<PAGE>
As filed with the Securities and Exchange Commission on September 19, 1997
Registration No. 333-
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NEWCOURT RECEIVABLES ASSET TRUST 1997-1
(Issuer with respect to the Securities)
NEWCOURT RECEIVABLES CORPORATION II
(Depositor of the Trust described herein)
Exact name of Registrant as specified in its charter
Delaware 6799 35-2010710
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification
organization) Code Number) No.)
NEWCOURT RECEIVABLES CORPORATION II
2700 Bank One Tower
111 Monument Circle
Indianapolis, Indiana 46204
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Scott Moore, Esq.
NEWCOURT RECEIVABLES CORPORATION II
2700 Bank One Tower
111 Monument Circle
Indianapolis, Indiana 46204
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
M. David Galainena, Esq. Michael D. Nathan, Esq.
Winston & Strawn Simpson Thacher & Bartlett
35 West Wacker Drive 425 Lexington Avenue
Chicago, Illinois 60601 New York, New York 10017
(312) 558-5600 (212) 455-2000
--------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /_______
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /_______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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Title of Amount to Proposed Maximum Proposed Maximum Amount of
Each Class Be Offering Price Aggregate Registration
of Securities Registered(1) Per Unit (2) Offering Price(2) Fee
to Be
Registered
Class A-1 $1,000,000 100% $1,000,000 $303.03
Receivable-
Backed
Notes
Class A-2 $1,000,000 100% $1,000,000 $303.03
Receivable-
Backed
Notes
Class B $1,000,000 100% $1,000,000 $303.03
Receivable-
Backed
Notes
Class C $1,000,000 100% $1,000,000 $303.03
Receivable-
Backed
Notes
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(1) The amount of Securities being registered represents the maximum aggregate
principal amount of Securities currently expected to be offered for sale.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT HAS
BECOME EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, dated September 19, 1997
PRELIMINARY PROSPECTUS
NEWCOURT RECEIVABLES ASSET TRUST 1997-1
$ % CLASS A-1 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$ % CLASS A-2 RECEIVABLE-BACKED NOTES, SERIES 1997-1
$ % CLASS B RECEIVABLE-BACKED NOTES, SERIES 1997-1
$ % CLASS C RECEIVABLE-BACKED NOTES, SERIES 1997-1
NEWCOURT RECEIVABLES CORPORATION II,
Trust Depositor
NEWCOURT FINANCIAL USA INC.
Servicer
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The Newcourt Receivables Asset Trust 1997-1 (the "TRUST" or the
"ISSUER"), a limited purpose Delaware business trust, will be formed
pursuant to a Trust Agreement, dated as of , 1997, between
Newcourt Receivables Corporation II ("NRC II"), as Trust Depositor (in such
capacity, the "TRUST DEPOSITOR"), and , 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 $ aggregate principal
amount of % Class A-1 Receivable-Backed Notes, Series 1997-1 (the "CLASS
A-1 NOTES"), $ aggregate principal amount of % Class A-2
Receivable-Backed Notes, Series 1997-1 (the "CLASS A-2 NOTES" ), $
aggregate principal amount of % Class B Receivable-Backed Notes, Series
1997-1 (the "CLASS B NOTES") and $ aggregate principal amount of %
Class C Receivable-Backed Notes, Series 1997-1 (the "CLASS C NOTES"; and
together with the Class A-1 Notes, Class A-2 Notes and Class B Notes, the
"NOTES"). The Notes will represent debt obligations of the Trust, and will
be issued pursuant to and secured by an Indenture dated as of ,
1997 (the "INDENTURE") to be entered into between the Trust and , as
Indenture Trustee (the "INDENTURE TRUSTEE"). The Trust will concurrently
issue $ aggregate principal amount of % Class
(COVER CONTINUED ON NEXT PAGE)
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" ON PAGE 19 OF THIS PROSPECTUS.
THE NOTES ARE SECURED BY THE ASSETS OF THE TRUST. THE PROCEEDS OF THE
ASSETS OF THE TRUST AND AMOUNTS ON DEPOSIT IN THE RESERVE ACCOUNT 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.
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Price to Public Underwriting Proceeds to Issuer
Discounts and (2)
Commissions (1)
Per Class A-1 Note $ $ $
Per Class A-2 Note $ $ $
Per Class B Note $ $ $
Per Class C Note $ $ $
Total $ $ $
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(1) The Issuer and Newcourt Financial USA Inc. have agreed to indemnify the
Underwriter against certain liabilities, including under the Securities
Act of 1933.
(2) Before deducting expenses of this Offering estimated to be $_______
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if issued to and accepted by it and subject to its right to reject any order
in whole or in part or to withdraw, cancel or modify any order without notice.
It is expected that delivery of the Notes will be made in book-entry form only
through the Same Day Funds Settlement System of The Depository Trust Company, or
through Cedel Bank, S.A. or the Euroclear System, on or about ,
1997.
FIRST UNION CAPITAL MARKETS CORP.
The date of this Prospectus is , 1997.
<PAGE>
(COVER PAGE CONTINUED)
D Receivable-Backed Notes, Series 1997-1 (the "SUBORDINATED NOTES"), as well
as Class E Receivable-Backed Certificates, Series 1997-1 (the "CERTIFICATES")
which Certificates 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 Certificates, together with
the Subordinated Notes, being collectively the "SUBORDINATED SECURITIES").
The Subordinated Notes will be issued pursuant to the Indenture and the
Certificates 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 -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 -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 , 1997 (the "CUTOFF DATE") or,
in the case of Additional Contracts or Substitute Contracts, their applicable
Cutoff Dates as defined in "SUMMARY OF TERMS -CUTOFF DATES" and (c) monies, to
the extent available, in the Reserve Fund. The Contracts and related interests
will be conveyed by Newcourt USA (in such capacity, the "SELLER") to the Trust
Depositor pursuant to a Transfer and Sale Agreement dated as of ,
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
, 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 day of the month (or if such day is not a Business
Day the next succeeding Business Day) beginning on , 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 "RECORD DATE"). The Certificates do not bear interest.
Principal payments with respect to the Notes and Subordinated Securities 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 is the Distribution Date and with respect to all
other Notes and Subordinated Securities is the Distribution
Date. The actual payment in full, however, of the Notes or Subordinated
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
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applicable, and as further described below), certain amounts received upon
the prepayment or purchase of Contracts or liquidation of the Contracts and
disposition of the related Equipment upon defaults thereunder, and the
proceeds of Servicer Advances (as defined in "SUMMARY OF TERMS -SERVICING;
SERVICING FEE; SERVICER ADVANCES"), if any.
Payments of interest due on the Notes on any given Distribution Date will
be made prior to making any payments of principal on any of the Notes or the
Subordinated Notes. Payments of interest due on the Subordinated Notes will be
subordinated in priority to payments of interest due on the Class A-1 Notes, the
Class A-2 Notes, the Class B Notes and the Class C Notes. Payments of interest
due on Class C Notes will be subordinated in priority to payments of interest on
the Class A-1 Notes, the Class A-2 Notes and the Class B Notes. Payments of
interest due on Class B Notes will be subordinated in priority to payments of
interest due on the Class A-1 Notes and Class A-2 Notes. Payments of interest
due on the Class A-2 Notes will be subordinated in priority to payments of
interest due on the Class A-1 Notes; PROVIDED, HOWEVER, after the occurrence and
during the continuance of a Restricting Event or the occurrence of an Event of
Default payments of interest on the Class A-2 Notes and Class A-1 Notes, will be
made pro rata. Payments of principal on the Subordinated Notes will be
subordinated in priority to payments of principal on the Class A-1 Notes, the
Class A-2 Notes, the Class B Notes and Class C Notes. Payments of principal on
the Class C Notes will be subordinated in priority to payments of principal on
the Class A-1 Notes, the Class A-2 Notes and the Class B Notes. Payments of
principal on the Class B Notes will be subordinated in priority to payments of
principal on the Class A-1 Notes and the Class A-2 Notes. Payments of principal
on the Class A-2 Notes will be subordinated in priority to payments of principal
on the Class A-1 Notes. See "SUMMARY OF TERMS--TERMS OF THE NOTES", as well as
"DESCRIPTION OF THE NOTES--ALLOCATIONS" herein.
The Notes are being offered pursuant to this Prospectus. Sales of the
Notes may not be consummated unless the purchaser has received this Prospectus.
The 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 UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, periodic and
annual unaudited reports, containing information concerning the Trust, the
Contracts, the Notes and the Certificates, will be prepared by the Servicer and
sent on behalf of the Trust to Cede & Co. ("CEDE"), as nominee of The Depository
Trust Company ("DTC"), and the Euroclear System ("EUROCLEAR") or Cedel Bank,
S.A. ("CEDEL") as registered holders of the Notes. Such reports will be made
available by DTC, Euroclear or CEDEL and its participants to holders of
interests in the Notes in accordance with the rules, regulations and procedures
creating and affecting DTC, Euroclear and CEDEL, respectively. See "DESCRIPTION
OF THE NOTES--BOOK ENTRY REGISTRATION" and "--REPORTS" below. Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles or that have been examined and reported upon by,
with an opinion expressed by, an independent or certified public accountant.
Upon the issuance of fully registered, certificated Notes, such reports will be
sent to each registered Noteholder.
AVAILABLE INFORMATION
The Trust Depositor, as originator of the Trust, has filed with the
Securities and Exchange Commission (the "COMMISSION") a Registration Statement
(together with all amendments and exhibits thereto, the "REGISTRATION
STATEMENT") under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
with respect to the Notes offered pursuant to this Prospectus and described
herein. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of the Registration Statement may be obtained from the Public Reference
Branch of the Commission at 450 Fifth Street,
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N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a public access site on the Internet through the World Wide Web at
which site reports, information statements and other information, including
all electronic filings, regarding the Trust Depositor and the Trust may be
viewed. The Internet address of such World Wide Web site is
http://www.sec.gov. The Servicer, on behalf of the Trust, will also file or
cause to be filed with the Commission such periodic reports as are required
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")
and the rules and regulations of the Commission thereunder. Copies of such
reports can be obtained as described above.
UPON RECEIPT OF A REQUEST BY AN INVESTOR, OR HIS OR HER REPRESENTATIVE,
WITHIN THE PERIOD DURING WHICH THERE IS AN OBLIGATION TO DELIVER A PROSPECTUS,
THE UNDERWRITER WILL PROMPTLY DELIVER, OR CAUSE TO BE DELIVERED, WITHOUT CHARGE
AND IN ADDITION TO ANY SUCH DELIVERY REQUIREMENTS, A PAPER COPY OF THIS
PROSPECTUS AND A PROSPECTUS ENCODED IN AN ELECTRONIC FORMAT.
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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 .
There are material risks associated with an investment in the Notes. See "RISK
FACTORS" on page 19 for a discussion of certain factors that investors should
consider before making an investment in the Notes.
Issuer . . . . . . . . . . . . . . Newcourt Receivables Asset Trust 1997-1
(the "ISSUER" or the "TRUST"), a Delaware
business trust to be formed by the Trust
Depositor and the Owner Trustee pursuant
to the Trust Agreement dated as of
, 1997 (the "TRUST AGREEMENT") between
the Trust Depositor and the Owner Trustee.
The principal executive offices of the
Trust will be 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
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 Bank One Tower, 111 Monument
Tower Circle, Suite 2700 Indianapolis,
Indiana 46204 and its telephone number is
(317) 767-0077.
Indenture Trustee. . . . . . . . . , as indenture trustee under
the Indenture described herein (the
"INDENTURE TRUSTEE"). The Indenture
Trustee's offices are located at .
Owner Trustee. . . . . . . . . . . , as owner trustee under
the Trust Agreement (the "OWNER TRUSTEE").
The Owner Trustee's offices are located at
.
Cutoff Dates . . . . . . . . . . .With respect to the Contracts transferred
to the Trust on the Closing Date, ,
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 , 1997 (the "CLOSING DATE").
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 th 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
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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 , 199 . 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. . . . . . . . . . . . .$ aggregate principal amount
(the "INITIAL CLASS A-1 NOTE PRINCIPAL
BALANCE") of % Class A-1
Receivable-Backed Notes, Series 1997-1
(the "CLASS A-1 NOTES"); $
aggregate principal amount (the "INITIAL
CLASS A-2 NOTE PRINCIPAL BALANCE") of
% Class A-2 Receivable-Backed Notes,
Series 1997-1 (the "CLASS A-2 NOTES");
$ aggregate principal amount (the
"INITIAL CLASS B NOTE PRINCIPAL BALANCE")
of % Class B Receivable-Backed Notes,
Series 1997-1; and $ aggregate
principal amount (the "INITIAL CLASS C
NOTE PRINCIPAL BALANCE") of % Class C
Receivable-Backed Notes, Series 1997-1
(the "CLASS C NOTES"; and together with
the Class A-1 Notes, Class A-2 Notes and
Class B Notes, the "NOTES"). The Initial
Class A-1 Note Principal Balance is equal
to approximately % 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 % of the
initial Aggregate Discounted Contract
Balance, the Initial Class B Note
Principal Balance is equal to
approximately % of the initial
Aggregate Discounted Contract Balance of
the Contracts, and the Initial Class C
Note Principal Balance is equal to
approximately % 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
, 1997 (the "INDENTURE"),
between the Trust and the Indenture
Trustee. The Notes will be secured by the
assets of the Trust. The Notes will be
available for purchase in book-entry form
only in minimum denominations of $1,000
and integral multiples thereof (except for
one Note of each Class which, for rounding
purposes, may be less than an integral
multiple thereof). The holders of
beneficial interests in the Notes held in
book-entry form ("NOTE OWNERS") will not
be entitled to receive Definitive Notes
except in the limited circumstances
described herein. See "DESCRIPTION OF THE
NOTES--GENERAL" and "--DEFINITIVE NOTES"
and "--BOOK-ENTRY REGISTRATION" herein.
The Class A-2 Notes, the Class B Notes,
the Class C Notes and the Subordinated
Securities will be subordinated to the
Class A-1 Notes to the extent described
herein; the Class B Notes, the Class C
Notes and the Subordinated Securities will
be subordinated to the Class A-2 Notes to
the extent described herein, the Class C
Notes and the Subordinated Securities will
be subordinated to the Class B Notes to
the extent described herein; and the
Subordinated Securities will be
subordinated to the Class C Notes to the
extent described herein. See "DESCRIPTION
OF THE NOTES --ALLOCATIONS" herein.
The Subordinated Securities . . . On the
Closing Date, the Trust will also issue
%Class D Receivables-Backed Notes (the
"SUBORDINATED NOTES" ) with an aggregate
principal balance of $ (the
"INITIAL CLASS D NOTE PRINCIPAL BALANCE"),
as well as Class E Certificates (the
"CERTIFICATES", and, together with the
Subordinated Notes, the "SUBORDINATED
SECURITIES") with an initial certificate
balance of $ ; the Certificates
will not bear interest. The rights of the
holders of the Subordinated Securities to
receive distributions will be subordinated
to the rights of the Noteholders to
receive distributions with respect to the
Notes to the extent described herein.
