<PAGE>
As filed with the Securities and Exchange Commission on July 8, 1998
Registration No. [ ]
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
NEWCOURT RECEIVABLES ASSET TRUST 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 (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
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. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
Title of Each Class of Amount to Be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities Registered(1) Price Per Unit (2) Offering Price (2) Registration Fee
to Be Registered
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Class A-1 Receivable- $1,000,000 100% $1,000,000 $295
Backed Notes
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Class A-2 Receivable- $1,000,000 100% $1,000,000 $295
Backed Notes
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Class A-3 Receivable $1,000,000 100% $1,000,000 $295
Backed Notes
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Class A-4 Receivable $1,000,000 100% $1,000,000 $295
Backed Notes
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Class B $1,000,000 100% $1,000,000 $295
Receivable-Backed Notes
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Class C $1,000,000 100% $1,000,000 $295
Receivable-
Backed Notes
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</TABLE>
<PAGE>
(1) The amount of Securities being registered represents the maximum
aggregate principal amount of Securities currently expected to be
offered for sale.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement has
become effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION [___________], 1998
PROSPECTUS
NEWCOURT RECEIVABLES ASSET TRUST 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
-------------------------
The Newcourt Receivables Asset Trust 1998-1 (the "TRUST" or the
"ISSUER"), a limited purpose Delaware business trust, was formed pursuant to
a Trust Agreement, dated as of [ ], 1998, between Newcourt
Receivables Corporation II ("NRC II"), as Trust Depositor (in such capacity,
the "TRUST DEPOSITOR"), and [ ], as Owner Trustee (the
"OWNER TRUSTEE"). The Trust Depositor is a wholly-owned, limited purpose,
bankruptcy remote subsidiary of Newcourt Credit Group USA Inc.; Newcourt
Credit Group USA Inc. is a wholly-owned subsidiary of Newcourt Credit Group
Inc. ("NEWCOURT"). The Trust will issue $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 21 OF THIS PROSPECTUS.
THE NOTES ARE SECURED BY THE ASSETS OF THE TRUST. THE PROCEEDS OF THE
ASSETS OF THE TRUST AND AMOUNTS ON DEPOSIT IN THE RESERVE FUND ARE THE ONLY
SOURCES OF PAYMENTS ON THE NOTES. THE NOTES WILL REPRESENT OBLIGATIONS OF THE
TRUST ONLY AND WILL NOT REPRESENT OBLIGATIONS OF OR INTERESTS IN, AND ARE NOT
GUARANTEED OR INSURED BY, THE TRUST DEPOSITOR, THE OWNER TRUSTEE, NEWCOURT USA,
NEWCOURT OR ANY OF THEIR RESPECTIVE AFFILIATES, OR ANY GOVERNMENTAL AGENCY.
-------------------------
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
-------------------------
<TABLE>
<CAPTION>
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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 [ ]% [ ]% [ ]%
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 [ ], 1998.
FIRST UNION CAPITAL MARKETS [ ]
The date of this Prospectus is [ ], 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 [ ], 1998 (the "INDENTURE") to be
entered into between the Trust and [ ]
, 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 "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
[ ], 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 Sale and Servicing
Agreement, dated as of [ ], 1998 (the "SALE AND SERVICING
AGREEMENT"), among the Trust Depositor, the Trust, the Indenture Trustee (as
defined in "SUMMARY OF
2
<PAGE>
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 and during the continuance 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
<PAGE>
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in this summary are defined elsewhere in this
Prospectus on the pages indicated in the "INDEX OF TERMS" on page 98.
There are material risks associated with an investment in the Notes.
See "RISK FACTORS" on page 21 for a discussion of certain factors that
investors should consider before making an investment in the Notes.
Issuer . . . . . . Newcourt Receivables Asset Trust 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 [ ], 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 Sale and Servicing
Agreement described herein, the "SERVICER"), which is a
wholly-owned subsidiary of Newcourt Credit Group USA Inc.
which, in turn is a wholly owed subsidiary of Newcourt
Credit Group Inc. ("NEWCOURT"). Newcourt USA's offices
are located at 2700 Bank One Tower, 111 Monument Tower
Circle, Suite 2700 Indianapolis, Indiana 46204 and its
telephone number is (317) 767-0077. The servicing
obligations of Newcourt USA under the Sale and Servicing
Agreement will be guaranteed by Newcourt.
Indenture Trustee . [ ], as
indenture trustee under the Indenture described herein
(the "INDENTURE TRUSTEE"). The Indenture Trustee's
offices are located at [ ].
Owner Trustee . . . [ ], as
owner trustee under the Trust Agreement (the "OWNER
TRUSTEE"). The Owner Trustee's offices are located at
[ ].
Cutoff Dates . . . With respect to the Contracts transferred to the Trust on
the Closing Date, [ ], 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 [ ], 1998 (the "CLOSING DATE").
5
<PAGE>
Collection Periods, A Collection Period is the period from and including the
Calculation Dates, first day of each calendar month to and including the last
Distribution Dates last day of the calendar month (such first day, the
and Record Dates "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 [ ], 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 Notes, the Class
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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 [ ]%
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 business trust established under the laws
of the State of Delaware pursuant to the Trust Agreement.
The activities of the Trust are limited by the terms of
the Trust Agreement to acquiring, owning and managing the
Contracts and related assets, issuing and making payments
on the Notes and the Subordinated Securities and other
activities related thereto.
Trust Assets . . . . The property of the Trust (the "TRUST ASSETS") will
include (i) the Contracts transferred to the Trust on the
Closing Date with an Aggregate Discounted Contract Balance
of $[ ] as of the Cutoff Date (together
with Additional Contracts and/or Substitute Contracts
that may be transferred to the Trust from time to time as
described herein), (ii) all monies at any time paid or
payable thereunder or in respect thereof from and after
the Cutoff Date applicable to such
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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 Sale and Servicing Agreement or the Indenture,
together with earnings on funds therein, (vi) the rights
of the Trust Depositor under the Transfer and Sale
Agreement, (vii) any amounts received with respect to the
Guaranteed Residual Investments, (viii) any late charges
relating to a Contract which were included in the
Contract's terms as of the Cutoff Date ("LATE CHARGES"),
(ix) amounts available, if any, in the Reserve Fund,
together with earnings on the funds therein, up to the
Reserve Fund Amount and (x) proceeds of any of the
foregoing (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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<PAGE>
through the Distribution Date following such date of
repurchase or (y) pursuant to the Transfer and Sale
Agreement, the Seller has indemnified the Trust Depositor
(and any assignee thereof) against such cancellation in
an amount equal to the Discounted Contract Balance of
such Lease (as of the date of purchase) plus interest
thereon at the Discount Rate through the Distribution
Date following such cancellation less any amounts paid by
the Vendor pursuant to clause (x). See "THE CONTRACTS
GENERALLY" and "THE TRANSFER AND SALE AGREEMENT AND SALE
AND SERVICING AGREEMENT GENERALLY--REPRESENTATIONS AND
WARRANTIES" herein.
The Transferred Contracts have been selected by the
Seller from its portfolio of CSAs, Secured Notes, Leases,
IPAs, Financing Agreements and Vendor Loans, have the
characteristics specified in the Transfer and Sale
Agreement and Sale and Servicing Agreement and described
herein, and (except for Additional Contracts or
Substitute Contracts as defined in this "SUMMARY OF
TERMS") will be purchased by the Trust Depositor from the
Seller on the Closing Date pursuant to the Transfer and
Sale Agreement. See "THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT GENERALLY--REPRESENTATIONS
AND WARRANTIES", "USE OF PROCEEDS" and "THE CONTRACT
POOL" herein.
As of the Cutoff Date, the Contract Pool had the
following characteristics (unless otherwise noted,
percentages are calculated by reference to Discounted
Contract Balances of the related Contracts as a
percentage of the Aggregate Discounted Contract Balance
of the Contract Pool. The Discounted Contract Balances
and the Aggregate Discounted Contract Balance utilized in
clauses (i) through (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 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 SALE AND
SERVICING AGREEMENT GENERALLY--CONCENTRATION AMOUNTS"
herein.
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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
GENERALLY", as well as "THE TRANSFER AND SALE AGREEMENT
AND SALE AND SECURITY AGREEMENT
GENERALLY--REPRESENTATIONS AND WARRANTIES" and
"--CONCENTRATION AMOUNTS" herein.
Between the Cutoff Date and the Closing Date some
amortization of the pool is expected to occur. In
addition, certain Contracts included in the pool as of
the Cutoff Date may be determined not to meet the
eligibility requirements for the final pool, and may
not be included in the final pool. To the extent a
Contract is determined not to meet the eligibility
requirements for the pool, the Seller, through the
Trust Depositor, may pursue one of two options: (1)
substitute a new Contract for the ineligible Contract
or (2) repurchase the ineligible Contract. To the
extent the Seller, through the Trust Depositor,
replaces an ineligible Contract, the replacement
Contract must meet the terms and conditions of a
Substitute Contract, (see "THE TRANSFER AND SALE
AGREEMENT AND SALE AND SERVICE AGREEMENT GENERALLY -
REPRESENTATIONS AND WARRANTIES"). While the
statistical distribution of the characteristics 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 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 Sale and Servicing
Agreement, permit or agree to the early termination or
full prepayment of any such Contract included in the
Contract Pool in certain circumstances, and on the
terms and subject to the conditions more fully
specified in the Sale and Servicing Agreement (any
prepayment of a Contract, whether pursuant to its terms
or in the Servicer's discretion being an "EARLY
TERMINATION", with the Contract related thereto being
an "EARLY TERMINATION CONTRACT" or "PREPAID CONTRACT").
Such circumstances may include, without limitation, a
full or partial buyout of the Equipment which is the
subject of the Contract, or an equipment upgrade.
In the event of an Early Termination which has been
prepaid in full, the Trust Depositor will have the
option to cause the Trust to reinvest the proceeds of
such Early Termination in one or more Contracts having
similar characteristics to such terminated Contract
(each, an "ADDITIONAL CONTRACT").
In addition, the Seller will have the option under the
Transfer and Sale Agreement to cause the Trust
Depositor, pursuant to the terms of the Sale and
Servicing Agreement, to substitute into the Trust one
or more Contracts having similar characteristics (each,
a "SUBSTITUTE CONTRACT") for Defaulted Contracts (as
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<PAGE>
defined in "DESCRIPTION OF NOTES--DEFAULTED
CONTRACTS"), and Contracts following a material
modification to or adjustment of the terms of such
Contract which modification or adjustment would not
otherwise be permissible under the Sale and Servicing
Agreement (unless the Contract was to be prepaid in
full to the Trust and refinanced by the Seller with a
new, modified Contract outside the Trust) (each, an
"ADJUSTED CONTRACT"). The Aggregate Discounted
Contract Balance (as defined herein) of the Defaulted
Contracts and Adjusted Contracts for which the Seller
may cause the substitution of Substitute Contracts is
limited to an amount not in excess of 10% of the
Aggregate Discounted Contract Balance of the Contracts
as of the initial Cutoff Date. The Seller will also be
permitted to substitute a Substitute Contract for a
Contract which the Seller would otherwise be required
to repurchase due to certain representations or
warranties relating thereto proving to have been
incorrect (a "WARRANTY CONTRACT") or an Early
Termination Contract, without regard to the 10%
limitation described above. With respect to replacing
either a Defaulted Contract 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 SALE
AND SERVICING AGREEMENT GENERALLY" as well as the other
substitution requirements described herein. See "THE
TRANSFER AND SALE AGREEMENT AND THE SALE AND SERVICING
AGREEMENT GENERALLY--REPRESENTATIONS AND WARRANTIES"
herein.
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 Sale
and Servicing Agreement.
The Servicer is not authorized to permit an Early
Termination, without the addition to the Trust of a
related Additional Contract, if the amount to be
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<PAGE>
prepaid (whether by the related Obligor, or through a
combination of payments from the related Obligor and
from the Seller/Servicer) on such terminated Contract
is equal at least to the then Discounted Contract
Balance of the Contract and any Late Charge thereon.
The Seller defines Contract delinquency as a payment
which is not made consistent with the Contract terms
and a Defaulted Contract as a Contract for which (i)
the Obligor thereunder is subject to an Insolvency
Event, or (ii) a full contractual payment has not been
received from the Obligor (or the Vendor if Vendor
recourse is applicable) for 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.... All of the Seller's right and interest (which is limited
Other Financed to a security interest) in the Equipment, if any, subject
Items 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
GENERALLY--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
GENERALLY--EQUIPMENT", and "DESCRIPTION OF THE
NOTES--DEFAULTED CONTRACTS" herein.
Certain End-User Contracts cover Financed Items other
than Equipment, including computer software
("SOFTWARE") and related support and consulting
services (collectively, "SERVICES") and will represent
approximately [ ]% of the ADCB of the 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 GENERALLY--SOFTWARE AND SERVICES" herein.
C. Collection....... A trust account will be established by the Servicer
Account in the name of and maintained by the Indenture Trustee
(the "COLLECTION ACCOUNT") into which all amounts that
will be collected for the Trust will be deposited in
accordance with the Indenture and the Sale and
Servicing Agreement. See "DESCRIPTION OF THE
NOTES--COLLECTION ACCOUNT" herein.
D. Vendor........... Each of the Seller's Vendor finance program agreements
Agreements (each, a "PROGRAM AGREEMENT") are agreements with
equipment manufacturers, dealers and
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distributors or computer software licensors or
distributors as well as finance companies which extend
credit to such parties ("VENDORS") which, in each case,
provide the Seller with the opportunity to finance
transactions relating to the acquisition or use by an
End-User of a Vendor's Equipment, Software, Services or
other products. Some of these Program Agreements take
the form of a referral relationship, which may or may
not include credit support from the Vendor. All rights
(but not obligations) of the Seller under the Program
Agreements with respect to the Contracts are generally
assignable and will be so assigned by the Seller to the
Trust Depositor and in turn conveyed by the Trust
Depositor to the Trust. Such rights may include
various forms of support to the Seller under such
Program Agreements including representations and
warranties by the Vendor in respect of the End-User
Contracts assigned by the Vendor to the Seller and
related Equipment, Software or Services, credit support
with respect to defaults by End-Users and equipment
repurchase and remarketing arrangements upon early
termination of End-User Contracts upon a default by the
End-User. See "THE CONTRACTS GENERALLY--VENDOR
AGREEMENTS" herein.
