discounted at the applicable contract rate and any past due amounts
relating to such financing agreements. Delinquent accounts are
written off in their entirety when a determination is made that the
account is uncollectible.
(c) The percentages in any column may not total due to rounding.
(d) Includes all U.S. assets originated through the Transportation &
Construction Equipment Division, Information Technology Division and
Commercial Division including small balance assets (i.e.,
"micro-ticket" assets) originated, and still held on Newcourt USA's
balance sheet, from its acquisition of Anthem in 1996 (but excludes
assets securitized and sold through Newcourt Equipment Receivables
Trust 1996-A and Newcourt Equipment Receivables Trust 1997-A).
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NEWCOURT USA PORTFOLIO
LOSS EXPERIENCE (a) AND (d)
AT
---------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
June 30, 1997 December 31, 1996 December 31, 1995 December 31, 1994
<S> <C> <C> <C> <C>
Outstanding
Investment in $1,339,937,827 $1,056,983,682 $354,193,858 $117,147,359
Contracts
Gross Losses $9,277,448 $13,688,978 0 0
Recoveries $5,270,766 $11,226,180 0 0
Net Losses $4,006,683 $2,462,798 0 0
Net Losses as a
Percentage of
Average
Outstanding
Investment in Contracts(c) 0.64% (b) 0.32% 0.00% 0.00%
</TABLE>
(a) Outstanding Investment is equal to the outstanding funds deployed for
the acquisition of the financing agreements less any associated
payments made under such financing agreement relating to the principal
component of such financing agreement.
(b) Annualized.
(c) Average Outstanding Investment is the average of the Outstanding Investment
at the end of each quarter.
(d) Includes all U.S. assets originated through Newcourt USA's
Transportation & Construction Equipment Division, Information
Technology Division and Commercial Division including small balance
assets (i.e., "micro-ticket" assets) originated, and still held on
Newcourt USA's balance sheet, from its acquisition of Anthem in 1996
(but excludes assets securitized and sold through Newcourt Equipment
Receivables Trust 1996-A and Newcourt Equipment Receivables Trust
1997-A).
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. SEE "RISK FACTORS" AND
"CERTAIN LEGAL ASPECTS OF THE CONTRACTS".
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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, (ii) collections representing reimbursements of
insurance premiums or payments for certain services that were not financed by
the Seller, (amounts described in clauses (i) and (ii), "EXCLUDED AMOUNTS") due
on or after the applicable Cutoff Date for such Contracts and (iii) collections
relating to payments which were scheduled to be made by the Obligors on the
Contracts pursuant to the terms of such Contracts prior to the related Cutoff
Date.
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 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 UNDER "THE TRANSFER AND SALE AGREEMENT AND SALE
AND SERVICING AGREEMENT GENERALLY") as of the Cutoff Date.
CONDITIONAL SALE AGREEMENTS. The Seller offers 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 the Seller's standard pre-printed
form, or of the Vendors' standard, pre-printed forms. 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 seven 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 Seller, either directly or by assignment from Vendors, offers
financing of Equipment, Software and Services 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, Software and Services 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 seven 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 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
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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 generally 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 or Vendor, as applicable.
The Leases include both "TRUE LEASES" and leases intended for security as
defined in Section 1-201(37) of the UCC. Under a "TRUE LEASE," the lessor bears
the risk of ownership (although the risk of loss of the Equipment is passed to
the End-User under the Leases), takes any tax benefits associated with the
ownership of depreciable property under applicable law and no title is conferred
upon the lessee. The lessee under a "TRUE LEASE" has the right to the temporary
use of property for a term shorter than the economic life of such property in
exchange for payments at scheduled intervals during the lease term and the
lessor retains a significant "RESIDUAL" economic interest in the leased
property. See "--RESIDUAL INVESTMENTS." End of lease options for "TRUE LEASES"
include purchase or renewal at fair market value. 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. The inclusion of "TRUE LEASES" in the Contract Pool will have
no federal income tax impact on Noteholders since the Notes are treated as debt
for federal income tax purposes although the inclusion of such leases may result
in the imposition of state and local taxes which would reduce cash available for
payment on the Notes. See "CERTAIN FEDERAL INCOME TAX MATTERS." "TRUE LEASES"
are treated differently under the Bankruptcy Code from leases intended for
security. See "CERTAIN LEGAL ASPECTS OF THE CONTRACTS--CERTAIN MATTERS RELATING
TO BANKRUPTCY."
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. End-Users may also negotiate with the Seller, at the
Seller's discretion, an early termination arrangement allowing the End-User to
purchase the Equipment during the term of a Lease for an amount generally equal
to or in excess of the present value of the remaining rental payments under the
Lease plus the anticipated market value of the related Equipment as of the end
of the Lease term. 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. Newcourt USA 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
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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 Seller also provides direct initial financing or
refinancing of Equipment and Software 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 Seller pays to the Vendor
the purchase price for the Equipment and Software and in a refinancing
transaction, the Seller pays off an End-User's existing financing source, and
the initial financing or refinancing is documented as a direct loan by the
Seller to the End-User of the Equipment or Software 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 or Software and takes possession of the Secured Note. 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 Seller provides financing for certain
Software license fees and related support and consulting services under
installment payment supplements to software license agreements, separate IPAs as
well as other forms of Financing Agreements assigned to the 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 (in the event a Financing Agreement does not provide for
noncancellability or a "HELL OR HIGH WATER" clause such Financing Agreement will
have the benefit of a Vendor Guarantee (See "THE CONTRACTS - PROGRAM AGREEMENTS
WITH VENDORS"); 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 relating to a wide variety of new and used information
technology equipment (such as mainframe and mini computers, computer work
stations, personal computers, data storage devices and other computer related
peripheral equipment), communications equipment (such as telephone switching and
networking systems), commercial business and industrial equipment (such as
printing presses, machine tools and other manufacturing equipment,
photocopiers, facsimile machines and other office equipment, energy savings and
control equipment, automotive diagnostic and automated testing equipment),
medical equipment (such as diagnostic and therapeutic examination equipment for
radiology, nuclear medicine and ultrasound and laboratory analysis equipment),
resources equipment (such as feller-bunchers and grapplers), and transportation
and construction equipment (such as heavy and medium duty trucks and highway
trailers, school buses, bulldozers, loaders, graters, excavators, forklifts and
other materials handling equipment, golf carts and other road and off-road
machinery) (collectively, the "EQUIPMENT"). All of the interests of the 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 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 Seller 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
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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 11.54% 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 interests
documented by security agreements or specific provisions in Program 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 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.
PROGRAM AGREEMENTS WITH VENDORS
It is expected that a substantial portion of the End-User Contracts to be
included in the Trust will consist of End-User Contracts originated by Vendors
and assigned or pledged to the Seller pursuant to Program Agreements. Also, as
described above, Vendor Loans may be originated through Program Agreements with
the related Vendor. The Seller's Program Agreements are agreements with
Equipment manufacturers, dealers and distributors, or Software licensors or
distributors, located in the United States ("VENDORS") which 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.
Vendor finance arrangements provide the Seller 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 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 except for Permitted Liens; 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
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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.
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, (i) by specifying that the assignment of the End-User
Contract from the Vendor to the Seller is with full recourse against the Vendor,
(ii) by specifying that the Vendor will absorb a limited fixed dollar or
percentage amount of "FIRST LOSSES" on the Contract, (iii) by inclusion of the
End-User Contract in an "ULTIMATE NET LOSS POOL" ("UNL POOL") created under the
Program Agreement as well as certain Vendor Guarantees ("Vendor Guarantees")
with respect to certain End-User Contracts which are "CANCELLABLE" or which do
not contain "HELL OR HIGH WATER" provisions or (iv) by providing for Vendor
repurchase of the End-User Contract or Vendor indemnification payments for
breaches of certain representations and warranties made by the Vendor with
respect to such Contract. 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 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 (x) accept a Vendor Loan and collateral
assignment of the End-User Contract and related Equipment (or security interest
therein) from the Vendor, or (y) accept a full assignment of such End-User
Contract and 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 Lease. 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.
RESIDUAL INVESTMENTS
The Seller may finance all or a portion of the residual interest in the
Equipment under certain Program Agreements and under direct transactions between
the Obligor and the Seller. (Any investment by the Seller in such residual
interest shall be referred to as a "RESIDUAL INVESTMENT".) Certain Program
Agreements provide that the Seller may, at its sole discretion and in connection
with the funding of a "TRUE LEASE" of Equipment make a Residual Investment in
the Equipment subject to a Contract by advancing additional funds against a
portion of the anticipated residual value of the Equipment, and not just against
the discounted present value of the rental payments due under the End-User
Contract. Such Residual Investments may take the form of an advance of the
present value of some specified percentage of the anticipated residual value of
the Equipment or a specified percentage (generally not greater than 10%) of the
amount to be paid by the Seller in funding the present value of the rental
payments due under the End-User Contract. Certain transactions involving Vendor
Assignments result in the Seller advancing the entire purchase price of the
Equipment subject to a "TRUE LEASE", taking title to the Equipment, and
accepting an assignment of the "TRUE LEASE"
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Contract from a Vendor. Certain direct transactions between the Obligor under a
"TRUE LEASE" Contract and the Seller also result in the Seller advancing the
entire purchase price of the Equipment to the Vendor, taking title to the
Equipment from the Vendor, and entering into a "TRUE LEASE" Contract with the
Obligor (with the Seller named as "LESSOR" under such Contract). In either of
the two foregoing types of transactions, the Seller will have advanced more than
the discounted present value of the rents payable under the "TRUE LEASE"
Contracts by paying the purchase price for the Equipment, and so will have made
a Residual Investment in the Equipment.
In some Program Agreements, the Seller may make the Residual Investment in
the form of a full recourse loan of additional funds to the Vendor, repayable by
the Vendor at the expiration or termination of the End-User Contract with
interest, secured by a security interest in the Equipment covered by the
End-User Contract. In some transactions involving Vendor Assignments or direct
transactions with Obligors under "TRUE LEASE" Contracts, the Seller may obtain
the obligation of either the Vendor or the Obligor to purchase the Equipment at
the end of the Lease term for the full amount of the Seller's Residual
Investment in such Equipment with interest thereon. (Any such transaction in
which the Seller may look to either the Vendor or the Obligor, and not just the
value of Equipment itself, to recover its Residual Investment with interest
shall be referred to as a "GUARANTEED RESIDUAL INVESTMENT"). It is a condition
to the issuance of the Notes that as of the related Closing Date, after giving
effect to any Addition on such date, the aggregate amount of Guaranteed Residual
Investments included in the Contract Pool will not exceed 0.27% of the ADCB of
the Contract Pool. Other than Guaranteed Residual Investments, a Residual
Investment is not included in the Discounted Contract Balance of any End-User
Contract and, therefore, is not financed with the proceeds of the Notes.
Other than a Guaranteed Residual Investment, the Residual Investment
associated with any End-User Contract included in the Contract Pool has not been
and will not be purchased by the Trust Depositor from the Seller under the
Transfer and Sale Agreement, and, accordingly, will not be sold to the Trust
under the Sale and Servicing Agreement. The Trust's interest in End-User
Contracts with associated Residual Investments (other than Guaranteed Residual
Investments) will be limited to the discounted present value of the rental
payments due under the End-User Contract and a security interest in the related
Equipment. The Seller may assign its Residual Investment (other than a
Guaranteed Residual Investment) to a third party (a "RESIDUAL ASSIGNEE"),
including the security interest in the Equipment in respect of such Residual
Investment (the "SUBORDINATED RESIDUAL INTEREST"), either prior to the inclusion
of the related End-User Contract in the Contract Pool or thereafter. Under the
Transfer and Sale Agreement, the Seller will warrant to the Trust Depositor and
under the Sale and Servicing Agreement the Trust Depositor will warrant and
covenant to the Trust, that any Subordinated Residual Interest will be
subordinated to the interests of the Seller and the Trust, respectively, and
that any Residual Assignee will bear the full risk of any deficiency in respect
of the Residual Investment as a result of prior satisfaction of the Trust's
interest in the related End-User Contract and the related Equipment.
CONTRACT FILES
The Seller will indicate in the appropriate computer files relating to the
Transferred Contracts that such Contracts have been transferred to the Trust for
the benefit of the Noteholders. The Seller 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 and Scheduled Payments of principal made in advance of their due
date will be given effect on their due date.
47
<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 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 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,
as defined herein, 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 therefor 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--PREPAYMENTS
ON THE CONTRACTS AFFECT THE YIELD OF THE NOTES."
In the event a Contract becomes a Defaulted Contract, an Adjusted Contract,
an Early Termination Contract or a Warranty Contract (each as defined herein),
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
initial Cutoff Date. In addition, in the event of an Early Termination
Contract (as defined herein) 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 and shall provide for a last scheduled payment
which is not in excess of the Contract substituted for unless the Servicer
discounts the Substitute Contract's cash flows up to and including such last
scheduled payment. 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, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes and the 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%, 7.00%, 11.0% and 15.0%,
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. 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 exercises its option to cause a redemption of
the Notes in connection with the Cleanup Call Condition, and assumes the Closing
Date is November 26, 1997 and is based upon the Discount Rate.
