<PAGE>
As filed with the Securities and Exchange Commission on August 10, 1998
Registration No. 333-58677
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEWCOURT EQUIPMENT TRUST SECURITIES 1998-1
(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 Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
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
(317) 229-3406
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
M. David Galainena, Esq. James J. Croke, Esq.
Winston & Strawn Cadwalader, Wickersham & Taft
35 West Wacker Drive 100 Maiden Lane
Chicago, Illinois 60601 New York, New York 10038
(312) 558-5600 (212) 504-6000
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Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
--------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
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If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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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 AUGUST [___________], 1998
PROSPECTUS
NEWCOURT EQUIPMENT TRUST SECURITIES 1998-1
$1,000,000 [ ] % CLASS A-1 RECEIVABLE-BACKED NOTES, SERIES 1998-1
$1,000,000 [ ] % CLASS A-2 RECEIVABLE-BACKED NOTES, SERIES 1998-1
$1,000,000 [ ] % CLASS A-3 RECEIVABLE-BACKED NOTES, SERIES 1998-1
$1,000,000 [ ] % CLASS A-4 RECEIVABLE-BACKED NOTES, SERIES 1998-1
$1,000,000 [ ] % CLASS B RECEIVABLE-BACKED NOTES, SERIES 1998-1
$1,000,000 [ ] % CLASS C RECEIVABLE-BACKED NOTES, SERIES 1998-1
NEWCOURT RECEIVABLES CORPORATION II,
Trust Depositor
NEWCOURT FINANCIAL USA INC.
Servicer
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The Newcourt Equipment Trust Securities 1998-1 (the "TRUST" or the
"ISSUER"), a limited purpose Delaware business trust, was formed pursuant to a
Trust Agreement, dated as of August [ ], 1998, between Newcourt Receivables
Corporation II ("NRC II"), as Trust Depositor (in such capacity, the "TRUST
DEPOSITOR"), and The Bank of New York (Delaware), as Owner Trustee (the "OWNER
TRUSTEE"). The Trust Depositor is a wholly-owned, limited purpose, bankruptcy
remote subsidiary of Newcourt Credit Group USA Inc.; Newcourt Credit Group USA
Inc. is a wholly-owned subsidiary of Newcourt Credit Group Inc. ("NEWCOURT").
The Trust will issue $1,000,000 aggregate principal amount of [ ]% Class
A-1 Receivable-Backed Notes, Series 1998-1 (the "CLASS A-1 NOTES"),
(COVER CONTINUED ON NEXT PAGE)
--------------
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" ON PAGE 22 OF THIS PROSPECTUS.
THE NOTES ARE SECURED BY THE ASSETS OF THE TRUST. THE PROCEEDS OF THE
ASSETS OF THE TRUST AND AMOUNTS ON DEPOSIT IN THE RESERVE FUND ARE THE ONLY
SOURCES OF PAYMENTS ON THE NOTES. THE NOTES WILL REPRESENT OBLIGATIONS OF THE
TRUST ONLY AND WILL NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT
GUARANTEED OR INSURED BY, THE TRUST DEPOSITOR, THE OWNER TRUSTEE, NEWCOURT USA,
NEWCOURT OR ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
--------------
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
--------------
<TABLE>
<CAPTION>
Price to Public Underwriting Discounts and Commissions (2) Proceeds to Issuer (1) (3)
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<S> <C> <C> <C>
Per Class A-1 Note [ ]% [ ]% [ ]%
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Per Class A-2 Note [ ]% [ ]% [ ]%
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Per Class A-3 Note [ ]% [ ]% [ ]%
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Per Class A-4 Note [ ]% [ ]% [ ]%
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Per Class B Note [ ]% [ ]% [ ]%
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Per Class C Note [ ]% [ ]% [ ]%
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Total [ ]% [ ]% [ ]%
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</TABLE>
(1) Plus accured interest, if any, at the applicable Interest Rate from [ ],
1998.
<PAGE>
(2) The Issuer, Newcourt and Newcourt Financial USA Inc. have agreed to
indemnify the Underwriters against certain liabilities, including under the
Securities Act of 1933.
(3) Before deducting expenses of this Offering estimated to be $[ ].
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by them and subject to their right to reject any
order in whole or in part or to withdraw, cancel or modify any order without
notice. It is expected that delivery of the Notes will be made in book-entry
form only through the Same Day Funds Settlement System of The Depository Trust
Company, or through Cedel Bank, S.A. or the Euroclear System, on or about August
[ ], 1998.
FIRST UNION CAPITAL MARKETS [ ]
The date of this Prospectus is August [ ], 1998.
<PAGE>
(COVER PAGE CONTINUED)
$1,000,000 aggregate principal amount of [ ]% Class A-2 Receivable-Backed
Notes, Series 1998-1 (the "CLASS A-2 NOTES" ), $1,000,000 aggregate principal
amount of [ ]% Class A-3 Receivable-Backed Notes, Series 1998-1 (the "CLASS
A-3 NOTES"), $1,000,000 aggregate principal amount of [ ]% Class A-4
Receivable-Backed Notes, Series 1998-1 (the "CLASS A-4 NOTES"; AND TOGETHER WITH
THE CLASS A-1 NOTES, THE CLASS A-2 NOTES AND THE CLASS A-3 NOTES, THE "CLASS A
NOTES"), $1,000,000 aggregate principal amount of [ ]% Class B
Receivable-Backed Notes, Series 1998-1 (the "CLASS B NOTES") and $1,000,000
aggregate principal amount of [ ]% Class C Receivable-Backed Notes, Series
1998-1 (the "CLASS C NOTES"; and together with the Class A Notes and the Class B
Notes, the "NOTES"). The Notes will represent debt obligations of the Trust, and
will be issued pursuant to and secured by an Indenture dated as of August 1,
1998 (the "INDENTURE") to be entered into between the Trust and Harris Trust and
Savings Bank, as Indenture Trustee (the "INDENTURE TRUSTEE"). The Trust will
concurrently issue $1,000,000 aggregate principal amount of [ ]% Class D
Receivable-Backed Notes, Series 1998-1 (the "CLASS D NOTES") and $1,000,000
aggregate principal amount of [ ]% Class E Receivable-Backed Notes, Series
1998-1 (the "CLASS E NOTES" and collectively with the Class D Notes, the
"SUBORDINATED NOTES"), as well as the Class F Receivable-Backed Certificate,
Series 1998-1 (the "CERTIFICATE"). The Certificate will not bear interest and
have certain rights to the monies in the Reserve Fund (as defined in "SUMMARY OF
TERMS - RESERVE FUND") and certain other excess funds after the payment of all
principal and interest on the Notes and Subordinated Notes (the Certificate,
together with the Subordinated Notes, being collectively the "SUBORDINATED
SECURITIES"). The Subordinated Notes will be issued pursuant to the Indenture.
The Certificate will represent fractional undivided beneficial equity interests
in the Trust and will be issued pursuant to the Trust Agreement. The
Subordinated Securities are not being offered pursuant to this Prospectus.
The property of the Trust (the "TRUST ASSETS") will include (a) a pool of
contracts originated or acquired by Newcourt Financial USA Inc. ("NEWCOURT USA",
a wholly-owned subsidiary of Newcourt Credit Group USA Inc.) as described herein
(inclusive of any Additional Contracts or Substitute Contracts added to the
Trust from time to time as defined in "SUMMARY OF TERMS -TRUST ASSETS - THE
CONTRACTS", collectively, the "CONTRACTS") consisting of (i) conditional sale
agreements, promissory notes with related security agreements, true leases
(excluding the Excluded Residual Investment (as defined herein)), 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") which meet
certain eligibility criteria specified herein, and which relate to a wide
variety of new and used information technology equipment (such as computer work
stations, personal computers, data storage devices, mainframe and mini computers
and other computer related peripheral equipment), communications equipment (such
as telephone switching and networking systems), commercial business and
industrial equipment (such as printing presses, machine tools and other
manufacturing equipment, photocopiers, facsimile machines and other office
equipment, energy savings and control equipment, automotive diagnostic and
automated testing equipment), medical equipment (such as diagnostic and
therapeutic examination equipment for radiology, nuclear medicine and ultrasound
and laboratory analysis equipment), resources equipment (such as feller-bunchers
and grapplers), and transportation and construction equipment (such as heavy and
medium duty trucks and highway trailers, school buses, bulldozers, loaders,
graters, excavators, forklifts and other materials handling equipment, golf
carts and other road and off-road machinery) (collectively, the "EQUIPMENT"),
certain computer software (the "SOFTWARE") and related support and consulting
services (the "SERVICES"; together with Equipment and Software, the "FINANCED
ITEMS"), together with certain rights of Newcourt USA under finance program
agreements and assignments with Vendors (as defined in "SUMMARY OF TERMS - TRUST
ASSETS - VENDOR AGREEMENTS") of the Financed Items, as well as 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 [ ],
1998 (the "INITIAL CUTOFF DATE") or, in the case of Additional Contracts or
Substitute Contracts, their applicable Cutoff Dates as defined in "SUMMARY OF
TERMS -CUTOFF DATES", excluding the Excluded Amounts (as defined herein),
collections relating to Scheduled Payments due prior to the related Cutoff Date
and Excluded Residual Investments, 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 August 1, 1998 (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
Pooling and Servicing Agreement, dated as of August 1, 1998 (the "POOLING AND
SERVICING AGREEMENT"), among the Trust Depositor, the Trust, the Indenture
Trustee
2
<PAGE>
(as defined in "SUMMARY OF TERMS -INDENTURE TRUSTEE") and Newcourt USA in its
capacity as Servicer thereunder (Newcourt USA being, in such capacity, the
"SERVICER").
Interest on the Notes and Subordinated Notes will be payable monthly in
arrears on the twentieth (20th) day of the month (or, if such day is not a
Business Day the next succeeding Business Day) beginning on [ ],
1998 (each, a "DISTRIBUTION DATE") with respect to the period from and including
the immediately preceding Distribution Date (or, with respect to the initial
Distribution Date, the date of issuance of the Notes and Subordinated Notes) to
the period to and excluding such Distribution Date to holders of record as of
the last day of the prior Collection Period (the "RECORD DATE"). The
Certificate does not bear interest. Principal payments with respect to the
Notes and Subordinated Notes will be payable on each Distribution Date to the
holders thereof as of the related Record Date as described herein. The stated
maturity date with respect to the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes is the [ ] Distribution Date, the
[ ] Distribution Date, the [ ] Distribution Date, the [ ]
Distribution Date, the [ ] Distribution Date, the [ ] Distribution
Date, the [ ] Distribution Date and the [ ] Distribution Date,
respectively. 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 applicable, and as further
described below and excluding payments relating to Excluded Residual Investments
and Excluded Amounts), certain amounts received upon the prepayment or purchase
of Contracts or liquidation of the Contracts and disposition of the related
Equipment upon defaults thereunder, and the proceeds of Servicer Advances (as
defined in "SUMMARY OF TERMS--SERVICING; SERVICING FEE; SERVICER ADVANCES"), if
any.
Payments of interest due on the Notes and the Subordinated Notes on any
given Distribution Date will be made prior to making any payments of principal
on any of the Notes or the Subordinated Notes. Payments of interest due on the
Subordinated Notes will be subordinated in priority to payments of interest due
on the Class A 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 Notes and the Class B Notes. Payments of interest due
on the Class B Notes will be subordinated in priority to payments of interest
due on the Class A Notes. Payments of interest due on the Class A-4 Notes will
be subordinated in priority to payments of interest due on the Class A-3 Notes,
the Class A-2 Notes and the Class A-1 Notes, subject to the limitation described
in the second succeeding sentence. Payments of interest due on the Class A-3
Notes, will be subordinated in priority to payments of interest due on the Class
A-2 Notes and the Class A-1 Notes, subject to the limitation described in the
succeeding sentence. Payments of interest due on the Class A-2 Notes will be
subordinated in priority to payments of interest due on the Class A-1 Notes;
PROVIDED, HOWEVER, that after the occurrence of an Event of Default, payments of
interest due on the Class A-4 Notes, the Class A-3 Notes, the Class A-2 Notes
and the Class A-1 Notes, will be made PRO RATA. Payments of principal on the
Subordinated Notes will be subordinated in priority to payments of principal on
the Class A Notes, the Class B Notes and the Class C Notes. Payments of
principal on the Class C Notes will be subordinated in priority to payments of
principal on the Class A 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 Notes. Payments of principal on the Class A-4 Notes will be
subordinated in priority to payments of principal on the Class A-1 Notes, the
Class A-2 Notes and the Class A-3 Notes. Payments of principal on the Class A-3
Notes will be subordinated in priority to payments of principal on the Class A-1
Notes and the Class A-2 Notes. Payments of principal on the Class A-2 Notes
will be subordinated in priority to payments of principal on the Class A-1
Notes. See "SUMMARY OF TERMS--TERMS OF THE NOTES", as well as "DESCRIPTION OF
THE NOTES--ALLOCATIONS" herein.
The Notes are being offered pursuant to this Prospectus. Sales of the
Notes may not be consummated unless the purchaser has received this Prospectus.
The Subordinated Securities are not being offered hereby.
The Issuer does not intend to apply for listing of the Notes on any
securities exchange or for the inclusion of the Notes on any automated quotation
system.
There currently is no secondary market for the Notes and there is no
assurance that one will develop, or if one does develop, that it will continue
or provide sufficient liquidity.
3
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, periodic and
annual unaudited reports, containing information concerning the Trust, the
Contracts, the Notes and the Certificates, will be prepared by the Servicer and
sent on behalf of the Trust to Cede & Co. ("CEDE"), as nominee of The Depository
Trust Company ("DTC"), and the Euroclear System ("EUROCLEAR") or Cedel Bank,
S.A. ("CEDEL") as registered holders of the Notes. Such reports will be made
available by DTC, Euroclear or CEDEL and its participants to holders of
interests in the Notes in accordance with the rules, regulations and procedures
creating and affecting DTC, Euroclear and CEDEL, respectively. See "DESCRIPTION
OF THE NOTES--BOOK ENTRY REGISTRATION" and "--REPORTS" below. Such reports will
not constitute financial statements prepared in accordance with generally
accepted accounting principles or that have been examined and reported upon by,
with an opinion expressed by, an independent or certified public accountant.
Upon the issuance of fully registered, certificated Notes, such reports will be
sent to each registered Noteholder.
AVAILABLE INFORMATION
The Trust Depositor, as originator of the Trust, has filed with the
Securities and Exchange Commission (the "COMMISSION") a Registration Statement
(together with all amendments and exhibits thereto, the "REGISTRATION
STATEMENT") under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
with respect to the Notes offered pursuant to this Prospectus and described
herein. For further information, reference is made to the Registration
Statement which may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549; Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661 and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of the Registration Statement may be obtained from the Public Reference
Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission also maintains a public access site on the
Internet through the World Wide Web at which site reports, information
statements and other information, including all electronic filings, regarding
the Trust Depositor and the Trust may be viewed. The Internet address of such
World Wide Web site is http://www.sec.gov. The Servicer, on behalf of the
Trust, will also file or cause to be filed with the Commission such periodic
reports as are required under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT") and the rules and regulations of the Commission thereunder.
Copies of such reports can be obtained as described above.
UPON RECEIPT OF A REQUEST BY AN INVESTOR, OR HIS OR HER REPRESENTATIVE,
WITHIN THE PERIOD DURING WHICH THERE IS AN OBLIGATION TO DELIVER A PROSPECTUS,
THE UNDERWRITERS WILL PROMPTLY DELIVER, OR CAUSE TO BE DELIVERED, WITHOUT CHARGE
AND IN ADDITION TO ANY SUCH DELIVERY REQUIREMENTS, A PAPER COPY OF THIS
PROSPECTUS AND A PROSPECTUS ENCODED IN AN ELECTRONIC FORMAT.
4
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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 [ ] for a discussion of certain factors that investors should
consider before making an investment in the Notes.
Issuer . . . . . . . . . . Newcourt Equipment Trust Securities 1998-1 (the
"ISSUER" or the "TRUST"), a Delaware business
trust formed by the Trust Depositor and the Owner
Trustee pursuant to the Trust Agreement dated as
of August [ ], 1998 (the "TRUST AGREEMENT")
between the Trust Depositor and the Owner Trustee.
The principal executive offices of the Trust are
in Wilmington, Delaware, in care of the Owner
Trustee, at the address of the Owner Trustee
specified below.
Trust Depositor . . . . . . Newcourt Receivables Corporation II, a Delaware
corporation (the "TRUST DEPOSITOR") and a wholly-
owned, limited purpose subsidiary of Newcourt
Credit Group USA Inc. The Trust Depositor's
principal executive offices are located at 2700
Bank One Tower, 111 Monument Circle, Suite 300,
Indianapolis, Indiana 46204 and its telephone
number is (317) 229-3406.
Seller/Servicer . . . . . . Newcourt Financial USA Inc., a Delaware
corporation ("NEWCOURT USA"; or, in its separate
capacities as a Seller under the Transfer and Sale
Agreement, the "SELLER", or as Servicer under the
Pooling and Servicing Agreement described herein,
the "SERVICER"), which is a wholly-owned
subsidiary of Newcourt Credit Group USA Inc.
which, in turn is a wholly owed subsidiary of
Newcourt Credit Group Inc. ("NEWCOURT"). Newcourt
USA's offices are located at 2700 Bank One Tower,
111 Monument Tower Circle, Suite 2700
Indianapolis, Indiana 46204 and its telephone
number is (317) 767-0077. The servicing
obligations of Newcourt USA under the Pooling and
Servicing Agreement will be guaranteed by
Newcourt.
Indenture Trustee . . . . . Harris Trust and Savings Bank, as indenture
trustee under the Indenture described herein (the
"INDENTURE TRUSTEE"). The Indenture Trustee's
offices are located at 311 West Monroe Street,
12th Floor, Chicago, Illinois 60606.
Owner Trustee . . . . . . . The Bank of New York (Delaware), as owner trustee
under the Trust Agreement (the "OWNER TRUSTEE").
The Owner Trustee's offices are White Clay Center,
Newark, Delaware [ ].
Cutoff Dates . . . . . . . With respect to the Contracts transferred to the
Trust on the Closing Date, August [ ], 1998,
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 August [ ], 1998 (the "CLOSING
DATE").
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5
<PAGE>
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Collection Periods, . . . . A Collection Period is the period from and
Calculation Dates, including the first day of each calendar month to
Distribution Dates and including the last day of the calendar month
and Record Dates (such first day, the "CALCULATION DATE" and each
such period, a "COLLECTION PERIOD"). A
Distribution Date is the twentieth (20th) day (or
if any such date is not a "BUSINESS DAY", I.E., a
day other than a Saturday, a Sunday or a day on
which banking institutions in Indianapolis,
Indiana, Toronto, Ontario, Canada or New York, New
York are authorized or obligated by any law or
regulation to be closed, then on the next
succeeding Business Day) of each calendar month
(each, a "DISTRIBUTION DATE") commencing [
], 1998. 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 . . . . . . . . . $1,000,000 aggregate principal amount (the
"INITIAL CLASS A-1 NOTE PRINCIPAL BALANCE") of
[ ]% Class A-1 Receivable-Backed Notes,
Series 1998-1 (the "CLASS A-1 NOTES"); $1,000,000
aggregate principal amount (the "INITIAL CLASS A-2
NOTE PRINCIPAL BALANCE") of [ ]% Class A-2
Receivable-Backed Notes, Series 1998-1 (the "CLASS
A-2 NOTES"); $1,000,000 aggregate principal amount
(the "INITIAL CLASS A-3 NOTE PRINCIPAL BALANCE")
of [ ]% Class A-3 Receivable-Backed Notes,
Series 1998-1 (the "CLASS A-3 NOTES"); $1,000,000
aggregate principal amount (the "INITIAL CLASS A-4
NOTE PRINCIPAL BALANCE") of [ ]% Class A-4
Receivable-Backed Notes, Series 1998-1 (the "CLASS
A-4 NOTES"; AND TOGETHER WITH THE CLASS A-1 NOTES,
CLASS A-2 NOTES AND CLASS A-3 NOTES, THE "CLASS A
NOTES"); $1,000,000 aggregate principal amount
(the "INITIAL CLASS B NOTE PRINCIPAL BALANCE") of
[ ]% Class B Receivable-Backed Notes, Series
1998-1 (the "CLASS B NOTES"); and $1,000,000
aggregate principal amount (the "INITIAL CLASS C
NOTE PRINCIPAL BALANCE") of [ ]% Class C
Receivable-Backed Notes, Series 1998-1 (the
"CLASS C NOTES"; and together with the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes,
the Class A-4 Notes and the Class B Notes, the
"NOTES"). The Initial Class A-1 Note Principal
Balance is equal to approximately [ ]% 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 A-3
Note Principal Balance is equal to approximately
[ ]% of the initial Aggregate Discounted
Contract Balance of the Contracts, the Initial
Class A-4 Note Principal Balance is equal to
approximately [ ]% of the initial Aggregate
Discounted Contract Balance of the Contracts, 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 August [ ], 1998
(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
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6
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Notes, the Class A-3 Notes, the Class A- 4 Notes,
the Class B Notes, the Class C Notes and the
Subordinated Securities will be subordinated
to the Class A-1 Notes to the extent described
herein; the Class A-3 Notes, the Class A-4 Notes,
the Class B Notes, the Class C Notes and the
Subordinated Securities will be subordinated to
the Class A-2 Notes to the extent described
herein; the Class A-4 Notes, the Class B Notes,
the Class C Notes and the Subordinated Securities
will be subordinated to the Class A-3 Notes to the
extent described herein; the Class B Notes, the
Class C Notes and the Subordinated Securities will
be subordinated to the Class A-4 Notes to the
extent described herein; the Class C Notes and the
Subordinated Securities will be subordinated to
the Class B Notes to the extent described herein;
and the Subordinated Securities will be
subordinated to the Class C Notes to the extent
described herein. See "DESCRIPTION OF THE NOTES -
- ALLOCATIONS" herein.
The Subordinated Securities On the Closing Date, the Trust will also issue
[ ]% Class D Receivable-Backed Notes (the
"CLASS D NOTES") with an aggregate principal
balance of $[ ] (the "INITIAL CLASS D NOTE
PRINCIPAL BALANCE") and [ ]% Class E
Receivable-Backed Notes (the "CLASS E NOTES",
together with the Class D Notes, collectively the
"SUBORDINATED NOTES") with an aggregate principal
balance of $[ ] (the "INITIAL CLASS E NOTE
PRINCIPAL BALANCE"), as well as the Class F
Certificate (the "CERTIFICATE", and, together with
the Subordinated Notes, the "SUBORDINATED
SECURITIES") with an initial certificate balance
of $[ ]; the Certificate will not bear
interest. The rights of the holders of the
Subordinated Securities to receive distributions
will be subordinated to the rights of the
Noteholders to receive distributions with respect
to the Notes to the extent described herein. See
"DESCRIPTION OF THE NOTES - ALLOCATIONS" herein.
A. Class D Notes . . . . The Initial Class D Note Principal Balance is
equal to approximately [ ]% of the initial
Aggregate Discounted Contract Balance and will be
issued pursuant to the Indenture. The Class D
Notes are not being offered and sold hereby.
B. Class E Notes. . . . . The Initial Class E Note Principal Balance is
equal to approximately [ ]% of the initial
Aggregate Discounted Contract Balance and will be
issued pursuant to the Indenture. The Class E
Notes are not being offered and sold hereby.
C. Class F Certificate. . The Class F Certificate will represent fractional
undivided beneficial equity interests in the
Trust, including the residual interest in amounts
in the Reserve Fund (after the payment of all
outstanding interest and principal on the Notes
and the Subordinated Notes), and will be issued
pursuant to the Trust Agreement. The Certificates
are not being offered and sold hereby. The Trust
Depositor is expected initially to retain the
Certificate, although the Certificate could be
subsequently conveyed in a separate transaction
subject to certain restrictions to ensure the
Trust is not treated as a taxable entity for
federal income tax purposes.
The Trust . . . . . . . . . The Trust is a LIMITED PURPOSE 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. PRIOR TO THE CLOSING DATE, THE
TRUST WILL NOT HAVE CONDUCTED ANY ACTIVITIES.
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 Initial 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
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7
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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 and amounts payable with respect to any
Excluded Residual Investments, (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) a security interest in
the related Equipment, (iv) with respect to
Contracts which are Vendor Loans, the Applicable
Security related thereto, (v) such amounts as from
time to time may be held in the Collection Account
or any related account or subaccount under the
POOLING and Servicing Agreement or the Indenture,
together with earnings on funds therein, (vi) the
rights of the Trust Depositor under the Transfer
and Sale Agreement, (vii) any amounts received
with respect to the Guaranteed Residual
Investments, (viii) amounts available, if any, in
the Reserve Fund, together with earnings on the
funds therein, up to the Reserve Fund Amount and
(ix) ALL INCOME AND proceeds of any of the
foregoing (other than amounts payable with respect
to any Excluded Residual Investment).
A. Contracts . . . . . . All of the Contracts to be included in the Trust
(sometimes referred to herein, collectively, as
the "CONTRACT POOL" or the "TRANSFERRED
CONTRACTS") consist of conditional sale
agreements (each, a "CSA"), promissory notes with
related security agreements (each, a "SECURED
NOTE"), true and finance leases (each, a "LEASE"),
installment payment agreements (each, an "IPA") or
other similar types of financing agreements (each,
a "FINANCING AGREEMENT") covering Financed Items
(which may or may not be secured by such Financed
Items) or, in the case of Vendor Loans, secured by
End-User Contracts which, in turn, cover Financed
Items.
With respect to the Contracts, the Seller will
make certain representations and warranties in the
Transfer and Sale Agreement, including that: (i)
the information with respect to the Contracts,
Secondary Contracts and Equipment securing such
Contracts is true and correct in all material
respects; (ii) immediately prior to the transfer
of each Contract and the interest in any related
Equipment to the Trust Depositor, such Contract
was owned by the Seller free and clear of any
adverse claim other than Permitted Liens; (iii)
each Contract did not have any delinquent payment
thereon where such payment was delinquent for more
than 60 days and the Contract is not otherwise in
default; (iv) each Contract is a valid and binding
payment obligation of the obligor and is
enforceable in accordance with its terms other
than for a discharge in the bankruptcy of the
Obligor; and (v) no adverse selection procedure
was used in selecting the Contracts for transfer
(I.E. the Contracts sold, assigned and transferred
to the Trust were not intentionally chosen by the
Seller to be of lesser credit quality or
characteristics as those Contracts retained by the
Seller and not conveyed to the Trust). With
respect to Leases, the Seller will represent in
the Transfer and Sale Agreement (i) that such
Leases are "NET LEASES" and contain "HELL OR HIGH
WATER" provisions in favor of the Seller, which
obligates each applicable lessee at various levels
(each, a "LESSEE") to make all payments scheduled
under its Lease, without setoff (to the extent a
Lease is not a "NET LEASE" which contains a "HELL
OR HIGH WATER" provision, in which such instance,
such Lease will receive the benefit of a Vendor
Guarantee (See "THE CONTRACTS--PROGRAM AGREEMENTS
WITH VENDORS")), or (ii) with respect to Leases
with Lessees that are governmental entities or
municipalities, if such Lease is cancelled in
accordance with its terms, either (x) the Vendor
(as defined in this "SUMMARY OF TERMS") which
assigned such Lease to the Seller is
unconditionally obligated to repurchase such Lease
from the Seller for a purchase price not less than
the Discounted Contract Balance of such Lease (as
of the date of purchase) plus interest thereon at
the Discount Rate
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8
<PAGE>
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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" and "THE TRANSFER AND SALE AGREEMENT
AND POOLING AND SERVICING AGREEMENT--
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 Pooling 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 POOLING AND SERVICING
AGREEMENT--REPRESENTATIONS AND WARRANTIES", "USE
OF PROCEEDS" and "THE CONTRACT POOL" herein.
As of the Initial 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 (viii) 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 INITIAL Cutoff Date was
[ ];
(iv) the average Discounted Contract Balance
was approximately $[ ];
(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 [ ] month and not more
than [ ] months, with a weighted average
remaining term to maturity of approximately
[ ] months;
(vi) of such Contracts, approximately
[ ]% were Vendor Loans;
(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
the State of [ ]; approximately
[ ]% were located in the State of [ ];
and in no other state represented more than
[ ]% of the Contracts; and
(viii) of such Contracts, approximately
[ ]% constitute "TRUE LEASES."
See "THE TRANSFER AND SALE AGREEMENT AND THE
POOLING AND SERVICING AGREEMENT--CONCENTRATION
AMOUNTS" herein.
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9
<PAGE>
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For the twelve-month periods ended December 31,
1997 and December 31, 1996, the Seller has
recognized (i) delinquencies of [ ]% and
[ ]%, respectively with respect to its
portfolio and (ii) net losses of [ ]% and
[ ]% with respect to its portfolio. See "THE
CONTRACT 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 is not
expected to be material.
For further information regarding the Transferred
Contracts, see "THE CONTRACT POOL" and "THE
CONTRACTS", as well as "THE TRANSFER AND SALE
AGREEMENT AND SALE AND SECURITY AGREEMENT
GENERALLY--REPRESENTATIONS AND WARRANTIES" and
"-- CONCENTRATION AMOUNTS" herein.
Between the Initial Cutoff Date and the Closing
Date some amortization of the pool is expected to
occur. In addition, certain Contracts included in
the pool as of the Initial Cutoff Date may be
determined not to meet the eligibility
requirements for the final pool, and may not be
included in the final pool. To the extent a
Contract is determined not to meet the eligibility
requirements for the pool, the Seller, through the
Trust Depositor, may pursue one of two options:
(1) substitute a new Contract for the ineligible
Contract or (2) repurchase the ineligible
Contract. To the extent the Seller, through the
Trust Depositor, replaces an ineligible Contract,
the replacement Contract must meet the terms and
conditions of a Substitute Contract, (see "THE
TRANSFER AND SALE AGREEMENT AND SALE AND SERVICE
AGREEMENT GENERALLY - REPRESENTATIONS AND
WARRANTIES"). While the statistical distribution
of the characteristics of the Contracts in the
Contract Pool as of the Closing Date will vary
somewhat from the statistical distribution of such
characteristics as of the Initial Cutoff Date as
presented in this Prospectus, such variance is not
expected to be material.