See "DESCRIPTION OF THE NOTES -
ALLOCATIONS" herein.
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A. Class D Notes . . . . . . . . . The Initial Class D Note Principal Balance
is equal to approximately % 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. Certificates. . . . . . . . . The Certificates 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
Certificates, although the Certificates
could be subsequently conveyed in a
separate transaction subject to certain
restrictions to ensure the Trust is not
treated as a taxable entity for federal
income tax purposes.
The Trust. . . . . . . . . . . . . The Trust will be 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 $ 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 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
Residuals, (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 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
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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 GENERALLY - PROGRAM
AGREEMENTS WITH VENDORS")), or (ii) with
respect to certain Leases with Lessees that
are governmental entities or municipalities,
if such Lease is cancelled in accordance
with its terms, either (x) the Vendor (as
defined in this "SUMMARY OF TERMS") which
assigned such Lease to the Seller is
unconditionally obligated to repurchase
such Lease from the Seller for a purchase
price not less than the Discounted
Contract Balance of such Lease (as of the
date of purchase) plus interest thereon at
the 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.
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 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 $ ;
(iii) the final scheduled payment
date of the Transferred Contract with
the latest maturity or expiration as
of the Cutoff Date was , 200 ;
(iv) the average Discounted Contract
Balance was approximately $ ;
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<PAGE>
(v) all of the Contracts had (A)
original terms to maturity of not less
than months and not more than
months, with a weighted average original
term to maturity of approximately
months, and (B) a remaining term to
maturity of not less than months and
not more than months, with a weighted
average remaining term to maturity of
approximately months;
(vi) of such Contracts, approximately
% were Vendor Loans; and
(vii) the Obligors (as defined in
this "SUMMARY OF TERMS") on
approximately % of the Contracts
were located in the state of
; approximately % were located in
; approximately % were
located in ; approximately
% were located in ; and in no
other state represented more than
% 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 and
ending , the Seller has
recognized (i) delinquencies of % and %,
respectively with respect to its portfolio
and (ii) losses of % and % with respect
to its portfolio. See "THE CONTRACTS
POOL -- DELINQUENCY AND LOAN LOSS
INFORMATION".
The Statistical Discount Rate is equal to
(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.
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.
Generally, the Contracts not constituting
Leases are prepayable by their terms by
the Obligors thereon; in many (but not
all) instances, such terms require a
prepayment penalty. The Contracts
constituting Leases generally will be
non-cancellable by the Obligors. The
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 15% of the
Aggregate Discounted Contract
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<PAGE>
Balance of the Contracts as of the 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"), without regard to
the 15% limitation described above. For
the periods reflected in the twelve-month
period ended and
ending , the Seller
has recognized delinquencies of % and
%, respectively with respect to its
portfolio and (ii) losses of % and
% with respect to its portfolio. (See
"THE CONTRACTS POOL -- DELINQUENCY AND
LOAN LOSS INFORMATION"). With respect to
replacing either a Defaulted Contract or
an Adjusted Contract with a Substitute
Contract (which substitution is not an
obligation of the 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 payment on such Substitute Contract
or Additional Contract will be on or prior
to , or, to the extent the final
payment on such Contract is due after
, 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 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
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<PAGE>
the Seller may determine consistent with
its collection policy. (See "NEWCOURT
CREDIT GROUP INC. AND NEWCOURT FINANCIAL
USA INC. --CONTRACT COLLECTIONS.")
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 % 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
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<PAGE>
warranties by the Vendor in respect of the
End-User Contracts assigned by the Vendor
to the Seller and related Equipment,
Software or Services, credit support with
respect to defaults by End-Users and
equipment repurchase and remarketing
arrangements upon early termination of
End-User Contracts upon a default by the
End-User. See "THE CONTRACTS
GENERALLY--VENDOR AGREEMENTS" herein.
In addition to the foregoing, the Seller
may enter into assignment agreements (each
a "VENDOR ASSIGNMENT"; collectively, with
the Program Agreements, "VENDOR
AGREEMENTS") from time to time with
Vendors pursuant to which individual
End-User Contracts originated by Vendors
are assigned to the Seller, rather than
pursuant to a Program Agreement. Each
Vendor Assignment will be made either with
or without recourse against the Vendor for
End-User defaults and will generally
contain many, if not all, of the
representations, warranties and covenants
typically contained in Program Agreements,
as well as a Vendor repurchase requirement
in the event of a breach by the Vendor of
such representations, warranties or
covenants. Vendor Assignments may or may
not provide for any Vendor remarketing
support in the event of an End-User
default.
E. Reserve Fund . . . . . . . . . A trust account has been established by
the Trust Depositor in the name of, and
maintained by, the Indenture Trustee (the
"RESERVE FUND"). On the Closing Date the
Trust Depositor will deposit
in the Reserve Fund which is equal to
1.50% of the ADCB of the Contracts Pool as
of the Cutoff Date. The Reserve Fund will
be required to be maintained at the lesser
of (i) 1.50% of the ADCB of the Contracts
as of the Cutoff Date and (ii) the
outstanding Principal Amounts of the Notes
and the Subordinated Notes (the "RESERVE
FUND AMOUNT"). On each Distribution Date,
amounts on deposit in the Reserve Fund
will be applied as described under
"DESCRIPTION OF THE NOTES--ALLOCATIONS"
and "--RESERVE FUND." Amounts on deposit
in the Reserve Fund in excess of the
Reserve Fund Amount will be paid to the
Certificateholder.
Terms of the Notes . . . . . . . . The principal terms of the Notes will be as
described below:
A. Interest . . . . . . . . . . . The Class A-1 Notes will bear interest at the
rate of % per annum (the "CLASS A-1
INTEREST RATE"), the Class A-2 Notes will
bear interest at the rate of % per
annum (the "CLASS A-2 INTEREST RATE"), the
Class B Notes will bear interest at the
rate of % per annum (the "CLASS B
INTEREST RATE") and the Class C Notes will
bear interest at the rate of % per
annum (the "CLASS C INTEREST RATE") and
the Subordinated Notes will bear interest
at the rate of % 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 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)
to but excluding the following
Distribution Date (each period for which
interest accrues on the Notes, an "ACCRUAL
PERIOD"). Interest on the Notes will be
payable on each Distribution Date,
commencing , 199 , to the holders
of record of the Class A-1 Notes (the
"CLASS A-1 NOTEHOLDERS"), the holders of
record of the Class A-2 Notes (the "CLASS
A-2 NOTEHOLDERS") the holders of record of
the Class B Notes (the "CLASS B
NOTEHOLDERS") and the holders of record of
the Class C Notes (the "CLASS C
NOTEHOLDERS"; together with the Class A-1
Noteholders, the Class A-2 Noteholders and
Class B Noteholders, the "NOTEHOLDERS") as
of the related Record Date. See
"DESCRIPTION OF THE NOTES--GENERAL" and
"THE INDENTURE--PAYMENTS OF PRINCIPAL AND
INTEREST" herein.
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<PAGE>
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
Residuals), Late Charges, certain amounts
received upon the prepayment or purchase
of Contracts or liquidation of the
Contracts and disposition of the related
Equipment upon defaults thereunder, and
proceeds of Servicer Advances (as defined
herein), if any, amounts available in the
Reserve Fund, if any as well as earnings
on amounts held in the Collection Account.
Interest on the Class A-2 Notes is
payable on a Distribution Date from the
Available Amounts 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); PROVIDED,
HOWEVER, in the event a Restricting Event
has occurred and is continuing or an Event
of Default has occurred, interest on the
Class A-1 Notes and the Class A-2 Notes
(to the extent Available Amounts are
insufficient to pay the entire amount of
accrued interest on both the Class A-1
Notes and the Class A-2 Notes) will be
paid from Available Amounts pro rata based
on the then outstanding Principal Amounts
of such Class A-1 Notes and Class A-2
Notes. Interest on the Class B Notes is
payable on a Distribution Date from the
Available Amounts 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 and Class
A-2 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 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, 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 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 B Notes will be
payable on each Distribution Date in an
amount equal to the lesser of the Class B
Principal Payment Amount (as defined in
"DESCRIPTION OF NOTES") for such
Distribution Date, and the then
outstanding principal amount of the Class
B Notes, 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 and A-2 Principal Payment
Amount.
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<PAGE>
Principal of the Class C Notes will be
payable on each Distribution Date in an
amount equal to the Class C Principal
Payment Amount (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 and
A-2 Principal Payment Amount and 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 and Class A-2
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,
Class B Principal Payment Amount and Class
C Principal Payment Amount represent, in
each case, a calculation of the amount to
be payable from otherwise Available
Amounts on a Distribution Date in respect
of principal on the Class A-1 Notes, the
Class A-2 Notes, Class B Notes or Class C
Notes, as applicable. Such amount
generally is calculated, for 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 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, Class B
Notes, Class C Notes and Subordinated
Notes. Assuming payment in full of the
Class A-1 Notes, (as of the Cutoff Date)
such percentages are % for the Class
A-2 Notes, % for the Class B Notes,
% for the Class C Notes, and % for
Subordinated Notes. Accordingly, if
sufficient Available Amounts exist, a
proportionate amount of principal would be
repaid on any given Distribution Date on
each of the Class A-2 Notes, the Class B
Notes and the Class C Notes (as well as
the Subordinated Notes); after payment of
the Class A-1 Principal Payment Amount.
Upon the occurrence of an Event of
Default, or upon the occurrence and during
the continuance of a Restricting Event
(each as defined in "DESCRIPTION OF THE
NOTES"), however, the formula for
determining such principal payment amount,
after payment in full of the Class A-1
Notes, will change with the result that,
for any Distribution Date occurring after
such adverse event, principal on the Class
A-2 Notes, Class B Notes and Class C Notes
(and also the Subordinated Notes) will be
accelerated and paid sequentially, I.E.,
no principal will be paid on the Class B
Notes, Class C Notes or the Subordinated
Notes, until the Class A-2 Notes have been
repaid in full; no principal will be paid
on the Class C Notes or the Subordinated
Notes, until the Class B Notes have been
repaid in full; and no principal will be
paid on the Subordinated Notes until the
Class C Notes have been repaid in full.
See "DESCRIPTION OF THE
NOTES--ALLOCATIONS" herein.
Stated Maturity Date . . . . . . . The stated maturity date of the Class A-1
Notes (the "CLASS A-1 NOTES MATURITY
DATE") is the ________________
Distribution Date and the stated maturity
date (the "MATURITY DATE") for the other
Notes and the Subordinated Securities is
, 200 .
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 Notes
is ______________, the expected final
payment date for the Notes is ____________.
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
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Contract Pool as of the Cutoff Date (the
"CLEANUP CALL CONDITION"). The redemption
price for such outstanding Notes to be
redeemed in such event (the "REDEMPTION
PRICE") will be equal to the unpaid
principal amount of the Notes plus accrued
and unpaid interest thereon through the
date of redemption. The Trust Depositor
will fund such redemption through
concurrent receipt of a payment from the
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, ___% which is equal to the
sum of (i) the weighted average of the
Class A-2 Interest Rate (weighted at the
sum of the Initial Class A-1 Note
Principal Balance and the Initial Class
A-2 Note Principal Balance), Class B
Interest Rate, Class C Interest Rate and
the Subordinated Note Interest Rate, and
(ii) the Servicing Fee Percentage. The
Statistical Discount Rate is equal to %.
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).
Subordination. . . . . . . . . . . The Class A-1 Notes will be senior in right
of payment to the Class A-2 Notes (except
as to interest in certain circumstances;
see --"TERMS OF THE NOTES A. INTEREST"
above), Class B Notes, Class C Notes and
the Subordinated Securities; the Class A-2
Notes will be senior in right of payment
to the Class B Notes, the Class C Notes
and the Subordinated Securities. The
Class B Notes will be
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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 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 the
And Warranties 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.
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<PAGE>
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.
Legal Risks. . . . . . . . . . . . See "RISK FACTORS" for a discussion of
certain material risks that should be
considered in connection with an
investment in the Notes offered hereby,
including certain legal risks.
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.
Rating . . . . . . . . . . . . . . It is a condition to the issuance of the
Notes offered hereunder that the Class A-1
Notes be rated at least " " and "
", that the Class A-2 Notes be rated at
least " " and " ", that the Class B
Notes be rated at least " " and " ",
and that the Class C Notes be rated at
least " and " by a nationally
recognized rating agency and a nationally
recognized rating agency, 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
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<PAGE>
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 in the
future so warrant. In the event that the rating initially assigned to any
Note is subsequently lowered for any reason, no person or entity is obligated
to provide any additional credit support therefor. For more detailed
information regarding the ratings assigned to any Class of the Notes, see
"RATING OF THE NOTES."
SUBORDINATION OF THE CLASS A-2 NOTES, CLASS B NOTES, THE CLASS C NOTES AND THE
SUBORDINATED SECURITIES
To the extent described herein under "DESCRIPTION OF THE
NOTES--ALLOCATIONS", (i) payments of interest and principal on the Class A-2
Notes, Class B Notes, Class C Notes and the Subordinated Securities will be
subordinated in priority of payment to interest and principal, respectively on
the Class A-1 Notes, (ii) payments of interest and principal on the Class B
Notes, Class C Notes and the Subordinated Securities will be subordinated in
priority of payment to interest and principal, respectively, on the Class A-2
Notes, (iii) payments of interest and principal on the Class C Notes and the
Subordinated Securities, will be subordinated in priority of payment to interest
and principal, respectively, on the
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<PAGE>
Class B Notes and (iv) 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
% of the initial ADCB, but such amount will be reduced as a result
of principal payments made on the Subordinated Notes prior to an Event of
Default or Restricting Event (see "DESCRIPTION OF THE NOTES--PRINCIPAL"),
which will reduce the benefit to the Notes of the subordination of the
Subordinated Notes.
Delinquencies and defaults on the Contracts could eliminate the
protection afforded the Noteholders by the subordination of the Subordinated
Notes and the Reserve Fund, and the Class C Noteholders could incur losses on
their investment as a result. Further delinquencies and defaults on the
Contracts could eliminate the protection offered to the Class B Noteholders by
the subordination of the Class C Notes, the Subordinated Notes and the Reserve
Fund, and such Noteholders could also incur losses on their investment as a
result. Additionally, delinquencies and defaults on the Contracts could
eliminate the protection offered the Class A-2 Noteholders by the subordination
of the Class B Notes, the Class C Notes, the Subordinated Notes and the Reserve
Fund, and such Noteholders could also incur losses on their interest as a
result. Furthermore, delinquencies and defaults on the Contracts could
eliminate the protection offered to the Class A-1 Noteholders by the
subordination of the Class A-2 Notes, the Class B Notes, the Class C Notes, the
Subordinated Notes and the Reserve Fund 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 and
in excess of % 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 % 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 % 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 effected 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 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.