48
<PAGE>
PERCENTAGE OF THE
INITIAL CLASS A-1 PRINCIPAL AMOUNT,
INITIAL CLASS A-2 PRINCIPAL AMOUNT,
INITIAL CLASS A-3 PRINCIPAL AMOUNT,
INITIAL CLASS A-4 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 7.00% CPR
Distribution Class Class Class Class Class Class Class Class Class Class Class Class
Date A-1 A-2 A-3 A-4 B C A-1 A-2 A-3 A-4 B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing
Date 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
12/20/1997 90.83% 100.00% 100.00% 100.00% 100.00% 100.00% 88.35% 100.00% 100.00% 100.00% 100.00% 100.00%
01/20/1998 80.06% 100.00% 100.00% 100.00% 100.00% 100.00% 75.24% 100.00% 100.00% 100.00% 100.00% 100.00%
02/20/1998 69.32% 100.00% 100.00% 100.00% 100.00% 100.00% 62.30% 100.00% 100.00% 100.00% 100.00% 100.00%
03/20/1998 57.48% 100.00% 100.00% 100.00% 100.00% 100.00% 48.44% 100.00% 100.00% 100.00% 100.00% 100.00%
04/20/1998 48.67% 100.00% 100.00% 100.00% 100.00% 100.00% 37.66% 100.00% 100.00% 100.00% 100.00% 100.00%
05/20/1998 38.38% 100.00% 100.00% 100.00% 100.00% 100.00% 25.57% 100.00% 100.00% 100.00% 100.00% 100.00%
06/20/1998 28.82% 100.00% 100.00% 100.00% 100.00% 100.00% 14.32% 100.00% 100.00% 100.00% 100.00% 100.00%
07/20/1998 18.95% 100.00% 100.00% 100.00% 100.00% 100.00% 2.89% 100.00% 100.00% 100.00% 100.00% 100.00%
08/20/1998 7.65% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 87.51% 100.00% 100.00% 96.96% 96.96%
09/20/1998 0.00% 97.39% 100.00% 100.00% 99.36% 99.36% 0.00% 73.45% 100.00% 100.00% 93.53% 93.53%
10/20/1998 0.00% 85.71% 100.00% 100.00% 96.52% 96.52% 0.00% 60.21% 100.00% 100.00% 90.31% 90.31%
11/20/1998 0.00% 73.76% 100.00% 100.00% 93.61% 93.61% 0.00% 46.86% 100.00% 100.00% 87.06% 87.06%
12/20/1998 0.00% 61.84% 100.00% 100.00% 90.71% 90.71% 0.00% 33.68% 100.00% 100.00% 83.85% 83.85%
01/20/1999 0.00% 50.38% 100.00% 100.00% 87.92% 87.92% 0.00% 21.07% 100.00% 100.00% 80.78% 80.78%
02/20/1999 0.00% 37.95% 100.00% 100.00% 84.89% 84.89% 0.00% 7.72% 100.00% 100.00% 77.53% 77.53%
03/20/1999 0.00% 24.93% 100.00% 100.00% 81.72% 81.72% 0.00% 0.00% 95.04% 100.00% 74.18% 74.18%
04/20/1999 0.00% 14.37% 100.00% 100.00% 79.15% 79.15% 0.00% 0.00% 85.66% 100.00% 71.41% 71.41%
05/20/1999 0.00% 2.36% 100.00% 100.00% 76.22% 76.22% 0.00% 0.00% 75.32% 100.00% 68.36% 68.36%
06/20/1999 0.00% 0.00% 92.41% 100.00% 73.40% 73.40% 0.00% 0.00% 65.42% 100.00% 65.44% 65.44%
07/20/1999 0.00% 0.00% 82.39% 100.00% 70.45% 70.45% 0.00% 0.00% 55.21% 100.00% 62.42% 62.42%
08/20/1999 0.00% 0.00% 72.01% 100.00% 67.38% 67.38% 0.00% 0.00% 44.79% 100.00% 59.35% 59.35%
09/20/1999 0.00% 0.00% 62.99% 100.00% 64.72% 64.72% 0.00% 0.00% 35.68% 100.00% 56.66% 56.66%
10/20/1999 0.00% 0.00% 54.10% 100.00% 62.09% 62.09% 0.00% 0.00% 26.78% 100.00% 54.03% 54.03%
11/20/1999 0.00% 0.00% 45.62% 100.00% 59.59% 59.59% 0.00% 0.00% 18.35% 100.00% 51.54% 51.54%
12/20/1999 0.00% 0.00% 36.81% 100.00% 56.99% 56.99% 0.00% 0.00% 9.72% 100.00% 49.00% 49.00%
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Distribution Class Class Class Class Class Class Class Class Class Class Class Class
Date A-1 A-2 A-3 A-4 B C A-1 A-2 A-3 A-4 B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01/20/2000 0.00% 0.00% 27.86% 100.00% 54.35% 54.35% 0.00% 0.00% 1.07% 100.00% 46.44% 46.44%
02/20/2000 0.00% 0.00% 19.65% 100.00% 51.93% 51.93% 0.00% 0.00% 0.00% 95.62% 44.10% 44.10%
03/20/2000 0.00% 0.00% 10.42% 100.00% 49.20% 49.20% 0.00% 0.00% 0.00% 90.05% 41.54% 41.54%
04/20/2000 0.00% 0.00% 2.39% 100.00% 46.83% 46.83% 0.00% 0.00% 0.00% 85.20% 39.30% 39.30%
05/20/2000 0.00% 0.00% 0.00% 96.55% 44.53% 44.53% 0.00% 0.00% 0.00% 80.53% 37.14% 37.14%
06/20/2000 0.00% 0.00% 0.00% 91.50% 42.20% 42.20% 0.00% 0.00% 0.00% 75.86% 34.99% 34.99%
07/20/2000 0.00% 0.00% 0.00% 86.27% 39.79% 39.79% 0.00% 0.00% 0.00% 71.09% 32.79% 32.79%
08/20/2000 0.00% 0.00% 0.00% 81.25% 37.48% 37.48% 0.00% 0.00% 0.00% 66.55% 30.70% 30.70%
09/20/2000 0.00% 0.00% 0.00% 76.78% 35.41% 35.41% 0.00% 0.00% 0.00% 62.51% 28.83% 28.83%
10/20/2000 0.00% 0.00% 0.00% 72.20% 33.30% 33.30% 0.00% 0.00% 0.00% 58.42% 26.95% 26.95%
11/20/2000 0.00% 0.00% 0.00% 67.84% 31.29% 31.29% 0.00% 0.00% 0.00% 54.57% 25.17% 25.17%
12/20/2000 0.00% 0.00% 0.00% 63.79% 29.43% 29.43% 0.00% 0.00% 0.00% 51.00% 23.53% 23.53%
01/20/2001 0.00% 0.00% 0.00% 59.52% 27.45% 27.45% 0.00% 0.00% 0.00% 47.30% 21.82% 21.82%
02/20/2001 0.00% 0.00% 0.00% 55.72% 25.70% 25.70% 0.00% 0.00% 0.00% 44.01% 20.30% 20.30%
03/20/2001 0.00% 0.00% 0.00% 51.34% 23.68% 23.68% 0.00% 0.00% 0.00% 40.31% 18.59% 18.59%
04/20/2001 0.00% 0.00% 0.00% 47.52% 21.92% 21.92% 0.00% 0.00% 0.00% 37.08% 17.10% 17.10%
05/20/2001 0.00% 0.00% 0.00% 43.95% 20.27% 20.27% 0.00% 0.00% 0.00% 34.09% 15.73% 15.73%
06/20/2001 0.00% 0.00% 0.00% 40.33% 18.60% 18.60% 0.00% 0.00% 0.00% 31.10% 14.34% 14.34%
07/20/2001 0.00% 0.00% 0.00% 36.78% 16.96% 16.96% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
08/20/2001 0.00% 0.00% 0.00% 33.11% 15.27% 15.27% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
09/20/2001 0.00% 0.00% 0.00% 29.95% 13.81% 13.81% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
10/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Weighted
Average
Life (Years) 0.43 1.19 1.99 3.35 2.42 2.42 0.36 1.01 1.74 3.09 2.18 2.18
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
11.00% CPR 15.00% CPR
Distribution Class Class Class Class Class Class Class Class Class Class Class Class
Date A-1 A-2 A-3 A-4 B C A-1 A-2 A-3 A-4 B C
<S> <C> <C> <C> <C> <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% 100.00% 100.00% 100.00% 100.00%
Date
12/20/1997 86.85% 100.00% 100.00% 100.00% 100.00% 100.00% 85.29% 100.00% 100.00% 100.00% 100.00% 100.00%
01/20/1998 72.35% 100.00% 100.00% 100.00% 100.00% 100.00% 69.35% 100.00% 100.00% 100.00% 100.00% 100.00%
02/20/1998 58.11% 100.00% 100.00% 100.00% 100.00% 100.00% 53.77% 100.00% 100.00% 100.00% 100.00% 100.00%
03/20/1998 43.06% 100.00% 100.00% 100.00% 100.00% 100.00% 37.52% 100.00% 100.00% 100.00% 100.00% 100.00%
04/20/1998 31.15% 100.00% 100.00% 100.00% 100.00% 100.00% 24.46% 100.00% 100.00% 100.00% 100.00% 100.00%
05/20/1998 18.04% 100.00% 100.00% 100.00% 100.00% 100.00% 10.33% 100.00% 100.00% 100.00% 100.00% 100.00%
06/20/1998 5.82% 100.00% 100.00% 100.00% 100.00% 100.00% 0.00% 96.38% 100.00% 100.00% 99.12% 99.12%
07/20/1998 0.00% 91.72% 100.00% 100.00% 97.98% 97.98% 0.00% 79.58% 100.00% 100.00% 95.03% 95.03%
08/20/1998 0.00% 74.59% 100.00% 100.00% 93.81% 93.81% 0.00% 61.53% 100.00% 100.00% 90.63% 90.63%
09/20/1998 0.00% 59.63% 100.00% 100.00% 90.17% 90.17% 0.00% 45.71% 100.00% 100.00% 86.78% 86.78%
10/20/1998 0.00% 45.56% 100.00% 100.00% 86.74% 86.74% 0.00% 30.86% 100.00% 100.00% 83.16% 83.16%
11/20/1998 0.00% 31.48% 100.00% 100.00% 83.31% 83.31% 0.00% 16.11% 100.00% 100.00% 79.57% 79.57%
12/20/1998 0.00% 17.67% 100.00% 100.00% 79.95% 79.95% 0.00% 1.71% 100.00% 100.00% 76.06% 76.06%
01/20/1999 0.00% 4.49% 100.00% 100.00% 76.74% 76.74% 0.00% 0.00% 90.13% 100.00% 72.73% 72.73%
02/20/1999 0.00% 0.00% 92.33% 100.00% 73.38% 73.38% 0.00% 0.00% 78.44% 100.00% 69.28% 69.28%
03/20/1999 0.00% 0.00% 80.73% 100.00% 69.96% 69.96% 0.00% 0.00% 66.64% 100.00% 65.80% 65.80%
04/20/1999 0.00% 0.00% 71.05% 100.00% 67.10% 67.10% 0.00% 0.00% 56.72% 100.00% 62.87% 62.87%
05/20/1999 0.00% 0.00% 60.54% 100.00% 64.00% 64.00% 0.00% 0.00% 46.09% 100.00% 59.73% 59.73%
06/20/1999 0.00% 0.00% 50.51% 100.00% 61.04% 61.04% 0.00% 0.00% 35.99% 100.00% 56.75% 56.75%
07/20/1999 0.00% 0.00% 40.27% 100.00% 58.01% 58.01% 0.00% 0.00% 25.77% 100.00% 53.73% 53.73%
08/20/1999 0.00% 0.00% 29.90% 100.00% 54.95% 54.95% 0.00% 0.00% 15.51% 100.00% 50.70% 50.70%
09/20/1999 0.00% 0.00% 20.82% 100.00% 52.27% 52.27% 0.00% 0.00% 6.50% 100.00% 48.04% 48.04%
10/20/1999 0.00% 0.00% 11.99% 100.00% 49.67% 49.67% 0.00% 0.00% 0.00% 98.59% 45.48% 45.48%
11/20/1999 0.00% 0.00% 3.65% 100.00% 47.20% 47.20% 0.00% 0.00% 0.00% 93.35% 43.06% 43.06%
12/20/1999 0.00% 0.00% 0.00% 96.93% 44.71% 44.71% 0.00% 0.00% 0.00% 88.07% 40.62% 40.62%
01/20/2000 0.00% 0.00% 0.00% 91.54% 42.22% 42.22% 0.00% 0.00% 0.00% 82.86% 38.22% 38.22%
02/20/2000 0.00% 0.00% 0.00% 86.61% 39.95% 39.95% 0.00% 0.00% 0.00% 78.10% 36.02% 36.02%
03/20/2000 0.00% 0.00% 0.00% 81.27% 37.49% 37.49% 0.00% 0.00% 0.00% 73.01% 33.67% 33.67%
04/20/2000 0.00% 0.00% 0.00% 76.61% 35.34% 35.34% 0.00% 0.00% 0.00% 68.56% 31.62% 31.62%
05/20/2000 0.00% 0.00% 0.00% 72.15% 33.28% 33.28% 0.00% 0.00% 0.00% 64.31% 29.66% 29.66%
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Distribution Class Class Class Class Class Class Class Class Class Class Class Class
Date A-1 A-2 A-3 A-4 B C A-1 A-2 A-3 A-4 B C
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
06/20/2000 0.00% 0.00% 0.00% 67.71% 31.23% 31.23% 0.00% 0.00% 0.00% 60.13% 27.74% 27.74%
07/20/2000 0.00% 0.00% 0.00% 63.23% 29.16% 29.16% 0.00% 0.00% 0.00% 55.93% 25.80% 25.80%
08/20/2000 0.00% 0.00% 0.00% 58.97% 27.20% 27.20% 0.00% 0.00% 0.00% 51.97% 23.97% 23.97%
09/20/2000 0.00% 0.00% 0.00% 55.19% 25.46% 25.46% 0.00% 0.00% 0.00% 48.45% 22.35% 22.35%
10/20/2000 0.00% 0.00% 0.00% 51.39% 23.70% 23.70% 0.00% 0.00% 0.00% 44.94% 20.73% 20.73%
11/20/2000 0.00% 0.00% 0.00% 47.82% 22.06% 22.06% 0.00% 0.00% 0.00% 41.66% 19.22% 19.22%
12/20/2000 0.00% 0.00% 0.00% 44.54% 20.54% 20.54% 0.00% 0.00% 0.00% 38.65% 17.83% 17.83%
01/20/2001 0.00% 0.00% 0.00% 41.15% 18.98% 18.98% 0.00% 0.00% 0.00% 35.58% 16.41% 16.41%
02/20/2001 0.00% 0.00% 0.00% 38.15% 17.60% 17.60% 0.00% 0.00% 0.00% 32.86% 15.15% 15.15%
03/20/2001 0.00% 0.00% 0.00% 34.82% 16.06% 16.06% 0.00% 0.00% 0.00% 29.87% 13.78% 13.78%
04/20/2001 0.00% 0.00% 0.00% 31.91% 14.72% 14.72% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
05/20/2001 0.00% 0.00% 0.00% 29.23% 13.48% 13.48% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
06/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
07/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
08/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
09/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
10/20/2001 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Weighted
Average
Life (Years) 0.33 0.92 1.62 2.96 2.07 2.07 0.30 0.84 1.50 2.81 1.92 1.92
</TABLE>
WEIGHTED AVERAGE LIFE (YEARS)
If the Trust Depositor does not exercise 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 0.43 years, 0.36 years, 0.33 years and 0.30 years,
the average life of the Class A-2 Notes would be 1.19 years, 1.01 years, 0.92
years and 0.84 years, the average life of the Class A -3 Notes would be 1.99
years, 1.74 years, 1.62 years and 1.50 years, the average life of the Class A-4
Notes would be 3.46 years, 3.22 years, 3.09 years and 2.95 years, the average
life of the Class B Notes would be 2.48 years, 2.26 years, 2.14 years and 2.02
years, and the average life of the Class C Notes would be 2.48 years, 2.26
years, 2.14 years and 2.02 years for the 0.00% CPR, 7.00% CPR, 11.00% CPR and
15.00% CPR scenarios, respectively.
The weighted average life of a Class A-1 Note, a Class A-2 Note, a Class
A-3 Note, a Class A-4 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 A-3 Principal Amount, outstanding Class A-4 Principal Amount, outstanding
Class B Principal Amount or outstanding Class C Principal Amount, as the case
may be, on any given Distribution Date by the number of months from the Closing
Date to such Distribution Date on which each such principal payment is made, (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 A-3 Principal Amount,
Initial Class A-4 Principal Amount, Initial Class B Principal Amount or Initial
Class C Principal Amount, as the case may be.