Generally, the Contracts not constituting Leases
are prepayable by their terms by the Obligors
thereon; in many (but not all) instances, such
terms require a prepayment penalty. The Contracts
constituting Leases generally are non-cancelable
by the Obligors. The Seller may, under the terms
of the Pooling 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 Pooling 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 Pooling
and Servicing Agreement, to substitute into the
Trust one or more Contracts having similar
characteristics (each, a "SUBSTITUTE CONTRACT")
for Defaulted Contracts (as
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10
<PAGE>
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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 Pooling and
Servicing Agreement (unless the Contract was to be
prepaid in full to the Trust and refinanced by the
Seller with a new, modified Contract outside the
Trust) (each, an "ADJUSTED CONTRACT"). The
Aggregate Discounted Contract Balance (as defined
herein) of the Defaulted Contracts and Adjusted
Contracts for which the Seller may cause the
substitution of Substitute Contracts is limited to
an amount not in excess of 10% of the Aggregate
Discounted Contract Balance of the Contracts as of
the Initial Cutoff Date. The Seller will also be
permitted to substitute a Substitute Contract for
a Contract which the Seller would otherwise be
required to repurchase due to certain
representations or warranties relating thereto
proving to have been incorrect (a "WARRANTY
CONTRACT") or an Early Termination Contract,
without regard to the 10% limitation described
above. With respect to replacing either a
Defaulted Contract 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 Contract Pool concentration
limitation as described in "THE TRANSFER AND SALE
AGREEMENT AND POOLING AND SERVICING AGREEMENT" as
well as the other substitution requirements
described herein. See "THE TRANSFER AND SALE
AGREEMENT AND THE POOLING AND SERVICING AGREEMENT
--REPRESENTATIONS AND WARRANTIES" herein.
From time to time, 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 Contract Pool on the Closing
Date. Information with respect to such Additional
Contracts or Substitute Contracts, to the extent
deemed material, will be included in periodic
reports under the Exchange Act filed by the
Servicer with the Commission on behalf of the
Trust as are required under the Exchange Act.
In no event will the aggregate scheduled payments
of the Contracts, after the inclusion in the Trust
of the Substitute Contracts and reinvestment in
Additional Contracts, be materially less than the
aggregate scheduled payments of the Contracts
prior to such substitution or reinvestment. In
addition, either the final scheduled payment on
such Substitute Contract or Additional Contract
will be on or prior to the [ ] Distribution
Date or, to the extent the final payment on such
Contract is due after the [ ] Distribution
Date, only scheduled payments due on or prior to
such date may be included in the Discounted
Contract Balance of such Contract for the purpose
of making any calculation under the Indenture or
the Pooling and Servicing Agreement.
The Servicer is not authorized to permit an Early
Termination, without the addition to the Trust of
a related Additional Contract, if the amount to be
prepaid (whether
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11
<PAGE>
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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.
The Seller defines Contract delinquency as a
payment which is not made consistent with the
Contract terms and a Defaulted Contract as a
Contract for which (i) the Obligor thereunder is
subject to an Insolvency Event, or (ii) a full
contractual payment has not been received from the
Obligor (or the Vendor if Vendor recourse is
applicable) for 180 days or such shorter period as
the Seller may determine consistent with its
collection policy. See "NEWCOURT CREDIT GROUP INC.
AND NEWCOURT FINANCIAL USA INC.--CONTRACT
COLLECTIONS."
B. Equipment and Other . All of the Seller's right and interest (which is
Financed Items limited to a security interest) in the Equipment,
if any, subject to each Lease, 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 computer
work stations, personal computers, data storage
devices, mainframe and mini computers 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--EQUIPMENT" and "THE CONTRACT
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"). See "THE
CONTRACTS--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 Contract 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--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 Pooling 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
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12
<PAGE>
- --------------------------------------------------------------------------------
companies which extend credit to such parties
("VENDORS") which, in each case, provide the
Seller with the opportunity to finance
transactions relating to the acquisition or use by
an End-User of a Vendor's Equipment, Software,
Services or other products. Some of these Program
Agreements take the form of a referral
relationship, which may or may not include credit
support from the Vendor. All rights (but not
obligations) of the Seller under the Program
Agreements with respect to the Contracts are
generally assignable and will be so assigned by
the Seller to the Trust Depositor and in turn
conveyed by the Trust Depositor to the Trust.
Such rights may include various forms of
support to the Seller under such Program
Agreements including representations and
warranties by the Vendor in respect of the
End-User Contracts assigned by the Vendor to the
Class D Notes will bear interest at the rate of
[ ] Servicer Advances, to pay the Servicing
Fee and to 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--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
[ ]% of the ADCB of the Contract Pool as of
the Initial Cutoff Date (the "RESERVE FUND INITIAL
DEPOSIT""). Thereafter, additional deposits will
be made to the Reserve Fund to the extent
necessary to maintain the Reserve Fund Amount (as
defined herein) in the Reserve Fund. Amounts in
the Reserve Fund may be released to the
Certificateholder in the event amounts therein
exceed the then outstanding Principal Amounts of
the Notes and the Subordinated Notes.
Additionally, amounts on deposit in the Reserve
Fund in excess of the Reserve Fund Amount will be
paid to the Certificateholder. On each
Distribution Date, amounts on deposit in the
Reserve Fund will be applied as described under
"DESCRIPTION OF THE NOTES--ALLOCATIONS" and
"--RESERVE FUND."
Terms of the Notes . . . . The principal terms of the Notes will be as
described below:
A. Interest . . . . . . . The Class A-1 Notes will bear interest at the rate
of [ ]% 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 A-3 Notes will bear
interest at the rate of [ ]% per annum (the
"CLASS A-3 INTEREST RATE"), the Class A-4 Notes
will bear interest at the rate of [ ]% per
annum (the "CLASS A-4 INTEREST RATE"), the Class B
Notes will bear interest at the rate of [ ]%
per annum (the "CLASS B INTEREST RATE"), the Class
C Notes will bear interest at the rate of [ ]%
per annum (the "CLASS C INTEREST RATE"), the
Class D Notes will bear interest at the rate of
[ ]% per annum (the "CLASS D INTEREST RATE")
and the Class E Notes will bear interest at the
rate of [ ]% per annum (the "CLASS E 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
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13
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to all other Notes and the Subordinated Notes will
be calculated on the basis of a year of 360 days
consisting of twelve 30 day months.
Interest on the outstanding principal amount of
the Notes will accrue from and including the most
recent Distribution Date on which interest has
been paid (or, in the case of the initial
Distribution Date, from and including the Closing
Date) but excluding the following Distribution
Date (each period for which interest accrues on
the Notes, an "ACCRUAL PERIOD"). Interest on the
Notes will be payable on each Distribution Date,
commencing [ ], 1998, to the holders of
record of the Class A-1 Notes (the "CLASS A-1
NOTEHOLDERS"), the holders of record of the Class
A-2 Notes (the "CLASS A-2 NOTEHOLDERS"), the
holders of record of the Class A-3 Notes (the
"CLASS A-3 NOTEHOLDERS"), the holders of record of
the Class A-4 Notes (the "CLASS A-4 NOTEHOLDERS"),
the holders of record of the Class B Notes (the
"CLASS B NOTEHOLDERS"), 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, the Class A-3 Noteholders, the
Class A-4 Noteholders and the Class B Noteholders,
the "Noteholders"), the holders of record of the
Class D Notes (the "CLASS D NOTEHOLDERS") and the
holders of record of the Class E Notes (the "CLASS
E NOTEHOLDERS", together with the Class D
Noteholders, the "SUBORDINATED NOTEHOLDERS") as of
the related Record Date. See "DESCRIPTION OF THE
NOTES--GENERAL" and "THE INDENTURE--PAYMENTS OF
PRINCIPAL AND INTEREST" herein.
Interest on the Class A-1 Notes is payable on a
Distribution Date from Available Amounts available
on such date (after application of such Available
Amounts to repay any outstanding Servicer
Advances as defined herein, and to pay the
Servicing Fee, each as defined in this "SUMMARY OF
TERMS"). Such Available Amounts represent
primarily collections of payments due under the
Contracts (including realization of amounts from
Vendor recourse, if applicable and any amounts
realized from Guaranteed Residual Investments),
certain amounts received upon the prepayment or
purchase of Contracts or liquidation of the
Contracts and disposition of the related Equipment
upon defaults thereunder, and proceeds of Servicer
Advances (as defined herein), if any, amounts
available in the Reserve Fund, if any, (up to the
Reserve Fund Amount) as well as earnings on
amounts held in the Collection Account and the
Reserve Fund. Interest on the Class A-2 Notes is
payable on a Distribution Date from the Available
Amounts available on such date, (after application
of such Available Amounts to repay any outstanding
Servicer Advances, to pay the Servicing Fee and to
in "DESCRIPTION OF THE NOTES") for such
Subordinated Notes, and the payment of the Class
pay interest on the Class A-1 Notes) subject to
the proviso in the second succeeding sentence.
Interest on the Class A-3 Notes is payable on a
Distribution Date from the Available Amounts on
such date, (after application of such Available
Amounts to repay any outstanding Servicer
Advances, to pay the Servicing Fee, to pay
interest on the Class A-1 Notes and the Class A-2
Notes) subject to the proviso in the succeeding
sentence. Interest on the Class A-4 Notes is
payable on a Distribution Date from the Available
Amounts on such date, (after application of such
Available Amounts to repay any outstanding
Servicer Advances, to pay the Servicing Fee, to
pay interest on the Class A-1 Notes, the Class A-2
Notes and the Class A-3 Notes); PROVIDED, HOWEVER,
in the event an Event of Default has occurred,
interest on the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes
(to the extent Available Amounts are insufficient
to pay the entire amount of accrued interest on
the Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes) will be
paid from Available Amounts PRO RATA based on the
then outstanding Principal Amounts of such Class
A-1 Notes Class A-2 Notes, Class A-3 Notes and
Class A-4 Notes. Interest on the Class B Notes is
payable on a Distribution Date from the Available
Amounts available on such date, (after application
of such Available Amounts to repay any outstanding
Servicer Advances, to pay the Servicing Fee,
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14
<PAGE>
- --------------------------------------------------------------------------------
and to pay interest on the Class A-1 Notes, Class
A-2 Notes, Class A-3 Notes and Class A-4 Notes).
Interest on the Class C Notes is payable on a
Distribution Date from Available Amounts available
on such date, (after application of such Available
Amounts to repay any outstanding Servicer
Advances, to pay the Servicing Fee, and to pay
interest on the Class A-1 Notes, Class A-2 Notes,
Class A-3 Notes, Class A-4 Notes and the Class B
Notes). Interest on the Subordinated Notes is
payable on a Distribution Date from Available
Amounts available on such date, (after application
of such Available Amounts to repay any outstanding
Servicer Advances, to pay the Servicing Fee, and
to pay interest on the Class A-1 Notes, Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes,
the Class B Notes and the Class C Notes). See
"DESCRIPTION OF THE NOTES--ALLOCATIONS" herein.
B. Principal
General . . . . . . . . Principal of the Class A-1 Notes will be payable
on each Distribution Date in an amount equal to
the Class A-1 Principal Payment Amount (as defined
in "DESCRIPTION OF THE NOTES") for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment 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 (as defined
in "DESCRIPTION OF THE NOTES") for such
Subordinated Notes, and the payment of the Class
Class A Notes, (ii) [ ]% for the Class B
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and Subordinated
Notes and the Class A-1 Principal Payment Amount.
Principal of the Class A-3 Notes will be payable
on each Distribution Date in an amount equal to
the Class A-3 Principal Payment Amount (as defined
in "DESCRIPTION OF THE NOTES") for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and Subordinated
Notes, the Class A-1 Principal Payment Amount and
the Class A-2 Principal Payment Amount.
Principal of the Class A-4 Notes will be payable
on each Distribution Date in an amount equal to
the Class A-4 Principal Payment Amount (as defined
in "DESCRIPTION OF THE NOTES") for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and Subordinated
Notes, the Class A-1 Principal Payment Amount, the
Class A-2 Principal Payment Amount and the Class
A-3 Principal Payment Amount.
Principal of the Class B Notes will be payable on
each Distribution Date in an amount equal to the
Class B Principal Payment Amount (as defined in
"DESCRIPTION OF NOTES") for such Distribution
Date, to the extent Available Amounts are
available therefor, but after payment of unpaid
Servicer Advances, the Servicing Fee, interest
payments on the Notes and the Subordinated Notes,
and the payment of the Class A-1 Principal Payment
Amount, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount and the
Class A-4 Principal Payment Amount.
Principal of the Class C Notes will be payable on
each Distribution Date in an amount equal to the
Class C Principal Payment Amount (as defined
herein) for such Distribution Date, to the extent
Available Amounts are available therefor, but
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15
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- --------------------------------------------------------------------------------
after payment of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and
the Subordinated Notes, and the payment of the
Class A-1 Principal Payment Amount, the Class A-2
Principal Payment Amount, the Class A-3 Principal
Payment Amount, the Class A-4 Principal Payment
Amount and the Class B Principal Payment Amount.
See "DESCRIPTION OF THE NOTES--ALLOCATIONS"
herein.
Principal of the Class D 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
Class A Notes, (ii) [ ]% for the Class B
stated maturity date for the Class D Notes (the
A-1 Principal Payment Amount, the Class A-2
Principal Payment Amount, the Class A-3 Principal
Payment Amount, the Class A-4 Principal Payment
Amount, the Class B Principal Payment Amount and
the Class C Principal Payment Amount. See
"DESCRIPTION OF THE NOTES --ALLOCATIONS" herein.
Principal of the Class E Notes will be payable on
each Distribution Date in an amount equal to the
Class E Principal Payment Amount (as defined in
the "DESCRIPTION OF THE NOTES") for such
Distribution Date, to the extent Available Amounts
are available therefor, but after payment of
unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the
Subordinated Notes, and the payment of the Class
A-1 Principal Payment Amount, the Class A-2
Principal Payment Amount, the Class A-3 Principal
Payment Amount, the Class A-4 Principal Payment
Amount, the Class B Principal Payment Amount, the
Class C Principal Payment Amount and the Class D
Principal Payment Amount. See "DESCRIPTION OF THE
NOTES --ALLOCATIONS" herein.
The Class A-1 Principal Payment Amount, the Class
A-2 Principal Payment Amount, the Class A-3
Principal Payment Amount, the Class A-4 Principal
Payment Amount, the Class B Principal Payment
Amount, the Class C Principal Payment Amount, the
Class D Principal Payment Amount and the Class E
Principal Payment Amount represent, in each case,
a calculation of the amount to be payable from
otherwise Available Amounts on a Distribution Date
in respect of principal on the Class A-1 Notes,
the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes, the Class C
Notes or the Subordinated Notes. Such amount
generally is calculated, for the Subordinated
Notes and each Class of Notes other than the Class
A-1 Notes, as the amount necessary to reduce the
principal amount of such Class of Notes to a
fractional percentage of the ADCB of the Contract
Pool as of the last day of the most recent
Collection Period (I.E., full calendar month),
with the fractional percentage for each Class
determined based on the proportion that the
Initial Principal Balance of such Class (treating,
for purposes of this calculation only, Class A-2
Notes, Class A-3 Notes and Class A-4 Notes as one
Class) bore to Initial Principal Balance of all
Classes of Notes (excluding the Class A-1 Notes)
and the Subordinated Notes as of the Initial
Cutoff Date; PROVIDED, HOWEVER, the Class A-1
Notes will receive 100% of the Total Principal
Payment Amount prior to the payment of any
principal on the Class A-2 Notes, the Class A-3
Notes, the Class A-4 Notes, the Class B Notes,
the Class C Notes and the Subordinated Notes.
After payment in full of the Class A-1 Notes, if
sufficient Available Amounts exist, a
proportionate amount of principal would be repaid
on any given Distribution Date on each of the
Class A Notes, the Class B Notes, and the Class C
Notes (as well as the Subordinated Notes) based on
such percentages which are (i) [ ]% for the
Class A Notes, (ii) [ ]% for the Class B
stated maturity date for the Class D Notes (the
to any Contract, (A) as of the related Cutoff
Notes, (iii) [ ]% for the Class C Notes, (iv)
[ ]% for the Class D Notes, and [ ]%
for the Class E Notes. The principal amount
payable to the Class A Notes will be paid
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16
<PAGE>
- --------------------------------------------------------------------------------
sequentially first to the Class A-2 Notes until
paid in full, then to the Class A-3 Notes until
paid in full, and thereafter to the Class A-4
Notes until paid in full. To the extent the Class
B Floor exceeds the Class B Target Principal
Amount, the Class C Floor exceeds the Class C
Target Principal Amount, the Class D Floor exceeds
the Class D Target Principal amount and/or the
Class E Floor exceeds the Class E Target Principal
Amount, Additional Principal (as defined in the
"DESCRIPTION OF THE NOTES") would be distributed,
sequentially, as an additional principal payment
to the Class A-1 Notes, Class A-2 Notes, Class A-3
Notes, Class A-4 Notes, Class B Notes, Class C
Notes, Class D Notes and Class E Notes until the
Principal Amount of each has been reduced to zero.
Upon the occurrence of an Event of Default, (as
defined in "DESCRIPTION OF THE NOTES"), however,
the formula for determining such principal payment
amount, after payment in full of the Class A-1
Notes, will change with the result that, for any
Distribution Date occurring after such adverse
event, principal on the Class A-2 Notes, the Class
A-3 Notes, the Class A-4 Notes, the Class B Notes
and the Class C Notes (and also the Subordinated
Notes) will be accelerated and paid sequentially,
I.E., no principal will be paid on the Class A-3
Notes, the Class A-4 Notes, the Class B Notes, the
Class C Notes or the Subordinated Notes until the
Class A-2 Notes have been paid in full; no
principal will be paid on the Class A-4 Notes, the
Class B Notes, the Class C Notes or the
Subordinated Notes until the Class A-3 Notes have
been paid in full; no principal will be paid on
the Class B Notes, Class C Notes or the
Subordinated Notes until the Class A-4 Notes have
been paid in full; no principal will be paid on
the Class C Notes or the Subordinated Notes until
the Class B Notes have been paid in full; no
principal will be paid on the Class D Notes or the
Class E Notes until the Class C Notes have been
paid in full; and no principal will be paid on the
Class E Notes until the Class D Notes have been
paid 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; the stated maturity
date of the Class A-2 Notes (the "CLASS A-2 NOTES
MATURITY DATE") is the [ ] Distribution Date;
the stated maturity date of the Class A-3 Notes
(the "CLASS A-3 NOTES MATURITY DATE") is the
[ ] Distribution Date; the stated maturity
date for the Class A-4 Notes (the "CLASS A-4 NOTES
MATURITY DATE") is the [ ] Distribution
Date; the stated maturity date for the Class B
Notes (the "CLASS B NOTES MATURITY DATE") is the
[ ] Distribution Date; the stated maturity
date for the Class C Notes (the "CLASS C NOTES
MATURITY DATE") is the [ ] Distribution
Date; the stated maturity date for the Class D
Notes (the to any Contract, (A) as of the related
Cutoff Contract, the monthly, quarterly, semi-
annual or "CLASS D NOTES MATURITY DATE") is the
[ ] Distribution Date; and the stated maturity
date for the Class E Notes (the "CLASS E NOTES
MATURITY DATE") is the [ ] Distribution Date
(each of the Class A-1 Notes Maturity Date, the
Class A-2 Notes Maturity Date, the Class A-3 Notes
Maturity Date, the Class A-4 Notes Maturity Date,
the Class B Notes Maturity Date, the Class C Notes
Maturity Date, the Class D Notes Maturity Date and
the Class E Notes Maturity Date, the "MATURITY
DATE").
Expected Amortization . . . The expected amortization schedule for the Notes
Schedule is set forth herein under "DESCRIPTION OF THE
NOTES--PAYMENTS OF PRINCIPAL". Although the
Maturity Date for the A-1 Notes, A-2 Notes, A-
3 Notes, A-4 Notes, Class B Notes, Class C Notes,
Class D Notes and Class E Notes is the [ ]
Distribution Date, [ ] Distribution Date,
[ ] Distribution Date, [ ]
Distribution Date, [ ] Distribution Date,
[ ] Distribution Date, [ ]
Distribution Date and [ ] Distribution Date,
respectively, the expected final payment date for
the A-1 Notes, A-2 Notes, A-3 Notes, the A-4
Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes is the
[ ] Distribution Date, [ ]
Distribution Date, [ ] Distribution Date,
[ ] Distribution Date, [ ]
Distribution Date, [ ] Distribution Date,
[ ] Distribution Date and [ ]
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17
<PAGE>
- --------------------------------------------------------------------------------
Distribution Date, respectively, assuming a CPR of
[ ]% and that the Trust Depositor redeems the
Notes upon satisfaction of the Cleanup Call
Condition.
C. Optional Redemption . Notes remaining outstanding may be redeemed in
whole, but not in part, on any Distribution Date
at the Trust Depositor's option if the ADCB (as
defined herein) of the Contract Pool at such time
is less than 10% of the initial ADCB of the
Contract Pool as of the Initial Cutoff Date (the
"CLEANUP CALL CONDITION"). The redemption price
for such outstanding Notes to be redeemed in such
event (the "REDEMPTION PRICE") will be equal to
the unpaid principal amount of the Notes and
Subordinated Notes plus accrued and unpaid
interest thereon through the date of redemption.
The Trust Depositor will fund such redemption
through concurrent receipt of a payment from the
Seller pursuant to the Seller's right under the
Transfer and Sale Agreement to repurchase from the
Trust Depositor for the Redemption Price, and
concurrently cause the Trust Depositor to redeem
and repurchase from the Trust, the remaining
Contracts held in the Trust when the Cleanup Call
Condition has been satisfied.
Aggregate Discounted . . . The "AGGREGATE DISCOUNTED CONTRACT BALANCE" or
Contract Balance "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
Contract, the monthly, quarterly, semi-annual or
Date to receive (a) a monthly fee (the "SERVICING
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 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, [ ]%. The Discount Rate is
equal to the sum of (i) the weighted average of
the Class A-1 Interest Rate, Class A-2 Interest
Rate, Class A-3 Interest Rate, Class A-4 Interest
Rate, Class B Interest Rate, Class C Interest
Rate, Class D Interest Rate and Class E Interest
Rate, each weighted by (x) the Initial Class A-1
Note Principal Balance, Initial Class A-2 Note
Principal Balance, Initial Class A-3 Note
Principal Balance, Initial Class A-4 Note
Principal Balance, Initial Class B Note Principal
Balance, Initial Class C Note Principal Balance,
Initial Class D Note Principal Balance or Initial
Class E Note Principal Balance, as applicable, and
(y) the expected
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18
<PAGE>
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weighted average life of each Class of Notes or
the Subordinated Notes, as applicable, assuming a
CPR of [ ]%, and (ii) the Servicing Fee
Percentage. The Statistical Discount Rate is
equal to [ ]%. See "THE CONTRACT POOL".
"SCHEDULED PAYMENTS" means, with respect to any
Contract, the monthly, quarterly, semi-annual or
Date to receive (a) a monthly fee (the "SERVICING
certain circumstances. Each prepayment on a
annual rent or financing (whether principal or
principal and interest) payment scheduled to be
made by the related Obligor under the terms of
such Contract after the related Cutoff Date (it
being understood that Scheduled Payments do not
include any Excluded Amounts as defined herein or
payments with respect to Excluded Residual
Investments as defined herein).
Subordination . . . . . . . The Class A-1 Notes will be senior in right of
payment to the Class A-2 Notes, Class A-3 Notes,
Class A-4 Notes (except as described herein; see -
-"TERMS OF THE NOTES A. INTEREST" above), Class B
Notes, Class C Notes, Class D Notes and Class E
Notes; the Class A-2 Notes will be senior in right
of payment to the Class A-3 Notes, the Class A-4
Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes. The Class
A-3 Notes will be senior in right of payment to
the Class A-4 Notes, the Class B Notes, the Class
C Notes, the Class D Notes and the Class E Notes;
the Class A-4 Notes will be senior in right of
payment of the Class B Notes, the Class C Notes,
the Class D Notes and the Class E Notes. The
Class B Notes will be senior in right of payment
to the Class C Notes, the Class D Notes and the
Class E Notes; the Class C Notes will be senior in
right of payment to the Class D Notes and the
Class E Notes; and the Class D Notes will be
senior in right of payment to the Class E Notes;
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 servicing,
Servicer Advances 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 on each Distribution
Date to receive (a) a monthly fee (the "SERVICING
certain circumstances. Each prepayment on a
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 Pooling and
Servicing Agreement will be appointed as successor
Servicer. See "THE TRANSFER AND SALE AGREEMENT
AND
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19
<PAGE>
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POOLING AND SERVICING AGREEMENT--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
POOLING AND SERVICING AGREEMENT--COLLECTION AND
OTHER SERVICING PROCEDURES" herein.
Repurchase for Certain . . The Trust Depositor under the Pooling 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
POOLING AND SERVICING AGREEMENT"), 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 POOLING AND SERVICING AGREEMENT") is
materially adversely affected by a breach of a
representation or warranty made by such party with
respect to such Contract and if such breach has
not been cured within thirty (30) days of
discovery of such breach. See also "SUMMARY OF
TERMS--PREPAYMENT CONSIDERATIONS" below. In the
alternative, and at the Trust Depositor's and
Seller's option, the affected Contract may be
replaced with a Substitute Contract of similar
characteristics under the standards applicable
generally to Substitute Contracts as described
herein.
Maturity and Prepayment . . As noted above, non-Lease Contracts are generally
Conditions 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
Contracts materially adversely affected by such
breaches 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 Substitute
Contracts. 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
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20
<PAGE>
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otherwise have been had such prepayments not been
made or had such prepayments been made at a
different time.
Risk Factors . . . . . . . See "RISK FACTORS" for a discussion of certain
material risks that should be considered in
connection with an investment in the Notes offered
hereby, including certain legal risks.
Federal Income Tax . . . . In the opinion of Winston & Strawn, federal tax
Considerations 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 "[ ]", the Class A-3 Notes be rated at
least "[ ]", "[ ]" and "[ ]", that the
Class A-4 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 Standard & Poor's, Moody's and
Duff & Phelps' Investors Service, respectively
(collectively, the "RATING AGENCIES"). A rating
is not a recommendation to purchase, hold or sell
Notes inasmuch as such rating does not comment as
to market price or suitability for a particular
investor. Ratings address the likelihood of
timely payment of interest and the ultimate
payment of principal on the Notes pursuant to
their terms. Ratings will not address the
likelihood of an early return of invested
principal. There can be no assurance that any
rating will remain for a given period of time or
that a rating will not be lowered or withdrawn
entirely if, in the judgment of any Rating Agency,
circumstances in the future so warrant. See
"RATING OF THE NOTES" herein.
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21
<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, payments upon the liquidation of Defaulted Contracts (net of
liquidation expenses), 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 Pooling and Servicing
Agreement, and payments upon an optional termination of the Trust (any such
voluntary or involuntary prepayment, purchase or termination, a "PREPAYMENT";
provided, that the term Prepayment shall not include any payment attributable to
any Excluded Residual Investment). The occurrence of an Event of Default (as
defined herein) may also result in the receipt by one or more classes of
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" AND "--ADDITIONS OF TRUST
ASSETS" 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. There can be no assurance that a rating
will remain for a given period of time or that a rating will not be lowered or
withdrawn entirely by a Rating Agency if in its judgment circumstances (i.e.,
such as the performance of the Contracts or the Servicer) in the future so
warrant. In the event that the rating initially assigned to any Note is
subsequently lowered for any reason, no person or entity is obligated to provide
any additional credit support therefor. For more detailed information regarding
the ratings assigned to any Class of the Notes, see "RATING OF THE NOTES."
SUBORDINATION OF THE CLASS A-2 NOTES, THE CLASS A-3 NOTES, THE CLASS A-4 NOTES,
THE CLASS B NOTES, THE CLASS C NOTES AND THE SUBORDINATED SECURITIES
To the extent described herein under "DESCRIPTION OF THE
NOTES--ALLOCATIONS", (i) payments of interest and principal on the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class C
Notes, the Class D Notes and the Class E Notes will be subordinated in priority
of payment to interest and principal, respectively on the Class
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A-1 Notes, (ii) payments of interest and principal on the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes, the Class C Notes, the Class D Notes and the
Class E Notes 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 A-4 Notes, the Class B Notes, the Class C Notes, the
Class D Notes and the Class E Notes will be subordinated in priority of payment
to interest and principal, respectively, on the Class A-3 Notes, (iv) payments
of interest and principal on the Class B Notes, the Class C Notes, the Class D
Notes and the Class E Notes will be subordinated in priority of payment to
interest and principal, respectively on the Class A-4 Notes, (v) payments of
interest and principal on the Class C Notes, the Class D Notes and the Class E
Notes will be subordinated in priority of payment to interest and principal,
respectively, on the Class B Notes, (vi) payments of interest and principal on
the Class D Notes will be subordinated in priority of payment to interest and
principal, respectively, on the Class C Notes and (vii) payments of interest and
principal on the Class E Notes will be subordinated in priority of payment to
interest and principal, respectively, on the Class D 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 (see "DESCRIPTION OF THE NOTES--PRINCIPAL"), which will reduce the
benefit to the Notes of the subordination of the Subordinated Notes.
Delinquencies and defaults on the Contracts could eliminate the protection
afforded the Noteholders by the subordination of the Subordinated Notes and the
Reserve Fund, and the Class C Noteholders could incur losses on their investment
as a result. Further delinquencies and defaults on the Contracts could
eliminate the protection offered to the Class B Noteholders by the
subordination of the Class C Notes, the Subordinated Notes and the Reserve Fund,
and such Noteholders could also incur losses on their investment as a result.