In addition to the foregoing, the Seller may enter into
assignment agreements (each a "VENDOR ASSIGNMENT";
collectively, with the Program Agreements, "VENDOR
AGREEMENTS") from time to time with Vendors pursuant to
which individual End-User Contracts originated by
Vendors are assigned to the Seller, rather than
pursuant to a Program Agreement. Each Vendor
Assignment will be made either with or without recourse
against the Vendor for End-User defaults and will
generally contain many, if not all, of the
representations, warranties and covenants typically
contained in Program Agreements, as well as a Vendor
repurchase requirement in the event of a breach by the
Vendor of such representations, warranties or
covenants. Vendor Assignments may or may not provide
for any Vendor remarketing support in the event of an
End-User default.
E. Reserve Fund..... A trust account has been established by the Trust
Depositor in the name of, and maintained by, the
Indenture Trustee (the "RESERVE FUND"). On the Closing
Date the Trust Depositor will deposit $[ ] in
the Reserve Fund which is equal to [ ]% of the ADCB
of the Contract Pool as of the initial Cutoff Date (the
"RESERVE FUND AMOUNT"). Amounts in the Reserve Fund
may be released to the Certificateholder in the event
amounts therein exceed the then outstanding Principal
Amounts of the Notes and the Subordinated Notes.
Additionally, amounts on deposit in the Reserve Fund in
excess of the Reserve Fund Amount will be paid to the
Certificateholder. On each Distribution Date, amounts
on deposit in the Reserve Fund will be applied as
described under "DESCRIPTION OF THE NOTES--ALLOCATIONS"
and "--RESERVE FUND."
Terms of the Notes.. The principal terms of the Notes will be as described
below:
A. Interest........ The Class A-1 Notes will bear interest at the rate of
[ ]% 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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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" and 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), Late Charges,
certain amounts received upon the prepayment or
purchase of Contracts or liquidation of the Contracts
and disposition of the related Equipment upon defaults
thereunder, and proceeds of Servicer Advances (as
defined herein), if any, amounts available in the
Reserve Fund, if any, (up to the Reserve Fund Amount)
as well as earnings on amounts held in the Collection
Account and the Reserve Fund. Interest on the Class
A-2 Notes is payable on a Distribution Date from the
Available Amounts available on such date, (after
application of such Available Amounts to repay any
outstanding Servicer Advances, to pay the Servicing Fee
and to pay interest on the Class A-1 Notes) subject to
the proviso in the second succeeding sentence. Interest
on the Class A-3 Notes is payable on a Distribution
Date from the Available Amounts on such date, (after
application of such Available Amounts to repay any
outstanding Servicer Advances, to pay the Servicing
Fee, to pay interest on the Class A-1 Notes and the
Class A-2 Notes) subject to the proviso in the
succeeding sentence. Interest on the Class A-4 Notes is
payable on a Distribution Date from the Available
Amounts on such date, (after application of such
Available Amounts to repay any outstanding Servicer
Advances, to pay the Servicing Fee, to pay interest on
the Class A-1 Notes, the Class A-2 Notes and the Class
A-3 Notes); PROVIDED, HOWEVER, in the event an Event of
Default has occurred and is continuing, interest on the
Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes (to the extent Available
Amounts are insufficient to pay the entire amount of
accrued interest on the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes)
will be paid from Available Amounts PRO RATA based on
the then outstanding Principal Amounts of such Class
A-1 Notes Class A-2 Notes, Class A-3 Notes and Class
A-4 Notes. Interest on the Class B Notes is payable on
a Distribution Date from the Available Amounts
available on such date, (after application of such
Available Amounts to repay any outstanding Servicer
Advances, to pay the Servicing Fee, and to pay interest
on the Class A-1 Notes,
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<PAGE>
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 Payment Amount, the Class A-2
Principal Principal Payment Amount, the Class B
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 Distribution Date,
to the extent Available Amounts are available therefor,
but after payment of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and
Subordinated Notes and the Class A-1 Principal Payment
Amount.
Principal of the Class A-3 Notes will be payable on
each Distribution Date in an amount equal to the Class
A-3 Principal Payment Amount (as defined in
"DESCRIPTION OF THE NOTES") for such Distribution Date,
to the extent Available Amounts are available therefor,
but after payment of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and
Subordinated Notes, the Class A-1 Principal Payment
Amount and the Class A-2 Principal Payment Amount.
Principal of the Class A-4 Notes will be payable on
each Distribution Date in an amount equal to the Class
A-4 Principal Payment Amount (as defined in
"DESCRIPTION OF THE NOTES") for such Distribution Date,
to the extent Available Amounts are available therefor,
but after payment of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and
Subordinated Notes, the Class A-1 Principal
Payment Amount, the Class A-2 Principal Payment
Amount and the Class A-3 Principal Payment Amount.
Principal of the Class B Notes will be payable on each
Distribution Date in an amount equal to the Class B
Principal Payment Amount (as defined in "DESCRIPTION OF
NOTES") for such Distribution Date, to the extent
Available Amounts are available therefor, but after
payment of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated
Notes, and the payment of the Class A-1 Principal
Payment Amount, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount and the Class
A-4 Principal Payment Amount.
Principal of the Class C Notes will be payable on each
Distribution Date in an amount equal to the Class C
Principal Payment Amount (as defined herein) for such
Distribution Date, to the extent Available Amounts are
available therefor, but after payment of unpaid
Servicer Advances, the Servicing Fee, interest
15
<PAGE>
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 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 a
fractional percentage of the amount that the ADCB of
the Contract Pool has declined or been deemed to
decline (whether through payment, prepayment, default
and writeoff, determination of ineligibility or other
mechanism as described further herein) during the most
recent Collection Period (I.E., full calendar month),
with the fractional percentage for each Class
determined based on the proportion that the Initial
Principal Balance of such Class (treating, for purposes
of this calculation only, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes as one Class) bore to Initial
Principal Balance of all Classes of Notes (excluding
the Class A-1 Notes) and the Subordinated Notes as of
the Cutoff Date; PROVIDED, HOWEVER, the Class A-1 Notes
will receive 100% of 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 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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<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 and
during the continuance 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..... The stated maturity date of the Class A-1 Notes (the
Date "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 "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............ The expected amortization schedule for the Notes is set
Amortization forth herein under "DESCRIPTION OF THE NOTES--PAYMENTS OF
Schedule 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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<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......... Notes remaining outstanding may be redeemed in whole,
Redemption but not in part, on any Distribution Date at the Trust
Depositor's option if the ADCB (as defined herein) of
the Contract Pool at such time is less than 10% of the
initial ADCB of the Contract Pool as of the Cutoff Date
(the "CLEANUP CALL CONDITION"). The redemption price
for such outstanding Notes to be redeemed in such event
(the "REDEMPTION PRICE") will be equal to the unpaid
principal amount of the Notes and Subordinated Notes
plus accrued and unpaid interest thereon through the
date of redemption. The Trust Depositor will fund such
redemption through concurrent receipt of a payment from
the Seller pursuant to the Seller's right under the
Transfer and Sale Agreement to repurchase from the
Trust Depositor for the Redemption Price, and
concurrently cause the Trust Depositor to redeem and
repurchase from the Trust, the remaining Contracts held
in the Trust when the Cleanup Call Condition has been
satisfied.
Aggregate........... The "AGGREGATE DISCOUNTED CONTRACT BALANCE" or "ADCB"
Discounted with respect to the Contracts means the sum of the
Contract Balance Discounted Contract Balances of each Contract included
in the group of Contracts for which an ADCB
determination is being made.
"DISCOUNTED CONTRACT BALANCE" means with respect to any
Contract, (A) as of the related Cutoff Date, the
present value of all of the remaining Scheduled
Payments becoming due under such Contract after the
applicable Cutoff Date discounted monthly at the
Discount Rate, and (B) as of any other date of
determination, the sum of (1) the present value of all
of the remaining Scheduled Payments becoming due under
such Contract on or after such date of determination
discounted monthly at the Discount Rate, and (2) the
aggregate amount of all Scheduled Payments due and
payable under such Contract after the applicable Cutoff
Date and prior to such date of determination (other
than Scheduled Payments related to Defaulted Contracts
and Early Termination Contracts) that have not then
been received by the Servicer.
The Discounted Contract Balance for each Contract shall
be calculated assuming:
(a) All payments due in any Collection Period
are due on the last day of the Collection
Period;
(b) Payments are discounted on a monthly basis
using a 30 day month and a 360 day year; and
(c) All 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 Vendor, but
in such instances the Servicer deposit the
corresponding Transfer Deposit 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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<PAGE>
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 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, the Class D Notes and the 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;.......... The Servicer will be responsible for servicing, managing
Servicing Fee; and administering the Transferred Contracts and related
Servicer Advances 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
deposit the corresponding Transfer Deposit interest
rates may be lower at the time such (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 FEE")
equal to the product of (i) one-twelfth of .60% (the
"SERVICING FEE RATE") and (ii) the Aggregate Discounted
Contract Balance of all Contracts as of the beginning
of the immediately preceding Collection Period, payable
out of (a) the Collection Account and (b) certain other
fees paid by the Contract Obligors ("SERVICING
CHARGES"), as compensation for acting as Servicer.
Under certain limited circumstances, the Servicer may
resign or be removed, in which event either the
Indenture Trustee or a third party meeting the
requirements set forth in the Sale and Servicing
Agreement will be appointed as successor Servicer. See
"THE TRANSFER AND SALE AGREEMENT AND SALE AND SERVICING
AGREEMENT GENERALLY--CERTAIN OTHER MATTERS REGARDING
THE SERVICER" and "--SERVICER DEFAULT" herein.
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<PAGE>
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 SALE
AND SERVICING AGREEMENT GENERALLY--COLLECTION AND OTHER
SERVICING PROCEDURES" herein.
Repurchase for...... The Trust Depositor under the Sale and Servicing
Certain Breaches Of Agreement and the Seller under the Transfer and Sale
Representations Agreement will be obligated to accept the reconveyance
And Warranties of a Contract and the interest in the related Equipment
from the Indenture Trustee and the Trust, and to
deposit the corresponding Transfer Deposit Amount (as
defined in "THE TRANSFER AND SALE AGREEMENT AND SALE
AND SERVICING AGREEMENT GENERALLY"), if the interest of
the Trust in any of the related Equipment, the related
Contract, or the related Contract File (as defined in
the "THE TRANSFER AND SALE AGREEMENT AND SALE AND
SERVICING AGREEMENT GENERALLY") is materially adversely
affected by a breach of a representation or warranty
made by such party with respect to such Contract and if
such breach has not been cured within thirty (30) days
of discovery of such breach. See also "SUMMARY OF
TERMS--PREPAYMENT CONSIDERATIONS" below. In the
alternative, and at the Trust Depositor's and Seller's
option, the affected Contract may be replaced with a
Substitute Contract of similar characteristics under
the standards applicable generally to Substitute
Contracts as described herein.
Maturity and........ As noted above, non-Lease Contracts are generally
Prepayment prepayable by their terms, and the Servicer will be
Conditions 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 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
20
<PAGE>
considered in connection with an investment in the
Notes offered hereby, including certain legal risks.
Federal Income...... In the opinion of Winston & Strawn, federal tax counsel
Tax Considerations 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............... Subject to the considerations discussed under "ERISA
Considerations 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 and Moody's Investors
Service, respectively (collectively, the "RATING
AGENCIES"). A rating is not a recommendation to
purchase, hold or sell Notes inasmuch as such rating
does not comment as to market price or suitability for
a particular investor. Ratings address the likelihood
of timely payment of interest and the ultimate payment
of principal on the Notes pursuant to their terms.
Ratings will not address the likelihood of an early
return of invested principal. There can be no
assurance that any rating will remain for a given
period of time or that a rating will not be lowered or
withdrawn entirely if, in the judgment of any Rating
Agency, circumstances in the future so warrant. See
"RATING OF THE NOTES" herein.
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 Sale 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
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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 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
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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 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 GENERALLY--EQUIPMENT", "--LEASES" and
"--INSTALLMENT PAYMENT AGREEMENTS AND FINANCING AGREEMENTS".
DECLINES IN MARKET VALUE OF EQUIPMENT OR SOFTWARE; SHORTFALLS WITH RESPECT TO
AVAILABLE AMOUNTS TO PAY THE NOTES
In the event a Contract becomes a Defaulted Contract, the only source of
payment for amounts expected to be paid on such Contract will be the income
and proceeds from the disposition of any related Equipment and a deficiency
judgment, if any, against the Obligor under the Defaulted Contract. Since
the market value of the Equipment may decline faster than the Discounted
Contract Balance, the Servicer may not recover the entire amount due on the
Contract and might not receive any Recoveries on the Equipment. Typically,
the Trust will have no interest in any software and may therefore only have a
deficiency claim against the Obligor. To the extent such deficiencies deplete
the Reserve Fund and the protection afforded by the Subordinated Notes, such
deficiencies may create a shortfall with respect to payments on the Notes.
CERTAIN LEGAL RISKS
LEGAL RISKS ASSOCIATED WITH SERVICER'S OR VENDOR'S RETENTION OF CONTRACT
FILES. To facilitate servicing and reduce administrative costs, the Contract
Files (as defined herein) will be retained in the possession of the Servicer
and not be deposited with the Indenture Trustee or any other agent or
custodian for the benefit of the Noteholders (except for a limited number of
End-User Contracts evidenced by, in addition to a related Financing
Agreement, "INSTRUMENTS" not constituting chattel paper within the meaning of
the Uniform Commercial Code ("UCC"), which instruments will be delivered to
the custody and possession of the Indenture Trustee as pledgee of the Trust).
The Servicer will, however, 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
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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
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. The Seller will represent that as of the Cutoff Date, in the
Seller's reasonable judgment, the Discounted Contract Balance of End-User
Contracts in the Contract Pool that are secured by Vehicles, does not exceed
[ ]% of the ADCB of the Contract Pool.
In addition, some of the Equipment related to the Contracts may
constitute "FIXTURES" under the real estate or UCC provisions of the
jurisdiction in which such Equipment is located. In order to perfect a
security interest in such Equipment,
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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 n 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. Also, the Seller will represent that as of the Cutoff Date, in
the Seller's reasonable judgment, the Discounted Contract Balance of End-User
Contracts in the Contract Pool that are secured by fixtures, does not exceed
[ ]% of the ADCB of the Contract Pool.
The Trust Depositor will be obligated to reacquire any Contract
transferred to the Trust (subject to the Seller's reacquisition thereof) in
the event it is determined that a first priority perfected security interest
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.