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NEWCOURT CREDIT GROUP INC.
NEWCOURT FINANCIAL USA INC.
NEWCOURT USA
Newcourt USA was incorporated on January 8, 1992 in Delaware and is a
wholly-owned subsidiary of Newcourt Credit Group USA, Inc. Newcourt USA
originates and acquires conditional sales agreements, leases, secured promissory
notes, installment purchase agreements and other similar types of financing
agreements through various vendor programs covering a variety of transportation,
construction, information technology, communications, commercial and industrial,
and resource equipment. Newcourt USA's vendor financing arrangements are
typically structured as (i) direct originations with customers and end-users of
a vendor's products, either with or without recourse, or (ii) assignments of
contracts, either with or without recourse, by a vendor to Newcourt USA.
Newcourt USA's principal executive offices are located at 2700 Bank One
Tower, 111 Monument Circle, Suite 2700, Indianapolis, Indiana 46204 and its
telephone number is (317) 767-0077. Newcourt USA is a one-hundred percent
(100%) owned subsidiary of Newcourt Credit Group USA, which is a one-hundred
percent (100%) owned subsidiary of Newcourt.
NEWCOURT
Newcourt is an independent financial services company which originates and
manages asset-based financings. Newcourt was formed in 1984 as an investment
bank which originated and structured asset based financings for the corporate
and institutional asset finance market and syndicated such financings to
Canadian financial institutions. In 1988, Newcourt broadened its activities to
include vendor and direct equipment financing. With owned and managed assets
in excess of Canadian $9.9 billion, Newcourt is one of North America's leading
non-bank financial institutions.
On November 17, 1997, Newcourt entered into a merger agreement with AT&T
Capital Corp. The Servicer believes that there will be no affect on its
ability to service the Trust Assets should its indirect parent successfully
complete such transaction.
Newcourt and its subsidiaries originate their asset-based financings by
providing services to specific segments of the vendor asset finance market and
corporate and institutional asset finance market. Newcourt's strategy has been
to sell and manage, rather than own, the majority of the finance assets it and
its subsidiaries originate, thereby reducing its capital requirements.
Consequently, Newcourt's consolidated revenues are generated primarily by gains
and fees earned from the sale of financings it and its subsidiaries originate
and by management fees earned following such sales.
Newcourt's principal executive offices are located at BCE Place, 181 Bay
Street, Suite 3500, P.O. Box 827, Toronto, Ontario, Canada M5J 2T3 and its
telephone number is (416) 594-2400. Newcourt has 24 North American offices and
one overseas office. The servicing obligations of Newcourt USA as Servicer
under the Sale and Servicing Agreement will be guaranteed by Newcourt.
As of June 30, 1997, Newcourt had total assets of CAN $2,278,058,000
compared with CAN $1,908,379,000 as of June 30, 1996, total liabilities of CAN
$1,607,907,000 compared with CAN $1,539,238,000 as of June 30, 1996,
shareholder's equity of CAN $670,151,000 compared with CAN $369,141,000 as of
June 30, 1996 and total revenues and net income of CAN $111,553,000 and CAN
$33,991,000, respectively, for the period ended June 30, 1997, compared with CAN
$66,542,000 and CAN $19,228,000, respectively, for the period ended June 30,
1996. For the fiscal year ended December 31, 1996, Newcourt had total assets of
CAN $2,164,494,000 compared with CAN $1,158,215,000 as of December 31, 1995,
total liabilities of CAN $1,648,560,000 compared with CAN $913,021,000 as of
December 31, 1995, shareholder's equity of $515,934,000 compared with
$245,194,000 as of December 31, 1995 and total revenues and net income of CAN
$171,589,000 and CAN $50,681,000, respectively, for the fiscal year ended
December 31, 1996 compared with CAN $92,160,000 and CAN $29,405,000,
respectively, for the fiscal year ended December 31, 1995.
CREDIT UNDERWRITING PROCESS
As part of its credit underwriting procedures (which procedures in all
material respects are the same procedures utilized by Newcourt), Newcourt USA
reviews the creditworthiness of the End-User, the value of the Financed Items
and
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the creditworthiness of the Vendor. Newcourt has designed and Newcourt USA uses
specific credit philosophies, credit standards and processes for each of its
marketing units, which are enumerated in Newcourt's Credit Manual. Newcourt's
philosophy is that credit adjudication policies and procedures require strict
adherence to the Credit Manual. The underwriting policies detailed in Newcourt's
Credit Manual include, but are not limited to, (i) clearly defined underwriting
criteria for each business segment, (ii) within each individual business
segment, strict guidelines for certain equipment types and End-User types, (iii)
the use of two forms of credit rating (as described below) on every approved
transaction that quantify the financial strength of the End-User and the overall
perceived risk rating of the transaction being approved and (iv) a requirement
that asset financings must normally carry a credit rating of BBB or better on
the covenant-based rating system and a credit rating of 3 or better on the
asset-based rating system.
If a potential End-User is publicly rated by an independent ratings agency
for a similarly structured debt instrument, the public rating is used as the
covenant-based rating. If a potential End-User is not publicly rated, it will be
scored on a covenant-based rating system with six categories ranging from AAA to
single B. This system is based on the methods commonly used to rate public and
private debt issues which Newcourt USA has adapted to suit equipment financing
and leasing transactions. The system is based on four key financial ratios:
return on assets, long-term debt to equity, cash flow to long-term debt and
interest coverage. Qualitative considerations include the reputation of the
Vendor as well as existing vendor recourse agreements. Allowance is also made
for being fully secured on the transaction. Newcourt USA and its subsidiaries
will limit new financing commitments with potential End-Users that are rated a
single B. With potential End-Users rated BB or lower, significant credit
enhancements would be required, such as an extremely strong security position or
full corporate guarantees from creditworthy companies, for any credit exposure
to be considered. Newcourt USA's goal is to maintain a credit quality of its
portfolio of End-Users of BBB or better.
In addition, an asset-based rating system has been developed by Newcourt
and used by Newcourt USA to score every potential transaction in five categories
ranging from 1 to 5. This system takes into account a broader range of factors
than the covenant-based rating system, combining certain key financial ratios
with collateral and business considerations. The evaluation of collateral
examines the remarketability of the assets as well as the length of the finance
term relative to the economic life of the assets. Newcourt USA will not, under
normal circumstances, enter into any new transaction with a potential End-User
rating a 5 and will enter into a new transaction with a potential End-User
rating a 4 only in special circumstances. Newcourt USA's goal is to maintain an
overall credit quality of 3 or better throughout its portfolio.
A portion of the portfolio representing 9.32% of the ADCB of the pool is
underwritten utilizing automated credit scoring systems developed by Fair Isaac.
Fair Isaac is a major credit scoring company and has a long history of consumer,
small business and related credit data. This empirical data is used to develop
specific parameters within a designated group and to predict future delinquency
and default rates. By setting approval cutoff levels on total scores at levels
associated with predetermined default rates, Newcourt USA is able to provide a
program level credit score according to its internal policies.
Credit review procedures require the preparation of a credit application
outlining the structure and purpose of the transaction, the background and
business of the proposed End-User and the reasons of the source account
executive for recommending approval. Newcourt's credit guidelines require
financial statements covering three fiscal years and interim financial
information if the most recent year-end financial statement is more than six
months out of date. If the assigned credit officer makes an initial
determination that the request has sufficient merit to consider an approval and
sufficient information is provided, the credit officer will prepare a full
credit report and financial analysis which includes expanded basic information,
an analysis of the financial condition, performance and covenants of the
proposed End-User, a review of the proposed End-User's banking facilities and
contacts with credit agencies, and collateral and exposure analyses. The
transaction will be assigned a grade based on the two credit rating systems
described above. If a favorable credit report approved by the credit officer is
completed, approval of the new business is made at the appropriate level,
depending on the size of the transaction. In cases in which credit approval is
permitted to be made by a senior credit manager, such approvals are reviewed on
a regular basis by a corporate vice president to ensure adherence to the
appropriate approval policies. Credit authorization levels are reviewed at least
annually by a committee of Newcourt's Board of Directors and approved by the
Board of Directors.
Newcourt's current policy is to perform a written annual review on every
account with an outstanding book value equal to or in excess of $500,000
(Canadian). In addition, standard documentation requires the End-User to provide
annual financial statements within 120 days of its fiscal year-end and certain
transactions may require quarterly or semi-annual financial statements as a
condition of approval. If, based upon such financial statements, a credit
officer determines that there appears to be a financial impairment in the
End-User's repayment ability, a formal review will also be performed for
accounts with an outstanding book value of less than $500,000 (Canadian).
In initially establishing a Program Agreement or other form of financing
arrangement with a Vendor, Newcourt USA completes a formal underwriting review
of such Vendor to ensure that the Vendor can perform the financial and other
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obligations contained in any Vendor Agreement. This review encompasses a
financial review, a product review (including an analysis of market acceptance
of the Vendor's products) and a general operational and managerial review of the
Vendor.
Vendors must be established in their field and must market
industry-accepted Equipment or other products. The Vendor must have a history of
success, maintain a substantial market position and have sufficient financial
resources to support the financing relationship contemplated by Newcourt USA.
Program Agreements are continually monitored by Newcourt USA . Formal
annual reviews are undertaken on each Vendor which cover general financial,
operating and performance review as well as performance under the Program
Agreement.
CONTRACT COLLECTIONS
Newcourt USA's portfolio management unit will be responsible for the
ongoing management of portfolios.
Newcourt USA will generate and mail to the End-Users (other than those
End-Users whose payment obligations are evidenced by payment coupon books or
whose payments are automatically debited from their accounts) monthly invoices
and statements summarizing the account activity and current invoicing details.
The invoiced amount will represent the contracted repayment amount under the
End-User Contract inclusive of applicable taxes, if any. Copies of the invoices
and statements will also be distributed to the appropriate offices of Newcourt
USA for review.
Newcourt USA's portfolio management unit will also be responsible for the
preparation of monthly reports on past due, delinquent and problem accounts, the
collection and administration of such accounts, the preparation and
recommendation of requests for account restructuring and/or payment
rescheduling, and asset remarketing in cases of repossession or end of lease
equipment returns. The approval required in the case of End-User requests for
account restructuring and/or payment rescheduling will be the same as that
required for a new transaction, as set forth in Newcourt USA's Credit Manual.
Such restructuring and/or rescheduling generally will only be approved in cases
where it is believed that an End-User's financial difficulties are only
temporary and that the security value will not be seriously impaired by such
undertaking. Newcourt USA has no set policy on the timing of repossession, but
its practice is to proceed to repossess as soon as required and usually no later
than when an account is 120 days past due. In such situations, Vendors may
decide to make payments on behalf of an End-User or, under certain Vendor
Agreements, Vendors may be responsible for remarketing the repossessed
Equipment.
CASH COLLECTIONS
Payments by End-Users of amounts payable under their respective Contracts
are made by check mailed to a Newcourt USA's post office box or wire transfer to
a Newcourt USA's lock-box account. Invoices mailed to an End-User instruct the
End-User to forward payment to a post office box for processing by a lock-box
bank. End-Users that wish to remit by wire transfer are provided with wire
transfer instructions to remit to a lock-box account.
Invoices sent to End-Users contain a remittance advice. The lock-box bank
processes the deposits and credits the appropriate Newcourt bank accounts daily.
A daily summary of deposits received by the lock box bank is forwarded to
Newcourt USA, together with copies of the remittance advices and any other
information passed along with the payment. Newcourt USA then matches the
remittance advices to the cash deposits and applies the payments to the
End-Users' accounts. Amounts received from an End-User with respect to a
Secondary Contract are applied to the related Vendor Loan and reduce, on a
dollar-for-dollar basis, amounts due under such Secondary Contract and related
Vendor Loan. Unmatched deposits are recorded as unapplied cash for further
review and processing after investigation by Newcourt USA.
WRITE-OFF POLICY
When the recoverability of an account is in question, or if the underlying
collateral with respect to an account has been repossessed, Newcourt USA
generally will suspend the accrual of income on that account for Newcourt USA's
own accounting purposes.
Upon the repossession of collateral, an evaluation of the collateral
involved is immediately undertaken in order to establish a liquidation value.
After a liquidation value has been established, the difference between the net
book value of the account at the time of income suspension and the liquidation
value, if less than the net book value of the account, is stated as a "LIKELY
LOSS." The "LIKELY LOSS" amount may change, upward or downward, over a period of
time as more current or detailed information on the collateral is obtained. When
the collateral is sold, the difference between the net book value of the account
and the actual net sales proceeds, if less than the net book value of the
account, will be
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written off. If, however, there is any potential for future recovery, the
account will continue to be followed for the recovery of any deficiency balance.
THE TRUST DEPOSITOR
The Trust Depositor is a wholly-owned bankruptcy-remote subsidiary of
Newcourt Credit Group USA, formed solely for the purpose of acquiring from the
Seller Contracts and Equipment as well as certain other financial assets from
time to time and either issuing debt securities secured by, or selling interests
in, 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 and the Reserve Fund. The Trust
Depositor's address is 2700 Bank One Tower, 111 Monument Circle, Suite 2700,
Indianapolis, Indiana 46204, and its phone number is (317) 767-0077.
As of the Cutoff Date, the Trust Depositor will convey to the Trust,
pursuant to the Sale and Servicing Agreement, Contracts which were sold to the
Trust Depositor pursuant to the Transfer and Sale Agreement.
The Trust Depositor has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by Newcourt Credit Group USA or Newcourt USA
under the United States Bankruptcy Code or similar applicable state laws or
applicable laws of other countries ("INSOLVENCY LAWS") will not result in the
consolidation of the assets and liabilities of the Trust Depositor with those of
Newcourt Credit Group USA or Newcourt USA and its affiliates. These steps
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 and on its ability to commence a voluntary case or
proceeding under any bankruptcy or insolvency law, or to cause the Trust to
commence a voluntary case or proceeding under any bankruptcy or insolvency law,
without the affirmative vote of all of its directors, including its independent
directors, and the requirement, set forth in the Trust Depositor's certificate
of incorporation, that at all times no less than one member of the Board of
Directors of the Trust Depositor will be an individual who has not been, within
the previous five years, affiliated with Newcourt or any of its affiliates other
than the Trust Depositor, the Trust and other trusts formed for similar
operations (Newcourt and each of its affiliates other than the Trust Depositor,
the Trust and other trusts formed for similar operations, a "NEWCOURT ENTITY").
However, there can be no assurance that the activities of the Trust Depositor
would not result in a court concluding that the assets and liabilities of the
Trust Depositor should be consolidated with those of Newcourt Credit Group USA
or Newcourt USA in a proceeding under any Insolvency Law. See "RISK
FACTORS--CERTAIN LEGAL RISKS" and "CERTAIN LEGAL RISKS OF THE CONTRACTS--CERTAIN
MATTERS RELATING TO BANKRUPTCY". In such event there is no assurance that the
Trust would not become a debtor in such a bankruptcy case as well.