Additionally, delinquencies and defaults on the Contracts could eliminate the
protection offered the Class A-2 Noteholders, Class A-3 Noteholders and Class
A-4 Noteholders by the subordination of the Class B Notes, the Class C Notes,
the Subordinated Notes and the Reserve Fund, and such Noteholders could also
incur losses on their investment as a result. Similarly, delinquencies and
defaults on the Contracts could eliminate the protection offered the Class A-3
Noteholders by the subordination of the Class A-4 Notes, the Class B Notes, the
Class C Notes, the Subordinated Notes and the Reserve Fund, and such Noteholders
could incur losses on their investment as a result. Delinquencies and defaults
on the Contracts could eliminate the protection offered the Class A-4
Noteholders by the subordination of the Class B Notes, the Class C Notes, the
Subordinated Notes and the Reserve Fund, and such Noteholders could incur losses
on their investment 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 investment 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 [ ]%, [ ]% and [ ]%, respectively, of the ADCB of
the Contract Pool as of the Initial Cutoff Date. No other state accounts for
more than [ ]% of the Contract Pool. To the extent adverse events or
economic conditions were particularly severe in any state or 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.
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 --EQUIPMENT", "--LEASES" and "--INSTALLMENT
PAYMENT AGREEMENTS AND FINANCING AGREEMENTS".
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DECLINES IN MARKET VALUE OF EQUIPMENT OR SOFTWARE; SHORTFALLS WITH RESPECT TO
AVAILABLE AMOUNTS TO PAY THE NOTES
In the event a Contract becomes a Defaulted Contract, the only source of
payment for amounts expected to be paid on such Contract will be the income and
proceeds from the disposition of any related Equipment and a deficiency
judgment, if any, against the Obligor under the Defaulted Contract. Since the
market value of the Equipment may decline faster than the Discounted Contract
Balance, the Servicer may not recover the entire amount due on the Contract and
might not receive any Recoveries on the Equipment. Typically, the Trust will
have no interest in any software and may therefore only have a deficiency claim
against the Obligor. To the extent such deficiencies deplete the Reserve Fund
and the protection afforded by the Subordinated Notes, such deficiencies may
create a shortfall with respect to payments on the Notes.
CERTAIN LEGAL RISKS
LEGAL RISKS ASSOCIATED WITH SERVICER'S OR VENDOR'S RETENTION OF CONTRACT
FILES. To facilitate servicing and reduce administrative costs, the Contract
Files (as defined herein) will be retained in the possession of the Servicer and
not be deposited with the Indenture Trustee or any other agent or custodian for
the benefit of the Noteholders (except for a limited number of End-User
Contracts evidenced by, in addition to a related Financing Agreement,
"INSTRUMENTS" not constituting chattel paper within the meaning of the Uniform
Commercial Code ("UCC"), which instruments will be delivered to the custody and
possession of the Indenture Trustee as pledgee of the Trust). The Servicer
will, however, notate on the appropriate electronic records the transfer of the
Contracts to the Trust. Also, UCC financing statements will be filed reflecting
the sale and assignment of the Contracts and related interests (the "TRANSFERRED
PROPERTY") by the Seller, to the Trust Depositor, and by the Trust Depositor to
the Trust, and the Servicer's accounting records and computer files will be
marked to reflect such sales and assignments. Because the Contract Files will
remain in the Servicer's possession, if a subsequent purchaser were able to take
physical possession of the Contract Files without knowledge of such assignment,
the Indenture Trustee's priority interest in the Contracts (as assignee of the
Seller's, Trust Depositor's and the Trust's interest) could be defeated. In the
event that the Trust must rely upon repossession and sale of the related
Equipment and other assets securing Defaulted Contracts to recover principal and
interest due thereon, the Trust's ability to realize upon such assets may be
limited due to the existence of a senior security interest in the Contracts. In
such event, distributions to Noteholders could be adversely affected.
Similarly, with respect to Secondary Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing such
Vendor Loan. Although UCC financing statements generally are filed reflecting
the pledge of such Contracts to the Seller as security for the Vendor Loans,
because these contract files will remain in the Vendor's possession, if a
subsequent purchaser were able to take physical possession of such contract
files without knowledge of the pledge to the Seller, the Indenture Trustee's
priority security interest in the such Secondary Contracts (as assignee of the
Seller's, Trust Depositor's and the Trust's interest) could be defeated. In
such event, distributions to Noteholders could be adversely affected. Each
Vendor represents, warrants and covenants in the applicable agreement evidencing
a Vendor Loan, however, that it has not and will not sell, pledge or otherwise
assign or convey to any other party (other than the Seller) any interest in the
Secondary Contracts securing such Vendor Loan, and agrees that it will maintain
possession of the related contract files as custodian for the benefit of the
Seller as secured party with respect to such Secondary Contracts.
LEGAL RISKS ASSOCIATED WITH TRANSFERS OF INTERESTS IN FINANCED EQUIPMENT.
In connection with the conveyance of the Contracts to the Trust, security
interests in the related financed Equipment securing such Contracts 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
with respect to Equipment relating to a single Obligor in a single jurisdiction
with an aggregate value less than $25,000 (the "MINIMUM VALUE FILING
EXCEPTION"). [ ] Contracts in the Contract Pool, aggregating [ ]%
of the ADCB as of the Initial Cutoff Date, are represented by the Contracts
described in 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. 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
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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 any
such security interest 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
security interests with respect to the Vehicles, the certificates of title or
similar instruments or registrations of title with respect to the Vehicles
securing Contracts will not identify the Trust as secured party 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. As of the Initial 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, however, the
Trust Depositor believes that with respect to the Equipment which constitutes a
"FIXTURE", it has obtained a perfected first priority security interest (except
with respect to the Minimum Value Filing Exception), 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. As of the Initial 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 in the name of the
Trustee, 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 (except with respect to the Minimum Value
Filing Exception), if (i) such breach shall materially adversely affect the
rights of the holder of such Contract in such Equipment 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.
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LEGAL RISKS ASSOCIATED WITH TRANSFER OF CONTRACTS. There are certain
limited circumstances under the UCC and applicable federal law in which prior or
subsequent transferees of Contracts or Secondary Contracts could have an
interest in such contracts with priority over the Trust's interest. See
"CERTAIN LEGAL ASPECTS OF THE CONTRACTS--TRANSFER OF CONTRACTS." Under each
Vendor Agreement, the Vendor (i) has or will warrant to the Seller that the
Contracts transferred to the Seller thereunder will be transferred free and
clear of the lien of any third party and that the interests in Secondary
Contracts transferred thereunder will be transferred free and clear of the lien
of any third party and (ii) has or will also covenant that it will not sell,
pledge, assign, transfer or grant any lien on any Contract (or Secondary
Contract) transferred thereunder to the Seller. Under the Transfer and Sale
Agreement, the Seller will warrant to the Trust Depositor and, under the Pooling
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 Pooling and Servicing Agreement, the Trust Depositor will also
covenant to the Trust, that it will not sell, pledge, assign, transfer or grant
any lien on any Contract or Secondary Contract transferred to the Trust
Depositor or the Trust.
RISK OF INEFFECTIVE SALE IN VENDOR BANKRUPTCY. The Seller will either (i)
originate Contracts or (ii) acquire End-User Contracts from a Vendor, which
Contracts will be transferred to the Trust Depositor. If the acquisition of an
End-User Contract by the Seller is treated as a sale of such Contract from the
applicable Vendor to the Seller, except in certain limited circumstances, such
Contract would not be part of such Vendor's bankruptcy estate and would not be
available to such Vendor's creditors. If a Vendor became a debtor in a
bankruptcy case and, in the case of End-User Contracts acquired as described in
clause (ii) above, if an unpaid creditor of such Vendor or a representative of
creditors of such Vendor, such as a trustee in bankruptcy, or such Vendor acting
as a debtor-in-possession, were 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. If the transfer of End-User Contracts to the Seller
as described in clause (ii) above is recharacterized as a pledge, a tax or
government lien on the property of the pledging Vendor arising before the
Contracts came into existence may have priority over the Seller's (and hence the
Trust Depositor's, the Trust's and the Indenture Trustee's) interest in the
Contracts. No law firm will, in connection with the offering of the Notes,
express any opinion as to the issues discussed in this paragraph. See "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS--CERTAIN MATTERS RELATING TO BANKRUPTCY".
RISK OF INEFFECTIVE SALE IN SELLER BANKRUPTCY. In the Transfer and Sale
Agreement, the Seller will warrant to the Trust Depositor that the conveyance
of the Contracts to the Trust Depositor thereunder is a valid sale and transfer
of such Contracts to the Trust Depositor. In addition, the Seller and the Trust
Depositor have covenanted that they will each treat the transactions described
herein as a sale of the Contracts to the Trust Depositor, and the Seller will
take all actions that are required under applicable law to perfect the Trust
Depositor's ownership interest in the Contracts sold by the Seller and the Trust
Depositor's security interest (as assignee of the Seller's security interest) in
the Secondary Contracts securing Vendor Loans sold by the Seller. See "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS--TRANSFER OF CONTRACTS". Moreover, Winston &
Strawn, special counsel to the Seller and the Trust Depositor, will render a
reasoned opinion to the effect that in the event the Seller became a debtor
under the United States Bankruptcy Code, the transfer of the Contracts from the
Seller to the Trust Depositor in accordance with the Transfer and Sale Agreement
would be treated as a sale and not as a pledge to secure borrowings.
If, however, the transfer of the Contracts from the Seller to the Trust
Depositor were treated as a pledge to secure borrowings by the Seller, the
distribution of proceeds of the Contracts to the Trust might be subject to the
automatic stay provisions of the United States Bankruptcy Code, which would
delay the distribution of such proceeds for an uncertain period of time. In
addition, a bankruptcy trustee would have the power to sell the Contracts if the
proceeds of such sale could satisfy the amount of the debt deemed owed by the
Seller, or the bankruptcy trustee could substitute other collateral in lieu of
the Contracts to secure such debt, or such debt could be subject to adjustment
by the bankruptcy court if the Seller were to file for reorganization under
Chapter 11 of the United States Bankruptcy Code. A case decided by the United
States Court of Appeals for the Tenth Circuit contains language to the effect
that accounts sold by a debtor under Article 9 of the UCC would remain property
of the debtor's bankruptcy estate. If, following a bankruptcy of the Seller, a
court were to follow the reasoning of the Tenth Circuit and apply such reasoning
to chattel paper, then similar reductions or delays in payments of collections
on or in respect of the Contracts could occur. Additionally, because the Seller
has purchased Contracts from Vendors located in the Tenth Circuit which could
become debtors in a bankruptcy proceeding, the rationale of such case could be
applicable to such Vendors' sales of End User Contracts to the Seller.
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RISK OF REJECTION OF "TRUE LEASES". A bankruptcy trustee or debtor in
possession under the United States Bankruptcy Code (Title 11 U.S.C. 101 et
seq.) (the "BANKRUPTCY CODE") has the right to elect to assume or reject any
executory contract or unexpired lease which is considered to be a "TRUE LEASE"
(and not a financing) under applicable law. Any rejection of such a contract or
lease would constitute a breach of such contract or lease, as applicable, as of
the day preceding the commencement of the applicable bankruptcy case, entitling
the nonbreaching party to a pre-petition claim for damages.
Certain End-User Contracts will be "TRUE LEASES" and thus subject to
rejection by the lessor under the Bankruptcy Code. Any such End-User Contract
originated by the Seller or acquired by the Seller in a transaction whereby the
Seller is the "LESSOR" thereunder, will be subject to rejection by the Seller,
as debtor in possession, or by the Seller's bankruptcy trustee. Upon any such
rejection, Scheduled Payments under such rejected End-User Contract may
terminate and the Noteholders may be subject to losses if proceeds realizable
from security interests in the related Equipment are insufficient to cover the
losses. In addition, any End-User Contract which is a "TRUE LEASE" originated
by a Vendor and transferred to the Seller in a transaction whereby such Vendor
continues to be the "LESSOR" thereunder (such as a transfer by a Vendor to the
Seller of a security interest in such End-User Contract or a transfer by a
Vendor to the Seller of an interest in the right to payments only under any such
End-User Contract), will be subject to rejection by such Vendor, as debtor in
possession, or by such Vendor's bankruptcy trustee. Upon any such rejection,
Scheduled Payments under such rejected End-User Contract may terminate and the
Noteholders may be subject to losses if the proceeds realizable from security
interests in the related Equipment are insufficient to cover the losses.
As of the Initial Cutoff Date, 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 Pooling 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
27
<PAGE>
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 Pooling and Servicing Agreement could occur, although the
Noteholders would continue to have the benefit of the Indenture Trustee's
security interest in the Vendor Loans and Applicable Security therefor under the
Indenture.
The right of the Indenture Trustee, as secured party under the Indenture
for the benefit of the Noteholders, to foreclose upon and sell any Secondary
Contracts or Applicable Security is likely to be significantly impaired by
applicable bankruptcy laws, including the automatic stay pursuant to Section 362
of the Bankruptcy Code, if a bankruptcy proceeding were to be commenced by or
against a Vendor obligated on a Vendor Loan, before or possibly even after the
Indenture Trustee has foreclosed upon and sold such Secondary Contracts or
Applicable Security for the reasons described above in the second preceding
paragraph.
Certain Vendor Assignments and certain assignments executed under various
Program Agreements (each, a "PROGRAM ASSIGNMENT") provide that the Seller has
recourse to the related Vendor for all or a portion of the losses the Seller may
incur as a result of a default under the End-User Contracts sold under such
Vendor Assignment or Program Assignment. In the event of a Vendor's bankruptcy,
a bankruptcy trustee, a creditor or the Vendor, as debtor in possession, might
attempt to characterize sales to the Seller pursuant to such Vendor Assignments
or Program Assignments as loans to the Vendor from the Seller secured by the
Contracts sold thereunder. If such an attempt is successful, such Vendor
Assignment or Program Assignment would be subject to the risks described herein
for Vendor Loans. In such case, the Contracts sold under such Vendor Assignment
or Program Assignment would constitute Secondary Contracts under the
recharacterized Vendor Assignment or Program Assignment.
RISKS ASSOCIATED WITH REQUIRED SALE OF CONTRACTS RESULTING FROM TRUST
DEPOSITOR BANKRUPTCY. If a conservator, receiver or liquidator of the Trust
Depositor was appointed or if certain other events relating to the bankruptcy,
insolvency or receivership of the Trust Depositor were to occur (an "INSOLVENCY
EVENT"), then an Event of Default would occur with respect to the Notes and,
pursuant to the terms of the Indenture and the Pooling 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
28
<PAGE>
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 (ii) to the best of the Seller's
knowledge, each End-User has accepted the Equipment leased to it and, after
reasonable opportunity to inspect and test, has not notified the Seller of any
defects therein. Article 2A, moreover, recognizes typical commercial lease
"HELL OR HIGH WATER" rental payment clauses (which clauses unconditionally
obligate the lessee to make all scheduled payments, without setoff) and
validates reasonable liquidated damages provisions in the event of lessor or
lessee defaults. Article 2A also recognizes the concept of freedom of contract
and permits the parties in a commercial context a wide degree of latitude to
vary from the provisions of the law.
RISK OF STATE TAXES. Because of the inclusion of "TRUE LEASES" in the
Trust, a risk exists that certain states may attempt to impose taxes on the
Trust.
CERTAIN CONTRACTS RELATING TO SOFTWARE OR SERVICES ARE NOT SECURED BY SUCH
SOFTWARE OR SERVICES
Certain Contracts will relate not to Equipment but rather to Software or
Services that are not owned by the Seller (the Vendor or a licensor
traditionally owns the same) and in which no related interest will be
transferred to the Trust (I.E. the Trust owns solely the associated Contracts'
cash flow). It is a condition to the issuance of the Notes that as of the
Closing Date that the ADCB of all Contracts which finance, lease or are related
to Software does not exceed [ ]% of the ADCB of the Contract Pool. See
"THE CONTRACTS". 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 POOLING AND SERVICING AGREEMENT--REPRESENTATIONS AND
WARRANTIES" herein. Because the Trust is a limited purpose trust with limited
assets, the Noteholders must rely solely upon the Contracts, security interests
in the related Equipment 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
29
<PAGE>
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."
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 immediately preceding (and with the proceeds of)
the issuance of the Notes and the Subordinated Securities contemplated hereby
and that certain of such contracts will be included in the Contract Portfolio.
VFCC is a special purpose company the business of which is limited, generally,
to the purchase of, or the making of loans against receivables or interests in
financial assets. First Union Capital Markets Corp. is the Administrator of
VFCC, an entity which is not affiliated with First Union Corporation, First
Union Capital Markets Corporation or any of their respective affiliates.
THE TRUST
The Notes offered hereby will be issued by the Trust which has been
established by the Trust Depositor pursuant to the Trust Agreement. The
Contract Pool will be formed and transferred to the Trust pursuant to the
Pooling and Servicing Agreement and pledged to the Indenture Trustee pursuant
to the Indenture.
The Trust was organized as a limited purpose business trust formed in
accordance with the laws of the State of Delaware, pursuant to the Trust
Agreement, solely for the purpose of effectuating the transactions described
herein. Prior to its formation on August __, 1998, the Trust will have had no
assets or obligations and no operating history. The Trust will not engage in any
business activity other than (a) acquiring, managing and holding the Contracts
and related interests described herein, (b) issuing the Notes and the
Subordinated Securities, (c) making distributions and payments thereon and (d)
engaging in those activities, including entering into agreements, that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith. The Trust will not own any physical properties.
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 CONTRACT 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
[ ], 1998 (the "TRANSFER AND SALE AGREEMENT"), as well as any Additional
Contracts or Substitute Contracts conveyed thereunder as described herein as of
their applicable Cutoff Dates. The Transferred Contracts have been and will be
selected by the Seller from its portfolio of contracts based on the criteria
specified in the Transfer and Sale Agreement and the Pooling and Servicing
Agreement. See "THE POOLING AND SERVICING AGREEMENT--REPRESENTATIONS AND
WARRANTIES" and "--CONCENTRATION AMOUNTS" herein which specifically describe the
criteria for eligibility in the Contract 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 Initial 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 [ ] and the average
Discounted Contract Balance was approximately $[ ].
30
<PAGE>
For further information regarding the Transferred Contracts, see "THE
CONTRACTS" herein and "THE CONTRACT 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
Initial Cutoff Date. Subschedules to Transferred Contracts reflecting amounts
billed to separate billing locations are treated as separate Transferred
Contracts. Classification by industry is based on Newcourt's customary
procedures for determining the obligor's industry. The largest End-User
industry concentration (including End-User Obligors on Contracts originated by
the Seller directly, as well as Contracts originated through Vendors with or
without Vendor recourse, and Secondary Contracts securing Vendor Loans), which
represents an ADCB of $[ ] or [ ]% of the ADCB of the Contract Pool
as of the Initial Cutoff Date, relates to the transportation industry. See
"RISK FACTORS--CERTAIN RISKS ASSOCIATED WITH GEOGRAPHIC OR INDUSTRY
CONCENTRATIONS OF CONTRACTS" herein, and "THE CONTRACT 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 Initial Cutoff Date
and the Statistical Discount Rate. Certain Contracts included in the pool as of
the Initial Cutoff Date may be determined not to meet the eligibility
requirements for the final pool, and may not be included in the final Contract
Pool. While the statistical distribution of the characteristics as of the
Closing Date for the final Contract Pool and calculated at the actual Discount
Rate will vary somewhat from the statistical distribution of such
characteristics as of the Initial Cutoff Date and calculated at the Statistical
Discount Rate as presented in this Prospectus, such variance is not expected to
be material. The percentages and balances set forth in each of the following
tables may not sum to the indicated totals due to rounding.
31
<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 $
DISTRIBUTION OF CONTRACTS BY CONTRACT TYPE
<TABLE>
<CAPTION>
Percentage of Aggregate
Percentage of Number of Aggregate Discounted Discounted Contract
Number of Contracts Contracts Contract Balance Balance
<S> <C> <C> <C> <C>
CSAs
True Leases
Finance Leases
IPAs
Secured Notes
Unsecured Notes
Other Financing Agreements
Total
</TABLE>
32
<PAGE>
DISTRIBUTION OF CONTRACTS BY STATE IN WHICH OBLIGORS ARE LOCATED
<TABLE>
<CAPTION>
Percentage of
Aggregate
Percentage of Discounted Discounted
State Number of Number of Contract Contract
Contracts Contracts Balance Balance
<S> <C> <C> <C> <C>
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Aggregate
Percentage of Discounted Discounted
State Number of Number of Contract Contract
Contracts Contracts Balance Balance
<S> <C> <C> <C> <C>
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Total
</TABLE>
34
<PAGE>
DISTRIBUTION OF CONTRACTS BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Percentage of Aggregate
Number of Percentage of Number Discounted Contract Discounted Contract
Equipment Type Contracts of Contracts Balance Balance
<S> <C> <C> <C> <C>
Transportation
Construction
Computer Hardware
Computer Software
Resources
Printing Presses/Equipment
Healthcare Equipment
Industrial Equipment
Commercial/Retail Fixtures
Automotive Diagnostic
Equipment
Manufacturing Equipment
Other/Miscellaneous
Total
</TABLE>
35
<PAGE>
DISTRIBUTION OF CONTRACTS BY OBLIGOR INDUSTRY
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Number Discounted Contract Aggregate Discounted
Industry Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
Transportation
Resources
Construction
Printing
Financial Management
Distribution
Manufacturing
Government
Commercial
Small Business
Other/Miscellaneous
Total
</TABLE>
36
<PAGE>
DISTRIBUTION OF CONTRACTS BY DISCOUNTED CONTRACT BALANCE
<TABLE>
<CAPTION>
Percentage of
Number of Percentage of Number Discounted Contract Aggregate Discounted
Discounted Contract Balance Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
$ 0 LESS THAN OR EQUAL TO $25,000
$25,001 LESS THAN OR EQUAL TO $50,000
$50,001 LESS THAN OR EQUAL TO $75,000
$75,001 LESS THAN OR EQUAL TO $100,000
$100,001 LESS THAN OR EQUAL TO $200,000
$200,001 LESS THAN OR EQUAL TO $300,000
$300,001 LESS THAN OR EQUAL TO $400,000
$400,001 LESS THAN OR EQUAL TO $500,000
$500,001 LESS THAN OR EQUAL TO $1,000,000
$1,000,001 LESS THAN OR EQUAL TO $4,000,000
greater than $4,000,000
TOTAL
</TABLE>
37
<PAGE>
DISTRIBUTION OF CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Percentage of
Remaining Term Percentage of Number Discounted Contract Aggregate Discounted
(Months) Number of Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
1 LESS THAN OR EQUAL TO 12
13 LESS THAN OR EQUAL TO 24
25 LESS THAN OR EQUAL TO 36
37 LESS THAN OR EQUAL TO 48
49 LESS THAN OR EQUAL TO 60
61 LESS THAN OR EQUAL TO 72
73 LESS THAN OR EQUAL TO 84
GREATER THAN 84
Total
</TABLE>
DISTRIBUTIONS OF CONTRACTS BY
ORIGINAL CONTRACT TERM
<TABLE>
<CAPTION>
Percentage of
Original Term Number of Percentage of Number Discounted Contract Aggregate Discounted
(Months) Contracts of Contracts Balance Contract Balance
<S> <C> <C> <C> <C>
1 LESS THAN OR EQUAL TO 12
13 LESS THAN OR EQUAL TO 24
25 LESS THAN OR EQUAL TO 36
37 LESS THAN OR EQUAL TO 48
49 LESS THAN OR EQUAL TO 60
61 LESS THAN OR EQUAL TO 72
73 LESS THAN OR EQUAL TO 84
GREATER THAN 84
Total
</TABLE>
38
<PAGE>
DELINQUENCY AND LOAN LOSS INFORMATION
Set forth below is certain information regarding the delinquency and loss
experience of Newcourt USA with respect to its portfolio of financing agreements
(including Contracts and other financing agreements that it previously sold but
continues to service) for users of a wide variety of new and used information
technology equipment (such as computer work stations, personal computers, data
storage devices, mainframe and mini computers and other computer related
peripheral equipment), communications equipment (such as telephone switching and
networking systems), commercial business and industrial equipment (such as
printing presses, machine tools and other manufacturing equipment,
photocopiers, facsimile machines and other office equipment, energy savings and
control equipment, automotive diagnostic and automated testing equipment),
medical equipment (such as diagnostic and therapeutic examination equipment for
radiology, nuclear medicine and ultrasound and laboratory analysis equipment),
resources equipment (such as feller-bunchers and grapplers), and transportation
and construction equipment (such as heavy and medium duty trucks and highway
trailers, school buses, bulldozers, loaders, graters, excavators, forklifts and
other materials handling equipment, golf carts and other road and off-road
machinery). The information set forth below includes delinquency and loss
experience of Newcourt USA with respect to financing agreements for
"micro-ticket" items which are included in Newcourt USA's portfolio but which
are not being, and will not be, transferred to the Trust. There can be no
assurance that the levels of delinquency and loss experience on the Contracts
will be comparable to that set forth below. The contracts to which the
following tables relate (the "SUBJECT CONTRACTS") were, prior to the end of the
first quarter of 1996, serviced to a limited extent (specifically, the
invoicing, cash application and sales and tax reporting with respect thereto) by
Parrish Financial Servicing L.P., an unaffiliated independent servicing
contractor. The Servicer may delegate certain of its servicing responsibilities
with respect to the Contracts to an affiliate or a third party (each, a
"THIRD-PARTY SERVICER"), provided that the Servicer will remain obligated to the
Owner Trustee and the Depositor for the proper performance of all such servicing
responsibilities. [Of the Contracts included in the Contract Portfolio,
approximately [ ] such Contracts, with an ADCB as of the date hereof of
$[ ] or [ ]% of the ADCB of the Contract Pool, are being serviced by
Third-Party Servicers.] Due to the acquisition of Contract portfolios from
various Vendors and the development of additional finance programs with various
Vendors, the data set forth is not necessarily comparable on a year-to-year
basis. Data set forth for the [three months ended March 31, 1998] is not
indicative of results for the full year.
39
<PAGE>
NEWCOURT USA PORTFOLIO
DELINQUENCY EXPERIENCE (a), (b), (c) AND (d)
AT
-----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
March 31, December 31, December 31, December 31,
1998 1997 1996 1995
<S> <C> <C> <C> <C>
Outstanding Investment
in Contracts
31-60 days
61-90 days
90-120 days
Over 120 days
Total (% of Outstanding
Investment in Contracts)
</TABLE>
(a) Outstanding Investment is equal to the outstanding funds deployed for
the acquisition of the financing agreements less any associated
payments made under such financing agreement relating to the principal
component of such financing agreement.
(b) Newcourt USA classifies accounts as delinquent at the time a payment
(or a portion thereof) remains unpaid 31 days or more following the
date on which such payment is due. The amount classified as
delinquent is the present value of all remaining scheduled payments
discounted at the applicable contract rate and any past due amounts
relating to such financing agreements. Delinquent accounts are
written off in their entirety when a determination is made that the
account is uncollectible.
(c) The percentages in any column may not total 100% due to rounding.
(d) Includes all U.S. assets originated through the Transportation &
Construction Equipment Origination Channel, Information Technology
Origination Channel and Commercial Origination Channel including small
balance assets (i.e., "micro-ticket" assets) originated, and still
held on Newcourt USA's balance sheet, from its acquisition of Anthem
in 1996 (but excludes assets securitized and sold through Newcourt
Equipment Receivables Trust 1996-A and Newcourt Equipment Receivables
Trust 1997-A).
40
<PAGE>
NEWCOURT USA PORTFOLIO
LOSS EXPERIENCE (a) AND (d)
AT
-----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Twelve Months Twelve Months Twelve Months
Ended Ended Ended Ended
March 31, 1998 December 31, 1997 December 31, 1996 December 31, 1995
<S> <C> <C> <C> <C>
Outstanding Investment
in Contracts
Gross Losses
Recoveries
Net Losses
Net Losses as a
Percentage of
Average Outstanding
Investment in
Contracts(c)
</TABLE>
(a) Outstanding Investment is equal to the outstanding funds deployed for
the acquisition of the financing agreements less any associated
payments made under such financing agreement relating to the principal
component of such financing agreement.
(b) Annualized.
(c) Average Outstanding Investment is the average of the Outstanding Investment
at the end of each quarter.
(d) Includes all U.S. assets originated through Newcourt USA's
Transportation & Construction Equipment Origination Channel,
Information Technology Origination Channel and Commercial Origination
Channel including small balance assets (i.e., "micro-ticket" assets)
originated, and still held on Newcourt USA's balance sheet, from its
acquisition of Anthem in 1996 (but excludes assets securitized and
sold through Newcourt Equipment Receivables Trust 1996-A and Newcourt
Equipment Receivables Trust 1997-A).
THE DATA PRESENTED IN THE FOREGOING TABLES ARE FOR ILLUSTRATIVE PURPOSES ONLY
AND THERE IS NO ASSURANCE THAT THE DELINQUENCY OR LOSS EXPERIENCE OF THE
CONTRACTS WILL BE SIMILAR TO THAT SET FORTH ABOVE. SEE "RISK FACTORS" AND
"CERTAIN LEGAL ASPECTS OF THE CONTRACTS".
41
<PAGE>
THE CONTRACTS
The Trust will be entitled to all collections on account of the Contracts
in the Contract Pool and related Equipment and Applicable Security, except for
(i) collections on deposit in the Collection Account or otherwise received by
the Servicer on or with respect to the Contract Pool or related Equipment, which
collections are attributable to any taxes, fees or other charges imposed by any
governmental authority, (ii) collections representing reimbursements of
insurance premiums or payments for certain services that were not financed by
the Seller, (iii) collections relating to security deposits, (iv) collections
relating to payments which were scheduled to be made by any Obligor on any
Contract pursuant to the terms of such Contract prior to the Cutoff Date related
to such Contract, (v) collections of late charges relating to a Contract ("LATE
CHARGES") (amounts described in clauses (i), (ii), (iii), (iv) and (v),
"EXCLUDED AMOUNTS") and (vi) collections relating to Excluded Residual
Investments.