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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 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.
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 $30,000. _____ Contracts in the
Contract Pool aggregating ____% of the ADCB are represented by the Contracts
described in the proviso 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 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; provided, however, inventory filings
will be made centrally in states representing ___% of the ADCB of the
Contract Pool. 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
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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 % 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 % 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 the priority of its
security interest or its security interest in such Equipment after the date
such Contract is conveyed to the Trust.
LEGAL RISKS ASSOCIATED WITH TRANSFER OF CONTRACTS. There are
certain limited circumstances under the Uniform Commercial Code (the "UCC")
and applicable federal law in which prior or subsequent transferees of
Contracts or Secondary Contracts could have an interest in such contracts
with priority over the Trust's interest. See "CERTAIN LEGAL ASPECTS OF THE
CONTRACTS--TRANSFER OF CONTRACTS." Under each Vendor Agreement, the Vendor
(i) has or will warrant to the 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.
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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 a Seller to the
Trust Depositor were treated as a pledge to secure borrowings by the Seller,
the distribution of proceeds of the Contracts to the Trust might be subject
to the automatic stay provisions of the United States Bankruptcy Code, which
would delay the distribution of such proceeds for an uncertain period of
time. In addition, a bankruptcy trustee would have the power to sell the
Contracts if the proceeds of such sale could satisfy the amount of the debt
deemed owed by the Seller, or the bankruptcy trustee could substitute other
collateral in lieu of the Contracts to secure such debt, or such debt could
be subject to adjustment by the bankruptcy court if the Seller were to file
for reorganization under Chapter 11 of the United States Bankruptcy Code. A
case decided by the United States Court of Appeals for the Tenth Circuit
contains language to the effect that accounts sold by a debtor under Article
9 of the Uniform Commercial Code ("UCC") would remain property of the
debtor's bankruptcy estate. If, following a bankruptcy of the Seller, a
court were to follow the reasoning of the Tenth Circuit and apply such
reasoning to chattel paper, then similar reductions or delays in payments of
collections on or in respect of the Contracts could occur. Additionally,
because the 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.
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
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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 %
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 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.
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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
"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
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(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). 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."
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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 and
VFCC 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 will be organized as a business trust to be formed in
accordance with the laws of the State of Delaware, pursuant to the Trust
Agreement, solely for the purpose of effectuating the transactions described
herein. Prior to formation, the Trust will have had no assets or obligations
and no operating history. Upon formation, the Trust will not engage in any
business activity other than (a) acquiring, managing and holding the
Contracts and related interests described herein, (b) issuing the Notes and
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 , 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 their portfolio
of Contracts based on the criteria specified in the Transfer and Sale
Agreement and the Sale and Servicing Agreement. See "THE SALE AND SERVICING
AGREEMENT GENERALLY--REPRESENTATIONS AND WARRANTIES" and "--CONCENTRATION
AMOUNTS" herein which specifically describe the criteria for eligibility in
the Contracts Pool. The representations of the 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 $ , the weighted average
remaining term to maturity for the Transferred Contracts was approximately
months, the final scheduled payment date of the Transferred Contract with
the latest maturity or expiration was , 200 and the average
Discounted Contract Balance was approximately $ . The Discount Rate
for the Transferred Contracts is % per annum.
For further information regarding the Transferred Contracts, see "THE
CONTRACTS GENERALLY" herein and "THE CONTRACTS POOL--OTHER POOL DATA" below.
OTHER POOL DATA. Approximately % 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. Percentages and amounts set forth in the
following tables may not total due to rounding. The largest End-User industry
concentration (including End-User Obligors on Contracts originated by the Seller
directly, as well as Contracts originated through Vendors with or without Vendor
recourse, and Secondary Contracts securing Vendor Loans), which represents an
ADCB of $ as of the Cutoff Date, relates to equipment. See
"RISK FACTORS--CERTAIN RISKS ASSOCIATED WITH GEOGRAPHIC OR INDUSTRY
CONCENTRATIONS OF CONTRACTS" herein, and "THE CONTRACTS POOL - CONTRACT LOSS
EXPERIENCE" below.
The statistical information concerning the Contracts set forth below is
based upon information as of the opening of business on the Cutoff Date and the
Statistical Discount Rate. Certain Contracts included in the pool as of the
Cutoff Date may be determined not to meet the eligibility requirements for the
final pool, and may not be included in the final Contract Pool. While the
statistical distribution of the characteristics as of the Closing Date for the
final Contract Pool
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<PAGE>
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.
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<PAGE>
COMPOSITION OF THE CONTRACT POOL
Aggregate Discounted
Contract Balance
Number of Contracts
Weighted Average
Original Term (Range)
(in months)
Weighted Average
Remaining Term (Range)
(in months)
Average Discounted
Contract Balance
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<PAGE>
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
Percentage of
Aggregate Aggregate
Percentage of Discounted Discounted
Number of Number of Contract Contract
Contracts Contracts Balance Balance
CSAs
True Leases
Finance Leases
IPAs
Secured Notes
Unsecured
Notes
Other
Financing
Agreements
Total
-30-
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED
<S> <C> <C> <C> <C> <C> <C>
Percentage of
State Number of Percentage of Number Number of Percentage of Number Discounted Contract Aggregate Discounted
Contracts of Contracts Obligors of Obligors Balance Contract Balance
Alabama
Alaska
Arizona
California
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Percentage of
State Number of Percentage of Number Number of Percentage of Number Discounted Contract Aggregate Discounted
Contracts of Contracts Obligors of Obligors Balance Contract Balance
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
</TABLE>
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<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
Percentage of
Aggregate
Percentage of Discounted Discounted
Number of Number of Contract Contract
Equipment Type Contracts Contracts Balance Balance
Transportation
Construction
Computer Hardware
Computer Software
Resources
Manufacturing
Other/Miscellaneous
Total
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<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
Percentage of
Aggregate
Percentage of Discounted Discounted
Number of Number of Contract Contract
Industry Contracts Contracts Balance Balance
Financial
Services
Manufacturing
Printing
Health Care
Transportation
Construction
Distribution
Government
Other/
Miscellaneous
Total
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<PAGE>
DISTRIBUTION OF CONTRACTS BY CONTRACT BALANCE
Percentage of
Aggregate
Percentage of Discounted
Discounted Number of Number of Contract
Contract Balance Contracts Contracts Balance
$0 - 250,000
250,001 - 500,000
500,001 - 750,000
750,001 - 1,000,000
1,000,001 - 1,205,000
1,250,001 - 1,500,000
1,500,001 - 1,750,000
1,750,001 - 2,000,000
greater than $2,000,000
Total
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<PAGE>
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
Percentage of
Aggregate
Percentage of Discounted Discounted
Remaining Term Number of Number of Contract Contract
(Months) Contracts Contracts Balance Balance
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
Total
DISTRIBUTIONS OF CONTRACTS BY
ORIGINAL CONTRACT TERM
Percentage of
Aggregate
Number Percentage of Discounted Discounted
Original Term of Number of Contract Contract
(Months) Contracts Contracts Balance Balance
1 - 12
13 - 24
25 - 36
37 - 48
49 - 60
61 - 72
73 - 84
85 - 96
Total
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<PAGE>
DELINQUENCY AND LOAN LOSS INFORMATION
Set forth below is certain information regarding the delinquency and
loss experience of Newcourt USA (Transportation and Construction and
non-Anthem Commtech divisions) 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). 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 ________ such Contracts, with an ADCB as of the date hereof of
$ ______ are being serviced by Third-Party Servicers.
NEWCOURT USA PORTFOLIO
DELINQUENCY EXPERIENCE
(DOLLARS IN THOUSANDS) (a),(b) AND (c)
AT
___________________________________________________________________________
Six Months Six Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended Ended
June 30, June 30, December 31, December 31, December 31,
1997(d) 1996(d) 1996 1995 1994
Portfolio
Investment
No. of
Delinquent
Days (% of
Portfolio
Investment)
31-90 days
Over 90
days
Total
(a) Portfolio 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) Annualized.
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<PAGE>
NEWCOURT USA CONTRACT PORTFOLIO
CONTRACT LOSS EXPERIENCE (a) and (b)
(DOLLARS IN THOUSANDS)
AT
___________________________________________________________________________
<TABLE>
Caption
Six Months Six Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended Ended
June 30, June 30, December 31, December 31, December 31,
1997(b) 1996(b) 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Average
Portfolio
Investment
(before
reserves)...
Gross Losses...
Recoveries...
Net Losses...
Net Losses
as Percentage
of Average
Portfolio
Investment
(before reserves)...
</TABLE>
(a) Portfolio 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 Portfolio Investment is the average of the Portfolio Investment
at the end of each quarter.
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.
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<PAGE>
THE CONTRACTS GENERALLY
The Trust will be entitled to all collections on account of the Contracts
in the Contract Pool and related Equipment and Applicable Security, except for
(i) collections on deposit in the Collection Account or otherwise received by
the Servicer on or with respect to the Contract Pool or related Equipment, which
collections are attributable to any taxes, fees or other charges imposed by any
governmental authority, and (ii) collections representing reimbursements of
insurance premiums or payments for certain services that were not financed by
the Seller, and (iii) any proceeds from the sale or other disposition of
Equipment in excess of the difference between (x) the Discounted Contract
Balance of the related Contract as of the applicable Cutoff Date, over (y) the
present value as of the applicable Cutoff Date of all amounts (other than
Excluded Amounts) actually received by the Trust in respect of such Contract,
discounted monthly at the Discount Rate (amounts described in clauses (i), (ii)
and (iii), "EXCLUDED AMOUNTS") due on or after the applicable Cutoff Date for
such Contracts.
END-USER CONTRACTS
The following discussion describes the End-User Contracts (including
End-User Contracts which are Secondary Contracts). All of the End-User
Contracts to be included 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 "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 five year term.
Payments under CSAs generally are due monthly. CSA terms (i) provide for a
grant by the End-User thereunder of a security interest in any related Equipment
(which security interest is assigned by the Vendor to the Seller), (ii) may
allow prepayment of the obligation upon payment, where allowed by applicable
state law, of an additional prepayment fee, (iii) require the End-User to
maintain the Equipment, keep it free and clear of liens and encumbrances and pay
all taxes related to the Equipment, (iv) restrict the modification or disposal
of the Equipment without the seller's, or its assignee's, consent, (v) include a
disclaimer of warranties, (vi) include the End-User's indemnity against
liabilities arising from the use, possession or ownership of the Equipment,
(vii) include the End-User's absolute (except as provided in clause (ii)) and
unconditional obligation to pay the installment payments thereunder and (viii)
include specifically identifiable events of default and remedies therefor. The
CSA also requires each End-User to maintain insurance, the terms of which may
vary. The terms of a CSA may be modified at its inception at the End-User's
request. Such modifications must either be approved by the Seller's legal
department and certain levels of management before the Seller will agree to
accept an assignment of the CSA from a Vendor, or the Vendor must indemnify the
Seller against any losses or damages it may suffer as a result of such
modifications.
LEASES. The 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 five years. Each Lease provides for the periodic payment by the
End-User of rent in advance or arrears, generally monthly or quarterly. Such
periodic payments represent the amortization, generally on a level basis, of
the total amount that an End-User is required to pay throughout the term of a
Lease.
The Leases to be included in the Contract Pool are "NET LEASES" under
which the End-User assumes responsibility for the Financed Items, including
operation, maintenance, repair, insurance or self-insurance, return of any
Equipment at the expiration or termination of the Lease and the payment of
all sales and use and property taxes relating to the Financed Items during
the Lease term. The End-User further agrees to indemnify the lessor for any
liabilities arising out of the use or operation of the Financed Items. In
most cases, the lessor is also authorized to perform the
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<PAGE>
End-User's obligations under the Lease at the End-User's expense, if it so
elects, in cases where the End-User has failed to perform. In addition, the
Leases generally contain "HELL OR HIGH WATER" clauses unconditionally
obligating the End-User to make periodic payments, without setoff, at the
times and in the amounts specified in the Lease. If the Seller is the
lessor, the Lease contains no express or implied warranties with respect to
the Financed Items other than a warranty of quiet enjoyment. If a Vendor is
the lessor, the Lease or a related agreement may contain certain
representations and warranties with respect to the Financed Items in addition
to a warranty of quiet enjoyment; however, the End-User agrees not to assert
any warranty claims against any assignee of the Vendor (which would include
the Seller) by way of setoff, counterclaim or otherwise, and further agrees
that it may only bring such claims against the Vendor. All Leases of
Equipment 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." However,
"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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<PAGE>
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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<PAGE>
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 % of the ADCB of the Contract Pool
will consist of Software transactions.
VENDOR LOANS
The Contracts may include limited recourse loan or repayment obligations
(which may take the form of promissory notes with related security
agreements) ("VENDOR LOANS") each of which is payable by a Vendor and secured
by all of the Vendor's interest in an individual End-User Contract originated
by such Vendor and by the Equipment related to such End-User Contract.
Vendor Loans may be originated through, and incorporate terms and
conditions of, a Program Agreement (including a Program Agreement under which
End-User Contracts also are or may be originated by the Seller directly, or
purchased by the Seller from the Vendor, in separate transactions not giving
rise to Vendor Loans). Vendor Loans generally are non-recourse to the
Vendor, I.E., the 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 provides 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, either by specifying that the assignment of the End-User
Contract from the Vendor to the Seller is with full recourse against the Vendor,
by specifying that the Vendor will absorb a limited fixed dollar or percentage
amount of "FIRST LOSSES" on the Contract, or by inclusion of the End-User
Contract in an "ULTIMATE NET LOSS POOL" ("UNL POOL") created under the Program
Agreement 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. 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 either (i) a collateral assignment of the related
Equipment (or security interest therein) from the Vendor, which collateral
assignment secures the End-User's obligations under the End-User Contract or
(ii) in the case of Leases, title to the Equipment. The Seller also may
receive, from a Vendor with respect to Software, a full assignment of leases,
installment payment agreements, installment payment supplements to license
agreements, and other types of financing agreements used in financing
Software license payments and related support and consulting services. Such
assignments may include an assignment of the Software Vendor's or licensor's
right, or the agreement of the Vendor or licensor (at the Seller's
instructions), to terminate the software license covered by the End-User
Contract and suspend related support in the event of an End-User default
under the End-User Contract. In some cases, the Software Vendor also agrees
not to relicense the same or similar software to a defaulted End-User for
some period of time (E.G., one year) unless the End-User cures its default.