LEGAL RISKS ASSOCIATED WITH TRANSFER OF CONTRACTS. There are certain
limited circumstances under the UCC and applicable federal law in which prior
or subsequent transferees of Contracts or Secondary Contracts could have an
interest in such contracts with priority over the Trust's interest. See
"CERTAIN LEGAL ASPECTS OF THE CONTRACTS--TRANSFER OF CONTRACTS." Under each
Vendor Agreement, the Vendor (i) has or will warrant to the Seller that the
Contracts transferred to the Seller thereunder will be transferred free and
clear of the lien of any third party and that the interests in Secondary
Contracts transferred thereunder will be transferred free and clear of the
lien of any third party and (ii) has or will also covenant that it will not
sell, pledge, assign, transfer or grant any lien on any Contract (or
Secondary Contract) transferred thereunder to the Seller. Under the Transfer
and Sale Agreement, the Seller will warrant to the Trust Depositor and, under
the Sale and Servicing Agreement, the Trust Depositor will warrant to the
Trust, that the Contracts and security interests in Secondary Contracts
transferred thereunder will be transferred free and clear of the lien of any
third party. Also, under the Transfer and Sale Agreement, the Seller will
covenant to the Trust Depositor and, under the Sale and Servicing Agreement,
the Trust Depositor will also covenant to the Trust, that it will not sell,
pledge, assign, transfer or grant any lien on any Contract or Secondary
Contract transferred to the Trust Depositor or the Trust.
RISK OF INEFFECTIVE SALE IN VENDOR BANKRUPTCY. The Seller will either
(i) originate Contracts or (ii) acquire End-User Contracts from a Vendor,
which Contracts will be transferred to the Trust Depositor. If the
acquisition of an End-User Contract by 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
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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.
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.
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The Seller will represent as of the Cutoff Date that, in the Seller's
reasonable judgment, the Discounted Contract Balance of End-User Contracts in
the Contract Pool that are "TRUE LEASES" does not exceed [ ]% of the ADCB
of the Contract Pool as of such date.
RISKS ASSOCIATED WITH INSOLVENCY OF THE TRUST DEPOSITOR OR THE TRUST.
Certain restrictions have been imposed on the Trust Depositor and the Trust
and certain other parties to the transactions described herein which are
intended to reduce the risk of an insolvency proceeding involving the Trust
Depositor or the Trust. These restrictions include incorporating the Trust
Depositor as a separate, special purpose corporation pursuant to a
certificate of incorporation containing certain restrictions on the nature
and scope of its business. Additionally, the Trust Depositor may commence a
voluntary case or proceeding under any bankruptcy or insolvency law, or cause
the Trust to commence a voluntary case or proceeding under any bankruptcy or
insolvency law, only upon the affirmative vote of all its directors,
including its independent directors, as long as the Trust Depositor is
solvent and does not reasonably foresee becoming insolvent. The Trust
Depositor's certificate of incorporation requires that the Trust Depositor
have at all times at least two independent directors. However, no assurance
can be given that insolvency proceedings involving either the Trust Depositor
or the Trust will not occur. In the event the Trust Depositor becomes
subject to insolvency proceedings, the Trust, the Trust's interest in the
Trust Assets and the Trust's obligation to make payments on the Notes might
also become subject to such insolvency proceedings. In the event of
insolvency proceedings involving the Trust, the Trust's interest in the Trust
Assets and the Trust's obligation to make payments on the Notes would become
subject to such insolvency proceedings. No assurance can be given that
insolvency proceedings involving the Seller would not lead to insolvency
proceedings of either, or both, of the Trust Depositor or the Trust. In
either such event, or if an attempt were made to litigate any of the
foregoing issues, delays of distributions on the Notes, possible reductions
in the amount of payment of principal of and interest on the Notes and
limitations (including a stay) on the exercise of remedies under the
Indenture and the Sale and Servicing Agreement could occur, although the
Noteholders would continue to have the benefit of the Indenture Trustee's
security interest in the Trust Assets under the Indenture.
The right of the Indenture Trustee, as a secured party under the
Indenture for the benefit of the Noteholders, to foreclose upon and sell the
Trust Assets is likely to be significantly impaired by applicable bankruptcy
laws, including the automatic stay pursuant to Section 362 of the Bankruptcy
Code, if a bankruptcy proceeding were to be commenced by or against the
Trust, and possibly the Trust Depositor, before or possibly even after the
Indenture Trustee has foreclosed upon and sold the Trust Assets. Under the
bankruptcy laws, payments on debts are not made and secured creditors are
prohibited from repossessing their security from a debtor in a bankruptcy
case or from disposing of security repossessed from such a debtor, without
bankruptcy court approval. Moreover, the bankruptcy laws generally permit the
debtor to continue to retain and to use collateral even though the debtor is
in default under the applicable debt instruments, provided generally that the
secured creditor has the right to seek "ADEQUATE PROTECTION". The meaning of
the term "ADEQUATE PROTECTION" may vary according to circumstances, but it is
intended in general to protect the value of the security from any diminution
in the value of the collateral as a result of the use of the collateral by
the debtor during the pendency of the bankruptcy case. In view of the lack
of a precise definition of the term "ADEQUATE PROTECTION" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict
whether or to what extent the holders of the Notes would be compensated for
any diminution in value of the Trust Assets. Furthermore, in the event a
bankruptcy court determines that the value of the Trust Assets is not
sufficient to repay all amounts due on the Notes, the Noteholders would hold
secured claims only to the extent of the value of the Trust Assets to which
the holders are entitled, and unsecured claims with respect to such
shortfall. The bankruptcy laws do not permit the payment or accrual of
post-petition interest, costs and attorneys' fees during a debtor's
bankruptcy case unless, and then only to the extent, the claims are
oversecured.
RISKS ASSOCIATED WITH INSOLVENCY OF THE VENDORS. In the event a Vendor
under a Vendor Loan becomes subject to insolvency proceedings, the Secondary
Contracts and other Applicable Security for such Vendor Loan as well as such
Vendor's obligation to make payments thereon would also become subject to
such insolvency proceedings. In such event, delays of distributions on the
Notes, possible reductions in the amount of payment of principal of and
interest on the Notes and limitations (including a stay) on the exercise of
remedies under the Indenture and the Sale and Servicing Agreement could
occur, although the Noteholders would continue to have the benefit of the
Indenture Trustee's security interest in the Vendor Loans and Applicable
Security therefor under the Indenture.
The right of the Indenture Trustee, as secured party under the Indenture
for the benefit of the Noteholders, to foreclose upon and sell any Secondary
Contracts or Applicable Security is likely to be significantly impaired by
applicable bankruptcy laws, including the automatic stay pursuant to
Section 362 of the Bankruptcy Code, if a bankruptcy proceeding were to be
commenced by or against a Vendor obligated on a Vendor Loan, before or
possibly even after
27
<PAGE>
the Indenture Trustee has foreclosed upon and sold such Secondary Contracts
or Applicable Security for the reasons described above in the second
preceding paragraph.
Certain Vendor Assignments and certain assignments executed under
various Program Agreements (each, a "PROGRAM ASSIGNMENT") provide that the
Seller has recourse to the related Vendor for all or a portion of the losses
the Seller may incur as a result of a default under the End-User Contracts
sold under such Vendor Assignment or Program Assignment. In the event of a
Vendor's bankruptcy, a bankruptcy trustee, a creditor or the Vendor, as
debtor in possession, might attempt to characterize sales to the Seller
pursuant to such Vendor Assignments or Program Assignments as loans to the
Vendor from the Seller secured by the Contracts sold thereunder. If such an
attempt is successful, such Vendor Assignment or Program Assignment would be
subject to the risks described herein for Vendor Loans. In such case, the
Contracts sold under such Vendor Assignment or Program Assignment would
constitute Secondary Contracts under the recharacterized Vendor Assignment or
Program Assignment.
RISKS ASSOCIATED WITH REQUIRED SALE OF CONTRACTS RESULTING FROM TRUST
DEPOSITOR BANKRUPTCY. If a conservator, receiver or liquidator of the Trust
Depositor was appointed or if certain other events relating to the
bankruptcy, insolvency or receivership of the Trust Depositor were to occur
(an "INSOLVENCY EVENT"), then an Event of Default would occur with respect to
the Notes and, pursuant to the terms of the Indenture and the Sale and
Servicing Agreement, and assuming the Trust was not then a debtor in a
bankruptcy case, the Indenture Trustee, at the direction of the Required
Holders (as defined in "DESCRIPTION OF THE NOTES--EVENTS OF DEFAULT"), will
be required to sell the Contracts, thereby causing early termination of the
Trust and a possible loss to the Noteholders if the sum of (i) the proceeds
of the sale allocable to the Noteholders and (ii) the proceeds of any
collections on the Contracts in the Collection Account allocable to the
Noteholders, is insufficient to pay the Noteholders in full. See "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS--TRANSFER OF CONTRACTS" and "--CERTAIN MATTERS
RELATING TO BANKRUPTCY".
RISK OF LOSS ASSOCIATED WITH END-USER AND VENDOR BANKRUPTCY. Application
of federal and state bankruptcy and insolvency laws in the event of
bankruptcy of End-Users could affect the interests of the Noteholders in the
Contracts and Secondary Contracts if such laws result in any such contracts
being written off as uncollectible or result in delay in payments due on any
Contracts. See "DESCRIPTION OF THE NOTES--DEFAULTED CONTRACTS" and "CERTAIN
LEGAL ASPECTS OF THE CONTRACTS--CERTAIN MATTERS RELATING TO BANKRUPTCY". In
addition, application of federal and state bankruptcy and insolvency laws in
the event of bankruptcy of Vendors could affect the interests of the
Noteholders in the Vendor Loans and Secondary Contracts if such laws result
in any such Vendor Loans or Secondary Contracts being written off as
uncollectible or result in delay in payments due on any such Vendor Loans or
Secondary Contracts. See "--INSOLVENCY OF THE VENDORS". State laws impose
requirements and restrictions relating to foreclosure sales and obtaining
deficiency judgments following such sales. In the event that the Noteholders
must rely on repossession and disposition of Equipment to recover amounts due
on Defaulted Contracts, such amounts may not be realized because of the
application of these requirements and restrictions. Other factors that may
affect the ability of the Noteholders to realize the full amount due on a
Contract or a Secondary Contract include the failure to file financing
statements to perfect the Seller's, Trust Depositor's, Trust's or the
Indenture Trustee's security interest, as applicable, in the Equipment or
other Applicable Security and the depreciation, obsolescence, damage or loss
of any item of Equipment. As a result, the Noteholders may be subject to
delays in receiving payments and losses if the over collateralization
represented by each Class of Notes that is subordinated thereto, the
Subordinated Securities or the Reserve Fund is insufficient to absorb such
losses.
CERTAIN STATES MAY LIMIT THE ENFORCEABILITY OF CERTAIN LEASE PROVISIONS.
Certain states have adopted a version of Article 2A of the UCC ("ARTICLE 2A"),
which purports to codify many provisions of existing common law. Although
there is little precedent regarding how Article 2A will be interpreted, it
may, among other things, limit enforceability of any "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.
28
<PAGE>
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 GENERALLY". Accordingly, if any such
Contract becomes a Defaulted Contract, the Trust will not realize any
proceeds from the related Software or Services from which to satisfy any
related outstanding Scheduled Payments. Furthermore, because Software is
generally eligible for protection under the Federal copyright laws, a
security interest in Software generally cannot be perfected without a filing
at the U.S. Copyright Office. Some legal authority indicates that this
filing requirement also extends to a sale or grant of a security interest in
software licenses and the proceeds thereof, while some other legal authority
suggests that where there is an outright assignment of certain payments (such
as royalties) associated with copyrightable materials, the rights to receive
such payments constitute property separate from the copyrightable material
and that no filing in the U.S. Copyright Office is required in connection
with such assignment.
RISKS ASSOCIATED WITH NON-RECOURSE NATURE OF THE OFFERED NOTES - NO RECOURSE
TO THE SELLER, SERVICER OR ITS AFFILIATES; LIMITED VENDOR RECOURSE
Neither the Seller, the Servicer nor any of their affiliates is
generally obligated to make any payments in respect of the Notes or the
Contracts. However, in connection with the sale of Contracts by the Seller
to the Trust Depositor, and the concurrent conveyance of such Contracts by
the Trust Depositor to the Trust, the Seller will make representations and
warranties with respect to the characteristics of such Contracts and, in
certain circumstances, the Seller may be required to repurchase Contracts
from the Trust Depositor (and the Trust Depositor concurrently from the
Trust) with respect to which such representations and warranties have been
breached. See "THE TRANSFER AND SALE AGREEMENT AND THE SALE AND SERVICING
AGREEMENT GENERALLY--REPRESENTATIONS AND WARRANTIES" herein. Because the
Trust is a limited purpose trust with limited assets, the Noteholders must
rely solely upon the Contracts, 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
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
29
<PAGE>
purpose company the business of which is limited, generally, to the purchase
of, or the making of loans against receivables or interests in financial
assets. First Union Capital Markets Corp. is the Administrator of VFCC, an
entity which is not affiliated with First Union Corporation, First Union
Capital Markets Corporation or any of their respective affiliates.
THE TRUST
The Notes offered hereby will be issued by the Trust which has been
established by the Trust Depositor pursuant to the Trust Agreement. The
Contract Pool will be formed and transferred to the Trust pursuant to the
Sale and Servicing Agreement and pledged to the Indenture Trustee pursuant
to the Indenture.
The Trust was organized as a business trust formed in accordance with
the laws of the State of Delaware, pursuant to the Trust Agreement, solely
for the purpose of effectuating the transactions described herein. Prior to
formation, the Trust will have had no assets or obligations and no operating
history. The Trust will not engage in any business activity other than (a)
acquiring, managing and holding the Contracts and related interests described
herein, (b) issuing the Notes and the Subordinated Securities, (c) making
distributions and payments thereon and (d) engaging in those activities,
including entering into agreements, that are necessary, suitable or
convenient to accomplish the foregoing or are incidental thereto or connected
therewith. As a consequence, the Trust is not expected to have any source of
capital resources other than the Trust Assets. As of the date of this
Prospectus, neither the Trust Depositor nor the Trust is subject to any legal
proceedings.
THE 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 Sale and
Servicing Agreement. See "THE SALE AND SERVICING AGREEMENT
GENERALLY--REPRESENTATIONS AND WARRANTIES" and "--CONCENTRATION AMOUNTS"
herein which specifically describe the criteria for eligibility in the
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 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 $[ ].