END-USER CONTRACTS
The following discussion describes the End-User Contracts (including
End-User Contracts which are Secondary Contracts). All of the End-User
Contracts to be included in the Trust are CSAs, Leases, Secured Notes, IPAs and
Financing Agreements in respect of Equipment, Software and Services. There is
no limit on the number of Contracts in the Contract Pool which may consist of
any of the foregoing types. Each Contract is required, however, to be an
Eligible Contract (as defined under "THE TRANSFER AND SALE AGREEMENT AND POOLING
AND SERVICING AGREEMENT") as of the Cutoff Date.
CONDITIONAL SALE AGREEMENTS. The Seller offers financing for Equipment
under CSAs assigned to the Seller by Vendors. It is expected that most of the
CSAs in the Contract Pool will consist of the Seller's standard pre-printed
form, or of the Vendors' standard, pre-printed forms. The CSA sets forth the
description of each Financed Item and the schedule of installment payments.
Generally, loans under CSAs are fixed rate and are for a one to seven year term.
Payments under CSAs generally are due monthly. CSA terms (i) provide for a
grant by the End-User thereunder of a security interest in any related Equipment
(which security interest is assigned by the Vendor to the Seller), (ii) may
allow prepayment of the obligation upon payment, where allowed by applicable
state law, of an additional prepayment fee, (iii) require the End-User to
maintain the Equipment, keep it free and clear of liens and encumbrances and pay
all taxes related to the Equipment, (iv) restrict the modification or disposal
of the Equipment without the seller's, or its assignee's, consent, (v) include a
disclaimer of warranties, (vi) include the End-User's indemnity against
liabilities arising from the use, possession or ownership of the Equipment,
(vii) include the End-User's absolute (except as provided in clause (ii)) and
unconditional obligation to pay the installment payments thereunder and (viii)
include specifically identifiable events of default and remedies therefor. The
CSA also requires each End-User to maintain insurance, the terms of which may
vary. The terms of a CSA may be modified at its inception at the End-User's
request. Such modifications must either be approved by the Seller's legal
department and certain levels of management before the Seller will agree to
accept an assignment of the CSA from a Vendor, or the Vendor must indemnify the
Seller against any losses or damages it may suffer as a result of such
modifications.
LEASES. The Seller, either directly or by assignment from Vendors, offers
financing of Equipment, Software and Services under Leases. Leases may consist
of individual lease agreements relating to a single, separate transaction and
Financed Item, or may consist of individual transactions written under and
governed by a master lease agreement (each, an "MLA") which contains the general
terms and conditions of the transaction. Specific terms and conditions, such as
descriptions of the specific Equipment, Software and Services being leased or
financed and the schedule of related rental payments, are contained in a
supplement or schedule to the MLA (each an "MLA SUPPLEMENT"), which is signed by
the End-User as lessee, and either the Vendor or the Seller, as lessor. The MLA
Supplement incorporates the MLA by reference, and is treated by the Seller as a
separate Lease. Each Lease is originated in the ordinary course of business by
either the Seller or a Vendor (and assigned to the Seller pursuant to a Vendor
Agreement).
The initial terms of the Leases in the Contract Pool generally range from
one to seven years. Each Lease provides for the periodic payment by the
End-User of rent in advance or arrears, generally monthly or quarterly. Such
periodic payments represent the amortization, generally on a level basis, of the
total amount that an End-User is required to pay throughout the term of a Lease.
The Leases to be included in the Contract Pool are "NET LEASES" under which
the End-User assumes responsibility for the Financed Items, including operation,
maintenance, repair, insurance or self-insurance, return of any Equipment at the
expiration or termination of the Lease and the payment of all sales and use and
property taxes relating to the Financed Items during the Lease term. The
End-User further agrees to indemnify the lessor for any liabilities
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arising out of the use or operation of the Financed Items. In most cases, the
lessor is also authorized to perform the End-User's obligations under the Lease
at the End-User's expense, if it so elects, in cases where the End-User has
failed to perform. In addition, the Leases generally contain "HELL OR HIGH
WATER" clauses unconditionally obligating the End-User to make periodic
payments, without setoff, at the times and in the amounts specified in the
Lease. If the Seller is the lessor, the Lease contains no express or implied
warranties with respect to the Financed Items other than a warranty of quiet
enjoyment. If a Vendor is the lessor, the Lease or a related agreement may
contain certain representations and warranties with respect to the Financed
Items in addition to a warranty of quiet enjoyment; HOWEVER, the End-User agrees
not to assert any warranty claims against any assignee of the Vendor (which
would include the Seller) by way of setoff, counterclaim or otherwise, and
further agrees that it may only bring such claims against the Vendor. All
Leases of Equipment generally require the End-User to maintain, at its expense,
casualty insurance covering damage to or loss of the Equipment during the Lease
term or to self-insure against such risks, if approved in advance by the Seller
or Vendor, as applicable.
The Leases include both "TRUE LEASES" and leases intended for security as
defined in Section 1-201(37) of the UCC. Under a "TRUE LEASE," the lessor bears
the risk of ownership (although the risk of loss of the Equipment is passed to
the End-User under the Leases), takes any tax benefits associated with the
ownership of depreciable property under applicable law and no title is conferred
upon the lessee. The lessee under a "TRUE LEASE" has the right to the temporary
use of property for a term shorter than the economic life of such property in
exchange for payments at scheduled intervals during the lease term and the
lessor retains a significant "RESIDUAL" economic interest in the leased
property. See "-RESIDUAL INVESTMENTS." End of lease options for "TRUE LEASES"
include purchase or renewal at fair market value. Under leases intended for
security, the lessor in effect finances the "PURCHASE" of the leased property by
the lessee and retains a security interest in the leased property. The lessee
retains the leased property for substantially all its economic life and the
lessor retains no significant residual interest. Such leases are considered
conditional sales type leases for federal income tax purposes and, accordingly,
the lessor does not take any federal tax benefits associated with the ownership
of depreciable property. End of lease options for such Leases depend on the
terms of the related individual lease agreement or MLA Supplement, but generally
such terms provide for the purchase of the Equipment at a prestated price, which
may be nominal. The inclusion of "TRUE LEASES" in the Contract Pool will have
no federal income tax impact on Noteholders since the Notes are treated as debt
for federal income tax purposes although the inclusion of such leases may result
in the imposition of state and local taxes which would reduce cash available for
payment on the Notes. See "CERTAIN FEDERAL INCOME TAX MATTERS." "TRUE LEASES"
are treated differently under the Bankruptcy Code from leases intended for
security. See "CERTAIN LEGAL ASPECTS OF THE CONTRACTS--CERTAIN MATTERS RELATING
TO BANKRUPTCY."
End-Users under a Lease are either prohibited from altering or modifying
the Equipment or may alter or modify the Equipment only to the extent the
alterations or modifications are readily removable without damage to the
Equipment. Under certain MLAs, the End-User may assign its rights and
obligations under the Lease, but only upon receiving the prior written consent
of the lessor, or may relocate the Equipment upon giving the lessor prompt
written notice of such relocation. The right to grant or deny such consent or
to receive such written notice will be exercised by the Servicer pursuant to the
authority delegated to it in the Pooling 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
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Pool pursuant to the authority delegated to it in the Pooling and Servicing
Agreement, subject to certain conditions and covenants of the Servicer described
under "DESCRIPTION OF THE NOTES--PREPAID CONTRACTS."
In certain circumstances, the standard terms and conditions of the MLA are
modified at the inception of a Lease at the request of the End-User. Such
modifications must either be approved by the Seller's legal department and
certain levels of management before the Seller will agree to enter into the
Lease or accept an assignment of the Lease from a Vendor, or the Vendor must
indemnify the Seller against any losses or damages it may suffer as a result of
such modifications. Common permitted modifications include, but are not limited
to, (i) a one dollar purchase option at the end of the Lease term, (ii)
prearranged mid-Lease purchase options, early termination options and lease
extension options as described above, (iii) modifications to the lessor's
equipment inspection rights, (iv) modifications to the End-User's insurance
requirements permitting the End-User to self-insure against casualty to the
Equipment, (v) the End-User's right to assign the Lease or sub-lease the
Financed Items to an affiliated entity, so long as the End-User remains liable
under the Lease and promptly notifies the lessor or its assignee of such
assignment or sublease and (vi) extended grace periods for late payments of
rent.
SECURED NOTES. The 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 computer work stations, personal computers, data
storage devices, mainframe and mini computers 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 of 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
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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 Obligor's 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 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 interests
documented by security agreements or specific provisions in Program Agreements)
("VENDOR LOANS") each of which is payable by a Vendor and secured by all of the
Vendor's interest in an individual End-User Contract originated by such Vendor
and by the Equipment related to such End-User Contract.
Vendor Loans may be originated through, and incorporate terms and
conditions of, a Program Agreement (including a Program Agreement under which
End-User Contracts also are or may be originated by the Seller directly, or
purchased by the Seller from the Vendor, in separate transactions not giving
rise to Vendor Loans). Vendor Loans generally are non-recourse to the Vendor,
I.E., the Seller may obtain repayment solely from the proceeds of the End-User
Contracts and related Equipment securing the Vendor Loan. In a few instances,
however, recourse to a Vendor for nonpayment of a Vendor Loan may be available
through a limited recourse arrangement included in the related Program
Agreement. The repayment terms under a Vendor Loan, including periodic amounts
payable and schedule of payments, correspond to the payment terms of the
End-User under the End-User Contract collaterally assigned under such Vendor
Loan. Each Vendor Loan either includes most, if not all, of the
representations and warranties regarding the End-User Contract and related
Equipment typically included in a Vendor Agreement, or incorporates such
representations and warranties included in any related Program Agreement by
reference.
PROGRAM AGREEMENTS WITH VENDORS
It is expected that a substantial portion of the End-User Contracts to be
included in the Trust will consist of End-User Contracts originated by Vendors
and assigned or pledged to the Seller pursuant to Program Agreements. Also, as
described above, Vendor Loans may be originated through Program Agreements with
the related Vendor. The Seller's Program Agreements are agreements with
Equipment manufacturers, dealers and distributors, or Software licensors or
distributors, located in the United States ("VENDORS") which provide the Seller
with the opportunity to finance transactions relating to the acquisition or use
by an End-User of a Vendor's Equipment, Software, Services or other products.
Vendor finance arrangements provide the Seller with a steady, sustainable flow
of new business, generally with lower costs of origination than asset-based
financings marketed directly to end-users. Many of the Program Agreements
provide various forms of support to the Seller, including representations and
warranties by the Vendor in respect of the End-User Contracts assigned by the
Vendor to the Seller and related Equipment, Software or Services, credit support
with respect to defaults by End-Users and equipment repurchase and remarketing
arrangements upon early termination of End-User Contracts upon a default by the
End-User. Some of the Program Agreements take the form of a referral
relationship which is less formal, and may or may not include credit or
remarketing support to the Seller from the Vendor.
Each Program Agreement (other than Program Agreements that only establish a
referral relationship) generally includes the following provisions, among
others:
1. Vendor representations, warranties and covenants regarding
each End-User Contract assigned to the Seller, including among other
things that: the obligations of the End-User under the assigned
End-User Contract are absolute, unconditional, noncancellable,
enforceable in accordance with its terms and free from any rights of
offset, counterclaim or defense; the Seller holds the sole original of
the End-User Contract and has either title to or a first priority
perfected security interest in the Equipment (except with respect to
the Minimum Value Filing Exception); 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
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warranted to the End-User; and the assigned End-User Contract was duly
authorized and signed by the End-User.
2. Remedies in the event of a misrepresentation or breach of a
warranty or covenant by the Vendor regarding an assigned End-User
Contract, which usually require the Vendor to repurchase the affected
End-User Contract for the Seller's investment balance in the End-User
Contract plus costs incurred by the Seller in breaking any underlying
funding arrangement (which may or may not be calculated in accordance
with a specified formula).
3. In the case of End-User Contracts covering Equipment,
remarketing support from the Vendor in the event of an End-User
default and subsequent repossession or return of the Equipment under
the End-User Contract (to assist the Seller in realizing proceeds from
the Equipment assigned as collateral security to support the
obligations of the End-User under the End-User Contract).
4. The right of the Seller to further assign its interests in
assigned End-User Contracts, all payments thereunder and any related
interest in Equipment.
In addition to the foregoing, a Program Agreement may include recourse
against the Vendor with respect to End-User defaults under certain identified
End-User Contracts, (i) by specifying that the assignment of the End-User
Contract from the Vendor to the Seller is with full recourse against the Vendor,
(ii) by specifying that the Vendor will absorb a limited fixed dollar or
percentage amount of "FIRST LOSSES" on the Contract, (iii) by inclusion of the
End-User Contract in an "ULTIMATE NET LOSS POOL" ("UNL POOL") created under the
Program Agreement as well as certain Vendor Guarantees ("Vendor Guarantees")
with respect to certain End-User Contracts which are "CANCELLABLE" or which do
not contain "HELL OR HIGH WATER" provisions or (iv) by providing for Vendor
repurchase of the End-User Contract or Vendor indemnification payments for
breaches of certain representations and warranties made by the Vendor with
respect to such Contract. In the event of an End-User default under an End-User
Contract which was assigned by the Vendor to the Seller subject to the UNL Pool,
the Seller may draw against the UNL Pool up to the amount of the Seller's
remaining unpaid investment balance in the defaulted End-User Contract, but not
in excess of the UNL Pool balance then available. Drawings may also be made
against the UNL Pool with respect to End-User Contracts that are not included in
the Contract Pool and, accordingly, there can be no assurance that any amounts
contributed by a Vendor to the UNL Pool will be available in the event of an
End-User default under an End-User Contract included in the Contract Pool.
The manner in which End-User Contracts are assigned to the Seller by the
Vendors differs under each Program Agreement, depending upon the nature of the
Financed Items, the form of the End-User Contract, the accounting treatment
sought by the Vendor and the End-User, and certain tax considerations.
For example, the Seller might (x) accept a Vendor Loan and collateral
assignment of the End-User Contract and related Equipment (or security interest
therein) from the Vendor, or (y) accept a full assignment of such End-User
Contract and a collateral assignment of the related Equipment (or security
interest therein) from the Vendor, which collateral assignment secures the
End-User's obligations under the End-User Contract or Lease. The Seller also
may receive, from a Vendor with respect to Software, a full assignment of
leases, installment payment agreements, installment payment supplements to
license agreements, and other types of financing agreements used in financing
Software license payments and related support and consulting services. Such
assignments may include an assignment of the Software Vendor's or licensor's
right, or the agreement of the Vendor or licensor (at the Seller's
instructions), to terminate the software license covered by the End-User
Contract and suspend related support in the event of an End-User default under
the End-User Contract. In some cases, the Software Vendor also agrees not to
relicense the same or similar software to a defaulted End-User for some period
of time (E.G., one year) unless the End-User cures its default.
It is also expected that some portion of the End-User Contracts included
in the Contract Pool, especially in the case of CSAs, will consist of End-User
Contracts originated by Vendors and assigned to the Seller pursuant to Vendor
Assignments, each of which relates to an individual End-User Contract, rather
than pursuant to a Program Agreement. Each Vendor Assignment will either be
made with or without recourse against the Vendor for End-User defaults and will
generally contain many, if not all, of the representations, warranties and
covenants typically contained in Program Agreements, as well as a Vendor
repurchase requirement in the event of a breach by the Vendor of such
representations, warranties or covenants. Vendor Assignments may or may not
provide for any Vendor remarketing support in the event of an End-User default.
RESIDUAL INVESTMENTS
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The Seller may finance all or a portion of the residual interest in the
Equipment under certain Program Agreements and under direct transactions between
the Obligor and the Seller. (Any investment by the Seller in such residual
interest shall be referred to as a "RESIDUAL INVESTMENT".) Certain Program
Agreements provide that the Seller may, at its sole discretion and in connection
with the funding of a "TRUE LEASE" of Equipment make a Residual Investment in
the Equipment subject to a Contract by advancing additional funds against a
portion of the anticipated residual value of the Equipment, and not just against
the discounted present value of the rental payments due under the End-User
Contract. Such Residual Investments may take the form of an advance of the
present value of some specified percentage of the anticipated residual value of
the Equipment or a specified percentage (generally not greater than 10%) of the
amount to be paid by the Seller in funding the present value of the rental
payments due under the End-User Contract. Certain transactions involving Vendor
Assignments result in the Seller advancing the entire purchase price of the
Equipment subject to a "TRUE LEASE", taking title to the Equipment, and
accepting an assignment of the "TRUE LEASE" 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"). As of the Initial
Cutoff Date, in the Seller's reasonable judgment, the aggregate amount of
Guaranteed Residual Investments included in the Contract Pool does 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 (such Residual Investment being referred to herein as the
"EXCLUDED RESIDUAL INVESTMENT").
The Excluded Residual Investment associated with any End-User Contract
included in the Contract Pool will not be purchased by the Trust Depositor from
the Seller under the Transfer and Sale Agreement, and will not be sold to the
Trust under the Pooling and Servicing Agreement. The Trust's interest in
End-User Contracts with associated Residual Investments (other than Guaranteed
Residual Investments) will be limited to the discounted present value of the
rental payments due under the End-User Contract and a security interest in the
related Equipment. The Seller may assign its Excluded 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"). Under the Transfer and Sales Agreement the Seller will warrant and
covenant to the Trust, that any Subordinated Residual Interest will be
subordinated to the interests of the Trust Depositor and that any Residual
Assignee will bear the full risk of any deficiency in respect of the Residual
Investment as a result of prior satisfaction of the Trust's interest in the
related End-User Contract and the related Equipment.
CONTRACT FILES
The Seller will indicate in the appropriate computer files relating to the
Transferred Contracts that such Contracts have been transferred to the Trust for
the benefit of the Noteholders. The Seller will also deliver to the Indenture
Trustee a computer file or microfiche or written list containing a true and
complete list of all Contracts which have been transferred to the Trust,
identified by account number and by the Discounted Contract Balance as of the
Cutoff Date.
COLLECTIONS ON CONTRACTS
All collections received with respect to the Contracts will be allocated as
described herein. See "DESCRIPTION OF THE NOTES--ALLOCATIONS". Prepayments
will be given effect as of the last day of the Collection Period in which they
are received.
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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 Pooling and Servicing
Agreement (and contemporaneously therewith by the Seller from the Trust
Depositor pursuant to the Transfer and Sale Agreement), whether as a result of a
breach of representation or warranty as to such Contract constituting a Warranty
Contract, as defined herein, or at the Trust Depositor's and Seller's option
upon satisfaction of the Cleanup Call Condition (and, in the case of Warranty
Contracts, such rate of prepayment would also be influenced by the Trust
Depositor's decision not to repurchase such Warranty Contract and instead, to
accept a Substitute Contract therefor as described below). In the event of a
repurchase, the repurchase price will decrease the Discounted Contract Balance
of the Contracts, leading to a principal repayment and causing the corresponding
weighted average life of the Notes to decrease. See "RISK FACTORS--PREPAYMENTS
ON THE CONTRACTS AFFECT THE YIELD OF THE NOTES."
In the event a Contract becomes a Defaulted Contract, an Adjusted Contract,
an Early Termination Contract or a Warranty Contract (each as defined herein),
the Seller will have the option to substitute for the affected Contract another
of similar characteristics (a "SUBSTITUTE CONTRACT"), subject to an overall
limitation, in respect of Defaulted Contracts or Adjusted Contracts only, of an
aggregate amount not to exceed 10% of the ADCB of the Contracts as of the
Initial Cutoff Date. In addition, in the event of an Early Termination
Contract (as defined herein) which has been prepaid in full, the Seller will
have the option to transfer to the Trust through the Trust Depositor, and the
Trust Depositor may cause the Trust to reinvest such prepayment proceeds in, an
additional Contract of similar characteristics (an "ADDITIONAL CONTRACT"). The
Substitute Contracts and Additional Contracts will have a Discounted Contract
Balance equal to or greater than that of the Contracts being modified and/or
replaced and the monthly payments on the Substitute Contracts or Additional
Contracts will be at least equal to those of the replaced Contracts through the
term of such replaced Contracts and shall provide for a last scheduled payment
which is not in excess of the Contract substituted for unless the Servicer
discounts the Substitute Contract's cash flows up to and including such last
scheduled payment. In the event that an Early Termination is allowed by the
Servicer and an Additional Contract is not provided, the amount prepaid (whether
by the related Obligor, or through a combination of payments from the related
Obligor and the Seller/Servicer) will be equal to at least the Discounted
Contract Balance of the terminated Contract.
The yield to holders of the Notes will depend upon, among other things, the
amount of and rate at which principal is paid to such Noteholders. The after-tax
yield to Noteholders may be affected by lags between the time interest income
accrues to Noteholders and the time the related interest income is received by
the Noteholders.
The following chart sets forth the percentage of the Initial Principal
Amount of the Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class A-4 Notes, the Class B Notes and the C Notes which would be outstanding on
the Distribution Dates set forth below assuming a conditional payment rate (a
"CONDITIONAL PAYMENT RATE" or "CPR") of [ ]%, [ ]%, [ ]% and [ ]%,
respectively. Such information is hypothetical and is set forth for
illustrative purposes only. The CPR assumes that a fraction of the outstanding
Contract Pool is prepaid on each Distribution Date, which implies that each
Contract in the Contract Pool is equally likely to prepay. The CPR measures
prepayments based on the outstanding Discounted Contract Balances of the
Contracts, after the payment of all Scheduled Payments on the Contracts during
such Collection Period. The CPR further assumes that all Contracts are the same
size and amortize at the same rate and that each Contract will be either paid as
scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of scheduled monthly Contract payments as of the Cutoff Date,
assume that the Trust Depositor exercises its option to cause a redemption of
the Notes in connection with the Cleanup Call Condition, assume the Closing Date
is [ ], 1998 and are based upon the Discount Rate.
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WEIGHTED AVERAGE LIFE OF THE NOTES
AT THE RESPECTIVE CPR'S SET FORTH BELOW
<TABLE>
<CAPTION>
Weighted Average Life (years)
[ ]%CPR [ ]%CPR [ ]%CPR [ ]%CPR [ ]%CPR
<S> <C> <C> <C> <C> <C>
Class A-1 Notes. . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ]
Class A-2 Notes. . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ]
Class A-3 Notes. . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ]
Class A-4 Notes. . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ]
Class B Notes. . . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ]
Class C Notes. . . . . . . . . . . . . . . . . . . . . [ ] [ ] [ ] [ ] [ ]
</TABLE>
WEIGHTED AVERAGE LIFE (YEARS)
If the Trust Depositor does not exercise its option to cause a redemption
of the Notes in connection with the Cleanup Call Condition, the average life of
the Class A -1 Notes would be [ ] years, [ ] years, [ ] years
and [ ] years, the average life of the Class A-2 Notes would be [ ]
years, [ ] years, [ ] years and [ ] years, the average life
of the Class A -3 Notes would be [ ] years, [ ] years, [ ]
years and [ ] years, the average life of the Class A-4 Notes would be
[ ] years, [ ] years, [ ] years and [ ] years, the
average life of the Class B Notes would be [ ] years, [ ] years,
[ ] years and [ ] years, and the average life of the Class C Notes
would be [ ] years, [ ] years, [ ] years and [ ] years
for the [ ]% CPR, [ ]% CPR, [ ]% CPR and [ ]% CPR scenarios,
respectively.
The weighted average life of a Class A-1 Note, a Class A-2 Note, a Class A-
3 Note, a Class A-4 Note, a Class B Note or a Class C Note is determined by (a)
multiplying the amount of cash distributions in reduction of the outstanding
Class A-1 Principal Amount, outstanding Class A-2 Principal Amount, outstanding
Class A-3 Principal Amount, outstanding Class A-4 Principal Amount, outstanding
Class B Principal Amount or outstanding Class C Principal Amount, as the case
may be, on any given Distribution Date by the number of months from the Closing
Date to such Distribution Date on which each such principal payment is made, (b)
adding the results, and (c) dividing the sum by the Initial Class A-1 Principal
Amount, Initial Class A-2 Principal Amount, Initial Class A-3 Principal Amount,
Initial Class A-4 Principal Amount, Initial Class B Principal Amount or Initial
Class C Principal Amount, as the case may be.
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NEWCOURT CREDIT GROUP INC.
NEWCOURT FINANCIAL USA INC.
NEWCOURT USA
Newcourt USA was incorporated on January 8, 1992 in Delaware and is a
wholly-owned subsidiary of Newcourt Credit Group USA Inc. Newcourt USA
originates and acquires conditional sales agreements, leases, secured promissory
notes, installment purchase agreements and other similar types of financing
agreements through various vendor programs and purchase arrangements covering a
variety of transportation, construction, information technology, communications,
commercial and industrial, and resource equipment. Newcourt USA's vendor
financing arrangements are typically structured as (i) direct originations with
customers and end-users of a vendor's products, either with or without recourse,
or (ii) assignments of contracts, either with or without recourse, by a vendor
to Newcourt USA.
Newcourt USA's principal executive offices are located at 2700 Bank One
Tower, 111 Monument Circle, Suite 2700, Indianapolis, Indiana 46204 and its
telephone number is (317) 767-0077. Newcourt USA is a one-hundred percent
(100%) owned subsidiary of Newcourt Credit Group USA, which is a one-hundred
percent (100%) owned subsidiary of Newcourt.
NEWCOURT
The obligations of Newcourt USA as Servicer under the Pooling and Servicing
Agreement will be guaranteed by 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.
On January 12, 1998, Newcourt acquired all of the issued and outstanding
common shares of AT&T Capital Corporation ("AT&T Capital") for an aggregate
purchase price of approximately $1.6 billion (CAN $2.3 billion).
Newcourt is currently one of the world's leading non-bank financial
institutions having approximately CAN $34.7 billion of owned and managed assets
and CAN $3.9 billion equity capitalization at March 31, 1998. Newcourt
currently has operations in 24 countries, providing full-service, diversified
equipment leasing and finance services and products in the United States,
Canada, Europe, the Asia/Pacific region, Mexico, and South America. Newcourt is
the largest lessor of telecommunications equipment in the United States (based
on the aggregate value of equipment leased or financed).
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, a significant portion of the finance assets
it and its subsidiaries originate, thereby reducing its capital requirements.
Consequently, a significant portion of Newcourt's consolidated revenues are
generated by gains and fees earned from the sale of financings it and its
subsidiaries originate and by management fees earned following such sales.
As of March 31, 1998, Newcourt had total assets of CAN $18,988,082,000,
total liabilities of CAN $14,882,469,000, shareholders' equity of CAN
$3,821,053,000 and total revenues and net income of CAN $324,764,000 and CAN
$42,388,000, respectively. For the fiscal year ended December 31, 1997,
Newcourt had total assets of CAN $6,183,016,000, total liabilities of CAN
$3,121,523,000, shareholders' equity of CAN $3,061,493,000 and total revenues
and net income of CAN $318,435,000 and CAN $36,421,000, respectively.
Newcourt offers its financing services to clients through three primary
business units: Newcourt Financial, Newcourt Capital, and Newcourt Services.
Newcourt Financial, Newcourt's commercial finance business, provides asset-based
financing for a variety of equipment to vendors and customers. Newcourt
Capital, Newcourt's corporate finance business, provides structured corporate
finance to a growing list of international clients, including major
corporations, governments and agencies. Finally, Newcourt Services, Newcourt's
control, growth and support services, is responsible for the underwriting,
funding, administration and risk management needs of Newcourt Financial and
Newcourt Capital.
Newcourt Financial offers its lending services through select strategic
relationships with equipment manufacturers, dealers and distributors and certain
professional associations and organizations. Newcourt Financial's strategy
focuses on
50
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the creation, maintenance and enhancement of vendor programs ensuring its
position as the premier provider of global asset based financial products.
Newcourt Financial focuses on the following sectors: Transportation and
Industrial Finance, Technology Finance, Telecommunications Finance, Business
Finance, Specialty Finance, Technology Services, International/Joint Ventures,
and Operations.
Newcourt Capital is the corporate finance business which provides asset
based financing for high value assets and related advisory services to equipment
manufacturers, corporate clients, governments and public sector agencies.
Newcourt Capital focuses on the following sectors: Aerospace Finance, Rail
Finance, Public Sector Finance, Project Finance, Structured Finance,
Telecommunication and Media Finance, Business Finance, and Underwriting and
Syndication.
Newcourt Services is the service business unit responsible for providing
cost effective control and support services to Newcourt Financial and Newcourt
Capital. Newcourt Services consists of the following corporate functions:
Treasury, Credit and Risk Management, Financial Reporting and Administration,
Human Resources, Communications & Marketing, Tax Planning and Compliance,
Systems Development, and Quality Assurance.
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.
CREDIT UNDERWRITING PROCESS
CREDIT MANAGEMENT PHILOSOPHY. Newcourt's corporate credit philosophy
strives to manage and limit credit risk in connection with its originations
through adherence to credit adjudication policies and procedures for each of its
business units as enumerated in Newcourt's Credit Manual. The Credit Manual
defines but is 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 and (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. In addition, Newcourt has in
place policies, controls, systems and procedures to promote early problem
recognition and corrective action as well as facilitate consistent portfolio
performance measurements. Newcourt also seeks to minimize its credit risk
through diversification of its portfolio by customer, industry segment,
equipment type, geographic location and transaction maturity.
UNDERWRITING - GENERAL. Newcourt's underwriting standards are intended to
evaluate a prospective customer's credit standing and repayment ability. 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 account executive's reasons 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. In cases where customers cannot
readily provide such information, certain exceptions are permissible subject to
the credit authority of Newcourt's experienced credit officers. 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. 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.