It is also expected that some portion of the End-User Contracts included
in the Contract Pool, especially in the case of CSAs, will consist of End-User
Contracts originated by Vendors and assigned to the Seller pursuant to Vendor
Assignments, each of which relates to an individual End-User Contract, rather
than pursuant to a Program Agreement. Each Vendor Assignment will either be
made with or without recourse against the Vendor for End-User defaults and will
generally contain many, if not all, of the representations, warranties and
covenants typically contained in Program Agreements, as well as a Vendor
repurchase requirement in the event of a breach by the Vendor of such
representations, warranties or covenants. Vendor Assignments may or may not
provide for any Vendor remarketing support in the event of an End-User default.
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
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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" 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 __% 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 Pooling 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. 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 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.
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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 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 15% of the ADCB of the Contracts as of the 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, Class A-2 Notes, Class B Notes and Class C
Notes which would be outstanding on the Distribution Dates set forth below
assuming a conditional payment rate (a "Conditional Payment Rate" or "CPR") of
0.00%, 5.00%, 10.0% 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 Contact will be either paid as scheduled or prepaid in full.
The amounts set forth below are based upon the timely receipt of scheduled
monthly Contract payments as of the Cutoff Date, assumes that the Trust
Depositor does not exercise its option to cause a redemption of the Notes in
connection with the Cleanup Call Conditon, and assumes the Closing Date is
_______________________, 1997.
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PERCENTAGE OF THE INITIAL CLASS A-1, CLASS A-2 PRINCIPAL AMOUNT,
INITIAL CLASS B PRINCIPAL AMOUNT,
AND INITIAL CLASS C PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
0.00% CPR 5.00% CPR
Issuance Class Class Class Class Class Class Class Class
Date A-1 A-2 B C A-1 A-2 B C
10.0% CPR 15.0% CPR
Issuance Class Class Class Class Class Class Class Class
Date A-1 A-2 B C A-1 A-2 B C
WEIGHTED AVERAGE LIFE (YEARS)
If the Trust Depositor exercises its option to cause a redemption of
the Notes in connection with the Cleanup Call Condition, the average
life of the Class A -1 Notes would be ____ years and ____ years, the
average life of the Class A-2 Notes would be ___ years and ___ years,
the average life of the Class B Notes would be ____ years and ____
years, and the average life of the Class C Notes would be ____ years
and ____ years for the % CPR and % CPR scenarios, respectively.
The weighted average life of a Class A-1 Note, a Class A-2 Note, a Class
B Note or a Class C Note is determined by (a) multiplying the amount of
cash distributions in reduction of the outstanding Class A-1 Principal
Amount, outstanding Class A-2 Principal Amount, outstanding Class B
Principal Amount or outstanding Class C Principal Amount, as the case
may be, 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 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. The company'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 Bank One
Tower, 111 Monument Circle, Suite 2700, Indianapolis, Indiana 46204 and its
telephone number is (317) 767-0077. At September 30, 1997, Newcourt USA had
__ full-time employees and serviced approximately ____ accounts, including
approximately $____ in owned and managed assets. 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 $__________, Newcourt is one of
North America's leading non-bank financial institutions.
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, 1996, Newcourt had total assets of $______ compared with
$______ as of June 30, 1996, total liabilities of $______ compared with
$________ as of June 30, 1996, shareholder's equity of $______ compared with
$_______ as of June 30, 1996 and total revenues and net income of $________
and $________, respectively, for the period ended June 30, 1997, compared
with $_______ and $________, respectively, for the period ended June 30,
1996. For the fiscal year ended December 31, 1997, Newcourt had total assets
of $_________ compared with $_________ as of December 31, 1996, total
liabilities of $_________ compared with $_________ as of December 31, 1996,
shareholder's equity of $_________ compared with $_________ as of
December 31, 1996 and total revenues and net income of $_________ and
$_________, respectively, for the fiscal year ended December 31, 1997 compared
with $_________ and $_________, respectively, for the fiscal year ended
December 31, 1996.
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 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.
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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.
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 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 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 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
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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 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 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 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 Contacts-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 seucrities 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 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.
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DESCRIPTION OF THE NOTES
The statements under this caption are summaries, do not purport to be
complete and are subject to and qualified in their entirety by reference to the
Sale and Servicing Agreement and the Indenture ( the "OPERATIVE DOCUMENTS").
Copies of the Sale and Servicing Agreement and the Indenture have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
GENERAL
The Notes will consist of four Classes, the Class A-1 Notes, the Class A-2
Notes, the Class B Notes and the Class C Notes. The Notes will be issued
pursuant to the Indenture between the Trust and the Indenture Trustee. 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, Class A-2 Notes, Class B Notes and Class C Notes will
initially be represented by one or more certificates registered in the name of
the nominee of DTC (together with any successor 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 Maturity Date for the Notes. Interest will accrue at the
applicable Class A-1 Interest Rate, Class A-2 Interest Rate, Class B Interest
Rate or Class C Interest Rate, for the period from and including the most recent
Distribution Date on which interest has been paid (or, in the case of the
initial Distribution Date, from and including the Closing Date) to but excluding
the following Distribution Date (each period for which interest accrues on the
Notes, an "ACCRUAL PERIOD") on the outstanding principal amount of such Notes as
of the first day of such Accrual Period.
Interest on the Class A-1 Notes is payable on a Distribution Date from
Available Amounts on such date (and after application of such Available Amounts
to repay any outstanding Servicer Advances and to pay the Servicing Fee)
subject to the limitation described in the next 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 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; provided, however, after the
occurrence of an Event of Default, or after the occurrence of, and during the
continuance of a Restricting Event, interest on the Class A-2 Notes will be paid
pro rata with the Class A-1 Notes.
Interest on the Class B Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes and Class A-2 Notes.
Interest on the Class C Notes is payable on a Distribution Date from
Available Amounts on such date, but after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes, the Class A-2 and the Class B Notes.
PRINCIPAL
The stated maturity of the Class A-1 Notes is the Distribution
Date (the "Class A-1 Maturity Date"). The Class A-2 Notes, the Class B Notes
and the Class C Notes will have a stated maturity of , 200 (the
"MATURITY DATE").
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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 B Notes will be payable on each Distribution
Date in an amount equal to the Class B Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor,
but after payment from such Available Amounts of unpaid Servicer Advances,
the Servicing Fee, interest payments on the Notes and the Subordinated Notes,
and the payment of the Class A-1 Principal Payment Amount and the Class A-2
Principal Payment Amount. See "--ALLOCATIONS" herein.
Principal of the Class C Notes will be payable on each Distribution Date
in an amount equal to the Class C Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and the Subordinated Notes, and
the payment of the Class A -1 Principal Payment Amount, the Class A-2
Principal Payment Amount, and the Class B Principal Payment Amount. See
"--ALLOCATIONS" herein.
The Notes will mature and be due and payable on their respective
Maturity Dates. Prior thereto, amounts to be applied in reduction of the
outstanding Principal Amount of any Note, including the payment of the Class
A-1 Principal Payment Amount, Class A-2 Principal Payment Amount, Class B
Principal Payment Amount or Class C Principal Payment Amount payable on any
Distribution Date, will not be due and payable, although the failure of the
Trust Depositor or Servicer to remit any Available Amounts (including
Available Amounts to be used to make a Class A-1 Principal Payment Amount, a
Class A-2 Principal Payment Amount, a Class B Principal Payment Amount or a
Class C Principal Payment Amount) will, after the applicable grace period,
constitute an Event of Default under the Indenture. See "--EVENTS OF DEFAULT".
As used herein, the following terms shall have the following meanings:
The "ADCB" or "AGGREGATE DISCOUNTED CONTRACT BALANCE" with
respect to the Contracts means the sum of the Discounted Contract
Balances of each Contract included in the group of Contracts for which
an ADCB determination is being made.
"AGGREGATE PRINCIPAL AMOUNT" means, for any group of Notes at
any date of determination, the sum of the Principal Amounts of such
Notes at such date.
"APPLICABLE CLASS PERCENTAGE" means (a) prior to the occurrence
of an Event of Default, or prior to the occurrence and during the
continuance of a Restricting Event, for any outstanding Class of
Notes for which a determination of Applicable Class Percentage is
required to be made hereunder (i) prior to the payment in full of the
Class A-1 Notes, 0%; and (ii) thereafter, the ratio (expressed as a
percentage) that the Initial Principal Amount of such Class of Notes
or Subordinated Notes bears to the sum of the Initial Principal Amount
of all Classes of Notes and Subordinated Notes (other than the Class
A-1 Notes); and (b) following the occurrence of an Event of Default,
or following the occurrence and during the continuance of a
Restricting Event (i) for the Class A-2 Notes, 0% until all
outstanding principal of the Class A-1 Notes has been paid in full,
then 100% until all outstanding principal of the Class A-2 Notes has
been paid in full and thereafter 0%; (ii) for the Class B Notes, 0%
until all outstanding principal of the Class A-1 Notes and Class A-2
Notes has been paid in full, then 100% until all outstanding
principal of the Class B Notes has been paid in full, and thereafter
0%; (iii) for the Class C Notes, 0% until all outstanding principal
of the Class A-1 Notes, Class A-2 Notes and Class B Notes has been
paid in full, then 100% until all outstanding principal of the Class C
Notes has been paid in full, and thereafter 0%; and (iv) for the
Class D Notes, 0% until all outstanding principal of the Class A-1
Notes, Class A-2 Notes, Class B Notes and Class C Notes has been paid
in full, then 100% until all outstanding principal of the Class D
Notes has been paid in full, and thereafter 0%.
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"CLASS A-1 PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class A-1 Notes the lesser of (i) the
outstanding Principal Amount of the Class A-1 Notes, and (ii) the sum
of (A) the excess of (x) the ADCB for all Contracts held by the Trust
as of the last day of the second Collection Period preceding such
Distribution Date (or, in the case of Contracts that were first added
to the Contract pool during the Collection Period immediately
preceding such Distribution Date, as of the applicable Cutoff Date for
such Contracts) over (y) the ADCB for all Contracts held by the Trust
as of the last day of the Collection Period immediately preceding such
Distribution Date (such amount described in this clause (A) being,
the "EXPECTED CLASS A-1 PAYMENT"), plus (B) the aggregate amount of
Expected Class A-1 Payments which were not paid on each preceding
Distribution Date.
"CLASS A-2 PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class A-2 Notes, the lesser of (i) the
outstanding Principal Amount of the Class A-2 Notes, and (ii) the
difference between (A) the Principal Amount of the Class A-2 Notes
immediately prior to such Distribution Date, and (B) the product of
(x) the Applicable Class Percentage for such Notes and (y) the ADCB
for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS B PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class B Notes, the lesser of (i) the
outstanding Principal Amount of the Class B Notes, and (ii) the
difference between (A) the Principal Amount of the Class B Notes
immediately prior to such Distribution Date, and (B) the product of
(x) the Applicable Class Percentage for such Notes and (y) the ADCB
for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS C PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class C Notes, the lesser of (i) the outstanding
Principal Amount of the Class C Notes, and (ii) the difference between
(A) the Principal Amount of the Class C Notes immediately prior to
such Distribution Date, and (B) the product of (x) the Applicable
Class Percentage for such Notes and (y) the ADCB for all Contracts
held by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date.
"CLASS D PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class D Notes, the lesser of (i) the outstanding
Principal Amount of the Class D Notes, and (ii) the difference between
(A) the Principal Amount of the Class D Notes immediately prior to
such Distribution Date, and (B) the product of (x) the Applicable
Class Percentage for such Notes and (y) the ADCB for all Contracts
held by the Trust as of the last day of the Collection Period
immediately preceding such Distribution Date.
"DISCOUNTED CONTRACT BALANCE" means with respect to any Contract,
(A) as of the related Cutoff Date, the present value of all of the
remaining Scheduled Payments becoming due under such Contract after the
applicable Cutoff Date discounted monthly at the Discount Rate and
(B) as of any other date of determination, the sum of (1) the present
value of all of the remaining Scheduled Payments becoming due under such
Contract 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.
"DISCOUNT RATE" means, % which is equal to the sum of (i)
the weighted average of the Class A-2 Interest Rate (weighted at the
sum of the Initial Class A-1 Note Principal Balance and the Initial
Class
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A-2 Note Principal Balance), the Class B Interest Rate, the
Class C Interest Rate, and the Subordinated Note Interest Rate, and
(ii) the Servicing Fee Percentage.
"PRINCIPAL AMOUNT" of a Class of Notes or Subordinated Notes
means the aggregate initial principal amount thereof reduced by
(i) the aggregate amount of any Distributions applied in reduction
of such principal amount and (ii) the aggregate amount of any
Distributions then on deposit in the note or certificate payment
account, if any, for such Class of Notes or Subordinated Notes
established in accordance with the Indenture or the Sale and Servicing
Agreement and to be applied in reduction of such principal amount in
accordance therewith.
"SCHEDULED PAYMENTS" means, with respect to any Contract, the
monthly or quarterly or semi-annual or annual rent or financing
(whether principal or principal and interest) payment scheduled to be
made by the related Obligor under the terms of such Contract after the
related Cutoff Date (it being understood that Scheduled Payments do
not include any Excluded Amounts).
ALLOCATIONS
PRIOR TO AN EVENT OF DEFAULT OR RESTRICTING EVENT. On the third Business
Day prior to each Distribution Date (each, a "DETERMINATION DATE"), prior to the
occurrence of an Event of Default or the occurrence and continuance of a
Restricting Event, the Servicer shall instruct the Indenture Trustee to
withdraw, and on the succeeding Distribution Date the Indenture Trustee acting
in accordance with such instructions shall withdraw, the amounts required to be
withdrawn from the Collection Account in order to make the following payments or
allocations from the Available Amounts for the related Distribution Date (in
each case, such payment or transfer to be made only to the extent funds remain
available therefor after all prior payments and transfers for such Distribution
Date have been made), in the following order of priority:
(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 B
Notes, an amount equal to the interest accrued thereon for
the Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made;
(F) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to interest accrued thereon for the
Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made;
(G) pay to the holders of the Subordinated Notes an amount equal
to interest accrued in respect of the Subordinated Notes
Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect of
prior Accrual Periods for which no allocation was previously
made;
(H) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, the lesser of (i) the Class A-1 Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class A-1 Notes;
PROVIDED, if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay the Class A-1
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Principal Payment Amount in full, then such excess shall be
applied in repayment of principal on the Class A-2 Notes;
(I) pay to the Indenture Trustee, on behalf of the Class A-2
Notes, the lesser of (i) the Class A-2 Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class A-2 Notes;
PROVIDED, 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 B Notes;
(J) pay to the Indenture Trustee, on behalf of the holders of
the Class B Notes, the lesser of (i) the Class B Principal
Payment Amount for such Distribution Date, and (ii) the
remaining outstanding Principal Amount of the Class B Notes;
PROVIDED, 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;
(K) pay to the Indenture Trustee, on behalf of the holders of
the Class C Notes, the lesser of (i) the Class C Principal
Payment Amount for such Distribution Date, and (ii) the
remaining outstanding Principal Amount of the Class C Notes;
PROVIDED, 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;
(L) pay to the holders of the Subordinated Notes the lesser of
(i) the Class D Principal Payment Amount for such
Distribution Date and (ii) the remaining outstanding
Principal Amount of the Subordinated Notes; PROVIDED, 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;
(M) 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
(N) any excess shall be paid to the holder of the Certificates.