The Trust Depositor will receive, on the Closing Date, a reasoned opinion
from its counsel concluding (although there is no case litigated on the merits
directly in point) that, subject to certain assumptions and qualifications
specified therein, in the event a Newcourt Entity were to become a debtor in a
case under the Bankruptcy Code, a bankruptcy court would not, on motion of such
Newcourt Entity, as debtor-in-possession, or any other party in interest in such
case, (a) substantively consolidate the Trust Depositor and Newcourt Credit
Group USA or Newcourt USA or (b) substantively consolidate the Trust and
Newcourt Credit Group USA or Newcourt USA. The opinion assumes, among other
things, that (a) the Trust Depositor and the Trust will adhere to specified
operating procedures including, without limitation, (i) that at all times no
less than one member of the Board of Directors of the Trust Depositor will be an
individual who has not been, within the previous five years, affiliated with any
Newcourt Entity, (ii) the Trust's business will be run by officers and
employees of the Indenture Trustee, (iii) the Trust Depositor will maintain its
own payroll and separate books of account and will maintain an office space
separate from any Newcourt Entity, (iv) neither the Trust Depositor nor the
Trust will, except as provided in the Sale and Servicing Agreement, commingle
any of its money or other assets with those of any Newcourt Entity, (v) the
Trust Depositor and the Trust will maintain separate bank accounts in its own
name or in the name of the Trust Depositor and (vi) except for the obligations
under the Transfer and Sale Agreement and similar obligations under similar
agreements, neither the Trust Depositor nor the Trust will acquire obligations
or securities of, or make loans or advances to, any Newcourt Entity, (b) the
Trust Depositor and the Trust will maintain an arm's-length relationship in all
transactions with each Newcourt Entity, (c) the purchase price for the Contracts
set forth in the Transfer and Sale Agreement represents fair and reasonably
equivalent value for the sale of the Contracts transferred thereunder to the
Trust Depositor, (d) the financing provided by the issuance of the Notes
constitutes a
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practical and reasonable course of action designed to improve the financial
position of Newcourt without impairing the rights of its creditors and (e) the
financing provided by the issuance of the Notes is being effected in furtherance
of Newcourt's ongoing business operations and not in contemplation of
bankruptcy. The opinion is not binding on any court. Accordingly, there can be
no assurance that a court will not reach a different conclusion. If a court
concluded otherwise, or if an attempt were made to litigate any of the
foregoing issues, delays of distributions on the Notes and possible reductions
in the amount of payments of principal of and interest on the Notes could occur.
The Trust Depositor will not acquire any assets other than Trust Assets and
other assets transferred to the Trust Depositor pursuant to the Transfer and
Sale Agreement or other equipment and contracts transferred to the Trust
Depositor pursuant to similar agreements, including operating and finance
leases, loans, installment payment obligations, receivables and other
obligations received from Newcourt or its affiliates.
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 six Classes, the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4 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. Another class of Notes, the Subordinated Notes, will
also be issued but are not being offered pursuant to this Prospectus. 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.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class
A-4 Notes, the Class B Notes and the 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 depositary selected by the Trust Depositor, the
"DEPOSITARY"), 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 first priority lien 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 Seller, 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 Class A-1 Notes Maturity Date, the Class A-2 Notes
Maturity Date, the Class A-3 Notes Maturity Date or the Other Notes Maturity
Date, as applicable, for the Notes. Interest will accrue at the
applicable Class A-1 Interest Rate, the Class A-2 Interest Rate, the Class A-3
Interest Rate, the Class A-4 Interest Rate, the Class B Interest Rate or the
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)
subject to the limitation described in the third succeeding paragraph. 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, proceeds of Servicer Advances, if any, as well as amounts
in the Reserve Fund, if any.
Interest on the Class A-2 Notes is payable on a Distribution Date from
Available Amounts on such date, but only 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; subject to the limitation described
in the second succeeding paragraph.
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Interest on the Class A-3 Notes is payable on a Distribution Date from
Available Amounts on such date, but only 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 the Class A-2 Notes subject to
the limitation described in the next succeeding paragraph.
Interest on the Class A-4 Notes is payable on a Distribution Date from
Available Amounts on such date, but only 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 Notes and the Class
A-3 Notes; PROVIDED, HOWEVER, after the occurrence of an Event of Default, or
after the occurrence of, and the continuance of a Restricting Event, interest on
the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4 Notes will
be paid pro-rata based upon the then outstanding principal amounts thereof.
Interest on the Class B Notes is payable on a Distribution Date from
Available Amounts on such date, but only 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 the Class A-2 Notes.
Interest on the Class C Notes is payable on a Distribution Date from
Available Amounts on such date, but only 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 December 1998
Distribution Date; the stated maturity of the Class A-2 Notes is the June
2000 Distribution Date; the stated maturity of the Class A-3 Notes is the May
2001 Distribution Date. The Class A-4 Notes, the Class B Notes and the Class
C Notes will have a stated maturity of 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 "--ALLOCATIONS" herein.
Principal of the Class A-3 Notes will be payable on each Distribution Date
in an amount equal to the Class A-3 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 Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount and Class A-2 Principal
Payment Amount.
Principal of the Class A-4 Notes will be payable on each Distribution Date
in an amount equal to the Class A-4 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 Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount, Class A-2 Principal Payment
Amount and Class A-3 Principal Payment Amount.
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, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount and the Class A-4 Principal Payment
Amount. See "--ALLOCATIONS" herein.
Principal of the Class C Notes will be payable on each Distribution Date in
an amount equal to the Class C Principal Payment Amount for such Distribution
Date to the extent Available Amounts are available therefor, but after payment
from such Available Amounts of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated Notes, and the payment of
the Class A -1 Principal Payment
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Amount, the Class A-2 Principal Payment Amount, the Class A-3 Principal Payment
Amount, the Class A-4 Principal Payment Amount and the Class B Principal Payment
Amount. See "--ALLOCATIONS" herein.
The Notes will mature and be due and payable on the Class A-1 Notes
Maturity Date, the Class A-2 Notes Maturity Date, the Class A-3 Notes
Maturity Date or the Other Notes Maturity Date, as applicable. 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, the Class A-2 Principal Payment Amount, the Class A-3 Principal
Payment Amount, the Class A-4 Principal Payment Amount, the Class B Principal
Payment Amount or the 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 A-3 Principal Payment Amount, a
Class A-4 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 "-- EVENTS OF
DEFAULT".
As used herein, the following terms shall have the following meanings:
The "ADCB" or "AGGREGATE DISCOUNTED CONTRACT BALANCE" means, with
respect to the Contracts, 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.
"CLASS A PERCENTAGE" means the ratio (expressed as a percentage)
that the sum of the Initial Principal Amount of the Class A-2 Notes,
the Class A-3 Notes, and the Class A-4 Notes bears to the sum of the
Initial Principal Amount of the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes, the Class B Notes, the Class C Notes and the
Class D Notes.
"CLASS A NOTES" means the Class A-1 Notes, the Class A-2 Notes,
the Class A-3 Notes and the Class A-4 Notes.
"CLASS B PERCENTAGE" means the ratio (expressed as a percentage)
that the Initial Principal Amount of the Class B Notes bears to (a)
until the Principal Amount of all Class A Notes has been paid in full,
the sum of the Initial Principal Amount of the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class C
Notes and the Class D Notes; (b) thereafter, the sum of the Initial
Principal Amount of the Class B Notes, the Class C Notes and the Class
D Notes.
"CLASS C PERCENTAGE" means the ratio (expressed as a percentage)
that the Initial Principal Amount of the Class C Notes bears to (a)
until the Principal Amount of all the Class A Notes has been paid in
full, the sum of the Initial Principal Amount of the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class
C Notes and the Class D Notes; (b) after the Principal Amount of all
the Class A Notes has been paid in full and until the Principal Amount
of the Class B Notes has been paid in full, the sum of the Initial
Principal Amount of the Class B Notes, the Class C Notes and the Class
D Notes, and (c) after the Principal Amount of the Class A Notes and
the Class B Notes has been paid in full and until the Principal Amount
of the Class C Notes has been paid in full, the sum of the Initial
Principal Amount of the Class C Notes and the Class D Notes.
"CLASS D PERCENTAGE" means the ratio (expressed as a percentage)
that the Initial Principal Amount of the Class D Notes bears to (a)
until the Principal Amount of all the Class A Notes has been paid in
full, the sum of the Initial Principal Amount of the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class
C Notes and the Class D Notes; (b) after the Principal Amount of all
the Class A Notes has been paid in full and until the outstanding
principal of the Class B Notes has been paid in full, the sum of the
Initial Principal Amount of the Class B Notes, the Class C Notes and
the Class D Notes, and (c) after the Principal Amount of the Class A
Notes and the Class B Notes has been paid in full and until the
outstanding principal of the Class C Notes has been paid in full, the
sum of the Initial Principal Amount of the Class C Notes and the Class
D Notes, and (d) thereafter, 100%.
"CLASS A-1 PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class A-1 Notes, the lesser of (a) the
Principal Amount of the Class A-1 Notes, and (b) (i) prior to the
occurrence of any Event of Default, or prior to the occurrence and
during the
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continuance of a Restricting Event, the Total Principal Payment Amount and
(ii) following the occurrence of an Event of Default or following the
occurrence and during the continuance of a Restricting Event, all remaining
Available Amounts after payment has been made in accordance with paragraphs
(A) through (G) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN
EVENT OF DEFAULT OR RESTRICTING EVENT".
"CLASS A-2 PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class A-2 Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class A-2
Notes and (ii) (A) prior to the occurrence of an Event of Default, or
prior to the occurrence and during the continuance of a Restricting
Event, the difference between (1) the Principal Amount of all the
Class A Notes immediately prior to such Distribution Date, and (2) the
product of (x) the Class A Percentage 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, and (B) following
the occurrence of an Event of Default or following the occurrence and
during the continuance of a Restricting Event, all remaining Available
Amounts after payment has been made in accordance with paragraphs (A)
- (H) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT
OF DEFAULT OR RESTRICTING EVENT".
"CLASS A-3 PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class A-3 Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 and the Class A-2 Notes has been paid in full,
and (b) thereafter, the lesser of (i) the Principal Amount of the
Class A-3 Notes and (ii) (A) prior to the occurrence of an Event of
Default, or prior to the occurrence and during the continuance of a
Restricting Event, the difference between (1) the Principal Amount of
all the Class A Notes immediately prior to such Distribution Date, and
(2) the product of (x) the Class A Percentage 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, and (B) following
the occurrence of an Event of Default, or following the occurrence and
during the continuance of a Restricting Event, all remaining Available
Amounts after payment has been made in accordance with paragraphs (A)
- (I) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT
OF DEFAULT OR RESTRICTING EVENT".
"CLASS A-4 PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class A-4 Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes, the Class A-2 Notes and the Class A-3
Notes has been paid in full, and (b) thereafter, the lesser of (i) the
Principal Amount of the Class A-4 Notes and (ii) (A) prior to the
occurrence of an Event of Default, or prior to the occurrence and
during the continuance of a Restricting Event, the difference between
(1) the Principal Amount of all the Class A Notes immediately prior to
such Distribution Date, and (2) the product of (x) the Class A
Percentage 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, and (B) following the occurrence of an Event of
Default, or following the occurrence and during the continuance of a
Restricting Event, all remaining Available Amounts after payment has
been made in accordance with paragraphs (A) - (J) in "DESCRIPTION OF
THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT OR RESTRICTING
EVENT".
"CLASS B PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class B Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class B
Notes and (ii) (A) prior to the occurrence of an Event of Default, or
prior to the occurrence and during the continuance of a Restricting
Event, the difference between (1) the Principal Amount of the Class B
Notes immediately prior to such Distribution Date, and (2) the product
of (x) the Class B Percentage 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, and (B) following the occurrence of
an Event of Default, or following the occurrence and during the
continuance of a Restricting Event, (1) until the Principal Amount of
the Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes has
been paid in full, $0 and (2) thereafter, all remaining Available
Amounts after payment has been made in accordance with paragraphs (A)
- (K) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT
OF DEFAULT OR RESTRICTING EVENT".
"CLASS C PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class C Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class C
Notes and (ii) (A) prior to the occurrence of an Event of Default, or
prior to the occurrence and during the continuance of
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a Restricting Event, the difference between (1) the Principal Amount of the
Class C Notes immediately prior to such Distribution Date, and (2) the
product of (x) the Class C Percentage 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, and (B) following the occurrence of an
Event of Default, or following the occurrence and during the continuance of
a Restricting Event, (1) until the Principal Amount of the Class A-2 Notes,
the Class A-3 Notes, the Class A-4 Notes and the Class B Notes has been
paid in full, $0 and (2) thereafter, all remaining Available Amounts after
payment has been made in accordance with paragraphs (A) - (L) in
"DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT OR
RESTRICTING EVENT".
"CLASS D PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class D Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class D
Notes and (ii) (A) prior to the occurrence of an Event of Default, or
prior to the occurrence and during the continuance of a Restricting
Event, the difference between (1) the Principal Amount of the Class D
Notes immediately prior to such Distribution Date, and (2) the product
of (x) the Class D Percentage 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, and (B) following the occurrence of
an Event of Default, or following the occurrence and during the
continuance of a Restricting Event, (1) until the Principal Amount of
the Class A-2 Notes, the Class A-3 Notes, the Class A-4 Notes, the
Class B Notes and the Class C Notes has been paid in full, $0 and (2)
thereafter, all remaining Available Amounts after payment has been
made in accordance with paragraphs (A) - (M) in "DESCRIPTION OF THE
NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT OR RESTRICTING
EVENT".
"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 on or 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.
"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).
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"TOTAL PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date, the difference between (a) the aggregate outstanding
principal of all Classes of Notes and Subordinated Notes and (b) the ADCB for
all Contracts held by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date.