EXTERNAL CREDIT RATING SYSTEM (COVENANT-BASED RATING). If a potential End-
User is publicly rated by an independent ratings agency for a similarly
structured debt instrument, the public rating is used as the covenant-based
rating. If a potential End-User is not publicly rated, it will be scored on a
covenant-based rating system with six categories ranging from AAA to single B.
This system is based on the methods commonly used to rate public and private
debt issues which Newcourt USA has adapted to suit equipment financing and
leasing transactions. The system is based on four key financial ratios: return
on assets, long-term debt to equity, cash flow to long-term debt and interest
coverage. Qualitative considerations include the reputation of the Vendor as
well as existing vendor recourse agreements. Allowance is also made for being
fully secured on the transaction. Newcourt USA and its subsidiaries will limit
new financing commitments with potential End-Users that are rated a single B.
With potential End-Users rated BB or lower, significant credit enhancements
would be required, such as an extremely strong security position or full
corporate guarantees from creditworthy companies, for any credit exposure to be
considered. Newcourt USA's goal is to maintain a credit quality of its
portfolio of End-Users of BBB or better.
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INTERNAL CREDIT RATING SYSTEM (ASSET-BASED RATING). 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 of 5 and will enter
into a new transaction with a potential End-User rating of 4 only in special
circumstances. Newcourt USA's goal is to maintain an overall credit quality of
3 or better throughout its portfolio.
ADVANCED CREDIT SCORING SYSTEM. A portion of the portfolio, representing
smaller ticket commercial assets originated through certain of its vendor
programs, is underwritten utilizing computerized credit scoring models. The
computer makes the initial credit decision after consideration of the credit
application data and credit bureau information based on statistical historical
loss analysis and developed in conjunction with Fair Isaac. Fair Isaac is a
major credit scoring company and has a long history of consumer, small business
and related credit data. This empirical data is used to develop specific
parameters within a designated group and to predict future delinquency and
default rates. By setting approval cutoff levels on total scores at levels
associated with predetermined default rates, Newcourt USA is able to provide a
program level credit score according to its internal policies.
VENDOR PROGRAMS. 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.
PORTFOLIO MONITORING
Delinquency is tracked and calculated monthly for each major portfolio
segment, including segmentation by classification of days past due. Credit
losses are monitored each month and are compared with credit losses for previous
months. The portfolio of assets owned and managed by Newcourt is monitored with
the assistance of a comprehensive software featuring multi-currency processing
functions, cash forecasting, customized data retrieval and tax functions. The
degree to which accounts are reviewed is based upon outstanding balances as well
as risk ratings. 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. A formal review of any account may be performed, if a
credit officer determines that there appears to be a financial impairment in the
End-User's repayment ability. Newcourt reviews these policies on a regular
basis, taking into account changes in its asset portfolio mix including average
loan balances, vendor program additions and loss levels. Any changes are
subject to approval by a committee of the Board of Directors.
CONTRACT COLLECTIONS
Newcourt USA's portfolio management unit is responsible for the ongoing
management of portfolios.
Newcourt USA will generate and mail to the End-Users (other than those End-
Users whose payment obligations are evidenced by payment coupon books or whose
payments are automatically debited from their accounts) monthly invoices and
statements summarizing the account activity and current invoicing details. The
invoiced amount will represent the contracted repayment amount under the
End-User Contract inclusive of applicable taxes, if any. Copies of the invoices
and statements will also be distributed to the appropriate offices of Newcourt
USA for review.
Newcourt USA's portfolio management unit is also 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 pursuant to its credit and collection policy. 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
180 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.
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CASH COLLECTIONS
Payments by End-Users of amounts payable under their respective Contracts
are made by check or wire transfer to a Newcourt USA's lock-box account.
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 write-off policy will be periodically reviewed and
modified.
READINESS FOR YEAR 2000
Newcourt is addressing the Year 2000 issue from a global perspective. In
early 1998, Newcourt established a global Year 2000 Program Office to provide
oversight from both a business and technical perspective. The program will
coordinate vendors, consultants and regional Year 2000 resources. Newcourt,
including Newcourt USA, plans to convert its critical systems by the end of 1998
with conversion of remaining systems and compliance testing and certification to
be completed in 1999. As part of the integration strategy, Newcourt plans to
aggressively consolidate onto a limited set of identified Year 2000 compliant
systems in order to achieve operational efficiencies and to minimize the Year
2000 exposures and costs.
Management does not anticipate that the total cost to Newcourt of these
Year 2000 compliance activities will be material to its financial position or
results of operations in any given year.
THE TRUST DEPOSITOR
The Trust Depositor is a wholly-owned bankruptcy-remote subsidiary of
Newcourt Credit Group USA, formed solely for the purpose of acquiring from the
Seller Contracts and Equipment as well as certain other financial assets from
time to time and either issuing debt securities secured by, or selling interests
in, identifiable fixed or revolving pools of such assets, or conveying or
depositing the same into trusts or other securitization vehicles. As a
bankruptcy-remote entity, the Trust Depositor's operations will be restricted so
that (a) it does not engage in business with, or incur liabilities to, any other
entity (other than the Indenture Trustee on behalf of the Noteholders and the
trustees or collateral agents on behalf of other securityholders under
indentures, security agreements, pooling agreements or similar agreements or
undertakings which provide for essentially nonrecourse, asset-backed financings)
which may bring bankruptcy proceedings against the Trust Depositor and (b) the
risk that it will be consolidated into the bankruptcy proceedings of any other
entity is diminished. The Trust Depositor will have no other assets available
to pay amounts owing under the Indenture except the Trust Assets, including the
Contracts and the interests in the Equipment, the proceeds thereof and the
amounts on deposit in the Collection Account and the Reserve Fund. The Trust
Depositor's address is 2700 Bank One Tower, 111 Monument Circle, Suite 2700,
Indianapolis, Indiana 46204, and its phone number is (317) 767-0077.
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As of the Cutoff Date, the Trust Depositor will convey to the Trust,
pursuant to the Pooling and Servicing Agreement, Contracts which were sold to
the Trust Depositor pursuant to the Transfer and Sale Agreement.
The Trust Depositor has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by Newcourt Credit Group USA or Newcourt USA
under the United States Bankruptcy Code or similar applicable state laws or
applicable laws of other countries ("INSOLVENCY LAWS") will not result in the
consolidation of the assets and liabilities of the Trust Depositor with those of
Newcourt Credit Group USA or Newcourt USA and its affiliates. These steps
include incorporating the Trust Depositor as a separate, special purpose company
pursuant to a certificate of incorporation containing certain restrictions on
the nature of its business and on its ability to commence a voluntary case or
proceeding under any bankruptcy or insolvency law, or to cause the Trust to
commence a voluntary case or proceeding under any bankruptcy or insolvency law,
without the affirmative vote of all of its directors, including its independent
directors, and the requirement, set forth in the Trust Depositor's certificate
of incorporation, that at all times no less than one member of the Board of
Directors of the Trust Depositor will be an individual who has not been, within
the previous five years, affiliated with Newcourt or any of its affiliates other
than the Trust Depositor, the Trust and other trusts formed for similar
operations (Newcourt and each of its affiliates other than the Trust Depositor,
the Trust and other trusts formed for similar operations, a "NEWCOURT ENTITY").
However, there can be no assurance that the activities of the Trust Depositor
would not result in a court concluding that the assets and liabilities of the
Trust Depositor should be consolidated with those of Newcourt Credit Group USA
or Newcourt USA in a proceeding under any Insolvency Law. See "RISK FACTORS--
CERTAIN LEGAL RISKS" and "CERTAIN LEGAL RISKS OF THE CONTRACTS--CERTAIN MATTERS
RELATING TO BANKRUPTCY". In such event there is no assurance that the Trust
would not become a debtor in such a bankruptcy case as well.
The Trust Depositor will receive, on the Closing Date, a reasoned opinion
from its counsel concluding (although there is no case litigated on the merits
directly in point) that, subject to certain assumptions and qualifications
specified therein, in the event a Newcourt Entity were to become a debtor in a
case under the Bankruptcy Code, a bankruptcy court would not, on motion of such
Newcourt Entity, as debtor-in-possession, or any other party in interest in such
case, (a) substantively consolidate the Trust Depositor and Newcourt Credit
Group USA or Newcourt USA or (b) substantively consolidate the Trust and
Newcourt Credit Group USA or Newcourt USA. The opinion assumes, among other
things, that (a) the Trust Depositor and the Trust will adhere to specified
operating procedures including, without limitation, (i) that at all times no
less than one member of the Board of Directors of the Trust Depositor will be an
individual who has not been, within the previous five years, affiliated with any
Newcourt Entity, (ii) the Trust's business will be run by officers and
employees of the Indenture Trustee, (iii) the Trust Depositor will maintain its
own payroll and separate books of account and will maintain an office space
separate from any Newcourt Entity, (iv) neither the Trust Depositor nor the
Trust will, except as provided in the Pooling and Servicing Agreement, commingle
any of its money or other assets with those of any Newcourt Entity, (v) the
Trust Depositor and the Trust will maintain separate bank accounts in its own
name or in the name of the Trust Depositor and (vi) except for the obligations
under the Transfer and Sale Agreement and similar obligations under similar
agreements, neither the Trust Depositor nor the Trust will acquire obligations
or securities of, or make loans or advances to, any Newcourt Entity, (b) the
Trust Depositor and the Trust will maintain an arm's-length relationship in all
transactions with each Newcourt Entity, (c) the purchase price for the Contracts
set forth in the Transfer and Sale Agreement represents fair and reasonably
equivalent value for the sale of the Contracts transferred thereunder to the
Trust Depositor, (d) the financing provided by the issuance of the Notes
constitutes a 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 and the Subordinated
Securities 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 the Subordinated Securities and possible reductions in the amount
of payments of principal of and interest on the Notes and the Subordinated
Securities 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 true leases (excluding any
Excluded Residual Investment), finance leases, loans, installment payment
obligations, receivables and other obligations received from Newcourt or its
affiliates.
DESCRIPTION OF THE NOTES
The statements under this caption are summaries, do not purport to be
complete and are subject to and qualified in their entirety by reference to the
Pooling and Servicing Agreement and the Indenture (the "OPERATIVE DOCUMENTS").
Copies of the Pooling and Servicing Agreement and the Indenture have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
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GENERAL
The Notes will consist of six Classes, the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes, the Class A-4 Notes, the Class B Notes and the Class
C Notes. The Notes will be issued pursuant to the Indenture between the Trust
and the Indenture Trustee. Another class of Notes, the Subordinated Notes, will
also be issued but are not being offered pursuant to this Prospectus. The
following summary describes the material terms of the Notes and is qualified in
its entirety by reference to the Pooling and Servicing Agreement and the
Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class A-
4 Notes, the Class B Notes and the Class C Notes will initially be represented
by one or more certificates registered in the name of the nominee of DTC
(together with any successor depositary selected by the Trust Depositor, the
"DEPOSITARY"), except as set forth below. The Notes will be available for
purchase in minimum denominations of $1,000 and in integral multiples thereof in
book-entry form. The Trust Depositor has been informed by DTC that DTC's
nominee will be Cede. See "--BOOK-ENTRY REGISTRATION" and "--DEFINITIVE NOTES"
below. Only the Notes will be offered hereby.
The Indenture Trustee will be granted a first priority lien on the Trust
Assets to secure the Notes; PROVIDED, that distributions on the Notes (and each
Class thereof) will be allocated as provided herein. The Notes are nonrecourse
obligations of the Trust only and do not represent interests in or obligations
of either the Seller, the Servicer or the Trust Depositor, or any affiliate
thereof.
INTEREST
Interest on the Notes will be payable on each of the Distribution Dates
occurring on or prior to the earlier of (i) the date of payment in full of such
Notes and (ii) the Class A-1 Notes Maturity Date, the Class A-2 Notes Maturity
Date, the Class A-3 Notes Maturity Date, the Class A-4 Notes Maturity Date, the
Class B Notes Maturity Date or the Class C Notes Maturity Date, as applicable,
for the Notes. Interest will accrue at the applicable Class A-1 Interest Rate,
the Class A-2 Interest Rate, the Class A-3 Interest Rate, the Class A-4 Interest
Rate, the Class B Interest Rate or the Class C Interest Rate, for the period
from and including the most recent Distribution Date on which interest has been
paid (or, in the case of the initial Distribution Date, from and including the
Closing Date) to but excluding the following Distribution Date (each period for
which interest accrues on the Notes, an "ACCRUAL PERIOD") on the outstanding
principal amount of such Notes as of the first day of such Accrual Period.
Interest on the Class A-1 Notes is payable on a Distribution Date from
Available Amounts on such date (and after application of such Available Amounts
to repay any outstanding Servicer Advances and to pay the Servicing Fee)
subject to the limitation described in the third succeeding paragraph. Such
Available Amounts represent primarily collections of payments due under the
Contracts, certain amounts received upon the prepayment or purchase of Contracts
or liquidation of the Contracts and disposition of the related Equipment upon
defaults thereunder, proceeds of Servicer Advances, if any, as well as amounts
in the Reserve Fund, if any.
Interest on the Class A-2 Notes is payable on a Distribution Date from
Available Amounts on such date, but only after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes; subject to the limitation described
in the second succeeding paragraph.
Interest on the Class A-3 Notes is payable on a Distribution Date from
Available Amounts on such date, but only after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes and the Class A-2 Notes subject to
the limitation described in the next succeeding paragraph.
Interest on the Class A-4 Notes is payable on a Distribution Date from
Available Amounts on such date, but only after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes, the Class A-2 Notes and the Class A-
3 Notes; PROVIDED, HOWEVER, after the occurrence of an Event of Default,
interest on the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and Class A-4
Notes will be paid pro-rata based upon the then outstanding principal amounts
thereof.
Interest on the Class B Notes is payable on a Distribution Date from
Available Amounts on such date, but only after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes and
Class A-4 Notes.
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Interest on the Class C Notes is payable on a Distribution Date from
Available Amounts on such date, but only after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes,
Class A-4 Notes and Class B Notes.
PRINCIPAL
The stated maturity of the Class A-1 Notes is the [
] Distribution Date; the stated maturity of the Class A-2 Notes is the [
] Distribution Date; the stated maturity of the Class A-3
Notes is the [ ] Distribution Date. The Class A-4 Notes, the Class B
Notes, the Class C Notes, the Class D Notes and the Class E Notes will have a
stated maturity of the [ ] Distribution Date, [
] Distribution Date, [ ] Distribution Date and [
] Distribution Date, respectively. However, if all payments on the
Contracts are made as scheduled, final payment with respect to the Notes would
occur prior to stated maturity.
Principal of the Class A-1 Notes will be payable on each Distribution Date
in an amount equal to the Class A-1 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee and interest payments on the Notes and the Subordinated Notes.
Principal of the Class A-2 Notes will be payable on each Distribution Date
in an amount equal to the Class A-2 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and the Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount. See "--ALLOCATIONS" herein.
Principal of the Class A-3 Notes will be payable on each Distribution Date
in an amount equal to the Class A-3 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
servicing fee, interest payments on the Notes and Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount and Class A-2 Principal
Payment Amount.
Principal of the Class A-4 Notes will be payable on each Distribution Date
in an amount equal to the Class A-4 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
servicing fee, interest payments on the Notes and Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount, Class A-2 Principal Payment
Amount and Class A-3 Principal Payment Amount.
Principal of the Class B Notes will be payable on each Distribution Date in
an amount equal to the Class B Principal Payment Amount for such Distribution
Date to the extent Available Amounts are available therefor, but after payment
from such Available Amounts of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated Notes, and the payment of
the Class A-1 Principal Payment Amount, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount and the Class A-4 Principal Payment
Amount. See "--ALLOCATIONS" herein.
Principal of the Class C Notes will be payable on each Distribution Date in
an amount equal to the Class C Principal Payment Amount for such Distribution
Date to the extent Available Amounts are available therefor, but after payment
from such Available Amounts of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated Notes, and the payment of
the Class A -1 Principal Payment Amount, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount, the Class A-4 Principal Payment Amount
and the Class B Principal Payment Amount. See "--ALLOCATIONS" herein.
The Notes will mature and be due and payable on the Class A-1 Notes
Maturity Date, the Class A-2 Notes Maturity Date, the Class A-3 Notes Maturity
Date, the Class A-4 Notes Maturity Date, the Class B Notes Maturity Date or the
Class C Notes Maturity Date, as applicable. Prior thereto, amounts to be
applied in reduction of the outstanding Principal Amount of any Note, including
the payment of the Class A-1 Principal Payment Amount, the Class A-2 Principal
Payment Amount, the Class A-3 Principal Payment Amount, the Class A-4 Principal
Payment Amount, the Class B Principal Payment Amount or the Class C Principal
Payment Amount payable on any Distribution Date, will not be due and payable,
although the failure of the Trust Depositor or Servicer to remit any Available
Amounts (including Available Amounts to be used to make a Class A-1 Principal
Payment Amount, a Class A-2 Principal Payment Amount, a Class A-3 Principal
Payment Amount, a Class A-4 Principal Payment Amount, a Class B Principal
Payment Amount or a Class C Principal Payment Amount) will, after the applicable
grace period, constitute an Event of Default under the Indenture. See "--
EVENTS OF DEFAULT".
As used herein, the following terms shall have the following meanings:
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The "ADCB" or "AGGREGATE DISCOUNTED CONTRACT BALANCE" means, with respect
to the Contracts, the sum of the Discounted Contract Balances of each Contract
included in the group of Contracts for which an ADCB determination is being
made.
"Additional Principal" with respect to any Distribution Date, an amount
equal to (a) the Total Principal Payment Amount, less (b) the Class A-1
Principal Payment Amount, the Class A-2 Principal Payment Amount, the Class A-3
Principal Payment Amount, the Class A-4 Principal Payment Amount, the Class B
Principal Payment Amount, the Class C Principal Payment Amount, the Class D
Principal Payment Amount and the Class E Principal Payment Amount.
"AGGREGATE PRINCIPAL AMOUNT" means, for any group of Notes or Subordinated
Notes at any date of determination, the sum of the Principal Amounts of such
Notes at such date.
"CLASS A PERCENTAGE" means [ ]%.
"CLASS A NOTES" means the Class A-1 Notes, the Class A-2 Notes, the Class
A-3 Notes and the Class A-4 Notes.
"CLASS B PERCENTAGE" means [ ]%.
"CLASS C PERCENTAGE" means [ ]%.
"CLASS D PERCENTAGE" means [ ]%.
"CLASS E PERCENTAGE" means [ ]%.
"CLASS A-1 PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date and the Class A-1 Notes, the lesser of (a) the Principal
Amount of the Class A-1 Notes, and (b) (i) prior to the occurrence of any Event
of Default, the Total Principal Payment Amount and (ii) following the occurrence
of an Event of Default, all remaining Available Amounts after payment has been
made in accordance with paragraphs (A) through (H) in "Description of the Notes
- -- Allocations; Following an Event of Default".
"CLASS A-2 PRINCIPAL PAYMENT AMOUNT" means, with respect to the Class A-2
Notes and any Distribution Date, (a) $0 until the Principal Amount of the Class
A-1 Notes has been paid in full, and (b) thereafter, the lesser of (i) the
Principal Amount of the Class A-2 Notes and (ii) (A) prior to the occurrence of
an Event of Default, the difference between (1) the sum of the Principal Amounts
of the Class A-2, Class A-3 and Class A-4 Notes immediately prior to such
Distribution Date, and (2) the Class A Target Principal Amount, and (B)
following the occurrence of an Event of Default, all remaining Available Amounts
after payment has been made in accordance with paragraphs (A) - (I) in
"DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT".
"CLASS A-3 PRINCIPAL PAYMENT AMOUNT" means, with respect to the Class A-3
Notes and any Distribution Date, (a) $0 until the Principal Amount of the Class
A-1 and the Class A-2 Notes has been paid in full, and (b) thereafter, the
lesser of (i) the Principal Amount of the Class A-3 Notes and (ii) (A) prior to
the occurrence of an Event of Default, the difference between (1) the sum of the
Principal Amounts of the Class A-3 and Class A-4 Notes immediately prior to such
Distribution Date, and (2) the Class A Target Principal Amount, and (B)
following the occurrence of an Event of Default, all remaining Available Amounts
after payment has been made in accordance with paragraphs (A) - (J) in
"DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT".
"CLASS A-4 PRINCIPAL PAYMENT AMOUNT" means, with respect to the Class A-4
Notes and any Distribution Date, (a) $0 until the Principal Amount of the Class
A-1 Notes, the Class A-2 Notes and the Class A-3 Notes has been paid in full,
and (b) thereafter, the lesser of (i) the Principal Amount of the Class A-4
Notes and (ii) (A) prior to the occurrence of an Event of Default, the
difference between (1) the Principal Amount of the Class A-4 Notes immediately
prior to such Distribution Date, and (2) the Class A Target Principal Amount,
and (B) following the occurrence of an Event of Default, all remaining Available
Amounts after payment has been made in accordance with paragraphs (A) - (K) in
"DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT".
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"CLASS B PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class B Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class B
Notes and (ii) (A) prior to the occurrence of an Event of Default, the
difference between (1) the Principal Amount of the Class B Notes
immediately prior to such Distribution Date, and (2) the greater of
(x) the Class B Target Principal Amount and (y) the Class B Floor and
(B) following the occurrence of an Event of Default, all remaining
Available Amounts after payment has been made in accordance with
paragraphs (A) - (L) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS;
FOLLOWING AN EVENT OF DEFAULT".
"CLASS C PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class C Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class C
Notes and (ii) (A) prior to the occurrence of an Event of Default, the
difference between (1) the Principal Amount of the Class C Notes
immediately prior to such Distribution Date, and (2) the greater of
(x) the Class C Target Principal Amount and (y) the Class C Floor, and
(B) following the occurrence of an Event of Default, all remaining
Available Amounts after payment has been made in accordance with
paragraphs (A) - (M) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS;
FOLLOWING AN EVENT OF DEFAULT".
"CLASS D PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class D Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class D
Notes and (ii) (A) prior to the occurrence of an Event of Default, the
difference between (1) the Principal Amount of the Class D Notes
immediately prior to such Distribution Date, and (2) the greater of
(x) the Class D Target Principal Amount and (y) the Class D Floor, and
(B) following the occurrence of an Event of Default, all remaining
Available Amounts after payment has been made in accordance with
paragraphs (A) - (N) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS;
FOLLOWING AN EVENT OF DEFAULT".
"CLASS E PRINCIPAL PAYMENT AMOUNT" means, with respect to the
Class E Notes and any Distribution Date, (a) $0 until the Principal
Amount of the Class A-1 Notes has been paid in full, and (b)
thereafter, the lesser of (i) the Principal Amount of the Class E
Notes and (ii) (A) prior to the occurrence of an Event of Default, the
difference between (1) the Principal Amount of the Class E Notes
immediately prior to such Distribution Date, and (2) the greater of
(x) the Class E Target Principal Amount and (y) the Class E Floor, and
(B) following the occurrence of an Event of Default, all remaining
Available Amounts after payment has been made in accordance with
paragraphs (A) - (O) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS;
FOLLOWING AN EVENT OF DEFAULT".
"CLASS A TARGET PRINCIPAL AMOUNT" means, with respect to any
Distribution Date, the product of (a) the Class A Percentage and (b)
the ADCB for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS B TARGET PRINCIPAL AMOUNT" means, with respect to any
Distribution Date, the product of (a) the Class B Percentage and (b)
the ADCB for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS C TARGET PRINCIPAL AMOUNT" means, with respect to any
Distribution Date, the product (a) the Class C Percentage and (b) the
ADCB for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS D TARGET PRINCIPAL AMOUNT" means, with respect to any
Distribution Date, the product of (a) the Class D Percentage and (b)
the ADCB for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS E TARGET PRINCIPAL AMOUNT" means, with respect to any
Distribution Date, the product of (a) the Class E Percentage and (b)
the ADCB for all Contracts held by the Trust as of the last day of the
Collection Period immediately preceding such Distribution Date.
"CLASS B FLOOR" means, with respect to each Distribution Date,
(a) [ ]% of the ADCB of the Contract Pool as of the Initial
Cutoff Date, plus (b) the Principal Differential with respect to such
Distribution Date, minus (c) the sum, immediately prior to such
Distribution Date, of the Principal Amount
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of the Class C Notes, the Principal Amount of the Class D Notes, the
Principal Amount of the Class E Notes and the amount on deposit in the
Reserve Account after giving effect to amounts to be withdrawn on such
Distribution Date.
"CLASS C FLOOR" means, with respect to each Distribution Date,
(a) [ ]% of the ADCB of the Contract Pool as of the Initial
Cutoff Date, plus (b) the Principal Differential with respect to such
Distribution Date, minus (c) the sum, immediately prior to such
Distribution Date, of the Principal Amount of the Class D Notes, the
Principal Amount of the Class E Notes and the amount on deposit in the
Reserve Account after giving effect to amounts to be withdrawn on such
Distribution Date, PROVIDED, HOWEVER, that if the Principal Amount of
the Class B Notes is less than or equal to the Class B Floor, on such
Distribution Date, the Class C Floor will equal the Principal Amount
of the Class C Notes utilized in the calculation of the Class B Floor
for such Distribution Date.
"CLASS D FLOOR" means, with respect to each Distribution Date,
(a) [ ]% of the ADCB of the Contract Pool as of the Initial
Cutoff Date, plus (b) the Principal Differential with respect to such
Distribution Date, minus (c) the sum, immediately prior to such
Distribution Date, of the Principal Amount of the Class E Notes and
the amount on deposit in the Reserve Account after giving effect to
amounts to be withdrawn on such Distribution Date, PROVIDED, HOWEVER,
that if the Principal Amount of the Class C Notes is less than or
equal to the Class C Floor, on such Distribution Date, the Class D
Floor will equal the Principal Amount of the Class D Notes utilized in
the calculation of the Class C Floor for such Distribution Date.
"CLASS E FLOOR" means, with respect to each Distribution Date,
(a) [ ]% of the ADCB of the Contract Pool as of the Initial
Cutoff Date, plus (b) the Principal Differential with respect to such
Distribution Date, minus (c) the amount on deposit in the Reserve
Account after giving effect to amounts to be withdrawn on such
Distribution Date, PROVIDED, HOWEVER that if the Principal Amount of
the Class D Notes is less than or equal to the Class D Floor, on such
Distribution Date, the Class E Floor will equal the Principal Amount
of the Class E Notes utilized in the calculation of the Class D Floor
for 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.
"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 Pooling and Servicing Agreement
and to be applied in reduction of such principal amount in accordance
therewith.
"PRINCIPAL DIFFERENTIAL" means, with respect to each Distribution
Date, an amount equal to the excess, if any, of (a) the total of (i)
the Principal Amount of the Notes and Subordinated Notes as of the
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immediately preceding Distribution Date after giving effect to all
payments made on such Distribution Date, minus (ii) the lesser of (A) the
ADCB for all Contracts held by the Trust as of the last day of the
Collection Period related to the immediately preceding Distribution Date
minus the ADCB for all Contracts held by the Trust as of the last day of
the Collection Period related to such Distribution Date and (B) Available
Amounts (including amounts to be withdrawn from the Reserve Account on such
Distribution Date) remaining after the payment of amounts owing the
Servicer and in respect of interest on the Notes and the Subordinated Notes
on such Distribution Date over (b) the ADCB of all Contracts held by the
Trust as of the last day of the Collection Period related to such
Distribution Date.
"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 or Excluded Residual Investment).
"TOTAL PRINCIPAL PAYMENT AMOUNT" means, with respect to any
Distribution Date, the difference between (a) the aggregate
outstanding principal of all Classes of Notes and Subordinated Notes
and (b) the ADCB for all Contracts held by the Trust as of the last
day of the Collection Period immediately preceding such Distribution
Date.
ALLOCATIONS
PRIOR TO AN EVENT OF DEFAULT. On the second Business Day prior to each
Distribution Date (each, a "DETERMINATION DATE"), prior to the occurrence of an
Event of Default, 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, and the Reserve Fund if necessary, in
order to make the following payments or allocations from the Available Amounts
(which shall include amounts, if any, withdrawn from the Reserve Fund) for the
related Distribution Date (in each case, such payment or transfer to be made
only to the extent funds remain available therefor after all prior payments and
transfers for such Distribution Date have been made), in the following order of
priority:
(A) pay to the Servicer, the amount of any unreimbursed Servicer
Advances;
(B) pay to the Servicer, the monthly Servicing Fee for the
preceding monthly period together with any amounts in
respect of the Servicing Fee that were due in respect of
prior monthly periods that remain unpaid;
(C) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, an amount equal to interest accrued in respect of
such Class A-1 Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made;
(D) pay to the Indenture Trustee, on behalf of the Class A-2
Notes, an amount equal to interest accrued in respect of
such Class A-2 Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made;
(E) pay to the Indenture Trustee, on behalf of the Class A-3
Notes, an amount equal to interest accrued in respect of
such Class A-3 Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made;
(F) pay to the Indenture Trustee, on behalf of the Class A-4
Notes, an amount equal to interest accrued in respect of
such Class A-4 Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made;
(G) pay to the Indenture Trustee, on behalf of the Class B
Notes, an amount equal to the interest accrued thereon for
the Accrual Period immediately preceding such Distribution
Date,
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together with any such amounts that accrued in respect of prior
Accrual Periods for which no allocation was previously made;
(H) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to interest accrued thereon for the
Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made;
(I) pay to the Indenture Trustee, on behalf of the Class D Notes
an amount equal to interest accrued in respect of the
Accrual Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect of
prior Accrual Periods for which no allocation was previously
made;
(J) pay to the Indenture Trustee, on behalf of the Class E Notes
an amount equal to interest accrued in respect of the
Accrual Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect of
prior Accrual Periods for which no allocation was previously
made;
(K) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, the Class A-1 Principal Payment Amount for such
Distribution Date;
(L) pay to the Indenture Trustee, on behalf of the Class A-2
Notes, the A-2 Principal Payment Amount for such
Distribution Date;
(M) pay to the Indenture Trustee, on behalf of the Class A-3
Notes, the Class A-3 Principal Payment Amount for such
Distribution Date;
(N) pay to the Indenture Trustee, on behalf of the Class A-4
Notes, the Class A-4 Principal Payment Amount for such
Distribution Date;
(O) pay to the Indenture Trustee, on behalf of the Class B
Notes, the Class B Principal Payment Amount for such
Distribution Date;
(P) pay to the Indenture Trustee, on behalf of the Class C
Notes, the Class C Principal Payment Amount for such
Distribution Date;
(Q) pay to the Indenture Trustee, on behalf of the Class D Notes
the Class D Principal Payment Amount for such Distribution
Date;
(R) pay to the Indenture Trustee, on behalf of the Class E Notes
the Class E Principal Payment Amount for such Distribution
Date;
(S) pay the Additional Principal, if any, to the Class A Notes
sequentially until the Principal Amount of each of the Class
A Notes have been reduced to zero, then to the Class B Notes
until the Principal Amount of the Class B Notes has been
reduced to zero, then to the Class C Notes until the
Principal Amount of the Class C Notes has been reduced to
zero, then to the Class D Notes until the Principal Amount
of the Class D Notes has been reduced to zero, then to the
Class E Notes until the Principal Amount of the Class E
Notes has been reduced to zero;
(T) pay to the Indenture Trustee for deposit into the Reserve
Fund any Available Amounts not necessary to make the
payments described in paragraph (A) through (S) above to the
extent that such amount is necessary to meet the Reserve
Fund Amount; and
(U) 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 and any
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Excluded Residual Investment, as well as Prepayments received on or before, the
last day of the Collection Period immediately preceding such Distribution Date;
(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 (and Reserve Fund, up to the Reserve
Fund Amount), together with earnings on funds therein and (iv) any amounts
received with respect to the Guaranteed Residual Investments.