As used herein,"AVAILABLE AMOUNTS" means as of any Distribution Date, the
sum of (i) all amounts on deposit in the Collection Account as of the
immediately preceding Determination Date on account of Scheduled Payments
inclusive of such payments received through Vendor recourse or support and
agreements, but excluding the Excluded Amounts due on or before, as well as
Prepayments received on or before, the last day of the Collection Period
immediately preceding such Distribution Date (other than Excluded Amounts);
(ii) Recoveries on account of previously Defaulted Contracts received as of
the immediately preceding Determination Date; (iii) such amounts as from time
to time may be held in the Collection Account, together with earnings on funds
therein, (iv) the rights of the Trust Depositor under the Transfer and Sale
Agreement, (v) any late charges relating to a Contract provided such late
charges were included in the Contract's terms as of the Cutoff Date ("LATE
CHARGES") (vi) any amounts received with respect to the Guaranteed Residuals,
and (vi) proceeds of any of the foregoing.
Pursuant to the Indenture, the Indenture Trustee will distribute
amounts received from the Indenture Trustee in accordance with the foregoing to
the Class A-1 Noteholders, Class A-2 Noteholders, Class B Noteholders, Class C
Noteholders and the holders of the Subordinated Notes represented thereby PRO
RATA in accordance with the respective amounts owed thereto.
FOLLOWING AN EVENT OF DEFAULT OR RESTRICTING EVENT. On each Determination
Date after the occurrence of an Event of Default, or after the occurrence of,
and during the continuance of, a Restricting Event, the Servicer shall instruct
the Indenture Trustee to withdraw, and on the succeeding Distribution Date the
Indenture Trustee acting in accordance with such instructions shall withdraw,
the amounts required to be withdrawn from the Collection Account in order to
make the following payments or allocations from the Available Amounts for the
related Distribution Date (in each case, such payment or transfer to be made
only to the extent funds remain available therefor after all prior payments and
transfers for such Distribution Date have been made), in the following order of
priority:
(A) pay to the Indenture Trustee, the amount of any unpaid fees,
expenses, late charges or other losses;
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(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 and the Class A-2 Notes, an amount equal to interest
accrued in respect of such Class A-1 Notes and the Class A-2
Notes for the Accrual Period immediately preceding such
Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which no
allocation was previously made; PROVIDED, that if the
Available Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so paid,
such remaining Available Amounts shall be allocated to each
Class A-1 Note and the Class A-2 Note PRO RATA based on the
outstanding principal amount thereof;
(E) pay to the Indenture Trustee, on behalf of the Class B
Notes, an amount equal to the interest accrued thereon for
the Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made; PROVIDED, that if the Available Amount s
remaining to be allocated pursuant to this clause is less
than the full amount required to be so paid, such remaining
Available Amounts shall be allocated to each Class B Note
PRO RATA based on the outstanding principal amount thereof;
(F) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to interest accrued in respect of the
Class C Notes for the Accrual Period immediately preceding
such Distribution Date, together with any such amounts that
accrued in respect of prior Accrual Periods for which no
allocation was previously made; PROVIDED, that if the
Available Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so paid,
such remaining Available Amounts shall be allocated to each
Class C Note PRO RATA based on the outstanding principal
amount thereof;
(G) pay to the Indenture Trustee, on behalf of the Subordinated
Notes, an amount equal to interest accrued in respect of the
Subordinated Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods for
which no allocation was previously made; PROVIDED, that if
the Available Amounts remaining to be allocated pursuant to
this clause is less than the full amount required to be so
paid, such remaining Available Amounts shall be allocated
to each Subordinated Note PRO RATA based on the outstanding
principal amount thereof;
(H) pay to the Indenture Trustee, on behalf of the Class A-1
Notes the Class A-1 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so allocated, such
remaining Available Amounts shall be allocated to each Class
A-1 Note pro rata based on the outstanding principal amount
thereof, and (ii) if the amount to be allocated pursuant to
this clause exceeds the amount needed to repay the
outstanding Class A-1 Note principal in full, then such
excess shall be applied in repayment of principal on the
Class A-2 Notes;
(I) pay to the Indenture Trustee, on behalf of the Class A-2
Notes the Class A-2 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause is
less than the full amount required to be so allocated, such
remaining Available Amounts shall be allocated to the Class
A-2 Note, respectively pro rata based on the outstanding
principal amount thereof, and (ii) if the amount to be
allocated pursuant to this clause exceeds the amount needed
to repay the outstanding Class A-2 Note principal in full,
then such excess shall be applied in repayment of principal
on the Class B Notes;
(J) pay to the Indenture Trustee, on behalf of the holders of the
Class B Notes, the lesser of (i) the Class B Principal Payment
Amount for such Distribution Date, and (ii) the remaining
outstanding Principal Amount of the Class B Notes; PROVIDED
(i) that if the Available Amounts remaining to be allocated
pursuant to this clause is less than the full amount required
to be so paid, such remaining Available Amounts shall be
allocated to each Class B Note PRO RATA based on the
outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount
needed to repay outstanding Class B Note principal in full,
then such excess shall be applied in repayment of principal
on the Class C Notes;
(K) pay to the Indenture Trustee, on behalf of the holders of
the Class C Notes, the lesser of (i) the Class C Principal
Payment Amount for such Distribution Date, and (ii) the
remaining outstanding Principal Amount of the Class C Notes;
PROVIDED (i) that if the
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Available Amounts remaining to be allocated pursuant to this
clause is less than the full amount required to be so paid,
such remaining Available Amounts shall be allocated to each
Class C Note PRO RATA based on the outstanding principal
amount thereof, and (ii) if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
outstanding Class C Note principal in full, then such excess
shall be applied in repayment of principal on the Prior
Certificates; and
(L) pay to the holders of the Subordinated Notes the lesser of
(i) the Class D Principal Payment Amount for such
Distribution Date and (ii) the remaining outstanding
Principal Amount of the Subordinated Notes; PROVIDED
(i) that if the Available Amounts remaining to be allocated
pursuant to this clause is less than the full amount
required to be so paid, such remaining Available Amounts
shall be allocated to each Subordinated Notes PRO RATA based
on the outstanding principal amount thereof, and (ii) if the
amount to be allocated pursuant to this clause exceeds the
amount needed to repay outstanding Subordinated Notes
principal in full, then such excess shall be paid to the
holder of the Certificates.
RESERVE FUND
GENERAL
The Reserve Fund will be an account in the name of the Indenture Trustee
on behalf of the Noteholders and the holders of the Subordinated Notes. The
Reserve Fund will be created with an initial deposit by the Trust Depositor
on the Closing Date of an amount equal to the Reserve Fund Amount.
If the amount on deposit in the Reserve Fund on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Reserve Fund Amount, the Indenture
Trustee will distribute any excess to the holder of the Certificates. Upon any
such distributions to the holder of the Certificates, the Noteholders and the
holders of the Subordinated Notes will have no further rights in, or claims to,
such amounts.
If on any Distribution Date the principal balance of the Subordinated Notes
equals zero and amounts on deposit in the Reserve Fund have been depleted as a
result of losses in respect of the Contracts, the protection afforded to the
Noteholders by the Subordinated Notes and by the Reserve Fund will be exhausted
and the Noteholders will bear directly the risks associated with the ownership
of the Contracts.
None of the Noteholders, the Indenture Trustee, the Owner Trustee, the
Seller nor the Trust Depositor will be required to refund any amounts properly
distributed or paid to them whether or not there are sufficient funds on any
subsequent Distribution Date to make full distributions to the Noteholders.
The Servicer may, from time to time after the date of this Prospectus
request each Rating Agency that rated the Notes to, at the request of the Trust
Depositor, approve a formula for determining the Reserve Fund Amount that is
different from the formula described above and would result in a decrease in the
amount of the Reserve Fund Amount or the manner by which the Reserve Fund is
funded. If each Rating Agency delivers a letter to the Indenture Trustee and
the Owner Trustee to the effect that the use of any such new formulation will
not in and of itself result in a qualification, reduction or withdrawal of its
then-current rating of any Class of Notes then the Reserve Fund Amount will be
determined in accordance with such new formula. The Agreement will accordingly
be amended to reflect such new calculation without the consent of any
Noteholder.
WITHDRAWALS FROM THE RESERVE FUND
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of the Noteholders and the holders of the Subordinated Notes.
On each Distribution Date, funds will be withdrawn from the Reserve Fund to the
extent that Available Amounts with respect to any Distribution Date are less
than the amount necessary to pay interest on the Notes and the Subordinated
Notes; provided, however, upon the occurrence of an Event of Default or upon the
occurrence and continuance of Restricting Event amounts in the Reserve Fund
shall be available to pay the principal on the most senior outstanding Class of
Notes or if no Notes are outstanding the Subordinated Notes; provided further,
in the event the Available Amounts are insufficient to pay outstanding principal
on the Class A-1 Notes on the Class A-1 Maturity Date amounts in the Reserve
Fund may be utilized to make principal payments on the Class A-1 Notes.
Additionally, to the extent monies are present in the Reserve Fund as of the
Maturity Date, to the extent necessary, such monies shall be applied to pay the
principal of the most senior outstanding Class of Notes, or if no Notes are
outstanding, the Subordinated Notes.
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DEFAULTED CONTRACTS
A Contract will automatically be deemed to be in default (a "DEFAULTED
CONTRACT") if (i) it is more than 120 days past due; or (ii) if at any time
the Servicer determines, in accordance with its customary and usual practices,
that such Contract is not collectible (and taking into account any available
Vendor recourse). The current policy of the Servicer with respect to writing
off Contracts is described in "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
The Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained in the name of the Indenture Trustee, with an
office or branch of a depository institution or trust company (which may
include the Indenture Trustee) organized under the laws of the United States
of America or any one of the states thereof and located in the state
designated by the Servicer, a non-interest bearing segregated corporate trust
account (the "COLLECTION ACCOUNT") bearing a designation clearly indicating
that the funds deposited therein are held in trust for the benefit of the
Noteholders; provided, however, that at all times such depository institution
or trust company shall be (a) the corporate trust department of the Indenture
Trustee or, (b) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i)(A) which has either
(1) a long-term unsecured debt rating acceptable to the Rating Agencies or
(2) a short-term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies, (B) the parent corporation of which has
either (1) a long-term unsecured debt rating acceptable to the Rating
Agencies or (2) a short-term unsecured debt rating or certificate of deposit
rating acceptable to the Rating Agencies or (C) is otherwise acceptable to
the Rating Agencies and (ii) whose deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC"; any such depository institution or
trust company, a "QUALIFIED INSTITUTION"). Funds in the Collection Account
generally will be invested in (i) obligations fully guaranteed by the United
States of America, (ii) demand deposits, time deposits or certificates of
deposit of depository institutions or trust companies having commercial paper
with the highest rating from each Rating Agency, (iii) commercial paper (or
other short term obligations) having, at the time of the Trust's investment
therein, the highest rating from each Rating Agency, (iv) demand deposits,
time deposits and certificates of deposit which are fully insured by the
FDIC, (v) notes or bankers' acceptances issued by any depository institution
or trust company described in (ii) above, (vi) money market funds which have
the highest rating from, or have otherwise been approved in writing by, each
Rating Agency, (vii) time deposits with an entity, the commercial paper of
which has the highest rating from the Rating Agency, (viii) eligible
repurchase agreements, and (ix) any other investments approved in writing by
the Rating Agency (collectively, "ELIGIBLE INVESTMENTS"). Such funds may be
invested in debt obligations of 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.
REPLACEMENT ACCOUNTS
If any institution with which any of the accounts established pursuant
to the Sale and Servicing Agreement or the Indenture are established ceases to
be a Qualified Institution, the Servicer or the Owner Trustee (as the case may
be) shall within ten Business Days establish a replacement account at a
Qualified Institution after notice thereof.
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 then outstanding principal amount of
any Note, if any, on its related Maturity Date;
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(b) (i) failure on the part of any Seller to make any
payment or deposit required under the Sale and
Servicing Agreement or Transfer and Sale Agreement
within three Business Days after the date the payment
or deposit is required to be made, or (ii) failure on
the part of any Seller, the Trust Depositor, the Trust
or the Owner Trustee to observe or perform any other
covenants or agreements of such entity set forth in the
Transfer and Sale Agreement, Sale and Servicing
Agreement or the Indenture, which failure has a
material adverse effect on the Noteholders and which
continues unremedied for a period of 60 days after
written notice; PROVIDED, that no such 60-day cure
period shall apply in the case of a failure by the
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;
(c) any representation or warranty made by any Seller, the
Trust Depositor, the Trustee or the Owner Trustee in
the Sale and Servicing Agreement or the Indenture or
any information required to be given by any Seller or
the Trust Depositor to the Indenture Trustee to
identify the Contracts proves to have been incorrect in
any material respect when made and continues to be
incorrect in any material respect for a period of 60
days after written notice and as a result of which the
interests of the Noteholders are materially and
adversely affected; PROVIDED, HOWEVER, that an Event of
Default shall not be deemed to occur thereunder if the
Seller has repurchased the related Contracts through
the Trust Depositor during such period in accordance
with the provisions of the Sale and Servicing Agreement
and the Transfer and Sale Agreement;
(d) the occurrence of an Insolvency Event relating to the
Seller, the Trust Depositor or the Trust; or
(e) the Trust becomes an "INVESTMENT COMPANY" within the
meaning of the Investment Company Act of 1940, as
amended.
In the case of any event described in clause (a), (b), (c), (d), 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.
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-1 Notes and Class A-2 Notes outstanding, Class A-1
Noteholders and Class A-2 Noteholders voting as a single class evidencing more
than 66 2/3% of the Aggregate Principal Amount of the Class A-1 Notes and Class
A-2 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.
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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
the sum of (A) all Contracts which were charged off by the
Servicer as uncollectible in accordance with its usual and
customary practices during the six preceding Collection
Periods (whether or not such Contract was a Defaulted
Contract) and (B) all Contracts under which the related
End-User was the subject of an Insolvency Event during such
six Collection Periods (Contracts which are the subject of an
event described in clauses (A) or (B) being referred to as
"CHARGE-OFFS") and (y) Recoveries received during the
preceding six Collection Periods on account of Charge-Offs,
exceeds 1% of the weighted average ADCB of all Contracts in
the Contract Pool during such six Collection Periods.