For further information regarding the Transferred Contracts, see "THE
CONTRACTS GENERALLY" 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 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 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 Cutoff Date and
the Statistical Discount Rate. Certain Contracts included in the pool as of
the Cutoff Date may be determined not to meet the eligibility requirements
for the final pool, and may not be included in the final Contract Pool.
While the statistical distribution of the characteristics as of the Closing
Date for the final Contract Pool and
30
<PAGE>
calculated at the actual Discount Rate will vary somewhat from the
statistical distribution of such characteristics as of the Cutoff Date and
calculated at the Statistical Discount Rate as presented in this Prospectus,
such variance 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
<TABLE>
<CAPTION>
<S> <C>
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 $
</TABLE>
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
Number of Number of Contract Contract
State 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
Number of Number of Contract Contract
State 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
Number of Percentage of Number Discounted Aggregate Discounted
Equipment Type Contracts of Contracts Contract Balance Contract 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
Percentage of Number Discounted Aggregate Discounted
Industry Number of Contracts of Contracts Contract 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 CONTRACT BALANCE
<TABLE>
<CAPTION>
Percentage of
Discounted Contract Number of Percentage of Number of Discounted Contract Aggregate Discounted
Balance Contracts 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 < 12
-
13 < 24
-
25 < 36
-
37 < 48
-
49 < 60
-
61 < 72
-
73 < 84
-
> 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 < 12
-
13 < 24
-
25 < 36
-
37 < 48
-
49 < 60
-
61 < 72
-
73 < 84
-
> 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 (amounts described
in clauses (i), (ii) and (iii), "EXCLUDED AMOUNTS") due on or after the
applicable Cutoff Date for such Contracts, (iv) collections relating to Excluded
Residual Investments and (v) collections relating to payments which were
scheduled to be made by the Obligors on the Contracts pursuant to the terms of
such Contracts prior to the related Cutoff Date.
END-USER CONTRACTS
The following discussion describes the End-User Contracts (including
End-User Contracts which are Secondary Contracts). All of the End-User
Contracts to be included in the Trust are CSAs, Leases, Secured Notes, IPAs and
Financing Agreements in respect of Equipment, Software and Services. There is
no limit on the number of Contracts in the Contract Pool which may consist of
any of the foregoing types. Each Contract is required, however, to be an
Eligible Contract (as defined under "THE TRANSFER AND SALE AGREEMENT AND SALE
AND SERVICING AGREEMENT GENERALLY") as of the Cutoff Date.
CONDITIONAL SALE AGREEMENTS. The Seller offers financing for Equipment
under CSAs assigned to the Seller by Vendors. It is expected that most of the
CSAs in the Contract Pool will consist of the Seller's standard pre-printed
form, or of the Vendors' standard, pre-printed forms. The CSA sets forth the
description of each Financed Item and the schedule of installment payments.
Generally, loans under CSAs are fixed rate and are for a one to seven year term.
Payments under CSAs generally are due monthly. CSA terms (i) provide for a
grant by the End-User thereunder of a security interest in any related Equipment
(which security interest is assigned by the Vendor to the Seller), (ii) may
allow prepayment of the obligation upon payment, where allowed by applicable
state law, of an additional prepayment fee, (iii) require the End-User to
maintain the Equipment, keep it free and clear of liens and encumbrances and pay
all taxes related to the Equipment, (iv) restrict the modification or disposal
of the Equipment without the seller's, or its assignee's, consent, (v) include a
disclaimer of warranties, (vi) include the End-User's indemnity against
liabilities arising from the use, possession or ownership of the Equipment,
(vii) include the End-User's absolute (except as provided in clause (ii)) and
unconditional obligation to pay the installment payments thereunder and (viii)
include specifically identifiable events of default and remedies therefor. The
CSA also requires each End-User to maintain insurance, the terms of which may
vary. The terms of a CSA may be modified at its inception at the End-User's
request. Such modifications must either be approved by the Seller's legal
department and certain levels of management before the Seller will agree to
accept an assignment of the CSA from a Vendor, or the Vendor must indemnify the
Seller against any losses or damages it may suffer as a result of such
modifications.
LEASES. The Seller, either directly or by assignment from Vendors, offers
financing of Equipment, Software and Services under Leases. Leases may consist
of individual lease agreements relating to a single, separate transaction and
Financed Item, or may consist of individual transactions written under and
governed by a master lease agreement (each, an "MLA") which contains the general
terms and conditions of the transaction. Specific terms and conditions, such as
descriptions of the specific Equipment, Software and Services being leased or
financed and the schedule of related rental payments, are contained in a
supplement or schedule to the MLA (each an "MLA SUPPLEMENT"), which is signed by
the End-User as lessee, and either the Vendor or the Seller, as lessor. The MLA
Supplement incorporates the MLA by reference, and is treated by the Seller as a
separate Lease. Each Lease is originated in the ordinary course of business by
either the Seller or a Vendor (and assigned to the Seller pursuant to a Vendor
Agreement).
The initial terms of the Leases in the Contract Pool generally range from
one to seven years. Each Lease provides for the periodic payment by the
End-User of rent in advance or arrears, generally monthly or quarterly. Such
periodic payments represent the amortization, generally on a level basis, of the
total amount that an End-User is required to pay throughout the term of a Lease.
The Leases to be included in the Contract Pool are "NET LEASES" under which
the End-User assumes responsibility for the Financed Items, including operation,
maintenance, repair, insurance or self-insurance, return of any Equipment at the
expiration or termination of the Lease and the payment of all sales and use and
property taxes relating to the Financed Items during the Lease term. The
End-User further agrees to indemnify the lessor for any liabilities
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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 Sale and Servicing
Agreement. Certain Leases permit the End-User to substitute substantially
identical leased Equipment for leased Equipment scheduled to be returned to
the lessor under the Lease.
While the terms and conditions of the Leases do not generally permit
cancellation by the End-User, certain Leases may be modified or terminated
before the end of the Lease term. Modifications to a Lease term or early
Lease terminations may be permitted by the Seller, or by a Vendor, with the
consent of the Seller, and are generally associated with additional financing
opportunities from the same End-User. End-Users may also negotiate with the
Seller, at the Seller's discretion, an early termination arrangement
allowing the End-User to purchase the Equipment during the term of a Lease
for an amount generally equal to or in excess of the present value of the
remaining rental payments under the Lease plus the anticipated market value
of the related Equipment as of the end of the Lease term. In some
circumstances, early termination of a Lease may be permitted in connection
with the acquisition of new technology requiring replacement of the
Equipment. In such cases, the related Equipment is returned to the Vendor or
Seller and an amount generally equal to the present value of the remaining
rental payments under the Lease plus an early termination fee is paid by the
End-User to the Seller. Modifications usually involve repricing a Lease or
modification of the Lease term. Occasionally a Lease may be modified in
connection with an increase in the capacity or performance of Equipment by
adding additional Equipment that includes new technology. Coincident with
the financing of an upgrade to such Equipment, the Seller may reprice and
extend the related base Lease term to be coterminous with the desired term of
the Lease relating to the upgrade. In certain cases, subject to certain
conditions described under "DESCRIPTION OF THE NOTES--PREPAID CONTRACTS,"
such base lease extensions may remain in the Contract Pool. Newcourt USA
expects, as Servicer, to continue to permit these modifications and
terminations with respect to Leases included in the Contract
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Pool pursuant to the authority delegated to it in the Sale and Servicing
Agreement, subject to certain conditions and covenants of the Servicer
described under "DESCRIPTION OF THE NOTES--PREPAID CONTRACTS."
In certain circumstances, the standard terms and conditions of the MLA
are modified at the inception of a Lease at the request of the End-User.
Such modifications must either be approved by the Seller's legal department
and certain levels of management before the Seller will agree to enter into
the Lease or accept an assignment of the Lease from a Vendor, or the Vendor
must indemnify the Seller against any losses or damages it may suffer as a
result of such modifications. Common permitted modifications include, but
are not limited to, (i) a one dollar purchase option at the end of the Lease
term, (ii) prearranged mid-Lease purchase options, early termination options
and lease extension options as described above, (iii) modifications to the
lessor's equipment inspection rights, (iv) modifications to the End-User's
insurance requirements permitting the End-User to self-insure against
casualty to the Equipment, (v) the End-User's right to assign the Lease or
sub-lease the Financed Items to an affiliated entity, so long as the End-User
remains liable under the Lease and promptly notifies the lessor or its
assignee of such assignment or sublease and (vi) extended grace periods for
late payments of rent.
SECURED NOTES. The 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 and 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
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Certain of the End-User Contracts cover license fees and other fees owed
by the End-Users under either perpetual or term software license agreements
and other related agreements in connection with the use by such End-Users of
computer software programs ("SOFTWARE"), and such End-User Contracts may also
cover related support and consulting services which are provided by the
Vendor, an affiliate thereof or a third party contract party and which
facilitate the 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
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End-User Contract are free and clear of all liens, claims or
encumbrances except for Permitted Liens; the Equipment or the Software
has been irrevocably accepted by the End-User and will perform as
warranted to the End-User; and the assigned End-User Contract was duly
authorized and signed by the End-User.
2. Remedies in the event of a misrepresentation or breach of a
warranty or covenant by the Vendor regarding an assigned End-User
Contract, which usually require the Vendor to repurchase the affected
End-User Contract for the Seller's investment balance in the End-User
Contract plus costs incurred by the Seller in breaking any underlying
funding arrangement (which may or may not be calculated in accordance
with a specified formula).
3. In the case of End-User Contracts covering Equipment,
remarketing support from the Vendor in the event of an End-User default
and subsequent repossession or return of the Equipment 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.
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RESIDUAL INVESTMENTS
The Seller may finance all or a portion of the residual interest in the
Equipment under certain Program Agreements and under direct transactions
between the Obligor and the Seller. (Any investment by the Seller in such
residual interest shall be referred to as a "RESIDUAL INVESTMENT".) Certain
Program Agreements provide that the Seller may, at its sole discretion and in
connection with the funding of a "TRUE LEASE" of Equipment make a Residual
Investment in the Equipment subject to a Contract by advancing additional
funds against a portion of the anticipated residual value of the Equipment,
and not just against the discounted present value of the rental payments due
under the End-User Contract. Such Residual Investments may take the form of
an advance of the present value of some specified percentage of the
anticipated residual value of the Equipment or a specified percentage
(generally not greater than 10%) of the amount to be paid by the Seller in
funding the present value of the rental payments due under the End-User
Contract. Certain transactions involving Vendor Assignments result in the
Seller advancing the entire purchase price of the Equipment subject to a
"TRUE LEASE", taking title to the Equipment, and accepting an assignment of
the "TRUE LEASE" Contract from a Vendor. Certain direct transactions between
the Obligor under a "TRUE LEASE" Contract and the Seller also result in the
Seller advancing the entire purchase price of the Equipment to the Vendor,
taking title to the Equipment from the Vendor, and entering into a "TRUE
LEASE" Contract with the Obligor (with the Seller named as "LESSOR" under
such Contract). In either of the two foregoing types of transactions, the
Seller will have advanced more than the discounted present value of the rents
payable under the "TRUE LEASE" Contracts by paying the purchase price for the
Equipment, and so will have made a Residual Investment in the Equipment.
In some Program Agreements, the Seller may make the Residual Investment
in the form of a full recourse loan of additional funds to the Vendor,
repayable by the Vendor at the expiration or termination of the End-User
Contract with interest, secured by a security interest in the Equipment
covered by the End-User Contract. In some transactions involving Vendor
Assignments or direct transactions with Obligors under "TRUE LEASE"
Contracts, the Seller may obtain the obligation of either the Vendor or the
Obligor to purchase the Equipment at the end of the Lease term for the full
amount of the Seller's Residual Investment in such Equipment with interest
thereon. (Any such transaction in which the Seller may look to either the
Vendor or the Obligor, and not just the value of Equipment itself, to recover
its Residual Investment with interest shall be referred to as a "GUARANTEED
RESIDUAL INVESTMENT"). It is a condition to the issuance of the Notes that as
of the related Closing Date, after giving effect to any Addition on such
date, the aggregate amount of Guaranteed Residual Investments included in the
Contract Pool will not exceed [ ]% of the ADCB of the Contract Pool.
Other than Guaranteed Residual Investments, a Residual Investment is not
included in the Discounted Contract Balance of any End-User Contract and,
therefore, is not financed with the proceeds of the Notes (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 Sale and Servicing Agreement. The Trust's interest in
End-User Contracts with associated Residual Investments (other than
Guaranteed Residual Investments) will be limited to the discounted present
value of the rental payments due under the End-User Contract and a security
interest in the related Equipment. The Seller may assign its 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"), either prior to the inclusion of the
related End-User Contract in the Contract Pool or thereafter. Under the
Transfer and Sale Agreement, the Seller will warrant to the Trust Depositor
and under the Sale and Servicing Agreement the Trust Depositor will warrant
and covenant to the Trust, that any Subordinated Residual Interest will be
subordinated to the interests of the Seller and the Trust, respectively, and
that any Residual Assignee will bear the full risk of any deficiency in
respect of the Residual Investment as a result of prior satisfaction of the
Trust's interest in the related End-User Contract and the related Equipment.
CONTRACT FILES
The Seller will indicate in the appropriate computer files relating to
the Transferred Contracts that such Contracts have been transferred to the
Trust for the benefit of the Noteholders. The Seller will also deliver to
the Indenture Trustee a computer file or microfiche or written list
containing a true and complete list of all Contracts which have been
transferred to the Trust, identified by account number and by the Discounted
Contract Balance as of the Cutoff Date.
COLLECTIONS ON CONTRACTS
All collections received with respect to the Contracts will be allocated
as described herein. See "DESCRIPTION OF THE NOTES--ALLOCATIONS".
Prepayments will be given effect as of the last day of the Collection Period
in which they are received and Scheduled Payments of principal made in
advance of their due date will be given effect on their due date.