ALLOCATIONS
PRIOR TO AN EVENT OF DEFAULT OR RESTRICTING EVENT. On the second 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:
(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;
(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 A-3
Notes, an amount equal to interest accrued in respect of
such Class A-3 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;
(F) pay to the Indenture Trustee, on behalf of the Class A-4
Notes, an amount equal to interest accrued in respect of
such Class A-4 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;
(G) 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;
(H) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to interest accrued thereon for the
Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made;
(I) pay to the holders of the Subordinated Notes an amount equal
to interest accrued in respect of 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;
(J) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, the Class A-1 Principal Payment Amount for such
Distribution Date; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the
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amount needed to repay the Class A-1 Principal Payment Amount in
full, then such excess shall be applied in repayment of principal
on the Class A-2 Notes;
(K) pay to the Indenture Trustee, on behalf of the Class A-2
Notes, the A-2 Principal Payment Amount for such
Distribution Date; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-2 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class A-3 Notes;
(L) pay to the Indenture Trustee, on behalf of the Class A-3
Notes, the Class A-3 Principal Payment Amount for such
Distribution Date; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-3 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class A-4 Notes;
(M) pay to the Indenture Trustee, on behalf of the Class A-4
Notes, the Class A-4 Principal Payment Amount for such
Distribution Date; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-4 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class B Notes;
(N) pay to the Indenture Trustee, on behalf of the holders of
the Class B Notes, the Class B Principal Payment Amount for
such Distribution Date; PROVIDED, if the amount to be
allocated pursuant to this clause exceeds the amount needed
to repay the Class B Principal Payment Amount in full, then
such excess shall be applied in repayment of principal on
the Class C Notes;
(O) pay to the Indenture Trustee, on behalf of the holders of
the Class C Notes, the Class C Principal Payment Amount for
such Distribution Date; PROVIDED, if the amount to be
allocated pursuant to this clause exceeds the amount needed
to repay the Class C Principal Payment Amount in full, then
such excess shall be applied in repayment of principal on
the Subordinated Notes;
(P) pay to the holders of the Subordinated Notes the Class D
Principal Payment Amount for such Distribution Date;
PROVIDED, if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay the Subordinated
Notes principal in full then such excess shall be allocated
consistent with the next succeeding paragraph;
(Q) pay to the Indenture Trustee for deposit into the Reserve
Funds any Available Amounts not necessary to make the
payments described in paragraph (A) through (L) above to the
extent that such amount is necessary to meet the Reserve
Fund Amount; and
(R) 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) 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 (v) any amounts received with respect to the Guaranteed Residual
Investments.
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 A-3 Noteholders, Class A-4
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.
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FOLLOWING AN EVENT OF DEFAULT OR RESTRICTING EVENT. On each Determination
Date after the occurrence of an Event of Default, or after the occurrence of,
and during the continuance of, a Restricting Event, the Servicer shall instruct
the Indenture Trustee to withdraw, and on the succeeding Distribution Date the
Indenture Trustee, acting in accordance with such instructions, shall withdraw,
the amounts required to be withdrawn from the Collection Account in order to
make the following payments or allocations from the Available Amounts for the
related Distribution Date (in each case, such payment or transfer to be made
only to the extent funds remain available therefor after all prior payments and
transfers for such Distribution Date have been made), in the following order of
priority:
(A) pay to the Indenture Trustee, the amount of any unpaid fees,
expenses, late charges or other losses;
(B) pay to the Servicer, the amount of any unreimbursed Servicer
Advance;
(C) pay to the Servicer, the monthly Servicing Fee for the
preceding monthly period together with any amounts in
respect of the Servicing Fee that were due in respect of
prior monthly periods that remain unpaid;
(D) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes, an amount equal to interest accrued in
respect of such Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 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, Class A-2
Note, Class A-3 Note and Class A-4 Note PRO RATA based on
the 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 Class A-1 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so allocated, such
remaining Available Amounts shall be allocated to each Class
A-1 Note PRO RATA based on the outstanding principal amount
thereof, and (ii) if the amount to be allocated pursuant to
this clause exceeds the amount needed to repay the
outstanding Class A-1 Note principal in full, then such
excess shall be applied in repayment of principal on the
Class A-2 Notes;
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(I) pay to the Indenture Trustee, on behalf of the Class A-2
Notes the Class A-2 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so allocated, such
remaining Available Amounts shall be allocated to each 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 A-3 Notes;
(J) pay to the Indenture Trustee, on behalf of the Class A-3
Notes the Class A-3 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so allocated, such
remaining Available Amounts shall be allocated to each Class
A-3 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-3 Note principal in full,
then such excess shall be applied in repayment of principal
on the Class A-4 Notes;
(K) pay to the Indenture Trustee, on behalf of the Class A-4
Notes the Class A-4 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so allocated, such
remaining Available Amounts shall be allocated to each Class
A-4 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-4 Note principal in full,
then such excess shall be applied in repayment of principal
on the Class B Notes;
(L) pay to the Indenture Trustee, on behalf of the holders of
the Class B Notes, the Class B Principal Payment Amount for
such Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so paid, such
remaining Available Amounts shall be allocated to each Class
B Note PRO RATA based on the outstanding principal amount
thereof, and (ii) if the amount to be allocated pursuant to
this clause exceeds the amount needed to repay outstanding
Class B Note principal in full, then such excess shall be
applied in repayment of principal on the Class C Notes;
(M) pay to the Indenture Trustee, on behalf of the holders of
the Class C Notes, the Class C Principal Payment Amount for
such Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so paid, such
remaining Available Amounts shall be allocated to each Class
C Note PRO RATA based on the outstanding principal amount
thereof, and (ii) if the amount to be allocated pursuant to
this clause exceeds the amount needed to repay outstanding
Class C Note principal in full, then such excess shall be
applied in repayment of principal on the Subordinated
Notes; and
(N) pay to the holders of the Subordinated Notes the Class D
Principal Payment Amount for such Distribution Date;
PROVIDED (i) that if the Available Amounts remaining to be
allocated pursuant to this clause is less than the full
amount required to be so paid, such remaining Available
Amounts shall be allocated to each Subordinated Notes PRO
RATA based on the outstanding principal amount thereof, and
(ii) if the amount to be allocated pursuant to this clause
exceeds the amount needed to repay outstanding Subordinated
Notes principal in full, then such excess shall be paid to
the holder of the Certificates.
RESERVE FUND
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GENERAL
The Reserve Fund will be an account in the name of the Indenture Trustee on
behalf of the Noteholders and the holders of the Subordinated Notes. The
Reserve Fund will be created with an initial deposit by the Trust Depositor on
the Closing Date of an amount equal to the Reserve Fund Amount.
If the amount on deposit in the Reserve Fund on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Reserve Fund Amount, the Indenture
Trustee will distribute any excess to the holder of the Certificates. Upon any
such distributions to the holder of the Certificates, the Noteholders and the
holders of the Subordinated Notes will have no further rights in, or claims to,
such amounts.
If on any Distribution Date the principal balance of the Subordinated Notes
equals zero and amounts on deposit in the Reserve Fund have been depleted as a
result of losses in respect of the Contracts, the protection afforded to the
Noteholders by the Subordinated Notes and by the Reserve Fund will be exhausted
and the Noteholders will bear directly the risks associated with the ownership
of the Contracts.
None of the Noteholders, the Indenture Trustee, the Owner Trustee, the
Seller nor the Trust Depositor will be required to refund any amounts properly
distributed or paid to them whether or not there are sufficient funds on any
subsequent Distribution Date to make full distributions to the Noteholders.
The Servicer may, from time to time after the date of this Prospectus
request each Rating Agency that rated the Notes to, at the request of the Trust
Depositor, approve a formula for determining the Reserve Fund Amount that is
different from the formula described above and would result in a decrease in the
amount of the Reserve Fund Amount or the manner by which the Reserve Fund is
funded. If each Rating Agency delivers a letter to the Indenture Trustee and
the Owner Trustee to the effect that the use of any such new formulation will
not in and of itself result in a qualification, reduction or withdrawal of its
then-current rating of any Class of Notes, then the Reserve Fund Amount will be
determined in accordance with such new formula. The Agreement will accordingly
be amended to reflect such new calculation without the consent of any
Noteholder.
WITHDRAWALS FROM THE RESERVE FUND
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of the Noteholders and the holders of the Subordinated Notes.
On each Distribution Date, funds will be withdrawn from the Reserve Fund to the
extent that Available Amounts with respect to any Distribution Date are less
than the amount necessary to pay interest on the Notes and the Subordinated
Notes; PROVIDED, HOWEVER, upon the occurrence of an Event of Default or upon the
occurrence and continuance of Restricting Event amounts in the Reserve Fund
shall be available to pay the principal on the most senior outstanding Class of
Notes or, if no Notes are outstanding, the Subordinated Notes; PROVIDED FURTHER,
in the event the Available Amounts are insufficient to pay outstanding principal
on the Class A-1 Notes on the Class A-1 Maturity Date amounts in the Reserve
Fund may be utilized to make principal payments on the Class A-1 Notes.
Additionally, to the extent monies are present in the Reserve Fund as of the
Class A-2 Notes Maturity Date, the Class A-3 Notes Maturity Date or the Other
Notes Maturity Date (as applicable), 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; (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); or (iii) the End-User under such Contract becomes the subject of an
Insolvency Event. The current policy of the Servicer with respect to writing
off Contracts is described in "NEWCOURT CREDIT GROUP USA INC.--WRITE-OFF POLICY"
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
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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 depositary 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 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 depositary institution or trust
company shall be (a) the corporate trust department of the Indenture Trustee
or, (b) a depositary 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 depositary 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 depositary 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 depositary 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 Newcourt 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.
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REPLACEMENT ACCOUNTS
If any institution with which any of the accounts established pursuant to
the Sale and Servicing Agreement or the Indenture are established ceases to be
a Qualified Institution, the Servicer or the Indenture 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 the Principal Amount of any Note, if
any, on its related Maturity Date;
(b) failure to pay on each Distribution Date the full
amount of accrued interest on any Class A Note, Class B
Note or Class C Note;
(c) (i) failure on the part of the 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
Seller 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 the 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 the 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 the
Seller, the Trust Depositor or the Trust; 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), or (e) 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.
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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, if directed by the Required Holders (as
defined in the next succeeding paragraph), promptly act to sell, dispose of or
otherwise liquidate the Contracts in a commercially reasonable manner and on
commercially reasonable terms. The proceeds from any such sale, disposition or
liquidation of Contracts will be deposited in the Collection Account and
allocated as described in the Sale and Servicing Agreement and herein. If the
proceeds of any collections on Contracts in the Collection Account allocated to
Noteholders of any Class is not sufficient to pay the Principal Amount of the
Notes of such Class in full, such Noteholders will incur a loss.
As used herein, "REQUIRED HOLDERS" means (i) prior to the payment in full
of the Class A Notes outstanding, Class A-1 Noteholders, Class A-2 Noteholders,
Class A-3 Noteholders and Class A-4 Noteholders voting as a single class
evidencing more than 66 2/3% of the Aggregate Principal Amount of the Class A
Notes, (ii) from and after the payment in full of the Class A 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, (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 and (iv) from and after the
payment in full of the Class C Notes outstanding, Class D Notes evidencing more
than 66 2/3% of the Aggregate Principal Amount of the Class D Notes.
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 Distribution Date, the weighted average ADCB
of all Contracts in respect to which, during the three
preceding Collection Periods, a scheduled payment is more
than sixty (60) days past due exceeds 3.0% of the weighted
average of ADCB of all Contracts in the Contracts Pool
during such three Collection Periods; or
(b) As of any Distribution Date, the product of (i) two (2)
multiplied by (ii) the difference between (x) the ADCB of
all Contracts that became Defaulted Contracts during the six
preceding Collection Periods and (y) Recoveries received
during such six preceding Collection Periods on account of
all Defaulted Contracts, exceeds 3.0% of the weighted
average ADCB of all Contracts in the Contract Pool during
such six Collection Periods; or
(c) As of any Distribution Date, after giving effect to the
allocations to be made on such date, (i) until the Principal
Amount of all Class A Notes has been paid in full, the sum
of (a) the amount on deposit in the Reserve Fund plus (b)
the difference between (1) the ADCB for all Contracts held
by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date, and (2) the
Principal Amount of all Class A Notes is less than the
lesser of (A) the Principal Amount of all Class A Notes and
(B) $10,701,178; and (ii) thereafter, the amount on deposit
in the Reserve Fund is less than the Reserve Fund Amount; or
(d) A Servicer Default or an Event of Default has occurred
and is continuing.
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) .60% (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.
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
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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 Newcourt USA is acting as Servicer and fails to pay the fees and
disbursements of the Indenture Trustee or Owner Trustee (the "TRUSTEES"), such
Trustee will be entitled to receive the portion of the Servicing Fee that is
equal to such unpaid amounts. In no event will the Noteholders be liable to the
Trustees for the Servicer's failure to pay such amounts, and any such amounts so
paid to the Trustees will be treated as paid to the Servicer for all other
purposes of the Sale and Servicing Agreement.
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 Subordinated Notes. The
redemption price will be equal to the sum of the outstanding principal amount of
the Notes and Subordinated Notes, together with accrued interest thereon through
the date of redemption, and shall be payable to the holders of the Notes and
Subordinated Notes 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
Seller), 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 second 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 Subordinated Securities,
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-1 Principal Payment Amount, the Class A-2 Principal Payment
Amount, the Class A-3 Principal Payment Amount, the Class A-4 Principal Payment
Amount, the Class B Principal Payment Amount, the Class C Principal Payment
Amount, the 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, 90 and 120 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
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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.
ADMINISTRATION AGREEMENT
Newcourt USA, 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 out of the
Servicing Fee, if available.
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 A-3 Note or Notes, the global
Class A-4 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
herein) 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
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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, 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 A-3 NOTEHOLDER", "CLASS A-4 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 A-3 Notes, Class A-4
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 A-3 Noteholders, Class A-4 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 A-3 Noteholder,
Class A-4 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 A-3 Notes, Class A-4 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
depositary. 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 depositary, 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 policies for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks
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(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 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 Depositary 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.
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THE SUBORDINATED NOTES
On the Closing Date, the Trust will also issue the 9.210% Class D
Receivables-Backed Notes (the "SUBORDINATED NOTES") with an aggregate principal
balance of $16,051,766. 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 to the extent described herein. See "DESCRIPTION OF
THE NOTES--ALLOCATIONS" herein.
THE CERTIFICATE
On the Closing Date, the Trust will also issue the Certificate with an
initial certificate balance of $8,025,883 (the "CERTIFICATE"); the Certificate
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 Certificate is not being offered and sold hereunder. The Trust
Depositor is expected initially to retain the Certificate, although the
Certificate 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
Certificateholder. Distributions with respect to the Certificate 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) final distribution of all
moneys or other property or proceeds of the Trust Estate in accordance with the
terms of the Indenture, the Sale and Servicing Agreement and the Trust Agreement
or (ii) ninety (90) days following the occurrence of an Insolvency Event as
described under "DESCRIPTION OF THE NOTES--EVENTS OF DEFAULT" unless the Owner
Trustee shall have received instructions from the Required Holders not to
terminate or dissolve the Trust, (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 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 Seller pursuant to the Transfer and
Sale Agreement dated as of November 1, 1997 by and between the Trust Depositor
and Newcourt USA (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, the 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
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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.
Pursuant to the Transfer and Sale Agreement, the 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 the 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 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 the holders of the Subordinated Securities 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.