Pursuant to the Indenture, the Indenture Trustee will distribute amounts
received from the Indenture Trustee in accordance with the foregoing to the
Class A-1 Noteholders, Class A-2 Noteholders, Class A-3 Noteholders, Class A-4
Noteholders, Class B Noteholders, Class C Noteholders and the holders of the
Subordinated Notes represented thereby PRO RATA in accordance with the
respective amounts owed thereto.
FOLLOWING AN EVENT OF DEFAULT. On each Determination Date after the
occurrence of an Event of Default, 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, and the Reserve
Fund if necessary, in order to make the following payments or allocations from
the Available Amounts (which shall include amounts, if any, withdrawn from the
Reserve Fund) 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 or other losses;
(B) pay to the Servicer, the amount of any unreimbursed Servicer
Advance;
(C) pay to the Servicer, the monthly Servicing Fee for the
preceding monthly period together with any amounts in
respect of the Servicing Fee that were due in respect of
prior monthly periods that remain unpaid;
(D) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes, an amount equal to interest accrued in
respect of such Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes for the Accrual
Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect of
prior Accrual Periods for which no allocation was previously
made; PROVIDED, that if the Available Amounts remaining to
be allocated pursuant to this clause are less than the full
amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class A-1 Note, Class A-2
Note, Class A-3 Note and Class A-4 Note PRO RATA based on
the outstanding principal amount thereof;
(E) pay to the Indenture Trustee, on behalf of the Class B
Notes, an amount equal to the interest accrued thereon for
the Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made; PROVIDED, that if the Available Amounts
remaining to be allocated pursuant to this clause are 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 are 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 Class D
Notes, an amount equal to interest accrued in respect of the
Class D 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
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remaining to be allocated pursuant to this clause are less than
the full amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class D Note PRO RATA based on
the outstanding principal amount thereof;
(H) pay to the Indenture Trustee, on behalf of the Class E
Notes, an amount equal to interest accrued in respect of the
Class E 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 are less than the full amount required to be so paid,
such remaining Available Amounts shall be allocated to each
Class E Note PRO RATA based on the outstanding principal
amount thereof;
(I) 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
are 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;
(J) 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
are less than the full amount required to be so allocated,
such remaining Available Amounts shall be allocated to each
Class A-2 Note, respectively PRO RATA based on the
outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount
needed to repay the outstanding Class A-2 Note principal in
full, then such excess shall be applied in repayment of
principal on the Class A-3 Notes;
(K) pay to the Indenture Trustee, on behalf of the Class A-3
Notes the Class A-3 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause
are less than the full amount required to be so allocated,
such remaining Available Amounts shall be allocated to each
Class A-3 Note, respectively PRO RATA based on the
outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount
needed to repay the outstanding Class A-3 Note principal in
full, then such excess shall be applied in repayment of
principal on the Class A-4 Notes;
(L) pay to the Indenture Trustee, on behalf of the Class A-4
Notes the Class A-4 Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause
are less than the full amount required to be so allocated,
such remaining Available Amounts shall be allocated to each
Class A-4 Note, respectively PRO RATA based on the
outstanding principal amount thereof, and (ii) if the amount
to be allocated pursuant to this clause exceeds the amount
needed to repay the outstanding Class A-4 Note principal in
full, then such excess shall be applied in repayment of
principal on the Class B Notes;
(M) pay to the Indenture Trustee, on behalf of the Class B
Notes, the Class B Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause
are 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;
(N) pay to the Indenture Trustee, on behalf of the Class C
Notes, the Class C Principal Payment Amount for such
Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause
are less than the full amount required to be so paid, such
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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 Class D Notes; and
(O) pay to the holders of the Class D Notes the Class D
Principal Payment Amount for such Distribution Date;
PROVIDED (i) that if the Available Amounts remaining to be
allocated pursuant to this clause are less than the full
amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class D 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 D Notes
principal in full, then such excess shall be paid to the
holder of the Class E Notes.
(P) pay to the holders of the Class E Notes the Class E
Principal Payment Amount for such Distribution Date;
PROVIDED (i) that if the Available Amounts remaining to be
allocated pursuant to this clause are less than the full
amount required to be so paid, such remaining Available
Amounts shall be allocated to each Class E 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 E 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 Initial Deposit.
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.
The "RESERVE FUND AMOUNT" shall be an amount equal to the lesser of (a) the
Reserve Fund Initial Deposit, and (b) the Aggregate Principal Amount of the
Notes as of such date of determination.
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.
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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 or principal on the Notes and the
Subordinated NOTES.
DEFAULTED CONTRACTS
A Contract will automatically be deemed to be in default (a "DEFAULTED
CONTRACT") if (i) it is more than 180 days past due; (ii) if at any time the
Servicer determines, in accordance with its customary and usual practices, that
such Contract is not collectible (and taking into account any available Vendor
recourse); or (iii) the End-User under such Contract becomes the subject of an
Insolvency Event. The current policy of the Servicer with respect to writing
off Contracts is described in "NEWCOURT CREDIT GROUP USA INC.--WRITE-OFF POLICY"
above.
Upon classification as a Defaulted Contract, the Servicer shall accelerate
all payments due thereunder or take such other action as the Servicer reasonably
believes will maximize the amount of Recoveries in respect thereof and shall
otherwise follow its customary and usual collection procedures, which may
include the repossession and sale of any related Equipment or other Applicable
Security on behalf of the Trust. Any recoveries on account of a previously
Defaulted Contract (including proceeds of repossessed Equipment or other
Applicable Security or other property, Insurance Proceeds, amounts representing
late fees and penalties and amounts subsequently received pursuant to a Program
Agreement with a Vendor, but net of amounts representing costs and expenses of
liquidation incurred by the Servicer; such recoveries net of such amounts,
"RECOVERIES") shall be deemed to be Available Amounts.
COLLECTION ACCOUNT
The Servicer, for the benefit of the Noteholders and the Subordinated
Noteholders, shall cause to be established and maintained in the name of the
Indenture Trustee, with an office or branch of a depositary institution or trust
company (which may include the Indenture Trustee) organized under the laws of
the United States of America or any one of the states thereof and located in the
state designated by the Servicer, a segregated corporate trust account (the
"COLLECTION ACCOUNT") bearing a designation clearly indicating that the funds
deposited therein are held in trust for the benefit of the Noteholders and the
Subordinated Noteholders; PROVIDED, HOWEVER, that at all times such depositary
institution or trust company shall be (a) the corporate trust department of the
Indenture Trustee or, (b) a depositary institution organized under the laws of
the United States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i)(A) which has either (1)
a long-term unsecured debt rating acceptable to the Rating Agencies or (2) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies, (B) the parent corporation of which has either (1) a
long-term unsecured debt rating acceptable to the Rating Agencies or (2) a
short-term unsecured debt rating or certificate of deposit rating acceptable to
the Rating Agencies or (C) is otherwise acceptable to the Rating Agencies and
(ii) whose deposits are insured by the Federal Deposit Insurance Corporation
(the "FDIC"; any such depositary institution or trust company, a "QUALIFIED
INSTITUTION"). Funds in the Collection Account generally will be invested in
(i) obligations fully guaranteed by the United States of America, (ii) demand
deposits, time deposits or certificates of deposit of depositary institutions or
trust companies having commercial paper with the highest rating from each Rating
Agency, (iii) commercial paper (or other short term obligations) having, at the
time of the Trust's investment therein, the highest rating from each Rating
Agency, (iv) demand deposits, time deposits and certificates of deposit which
are fully insured by the FDIC, (v) notes or bankers' acceptances issued by any
depositary institution or trust company described in (ii) above, (vi) money
market funds which have the highest rating from, or have otherwise been approved
in writing by, each Rating Agency, (vii) time deposits with an entity, the
commercial paper of which has the highest rating from the Rating Agency, (viii)
eligible repurchase agreements, and (ix) any other investments approved in
writing by the Rating Agency (collectively, "ELIGIBLE INVESTMENTS"). Such funds
may be invested in debt obligations of Newcourt or its affiliates so long as
such obligations qualify as Eligible Investments. Any earnings (net of losses
and investment expenses) on funds in the Collection Account will be held therein
and be treated as Available Amounts. The Servicer will have the revocable power
to instruct the Indenture Trustee to make withdrawals and payments from the
Collection Account for the purpose of carrying out its duties under the Pooling
and Servicing Agreement.
REPLACEMENT ACCOUNTS
If any institution with which any of the accounts established pursuant to
the Pooling and Servicing Agreement or the Indenture are established ceases to
be a Qualified Institution, the Servicer or the Indenture Trustee (as the case
may be) shall, within ten Business Days, establish a replacement account at a
Qualified Institution after notice thereof.
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EVENTS OF DEFAULT
Allocations of Available Amounts will be made as described above under
"--ALLOCATIONS; PRIOR TO AN EVENT OF DEFAULT" unless and until an Event of
Default has occurred, in which case allocations of Available Amounts will be
made as described above under "--ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT".
An "EVENT OF DEFAULT" refers to any of the following events:
(a) failure to pay the Principal Amount of any Note, if
any, on its related Maturity Date;
(b) a default for five or more calender days in the payment
of interest due on any Class A Note, Class B Note or
Class C Note;
(c) (i) failure on the part of the Seller to make any
payment or deposit required under the Pooling 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, Pooling and Servicing
Agreement or the Indenture, which failure has a
material adverse effect on the Noteholders and which
continues unremedied for a period of 60 days after
written notice; PROVIDED, that no such 60-day cure
period shall apply in the case of a failure by the
Seller to perform their joint and several agreement to
accept reassignment of Ineligible Contracts, and
FURTHER PROVIDED, that only a five day cure period
shall apply in the case of a failure by any Seller, the
Trustee or the Owner Trustee to observe their
respective covenants not to grant a security interest
in or otherwise intentionally create a lien on the
Contracts;
(d) any representation or warranty made by the Seller, the
Trust Depositor, the Trustee or the Owner Trustee in
the Pooling and Servicing Agreement or the Indenture or
any information required to be given by the Seller or
the Trust Depositor to the Indenture Trustee to
identify the Contracts proves to have been incorrect in
any material respect when made and continues to be
incorrect in any material respect for a period of 60
days after written notice and as a result of which the
interests of the Noteholders are materially and
adversely affected; PROVIDED, HOWEVER, that an Event of
Default shall not be deemed to occur thereunder if the
Seller has repurchased the related Contracts through
the Trust Depositor during such period in accordance
with the provisions of the Pooling and Servicing
Agreement and the Transfer and Sale Agreement;
(e) the occurrence of an Insolvency Event relating to the
Seller, the Trust Depositor or the Trust; or
(f) the Trust becomes an "INVESTMENT COMPANY" within the
meaning of the Investment Company Act of 1940, as
amended.
In the case of any event described in clause (a), (b), (c), (d) or (f)
above, an Event of Default with respect to the Notes and Subordinated Notes
shall not be deemed to have occurred 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, the Seller, the Servicer
and the Owner Trustee.
If an Insolvency Event relating to the Trust Depositor occurs, pursuant to
the Pooling 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 Pooling and Servicing Agreement and
herein. If the
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proceeds of any collections on Contracts in the Collection Account allocated to
Noteholders of any Class is not sufficient to pay the Principal Amount of the
Notes of such Class in full, such Noteholders will incur a loss.
As used herein, "REQUIRED HOLDERS" means (i) prior to the payment in full
of the Class A Notes outstanding, Class A-1 Noteholders, Class A-2 Noteholders,
Class A-3 Noteholders and Class A-4 Noteholders voting as a single class
evidencing more than 66 2/3% of the Aggregate Principal Amount of the Class A
Notes, (ii) from and after the payment in full of the Class A Notes
outstanding, Class B Noteholders holding Class B Notes evidencing more than 66
2/3% of the Aggregate Principal Amount of the Class B Notes outstanding, (iii)
from and after the payment in full of the Class B Notes outstanding, Class C
Noteholders holding Class C Notes evidencing more than 66 2/3% of the Aggregate
Principal Amount of the Class C Notes outstanding, (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 and (v) from
and after the payment in full of the Class D Notes outstanding, Class E Notes
evidencing more than 66 2/3% of the Aggregate Principal Amount of the Class E
Notes.
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 Pooling 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 Pooling 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 Initial Cutoff Date (the "CLEANUP CALL CONDITION"), the Trust
Depositor will have the option to cause the Trust to purchase (without penalty)
all, but not less than all, of the remaining outstanding Notes and Subordinated
Notes. The redemption price will be equal to the sum of the outstanding
principal amount of the Notes and Subordinated Notes, together with accrued
interest thereon through the date of redemption, and shall be payable to the
holders of the Notes and Subordinated Notes on such Distribution Date from the
proceeds of the Trust's sale to the Trust Depositor (and the Trust Depositor's
concurrent resale to the Seller), for a repurchase price equal to such
redemption price, of the remaining Contract 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
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Collection Period and (B) as of the end of the second Collection Period
preceding such Distribution Date (or, in the case of Contracts that were first
added to the Contract Pool during the related Collection Period, as of the
Cutoff Date for such Contracts); (ii) the Class A-1 Principal Payment Amount,
the Class A-2 Principal Payment Amount, the Class A-3 Principal Payment Amount,
the Class A-4 Principal Payment Amount, the Class B Principal Payment Amount,
the Class C Principal Payment Amount, the Class D Principal Payment Amount and
the Class E 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, 1999,
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
Pooling 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 and filing tax returns for the
trust (except the Owner Trustee shall retain responsibility for distributing the
Schedule K-1s). As compensation for the performance of the Administrator's
obligations under the Administration Agreement and as reimbursement for its
expenses related thereto, the Administrator will be entitled to a monthly
administration fee (the "ADMINISTRATION FEE"), which fee will be paid by the
Servicer out of the Servicing Fee, if available.
BOOK-ENTRY REGISTRATION
Noteholders may only hold their Notes through DTC (in the United States) or
CEDEL or Euroclear (in Europe) if they are participants of such systems, or
indirectly through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Class A-1 Note or Notes, the
global Class A-2 Note or Notes, the global Class A-3 Note or Notes, the global
Class A-4 Note or Notes, the global Class B Note or Notes, and the global Class
C Note or Notes. CEDEL and Euroclear will hold omnibus positions on behalf of
their participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective Depositaries (as defined
herein) which in turn will hold such positions in customers' securities accounts
in the Depositaries' names on the books of DTC. Citibank will act
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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
Underwriters, 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 A-3 NOTEHOLDER", "CLASS A-4 NOTEHOLDER", "CLASS B NOTEHOLDER" and "CLASS
C NOTEHOLDER" will be Cede, as nominee of DTC, and that holders of beneficial
interests in the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4
Notes, Class B Notes or Class C Notes, respectively, under the Indenture will
only be permitted to exercise the rights of Class A-1 Noteholders, Class A-2
Noteholders, Class A-3 Noteholders, Class A-4 Noteholders, Class B Noteholders
or Class C Noteholders, respectively, under the Indenture indirectly through DTC
and its Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC is required to make book-entry transfers among Participants
on whose behalf it acts with respect to the Notes and is required to receive and
transmit distributions of principal of and interest on the Notes. Participants
and Indirect Participants with which holders of beneficial interests in the
Notes have accounts similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of these respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Notes, may be limited due to the lack of a Definitive Note for such Notes.
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DTC has advised the Issuer that it will take any action permitted to be
taken by a Class A-1 Noteholder, Class A-2 Noteholder, Class A-3 Noteholder,
Class A-4 Noteholder, Class B Noteholder or Class C Noteholder under the
Indenture only at the direction of one or more Participants to whose account
with DTC the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4 Notes,
Class B Notes or Class C Notes are credited. Additionally, DTC has advised the
Issuer that it may take actions with respect to percentage interests in any
particular Class of the Notes represented by holders of beneficial interests
evidencing that percentage, which actions may conflict with other of its actions
with respect to other percentage interests therein.
CEDEL is incorporated under the laws of Luxembourg as a professional
depositary. CEDEL holds securities for its participating organizations ("CEDEL
PARTICIPANTS") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depositary, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("EUROCLEAR PARTICIPANTS") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of
Morgan Guaranty Trust Company of New York (the "EUROCLEAR OPERATOR"), under
contract with Euroclear Clearance Systems S.C., a Belgian cooperative
corporation (the "COOPERATIVE"). All operations are conducted by the Euroclear
Operator and all Euroclear securities clearance accounts and Euroclear cash
accounts are accounts with the Euroclear Operator, not the Cooperative. The
Cooperative establishes policies for Euroclear on behalf of Euroclear
Participants. Euroclear Participants include banks (including central banks),
securities brokers and dealers and other professional financial intermediaries
and may include the Underwriter. Indirect access to Euroclear is also available
to other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it
is regulated and examined by the Board of Governors of the Federal Reserve
System and the New York Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear Operator
are governed by the Terms and Conditions Governing Use of Euroclear and the
related Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "TERMS AND CONDITIONS"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Notes held through CEDEL or Euroclear will be
credited to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by its Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." CEDEL or the Euroclear Operator,
as the case may be, will take any other action permitted to be taken by an
Noteholder under the Indenture on behalf of a CEDEL Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to its Depositary's ability to effect such actions on its behalf through
DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of Notes among participants of DTC, CEDEL and
Euroclear, they are under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time.
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Except as required by law, none of the Servicer, any Seller, the Owner
Trustee, the Trust Depositor or the Indenture Trustee will have any liability
for any aspect of the records relating to, actions taken or implemented by, or
payments made on account of, beneficial ownership interests in the Notes held
through DTC, or for maintaining, supervising or reviewing any records or actions
relating to such beneficial ownership interests.
DEFINITIVE NOTES
The Notes will be issued in fully registered, authenticated form to
beneficial owners or their nominees (the "DEFINITIVE NOTES"), rather than to DTC
or its nominee, only if (a) the Trust advises the Indenture Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as Depositary with respect to such Notes, and the Indenture Trustee or the
Issuer is unable to locate a qualified successor or (b) the Issuer at its option
elects to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all beneficial
owners for each Class of Notes held through DTC of the availability of
Definitive Notes for such Class. Upon surrender by DTC of the Definitive Note
representing the Notes and instructions for reregistration, the Indenture
Trustee will issue such Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Noteholders under the
Indenture (the "HOLDERS"). The Indenture Trustee will also notify the Holders
of any adjustment to the Record Date with respect to the Notes necessary to
enable the Indenture Trustee to make distributions to Holders of the Definitive
Notes for such Class of record as of each Distribution Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check, mailed
to the address of such Holder as it appears on the Note register. Upon at least
10 days' notice to Noteholders for such Class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentment 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
Receivable-Backed Notes with an aggregate principal balance of $[ ] (the
"CLASS D NOTES") and [ ]% Class E Receivable-Backed Notes with an aggregate
principal balance of $[ ](the "CLASS E NOTES" and together with the Class D
Notes, collectively the "SUBORDINATED NOTES"). The Subordinated Notes will be
issued pursuant to the Indenture.
The Subordinated Notes are not being offered and sold hereunder.
Distributions with respect to the Subordinated Notes will be subordinated to the
rights of the Noteholders to the extent described herein. See "DESCRIPTION OF
THE NOTES--ALLOCATIONS" herein.
THE CERTIFICATE
On the Closing Date, the Trust will also issue the Class F Certificate with
an initial certificate balance of $[ ] (the "CERTIFICATE"); the Certificate
will not bear interest and shall have the right to monies in the Reserve Fund
and to certain other excess funds (after the payment of all principal and
interest on the Notes and the Subordinated Notes). The Certificate will
represent fractional undivided beneficial equity interests in the Trust, and
will be issued pursuant to the Trust Agreement.
The Certificate is not being offered and sold hereunder. The Trust
Depositor is expected initially to retain the Certificate, although the
Certificate could be transferred at some later date in a transaction separate
from this offering provided the Owner Trustee and Indenture Trustee receive an
opinion of Independent Counsel that such transfer will not
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cause the Trust to become a taxable entity or otherwise adversely affect the
Noteholders or Certificateholder. Distributions with respect to the Certificate
will be subordinated to the rights of the Noteholders and the holders of the
Subordinated Notes to the extent described herein. See "DESCRIPTION OF THE
NOTES--ALLOCATIONS" herein.
THE TRANSFER AND SALE AGREEMENT AND
POOLING AND SERVICING AGREEMENT
The following is a summary of the material terms of the Transfer and Sale
Agreement and the Pooling 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 Pooling and Servicing Agreement, respectively.
TERMINATION OF TRUST
Unless the Trust Depositor instructs the Owner Trustee otherwise, the Trust
will terminate only on the earliest to occur of (i) final distribution of all
moneys or other property or proceeds of the Trust Estate in accordance with the
terms of the Indenture, the Pooling and Servicing Agreement and the Trust
Agreement or (ii) ninety (90) days following the occurrence of an Insolvency
Event as described under "DESCRIPTION OF THE NOTES--EVENTS OF DEFAULT" unless
the Owner Trustee shall have received instructions from the Required Holders not
to terminate or dissolve the Trust, (the "TRUST TERMINATION DATE"). Upon
termination of the Trust, all right, title and interest in the Trust Assets
(other than amounts in accounts maintained by the Trust for the final payment of
principal and interest to Noteholders or Certificateholders) will be conveyed
and transferred to the holder of the Certificate and any permitted assignee.
CONVEYANCE OF CONTRACTS
The Contracts, and interests in the Equipment and other Applicable
Security, to be sold or contributed to the Trust by the Trust Depositor will be
acquired by the Trust Depositor from the Seller pursuant to the Transfer and
Sale Agreement dated as of [ ], 1998 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 Pooling and Servicing Agreement, such interests in the related Contracts,
security interests in 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
security interests in the 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 or Excluded Residual Investment, (ii) security interests in 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
Pooling and Servicing Agreement and the Indenture.
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Newcourt USA, as Servicer under the Pooling and Servicing Agreement, will
retain custody of (but not title to) the Contracts, the Contract Files and any
related evidence of insurance payments, Scheduled Payments and any other similar
payments under the Contracts; provided that certain Persons identified in the
Transfer and Sale Agreement will retain custody of certain of the Contracts and
Contract Files. Prior to the conveyance of any Contracts to the Trust
Depositor, Newcourt USA caused (in the case of the Contracts sold under the
Transfer and Sale Agreement on the Closing Date) or will cause (in the case of
Additional Contracts or Substitute Contracts conveyed after the Closing Date)
its and/or Newcourt USA's computer accounting systems to be marked to show that
the Contracts transferred thereunder have been conveyed to the Trust Depositor,
and prior to each transfer of any Trust Assets to the Trust pursuant to the
Pooling 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 Pooling 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 (except with respect to clause (viii) below, which
representation and warranty is made only as of the Closing 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 (except with respect
to clause (viii) below, which representation and warranty is made only as of the
Closing 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 are not being
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 (except with respect to the Minimum Value Filing
Exception) or, in the case of any Vendor Loan, related Applicable Security or
(B) in the case of a Contract secured by Vehicles, (1) within 60 calendar days
of the origination or acquisition of such Contract by the Seller an application
was filed in the appropriate state office to note Newcourt USA's interest on the
certificate of title for such vehicle, and in any case such interest will be so
noted or recorded within 180 days of such acquisition or origination or (2) a
certificate of title or similar evidence or recordation on which the Seller's
interest has been noted has been obtained; (ix) if the Contract constitutes
either an "INSTRUMENT" or "CHATTEL PAPER" for purposes of the UCC, there is not
more than one "SECURED PARTY'S ORIGINAL" counterpart of the Contract; (x) all
filings necessary to evidence the conveyance or transfer of the Contract to the
Trust Depositor have been made in all appropriate jurisdictions; (xi) the
Obligor is not to the Seller's knowledge, subject to bankruptcy or other
insolvency proceedings; (xii) the Contract is a U.S. dollar-denominated
obligation and the related Obligor's billing address is in the United States;
(xiii) the Contract does not require the prior written consent of an Obligor or
contain any other restriction on the transfer or assignment of the Contract
(other than a consent or waiver of such restriction that has been obtained prior
to the date of such Contract's conveyance to the Trust); (xiv) either (A) the
obligations of the related Obligor under such Contract are irrevocable and
unconditional and non-cancelable (or, if prepayable by its terms, such Contract
meets the criteria described in clause (xxiv) below, or if not irrevocable and
unconditional has
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the benefit of a Vendor Guarantee) or (B) with respect to certain Leases with
Lessees that are governmental entities or municipalities, if such Lease is
cancelled in accordance with its terms, either (1) the Vendor which assigned
such Lease to the Seller is unconditionally obligated to repurchase such Lease
from the Seller for a purchase price not less than the Discounted Contract
Balance of such Lease (as of the Determination Date immediately prior to the
date of purchase) plus interest thereon at the Discount Rate through the
Distribution Date following such date of repurchase or (2) pursuant to the
Transfer and Sale Agreement, the Seller has indemnified the Trust Depositor
against such cancellation in an amount equal to the Discounted Contract Balance
of such Lease (as of the Determination Date immediately prior to the date of
purchase) plus interest thereon at the Discount Rate through the Distribution
Date following such cancellation less any amounts paid by the Vendor pursuant to
clause (1); (xv) the Contract has an original maturity of not greater than the
term specified in the Pooling 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) to the Seller's
knowledge, each Lessee has represented to 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 the
Seller nor has the Seller established any specific credit reserve with respect
to the related Obligor; (xxii) each Lease is a "TRIPLE NET LEASE" under which
the Obligor is responsible for the maintenance of the related Equipment in
accordance with general industry standards applicable to such item of Equipment;
(xxiii) each Vendor Loan is secured by an Eligible Secondary Contract having an
aggregate Discounted Contract Balance for such Eligible Secondary Contract equal
to the outstanding principal amount of such Vendor Loan (and assuming the
interest rate specified in such Vendor Loan is the "DISCOUNT RATE" for purposes
of calculating such Discounted Contract Balance); and (xxiv) no provision of
such Contract provides for a Prepayment Amount less than the amount calculated
in accordance with the definition thereof (unless otherwise indemnified by the
Vendor or the Seller in an amount equal to the excess of the "PREPAYMENT AMOUNT"
as calculated in accordance with the definition thereof over the amount
otherwise payable upon a prepayment under such Contract).
As used above, "PREPAYMENT AMOUNT" shall mean, with respect to a Contract,
the sum of (i) the Discounted Contract Balance of such Contract on the
Determination Date immediately prior to the date of prepayment plus any accrued
and unpaid interest payments thereon (at the Discount Rate) and (ii) any
outstanding Servicer Advances thereon.
The foregoing representations and warranties, as appropriate, will be
reaffirmed by the Seller with respect to any Additional Contract or Substitute
Contract transferred by any Seller to the Trust Depositor. A Contract which
satisfies all of the above representations and warranties shall be termed an
"ELIGIBLE CONTRACT". Contracts with respect to which the representations in
clauses (iii), (xv) and (xxiv) are not true shall also be Eligible Contracts if
all representations other than such representations are true and 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 Pooling
and Servicing Agreement, (iii) liens in favor of the Trust created pursuant to
the Pooling and Servicing Agreement, and (iv) liens in favor of the Indenture
Trustee created pursuant to the Pooling 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 Pooling and Servicing Agreement, (iv) liens in favor of the
Trust created pursuant to the Pooling and Servicing Agreement; (v) liens in
favor of the Indenture Trustee created pursuant to the Pooling 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 Pooling and Servicing Agreement, (viii) subordinated
interests relating to the Guaranteed Residual Investments and (ix) liens granted
by the End-Users or Vendors which are subordinated to the interest of the Trust
in such Equipment.
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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 (except with respect to the
Minimum Value Filing Exception)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 (except with respect to the
Minimum Value Filing Exception) (Secondary Contracts which satisfy all of the
foregoing representations shall be termed "ELIGIBLE SECONDARY CONTRACTS").