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PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
each interest payment on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Contracts. The
payments on such Contracts may be in the form of Scheduled Payments,
Prepayments or liquidations due to default, casualty and other events, which
cannot be specified at present. Any such payments may result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts. In general, the rate
of such payments may be influenced by a number of factors, including general
economic conditions. The rate of principal payments with respect to any
Class may also be affected by any repurchase by the Trust Depositor pursuant
to the Sale and Servicing Agreement (and contemporaneously therewith by the
Seller from the Trust Depositor pursuant to the Transfer and Sale Agreement),
whether as a result of a breach of representation or warranty as to such
Contract constituting a Warranty Contract, as defined herein, or at the Trust
Depositor's and Seller's option upon satisfaction of the Cleanup Call
Condition (and, in the case of Warranty Contracts, such rate of prepayment
would also be influenced by the Trust Depositor's decision not to repurchase
such Warranty Contract and instead, to accept a Substitute Contract therefor
as described below). In the event of a repurchase, the repurchase price will
decrease the Discounted Contract Balance of the Contracts, leading to a
principal repayment and causing the corresponding weighted average life of
the Notes to decrease. See "RISK FACTORS--PREPAYMENTS ON THE CONTRACTS
AFFECT THE YIELD OF THE NOTES."
In the event a Contract becomes a Defaulted Contract, an Adjusted
Contract, 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>
[ ]% 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>
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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.
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 Sale 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
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<PAGE>
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 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.
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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.
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.
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ADVANCED CREDIT SCORING SYSTEM. A portion of the portfolio, representing
small 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 Sale and Servicing Agreement, Contracts which were sold to the
Trust Depositor pursuant to the Transfer and Sale Agreement.
The Trust Depositor has taken steps in structuring the transactions
contemplated hereby that are intended to ensure that the voluntary or
involuntary application for relief by Newcourt Credit Group USA or Newcourt
USA under the United States Bankruptcy Code or similar applicable state laws
or applicable laws of other countries ("INSOLVENCY LAWS") will not result in
the consolidation of the assets and liabilities of the Trust Depositor with
those of Newcourt Credit Group USA or Newcourt USA and its affiliates. These
steps include incorporating the Trust Depositor as a separate, special
purpose company pursuant to a certificate of incorporation containing certain
restrictions on the nature of its business and on its ability to commence a
voluntary case or proceeding under any bankruptcy or insolvency law, or to
cause the Trust to commence a voluntary case or proceeding under any
bankruptcy or insolvency law, without the affirmative vote of all of its
directors, including its independent directors, and the requirement, set
forth in the Trust Depositor's certificate of incorporation, that at all
times no less than one member of the Board of Directors of the Trust
Depositor will be an individual who has not been, within the previous five
years, affiliated with Newcourt or any of its affiliates other than the Trust
Depositor, the Trust and other trusts formed for similar operations
(Newcourt and each of its affiliates other than the Trust Depositor, the
Trust and other trusts formed for similar operations, a "NEWCOURT ENTITY").
However, there can be no assurance that the activities of the Trust Depositor
would not result in a court concluding that the assets and liabilities of the
Trust Depositor should be consolidated with those of Newcourt Credit Group
USA or Newcourt USA in a proceeding under any Insolvency Law. See "RISK
FACTORS--CERTAIN LEGAL RISKS" and "CERTAIN LEGAL RISKS OF THE
CONTRACTS--CERTAIN MATTERS RELATING TO BANKRUPTCY". In such event there is
no assurance that the Trust would not become a debtor in such a bankruptcy
case as well.
The Trust Depositor will receive, on the Closing Date, a reasoned opinion
from its counsel concluding (although there is no case litigated on the merits
directly in point) that, subject to certain assumptions and qualifications
specified therein, in the event a Newcourt Entity were to become a debtor in a
case under the Bankruptcy Code, a bankruptcy court would not, on motion of such
Newcourt Entity, as debtor-in-possession, or any other party in interest in such
case, (a) substantively consolidate the Trust Depositor and Newcourt Credit
Group USA or Newcourt USA or (b) substantively consolidate the Trust and
Newcourt Credit Group USA or Newcourt USA. The opinion assumes, among other
things, that (a) the Trust Depositor and the Trust will adhere to specified
operating procedures including, without limitation, (i) that at all times no
less than one member of the Board of Directors of the Trust Depositor will be an
individual who has not been, within the previous five years, affiliated with any
Newcourt Entity, (ii) the Trust's business will be run by officers and
employees of the Indenture Trustee, (iii) the Trust Depositor will maintain its
own payroll and separate books of account and will maintain an office space
separate from any Newcourt Entity, (iv) neither the Trust Depositor nor the
Trust will, except as provided in the Sale and Servicing Agreement, commingle
any of its money or other assets with those of any Newcourt Entity, (v) the
Trust Depositor and the Trust will maintain separate bank accounts in its own
name or in the name of the Trust Depositor and (vi) except for the obligations
under the Transfer and Sale Agreement and similar obligations under similar
agreements, neither the Trust Depositor nor the Trust will acquire obligations
or securities of, or make loans or advances to, any Newcourt Entity, (b) the
Trust Depositor and the Trust will maintain an arm's-length relationship in all
transactions with each Newcourt Entity, (c) the purchase price for the Contracts
set forth in the Transfer and Sale Agreement represents fair and reasonably
equivalent value for the sale of the Contracts transferred thereunder to the
Trust Depositor, (d) the financing provided by the issuance of the Notes
constitutes a practical and reasonable course of action designed to improve the
financial position of Newcourt without impairing the rights of its creditors and
(e) the financing provided by the issuance of the Notes is being effected in
furtherance of Newcourt's ongoing business operations and not in contemplation
of bankruptcy. The opinion is not binding on any court. Accordingly, there can
be no assurance that a court will not reach a different conclusion. If a court
concluded otherwise, or if an attempt were made to litigate any of the
foregoing issues, delays of distributions on the Notes and possible reductions
in the amount of payments of principal of and interest on the Notes could occur.
The Trust Depositor will not acquire any assets other than Trust Assets and
other assets transferred to the Trust Depositor pursuant to the Transfer and
Sale Agreement or other equipment and contracts transferred to the Trust
Depositor pursuant to similar agreements, including 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
Sale and Servicing Agreement and the Indenture (the "OPERATIVE DOCUMENTS").
Copies of the Sale and Servicing Agreement and the Indenture have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
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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 Sale and Servicing Agreement and the Indenture.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the Class
A-4 Notes, the Class B Notes and the Class C Notes will initially be
represented by one or more certificates registered in the name of the nominee
of DTC (together with any successor depositary selected by the Trust
Depositor, the "DEPOSITARY"), except as set forth below. The Notes will be
available for purchase in minimum denominations of $1,000 and in integral
multiples thereof in book-entry form. The Trust Depositor has been informed
by DTC that DTC's nominee will be Cede. See "--BOOK-ENTRY REGISTRATION" and
"--DEFINITIVE NOTES" below. Only the Notes will be offered hereby.
The Indenture Trustee will be granted a first priority lien on the Trust
Assets to secure the Notes; PROVIDED, that distributions on the Notes (and each
Class thereof) will be allocated as provided herein. The Notes are nonrecourse
obligations of the Trust only and do not represent interests in or obligations
of either the Seller, the Servicer or the Trust Depositor, or any affiliate
thereof.
INTEREST
Interest on the Notes will be payable on each of the Distribution Dates
occurring on or prior to the earlier of (i) the date of payment in full of such
Notes and (ii) the Class A-1 Notes Maturity Date, the Class A-2 Notes Maturity
Date, the Class A-3 Notes Maturity Date or the Other Notes Maturity Date, as
applicable, for the Notes. Interest will accrue at the applicable Class A-1
Interest Rate, the Class A-2 Interest Rate, the Class A-3 Interest Rate, the
Class A-4 Interest Rate, the Class B Interest Rate or the Class C Interest Rate,
for the period from and including the most recent Distribution Date on which
interest has been paid (or, in the case of the initial Distribution Date, from
and including the Closing Date) to but excluding the following Distribution Date
(each period for which interest accrues on the Notes, an "ACCRUAL PERIOD") on
the outstanding principal amount of such Notes as of the first day of such
Accrual Period.
Interest on the Class A-1 Notes is payable on a Distribution Date from
Available Amounts on such date (and after application of such Available Amounts
to repay any outstanding Servicer Advances and to pay the Servicing Fee)
subject to the limitation described in the third succeeding paragraph. Such
Available Amounts represent primarily collections of payments due under the
Contracts, certain amounts received upon the prepayment or purchase of Contracts
or liquidation of the Contracts and disposition of the related Equipment upon
defaults thereunder, proceeds of Servicer Advances, if any, as well as amounts
in the Reserve Fund, if any.
Interest on the Class A-2 Notes is payable on a Distribution Date from
Available Amounts on such date, but only after the application of such Available
Amounts to repay any outstanding Servicer Advances, to pay the Servicing Fee,
and to pay interest on the Class A-1 Notes; subject to the limitation described
in the second succeeding paragraph.
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 and
during the continuance 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 and the Class A-2 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, the Class A-2 and the 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 and the
Class C Notes will have a stated maturity of the [ ]
Distribution Date. However, if all payments on the Contracts are made as
scheduled, final payment with respect to the Notes would occur prior to
stated maturity.
Principal of the Class A-1 Notes will be payable on each Distribution Date
in an amount equal to the Class A-1 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee and interest payments on the Notes and the Subordinated Notes.
Principal of the Class A-2 Notes will be payable on each Distribution Date
in an amount equal to the Class A-2 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
Servicing Fee, interest payments on the Notes and the Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount. See "--ALLOCATIONS" herein.
Principal of the Class A-3 Notes will be payable on each Distribution Date
in an amount equal to the Class A-3 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
servicing fee, interest payments on the Notes and Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount and Class A-2 Principal
Payment Amount.
Principal of the Class A-4 Notes will be payable on each Distribution Date
in an amount equal to the Class A-4 Principal Payment Amount for such
Distribution Date to the extent Available Amounts are available therefor, but
after payment from such Available Amounts of unpaid Servicer Advances, the
servicing fee, interest payments on the Notes and Subordinated Notes and the
payment of the Class A-1 Principal Payment Amount, Class A-2 Principal Payment
Amount and Class A-3 Principal Payment Amount.
Principal of the Class B Notes will be payable on each Distribution Date in
an amount equal to the Class B Principal Payment Amount for such Distribution
Date to the extent Available Amounts are available therefor, but after payment
from such Available Amounts of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated Notes, and the payment of
the Class A-1 Principal Payment Amount, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount and the Class A-4 Principal Payment
Amount. See "--ALLOCATIONS" herein.
Principal of the Class C Notes will be payable on each Distribution Date in
an amount equal to the Class C Principal Payment Amount for such Distribution
Date to the extent Available Amounts are available therefor, but after payment
from such Available Amounts of unpaid Servicer Advances, the Servicing Fee,
interest payments on the Notes and the Subordinated Notes, and the payment of
the Class A -1 Principal Payment Amount, the Class A-2 Principal Payment Amount,
the Class A-3 Principal Payment Amount, the Class A-4 Principal Payment Amount
and the Class B Principal Payment Amount. See "--ALLOCATIONS" herein.
The Notes will mature and be due and payable on the Class A-1 Notes
Maturity Date, the Class A-2 Notes Maturity Date, the Class A-3 Notes Maturity
Date or the Other Notes Maturity Date, as applicable. Prior thereto, amounts to
be applied in reduction of the outstanding Principal Amount of any Note,
including the payment of the Class A-1 Principal Payment Amount, the Class A-2
Principal Payment Amount, the Class A-3 Principal Payment Amount, the Class A-4
Principal Payment Amount, the Class B Principal Payment Amount or the Class C
Principal Payment Amount payable on any Distribution Date, will not be due and
payable, although the failure of the Trust Depositor or Servicer to remit any
Available Amounts (including Available Amounts to be used to make a Class A-1
Principal Payment Amount, a Class A-2 Principal Payment Amount, a Class A-3
Principal Payment Amount, a Class A-4 Principal Payment Amount, a Class B
Principal Payment Amount or a Class C Principal Payment Amount) will, after the
applicable grace period, constitute an Event of Default under the Indenture.
See "-- EVENTS OF DEFAULT".
As used herein, the following terms shall have the following meanings:
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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 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 and during the continuance of an
Event of Default, all remaining Available Amounts after payment has
been made in accordance with paragraphs (A) through (G) in
"DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF
DEFAULT".
"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 Principal Amount of all the Class A Notes
immediately prior to such Distribution Date, and (2) the Class A
Target Principal Amount, and (B) following the occurrence and during
the continuance of an Event of Default, all remaining Available
Amounts after payment has been made in accordance with paragraphs
(A) - (H) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT
OF DEFAULT".
"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 Principal Amount of all the
Class A Notes immediately prior to such Distribution Date, and (2) the
Class A Target Principal Amount, and (B) following the occurrence and
during the continuance 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-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 all the Class A Notes immediately prior to such
Distribution Date, and (2) the Class A Target Principal Amount, and
(B) following the occurrence and during the continuance of an Event of
Default, all remaining Available
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Amounts after payment has been made in accordance with paragraphs (A) - (J)
in "DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF
DEFAULT".
"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 and during the continuance of an Event of
Default, (1) until the Principal Amount of the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes has been paid in full, $0 and
(2) thereafter, all remaining Available Amounts after payment has been
made in accordance with paragraphs (A) - (K) in "DESCRIPTION OF THE
NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT".
"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 and during the continuance of an Event of
Default, (1) until the Principal Amount of the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes and the Class B Notes has been
paid in full, $0 and (2) thereafter, all remaining Available Amounts
after payment has been made in accordance with paragraphs (A) - (L) in
"DESCRIPTION OF THE NOTES -- ALLOCATIONS; FOLLOWING AN EVENT OF
DEFAULT".
"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 and during the continuance of an Event of
Default, (1) until the Principal Amount of the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class B Notes and the Class
C Notes has been paid in full, $0 and (2) thereafter, all remaining
Available Amounts after payment has been made in accordance with
paragraphs (A) - (M) in "DESCRIPTION OF THE NOTES -- ALLOCATIONS;
FOLLOWING AN EVENT OF DEFAULT".
"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 and during the continuance of an Event of
Default, (1) until the Principal Amount of the Class A-2 Notes, the
Class A-3 Notes, the Class A-4 Notes, the Class B Notes, the Class C
Notes and the Class D Notes has been paid in full, $0 and (2)
thereafter, 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 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.
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"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 Cumulative Loss Amount with respect to such
Distribution Date, minus (c) the sum, immediately prior to such
Distribution Date, of the Principal Amount 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.
"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 Cumulative Loss Amount 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, 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 Cumulative Loss Amount 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, 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 Cumulative Loss Amount with respect to such
Distribution Date, minus (c) the amount on deposit in the Reserve
Account, 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.
"CUMULATIVE LOSS AMOUNT" 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 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 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.
"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.