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 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
Securities. The redemption price will be equal to the sum of the outstanding
principal amount of the Notes and Subordinated Securities, together with accrued
interest thereon through the date of redemption, and shall be payable to the
holders of the Notes and Subordinated Securities 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
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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 Principal Payment
Amount, Class B Principal Payment Amount, Class C Principal Payment Amount,
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
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.
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Cede, as nominee for DTC, will hold the global Class A-1 Note or Notes,
the global Class A-2 Note or Notes, the global Class B Note or Notes, and the
global Class C Note or Notes. CEDEL and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
Depositaries (as defined 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 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 B NOTEHOLDER" and
"CLASS C NOTEHOLDER" will be Cede, as nominee of DTC, and that holders of
beneficial interests in the Class A-1 Notes, Class A-2 Notes, Class B Notes
or Class C Notes, respectively, under the Indenture will only be permitted to
exercise the rights of Class A-1 Noteholders, Class A-2 Noteholders, Class B
Noteholders or Class C Noteholders, respectively, under the Indenture
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit distributions of principal of and interest
on the Notes. Participants and Indirect Participants with which holders of
beneficial interests in the Notes have accounts similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
these respective holders.
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Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Notes, may be limited due to the lack of a Definitive Note for such Notes.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Class A-1 Noteholder, Class A-2 Noteholder, Class B Noteholder or
Class C Noteholder under the Indenture only at the direction of one or more
Participants to whose account with DTC the Class A-1 Notes, Class A-2 Notes,
Class B Notes or Class C Notes are credited. Additionally, DTC has advised the
Issuer that it may take actions with respect to percentage interests in any
particular Class of the Notes represented by holders of beneficial interests
evidencing that percentage, which actions may conflict with other of its actions
with respect to other percentage interests therein.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations ("CEDEL
PARTICIPANTS") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("EUROCLEAR PARTICIPANTS") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "EUROCLEAR OPERATOR"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "COOPERATIVE"). All operations are conducted by the Euroclear
Operator and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policies for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriter. Indirect access to Euroclear is also available
to other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific 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.
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Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
Except as required by law, none of the Servicer, any Seller, the Owner
Trustee, the Trust Depositor or the Indenture Trustee will have any liability
for any aspect of the records relating to, actions taken or implemented by, or
payments made on account of, beneficial ownership interests in the Notes held
through DTC, or for maintaining, supervising or reviewing any records or actions
relating to such beneficial ownership interests.
DEFINITIVE NOTES
The Notes will be issued in fully registered, authenticated form to
beneficial owners or their nominees (the "DEFINITIVE NOTES"), rather than to DTC
or its nominee, only if (a) the Trust advises the Indenture Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Depository with respect to such Notes, and the Indenture Trustee or the
Issuer is unable to locate a qualified successor or (b) the Issuer at its option
elects to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all beneficial
owners for each Class of Notes held through DTC of the availability of
Definitive Notes for such Class. Upon surrender by DTC of the Definitive Note
representing the Notes and instructions for reregistration, the Indenture
Trustee will issue such Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Noteholders under the
Indenture (the "HOLDERS"). The Indenture Trustee will also notify the Holders
of any adjustment to the Record Date with respect to the Notes necessary to
enable the Indenture Trustee to make distributions to Holders of the Definitive
Notes for such Class of record as of each Distribution Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check, mailed
to the address of such Holder as it appears on the Note register. Upon at least
10 days' notice to Noteholders for such Class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentation and surrender of such Note at the office or agency specified in the
notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and exchangeable at the
offices of the Indenture Trustee or its agent in New York, New York, which the
Indenture Trustee shall designate on or prior to the issuance of any Definitive
Notes with respect to such Class. No service charge will be imposed for any
registration of transfer or exchange, but the Indenture Trustee may require
payment of a sum sufficient to cover any tax or other governmental charge
imposed in connection therewith.
THE SUBORDINATED NOTES
On the Closing Date, the Trust will also issue the % Class D
Receivables-Backed Notes (the "SUBORDINATED NOTES") with an aggregate
principal balance of $ . 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 CERTIFICATES
On the Closing Date, the Trust will also issue the Certificates with an
initial certificate balance of $ (the "CERTIFICATES"). The
Certificates will represent fractional undivided beneficial equity interests in
the Trust, and will be issued pursuant to the Trust Agreement.
The Certificates are not being offered and sold hereunder. The Trust
Depositor is expected initially to retain the Certificates, although the
Certificates could be transferred at some later date in a transaction separate
from this offering provided the Owner Trustee and Indenture Trustee receive an
opinion of Independent Counsel that such transfer will not cause the Trust to
become a taxable entity or otherwise adversely affect the Noteholders or
Certificateholders.
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Distributions with respect to the Certificates will be subordinated to the
rights of the Noteholders and the holders of the Subordinated Notes to the
extent described herein. See "DESCRIPTION OF THE NOTES--ALLOCATIONS" herein.
THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT GENERALLY
The following is a summary of the material terms of the Transfer and
Sale Agreement and the Sale and Servicing Agreement, the forms of which were
filed as exhibits to the Registration Statement of which this Prospectus is a
part, and this summary is qualified in its entirety by reference to the Transfer
and Sale Agreement and Sale and Servicing Agreement, respectively.
TERMINATION OF TRUST
Unless the Trust Depositor instructs the Owner Trustee otherwise, the
Trust will terminate only on the earliest to occur of (i) the day following
the day on which the Aggregate Principal Amount of all Notes and Certificates
is zero (provided, that the Trust Depositor shall have delivered a written
notice to the Owner Trustee electing to terminate the Trust), (ii) ,or
(iii) if the Contracts are sold, disposed of or liquidated following the
occurrence of an Insolvency Event as described under "DESCRIPTION OF THE
NOTES--EVENTS OF DEFAULT", immediately following such sale, disposition or
liquidation (the "TRUST TERMINATION DATE"). Upon termination of the Trust,
all right, title and interest in the Trust Assets (other than amounts in
accounts maintained by the Trust for the final payment of principal and
interest to Noteholders or Certificateholders) will be conveyed and
transferred to the holder of the 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 , 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 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. Prior to the conveyance of any Contracts to the
Trust Depositor, Newcourt USA
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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, 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 Equipment is located in the United
States; (xiii) the Contract does not require the prior written consent of an
Obligor or contain any other restriction on the transfer or assignment of the
Contract (other than a consent or waiver of such restriction that has been
obtained prior to the date of such Contract's conveyance to the Trust); (xiv)
either (A) the obligations of the related Obligor under such Contract are
irrevocable and unconditional and non-cancelable (or, if prepayable by its
terms, such Contract meets the criteria described in clause (xxiv) below or 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 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 date of purchase) plus interest thereon at the Discount Rate through
the Distribution Date following such cancellation less any amounts paid by the
Vendor
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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).
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.
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 Residuals 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
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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
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 % 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 % 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 % 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 % 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 % of the ADCB of the Contract Pool;
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(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 % 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 % 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
"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 Northern District of Illinois, and appellate courts
therefrom and (ii) waives any objection it may have that any action therein was
brought in an inconvenient 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
Certificates 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
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desirable for the benefit of holders of Notes or Certificates with respect to
the Sale and Servicing Agreement and the rights and duties of the parties
thereto and the interest of Noteholders or Certificateholders thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Sale and Servicing Agreement, the Servicer is responsible
for servicing, collecting, enforcing and administering the Contracts in
accordance with its customary and usual procedures for servicing contracts
comparable to the Contracts.
The Servicer pursuant to the Sale and Servicing Agreement also may advance
Scheduled Payments with respect to any Contract (a "SERVICER ADVANCE") which
were due in a Collection Period and were not received and identified to a
Contract by the close of business on the Determination Date, to the extent that
the Servicer, in its sole discretion, expects to recover the Servicer Advance
from subsequent payments on or with respect to the Contract. The Servicer shall
be entitled to reimbursement of Servicer Advances from subsequent payments on or
with respect to the Contract, including collections of any Prepayment Amount,
Transfer Deposit Amount or Recoveries with respect to such Contract, and, if the
Servicer determines that Servicer Advances will not be recovered from the
Contracts to which the Servicer Advances were related, from other Contracts
included in the Trust.
CERTAIN OTHER MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the Sale
and Servicing Agreement, except upon determination that such duties are no
longer permissible under applicable law. No such resignation will become
effective until the Indenture Trustee or a successor to the Servicer has assumed
the Servicer's responsibilities and obligations under the Sale and Servicing
Agreement.
Any person into which, in accordance with the Sale and Servicing Agreement,
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
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(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
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
Certificateholders or the Indenture Trustee on behalf of such
Noteholders of 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 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
(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
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Trustee) (i) to cure any ambiguity or (ii) to add any consistent provisions;
provided, that such action shall not adversely affect the then existing ratings
of the Notes as evidenced in writing by the Rating Agencies.
The Sale and Servicing Agreement may also be amended from time to time by
the Trust Depositor, the Servicer, the Indenture Trustee and the Owner Trustee
with the consent of the Noteholders holding Notes evidencing not less than 66
2/3% of the Principal Amount of the Notes 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 or
Certificate without the consent of each Noteholder or
Certificateholder affected thereby;
(ii) change the definition of (or that of any definition included
within the definition of) or the manner of calculating the
"APPLICABLE CLASS PERCENTAGE", the "CONTROLLING PARTY", the
"CLASS A-1 PRINCIPAL PAYMENT AMOUNT", the "CLASS A-2
PRINCIPAL PAYMENT AMOUNT", the "CLASS B PRINCIPAL PAYMENT
AMOUNT", the "CLASS C PRINCIPAL PAYMENT AMOUNT", the "CLASS
D PRINCIPAL PAYMENT AMOUNT", the "DISCOUNTED CONTRACT
BALANCE", the "PRINCIPAL AMOUNT", or the "AVAILABLE AMOUNT"
without the consent of each Noteholder and
Certificateholder; or
(iii) reduce the aforesaid percentage required to consent to any
such amendment without the consent of each Noteholder or
Certificateholder affected thereby; or
(iv) modify, amend or supplement the provisions of the Sale and
Servicing Agreement relating to the allocation of Available
Amounts (see "DESCRIPTION OF THE NOTES--ALLOCATIONS") without the
consent of each Noteholder and Certificateholder;
(v) make any Note or Certificate payable in money other than Dollars
without the consent of each Noteholder or Certificateholder affected
thereby; or
(v) 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 Certificateholder.
THE OWNER TRUSTEE
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 , Wilmington, Delaware ,
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.
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THE INDENTURE
GENERAL
The Notes will be issued pursuant to an Indenture between the Trust and the
Indenture Trustee. Pursuant to the Sale and Servicing Agreement the Indenture
Trustee will obtain the benefits of the Sale and Servicing Agreement for itself
and the Noteholders represented thereby.
PAYMENTS OF PRINCIPAL AND INTEREST
Pursuant to the Indenture, each payment received by the Indenture
Trustee as described above under "DESCRIPTION OF THE NOTES--ALLOCATIONS; PRIOR
TO AN EVENT OF DEFAULT OR RESTRICTING EVENT" shall be promptly distributed in
the following order of priority:
FIRST, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then due
on or in respect of the Class A-1 Notes shall be distributed to
the Class A-1 Noteholders ratably, without priority of any one
Class A-1 Note over any other Class A-1 Note, in the proportion
that the aggregate amount of all accrued but unpaid interest to
the date of distribution on each Class A-1 Note bears to the
aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class A-1 Notes;
SECOND, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then due
on or in respect of the Class A-2 Notes shall be distributed to
the Class A-2 Noteholders ratably, without priority of any one
Class A-2 Note over any other Class A-2 Note, in the proportion
that the aggregate amount of all accrued but unpaid interest to
the date of distribution on each Class A-2 Note bears to the
aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class A-2 Notes;
THIRD, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then due
on or in respect of the Class B Notes shall be distributed to the
Class B Noteholders ratably, without priority of any one Class B
Note over any other Class B Note, in the proportion that the
aggregate amount of all accrued but unpaid interest to the date
of distribution on each Class B Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class B Notes;
FOURTH, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then due
on or in respect of the Class C Notes shall be distributed to the
Class C Noteholders ratably, without priority of any one Class C
Note over any other Class C Note, in the proportion that the
aggregate amount of all accrued but unpaid interest to the date
of distribution on each Class C Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class C Notes;
FIFTH, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest then due
on or in respect of the Subordinated Notes shall be distributed
to the Subordinated Noteholders ratably, without priority of any
one Subordinated Note over any other Subordinated Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Subordinated Note
bears to the aggregate amount of all accrued but unpaid interest
to the date of distribution on all Subordinated Notes;
SIXTH, the balance, if any, of such installment or payment remaining
thereafter shall be distributed ratably to the Class A-1
Noteholders to pay in full the aggregate amount of the Class A-1
Principal Payment then due pursuant to or in respect of the Class
A-1 Notes, without priority of any one Class A-1 Note over any
other Class A-1 Note, in the proportion that the aggregate unpaid
principal amount of each Class A-1 Note bears to the aggregate
unpaid principal amount of all Class A-1 Notes;
SEVENTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class A-2
Noteholders to pay in full the aggregate amount of the Class A-2
Principal Payment then due pursuant to or in respect of the Class
A-2 Notes, without priority of any one Class A-2 Note over any
other Class A-2 Note, in the proportion that the aggregate unpaid
principal amount of each Class A-2 Note bears to the aggregate
unpaid principal amount of all Class A-2 Notes;
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EIGHTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class B
Noteholders to pay in full the aggregate amount of the Class B
Principal Payment then due pursuant to or in respect of the Class
B Notes, without priority of any one Class B Note over any other
Class B Note, in the proportion that the aggregate unpaid
principal amount of each Class B Note bears to the aggregate
unpaid principal amount of all Class B Notes; and
NINTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class C
Noteholders to pay in full the aggregate amount of the Class C
Principal Payment then due pursuant to or in respect of the Class
C Notes, without priority of any one Class C Note over any other
Class C Note, in the proportion that the aggregate unpaid
principal amount of each Class C Note bears to the aggregate
unpaid principal amount of all Class C Notes.
TENTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the
Subordinated Noteholders to pay in full the aggregate amount of
the Subordinated Principal Payment then due pursuant to or in
respect of the Subordinated Notes, without priority of any one
Subordinated Note over any other Subordinated Note, in the
proportion that the aggregate unpaid principal amount of each
Subordinated Note bears to the aggregate unpaid principal amount
of all Subordinated Notes.