The Trust Depositor will represent and warrant in the Pooling 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
(except with respect to the Minimum Value Filing Exception); (ii) that each
Contract transferred by it to the Trust is an "ELIGIBLE CONTRACT"; (iii) that
each Secondary Contract (or interest therein) transferred by it to the Trust is
an "ELIGIBLE SECONDARY CONTRACT"; (iv) that the security interest granted on the
related Contracts, whether then existing or thereafter created, and the proceeds
thereof by the Trust to the Indenture Trustee is effective to create in favor of
the Indenture Trustee a lien thereon and that such lien has been duly perfected
(except with respect to the Minimum Value Filing Exception); (v) that the Trust
Depositor holds a duly perfected lien of the first priority on each Secondary
Contract (except with respect to the Minimum Value Filing Exception) 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 (except with respect to the Minimum Value
Filing Exception).
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 Pooling 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 the Seller and any interest in
Equipment transferred that is subject to such Contract no later than 90 days
after the 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 Pooling and Servicing
Agreement made by the Trust Depositor with respect to such a Contract.
Pursuant to the Pooling 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
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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; and
(iii) the ADCB of all End-User Contracts with Obligors who
comprise the five (5) largest Obligors (measured by ADCB as
of the date of determination) 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
will be obligated to purchase from the Trust Depositor, any Contract transferred
by the 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 the 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 Pooling 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 Pooling 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 Pooling and Servicing Agreement except where arising
out of Indemnified Party's bad faith, willful misconduct or gross negligence.
Pursuant to the Pooling and Servicing Agreement, the Servicer, irrevocably and
unconditionally, (i) submits for itself and its property in any legal action
arising out of the Pooling and Servicing Agreement and the other Operative
Documents, to the nonexclusive general jurisdiction of the courts of the United
States of America for the Southern District of New York, and appellate courts
therefrom and (ii) waives any objection it may have that any action therein was
brought in an inconvenient court. Notwithstanding the foregoing, a court may
determine, on its own motion, that an action brought against the Servicer in any
such court was brought in an inconvenient forum.
Except as provided in the preceding paragraph, the Pooling and Servicing
Agreement provides that none of the Trust Depositor, the Servicer or any of
their directors, officers, employees or agents will be under any other liability
to the Trust, the Owner Trustee, the Indenture Trustee, the holders of Notes or
Subordinated Securities or any other person for any action taken, or for
refraining from taking any action, in good faith pursuant to the Pooling and
Servicing
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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 Pooling 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 Pooling and
Servicing Agreement. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
holders of Notes or Subordinated Securities with respect to the Pooling and
Servicing Agreement and the rights and duties of the parties thereto and the
interest of Noteholders or holders of the Subordinated Securities thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Pooling 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 Pooling 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
Pooling 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 Pooling and Servicing
Agreement.
Any person into which, in accordance with the Pooling 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
Pooling 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 Pooling 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 has not cured 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 Subordinated Notes 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 Pooling
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 Pooling 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 Pooling
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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 Pooling and Servicing
Agreement on or before the date occurring five Business Days
after notice from the Indenture Trustee or after discovery
by the Servicer; or
(b) failure on the part of the Servicer to duly observe or
perform in any material respect any other covenants or
agreements of the Servicer set forth in the Pooling and
Servicing Agreement which has a material adverse effect on
the Noteholders or holders of the Subordinated Notes or
Certificateholders, which continues unremedied for a period
of 30 days after the first to occur of (i) the date on
which written notice of such failure requiring the same to
be remedied shall have been given to the Servicer by the
Indenture Trustee or to the Servicer and the Indenture
Trustee by the Noteholders or holders of the Subordinated
Notes or Certificateholders or the Indenture Trustee on
behalf of such Noteholders of Notes or holders of the
Subordinated Notes or holders of Certificates aggregating
not less than 25% of the Principal Amount of any Class or
the Certificates adversely affected thereby and (ii) the
date on which a responsible officer of the Servicer becomes
aware thereof and such failure continues to materially
adversely affect such Noteholders or holders of the
Subordinated Notes or Certificateholders for such period; or
(c) any representation, warranty or certification made by the
Servicer in the Pooling and Servicing Agreement or in any
certificate delivered pursuant to the Pooling 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 Pooling 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
On or before March 31 of each calendar year, the Servicer will deliver to
the Indenture Trustee a statement from a nationally recognized accounting firm
to the effect that such firm has (i) audited the financial statements of the
Servicer and issued its report thereon and that such audit was made in
accordance with generally accepted auditing standards, which require that such
accounting firm plan and perform the audit to obtain reasonable assurance as to
whether the financial statements of the Servicer are free of material
misstatement, and (ii) examined management's assertion that the Servicer
maintained effective control over the servicing of equipment lease contracts,
installment sales contracts, promissory notes, loan and security agreements
and/or other similar types of receivables under servicing agreements
substantially similar one to another, in accordance with established or stated
criteria, and that such examination was performed in accordance with standards
established by the American Institute of Certified Public Accountants.
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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 TO THE POOLING AND SERVICING AGREEMENT
The Pooling and Servicing Agreement may be amended from time to time by
agreement of the Owner Trustee, the Servicer, the Indenture Trustee and the
Trust Depositor without the consent of the Noteholders or Certificateholders (i)
to cure any ambiguity or (ii) to add any consistent provisions; PROVIDED, that
such action shall not as evidenced by an Opinion of Counsel, adversely affect in
any material respect the interests of any Noteholder or holders of the
Subordinated Securities.
The Pooling and Servicing Agreement may also be amended from time to time
by the Trust Depositor, the Servicer, the Indenture Trustee and the Owner
Trustee with the consent of the Required Holders for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Pooling and Servicing Agreement or of modifying in any manner the rights of
Noteholders or the holders of the Subordinated Securities. No such amendment,
however, may
(i) increase or reduce in any manner the amount of, or delay the
timing of (a) distributions which are required to be made on
any Note, Subordinated Note or Certificate (including by way
of amendment of related definitions) or (b) the manner in
which the Reserve Fund is applied without the consent of
each Noteholder or holder of a Subordinated Security
affected thereby;
(ii) change in any manner (including through amendment of related
definitions) the Noteholders or holders of Subordinated
Securities which are required to consent to any amendment to
the Pooling and Servicing Agreement; or
(iii) make any Note, Subordinated Note or Certificate payable in
money other than Dollars without the consent of each
Noteholder or holder of a Subordinated Security affected
thereby.
Promptly following the execution of any such amendment, the Indenture
Trustee shall furnish written notice of the substance of such amendment to each
Noteholder and holder of a Subordinated Security.
THE OWNER TRUSTEE
[ ] will be the Owner Trustee under the Pooling
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 [ ].
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 Pooling 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 Pooling and Servicing Agreement. In
such circumstances, a successor Owner Trustee will be appointed as provided in
the Pooling and Servicing Agreement. Any resignation or removal of the Owner
Trustee and appointment of a successor Owner Trustee shall not become effective
until acceptance of the appointment by the successor Owner Trustee.
THE INDENTURE
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GENERAL
The Notes will be issued pursuant to an Indenture between the Trust and the
Indenture Trustee. Pursuant to the Pooling and Servicing Agreement, the
Indenture Trustee will obtain the benefits of the Pooling 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" 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 A-3 Notes shall be
distributed to the Class A-3 Noteholders ratably, without
priority of any one Class A-3 Note over any other Class A-3
Note, in the proportion that the aggregate amount of all
accrued but unpaid interest to the date of distribution on
each Class A-3 Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on
all Class A-3 Notes;
FOURTH, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest
then due on or in respect of the Class A-4 Notes shall be
distributed to the Class A-4 Noteholders ratably, without
priority of any one Class A-4 Note over any other Class A-4
Note, in the proportion that the aggregate amount of all
accrued but unpaid interest to the date of distribution on
each Class A-4 Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on
all Class A-4 Notes;
FIFTH, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest
then due on or in respect of the Class B Notes shall be
distributed to the Class B Noteholders ratably, without
priority of any one Class B Note over any other Class B
Note, in the proportion that the aggregate amount of all
accrued but unpaid interest to the date of distribution on
each Class B Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on
all Class B Notes;
SIXTH, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest
then due on or in respect of the Class C Notes shall be
distributed to the Class C Noteholders ratably, without
priority of any one Class C Note over any other Class C
Note, in the proportion that the aggregate amount of all
accrued but unpaid interest to the date of distribution on
each Class C Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on
all Class C Notes;
SEVENTH, so much of such installment or payment as shall be
required to pay in full the aggregate amount of interest
then due on or in respect of the Class D Notes shall be
distributed to the Class D Noteholders ratably, without
priority of any one Class D Note over any other Class D
Note, in the proportion that the aggregate amount of all
accrued but unpaid interest to the date of distribution on
each Class D Note bears to the aggregate amount of all
accrued but unpaid interest to the date of distribution on
all Class D Notes;
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EIGHTH, 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 E Notes shall be distributed
to the Class E Noteholders ratably, without priority of any
one Class E Note over any other Class E Note, in the
proportion that the aggregate amount of all accrued but unpaid
interest to the date of distribution on each Class E Note
bears to the aggregate amount of all accrued but unpaid
interest to the date of distribution on all Class E Notes;
NINTH, 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;
TENTH, 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;
ELEVENTH, the balance, if any, of such installment or
payment remaining thereafter shall be distributed ratably to
the Class A-3 Noteholders to pay in full the aggregate
amount of the Class A-3 Principal Payment then due pursuant
to or in respect of the Class A-3 Notes, without priority of
any one Class A-3 Note over any other Class A-3 Note, in the
proportion that the aggregate unpaid principal amount of
each Class A-3 Note bears to the aggregate unpaid principal
amount of all Class A-3 Notes;
TWELFTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the
Class A-4 Noteholders to pay in full the aggregate amount of
the Class A-4 Principal Payment then due pursuant to or in
respect of the Class A-4 Notes, without priority of any one
Class A-4 Note over any other Class A-4 Note, in the
proportion that the aggregate unpaid principal amount of
each Class A-4 Note bears to the aggregate unpaid principal
amount of all Class A-4 Notes;
THIRTEENTH, 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;
FOURTEENTH, 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;
FIFTEENTH, the balance, if any, of such installment or
payment remaining thereafter shall be distributed ratably to
the Class D Noteholders to pay in full the aggregate amount
of the Class D Principal Payment then due pursuant to or in
respect of the Class D Notes, without priority of any one
Class D Note over any other Class D Note, in the proportion
that the aggregate unpaid principal amount of each Class D
Note bears to the aggregate unpaid principal amount of all
Class D Notes;
SIXTEENTH, the balance, if any, of such installment or payment
remaining thereafter shall be distributed ratably to the Class
E Noteholders to pay in full the aggregate amount of the Class
E Principal Payment then due pursuant to or in respect of the
Class E Notes, without priority of any one Class E Note over
any other Class E Note, in the proportion that the aggregate
unpaid principal amount of each Class E Note bears to the
aggregate unpaid principal amount of all Class E Notes; and
SEVENTEENTH, the aggregate amount of Additional Principal, if
any, of such installment or payment remaining thereafter shall
be paid, to the Class A Notes sequentially until the Principal
Amount of each of the Class A Notes have been reduced to zero,
then to the Class B Notes until the Principal Amount of the
Class B Notes has been reduced to zero, then to the Class C
Notes until the Principal Amount
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of the Class C Notes has been reduced to zero, then to the Class D
Notes until the Principal Amount of the Class D Notes has been
reduced to zero, then to the Class E Notes until the Principal
Amount of the Class E Notes has been reduced to zero.
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" shall be promptly distributed in the following order of
priority:
FIRST, so much of such payment as shall be required to
reimburse the Indenture Trustee for any tax, expense, charge
or other loss incurred by the Indenture Trustee (to the
extent not previously reimbursed), (including, without
limitation, the expense of sale, taking or other proceeding,
attorneys' fees and expenses, court costs, and any other
expenditures incurred or expenditures or advances made by
the Indenture Trustee in the protection, exercise or
enforcement of any right, power or remedy or any damages
sustained by the Indenture Trustee, liquidated or otherwise,
upon the Indenture Event of Default giving rise to such
expenditures or advances) shall be applied by the Indenture
Trustee in reimbursement of such expenses;
SECOND, so much of such payment remaining as shall be
required to reimburse the Noteholders in full for certain
indemnity payments, if any, made by such Noteholders and
Subordinated Noteholders to the Indenture Trustee (to the
extent not previously reimbursed) shall be distributed to
the Noteholders and the Subordinated 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 such holder over any other,
in the proportion that the aggregate amount of such
unreimbursed indemnity payments made by each such holder
bears to the aggregate amount of such unreimbursed indemnity
payments made by all Noteholders and the Subordinated
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, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes shall be distributed to the Class A-1
Noteholders, the Class A-2 Noteholders, the Class A-3
Noteholders, the Class A-4 Noteholders, and, if the
aggregate amount remaining shall be insufficient to pay all
such amounts in full, it shall be distributed ratably,
without priority of any one Class A-1 Note, one Class A-2
Note, one Class A-3 Note and one Class A-4 Note over any
other Class A-1 Note, Class A-2 Note, Class A-3 Note or
Class A-4 Note, in the proportion that the aggregate amount
of all accrued but unpaid interest to the date of
distribution on each Class A-1 Note, Class A-2 Note, Class
A-3 Note or Class A-4 Note bears to the aggregate amount of
all accrued but unpaid interest to the date of distribution
on all Class A Notes;
FOURTH, so much of such payment remaining as shall be
required to pay in full the aggregate amount of all accrued
but unpaid interest to the date of distribution on the Class
B Notes shall be distributed to the Class B Noteholders,
and, if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed
ratably, without priority of any one Class B Note over any
other Class B Note, in the proportion that the aggregate
amount of all accrued but unpaid interest to the date of
distribution on each Class B Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class B Notes;
FIFTH, so much of such payment remaining as shall be
required to pay in full the aggregate amount of all accrued
but unpaid interest to the date of distribution on the Class
C Notes shall be distributed to the Class C Noteholders,
and, if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed
ratably, without priority of any one Class C Note over any
other Class C Note, in the proportion that the aggregate
amount of all accrued but unpaid interest to the date of
distribution on each Class C Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class C Notes;
SIXTH, so much of such payment remaining as shall be
required to pay in full the aggregate amount of all accrued
but unpaid interest to the date of distribution on the Class
D Notes shall be distributed to the Class D Noteholders,
and, if the aggregate amount remaining shall be insufficient
to pay all such amounts in full, it shall be distributed
ratably, without priority of any one Class D Note over any
other Class D Note, in the proportion that the aggregate
amount of all accrued but unpaid interest to
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the date of distribution on each Class D Note bears to the
aggregate amount of all accrued but unpaid interest to the date of
distribution on all Class D Notes;
SEVENTH, 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
E Notes shall be distributed to the Class E 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 E Note over any
other Class E Note, in the proportion that the aggregate
amount of all accrued but unpaid interest to the date of
distribution on each Class E Note bears to the aggregate
amount of all accrued but unpaid interest to the date of
distribution on all Class E Notes;
EIGHTH, 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;
NINTH, 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;
TENTH, the balance, if any, of such payment remaining
thereafter shall be distributed to the Class A-3 Noteholders
in order to pay in full the outstanding aggregate amount of
principal of the Class A-3 Notes, and if the aggregate
amount remaining shall be insufficient to pay all such
amounts in full, it shall be distributed ratably, without
priority of any one Class A-3 Note over any other Class A-3
Note, in the proportion that the aggregate unpaid principal
amount of each Class A-3 Note bears to the aggregate unpaid
principal amount of all Class A-3 Notes;
ELEVENTH, the balance, if any, of such payment remaining
thereafter shall be distributed to the Class A-4 Noteholders
in order to pay in full the outstanding aggregate amount of
principal of the Class A-4 Notes, and if the aggregate
amount remaining shall be insufficient to pay all such
amounts in full, it shall be distributed ratably, without
priority of any one Class A-4 Note over any other Class A-4
Note, in the proportion that the aggregate unpaid principal
amount of each Class A-4 Note bears to the aggregate unpaid
principal amount of all Class A-4 Notes;
TWELFTH, 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;
THIRTEENTH, 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;
FOURTEENTH, the balance, if any, of such payment remaining
thereafter shall be distributed ratably to the Class D
Noteholders to pay in full the aggregate amount of principal
of the Class D Notes, then due pursuant to or in respect of
the Class D Notes, and if the aggregate amount remaining
shall be insufficient to pay all such amounts in full, it
shall be distributed ratably, without priority of any one
Class D Note over any other Class D Note, in the proportion
that the aggregate unpaid principal
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amount of each Class D Note bears to the aggregate unpaid principal
amount of all Class D Notes; and
FIFTEETH, the balance, if any, of such payment remaining
thereafter shall be distributed ratably to the Class E
Noteholders to pay in full the aggregate amount of principal
of the Class E Notes, then due pursuant to or in respect of
the Class E 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 E Note
over any other Class E Note, in the proportion that the
aggregate unpaid principal amount of each Class E Note bears
to the aggregate unpaid principal amount of all Class E Notes.
EVENTS OF DEFAULT; REMEDIES
If an Event of Default referred to in subparagraph (e) (see "DESCRIPTION OF
THE NOTES--EVENTS OF DEFAULT") has occurred, then and in every such case the
unpaid principal of the Notes, together with interest accrued but unpaid
thereon, and all other amounts due to the Noteholders under the Indenture, shall
immediately and without further act become due and payable.
If any other Event of Default shall have occurred, 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 and the Subordinated 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 consist principally of the
distribution of monies received pursuant to the Pooling 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 TO THE INDENTURE
At any time and from time to time, the Trust and the Indenture Trustee,
with the written consent of the Required Holders represented thereby, may
execute a supplement to the Indenture for the purpose of adding provisions to,
or changing or eliminating provisions of, the Indenture (including any appendix
or schedule hereto; PROVIDED, HOWEVER, that, without the consent of each
Noteholder and Subordinated Noteholder affected thereby under the Indenture, no
such amendment, supplement, waiver or consent shall
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(i) change the date of payment of any installment of
principal of or interest on any Note or Subordinated Note,
or reduce the principal amount thereof, the interest rate
thereon or reduce the amount payable with respect to such
Note or Subordinated Note upon redemption thereof, change
the provisions of the Indenture relating to the application
of collections on, or the proceeds of the sale of, the Trust
Assets to payment of principal of or interest on the Notes
and Subordinated Notes, or change any place of payment
where, or the coin or currency in which, any Note or
Subordinated Note or the interest thereon is payable, or
impair the right to institute suit for the enforcement of
the provisions of the Indenture regarding the applicable of
funds available thereof to the payment of any such amount
due on the Notes or Subordinated Notes;
(ii) reduce the Principal Amount of the Notes and
Subordinated Notes or reduce the percentages used in the
definition of Required Holders the consent of which is
required in connection with the execution of a supplemental
indenture (or an amendment to the Indenture) or to waive
compliance with certain provisions of the Indenture or
certain defaults under the Indenture;
(iii) reduce the percentages used in the definition of
Required Holders in connection with the sale or liquidation
of Trust Assets;
(iv) modify, amend or supplement the provisions of the
Indenture relating to consent of the Noteholders and
Subordinated Noteholders to amendments, waivers and
supplements to the Indenture or the other Transaction
Documents; or
(v) permit the creation of any lien ranking prior to
or on a parity with the lien created by the Indenture with
respect to the Trust Assets.
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 Pooling 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
POOLING AND SERVICING AGREEMENT--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
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assignee of the Seller's, Trust Depositor's and the Trust's interest) could be
defeated. In such event, distributions to Noteholders could be adversely
affected. The notation in the computer records, however, mitigates this risk.
Similarly, with respect to Secondary Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing such
Vendor Loan. Although UCC financing statements are filed reflecting the pledge
of such Contracts to the Seller as security for the Vendor Loans, because these
contract files will remain in the Vendor's possession, if a subsequent purchaser
were able to take physical possession of such contract files without knowledge
of the pledge to the Seller, the Indenture Trustee's priority security interest
(as assignee of the Seller's, Trust Depositor's and the Trust's interest) in the
such Secondary Contracts, as security for the related Vendor Loan, could be
defeated. In such event, distributions to Noteholders could be adversely
affected. Each Vendor represents, warrants and covenants in the applicable
agreement evidencing a Vendor Loan, however, that it has not and will not sell
or otherwise convey, unless subordinated to the Trust, or otherwise pledge,
assign or convey to any other party (other than the Seller) any interest in the
Secondary Contracts securing such Vendor Loan, and agrees that it will maintain
possession of the related contract files as custodian for the benefit of the
Seller as secured party with respect to such Secondary Contracts.
There are also certain limited circumstances under applicable federal or
state law in which prior transferees of Contracts or Secondary Contracts could
have an interest in such contracts with priority over the Indenture Trustee's
interest. A tax or other government lien on property of the Seller or the Trust
Depositor arising prior to the time a Contract or interest in a Secondary
Contract is conveyed to the Trust may also have priority over the interest of
the Trust and the Indenture Trustee in such contract. Under the Transfer and
Sale Agreement, the Seller will warrant to the Trust Depositor, and, under the
Pooling 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. Security interests in such Equipment will be
assigned 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
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payment thereunder, they may adversely affect the right of the Indenture Trustee
to receive proceeds of a disposition of the Equipment related to a Defaulted
Contract. Additionally, statutory liens for repairs or unpaid taxes and other
liens arising by operation of law may have priority even over prior perfected
security interests in the Equipment assigned to the Indenture Trustee.
In addition, some of the Equipment related to the Contracts may constitute
"FIXTURES" under the real estate or UCC provisions of the jurisdiction in which
such Equipment is located. In order to perfect a security interest in such
Equipment, the holder of the security interest must file either a "FIXTURE
FILING" under the provisions of the UCC or a real estate mortgage under the real
estate laws of the state where the Equipment is located. These filings must be
made in the real estate records office of the county in which such Equipment is
located. So long as the Obligor does not permanently attach the Equipment to
the real estate, a security interest in the Equipment will be governed by the
UCC, and the filing of a UCC-1 financing statement will be effective to maintain
the priority of the Seller's security interest in such Equipment. Except for a
small portion of such Equipment, the Trust Depositor does not believe that any
of the Equipment will be permanently affixed to the related real estate. If,
however, any Equipment is permanently attached to the real estate in which it is
located, other parties could obtain an interest in the Equipment which is prior
to the security interest originally obtained by the Seller and transferred to
the Trust Depositor. Based on the representation of the Seller, the Trust
Depositor, however, believes that with respect to Equipment which constitutes a
"FIXTURE", it has obtained a perfected first priority security interest (except
with respect to the Minimum Value Filing Exception), 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. As of the Initial 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 (except with respect to the Minimum Value Filing Exception), if
(i) such breach shall materially adversely affect such Contract and (ii) such
failure or breach shall not have been cured by the last day of the second (or,
if the Trust Depositor elects, the first) month following the discovery by or
notice to the Trust Depositor of such breach, and the Seller will be obligated
to reacquire such Contract from the Trust Depositor contemporaneously with the
Trust Depositor's reacquisition from the Trust. If there is any Equipment as to
which the Seller failed to perfect its security interest, such Seller's security
interest, and the security interests of the Trust Depositor and the related
Trust (and the Indenture Trustee as assignee), would be subordinated to, among
others, subsequent purchasers of the Equipment and holders of perfected security
interests with respect thereto. To the extent the security interest of the
Seller in the related Equipment is perfected, subject to the exceptions set
forth in the following sentence, the Trust will have a prior claim over
subsequent purchasers from the Obligor of such Equipment and holders of
subsequently perfected security interests granted by Obligors. However, as
against Mechanics' Liens or liens for taxes and other non-consensual liens
unpaid by an Obligor under a Contract, or in the event of fraud or negligence of
the Seller or Servicer, the Trust could lose the priority of its interest or
its interest in such Equipment following the conveyance of such Contract to the
Trust. Neither the Trust Depositor, the Servicer nor the Seller will have any
obligation to reacquire a Contract if any of the occurrences described in the
foregoing sentence (other than fraud or negligence of the Seller) result in the
Trust's losing the priority of its security interest or its security interest in
such Equipment after the date such Contract is conveyed to the Trust.
TRANSFERS OF INTERESTS IN FINANCED VEHICLES. The Contracts will include
conditional sales agreements for Vehicles subject to state certificate of title
statutes. Security interests in vehicles registered in most states may be
perfected by a notation of the secured party's lien on the certificate of title
for such vehicle, depending on state law. With respect to conditional sales
agreements for vehicles, such liens would be noted in the name of Newcourt USA.
Newcourt USA has been designated as the first and sole lien holder on the
certificate of title. In the event the Vendor fails, due to clerical errors or
for any other reason, to effect such notation of Newcourt USA's interest in a
vehicle, Newcourt USA would not have a perfected first priority security
interest in such vehicle. As a result, the only recourse of Newcourt USA
vis-a-vis third parties would be against the Obligor or the related Vendor on an
unsecured basis. However, Newcourt USA believes that it has obtained a
perfected first priority security interest by notation with respect to almost
all of the vehicles. In addition, the Contracts may also include Leases of
vehicles where Newcourt USA is identified on the certificate of title as the
owner of the vehicle.
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, 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
security interests
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with respect to the Vehicles, the certificates of title with respect to the
Vehicles securing Contracts will not identify the Trust or the Indenture Trustee
as secured party of such Equipment. There exists a risk in not so identifying
the Trust or the Indenture Trustee as the new secured party that, through fraud
or negligence, a third party could acquire an interest in the Vehicles superior
to that of the Trust or the Indenture Trustee. In addition, statutory liens for
repairs or unpaid taxes may have priority even over a perfected security
interest in the Vehicles. As of the Initial 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 Trustee as the first and sole lien holder on the certificate of
title with respect to the Vehicles after an Event of Default.
With respect to motor Vehicles, in the event that the owner of a Vehicle
moves to a state other than the state in which such Vehicle is registered, under
the laws of most states the perfected security interest in the Vehicle would
continue for four months after such relocation and thereafter until the owner
titles the Vehicle in such state. A majority of states generally require
surrender of a certificate of title to re-register a Vehicle. Accordingly,
Newcourt USA as Servicer must surrender possession if it holds the certificates
of title to such Vehicle or, in the case of Vehicles originally registered in a
state which provides for notation of lien but does not require possession of the
certificate of title by the holder of the security interest in the related motor
vehicle, Newcourt USA as Servicer would receive notice of surrender if the
security interest in the Vehicle is noted on the certificate of title.
Accordingly, the Servicer would have the opportunity to re-perfect its security
interest in the Vehicle in the state of relocation. In states which do not
require a certificate of title for registration of a motor vehicle,
re-registration could defeat perfection. In the ordinary course of servicing
its portfolio of motor vehicle financing agreements, Newcourt USA takes steps to
effect such reperfection upon receipt of notice of re-registration of
information from the Obligor as to relocation. Similarly, when an Obligor sells
a Vehicle, Newcourt USA must surrender possession of the certificates of title
or will receive notice as a result of its lien noted thereon and accordingly
will have an opportunity to require satisfaction of the related Contract before
release of the lien. Under the Pooling 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 Pooling and
Servicing Agreement, that they have no knowledge of any such liens with respect
to any Vehicle. However, such liens could arise at any time during the term of
a Contract. No notice will be given to the Indenture Trustee in the event such
a lien arises.
The Servicer on behalf of the Trust may take action to enforce the Trust's
security interest by repossession and resale of the Vehicles securing the
related Contracts. The actual repossession may be contracted out to third party
contractors. Under the UCC and laws applicable in most states, a creditor can
repossess a motor vehicle securing a loan by voluntary surrender, "SELF-HELP"
repossession that is "PEACEFUL" (I.E., without breach of the peace) and, in the
absence of voluntary surrender and the ability to repossess without breach of
the peace, by judicial process. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale. In
the event of such repossession and resale of a Vehicle (assuming the Trust had a
first perfected security interest in such Vehicle), the Trust would be entitled
to be paid out of the sale proceeds before such proceeds could be applied to the
payment of the claims of unsecured creditors or the holders of subsequently
perfected security interests or, thereafter, to the debtor.
Under the UCC and laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the motor vehicle securing such debtor's loan on a commercially
reasonable basis. However, some states impose prohibitions or limitations on
deficiency judgments. In general, a defaulting Obligor may not have sufficient
assets to make the pursuit of a deficiency judgment worthwhile.
Certain other federal and state statutory provisions, including bankruptcy
law, insolvency laws, and other laws affecting the rights of creditors and
debtors generally as well as general equitable principles may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
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
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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 Pooling and Servicing Agreement
that the security interest therein granted by the Trust in favor of the
Indenture Trustee is a valid and duly perfected security interest and will take
all actions that are required under applicable law to perfect the Trust's and
the Indenture Trustee's respective interests in the Contracts and the Secondary
Contracts securing Vendor Loans sold by it (except with respect to the Minimum
Value Filing Exception). 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"
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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 Pooling 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 Pooling and Servicing Agreement.
The right of the Indenture Trustee, as secured party under the Pooling and
Servicing Agreement for the benefit of the Noteholders, to foreclose upon and
sell the Trust Assets is likely to be significantly impaired by applicable
bankruptcy laws, including the automatic stay pursuant to Section 362 of the
Bankruptcy Code, if a bankruptcy proceeding were to be commenced by or against
the Trust, and possibly the Trust Depositor, before or possibly even after the
Indenture Trustee has foreclosed upon and sold the Trust Assets. Under the
bankruptcy laws, payments on debts are not made and secured creditors are
prohibited from repossessing their security from a debtor in a bankruptcy case
or from disposing of security repossessed from such a debtor, without bankruptcy
court approval. Moreover, the bankruptcy laws generally permit the debtor to
continue to retain and to use collateral even though the debtor is in default
under the applicable debt instruments, provided generally that the secured
creditor has the right to seek "ADEQUATE PROTECTION". The meaning of the term
"ADEQUATE PROTECTION" may vary according to circumstances, but it is intended in
general to protect the value of the security from any diminution in the value of
the collateral as a result of the use of the collateral by the debtor during the
pendency of the bankruptcy case. In view of the lack of a precise definition of
the term "ADEQUATE PROTECTION" and the broad discretionary powers of a
bankruptcy court, it is impossible to predict whether or to what extent the
holders of the Notes would be compensated for any diminution in value of the
Trust Assets. Furthermore, in the event a bankruptcy court determines that the
value of the Trust Assets is not sufficient to repay all amounts due on the
Notes, the Noteholders would hold secured claims only to the extent of the value
of the Trust Assets to which the holders are entitled, and unsecured claims with
respect to such shortfall. The bankruptcy laws do not permit the payment or
accrual of post-petition interest, costs and attorneys' fees during a debtor's
bankruptcy case unless, and then only to the extent, the claims are oversecured.