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The Discounted Contract Balance for each Contract shall be calculated
assuming:
(a) All payments due in any Collection Period are due on
the last day of the Collection Period;
(b) Payments are discounted on a monthly basis using a 30 day
month and a 360 day year; and
(c) All security deposits and drawings under letters of credit,
if any, issued in support of a Contract are applied to
reduce Scheduled Payments in inverse order of the due date
thereof.
"PRINCIPAL AMOUNT" of a Class of Notes or Subordinated Notes
means the aggregate initial principal amount thereof reduced by
(i) the aggregate amount of any Distributions applied in reduction of such
principal amount and (ii) the aggregate amount of any Distributions
then on deposit in the note or certificate payment account, if any,
for such Class of Notes or Subordinated Notes established in
accordance with the Indenture or the Sale and Servicing Agreement and
to be applied in reduction of such principal amount in accordance
therewith.
"SCHEDULED PAYMENTS" means, with respect to any Contract, the
monthly or quarterly or semi-annual or annual rent or financing
(whether principal or principal and interest) payment scheduled to be
made by the related Obligor under the terms of such Contract after the
related Cutoff Date (it being understood that Scheduled Payments do
not include any Excluded Amounts 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;
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(F) pay to the Indenture Trustee, on behalf of the Class A-4
Notes, an amount equal to interest accrued in respect of
such Class A-4 Notes for the Accrual Period immediately
preceding such Distribution Date, together with any such
amounts that accrued in respect of prior Accrual Periods
for which no allocation was previously made;
(G) pay to the Indenture Trustee, on behalf of the Class B
Notes, an amount equal to the interest accrued thereon for
the Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made;
(H) pay to the Indenture Trustee, on behalf of the Class C
Notes, an amount equal to interest accrued thereon for the
Accrual Period immediately preceding such Distribution
Date, together with any such amounts that accrued in respect
of prior Accrual Periods for which no allocation was
previously made;
(I) pay to the holders of the 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 holders 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; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-1 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class A-2 Notes;
(L) pay to the Indenture Trustee, on behalf of the Class A-2
Notes, the A-2 Principal Payment Amount for such
Distribution Date; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-2 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class A-3 Notes;
(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; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-3 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class A-4 Notes;
(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; PROVIDED, if the amount to be allocated
pursuant to this clause exceeds the amount needed to repay
the Class A-4 Principal Payment Amount in full, then such
excess shall be applied in repayment of principal on the
Class B Notes;
(O) pay to the Indenture Trustee, on behalf of the Class B Notes,
the Class B Principal Payment Amount for such Distribution
Date; PROVIDED, if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay the Class B
Principal Payment Amount in full, then such excess shall be
applied in repayment of principal on the Class C Notes;
(P) pay to the Indenture Trustee, on behalf of the Class C Notes,
the Class C Principal Payment Amount for such Distribution
Date; PROVIDED, if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay the Class C
Principal Payment Amount in full, then such excess shall be
applied in repayment of principal on the Class D Notes;
(Q) pay to the holders of the Class D Notes the Class D
Principal Payment Amount for such Distribution Date;
PROVIDED, if the amount to be allocated pursuant to this
clause exceeds the amount needed to repay the Class D Notes
principal in full then such excess shall be allocated
consistent with the next succeeding paragraph;
(R) pay to the holders of the Class E Notes the Class E
Principal Payment Amount for such Distribution Date;
PROVIDED, if the amount to be allocated pursuant to this
clause exceeds the
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amount needed to repay the Class E Notes principal in full then
such excess shall be allocated consistent with the next
succeeding paragraph;
(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 Excluded Residual
Investment due on or before, as well as Prepayments received on or before, the
last day of the Collection Period immediately preceding such Distribution Date
(other than Excluded Amounts and any Excluded Residual Investment); (ii)
Recoveries on account of previously Defaulted Contracts received as of the
immediately preceding Determination Date; (iii) such amounts as from time to
time may be held in the Collection Account, together with earnings on funds
therein, (iv) any late charges relating to a Contract provided such late charges
were included in the Contract's terms as of the Cutoff Date ("LATE CHARGES")
and (v) any amounts received with respect to the Guaranteed Residual
Investments.
Pursuant to the Indenture, the Indenture Trustee will distribute
amounts received from the Indenture Trustee in accordance with the foregoing to
the Class A-1 Noteholders, Class A-2 Noteholders, Class A-3 Noteholders, Class
A-4 Noteholders, Class B Noteholders, Class C Noteholders and the holders of the
Subordinated Notes represented thereby PRO RATA in accordance with the
respective amounts owed thereto.
FOLLOWING AN EVENT OF DEFAULT. On each Determination Date after the
occurrence and during the continuance 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, late charges or other losses;
(B) pay to the Servicer, the amount of any unreimbursed Servicer
Advance;
(C) pay to the Servicer, the monthly Servicing Fee for the
preceding monthly period together with any amounts in
respect of the Servicing Fee that were due in respect of
prior monthly periods that remain unpaid;
(D) pay to the Indenture Trustee, on behalf of the Class A-1
Notes, the Class A-2 Notes, the Class A-3 Notes and the
Class A-4 Notes, an amount equal to interest accrued in
respect of such Class A-1 Notes, the Class A-2 Notes, the
Class A-3 Notes and the Class A-4 Notes for the Accrual
Period immediately preceding such Distribution Date,
together with any such amounts that accrued in respect of
prior Accrual Periods for which no allocation was previously
made; PROVIDED, that if the Available Amounts remaining to
be allocated pursuant to this clause 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;
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(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
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;
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(M) pay to the Indenture Trustee, on behalf of the holders of
the Class B Notes, the Class B Principal Payment Amount for
such Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause
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 holders of
the Class C Notes, the Class C Principal Payment Amount for
such Distribution Date; PROVIDED (i) that if the Available
Amounts remaining to be allocated pursuant to this clause
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, 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 Amount.
If the amount on deposit in the Reserve Fund on any Distribution Date
(after giving effect to all deposits thereto or withdrawals therefrom on such
Distribution Date) is greater than the Reserve Fund Amount, the Indenture
Trustee will distribute any excess to the holder of the Certificates. Upon any
such distributions to the holder of the Certificates, the Noteholders and the
holders of the Subordinated Notes will have no further rights in, or claims to,
such amounts.
If on any Distribution Date the principal balance of the Subordinated Notes
equals zero and amounts on deposit in the Reserve Fund have been depleted as a
result of losses in respect of the Contracts, the protection afforded to the
Noteholders by the Subordinated Notes and by the Reserve Fund will be exhausted
and the Noteholders will bear directly the risks associated with the ownership
of the Contracts.
None of the Noteholders, the Indenture Trustee, the Owner Trustee, the
Seller nor the Trust Depositor will be required to refund any amounts properly
distributed or paid to them whether or not there are sufficient funds on any
subsequent Distribution Date to make full distributions to the Noteholders.
The Servicer may, from time to time after the date of this Prospectus
request each Rating Agency that rated the Notes to, at the request of the Trust
Depositor, approve a formula for determining the Reserve Fund Amount that is
different from the formula described above and would result in a decrease in the
amount of the Reserve Fund Amount or the manner by
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which the Reserve Fund is funded. If each Rating Agency delivers a letter to
the Indenture Trustee and the Owner Trustee to the effect that the use of any
such new formulation will not in and of itself result in a qualification,
reduction or withdrawal of its then-current rating of any Class of Notes,
then the Reserve Fund Amount will be determined in accordance with such new
formula. The Agreement will accordingly be amended to reflect such new
calculation without the consent of any Noteholder.
WITHDRAWALS FROM THE RESERVE FUND
Amounts held from time to time in the Reserve Fund will continue to be held
for the benefit of the Noteholders and the holders of the Subordinated Notes.
On each Distribution Date, funds will be withdrawn from the Reserve Fund to the
extent that Available Amounts with respect to any Distribution Date are less
than the amount necessary to pay interest on the Notes and the Subordinated
Notes; PROVIDED, HOWEVER, upon the occurrence and during the continuance of an
Event of Default amounts in the Reserve Fund shall be available to pay the
principal on the most senior outstanding Class of Notes or, if no Notes are
outstanding, the Subordinated Notes; PROVIDED FURTHER, in the event the
Available Amounts are insufficient to pay outstanding principal on the Class A-1
Notes on the Class A-1 Notes Maturity Date amounts in the Reserve Fund may be
utilized to make principal payments on the Class A-1 Notes. Additionally, to
the extent monies are present in the Reserve Fund as of the Class A-2 Notes
Maturity Date, the Class A-3 Notes Maturity Date or the Other Notes Maturity
Date (as applicable), to the extent necessary, such monies shall be applied to
pay the principal of the most senior outstanding Class of Notes, or, if no Notes
are outstanding, the Subordinated Notes.
DEFAULTED CONTRACTS
A Contract will automatically be deemed to be in default (a "DEFAULTED
CONTRACT") if (i) it is more than 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, shall cause to be
established and maintained in the name of the Indenture Trustee, with an
office or branch of a depositary institution or trust company (which may
include the Indenture Trustee) organized under the laws of the United States
of America or any one of the states thereof and located in the state
designated by the Servicer, a segregated corporate trust account (the
"COLLECTION ACCOUNT") bearing a designation clearly indicating that the funds
deposited therein are held in trust for the benefit of the Noteholders;
PROVIDED, HOWEVER, that at all times such depositary institution or trust
company shall be (a) the corporate trust department of the Indenture Trustee
or, (b) a depositary institution organized under the laws of the United
States of America or any one of the states thereof or the District of
Columbia (or any domestic branch of a foreign bank), (i)(A) which has either
(1) a long-term unsecured debt rating acceptable to the Rating Agencies or
(2) a short-term unsecured debt rating or certificate of deposit rating
acceptable to the Rating Agencies, (B) the parent corporation of which has
either (1) a long-term unsecured debt rating acceptable to the Rating
Agencies or (2) a short-term unsecured debt rating or certificate of deposit
rating acceptable to the Rating Agencies or (C) is otherwise acceptable to
the Rating Agencies and (ii) whose deposits are insured by the Federal
Deposit Insurance Corporation (the "FDIC"; any such depositary institution or
trust company, a "QUALIFIED INSTITUTION"). Funds in the Collection Account
generally will be invested in (i) obligations fully guaranteed by the United
States of America, (ii) demand deposits, time deposits or certificates of
deposit of depositary institutions or trust companies having commercial paper
with the highest rating from each Rating Agency, (iii) commercial paper (or
other short term obligations) having, at the time of the Trust's investment
therein, the highest rating from each Rating Agency, (iv) demand deposits,
time deposits and certificates of deposit which are fully insured by the
FDIC, (v) notes or bankers' acceptances issued by any depositary institution
or trust company described in (ii) above, (vi) money market funds which have
the highest rating from, or have otherwise been approved in writing by, each
Rating Agency, (vii) time deposits with an entity, the commercial paper of
which has the highest
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rating from the Rating Agency, (viii) eligible repurchase agreements, and
(ix) any other investments approved in writing by the Rating Agency
(collectively, "ELIGIBLE INVESTMENTS"). Such funds may be invested in debt
obligations of Newcourt or its affiliates so long as such obligations qualify
as Eligible Investments. Any earnings (net of losses and investment
expenses) on funds in the Collection Account will be held therein and be
treated as Available Amounts. The Servicer will have the revocable power to
instruct the Indenture Trustee to make withdrawals and payments from the
Collection Account for the purpose of carrying out its duties under the Sale
and Servicing Agreement.
REPLACEMENT ACCOUNTS
If any institution with which any of the accounts established pursuant to
the Sale and Servicing Agreement or the Indenture are established ceases to be
a Qualified Institution, the Servicer or the Indenture Trustee (as the case may
be) shall, within ten Business Days, establish a replacement account at a
Qualified Institution after notice thereof.
EVENTS OF DEFAULT
Allocations of Available Amounts will be made as described above under
"--ALLOCATIONS; PRIOR TO AN EVENT OF DEFAULT" unless and until an Event of
Default has occurred and is continuing, 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 Sale and
Servicing Agreement or Transfer and Sale Agreement
within three Business Days after the date the payment
or deposit is required to be made, or (ii) failure on
the part of any Seller, the Trust Depositor, the Trust
or the Owner Trustee to observe or perform any other
covenants or agreements of such entity set forth in the
Transfer and Sale Agreement, Sale and Servicing
Agreement or the Indenture, which failure has a
material adverse effect on the Noteholders and which
continues unremedied for a period of 60 days after
written notice; PROVIDED, that no such 60-day cure
period shall apply in the case of a failure by the
Seller to perform their joint and several agreement to
accept reassignment of Ineligible Contracts, and
FURTHER PROVIDED, that only a five day cure period
shall apply in the case of a failure by any Seller, the
Trustee or the Owner Trustee to observe their
respective covenants not to grant a security interest
in or otherwise intentionally create a lien on the
Contracts;
(d) any representation or warranty made by the Seller, the
Trust Depositor, the Trustee or the Owner Trustee in
the Sale and Servicing Agreement or the Indenture or
any information required to be given by the Seller or
the Trust Depositor to the Indenture Trustee to
identify the Contracts proves to have been incorrect in
any material respect when made and continues to be
incorrect in any material respect for a period of 60
days after written notice and as a result of which the
interests of the Noteholders are materially and
adversely affected; PROVIDED, HOWEVER, that an Event of
Default shall not be deemed to occur thereunder if the
Seller has repurchased the related Contracts through
the Trust Depositor during such period in accordance
with the provisions of the Sale and Servicing Agreement
and the Transfer and Sale Agreement;
(e) the occurrence of an Insolvency Event relating to the
Seller, the Trust Depositor or the Trust;
(f) the Trust becomes an "INVESTMENT COMPANY" within the
meaning of the Investment Company Act of 1940, as
amended; or
(g) a Servicer Default has occurred and is continuing.
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In the case of any event described in clause (a), (b), (c), (d) or (g)
above, an Event of Default with respect to the Notes will be deemed to have
occurred provided such Event of Default may be waived if the Required Holders
provide written notice to the Trust Depositor and the Servicer of such
waiver. In the event the Indenture Trustee has actual knowledge of an Event
of Default, it will be required to notify, among others, the Trust Depositor,
the Seller, the Servicer and the Owner Trustee.