Pursuant to the Indenture, each payment received by the Indenture Trustee
as described above under "DESCRIPTION OF THE NOTES--ALLOCATIONS; FOLLOWING AN
EVENT OF DEFAULT OR RESTRICTING EVENT" shall be promptly distributed in the
following order of priority:
FIRST, so much of such payment as shall be required to reimburse
the Indenture Trustee for any tax, expense, charge or other loss
incurred by the Indenture Trustee (to the extent not previously
reimbursed), (including, without limitation, the expense of sale,
taking or other proceeding, attorneys' fees and expenses, court
costs, and any other expenditures incurred or expenditures or
advances made by the Indenture Trustee in the protection,
exercise or enforcement of any right, power or remedy or any
damages sustained by the Indenture Trustee, liquidated or
otherwise, upon the Indenture Event of Default giving rise to
such expenditures or advances) shall be applied by the Indenture
Trustee in reimbursement of such expenses;
SECOND, so much of such payment remaining as shall be required to
reimburse the Noteholders in full for certain indemnity payments,
if any, made by such Noteholders to the Indenture Trustee (to the
extent not previously reimbursed) shall be distributed to the
Noteholders, and, if the aggregate amount remaining shall be
insufficient to reimburse all such payments in full, it shall be
distributed ratably, without priority of any Noteholder over any
other, in the proportion that the aggregate amount of such
unreimbursed indemnity payments made by each such Noteholder
bears to the aggregate amount of such unreimbursed indemnity
payments made by all Noteholders;
THIRD, so much of such payment remaining as shall be required to
pay in full the aggregate amount of all accrued but unpaid interest
to the date of distribution on the Class A-1 Notes and the Class
A-2 Notes shall be distributed to the Class A-1 Noteholders and the
Class A-2 Noteholders, and, if the aggregate amount remaining shall
be insufficient to pay all such amounts in full, it shall be
distributed ratably, without priority of any one Class A-1 Note and
one Class A-2 Note over any other Class A-1 Note or over any other
Class A-2 Note, in the proportion that the aggregate amount of all
accrued but unpaid interest to the date of distribution on each
Class A-1 Note or Class A-2 Note bears to the aggregate amount of
all accrued but unpaid interest to the date of distribution on all
Class A-1 Notes and Class A-2 Notes;
FOURTH, so much of such payment remaining as shall be required to
pay in full the aggregate amount of all accrued but unpaid
interest to the date of distribution on the Class B Notes shall
be distributed to the Class B Noteholders, and, if the aggregate
amount remaining shall be insufficient to pay all such amounts in
full, it shall be distributed ratably, without priority of any
one Class B Note over any other Class B Note, in the proportion
that the aggregate amount of all accrued but unpaid interest to
the date of distribution on each Class B Note bears to the
aggregate amount of all accrued but unpaid interest to the date
of distribution on all Class B Notes;
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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 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;
TENTH, the balance, if any, of such payment remaining thereafter
shall be distributed ratably to the Class C Noteholders to pay in
full the aggregate amount of principal of the Class C Notes,
then due pursuant to or in respect of the Class C Notes, and if
the aggregate amount remaining shall be insufficient to pay all
such amounts in full, it shall be distributed ratably, without
priority of any one Class C Note over any other Class C Note, in
the proportion that the aggregate unpaid principal amount of each
Class C Note bears to the aggregate unpaid principal amount of
all Class C Notes; and
ELEVENTH, the balance, if any, of such payment remaining
thereafter shall be distributed ratably to the Subordinated
Noteholders to pay in full the aggregate amount of principal of
the Subordinated Notes, then due pursuant to or in respect of
the Subordinated Notes, and if the aggregate amount remaining
shall be insufficient to pay all such amounts in full, it shall
be distributed ratably, without priority of any one Subordinated
Note over any other Subordinated Note, in the proportion that the
aggregate unpaid principal amount of each Subordinated Note bears
to the aggregate unpaid principal amount of all Subordinated
Notes.
EVENTS OF DEFAULT AND RESTRICTING EVENTS; REMEDIES
If an Event of Default referred to in subparagraphs (d) or (e) (see
"DESCRIPTION OF THE NOTES--EVENTS OF DEFAULT") has occurred, then and in every
such case the unpaid principal of the Notes, together with interest accrued but
unpaid thereon, and all other amounts due to the Noteholders under the
Indenture, shall immediately and without further act become due and payable.
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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 .
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.
GOVERNING LAW
The Indenture will be governed by the laws of the State of New York.
AMENDMENTS
At any time and from time to time, (i) the Owner Trustee, the Trust
Depositor, and the Indenture Trustee, with the written consent of a Majority
in Interest (as defined in the Indenture) of the Noteholders represented
thereby, may execute a supplement to the Indenture for the purpose of adding
provisions to, or changing or eliminating provisions of, the Indenture
(including any appendix or schedule hereto) and (ii) the Indenture Trustee,
with the written consent of a Majority in Interest of the Noteholders
represented thereby, may consent to or execute a written amendment of or
supplement to, or waiver or consent under, the Sale and Servicing Agreement;
PROVIDED, HOWEVER, that, without the consent of each Noteholder under the
Indenture, no such amendment, supplement, waiver or consent shall
(i) reduce the amount or extend the time of payment of any
amount owing or payable under any Note or (except as provided in
the Indenture) increase or reduce the interest payable on any
Note (except that only the consent of the affected Noteholder
shall be required for any decrease in an amount of or the rate of
interest payable on such Note or any extension for the time of
payment of any amount payable under such Note), or alter or
modify the provisions of the Sale and Servicing Agreement with
respect to the order of priorities in which distributions
thereunder shall be made or with respect to the amount or time of
payment of any such distribution,
(ii) reduce, modify or amend any indemnities in favor
of any Noteholder or in favor of or to be paid by the Trust
Depositor, or alter the definition of "INDEMNITEES" to exclude
any Noteholder (except as consented to by each Person adversely
affected thereby),
(iii) make any Note payable in money other than U.S.
dollars,
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(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 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,
mitigate this risk.
Similarly, with respect to Secondary Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing such
Vendor Loan. Although UCC financing statements are filed reflecting the pledge
of such Contracts to the 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
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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 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
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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 % 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 transportation equipment, including
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 perfeted 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. 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 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 the Vehicles,
does not exceed % 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 Trust 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
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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.
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
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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.
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".
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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 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, in any case, 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.
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.
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Certain states have adopted a version of Article 2A of the UCC ("ARTICLE
2A"), which purports to codify many provisions of existing common law.
Although there is little precedent regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"UNCONSCIONABLE" lease or "UNCONSCIONABLE" provision in a lease, provide a
lessee with remedies, including the right to cancel the lease contract, for
certain lessor breaches or defaults, and may add to or modify the terms of
"CONSUMER LEASES" and leases where the lessee is a "MERCHANT LESSEE".
However, in the Transfer and Sale Agreement, the 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
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contemplated actions, and (ii) is directly relevant to the determination of
an entry on a tax return. Accordingly, taxpayers should consult their own
tax advisors and tax return preparers regarding the preparation of any item
on a tax return, even where the anticipated tax treatment has been discussed
herein. PROSPECTIVE INVESTORS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS AS
TO THE FEDERAL, STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF NOTES.
OPINION
In the opinion of Tax Counsel, for federal income tax purposes, although
no transaction closely comparable to that contemplated herein has been the
subject of any Treasury Regulation, revenue ruling, or judicial decision,
based on the application of existing law to the facts as set forth in the
applicable agreements, (i) the Trust will not be treated as an association
(or publicly traded partnership) taxable as a corporation and (ii) the Notes
will be treated as indebtedness for federal income tax purposes. Such
opinion assumes that the Servicer, the Trust Depositor, the Certificateholder
and all the Noteholders will consistently treat the Notes for all tax
purposes as indebtedness secured by the assets of the Trust and that the
Certificateholder will not elect for the Trust to be classified as an
association for federal income tax purposes pursuant to Treasury Regulations
Section 301.7701-3. 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 at the time the Notes are
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issued. The Trust believes that such likelihood is remote because of the
Default Rate of interest which would become applicable to late payments of
stated interest. Accordingly, the Trust intends to take the position that
the Notes will not be issued with OID. However, the definition of the term
"REMOTE" in the regulations has not yet been addressed in any rulings or
other interpretations by the Service, and it is possible that the Service
could assert that the notes were issued with OID. In such case, the stated
interest on the Notes would not be qualified stated interest and the Notes
would be considered to have been issued with OID.
If the Notes are in fact issued with a greater than DE MINIMIS amount of
OID or are otherwise treated as having been issued with OID, the following
rules should apply. The excess of the "STATED REDEMPTION PRICE AT MATURITY"
of a Note (generally equal to its principal amount as of the date of issuance
plus all interest other than "QUALIFIED STATED INTEREST" payable prior to or
at maturity) over the original issue price (in this case, the initial
offering price at which a substantial amount of the Notes are sold to the
public) will constitute OID. A Noteholder must include OID in income as
interest over the term of the Note under a constant yield method. OID must
be included in income in advance of the receipt of cash representing that
income. In general, the amount of OID included in income is the sum of the
"DAILY PORTIONS" of the OID with respect to the Note for each day during the
taxable year the Noteholder held the Note. The daily portion generally is
determined by allocating to each day in an accrual period a ratable portion
of the OID allocable to such accrual period. The 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.
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Limitations imposed by the Code, which are intended to match deductions
with the taxation of income, may defer deductions for interest on
indebtedness incurred or continued, or short-sale expenses incurred, to
purchase or carry a Note with accrued market discount. A Noteholder who
elects to include market discount in gross income as it accrues, however, is
exempt from this rule.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a DE MINIMIS amount, which is .25%
of the remaining principal balance of the Note multiplied by its expected
weighted average remaining life. If market discount is DE MINIMIS, the
actual amount of discount must be allocated to the remaining principal
distributions on the Note, and when such distribution is received, capital
gain will be recognized equal to discount allocated to such distribution.
AMORTIZABLE BOND PREMIUM
In general, if a subsequent purchaser acquires a Note at a premium
(I.E., an amount in excess of the amount payable upon the maturity thereof),
such Noteholder will be considered to have purchased the Note with
"AMORTIZABLE BOND PREMIUM" equal to the amount of such excess. A Noteholder
may elect to deduct the amortizable bond premium as it accrues under a
constant yield method over the remaining term of the Note. Under proposed
regulations, if finalized, accrued amortized bond premium may only be used as
an offset against qualified stated interest income when such income is
included in the holder's gross income under the holder's normal accounting
system.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT
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
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<PAGE>
(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 or
the income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States fiduciaries have the authority to
control all substantial decisions of the trust.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business
within the United States by the Foreign Person, will generally be
considered "PORTFOLIO INTEREST" and generally will not be subject
to United States federal income tax and withholding tax, as long
as the Foreign Person (i) is not actually or constructively a "10
PERCENT SHAREHOLDER" of the Trust or the Trust Depositor or a
"CONTROLLED FOREIGN CORPORATION" with respect to which the Trust
Depositor is a "RELATED PERSON" within the meaning of the Code,
and (ii) provides an appropriate statement (Form W-8) to the
Trustee or paying agent (generally the clearing agency, financial
intermediary, or broker) that is signed under penalties of
perjury, certifying that the beneficial owner of the Note is a
Foreign Person and providing that Foreign Person's name and
address. If the information provided in this statement changes,
the Foreign Person must provide a new Form W-8 within 30 days.
The Form W-8 is generally effective for three years. If such
interest were not portfolio interest, then it would be subject to
United States federal income and withholding tax at a rate of 30
percent unless reduced or eliminated pursuant to an applicable
income tax treaty. To qualify for any reduction as the result of
an income tax treaty, the Foreign Person must provide the paying
agent with Form 1001. This form is also effective for three
years.
(b) Any capital gain realized on the sale or other taxable
disposition of a Note by a Foreign Person will be exempt from
United States federal income and withholding tax, PROVIDED that
(i) the gain is not effectively connected with the conduct of a
trade or business in the United States by the Foreign Person, and
(ii) in the case of an individual Foreign Person, the Foreign
Person is not present in the United States for 183 days or more
in the taxable year. If an individual Foreign Person is present
in the U.S. for 183 days or more during the taxable year, the
gain on the disposition of the Notes could be subject to a 30%
withholding tax unless reduced by treaty.
(c) If the interest, gain or income on a Note held by a Foreign
Person is effectively connected with the conduct of a trade or
business in the United States by the Foreign Person, the holder
(although exempt from the withholding tax previously discussed if
an appropriate statement (Form 4224) is furnished to the paying
agent) generally will be subject to United States federal income
tax on the interest, gain or income at regular federal income tax
rates. Form 4224 is effective for only one calendar year. In
addition, if the Foreign Person is a foreign corporation, it may
be subject to a branch profits tax equal to 30 percent of its
"EFFECTIVELY CONNECTED EARNINGS AND PROFITS" within the meaning
of the Code for the taxable year, as adjusted for certain items,
unless it qualifies for a lower rate under an applicable tax
treaty.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Notes. ACCORDINGLY, PURCHASERS OF NOTES SHOULD
CONSULT THEIR OWN TAX ADVISERS REGARDING THE STATE TAX CONSEQUENCES OF
PURCHASING ANY NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
PLANS") and prohibits certain transactions between ERISA Plans and persons who
are "PARTIES IN INTEREST" (as defined under ERISA) with respect to assets of
such Plans. Section 4975 of the Code prohibits a similar set of transactions
between certain plans or individual retirement accounts ("CODE PLANS," and
together with ERISA Plans, "PLANS") and persons who are "DISQUALIFIED PERSONS"
(as defined in the Code) with respect to Code Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been
made under Section 410(d) of the Code), are not subject to the requirements of
ERISA or Section 4975 of the Code, and assets of such plans may be invested in
the Notes, subject to the provisions of other applicable federal
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<PAGE>
and state law. Any such plan which is qualified under Section 401(a) of the
Code and exempt from taxation under Section 501(a) of the Code is, however,
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in the Notes, an ERISA
Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan.
PROHIBITED TRANSACTIONS
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to ERISA Plans and
Code Plans from engaging in certain transactions involving such Plans or "PLAN
ASSETS" of such Plans, unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code and Sections 502(i) and 502(1) of
ERISA provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions. The
Trust Depositor, the Underwriter, the Servicer, the Indenture Trustee or the
Owner Trustee or certain affiliates thereof may be considered or may become
parties in interest or disqualified persons with respect to a Plan. If so, the
acquisition or holding of the Notes by, on behalf of or with "PLAN ASSETS" of
such Plan may be considered to give rise to a "PROHIBITED TRANSACTION" within
the meaning of ERISA and/or Section 4975 of the Code, unless an administrative
exemption described below or some other exemption is available.
The Notes may not be purchased with the assets of a Plan if the Trust
Depositor, the Underwriter, the Servicer, the Indenture Trustee, or the Owner
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets or (b) has
authority or responsibility to give, or regularly gives, investment advice with
respect to such assets pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular needs of the
Plan or (c) is an employer of employees covered under the Plan unless such
investment is made through an insurance company general or pooled separate
account or a bank collective investment fund and an exemption is available.