Newcourt USA, 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; provided that certain Persons identified in the
Transfer and Sale Agreement will retain custody of certain of the Contracts and
Contract Files. Prior to the conveyance of any Contracts to the Trust
Depositor, Newcourt USA 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
Additional Contracts or Substitute Contracts conveyed after the Closing Date)
its and/or Newcourt USA'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, Newcourt USA 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 Newcourt 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 Newcourt, the Trust Depositor and the Trust,
respectively). The Seller and the Trust Depositor will notate in the
appropriate computer files relating to the Contracts, 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 has 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 Seller 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 Seller free and clear of any adverse
claim; (iii) the Contract, as of the Cutoff Date, did not have a Scheduled
Payment that was a delinquent payment for more than 60 days, and the Contract is
not otherwise a Defaulted Contract; (iv) no provision of the Contract has been
either 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 Seller's 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
applicable 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,
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assigned or pledged by the 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, with respect to a Contract which is a "TRUE LEASE", any
Equipment related to such true lease is free and clear of any liens or
encumbrances of any third parties (except for Permitted Liens) 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 Vehicles, (1) within 30
calendar days of the origination or acquisition of such Contract by the Seller
an application was filed in the appropriate state office to note Newcourt USA's
interest on the certificate of title for such vehicle, and in any case such
interest will be so noted or recorded within 180 days of such acquisition or
origination or (2) a certificate of title or similar evidence or recordation on
which the Seller's interest has been noted has been obtained; (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 Seller's knowledge, subject to
bankruptcy or other insolvency proceedings; (xii) the Contract is a U.S.
dollar-denominated obligation and the related Obligor's billing address is in
the United States; (xiii) the Contract does not require the prior written
consent of an Obligor or contain any other restriction on the transfer or
assignment of the Contract (other than a consent or waiver of such
restriction that has been obtained prior to the date of such Contract's
conveyance to the Trust); (xiv) either (A) the obligations of the related
Obligor under such Contract are irrevocable and unconditional and
non-cancelable (or, if prepayable by its terms, such Contract meets the
criteria described in clause (xxiv) below, or if not irrevocable and
unconditional has the benefit of a Vendor Guarantee 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 Determination Date
immediately prior to 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 Seller has
indemnified the Trust Depositor against such cancellation in an amount equal
to the Discounted Contract Balance of such Lease (as of the Determination
Date immediately prior to 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; (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); and (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 Seller 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).
As used above, "PREPAYMENT AMOUNT" shall mean, with respect to a Contract,
the sum of (i) the Discounted Contract Balance of such Contract on the
Determination Date immediately prior to the date of prepayment plus any accrued
and unpaid interest payments thereon (at the Discount Rate) and (ii) any
outstanding Servicer Advances thereon.
The foregoing representations and warranties, as appropriate, will be
reaffirmed by the Seller 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
Seller will 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 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.
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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 the Subordinated Notes on terms described in the Sale
and Servicing Agreement, (viii) subordinated interests relating to the
Guaranteed Residual Investments and (ix) liens granted by the End-Users or
Vendors which are subordinated to the interest of the Trust in such Equipment.
In addition to the foregoing, the Seller will represent and warrant in the
Transfer and Sale Agreement with respect to each Secondary Contract securing a
Vendor Loan transferred by the 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
second 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, assignment and pledge of
the related Contracts, whether then existing or thereafter created will provide
a first perfected security interest therein and that all filings necessary to
evidence the same 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 Seller, 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 Seller's will be concurrently obligated 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 Seller available to the
Trust Depositor, the Indenture Trustee and the Noteholders or Certificateholders
for a breach of a representation or warranty under the Transfer and Sale
Agreement made by the Seller 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 Certificateholders 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
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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 Seller, 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
In addition to the representations and warranties made by the Seller 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 0.19% 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 11.54% 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 3.30% 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 11.77% 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 6.91% 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 11.98% of the ADCB of the Contract
Pool;
(vii) in the Trust Depositor's reasonable judgment, the Discounted
Contract Balance of End-User Contracts in the Contract Pool
that are "TRUE LEASES" does not exceed 7.70% of the ADCB of
the Contract Pool.
On the date an Additional Contract or a Substitute Contract is added to the
Contract Pool and the Trust Depositor will make the foregoing representations
and warranties as if such transfer occurred on the Closing Date; PROVIDED, that,
for the purposes thereof (i) the Contract Pool on the 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
Seller's will be 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 Seller 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
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"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 Seller, 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 except where arising out of
Indemnified Party's bad faith, willful misconduct or gross negligence. 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 Southern District of New York, and appellate courts
therefrom and (ii) waives any objection it may have that any action therein was
brought in an inconvenient 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.
Except as provided in the preceding paragraph, 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 Securities 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 Securities 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 Securities 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.
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Any person into which, in accordance with the Sale and Servicing Agreement,
Newcourt USA or the Servicer may be merged or consolidated or any person
resulting from any merger or consolidation to which Newcourt USA or the Servicer
is a party, or any person succeeding to the business of Newcourt USA or the
Servicer, will be the successor to Newcourt, 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 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
Subordinated 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 to make any payment, transfer or deposit
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 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 to duly 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 or Certificateholders, 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 Certificateholders or the Indenture Trustee on behalf of such
Noteholders of Notes or holders of the Subordinated Notes or
holders of Certificates aggregating not less than 25% of the
Principal Amount of any Class or the Certificates adversely
affected thereby and (ii) the date on which a responsible officer
of the Servicer becomes aware thereof and such failure continues
to materially adversely affect such Noteholders or holders of the
Subordinated Notes or Certificateholders 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
Certificateholders 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 Certificateholders or by the Indenture Trustee on
behalf of Noteholders of Notes or holders of Certificates
aggregating not less than 25% of the Principal Amount of any
Class adversely affected thereby and (ii) the date on which a
responsible of the Servicer becomes aware thereof, and such
incorrectness continues to materially adversely affect such
Holders for such period; or
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(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 March 31 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 enumerated
in the Sale and Servicing Agreement and examined certain documents and records
relating to the servicing of the related Contracts all as described in the Sale
and Servicing Agreement 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 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 March 31 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
holders of the Subordinated Securities.
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 Required Holders 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,
Subordinated Note or Certificate without the consent of each
Noteholder or holder of a Subordinated Security affected
thereby;
(ii) change the definition of (or that of any definition included
within the definition of) or the manner of calculating the
"CLASS A-1 PRINCIPAL PAYMENT AMOUNT", the "CLASS A-2
PRINCIPAL PAYMENT AMOUNT", the "CLASS A-3 PRINCIPAL PAYMENT
AMOUNT", the "CLASS A-4 PRINCIPAL PAYMENT AMOUNT", the "CLASS
B PRINCIPAL PAYMENT AMOUNT", the "CLASS C PRINCIPAL PAYMENT
AMOUNT", the "CLASS D PRINCIPAL PAYMENT AMOUNT", the
"DISCOUNTED CONTRACT BALANCE", the "PRINCIPAL AMOUNT", or the
"AVAILABLE AMOUNT" without the consent of each Noteholder and
holder of a Subordinated Security; or
(iii) reduce the aforesaid percentage required to consent to any
such amendment without the consent of each Noteholder or
holder of a Subordinated Security affected thereby; or
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(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 and holder of a Subordinated
Security;
(v) make any Note or Certificate payable in money other than Dollars
without the consent of each Noteholder or holder of a Subordinated
Security affected thereby; or
(vi) affect the Owner Trustee's or Indenture Trustee's, as appropriate,
rights or obligations under the Trust Agreement, Sale and Servicing
Agreement or Indenture without the Owner Trustee's or Indenture
Trustee's Consent.
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 holder of a Subordinated Security.
THE OWNER TRUSTEE
Chase Manhattan Bank will be the Owner Trustee under the Sale and Servicing
Agreement. Newcourt USA and its affiliates may from time to time enter into
banking and trustee relationships with the Owner Trustee and its affiliates.
Newcourt USA 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 1201 Market Street, Wilmington, Delaware 19801-1167,
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 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 shall not become effective until
acceptance of the appointment by the successor Owner Trustee.
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
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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 A-3 Notes shall be distributed to
the Class A-3 Noteholders ratably, without priority of any one
Class A-3 Note over any other Class A-3 Note, in the proportion
that the aggregate amount of all accrued but unpaid interest to
the date of distribution on each Class A-3 Note bears to the
aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class A-3 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 A-4 Notes shall be distributed to
the Class A-4 Noteholders ratably, without priority of any one
Class A-4 Note over any other Class A-4 Note, in the proportion
that the aggregate amount of all accrued but unpaid interest to
the date of distribution on each Class A-4 Note bears to the
aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class A-4 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 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;
SIXTH, 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;
SEVENTH, 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;
EIGHTH, 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;
NINTH, 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;
TENTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class
A-3 Noteholders to pay in full the aggregate amount of the Class
A-3 Principal Payment then due pursuant to or in respect of the
Class A-3 Notes, without priority of any one Class A-3 Note over
any other Class A-3 Note, in the proportion
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that the aggregate unpaid principal amount of each Class A-3 Note
bears to the aggregate unpaid principal amount of all Class A-3 Notes;
ELEVENTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class
A-4 Noteholders to pay in full the aggregate amount of the Class
A-4 Principal Payment then due pursuant to or in respect of the
Class A-4 Notes, without priority of any one Class A-4 Note over
any other Class A-4 Note, in the proportion that the aggregate
unpaid principal amount of each Class A-4 Note bears to the
aggregate unpaid principal amount of all Class A-4 Notes;
TWELFTH, 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
THIRTEENTH, 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.
FOURTEENTH, 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 and holders of Subordinated
Notes to the Indenture Trustee (to the extent not previously
reimbursed) shall be distributed to the Noteholders and holders
of Subordinated Notes, 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 such holder
over any other, in the proportion that the aggregate amount of
such unreimbursed indemnity payments made by each such holder
bears to the aggregate amount of such unreimbursed indemnity
payments made by all Noteholders and holder of Subordinated
Notes;
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, the
Class A-2 Notes, the Class A-3 Notes and the Class A-4 Notes
shall be distributed to the Class A-1 Noteholders, the Class A-2
Noteholders, the Class A-3 Noteholders, the Class A-4
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,
one Class A-2 Note, one Class A-3 Note and one Class A-4 Note
over any other Class A-1 Note, Class A-2 Note, Class A-3 Note or
Class A-4 Note, in the proportion that the
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aggregate amount of all accrued but unpaid interest to the date of
distribution on each Class A-1 Note, Class A-2 Note, Class A-3 Note or
Class A-4 Note bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Class A 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 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 to the Class A-3 Noteholders in order to pay
in full the outstanding aggregate amount of principal of the
Class A-3 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-3 Note
over any other Class A-3 Note, in the proportion that the
aggregate unpaid principal amount of each Class A-3 Note bears to
the aggregate unpaid principal amount of all Class A-3 Notes;
TENTH, the balance, if any, of such payment remaining thereafter
shall be distributed to the Class A-4 Noteholders in order to pay
in full the outstanding aggregate amount of principal of the
Class A-4 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-4 Note
over any other Class A-4 Note, in the proportion that the
aggregate unpaid principal amount of each Class A-4 Note bears to
the aggregate unpaid principal amount of all Class A-4 Notes;
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ELEVENTH, the balance, if any, of such payment remaining
thereafter shall be distributed to the Class B Noteholders in
order to pay in full the outstanding aggregate amount of
principal 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;
TWELFTH, 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
THIRTEENTH, 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
The Indenture Trustee with respect to the Notes is Manufacturers and
Traders Trust Company. Newcourt USA and its affiliates may from time to time
enter into banking and trustee relationships with the Indenture Trustee and its
affiliates. Newcourt USA 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.
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.
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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 the Required
Holders) 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 Subordinated Note
or (except as provided in the Indenture) increase or reduce the
interest payable on any Note or Subordinated Note (except that
only the consent of the affected holder of a Note or Subordinated
Note (as applicable) 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 Subordinated 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.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
TRANSFER OF CONTRACTS. As of the Cutoff Date, Newcourt USA, as Seller,
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 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, the
Seller will indicate in the appropriate computer files relating to the
Contracts, that such Contracts have been transferred by the Seller to the Trust
Depositor, by the Trust Depositor to the Trust and by the Trust to the Indenture
Trustee, and the Seller will notate in the appropriate computer records 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
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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 (as defined herein) 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. 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
notation in the computer records, however, mitigates 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 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
or otherwise convey, unless subordinated to the Trust, or otherwise pledge,
assign or convey to any other party (other than the 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 Seller will 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 other than Permitted Liens (other than the Subordinated Residual
Interest, if any, assigned to any Residual Assignee) and that the interests in
Secondary Contracts transferred thereunder have been transferred free and clear
of the lien of any third party other than Permitted Liens. Each Seller, the
Trust Depositor, the Owner Trustee and the Trust will also covenant that it
will not sell, pledge, assign, transfer or grant any lien on any Contract or
Secondary Contract included in the Trust, other than transfers to the Trust and
by the Trust to the Indenture Trustee. In addition, as described above under
"THE TRUST DEPOSITOR", the Trust Depositor has been organized as a
"BANKRUPTCY-REMOTE" entity which is not engaged in any business or activities
unrelated to the transactions described herein.
Because Software is generally eligible for protection under the Federal
copyright laws, a security interest in Software generally cannot be perfected
without a filing at the U.S. Copyright Office. Some legal authority indicates
that this filing requirement also extends to a sale or grant of a security
interest in Software licenses and the proceeds thereof, while some other legal
authority suggests that where there is an outright assignment of certain
payments (such as royalties) associated with copyrightable materials, the rights
to receive such payments constitute property separate from the copyrightable
material and that no filing in the Copyright Office is required in connection
with such assignment. The Seller believes that the receivables arising from
Contracts that are Software licenses or purport to be secured by Software
licenses constitute property separate from those Software licenses and that no
filing at the U.S. Copyright office is required in order to perfect any
transfers of those receivables that have occurred prior to, or will occur on,
the Closing Date, and no filings have been, or will be, made at the U.S.
Copyright office in connection with those transfers. While the Seller believes,
and will represent, that the Trust will have a perfected ownership or security
interest in those Receivables (and appropriate UCC filings will be made relating
to those Receivables), no assurance can be given that a court would concur with
that conclusion in light of the split in legal authorities referred to above.
The Seller will not make any representation or warranty as to its interest in
any Software underlying any Contract or any Software license securing or
purporting to secure any Contract.
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 Seller to the Trust Depositor and by the Trust Depositor to the Trust and by
the Trust or the Indenture Trustee. It has been the general policy of the
Seller 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 Seller 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
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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.
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 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 Seller and transferred to
the Trust Depositor. Based on the representation of the Seller, 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-2 financing statements naming the Seller as
secured party in the real estate records office of the county in which the
Equipment is located or by obtaining waivers from landlords or mortgagees.
Also, the Seller will represent that as of the Cutoff Date, in the Seller's
reasonable judgment, the Discounted Contract Balance of End-User Contracts in
the Contract Pool that are secured by fixtures, does not exceed 1.80% 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 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 Seller
will be 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 Seller failed to perfect its security
interest, such Seller's security interest, and the security interests of the
Trust Depositor and the related Trust (and the Indenture Trustee as assignee),
would be subordinated to, among others, subsequent purchasers of the Equipment
and holders of perfected security interests with respect thereto. To the extent
the security interest of the Seller in the related Equipment is perfected,
subject to the exceptions set forth in the following sentence, the Trust will
have a prior claim over subsequent purchasers from the Obligor of such Equipment
and holders of subsequently perfected security interests granted by Obligors.