If an Insolvency Event relating to the Trust Depositor occurs, pursuant
to the Sale and Servicing Agreement, on the day of such Insolvency Event, the
Trust Depositor will promptly give notice to the Indenture Trustee of the
Insolvency Event, and the Indenture Trustee will, if directed by the Required
Holders (as defined in the next succeeding paragraph), promptly act to sell,
dispose of or otherwise liquidate the Contracts in a commercially reasonable
manner and on commercially reasonable terms. The proceeds from any such
sale, disposition or liquidation of Contracts will be deposited in the
Collection Account and allocated as described in the Sale and Servicing
Agreement and herein. If the proceeds of any collections on Contracts in the
Collection Account allocated to Noteholders of any Class is not sufficient to
pay the Principal Amount of the Notes of such Class in full, such Noteholders
will incur a loss.
As used herein, "REQUIRED HOLDERS" means (i) prior to the payment in
full of the Class A 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 Sale and Servicing Agreement to be payable by
the Trust, the Noteholders or the Trust Depositor (other than federal, state,
local and foreign income, franchise or other taxes based on income, if any,
or any interest or penalties with respect thereto, imposed upon the Trust).
In the event that Newcourt USA is acting as Servicer and fails to pay the
fees and disbursements of the Indenture Trustee or Owner Trustee (the
"TRUSTEES"), such Trustee will be entitled to receive the portion of the
Servicing Fee that is equal to such unpaid amounts. In no event will the
Noteholders be liable to the Trustees for the Servicer's failure to pay such
amounts, and any such amounts so paid to the Trustees will be treated as paid
to the Servicer for all other purposes of the Sale and Servicing Agreement.
RECORD DATE
Payments on the Notes will be made as described herein to the
Noteholders in whose names the Notes were registered (expected to be Cede, as
nominee of DTC) at the close of business on the Record Date. However, the
final payment on the Notes offered hereby will be made only upon presentation
and surrender of such Notes. All payments with respect to the principal of
and interest on the Notes (each, a "DISTRIBUTION") will be made to DTC in
immediately available funds. See "DESCRIPTION OF THE NOTES--BOOK-ENTRY
REGISTRATION".
OPTIONAL TERMINATION
On any Distribution Date occurring on or after the date on which the
ADCB of the Contract Pool is less than 10% of the initial ADCB of the Contract
Pool as of the Cutoff Date (the "CLEANUP CALL CONDITION"), the Trust Depositor
will have the option to cause the Trust to purchase (without penalty) all, but
not less than all, of the remaining outstanding Notes and
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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
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 Sale and Servicing Agreement or the Notes. While the Notes
are held in book-entry form, holders of beneficial interests in the Notes
will not have access to a list of other holders of beneficial interests in
the Notes, which may impede the ability of such holders of beneficial
interests to communicate with each other. See "--BOOK-ENTRY REGISTRATION"
below.
ADMINISTRATION AGREEMENT
Newcourt USA, in its capacity as administrator (in such capacity, the
"ADMINISTRATOR" ), will enter into an agreement (the "ADMINISTRATION
AGREEMENT") with the Trust, the Trust Depositor and the Indenture Trustee
pursuant to which the Administrator will agree, to the extent provided in the
Administration Agreement, to provide the notices and to perform other
administrative obligations required to be provided or performed by the Trust
or the Owner Trustee under the Indenture. The Administrator in the
Administration Agreement agrees to perform certain accounting functions of
the Trust which the Owner Trustee is required to perform pursuant to the
Trust Agreement, including but not limited to maintaining the books of the
trust, filing tax returns for the trust, and delivering tax related reports
to each Noteholder (except the Owner Trustee shall retain responsibility for
distributing the Schedule K-1s). As compensation for the performance of the
Administrator's obligations under the Administration Agreement and as
reimbursement for its expenses related thereto, the Administrator will be
entitled
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to a monthly administration fee (the "ADMINISTRATION FEE"), which fee will be
paid by the Servicer out of the Servicing Fee, if available.
BOOK-ENTRY REGISTRATION
Noteholders may only hold their Notes through DTC (in the United States)
or CEDEL or Euroclear (in Europe) if they are participants of such systems,
or indirectly through organizations which are participants in such systems.
Cede, as nominee for DTC, will hold the global Class A-1 Note or Notes,
the global Class A-2 Note or Notes, the global Class A-3 Note or Notes, the
global Class A-4 Note or Notes, the global Class B Note or Notes, and the
global Class C Note or Notes. CEDEL and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities
accounts in CEDEL's and Euroclear's names on the books of their respective
Depositaries (as defined herein) which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of
DTC. Citibank will act as depositary for CEDEL and Morgan Guaranty Trust
will act as depositary for Euroclear (in such capacities, the "DEPOSITARIES").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "CLEARING
CORPORATION" within the meaning of the UCC and a "CLEARING AGENCY" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was
created to hold securities for its participating organizations
("PARTICIPANTS") and facilitate the settlement of securities transactions
between Participants through electronic book-entry changes in accounts of its
Participants, thereby eliminating the need for physical movement of notes.
Participants include the 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,
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Class A-2 Noteholders, Class A-3 Noteholders, Class A-4 Noteholders, Class B
Noteholders or Class C Noteholders, respectively, under the Indenture
indirectly through DTC and its Participants who in turn will exercise their
rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit distributions of principal of and interest
on the Notes. Participants and Indirect Participants with which holders of
beneficial interests in the Notes have accounts similarly are required to
make book-entry transfers and receive and transmit such payments on behalf of
these respective holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that
do not participate in the DTC system, or otherwise take actions in respect of
such Notes, may be limited due to the lack of a Definitive Note for such
Notes.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Class A-1 Noteholder, Class A-2 Noteholder, Class A-3 Noteholder,
Class A-4 Noteholder, Class B Noteholder or Class C Noteholder under the
Indenture only at the direction of one or more Participants to whose account
with DTC the Class A-1 Notes, Class A-2 Notes, Class A-3 Notes, Class A-4
Notes, Class B Notes or Class C Notes are credited. Additionally, DTC has
advised the Issuer that it may take actions with respect to percentage
interests in any particular Class of the Notes represented by holders of
beneficial interests evidencing that percentage, which actions may conflict
with other of its actions with respect to other percentage interests therein.
CEDEL is incorporated under the laws of Luxembourg as a professional
depositary. CEDEL holds securities for its participating organizations
("CEDEL PARTICIPANTS") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to CEDEL Participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. CEDEL interfaces with domestic markets
in several countries. As a professional depositary, CEDEL is subject to
regulation by the Luxembourg Monetary Institute. CEDEL Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the Underwriter. Indirect
access to CEDEL is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("EUROCLEAR PARTICIPANTS") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement
of certificates and any risk from lack of simultaneous transfers of
securities and cash. Transactions may now be settled in any of 29
currencies, including United States dollars. Euroclear includes various
other services, including securities lending and borrowing and interfaces
with domestic markets in several countries generally similar to the
arrangements for cross-market transfers with DTC described above. Euroclear
is operated by the Brussels, Belgium office of Morgan Guaranty Trust Company
of New York (the "EUROCLEAR OPERATOR"), under contract with Euroclear
Clearance Systems S.C., a Belgian cooperative corporation (the
"COOPERATIVE"). All operations are conducted by the Euroclear Operator and
all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator, not the Cooperative. The Cooperative
establishes policies for Euroclear on behalf of Euroclear Participants.
Euroclear Participants include banks (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.
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Distributions with respect to Notes held through CEDEL or Euroclear will
be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures,
to the extent received by its Depositary. Such distributions will be subject
to tax reporting in accordance with relevant United States tax laws and
regulations. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." CEDEL or the
Euroclear Operator, as the case may be, will take any other action permitted
to be taken by an Noteholder under the Indenture on behalf of a CEDEL
Participant or Euroclear Participant only in accordance with its relevant
rules and procedures and subject to its Depositary's ability to effect such
actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of
DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any
time.
Except as required by law, none of the Servicer, any Seller, the Owner
Trustee, the Trust Depositor or the Indenture Trustee will have any liability
for any aspect of the records relating to, actions taken or implemented by,
or payments made on account of, beneficial ownership interests in the Notes
held through DTC, or for maintaining, supervising or reviewing any records or
actions relating to such beneficial ownership interests.
DEFINITIVE NOTES
The Notes will be issued in fully registered, authenticated form to
beneficial owners or their nominees (the "DEFINITIVE NOTES"), rather than to
DTC or its nominee, only if (a) the Trust advises the Indenture Trustee in
writing that DTC is no longer willing or able to discharge properly its
responsibilities as Depositary with respect to such Notes, and the Indenture
Trustee or the Issuer is unable to locate a qualified successor or (b) the
Issuer at its option elects to terminate the book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all
beneficial owners for each Class of Notes held through DTC of the
availability of Definitive Notes for such Class. Upon surrender by DTC of
the Definitive Note representing the Notes and instructions for
reregistration, the Indenture Trustee will issue such Definitive Notes, and
thereafter the Indenture Trustee will recognize the holders of such
Definitive Notes as Noteholders under the Indenture (the "HOLDERS"). The
Indenture Trustee will also notify the Holders of any adjustment to the
Record Date with respect to the Notes necessary to enable the Indenture
Trustee to make distributions to Holders of the Definitive Notes for such
Class of record as of each Distribution Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check,
mailed to the address of such Holder as it appears on the Note register.
Upon at least 10 days' notice to Noteholders for such Class, however, the
final payment on any Note (whether the Definitive Notes or the Note for such
Class registered in the name of Cede representing the Notes of such Class)
will be made only upon 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.
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THE CERTIFICATE
On the Closing Date, the Trust will also issue the 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
Certificates will represent fractional undivided beneficial equity interests
in the Trust, and will be issued pursuant to the Trust Agreement.
The Certificate is not being offered and sold hereunder. The Trust
Depositor is expected initially to retain the Certificate, although the
Certificate could be transferred at some later date in a transaction separate
from this offering provided the Owner Trustee and Indenture Trustee receive
an opinion of Independent Counsel that such transfer will not cause the Trust
to become a taxable entity or otherwise adversely affect the Noteholders or
Certificateholder. Distributions with respect to the Certificate will be
subordinated to the rights of the Noteholders and the holders of the
Subordinated Notes to the extent described herein. See "DESCRIPTION OF THE
NOTES--ALLOCATIONS" herein.
THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT
The following is a summary of the material terms of the Transfer and
Sale Agreement and the Sale and Servicing Agreement, the forms of which were
filed as exhibits to the Registration Statement of which this Prospectus is a
part, and this summary is qualified in its entirety by reference to the
Transfer and Sale Agreement and Sale and Servicing Agreement, respectively.
TERMINATION OF TRUST
Unless the Trust Depositor instructs the Owner Trustee otherwise, the
Trust will terminate only on the earliest to occur of (i) final distribution
of all moneys or other property or proceeds of the Trust Estate in accordance
with the terms of the Indenture, the Sale and Servicing Agreement and the
Trust Agreement or (ii) ninety (90) days following the occurrence of an
Insolvency Event as described under "DESCRIPTION OF THE NOTES--EVENTS OF
DEFAULT" unless the Owner Trustee shall have received instructions from the
Required Holders not to terminate or dissolve the Trust, (the "TRUST
TERMINATION DATE"). Upon termination of the Trust, all right, title and
interest in the Trust Assets (other than amounts in accounts maintained by
the Trust for the final payment of principal and interest to Noteholders or
Certificateholders) will be conveyed and transferred to the holder of the
Certificate and any permitted assignee.
CONVEYANCE OF CONTRACTS
The Contracts, and interests in the Equipment and other Applicable
Security, to be sold or contributed to the Trust by the Trust Depositor will
be acquired by the Trust Depositor from the Seller pursuant to the Transfer
and Sale Agreement dated as of [ ], 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 Sale 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 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
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thereto but excluding any Scheduled Payments due prior to the Cutoff Date or
any Excluded Amounts or Excluded Residual Investment, (ii) the related
Equipment and, in the case of any Vendor Loan, Applicable Security, including
all proceeds from any sale or other disposition of such Equipment or
Applicable Security, (iii) any documents delivered to the Trust Depositor or
held by the Servicer on its behalf with respect to each such Contract (the
"CONTRACT FILES"), (iv) all payments made or to be made in the future with
respect to each such Contract and the Vendor thereunder under any Vendor
Agreements with the Seller and under any other guarantee or similar credit
enhancement with respect to such Contracts, (v) all payments made with
respect to each such Contract under any insurance policy covering physical
damage to the related Equipment (the "INSURANCE PROCEEDS") and (vi) all
income and proceeds of the foregoing (the foregoing are referred to
collectively as the "TRANSFERRED ASSETS"). As of the Cutoff Date, the Trust
Depositor will transfer and assign, among other things, the Transferred
Assets to the Trust for the benefit of the Noteholders and the holders of the
Subordinated Securities and the Trust will grant a lien on such Transferred
Assets in favor of the Indenture Trustee, pursuant to the Sale and Servicing
Agreement and the Indenture.
Newcourt USA, as Servicer under the Sale and Servicing Agreement, will
retain custody of (but not title to) the Contracts, the Contract Files and
any related evidence of insurance payments, Scheduled Payments and any other
similar payments under the Contracts; provided that certain Persons
identified in the Transfer and Sale Agreement will retain custody of certain
of the Contracts and Contract Files. Prior to the conveyance of any
Contracts to the Trust Depositor, Newcourt USA caused (in the case of the
Contracts sold under the Transfer and Sale Agreement on the Closing Date) or
will cause (in the case of Additional Contracts or Substitute Contracts
conveyed after the Closing Date) its and/or Newcourt USA's computer
accounting systems to be marked to show that the Contracts transferred
thereunder have been conveyed to the Trust Depositor, and prior to each
transfer of any Trust Assets to the Trust pursuant to the Sale and Servicing
Agreement, Newcourt USA or the Trust Depositor, as appropriate, will file UCC
financing statements reflecting (A) the conveyance of the Transferred Assets
to the Trust Depositor, (B) each sale of Trust Assets to the Trust pursuant
to the Sale and Servicing Agreement and (C) the grant of a lien thereon in
favor of the Indenture Trustee (except that financing statements will be
filed with respect to each conveyance of an interest in Equipment to the
Trust Depositor by Newcourt and each sale of an interest in Equipment to the
Trust by the Trust Depositor, and each transfer of an interest in Equipment
to the Indenture Trustee by the Trust, in each case, only to the extent the
same may be viewed as inventory of Newcourt, the Trust Depositor and the
Trust, respectively). The Seller and the Trust Depositor will notate in the
appropriate computer files relating to the Contracts, that all interests in
the Contracts have been conveyed (i) to the Trust Depositor, (ii) by the
Trust Depositor to the Trust, and (iii) by the Trust to the Indenture
Trustee. See "CERTAIN LEGAL ASPECTS OF THE CONTRACTS".