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 underwriting
agreement dated (the "UNDERWRITING AGREEMENT") for the sale of the
Notes, the Trust Depositor has agreed to sell to First Union Capital Markets
Corp, , and . (the "UNDERWRITERS") and each of the
Underwriters has separately agreed to purchase from the Trust Depositor, the
principal amount of the Notes set forth opposite its name below:
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<PAGE>
Aggregate Principal Amount
to be Purchased
-----------------------
Class A-1 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp.
$______________
$______________
$______________
Aggregate Principal Amount
to be Purchased
------------------------
Class A-2 Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp.
$______________
$______________
$______________
Aggregate Principal Amount
to be Purchased
-------------------------
Class B Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp.
$______________
$______________
$______________
Aggregate Principal Amount
to be Purchased
--------------------------
Class C Receivable-Backed Notes, Series 1997-1
------------------------------------------------
First Union Capital Markets Corp.
$______________
$______________
$______________
In the Underwriting Agreement, the Underwriters 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 Underwriter has advised the Issuer that the Underwriter proposes
initially to offer the Notes to the public at the price set forth on the cover
page hereof and to certain dealers at such price less a selling concession not
in excess of % of the initial principal amount of the Notes. The
Underwriters may allow and such dealers may reallow a concession not in excess
of % of the initial principal amount of the Notes. After the initial
public offering, the public offering price and such concessions may be changed.
The Underwriting Agreement provides that Newcourt USA and the Trust
Depositor, jointly and severally, will indemnify the Underwriters against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or contribute to payments the Underwriter 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 " " and " " , that the Class A-2 Notes be rated at
least " " and " " , that the Class B Notes be rated at least " " and "
" , and that the Class C Notes be rated at least " " and " ", by a
nationally recognized rating agency and a nationally recognized rating
agency, respectively.
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<PAGE>
Such rating will reflect only the views of the Rating Agency and will be
based primarily on the subordination of the Class A-2 Notes, Class B Notes,
Class C Notes and the Subordinated Securities (in the case of the Class A-1
Notes), the subordination of the Class B Notes, Class C Notes and the
Subordinated Securities (in the case of the Class A-2 Notes)the subordination
of the Class C Notes and the Subordinated Securities (in the case of the
Class B Notes) and the subordination of the Subordinated Securities (in the
case of the Class C Notes), as well as the value and creditworthiness of the
Contracts and Equipment. The ratings are not a recommendation to purchase,
hold or sell the Notes, inasmuch as such ratings do not comment as to market
price or suitability for a particular investor. Each rating may be subject
to revision or withdrawal at any time by the assigning Rating Agency. There
is no assurance that any such rating will continue for any period of time or
that it will not be lowered or withdrawn entirely by the Rating Agency if, in
its judgment, circumstances so warrant. A revision or withdrawal of such
rating may have an adverse affect on the market price of the Notes. The
rating of the Notes addresses the likelihood of the timely payment of
interest and the ultimate payment of principal on the Notes pursuant to their
terms. The rating does not address the rate of Prepayments that may be
experienced on the Contracts and, therefore, does not address the effect of
the rate of Prepayments on the return of principal to the Noteholders.
LEGAL MATTERS
Certain legal matters relating to the Notes, including certain federal
income tax matters, as well as other matters, will be passed upon for the
Trust, the Trust Depositor, the Seller/Servicer and the Administrator by
Winston & Strawn, Chicago, Illinois. Certain legal matters for the
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 51
Acquisition Premium. . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-4
ADCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Additional Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .9, 46
Additional Contract Cutoff Date. . . . . . . . . . . . . . . . . . . . . . .5
Adjusted Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Aggregate Discounted Contract Balance. . . . . . . . . . . . . . . . . 15, 52
Aggregate Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . 52
Applicable Class Percentage. . . . . . . . . . . . . . . . . . . . . . 52, 72
Article 2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 83
Available Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Available Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 55
Bankruptcy Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 81
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 6, 7, 64
Class A Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Class A-1 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class A-1 Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Class A-1 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class A-1 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Class A-1 Notes Maturity Date. . . . . . . . . . . . . . . . . . . . . . . 14
Class A-1 Principal Payment Amount. . . . . . . . . . . . . . . . . . . . 72
Class A-1 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . 53
Class A-2 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class A-2 Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Class A-2 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class A-2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Class A-2 Principal Payment Amount. . . . . . . . . . . . . . . . . . . . 72
Class A-2 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . 53
Class B Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class B Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Class B Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . 12, 74
Class B Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Class B Principal Payment Amount . . . . . . . . . . . . . . . . . . . 53, 72
Class C Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class C Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Class C Noteholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class C Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Class C Principal Payment Amount . . . . . . . . . . . . . . . . . . . 53, 72
Class D Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Class D Principal Payment Amount . . . . . . . . . . . . . . . . . . . 53, 72
Class E Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Cleanup Call Condition . . . . . . . . . . . . . . . . . . . . . . . . 15, 60
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Code Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 58
Collection Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Contract Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Contracts Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Controlling Party. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
CSA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Defaulted Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
<PAGE>
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 53, 67
Discounted Contract Balance. . . . . . . . . . . . . . . . . . . . 15, 53, 72
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Early Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Early Termination Contract . . . . . . . . . . . . . . . . . . . . . . . . .9
Eligible Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Eligible Secondary Contract. . . . . . . . . . . . . . . . . . . . . . . . 68
Eligible Secondary Contracts . . . . . . . . . . . . . . . . . . . . . . . 67
End-User . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 67
End-User Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 11, 38, 42
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Excess Concentration Amount. . . . . . . . . . . . . . . . . . . . . . . . 69
Excess Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Excluded Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Expected Class A-1 Payment . . . . . . . . . . . . . . . . . . . . . . . . 53
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Financed Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 43
Financing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
First Union. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Guaranteed Residual Investment . . . . . . . . . . . . . . . . . . . . . . 45
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Indemnitees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Ineligible Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Initial Class A Note Principal Balance . . . . . . . . . . . . . . . . . . .6
Initial Class B Note Principal Balance . . . . . . . . . . . . . . . . . . .6
Initial Class C Note Principal Balance . . . . . . . . . . . . . . . . . . .6
Initial Class D Note Principal Balance . . . . . . . . . . . . . . . . . . .6
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
IPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Majority in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 51
MLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
MLA Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Monthly Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Newcourt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Newcourt USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
-2-
<PAGE>
Note Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 6
NRC II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 67
OID. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Operative Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Owner Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Prepaid Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Prepayment Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 54, 72
Program Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Program Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 26
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Qualified Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Required Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reserve Fund Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Residual Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Residual Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Restricting Event. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
S&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . .2
Scheduled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 54
Secondary Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Secured Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7, 42
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Service Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Servicer Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 70
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 11, 42
Servicing Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 60
Servicing Fee Percentage . . . . . . . . . . . . . . . . . . . . . . . . . 60
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 11, 42
Statistical Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . .9
Subordinated Note Interest Rate" . . . . . . . . . . . . . . . . . . . . . 12
Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6, 64
Subordinated Residual Interest . . . . . . . . . . . . . . . . . . . . . . 45
Subordinated Securities. . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Substitute Contract. . . . . . . . . . . . . . . . . . . . . . . . . . .9, 46
Substitute Contract Cutoff Date. . . . . . . . . . . . . . . . . . . . . . .5
Tax Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
The Contracts Pool". . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
TIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Title Registry Equipment . . . . . . . . . . . . . . . . . . . . . . . . . 21
Transfer and Sale Agreement. . . . . . . . . . . . . . . . . . . . .2, 28, 65
-3-
<PAGE>
Transfer Deposit Amount. . . . . . . . . . . . . . . . . . . . . . . . . . 68
Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Transferred Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Transferred Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
True Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Trust Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Trust Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 5
Trust Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 23
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 88
UNL Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Vendor Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Vendor Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Vendor Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5, 43
Vendors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 43
Warranty Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 69
-4-
<PAGE>
No dealer, salesman or other
person is authorized to give any
information or to make any
representation not contained in this
Prospectus and, if given or made,
such information or representation
must not be relied upon as having NEWCOURT RECEIVABLES ASSET
been authorized by the Trust TRUST 1997-1
Depositor or the Underwriter. This
Prospectus does not constitute an
offer to sell or a solicitation of
any offer to buy any security other NEWCOURT RECEIVABLES
than the Securities offered hereby, CORPORATION II
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 PROSPECTUS
circumstance create any implication
that the information contained herein ____________________________
is correct as of any date subsequent
to the date hereof.
______________, 199_
_________________
TABLE OF CONTENTS
Page
PRELIMINARY PROSPECTUS . . . . . . . . 1
REPORTS TO NOTEHOLDERS . . . . . . . . 3
AVAILABLE INFORMATION . . . . . . . . . 3
SUMMARY OF TERMS . . . . . . . . . . . 5
RISK FACTORS . . . . . . . . . . . . . 19
USE OF PROCEEDS . . . . . . . . . . . . 28
THE TRUST . . . . . . . . . . . . . . . 28
THE CONTRACTS POOL . . . . . . . . . . 28
THE CONTRACTS GENERALLY . . . . . . . . 40
PREPAYMENT AND YIELD CONSIDERATIONS . . 46
THE TRUST DEPOSITOR . . . . . . . . . . 50
DESCRIPTION OF THE NOTES . . . . . . . 51
THE SUBORDINATED NOTES. . . . . . . . . 64
THE CERTIFICATES . . . . . . . . . . . 64
THE INDENTURE . . . . . . . . . . . . . 73
CERTAIN LEGAL ASPECTS OF THE
CONTRACTS . . . . . . . . . . . . . . . 77
FEDERAL INCOME TAX CONSEQUENCES . . . . 83
CERTAIN STATE TAX CONSEQUENCES . . . . 87
ERISA CONSIDERATIONS . . . . . . . . . 87
PLAN OF DISTRIBUTION . . . . . . . . . 88
RATING OF THE NOTES . . . . . . . . . . 89
LEGAL MATTERS . . . . . . . . . . . . . 90
Until ___________, 199_, all
dealers effecting transactions in the
registered securities, whether or not
participating in this distribution,
may be required to deliver a
Prospectus. This is in addition to
the obligations of dealers to deliver
a Prospectus when acting as underwriters
and with respect to their unsold
allotment or subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
SEC Registration Fee $ 1,212.12
Printing and Engraving Expenses 45,000.00
Trustee's Fees and Expenses 8,000.00
Legal Fees and Expenses 275,000.00
Blue Sky Fees and Expenses 8,000.00
Accountants' Fees and Expenses 25,000.00
Rating Agency Fees 30,000.00
Miscellaneous Fees 30,000.00
Total $ 422,212.12
___________________________
* All amounts except the SEC Registration Fee are estimates of expenses
incurred or to be incurred in connection with the issuance and
distribution of the Notes in an aggregate principal amount assumed for
these purposes to be equal to $4,000,000 of Notes registered hereby.
Item 14. Indemnification of Directors and Officers
The General Corporation Law of Delaware (Section 145) gives Delaware
corporations broad powers to indemnify their present and former directors and
officers and those affiliated corporations against expenses incurred in the
defense of any lawsuit to which they are made parties by reason of being or
having been such directors or officers, subject to specified conditions and
exclusions; gives a director or officer who successfully defends an action the
right to be so indemnified; and authorizes said corporation to buy director's
and officers' liability insurance. Such indemnification is not exclusive of any
other right to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or otherwise.
Newcourt has also purchased liability policies which indemnify the Registrant's
officers and directors against loss arising from claims by reason of their legal
liability for acts as officers and directors, subject to limitations and
conditions as set forth in the policies.
Pursuant to agreements which the Registrant may enter into with underwriters or
agents (forms of which will be included as exhibits to this Registration
Statement), officers and directors of the Registrant, and affiliates thereof,
may be entitled to indemnification by such underwriters or agents against
certain liabilities, including liabilities under the Securities Act of 1933,
arising from information which has been or will be furnished to the Registrant
by such underwriters or agents that appears in the Registration Statement or any
Prospectus.
Item 15. Recent Sales of Unregistered Securities
None
<PAGE>
Item 16. Exhibits and Financial Statements
Exhibits
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Indenture (including form of Notes)*
5.1 Opinion of Winston & Strawn with respect to legality*
8.1 Opinion of Winston & Strawn with respect to tax matters*
10.1 Form of Sale and Servicing Agreement*
10.2 Form of Administration Agreement*
10.3 Form of Transfer and Sale Agreement*
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of Indenture Trustee*
__________________________________
*To be filed by amendment
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(a) That insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 14
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the act and
will be governed by the final adjudication of such issue.
(b) That, for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(c) That, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on September 19, 1997.
NEWCOURT RECEIVABLES CORPORATION II
By: /s/ Bradley D. Nullmeyer
______________________________________
Name: Bradley D. Nullmeyer
Title: Principal Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Newcourt Receivables Corporation
II do hereby constitute and appoint Scott Moore and Scott Herbst, and each of
them, with full power of substitution, our true and lawful attorneys-in-fact and
agents to do any and all acts and things in our name and behalf in our
capacities as directors and officers, and to execute any and all instruments for
us and in our names in the capacities indicated below which such person may deem
necessary or advisable to enable the Registrant to comply with the Securities
Act of 1933 (the "ACT"), as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for us, or any of us, in the capacities indicated below and any and all
amendments (including pre-effective and post-effective amendments or any other
registration statement filed pursuant to the provisions of Rule 462(b) under the
Act) hereto; and we do hereby ratify and confirm all that such person or persons
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Bradley D. Nullmeyer Chief Executive Officer and September 19, 1997
- ------------------------- Director (Principal Executive
Bradley D. Nullmeyer Officer)
/s/ Michel Beland Chief Financial Officer September 19, 1997
- ------------------------- (Principal Financial and
Michel Beland Accounting Officer)
/s/ Daniel A. Jauernig Director September 19, 1997
- -------------------------
Daniel A. Jauernig
/s/ Robert J. Hicks Director September 19, 1997
- -------------------------
Robert J. Hicks
/s/ Peter H. Sorensen Director September 19, 1997
- -------------------------
Peter H. Sorensen
-3-
<PAGE>
EXHIBIT INDEX
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company*
3.2 Bylaws of the Company*
4.1 Form of Trust Agreement (including form of Certificates)*
4.2 Form of Indenture (including form of Notes)*
5.1 Opinion of Winston & Strawn with respect to legality*
8.1 Opinion of Winston & Strawn with respect to tax matters*
10.1 Form of Sale and Servicing Agreement*
10.2 Form of Administration Agreement*
10.3 Form of Transfer and Sale Agreement*
23.1 Consent of Winston & Strawn (included in Exhibit 5.1)*
24.1 Power of Attorney (included on signature page)
25.1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 of Indenture Trustee*
_______________________
*To be filed by amendment
-i-