However, as against Mechanics' Liens or liens for taxes and other non-consensual
liens unpaid by an Obligor under a Contract, or in the event of fraud or
negligence of the Seller or Servicer, the Trust could lose the priority of its
interest or its interest in such Equipment following the conveyance of such
Contract to the Trust. Neither the Trust Depositor, the Servicer nor the 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.
TRANSFERS OF INTERESTS IN FINANCED VEHICLES. The Contracts will include
conditional sales agreements for Vehicles subject to state certificate of title
statutes. Security interests in vehicles registered in most states may be
perfected by a notation of the secured party's lien on the certificate of title
for such vehicle, depending on state law. With respect to conditional sales
agreements for vehicles, such liens would be noted in the name of Newcourt USA.
Newcourt USA has been designated as the first and sole lien holder on the
certificate of title. In the event the Vendor fails, due to clerical errors or
for any other reason, to effect such notation of Newcourt USA's interest in a
vehicle, Newcourt USA would not have a perfected first priority security
interest in such vehicle. As a result, the only recourse of Newcourt USA
vis-a-vis third parties would be against the Obligor or the related Vendor on an
unsecured basis. However, Newcourt USA believes that it has obtained a
perfected first priority security interest by notation with respect to almost
all of the vehicles. In addition, the Contracts may also include Leases of
vehicles where Newcourt USA is identified on the certificate of title as the
owner of the vehicle.
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The transfer by the Seller to the Trust Depositor, by the Trust Depositor
to the Trust and by the Trust to the Indenture Trustee of the Seller's security
interest in the Vehicles securing certain Contracts, or its ownership interest
in the Vehicles subject to Leases, and the transfer of such interests by the
Trust Depositor to the Trust and by the Trust to the Indenture Trustee, is
subject to state vehicle registration laws. Due to the significant
administrative burden and expense associated with reregistering transfers of
titles and of security interests with respect to the Vehicles, the certificates
of title with respect to the Vehicles securing Contracts, and to the Vehicles
subject to Leases, will not identify the Trust or the Indenture Trustee as
secured party or owner, as the case may be, of such Equipment. There exists a
risk in not so identifying the Trust or the Indenture Trustee as the new secured
party or owner that, through fraud or negligence, a third party could acquire an
interest in the Vehicles superior to that of the Trust or the Indenture Trustee.
In addition, statutory liens for repairs or unpaid taxes may have priority even
over a perfected security interest in the Vehicles. The Seller will represent
that as of the Cutoff Date, in the Seller's reasonable judgment, the Discounted
Contract Balance of End-User Contracts in the Contract Pool that are secured by
the Vehicles, does not exceed 46.17% of the ADCB of the Contract Pool. Also,
the Seller will execute a power of attorney to the Indenture Trustee authorizing
the Indenture Trustee to designate the Indenture Trustee as the first and sole
lien holder on the certificate of title with respect to the Vehicles after an
Event of Default.
With respect to motor Vehicles, in the event that the owner of a Vehicle
moves to a state other than the state in which such Vehicle is registered, under
the laws of most states the perfected security interest in the Vehicle would
continue for four months after such relocation and thereafter until the owner
titles the Vehicle in such state. A majority of states generally require
surrender of a certificate of title to re-register a Vehicle. Accordingly,
Newcourt USA as Servicer must surrender possession if it holds the certificates
of title to such Vehicle or, in the case of Vehicles originally registered in a
state which provides for notation of lien but does not require possession of the
certificate of title by the holder of the security interest in the related motor
vehicle, Newcourt USA as Servicer would receive notice of surrender if the
security interest in the Vehicle is noted on the certificate of title.
Accordingly, the Servicer would have the opportunity to re-perfect its security
interest in the Vehicle in the state of relocation. In states which do not
require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of servicing
its portfolio of motor vehicle financing agreements, Newcourt USA takes steps to
effect such reperfection upon receipt of notice of re-registration of
information from the Obligor as to relocation. Similarly, when an Obligor sells
a Vehicle, Newcourt USA must surrender possession of the certificates of title
or will receive notice as a result of its lien noted thereon and accordingly
will have an opportunity to require satisfaction of the related Contract before
release of the lien. Under the Sale and Servicing Agreement, the Servicer is
obligated to take such steps, at the Servicer's expense, as are necessary to
maintain perfection of security interests in the Vehicles.
Under the laws of many states, certain possessory liens for repairs
performed on a motor vehicle and storage, as well as certain rights in favor of
federal and state governmental authorities arising from the use of a motor
vehicle in connection with illegal activities, may take priority even over a
perfected security interest. Certain federal tax liens may have priority over
the lien of a secured party. In the Transfer and Sale Agreement, the Seller
will represent, and the Trust Depositor will represent in the Sale and Servicing
Agreement, that they have no knowledge of any such liens with respect to any
Vehicle. However, such liens could arise at any time during the term of a
Contract. No notice will be given to the Indenture Trustee in the event such a
lien arises.
The Servicer on behalf of the Trust may take action to enforce the Trust's
security interest by repossession and resale of the Vehicles securing the
related Contracts. The actual repossession may be contracted out to third party
contractors. Under the UCC and laws applicable in most states, a creditor can
repossess a motor vehicle securing a loan by voluntary surrender, "SELF-HELP"
repossession that is "PEACEFUL" (I.E., without breach of the peace) and, in the
absence of voluntary surrender and the ability to repossess without breach of
the peace, by judicial process. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale. In
the event of such repossession and resale of a Vehicle (assuming the Trust had a
first perfected security interest in such Vehicle), the Trust would be entitled
to be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan on a commercially
reasonable basis. However, some states impose prohibitions or limitations on
deficiency judgments. In general, a defaulting Obligor may not have sufficient
assets to make the pursuit of a deficiency judgment worthwhile.
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.
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CERTAIN MATTERS RELATING TO BANKRUPTCY. The Seller 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 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 Seller will 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 that
the security interest therein granted by the Trust in favor of the Indenture
Trustee is a valid and duly perfected security interest, and will take all
actions that are required under applicable law to perfect the Trust's and the
Indenture Trustee's respective interests in the Contracts and the Secondary
Contracts securing Vendor Loans sold by it. Nevertheless, if the Trust
Depositor were to become a debtor in a bankruptcy case and an unpaid creditor of
the Trust Depositor or a representative of creditors of the Trust Depositor,
such as a trustee in bankruptcy, or the Trust Depositor acting as a
debtor-in-possession, were to take the position that the sale of Contracts to
the Trust was ineffective to remove such Contract's from the Trust Depositor's
estate (for instance, that such sale should be recharacterized as a pledge of
Contracts to secure borrowings of the Trust Depositor), then delays in payments
under the Contracts to the Trust could occur or, should the court rule in favor
of such creditor, representative or Trust Depositor, reductions in the amount of
such payments could result. If the transfer of Contracts to the Trust is
recharacterized as a pledge, a tax or government lien on the property of the
Trust Depositor arising before the Contracts came into existence may have
priority over the Noteholder's interest in the Contracts. If the transactions
are treated as a sale of Contracts, generally, the Contracts would not be part
of the Trust Depositor's estate and would not be available to the Trust
Depositor's creditors.
A bankruptcy trustee or debtor in possession under the United States
Bankruptcy Code (Title 11 U.S.C. Section 101 et seq.) (the "BANKRUPTCY CODE")
has the right to elect to assume or reject any executory contract or unexpired
lease which is considered to be a "TRUE LEASE" (and not a financing) under
applicable law. Any rejection of such a contract or lease would constitute a
breach of such contract or lease, as applicable, as of the day preceding the
commencement of the applicable bankruptcy case, entitling the nonbreaching party
to a pre-petition claim for damages.
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Certain End-User Contracts will be "TRUE LEASES" and thus subject to
rejection by the lessor under the Bankruptcy Code. Any such End-User Contract
originated by a Seller or acquired by a Seller in a transaction whereby the
Seller is the "LESSOR" thereunder, will be subject to rejection by such Seller,
as debtor in possession, or by such Seller's bankruptcy trustee. Upon any such
rejection, Scheduled Payments under such rejected End-User Contract may
terminate and the Noteholders may be subject to losses if the remaining
unaffected Contracts and security interests in the related Equipment are
insufficient to cover the losses. In addition, any End-User Contract which is a
"TRUE LEASE" originated by a Vendor and transferred to a Seller in a transaction
whereby such Vendor continues to be the "LESSOR" thereunder (such as a transfer
by a Vendor to the Seller of a security interest in such End-User Contract or a
transfer by a Vendor to the Seller of an interest in the right to payments only
under any such End-User Contract), will be subject to rejection by such Vendor,
as debtor in possession, or by such Vendor's bankruptcy trustee. Upon any such
rejection, Scheduled Payments under such rejected End-User Contract may
terminate and the Noteholders may be subject to losses if the remaining
unaffected Contracts, and security interests in the Equipment related thereto,
are insufficient to cover the losses.
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.
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 Newcourt USA 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.
The Seller 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 the Seller is treated
as a sale of such Contract from the applicable Vendor to the 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, in any
case, to take the position that the sale of
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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. 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 Seller's (and hence the
Trust Depositor's, the Trust's and the Indenture Trustee's) interest in the
Contracts. No law firm will, in connection with the offering of the Notes,
express any opinion as to the issues discussed in this paragraph.
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.
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 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 Seller believes that it is
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 Seller to the Trust Depositor.
The Trust Depositor will receive, on the Closing Date, a certificate from
the 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,
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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 Seller will 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 Newcourt of any defects
therein. Article 2A, moreover, recognizes typical commercial lease "HELL OR
HIGH WATER" rental payment clauses and validates reasonable liquidated damages
provisions in the event of lessor or lessee defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context wide degree of latitude to vary provisions of the law.
VENDOR LOANS AND VENDOR RECOURSE CONTRACTS. The Vendor Loans are, by their
terms, payable solely from the proceeds of the Secondary Contracts securing such
Vendor Loans, and do not generally represent obligations of the Vendor (except
that Secondary Contracts may be covered by such Vendor's UNL Pool or other forms
of Vendor recourse). Consequently, Noteholders must rely solely upon the
Secondary Contracts and any other Applicable Security, if any, for the payment
of principal of, and interest on, the related Vendor Loans. As noted above, any
Secondary Contract which is a "TRUE LEASE" originated by a Vendor will be
subject to rejection by such Vendor, as debtor in possession, or by such
Vendor's bankruptcy trustee if not a "TRUE SALE". 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 Seller's (and hence its assignee's) interest in such
Secondary Contract.
Certain Vendor Assignments and certain Program Agreements 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 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 certain United States
federal income tax consequences of the purchase, ownership and disposition of
the Notes. The discussion that follows, and the opinion described 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,
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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. An opinion of counsel does not foreclose the possibility of a
contrary determination by the IRS or by a court of competent jurisdiction, or of
a contrary position by the IRS or Treasury Department in regulations or rulings
issued in the future.
Although it is the opinion of Tax Counsel that the Trust will not be
treated as an association (or publicly traded partnership) taxable as a
corporation and the Notes will be characterized as indebtedness for federal
income tax purposes, no assurance can be given that such characterization of the
Trust and the Notes will prevail. If the Trust were taxable as a corporation
for federal income tax purposes, it would be subject to corporate income tax on
its taxable income. The Trust's taxable income would include all its income on
the related Contracts and other assets, which may be reduced by its interest
expense on the Notes if the Notes are respected as debt of such corporation.
Any such corporate income tax could materially reduce cash available to make
payments on the Notes. If, contrary to the opinion of Tax Counsel, the IRS also
successfully asserted that one or more of the Notes did not represent debt for
federal income tax purposes, the Notes might be treated as equity interests in
the Trust. If so treated, the Trust might be taxable as a 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 be treated
as a publicly traded partnership taxable as a corporation unless the Trust is
able to meet certain qualifying income tests. Even if not taxed as a
corporation, 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 the discussion below under the heading "OID", 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. The Trust
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.
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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
amount of OID allocable to an accrual period is generally equal to the
difference between (i) the product of the Note's adjusted issue price and its
yield to maturity and (ii) the amount of qualified stated interest payments
allocable to such accrual period. The "ADJUSTED ISSUE PRICE" of an OID Note at
the beginning of any accrual period is the sum of its issue price plus the
amount of OID allocable to prior accrual periods minus the amount of prior
payments that were not qualified stated interest.
Alternatively, because the payments on the Notes may be accelerated by
reason of prepayments on the Contracts, OID, other than DE MINIMIS OID, on the
Notes, if any, may have to be accrued under Code section 1272(a)(6), which
allocates OID to each day in an accrual period by taking the ratable portion of
the excess of (i) the sum of the present value of the remaining payments on a
Note as of the close of the accrual period and the payments made during the
accrual period that were included in stated redemption price at maturity, over
(ii) the adjusted issue price of the Note at the beginning of the accrual
period. No regulations have been issued under Code section 1272(a)(6) so it is
not clear if such section would apply to the Notes if they are treated as having
OID. Legislation has been proposed which if enacted, would require any OID (or
interest) on the Notes to be computed in accordance with the rules of Section
1272(a)(6) and certain prepayment assumptions.
A holder of a Note issued with DE MINIMIS OID must include such OID in
income proportionately as principal payments are made on such Note.
ACQUISITION PREMIUM
A holder that purchases a Note for an amount less than or equal to the sum
of all amounts payable on the Note after the purchase date other than payments
of qualified stated interest but in excess of its adjusted issue price (any such
excess being "ACQUISITION PREMIUM") and that does not make the election
described below under "ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE
DISCOUNT" is permitted to reduce the daily portions of OID, if any, by a
fraction, the numerator of which is the excess of the holder's adjusted basis in
the Note immediately after its purchase over the adjusted issue price of the
Note, and the denominator of which is the excess of the sum of all amounts
payable on the Note after the purchase date, other than payments of qualified
stated interest, over the Note's adjusted issue price.
MARKET DISCOUNT
Whether or not the Notes are issued with OID, a subsequent purchaser (I.E.,
a purchaser who acquires a Note not at the time of original issue) of a Note at
a discount will be subject to the "MARKET DISCOUNT RULES" of Sections 1276
through 1278 of the Code. In general, these rules provide that if the holder of
a Note purchases the Note at a market discount (I.E., a discount from its
original issue price plus any accrued OID that exceeds a DE MINIMIS amount
specified in the Code) and thereafter recognizes gain upon a disposition (or
receives a principal payment), the lesser of (i) such gain (or the principal
payment) or (ii) the accrued market discount (not previously included in income)
will be taxed as ordinary income. Generally, the accrued market discount will
be the total market discount (not previously included in income) 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
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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
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 or market
discount previously included by such Noteholder in income 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, (iii) an estate or fiduciary
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
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<PAGE>
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 or the Trust Depositor or a "CONTROLLED
FOREIGN CORPORATION" with respect to which the Trust or the Trust
Depositor is a "RELATED PERSON" within the meaning of the Code, and
(ii) provides an appropriate statement (Form W-8) to the Trustee or
paying agent (generally the clearing agency, financial intermediary,
or broker) that is signed under penalties of perjury, certifying that
the beneficial owner of the Note is a Foreign Person and providing
that Foreign Person's name and address. If the information provided
in this statement changes, the Foreign Person must provide a new Form
W-8 within 30 days. The Form W-8 is generally effective for three
years. If such interest were not portfolio interest, then it would be
subject to United States federal income and withholding tax at a rate
of 30 percent unless reduced or eliminated pursuant to an applicable
income tax treaty. To qualify for any reduction as the result of an
income tax treaty, the Foreign Person must provide the paying agent
with Form 1001. This form is also effective for three years.