The Seller will either (i) originate Contracts or (ii) acquire End-User
Contracts from a Vendor, which Contracts will be transferred to the Trust
Depositor. If the acquisition of an End-User Contract by the Seller is treated
as a sale of such Contract from the applicable Vendor to the Seller, except in
certain limited circumstances, such Contract would not be part of such Vendor's
bankruptcy estate and would not be available to such Vendor's creditors. If a
Vendor became a debtor in a bankruptcy case and, in the case of End-User
Contracts acquired as described in clause (ii) above, if an unpaid creditor of
such Vendor or a representative of creditors of such Vendor, such as a trustee
in bankruptcy, or such Vendor acting as a debtor-in-possession, were, in any
case, to take the position that the sale of 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,
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should the court rule in favor of such creditor, representative or Vendor,
reductions in the amount of such payments could result. If the transfer of
End-User Contracts to the Seller as described in clause (ii) above is
recharacterized as a pledge, a tax or government lien on the property of the
pledging Vendor arising before the Contracts came into existence may have
priority over the Seller's (and hence the Trust Depositor's, the Trust's and the
Indenture Trustee's) interest in the Contracts. No law firm will, in connection
with the offering of the Notes, express any opinion as to the issues discussed
in this paragraph.
If an Insolvency Event with respect to the Trust Depositor were to occur,
then an Event of Default would occur with respect to the Notes and, pursuant to
the terms of the Pooling 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". The Noteholders would suffer a loss if the sum of (i) the proceeds
of the sale allocable to the Noteholders and (ii) the proceeds of any
collections on the Contracts in the Collection Account allocable to the
Noteholders is insufficient to pay the Noteholders in full.
State laws impose requirements and restrictions relating to foreclosure
sales and obtaining deficiency judgments following such sales. In the event
that the Noteholders must rely on repossession and disposition of any Equipment
to recover amounts due on Defaulted Contracts, such amounts may not be realized
because of the application of these requirements and restrictions. Other
factors that may affect the ability of the Noteholders to realize the full
amount due on a Contract or Secondary Contract include the failure to file
financing statements to perfect the Seller's, the Trust Depositor's, the Trust's
or Indenture Trustee's security interest, as applicable, in the Equipment or
other Applicable Security, depreciation, obsolescence, damage or loss of any
item of Equipment, and the application of federal and state bankruptcy and
insolvency laws. As a result, the Noteholders may be subject to delays in
receiving payments and losses if the remaining unaffected Contracts are
insufficient to cover such losses.
If a court, in a lawsuit by an unpaid creditor of a Seller or by a
representative of creditors of such Seller, such as a trustee in bankruptcy, or
by the Seller acting as a debtor-in-possession, were to find that, at the time
of or as a result of any transfer by such Seller of Contracts to the Trust
Depositor, (i) (A) the Seller entered into such transaction with the intent of
hindering, delaying or defrauding creditors or (B) the Seller received less than
a reasonably equivalent value or fair consideration as a result of such transfer
and (ii) the Seller (A) was insolvent or would be rendered insolvent by such
transfer, (B) was engaged in a business or transaction for which its assets
constituted unreasonably small capital after such transfer or (C) intended to
incur, or believed that it would incur, indebtedness beyond its ability to pay
as the obligations under such indebtedness matured (as the foregoing terms are
defined in or interpreted under the relevant fraudulent conveyance statutes),
such court could invalidate such transfer to the Trust Depositor or to the
Trust, or substantively consolidate the Trust Depositor, the Trust and the
Seller, or subordinate the rights of the Noteholders to the rights of unsecured
creditors of the Seller, or take other actions that would be adverse to the
Noteholders.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction that is being applied. Generally, however, an
entity would be considered insolvent if the fair saleable value of its assets is
less than the amount of its liabilities (including contingent liabilities) or
the amount that will be required to pay its probable liabilities on its existing
debts as they become absolute and matured. The Seller believes that it is
entering into these transactions (including the transfers of Contracts pursuant
to the Transfer and Sale Agreement) for proper purposes and in good faith and
that the purchase price for the Contracts identified in the Transfer and Sale
Agreement will represent reasonably equivalent value or fair consideration for
the transfers of such Contracts by the Seller to the Trust Depositor.
The Trust Depositor will receive, on the Closing Date, a certificate from
the Seller to the effect that (i) the Seller did not intend, in entering into
the Transfer and Sale Agreement and consummating the transactions contemplated
thereby, to hinder, delay or defraud either then present or future creditors or
any other person to which such Seller was or would thereafter become, as of or
after the consummation of such transactions, indebted and (ii) the purchase
price for the Contracts sold under the Transfer and Sale Agreement represented
reasonably equivalent value or fair consideration as a result of the transfers
of such Contracts to the Trust Depositor. There can be no assurance, however,
that a court would reach the same conclusion.
No law firm will, in connection with any offering of the Notes, express any
opinion as to federal or state laws relating to fraudulent transfers.
Certain states have adopted a version of Article 2A of the UCC ("ARTICLE
2A"), which purports to codify many provisions of existing common law. Although
there is little precedent regarding how Article 2A will be interpreted, it may,
among other
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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.
CERTAIN 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 at their original issue price, who are citizens or residents of
the United States, and who hold the Notes as "CAPITAL ASSETS" within the meaning
of Section 1221 of the Code. Taxpayers and preparers of tax returns (including
those filed by any partnership or other issuer) should be aware that under
applicable Treasury Regulations a provider of advice on specific issues of law
is not considered an income tax return preparer unless the advice is (i) given
with respect to events that have occurred at the time the advice is rendered and
is not given with respect to the consequences of contemplated actions, and (ii)
is directly relevant to the determination of an entry on a tax return.
Accordingly, taxpayers should consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. PROSPECTIVE INVESTORS
SHOULD CONSULT WITH THEIR
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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.
CLASSIFICATION OF THE NOTES AND THE ISSUER
The Trust and the Noteholders (by acceptance of a beneficial interest in a
Note) will agree to treat the Notes as indebtedness for all United States tax
purposes. In connection with the issuance of the Notes, Tax Counsel will
deliver its opinion that, 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. In rendering these opinions, Tax Counsel has assumed that the
terms of the Trust Agreement, the Indenture, the Transfer and Sale Agreement and
the Pooling and Servicing Agreement will be complied with by the relevant
parties thereto, and that the Noteholders will comply with their obligation to
treat the Notes as indebtedness for all United States tax purposes. 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 or the Notes will prevail. If, contrary to the opinion of Tax Counsel,
the IRS 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 and the Trust might be classified as a publicly traded
partnership taxable as a corporation. If the Trust were classified as a
publicly traded partnership taxable as a corporation, the Trust would be subject
to United States federal income tax on its net income. An imposition of such
corporate-level income tax could materially reduce the amount of cash that would
be available to make payments of principal and interest on the Notes.
Alternatively, if the Trust were classified as a partnership (other than a
publicly traded partnership taxable as a corporation), the Trust itself would
not be subject to United States federal income tax. Instead, holders of Notes
that were determined to be equity interests in such partnership would be
required to take into account their allocable share of the Trust's income and
deductions. Such treatment may have adverse federal income tax consequences for
certain Noteholders. 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 actually made by 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.
TAXATION OF INTEREST INCOME TO NOTEHOLDERS
Based upon Tax Counsel's interpretation of the definition of "QUALIFIED
STATED INTEREST" and because it is expected that the stated principal amount of
each class of Notes will not exceed the issue price of such Notes by an amount
equal to or greater than the statutory, DE MINIMIS amount (I.E., 0.25% of each
class of the Notes' stated principal amount multiplied by the weighted average
maturity of each class of Notes), the stated interest on each class of Notes
will be taxable as ordinary income for federal income tax purposes when received
or accrued in accordance with a Noteholder's general method of tax accounting.
DISPOSITION OF NOTES
Generally, capital gain or loss will be recognized by a Noteholder on a
sale or other taxable disposition of its Notes in an amount equal to the
difference between the amount realized (other than amounts attributable to, and
taxable as, accrued interest) and the Noteholder's adjusted tax basis in such
Notes. A Noteholder's adjusted tax basis in a Note will generally equal his or
her cost increased by any OID and market discount included in income with
respect to the Note and decreased by any bond premium previously amortized and
any 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. For non-corporate
taxpayers, capital gain recognized on the disposition of a Note held for more
than one year is taxed at a maximum rate of 20%. Capital gain on the
disposition of a Note held for not more than one year is taxed at the rates
applicable to ordinary income (i.e., up to 39.6%). The distinction between
capital gain or loss and ordinary income or loss is relevant for purposes of,
among other things, limitations on the deductibility of capital losses. Any
93
<PAGE>
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
Noteholder (other than Noteholders who are not subject to the reporting
requirements) will be required to provide, under penalties of perjury, a
certificate (Form W-9) containing the Noteholder'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 Indenture Trustee will be required to withhold
(or cause to be withheld) 31% of the interest otherwise payable to the
Noteholder, and remit the withheld amounts to the IRS as a credit against the
Noteholder's federal income tax liability.
CERTAIN TAX CONSEQUENCES TO FOREIGN INVESTORS
Based upon Tax Counsel's opinion that the Notes will be treated as
indebtedness for federal income tax purposes, the following information
describes the general U.S. federal income tax treatment of investors that are
not U.S. persons (each a "FOREIGN PERSON"). The term "FOREIGN PERSON" means any
person other than (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate or fiduciary
the income of which is includible in gross income for U.S. federal income tax
purposes, regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States fiduciaries have the authority to control
all substantial decisions of the trust.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or
business within the United States by the Foreign Person,
will generally be considered "PORTFOLIO INTEREST" and
generally will not be subject to United States federal
income tax and withholding tax, as long as the Foreign
Person (i) is not actually or constructively a "10 PERCENT
SHAREHOLDER" of the Trust or the Trust Depositor or a
"CONTROLLED FOREIGN CORPORATION" with respect to which the
Trust or the Trust Depositor is a "RELATED PERSON" within
the meaning of the Code, and (ii) provides an appropriate
statement (Form W-8) to the Indenture 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
94
<PAGE>
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 AND LOCAL TAX CONSEQUENCES
Because of the differences in state and local tax laws and their
applicability to different investors, it is not possible to summarize the
potential state and local tax consequences of holding the Notes. ACCORDINGLY,
PURCHASERS OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE STATE
AND LOCAL TAX CONSEQUENCES OF PURCHASING ANY NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain requirements on employee benefit plans subject to ERISA ("ERISA
PLANS") and prohibits certain transactions between ERISA Plans and persons who
are "PARTIES IN INTEREST" (as defined under ERISA) with respect to assets of
such Plans. Section 4975 of the Code prohibits a similar set of transactions
between certain plans or individual retirement accounts ("CODE PLANS," and
together with ERISA Plans, "PLANS") and persons who are "DISQUALIFIED PERSONS"
(as defined in the Code) with respect to Code Plans. Certain employee benefit
plans, such as governmental plans and church plans (if no election has been
made under Section 410(d) of the Code), are not subject to the requirements of
ERISA or Section 4975 of the Code, and assets of such plans may be invested in
the Notes, subject to the provisions of other applicable federal and state law.
Any such plan which is qualified under Section 401(a) of the Code and exempt
from taxation under Section 501(a) of the Code is, however, subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in the Notes, an ERISA
Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan.
PROHIBITED TRANSACTIONS
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to ERISA Plans and
Code Plans from engaging in certain transactions involving such Plans or "PLAN
ASSETS" of such Plans, unless a statutory or administrative exemption applies to
the transaction. Section 4975 of the Code and Sections 502(i) and 502(1) of
ERISA provide for the imposition of certain excise taxes and civil penalties on
certain persons that engage or participate in such prohibited transactions. The
Trust Depositor, the Underwriter, the Servicer, the Indenture Trustee or the
Owner Trustee or certain affiliates thereof may be considered or may become
parties in interest or disqualified persons with respect to a Plan. If so, the
acquisition or holding of the Notes by, on behalf of or with "PLAN ASSETS" of
such Plan may be considered to give rise to a "PROHIBITED TRANSACTION" within
the meaning of ERISA and/or Section 4975 of the Code, unless an administrative
exemption described below or some other exemption is available.
The Notes may not be purchased with the assets of a Plan if the Trust
Depositor, the Underwriter, the Servicer, the Indenture Trustee, or the Owner
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets or (b) has
authority or responsibility to give, or regularly gives, investment advice with
respect to such assets pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
such assets and that such advice will be based on the particular needs of the
Plan or (c) is an employer of employees covered under the Plan unless such
investment is made through an insurance company general or pooled separate
account or a bank collective investment fund and an exemption is available.
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.
95
<PAGE>
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 [ ], 1998 for the sale of the Notes, the Trust Depositor has agreed
to sell to First Union Capital Markets, and [ ] (the "Underwriters") and
the Underwriters have separately agreed to purchase from the Trust Depositor,
the principal amount of the Notes set forth opposite each of their names below:
96
<PAGE>
<TABLE>
<S> <C>
Aggregate Principal Amount
to be Purchased
----------------------------
Class A-1 Receivable-Backed Notes, Series 1998-1
------------------------------------------------
First Union Capital Markets
[ ]
Aggregate Principal Amount
to be Purchased
----------------------------
Class A-2 Receivable-Backed Notes, Series 1998-1
------------------------------------------------
First Union Capital Markets
[ ]
Aggregate Principal Amount
to be Purchased
----------------------------
Class A-3 Receivable-Backed Notes, Series 1998-1
------------------------------------------------
First Union Capital Markets
[ ]
Aggregate Principal Amount
to be Purchased
----------------------------
Class A-4 Receivable-Backed Notes, Series 1998-1
------------------------------------------------
First Union Capital Markets
[ ]
Aggregate Principal Amount
to be Purchased
----------------------------
Class B Receivable-Backed Notes, Series 1998-1
----------------------------------------------
First Union Capital Markets
[ ]
Aggregate Principal Amount
to be Purchased
----------------------------
Class C Receivable-Backed Notes, Series 1998-1
----------------------------------------------
First Union Capital Markets
[ ]
</TABLE>
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 Underwriters have advised the Issuer that the Underwriters propose
initially to offer the Class A Notes to the public at the price set forth on the
cover page hereof and to certain dealers at such price less a selling concession
not in excess of [ ]% 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 Class A Notes. After the
initial public offering, the public offering price and such concessions may be
changed.
97
<PAGE>
The Underwriters have advised the Issuer that the Underwriters proposes
initially to offer the Class B and the Class C Notes to the public at the price
set forth on the cover page hereof and to certain dealers at such price less a
selling concession not in excess of [ ]% and [ ]% of the initial
principal amount of the Class B Notes and Class C Notes, respectively. The
Underwriters may allow and such dealers may reallow a concession not in excess
of [ ]% of the initial principal amount of the Class B Notes and [ ]% of
the initial principal amount of the Class C Notes.
The Underwriting Agreement provides that Newcourt, 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 respective Underwriters may be
required to make in respect thereof.
In addition, [ ] 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 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 Capital Markets 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 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 A-3 Notes be rated at
least "[ ]", "[ ]" and "[ ]", that the Class A-4 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 Standard & Poor's, Moody's and Duff & Phelps'
Investors Service, respectively.
Such rating will reflect only the views of the Rating Agency and will be
based primarily on the subordination of the Class A-2 Notes, Class A-3 Notes,
Class A-4 Notes, Class B Notes, Class C Notes and the Subordinated Securities
(in the case of the Class A-1 Notes), the subordination of the Class A-3 Notes,
Class A-4 Notes, Class B Notes, Class C Notes and the Subordinated Securities
(in the case of the Class A-2 Notes), the subordination of the Class A-4 Notes,
Class B Notes, Class C Notes and the Subordinated Securities (in the case of the
Class A-3 Notes), the subordination of the Class B Notes, Class C Notes and the
Subordinated Securities (in the case of the Class A-4 Notes), the subordination
of the Class C Notes and the Subordinated Securities (in the case of the Class B
Notes) and the subordination of the Subordinated Securities (in the case of the
Class C Notes), as well as the value and creditworthiness of the Contracts and
Equipment. The ratings are not a recommendation to purchase, hold or sell the
Notes, inasmuch as such ratings do not comment as to market price or suitability
for a particular investor. Each rating may be subject to revision or withdrawal
at any time by the assigning Rating Agency. There is no assurance that any such
rating will continue for any period of time or that it will not be lowered or
withdrawn entirely by the Rating Agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse effect on
the market price of the Notes. The rating of the Notes addresses the likelihood
of the timely payment of interest and the ultimate payment of principal on the
Notes pursuant to their terms. The rating does not address the rate of
Prepayments that may be experienced on the Contracts and, therefore, does not
address the effect of the rate of Prepayments on the return of principal to the
Noteholders.
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 Cadwalader, Wickersham & Taft, New York, New York.
98
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INDEX OF TERMS
<TABLE>
<CAPTION>
Page(s)
----------
<S> <C>
ADCB..................................................................18, 57
Accrual Period........................................................14, 55
Additional Contract...................................................10, 48
Additional Contract Cutoff Date............................................5
Additional Principal......................................................57
Adjusted Contract.........................................................11
Administration Fee........................................................68
Administrator.............................................................68
Aggregate Discounted Contract Balance.................................18, 57
Aggregate Principal Amount................................................57
Article 2A............................................................29, 91
Available Amounts.........................................................61
Bankruptcy Code.......................................................26, 89
Business Day...............................................................6
Calculation Date...........................................................6
Cede.......................................................................4
Cedel Participants........................................................70
Certificates........................................................2, 7, 71
Class A Notes.......................................................2, 6, 57
Class A Percentage........................................................57
Class A Target Principal Amount...........................................58
Class A-1 Interest Rate...................................................13
Class A-1 Noteholder......................................................69
Class A-1 Noteholders.....................................................14
Class A-1 Notes.........................................................3, 6
Class A-1 Notes Maturity Date.............................................17
Class A-1 Principal Payment Amount........................................57
Class A-2 Interest Rate...................................................13
Class A-2 Noteholder......................................................69
Class A-2 Noteholders.....................................................14
Class A-2 Notes.........................................................2, 6
Class A-2 Notes Maturity Date.............................................17
Class A-2 Principal Payment Amount........................................57
Class A-3 Interest Rate...................................................13
Class A-3 Noteholders.....................................................14
Class A-3 Notes.........................................................2, 6
Class A-3 Notes Maturity Date.............................................17
Class A-3 Principal Payment Amount........................................57
Class A-4 Interest Rate...................................................13
Class A-4 Noteholders.....................................................14
Class A-4 Notes............................................................2
Class A-4 Notes Maturity Date.............................................17
Class A-4 Principal Payment Amount........................................57
Class B Interest Rate.....................................................13
Class B Noteholder........................................................69
Class B Noteholders...................................................14, 82
Class B Notes...........................................................2, 6
Class B Notes Maturity Date...............................................17
Class B Percentage........................................................57
Class B Principal Payment Amount..........................................58
Class B Target Principal Amount...........................................58
Class C Interest Rate.....................................................13
99
<PAGE>
Class C Noteholder........................................................69
Class C Noteholders.......................................................14
Class C Notes...........................................................2, 6
Class C Notes Maturity Date...............................................17
Class C Percentage........................................................57
Class C Principal Payment Amount..........................................58
Class D Interest Rate.....................................................13
Class D Noteholders.......................................................14
Class D Notes..........................................................2, 71
Class D Notes Maturity Date...............................................17
Class D Percentage........................................................57
Class D Principal Payment Amount..........................................58
Class E Interest Rate.....................................................13
Class E Noteholders.......................................................14
Class E Notes..........................................................2, 71
Class E Notes Maturity Date...............................................17
Class E Percentage........................................................57
Class E Principal Payment Amount..........................................58
Cleanup Call Condition................................................18, 67
Closing Date...............................................................5
Code......................................................................92
Code Plans................................................................95
Collection Account....................................................12, 65
Collection Period..........................................................6
Commission.................................................................4
Conditional Payment Rate..................................................48
Contract Files............................................................72
Contracts..................................................................2
Contracts Pool.............................................................8
Cooperative...............................................................70
CPR.......................................................................48
CSA........................................................................8
Cutoff Date................................................................5
Defaulted Contract........................................................65
Definitive Notes..........................................................70
Depositaries..............................................................68
Depository................................................................55
Determination Date........................................................60
Discount Rate.........................................................18, 74
Discounted Contract Balance...........................................18, 59
Distribution..............................................................67
Distribution Date.......................................................3, 6
DTC........................................................................4
Early Termination.........................................................10
Early Termination Contract................................................10
Eligible Contract.....................................................74, 75
Eligible Investments......................................................65
Eligible Secondary Contract...............................................75
Eligible Secondary Contracts..............................................75
End-User...............................................................2, 75
End-User Contracts.........................................................2
Equipment..............................................................2, 44
ERISA.....................................................................94
ERISA Considerations......................................................21
ERISA Plans...............................................................94
Euroclear..................................................................4
Euroclear Operator........................................................70
Euroclear Participants....................................................70
Event of Default..........................................................65
100
<PAGE>
Events of Default.........................................................56
Excess Concentration Amount...............................................76
Excess Contract...........................................................76
Exchange Act...............................................................4
Excluded Amounts..........................................................42
Excluded Residual Investment..............................................47
FDIC......................................................................65
Financed Items.........................................................2, 45
Financing Agreement........................................................8
First Union...............................................................97
Foreign Person............................................................94
Guaranteed Residual Investment............................................47
Holders...................................................................71
Indenture...............................................................2, 6
Indenture Trustee.......................................................2, 5
Indirect Participants.....................................................69
Ineligible Contract.......................................................75
Initial Class A-1 Note Principal Balance...................................6
Initial Class A-2 Note Principal Balance...................................6
Initial Class A-3 Note Principal Balance...................................6
Initial Class A-4 Note Principal Balance...................................6
Initial Class B Note Principal Balance.....................................6
Initial Class C Note Principal Balance.....................................6
Initial Class D Note Principal Balance.....................................7
Initial Class E Note Principal Balance.....................................7
Initial Cutoff Date........................................................2
Insolvency Event..........................................................28
Insolvency Laws...........................................................54
Insurance Proceeds........................................................72
investment company........................................................66
IPA........................................................................8
IRS.......................................................................92
Issuer..................................................................3, 5
Late Charges..............................................................42
Lease......................................................................8
Lessee.....................................................................8
Lessor....................................................................27
Maturity Date.............................................................17
Minimum Value Filing Exception............................................24
MLA.......................................................................42
MLA Supplement............................................................42
Monthly Report............................................................67
Newcourt................................................................3, 5
Newcourt Entity...........................................................54
Newcourt USA............................................................2, 5
Note Owners................................................................6
Noteholders...............................................................14
Notes...................................................................2, 6
NRC II.....................................................................3
Obligor...............................................................12, 74
Operative Documents.......................................................54
Optional Prepayment.......................................................22
Owner Trustee...........................................................3, 5
Participants..............................................................68
Permitted Liens...........................................................74
Plans.....................................................................95
Prepaid Contract..........................................................10
Prepayment................................................................22
Prepayment Amount.........................................................74
101
<PAGE>
Principal Amount..........................................................59
Program Agreement.........................................................12
Program Assignment........................................................28
PTCE......................................................................95
Qualified Institution.....................................................65
Rating Agencies...........................................................21
Record Date.............................................................3, 6
Recoveries................................................................65
Redemption Price..........................................................18
Registration Statement.....................................................4
Required Holders..........................................................66
Reserve Fund..............................................................13
Reserve Fund Amount.......................................................64
Reserve Fund Initial Deposit..............................................13
Residual Investment.......................................................47
S&P.......................................................................21
Sale and Servicing Agreement...............................................2
Scheduled Payments....................................................18, 60
Secondary Contracts........................................................2
Secured Note...........................................................8, 44
Securities Act.............................................................4
Seller..................................................................2, 5
Service Transfer..........................................................77
Servicer................................................................3, 5
Servicer Advance......................................................20, 77
Servicer Default..........................................................77
Services...........................................................2, 12, 45
Servicing Charges.........................................................19
Servicing Fee.........................................................19, 67
Servicing Fee Percentage..................................................67
Servicing Fee Rate........................................................19
Software...........................................................2, 12, 45
Statistical Discount Rate.................................................10
Subject Contracts.........................................................39
Subordinated Noteholders..................................................14
Subordinated Notes.....................................................2, 71
Subordinated Securities.................................................2, 7
Substitute Contract...................................................10, 48
Substitute Contract Cutoff Date............................................5
Tax Counsel...............................................................92
Termination Notice........................................................77
Terms and Conditions......................................................70
Third-Party Servicer......................................................39
TIA.......................................................................84
Title Registry Equipment..................................................25
Total Principal Payment Amount............................................60
Transfer and Sale Agreement........................................2, 30, 72
Transfer Deposit Amount...................................................75
Transferred Assets........................................................72
Transferred Contracts......................................................8
Transferred Property......................................................24
True Leases...............................................................26
Trust...................................................................3, 5
Trust Agreement............................................................5
Trust Assets............................................................2, 7
Trust Company.............................................................75
Trust Depositor.........................................................3, 5
Trust Termination Date....................................................72
Trustees..................................................................67
102
<PAGE>
UCC.......................................................................25
Underwriter...............................................................95
Underwriting Agreement....................................................95
UNL Pool..................................................................46
Vehicles..................................................................25
Vendor Agreements.........................................................13
Vendor Assignment.........................................................13
Vendor Loans...........................................................2, 45
Vendors...............................................................12, 45
VFCC......................................................................30
Warranty Contract.....................................................11, 76
</TABLE>
103
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or other person is authorized to give any information
or to make any representation not contained in this Prospectus and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Trust Depositor or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of any offer to buy any security
other than the Securities offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the Securities to any person in
any jurisdiction in which the person making such offer or solicitation is not
qualified to do so or to anyone whom it is unlawful to make such an offer or
solicitation to such person. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstance create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION.......................................................4
SUMMARY OF TERMS............................................................5
RISK FACTORS...............................................................22
USE OF PROCEEDS............................................................30
THE TRUST..................................................................30
THE CONTRACT POOL..........................................................30
THE CONTRACTS..............................................................42
PREPAYMENT AND YIELD CONSIDERATIONS........................................48
NEWCOURT CREDIT GROUP INC.
NEWCOURT FINANCIAL USA INC.................................................50
THE TRUST DEPOSITOR........................................................53
DESCRIPTION OF THE NOTES...................................................54
THE SUBORDINATED NOTES.....................................................71
THE CERTIFICATE............................................................71
CERTAIN OTHER MATTERS REGARDING THE SERVICER...............................77
CERTAIN LEGAL ASPECTS OF THE CONTRACTS.....................................85
CERTAIN FEDERAL INCOME TAX CONSEQUENCES....................................92
ERISA CONSIDERATIONS.......................................................94
PLAN OF DISTRIBUTION.......................................................95
RATING OF THE NOTES........................................................97
LEGAL MATTERS..............................................................97
</TABLE>
UNTIL [ ], 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENT OR SUBSCRIPTIONS.
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NEWCOURT EQUIPMENT TRUST
SECURITIES 1998-1
NEWCOURT RECEIVABLES
CORPORATION II
-----------
---------------------
----------------------------
PROSPECTUS
----------------------------
[ ]
FIRST UNION CAPITAL MARKETS
[ ], 1998
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<S> <C>
SEC Registration Fee $ 1,770.00
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 $422,770.00
</TABLE>
- ---------------------------
* 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 $6,000,000 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
<TABLE>
<CAPTION>
Exhibits
<S> <C>
1.1** Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Trust Depositor (filed as Exhibit
3.1 to Amendment No. 1 to the Registration Statement on Form S-1 (File
No. 333-36059) and incorporated herein by reference)
3.2 Bylaws of the Trust Depositor (filed as Exhibit 3.2 to Amendment No. 1
to the Registration Statement on Form S-1 (File No. 333-36059) and
incorporated herein by reference)
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 Pooling 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
</TABLE>
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* Previously filed
** 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.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on August 7, 1998.
NEWCOURT RECEIVABLES CORPORATION II, as Trust Depositor for
NEWCOURT EQUIPMENT TRUST SECURITIES 1998-1
By: /s/ Scott Moore
----------------------------------------------
Name: Scott Moore
--------------------------------------------
Title: Vice President & Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
** Chief Executive Officer and Director (Principal August 7, 1998
--------------------------------------- Executive Officer)
Bradley D. Nullmeyer
** Chief Financial Officer (Principal Financial and August 7, 1998
--------------------------------------- Accounting Officer)
Michel Beland
** Director August 7, 1998
---------------------------------------
Daniel A. Jauernig
** Director August 7, 1998
---------------------------------------
Robert J. Hicks
** Director August 7, 1998
---------------------------------------
Peter H. Sorensen
</TABLE>
** /s/ Glenn Votek
-------------------------
Glenn Votek
Attorney-in-fact
<PAGE>
Registration No. 333-58677
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
NEWCOURT RECEIVABLES CORPORATION II
(Exact name of Registrant as specified in its charter)
---------------------
EXHIBIT VOLUME
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<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1** Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Trust Depositor (filed as Exhibit
3.1 to Amendment No. 1 to the Registration Statement on Form S-1 (File
No. 333-36059) and incorporated herein by reference)
3.2 Bylaws of the Trust Depositor (filed as Exhibit 3.2 to Amendment No. 1
to the Registration Statement on Form S-1 (File No. 333-36059) and
incorporated herein by reference)
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 Pooling 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
</TABLE>
- ----------------------------------
* Previously filed
** To be filed by amendment
i