(b) Any capital gain realized on the sale or other taxable
disposition of a Note by a Foreign Person will be exempt from
United States federal income and withholding tax, PROVIDED that
(i) the gain is not effectively connected with the conduct of a
trade or business in the United States by the Foreign Person, and
(ii) in the case of an individual Foreign Person, the Foreign
Person is not present in the United States for 183 days or more
in the taxable year. If an individual Foreign Person is present
in the U.S. for 183 days or more during the taxable year, the
gain on the disposition of the Notes could be subject to a 30%
withholding tax unless reduced by treaty.
(c) If the interest, gain or income on a Note held by a Foreign
Person is effectively connected with the conduct of a trade or
business in the United States by the Foreign Person, the holder
(although exempt from the withholding tax previously discussed if
an appropriate statement (Form 4224) is furnished to the paying
agent) generally will be subject to United States federal income
tax on the interest, gain or income at regular federal income tax
rates. Form 4224 is effective for only one calendar year. In
addition, if the Foreign Person is a foreign corporation, it may
be subject to a branch profits tax equal to 30 percent of its
"EFFECTIVELY CONNECTED EARNINGS AND PROFITS" within the meaning
of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax
treaty.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Notes. ACCORDINGLY, PURCHASERS OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISERS REGARDING THE STATE TAX CONSEQUENCES OF
PURCHASING ANY NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
PLANS") and prohibits certain transactions between ERISA Plans and persons who
are "PARTIES IN INTEREST" (as defined under ERISA) with respect to assets of
such Plans. Section 4975 of the Code prohibits a similar set of transactions
between certain plans or individual retirement accounts ("CODE PLANS," and
together with ERISA Plans, "PLANS") and persons who are "DISQUALIFIED PERSONS"
(as defined in the Code) with respect to Code Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been
made under Section 410(d) of the Code), are not subject to the requirements of
ERISA or Section 4975 of the Code, and assets of such plans may be invested in
the Notes, subject to the provisions of other applicable federal and state law.
Any such plan which is qualified under Section 401(a) of the Code and exempt
from taxation under Section 501(a) of the Code is, however, subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in the Notes, an ERISA
Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan.
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<PAGE>
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.
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 November 21, 1997 for the sale of the Class A Notes, the Trust
Depositor has agreed to sell to First Union Capital Markets Corp., Deutsche
Morgan Grenfell Inc., Lehman Brothers Inc., and BancAmerica Robertson Stephens
(the "CLASS A UNDERWRITERS") and the Class A Underwriters have separately agreed
to purchase from the Trust Depositor, the principal amount of the Class A Notes
set forth opposite each of their names below and (ii) underwriting agreement
dated November 21, 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 Class C Underwriter") and
the Class B and Class C Underwriter has agreed to purchase from the Trust
Depositor, the principal amounts of the Class B Notes and Class C Notes set
forth opposite its name below:
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Aggregate Principal Amount
to be Purchased
--------------------------
Class A-1 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp. $38,176,485
Deutsche Morgan Grenfell Inc. $38,100,000
Lehman Brothers Inc. $38,100,000
BancAmerica Robertson Stephens $12,700,000
Aggregate Principal Amount
to be Purchased
--------------------------
Class A-2 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp. $26,684,716
Deutsche Morgan Grenfell Inc. $26,400,000
Lehman Brothers Inc. $26,400,000
BancAmerica Robertson Stephens $ 8,800,000
Aggregate Principal Amount
to be Purchased
--------------------------
Class A-3 Receivable-Backed Notes, Series
-----------------------------------------
1997-1
------
First Union Capital Markets Corp. $32,111,777
Deutsche Morgan Grenfell Inc. $32,100,000
Lehman Brothers Inc. $32,100,000
BancAmerica Robertson Stephens $10,700,000
Aggregate Principal Amount
to be Purchased
--------------------------
Class A-4 Receivable-Backed Notes, Series
-----------------------------------------
1997-1
------
First Union Capital Markets Corp. $50,305,901
Deutsche Morgan Grenfell Inc. $50,100,000
Lehman Brothers Inc. $50,100,000
BancAmerica Robertson Stephens $16,700,000
Aggregate Principal Amount
to be Purchased
--------------------------
Class B Receivable-Backed Notes, Series
---------------------------------------
1997-1
------
First Union Capital Markets Corp. $18,727,061
Aggregate Principal Amount
to be Purchased
--------------------------
Class C Receivable-Backed Notes, Series
---------------------------------------
1997-1
------
First Union Capital Markets Corp. $10,701,178
</TABLE>
In the respective underwriting agreements, the Class A Underwriters and the
Class B and 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 Underwriters have advised the Issuer that the Class A
Underwriters propose initially to offer the Class A 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 1.50% of the initial principal amount
of the Class A Notes. The
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<PAGE>
Class A Underwriters may allow and such dealers may reallow a concession not in
excess of 0.075% of the initial principal amount of the Class A Notes. After
the initial public offering, the public offering price and such concessions may
be changed.
The Class B and Class C Underwriter has advised the Issuer that the Class B
and Class C Underwriter proposes initially to offer the Class B and the Class C
Notes to the public at the price set forth on the cover page hereof and to
certain dealers at such price less a selling concession not in excess of 0.200%
and 0.300% of the initial principal amount of the Class B Notes and Class C
Notes, respectively. The Class B and Class C Underwriter may allow and such
dealers may reallow a concession not in excess of 0.100% of the initial
principal amount of the Class B Notes and 0.150% of the initial principal amount
of the Class C Notes.
The respective Underwriting Agreements provide that Newcourt, Newcourt USA
and the Trust Depositor, jointly and severally, will indemnify the Class A
Underwriters and the 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. ("FIRST UNION") 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.
First Union Capital Markets Corp. is the Administrator of VFCC, a special
purpose company the business of which is limited, generally, to the purchase of,
or the making of loans against receivables or interests in financial assets.
The Seller has previously sold certain lease and finance contracts to the Trust
Depositor which has resold them (or interests therein) to VFCC. It is expected
that these contracts will be repurchased from VFCC by the Trust Depositor and
from the Trust Depositor by the Seller simultaneously with (and with the
proceeds of) the issuance of the Notes and the Subordinated Securities
contemplated hereby and that certain of such contracts will be included in the
Contract Portfolio. See "USE OF PROCEEDS." In addition, an affiliate of First
Union provides liquidity and enhancement to VFCC in connection with its funding
obligations of such contracts. VFCC is not affiliated with First Union
Corporation, First Union Capital Markets Corporation or any of their respective
affiliates.
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 Newcourt USA and its affiliates, including the Trust
Depositor.
RATING OF THE NOTES
It is a condition to the issuance of the Notes that the Class A-1 Notes be
rated at least "A-1+" and "P-1", that the Class A-2 Notes be rated at least
"AAA" and "Aaa", that the Class A-3 Notes be rated at least "AAA" and "Aaa",
that the Class A-4 Notes be rated at least "AAA" and "Aaa", that the Class B
Notes be rated at least "A" and "A1", and that the Class C Notes be rated at
least "BBB" and "Baa3", by Standard & Poor's and Moody's Investors Service,
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 A-3 Notes,
Class A-4 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 A-3 Notes,
Class A-4 Notes, Class B Notes, Class C Notes and the Subordinated Securities
(in the case of the Class A-2 Notes), the subordination of the Class A-4 Notes,
Class B Notes, Class C Notes and the Subordinated Securities (in the case of the
Class A-3 Notes), the subordination of the Class B Notes, Class C Notes and the
Subordinated Securities (in the case of the Class A-4 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 effect 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.
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<PAGE>
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 Underwriter will be
passed upon by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York.
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<PAGE>
INDEX OF TERMS
Term(s) Page(s)
ADCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17, 58
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13, 56
Additional Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .10, 47
Additional Contract Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . 5
Adjusted Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Aggregate Discounted Contract Balance. . . . . . . . . . . . . . . . . .17, 58
Aggregate Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . .58
Applicable Class Percentage. . . . . . . . . . . . . . . . . . . . . . . . .80
Article 2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27, 92
Available Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Available Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
Bankruptcy Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25, 90
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 7, 73
Class A Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6, 58
Class A Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Class A-1 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-1 Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . .57
Class A-1 Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Class A-1 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-1 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
Class A-1 Notes Maturity Date. . . . . . . . . . . . . . . . . . . . . . . .16
Class A-1 Principal Payment Amount. . . . . . . . . . . . . . . . . . . . .80
Class A-1 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . .58
Class A-2 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-2 Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Class A-2 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
Class A-2 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . .79
Class A-2 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . .58
Class A-3 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-3 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-3 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
Class A-3 Principal Payment Amount . . . . . . . . . . . . . . . . . . .59, 79
Class A-4 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-4 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class A-4 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Class A-4 Principal Payment Amount . . . . . . . . . . . . . . . . . . .59, 79
Class B Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class B Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Class B Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . .13, 82
Class B Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
Class B Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Class B Principal Payment Amount . . . . . . . . . . . . . . . . . . . .59, 79
Class C Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class C Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Class C Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class C Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
Class C Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Class C Principal Payment Amount . . . . . . . . . . . . . . . . . . . .59, 79
Class D Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Class D Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Class D Principal Payment Amount . . . . . . . . . . . . . . . . . . . .59, 79
103
<PAGE>
Cleanup Call Condition . . . . . . . . . . . . . . . . . . . . . . . . .16, 68
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Code Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . .12, 65
Collection Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Conditional Payment Rate . . . . . . . . . . . . . . . . . . . . . . . . . .47
Contract Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Contracts Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
CPR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
CSA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 5
Defaulted Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17, 74
Discounted Contract Balance. . . . . . . . . . . . . . . . . . . . .17, 60, 79
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 6
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Early Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Early Termination Contract . . . . . . . . . . . . . . . . . . . . . . . . .10
Eligible Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . .74, 75
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Eligible Secondary Contract. . . . . . . . . . . . . . . . . . . . . . . . .75
Eligible Secondary Contracts . . . . . . . . . . . . . . . . . . . . . . . .75
End-User . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 75
End-User Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 43
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Excess Concentration Amount. . . . . . . . . . . . . . . . . . . . . . . . .76
Excess Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Excluded Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Financed Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 43
Financing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
First Union. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95
Guaranteed Residual Investment . . . . . . . . . . . . . . . . . . . . . . .46
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Indemnitees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 5
Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Ineligible Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Initial Class A-1 Note Principal Balance . . . . . . . . . . . . . . . . . . 6
Initial Class A-2 Note Principal Balance . . . . . . . . . . . . . . . . . . 6
Initial Class A-3 Note Principal Balance . . . . . . . . . . . . . . . . . . 6
104
<PAGE>
Initial Class A-4 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Insolvency Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
investment company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
IPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 5
Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 62
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Majority in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16, 57
MLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
MLA Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Monthly Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
Newcourt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 5
Newcourt Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
Newcourt USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 5
Note Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 6
NRC II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12, 75
OID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93
Operative Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Owner Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 5
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96
Prepaid Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Prepayment Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74
Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . .60, 79
Program Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Program Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Qualified Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 6
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Required Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Reserve Fund Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Residual Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Residual Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Restricting Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
S&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . 2
Scheduled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . .17, 60
Secondary Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Secured Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 43
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 5
105
<PAGE>
Service Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 5
Servicer Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . .18, 77
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 12, 43
Servicing Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18, 67
Servicing Fee Percentage . . . . . . . . . . . . . . . . . . . . . . . . . .67
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 12, 43
Statistical Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Subject Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
Subordinated Note Interest Rate. . . . . . . . . . . . . . . . . . . . . . .13
Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . .2, 7, 72
Subordinated Residual Interest . . . . . . . . . . . . . . . . . . . . . . .46
Subordinated Securities. . . . . . . . . . . . . . . . . . . . . . . . . .2, 7
Substitute Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .10, 47
Substitute Contract Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . 5
Tax Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92
Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Third-Party Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
TIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
Title Registry Equipment . . . . . . . . . . . . . . . . . . . . . . . . . .24
Total Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . .60
Transfer and Sale Agreement. . . . . . . . . . . . . . . . . . . . . 2, 29, 72
Transfer Deposit Amount. . . . . . . . . . . . . . . . . . . . . . . . . . .75
Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73
Transferred Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Transferred Property . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
True Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 5
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 7
Trust Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Trust Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3, 5
Trust Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . .72
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .67, 68
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .97
UNL Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Vendor Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Vendor Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Vendor Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 44
Vendors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12, 44
VFCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Warranty Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . .10, 76
106
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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 UNDERWRITERS. 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>
AVAILABLE INFORMATION..................................................... 4
SUMMARY OF TERMS.......................................................... 5
RISK FACTORS.............................................................. 21
USE OF PROCEEDS........................................................... 29
THE TRUST................................................................. 29
THE CONTRACTS POOL........................................................ 29
THE CONTRACTS GENERALLY................................................... 41
PREPAYMENT AND YIELD CONSIDERATIONS....................................... 47
NEWCOURT CREDIT GROUP INC.
NEWCOURT FINANCIAL USA INC................................................ 52
THE TRUST DEPOSITOR....................................................... 55
DESCRIPTION OF THE NOTES.................................................. 56
THE SUBORDINATED NOTES.................................................... 73
THE CERTIFICATE........................................................... 73
THE INDENTURE............................................................. 81
CERTAIN LEGAL ASPECTS OF THE CONTRACTS.................................... 86
FEDERAL INCOME TAX CONSEQUENCES........................................... 93
CERTAIN STATE TAX CONSEQUENCES............................................ 97
ERISA CONSIDERATIONS...................................................... 97
PLAN OF DISTRIBUTION...................................................... 98
RATING OF THE NOTES....................................................... 100
LEGAL MATTERS............................................................. 101
</TABLE>
UNTIL FEBRUARY 24, 1998, 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.
NEWCOURT RECEIVABLES
ASSET TRUST 1997-1
NEWCOURT RECEIVABLES
CORPORATION II
---------------------
PROSPECTUS
---------------------
UNDERWRITERS OF THE CLASS A NOTES
FIRST UNION CAPITAL MARKETS CORP.
DEUTSCHE MORGAN GRENFELL
LEHMAN BROTHERS
BANCAMERICA ROBERTSON STEPHENS
UNDERWRITER OF THE CLASS B AND CLASS C NOTES
FIRST UNION CAPITAL MARKETS CORP.
NOVEMBER 24, 1997
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