REPRESENTATIONS AND WARRANTIES
The Seller has made certain representations and warranties in the
Transfer and Sale Agreement with respect to the Contracts transferred
thereunder as of the Cutoff Date (except as 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 as 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)
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a certificate of title or similar evidence or recordation on which the
Seller's interest has been noted has been obtained; (ix) if the Contract
constitutes either an "INSTRUMENT" or "CHATTEL PAPER" for purposes of the
UCC, there is not more than one "SECURED PARTY'S ORIGINAL" counterpart of the
Contract; (x) all filings necessary to evidence the conveyance or transfer of
the Contract to the Trust Depositor have been made in all appropriate
jurisdictions; (xi) the Obligor is not to the Seller's knowledge, subject to
bankruptcy or other insolvency proceedings; (xii) the Contract is a U.S.
dollar-denominated obligation and the related Obligor's billing address is in
the United States; (xiii) the Contract does not require the prior written
consent of an Obligor or contain any other restriction on the transfer or
assignment of the Contract (other than a consent or waiver of such
restriction that has been obtained prior to the date of such Contract's
conveyance to the Trust); (xiv) either (A) the obligations of the related
Obligor under such Contract are irrevocable and unconditional and
non-cancelable (or, if prepayable by its terms, such Contract meets the
criteria described in clause (xxiv) below, or if not irrevocable and
unconditional has the benefit of a Vendor Guarantee) or (B) with respect to
certain Leases with Lessees that are governmental entities or municipalities,
if such Lease is cancelled in accordance with its terms, either (1) the
Vendor which assigned such Lease to the Seller is unconditionally obligated
to repurchase such Lease from the Seller for a purchase price not less than
the Discounted Contract Balance of such Lease (as of the Determination Date
immediately prior to the date of purchase) plus interest thereon at the
Discount Rate through the Distribution Date following such date of repurchase
or (2) pursuant to the Transfer and Sale Agreement, the Seller has
indemnified the Trust Depositor against such cancellation in an amount equal
to the Discounted Contract Balance of such Lease (as of the Determination
Date immediately prior to the date of purchase) plus interest thereon at the
Discount Rate through the Distribution Date following such cancellation less
any amounts paid by the Vendor pursuant to clause (1); (xv) the Contract has
an original maturity of not greater than the term specified in the Sale and
Servicing Agreement; (xvi) no adverse selection procedure was used in
selecting the Contract for transfer; (xvii) the Obligor under the Contract is
required to maintain casualty insurance with respect to the related Equipment
or to self-insure against casualty with respect to the related Equipment in
accordance with the Servicer's normal requirements; (xviii) the Contract
constitutes chattel paper, an account, an instrument or a general intangible
as defined under the UCC; (xix) no Lease is a "CONSUMER LEASE" as defined in
Section 2A-103(1)(e) of the UCC; (xx) to the best of 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 Sale
and Servicing Agreement, (iii) liens in favor of the Trust created pursuant to
the Sale and Servicing Agreement, and (iv) liens in favor of the Indenture
Trustee created pursuant to the Sale and Servicing Agreement and the Indenture;
and (b) with respect to the related Equipment: (i) materialmen's,
warehousemen's, mechanics' and other liens arising by operation of law in the
ordinary course of business for sums not due, (ii) liens for state,
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municipal or other local taxes if such taxes shall not at the time be due and
payable or if the Trust Depositor shall currently be contesting the validity
thereof in good faith by appropriate proceedings and shall have set aside on
its books adequate reserves with respect thereto, (iii) liens in favor of the
Trust Depositor created pursuant to the Transfer and Sale Agreement and
transferred to the Trust pursuant to the Sale and Servicing Agreement, (iv)
liens in favor of the Trust created pursuant to the Sale and Servicing
Agreement; (v) liens in favor of the Indenture Trustee created pursuant to
the Sale and Servicing Agreement and the Indenture, (vi) other subordinated
liens which are subordinated to the prior payment of the Notes and the
Subordinated Notes on terms described in the Sale and Servicing Agreement,
(viii) subordinated interests relating to the Guaranteed Residual Investments
and (ix) liens granted by the End-Users or Vendors which are subordinated to
the interest of the Trust in such Equipment.
In addition to the foregoing, the Seller will represent and warrant in
the Transfer and Sale Agreement with respect to each Secondary Contract
securing a Vendor Loan transferred by the Seller under the Transfer and Sale
Agreement as of the related Cutoff Date (unless otherwise indicated), among
other things, (i) that each such Secondary Contract satisfies the
representations set forth in the second preceding paragraph (other than the
representations set forth in clauses (ii), (viii) (with respect to ownership
by the Seller of the Contract) and (xxiii), and except that the term
"OBLIGOR" shall be deemed to be "END-USER" in all such representations), (ii)
that the Seller holds a duly perfected lien of the first priority on such
Secondary Contract (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 Sale and Servicing
Agreement, among other things, (i) that the transfer, assignment and pledge
of the related Contracts, whether then existing or thereafter created will
provide a first perfected security interest therein and that all filings
necessary to evidence the same to the Trust have been made in all appropriate
jurisdictions (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 Sale and
Servicing Agreement, each Contract must be an Eligible Contract as of its
date of transfer to the Trust. The Indenture Trustee shall reassign to the
Trust Depositor, and the Seller's will be concurrently obligated to purchase
from the Trust Depositor, any Contract transferred by 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 Sale and Servicing Agreement made by the
Trust Depositor with respect to such a Contract.
Pursuant to the Sale and Servicing Agreement, an Ineligible Contract shall
be reassigned to the Trust Depositor and the Trust Depositor shall make a
deposit in the Collection Account in immediately available funds in an amount
equal to the sum of the Discounted Contract Balance of the Ineligible Contract
(utilizing, for purposes of calculating the Discounted Contract Balance, the
Discount Rate at the time such Ineligible Contract was transferred to the Trust)
and any outstanding Servicer Advances thereon. Any amount deposited into the
Collection Account in connection with the reassignment of an
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Ineligible Contract (the amount of such deposit being referred to herein as a
"TRANSFER DEPOSIT AMOUNT") shall be considered payment in full of the
Ineligible Contract. Any such Transfer Deposit Amount shall be treated as an
Available Amount. In the alternative, the Trust Depositor may instead cause
the Seller, or either of them, to convey to the Trust Depositor, for
concurrent conveyance to the Trust and concurrent pledge to the Indenture
Trustee, a Substitute Contract (otherwise satisfying the terms and conditions
generally applicable to Substitute Contracts in other situations described
herein) in replacement for the affected Ineligible Contract, which shall
thereupon be deemed released by the Trust (and Indenture Trustee) and
reconveyed through the Trust Depositor to the Seller thereof.
CONCENTRATION AMOUNTS
In addition to the representations and warranties made by the Seller and
the Trust Depositor with respect to the Contracts as described above under
"--REPRESENTATIONS AND WARRANTIES", the Trust Depositor will represent and
warrant as of the initial Cutoff Date as follows:
(i) the ADCB of all End-User Contracts with Obligors that are
governmental entities or municipalities does not exceed [ ]%
of the ADCB of the Contract Pool;
(ii) the ADCB of all End-User Contracts which finance, lease or
are related to Software will not exceed [ ]% of the ADCB
of the Contract Pool; 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 Sale and Servicing Agreement, an Excess Contract shall
be reassigned to the Trust Depositor and the Trust Depositor shall make a
deposit in the Collection Account in immediately available funds in an amount
(an "EXCESS CONCENTRATION AMOUNT") equal to the sum of the Discounted
Contract Balance of the Excess Contract (together with accrued interest
thereon at the Discount Rate) and any outstanding Servicer Advances thereon.
Any amount deposited into the Collection Account in connection with the
reassignment of an Excess Contract shall be considered payment in full of the
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Ineligible Contract. Any such amount shall be considered a Transfer Deposit
Amount and shall be treated as an Available Amount. In the alternative, the
Trust Depositor may instead cause the Seller, to convey to the Trust
Depositor, for concurrent conveyance to the Trust and concurrent pledge to
the Indenture Trustee, a Substitute Contract (otherwise satisfying the terms
and conditions generally applicable to Substitute Contracts in other
situations described herein) in replacement for the affected Excess Contract,
which shall thereupon be deemed released by the Trust (and Indenture Trustee)
and reconveyed through the Trust Depositor to the Seller thereof.
INDEMNIFICATION
The Sale and Servicing Agreement provides that the Servicer will
indemnify the Trust Depositor, the Trust, the Owner Trustee, and the
Indenture Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained arising out of the Servicer's actions or
omissions with respect to the Trust pursuant to the Sale and Servicing
Agreement except where arising out of Indemnified Party's bad faith, willful
misconduct or gross negligence. Pursuant to the Sale and Servicing
Agreement, the Servicer, irrevocably and unconditionally, (i) submits for
itself and its property in any legal action arising out of the Sale and
Servicing Agreement and the other Operative Documents, to the nonexclusive
general jurisdiction of the courts of the United States of America for the
Southern District of New York, and appellate courts therefrom and (ii) waives
any objection it may have that any action therein was brought in an
inconvenient court. Notwithstanding the foregoing, a court may determine, on
its own motion, that an action brought against the Servicer in any such court
was brought in an inconvenient forum.
Except as provided in the preceding paragraph, the Sale and Servicing
Agreement provides that none of the Trust Depositor, the Servicer or any of
their directors, officers, employees or agents will be under any other
liability to the Trust, the Owner Trustee, the Indenture Trustee, the holders
of Notes or Subordinated Securities or any other person for any action taken,
or for refraining from taking any action, in good faith pursuant to the Sale
and Servicing Agreement. However, none of the Trust Depositor, the Servicer
or any of their directors, officers, employees or agents will be protected
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or gross negligence of any such person in the
performance of their duties or by reason of reckless disregard of their
obligations and duties thereunder.
In addition, the Sale and Servicing Agreement provides that the Servicer
is not under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its servicing responsibilities under the
Sale and Servicing Agreement. The Servicer may, in its sole discretion,
undertake any such legal action which it may deem necessary or desirable for
the benefit of holders of Notes or Subordinated Securities with respect to
the Sale and Servicing Agreement and the rights and duties of the parties
thereto and the interest of Noteholders or holders of the Subordinated
Securities thereunder.
COLLECTION AND OTHER SERVICING PROCEDURES
Pursuant to the Sale and Servicing Agreement, the Servicer is
responsible for servicing, collecting, enforcing and administering the
Contracts in accordance with its customary and usual procedures for servicing
contracts comparable to the Contracts.
The Servicer pursuant to the Sale and Servicing Agreement also may
advance Scheduled Payments with respect to any Contract (a "SERVICER
ADVANCE") which were due in a Collection Period and were not received and
identified to a Contract by the close of business on the Determination Date,
to the extent that the Servicer, in its sole discretion, expects to recover
the Servicer Advance from subsequent payments on or with respect to the
Contract. The Servicer shall be entitled to reimbursement of Servicer
Advances from subsequent payments on or with respect to the Contract,
including collections of any Prepayment Amount, Transfer Deposit Amount or
Recoveries with respect to such Contract, and, if the Servicer determines
that Servicer Advances will not be recovered from the Contracts to which the
Servicer Advances were related, from other Contracts included in the Trust.
CERTAIN OTHER MATTERS REGARDING THE SERVICER
The Servicer may not resign from its obligations and duties under the
Sale and Servicing Agreement, except upon determination that such duties are
no longer permissible under applicable law. No such resignation will become
effective until the Indenture Trustee or a successor to the Servicer has
assumed the Servicer's responsibilities and obligations under the Sale and
Servicing Agreement.
Any person into which, in accordance with the Sale and Servicing
Agreement, Newcourt USA or the Servicer may be merged or consolidated or any
person resulting from any merger or consolidation to which Newcourt USA or
the Servicer
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is a party, or any person succeeding to the business of Newcourt USA or the
Servicer, will be the successor to Newcourt, as the Servicer, under the Sale
and Servicing Agreement.
SERVICER DEFAULT
In the event of any Servicer Default, either the Indenture Trustee or
the Required Holders, by written notice to the Servicer and the Owner Trustee
(and to the Indenture Trustee, if given by the Noteholders) (a "TERMINATION
NOTICE"), may terminate all of the rights and obligations of the Servicer, as
servicer, under the Sale and Servicing Agreement. If the Indenture Trustee
within 60 days of receipt of a Termination Notice is unable to obtain any
bids from eligible Servicers and the Servicer delivers an officer's
certificate to the effect that the Servicer cannot in good faith cure the
Servicer Default which gave rise to the Termination Notice, then the
Indenture Trustee shall offer the Trust Depositor the right at its option to
accept retransfer of the Trust Assets. The purchase price for such a
retransfer shall be equal to the sum of the Aggregate Principal Amount of all
Notes and Certificates on such Distribution Date plus accrued and unpaid
interest thereon at the applicable interest rate (together with, if
applicable, interest on interest amounts that were due and not paid on a
prior date), through the date of such retransfer.
The Indenture Trustee shall, as promptly as possible after giving a
Termination Notice, appoint a successor Servicer (a "SERVICE TRANSFER"), and
if no successor Servicer has been appointed by the Indenture Trustee and has
accepted such appointment by the time the Servicer ceases to act as Servicer,
all rights, authority, power and obligations of the Servicer under the Sale
and Servicing Agreement shall pass to and be vested in the Indenture Trustee.
Prior to any Service Transfer, the Indenture Trustee will seek to obtain
bids from potential Servicers meeting certain eligibility requirements set
forth in the Sale and Servicing Agreement to serve as a successor Servicer
for servicing compensation not in excess of the Servicing Fee. The rights
and interest of the Trust Depositor under the Sale and Servicing Agreement as
holder of the Subordinated Certificate will not be affected by any
Termination Notice or Service Transfer.
A "SERVICER DEFAULT" refers to any of the following events:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give instructions or notice to the Owner
Trustee or the Indenture Trustee to make any payment,
transfer or deposit pursuant to the Sale and Servicing
Agreement on or before the date occurring 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 Sale and
Servicing Agreement which has a material adverse effect on
the Noteholders or holders of the Subordinated Notes or
Certificateholders, which continues unremedied for a period
of 30 days after the first to occur of (i) the date on
which written notice of such failure requiring the same to
be remedied shall have been given to the Servicer by the
Indenture Trustee or to the Servicer and the Indenture
Trustee by the Noteholders or holders of the Subordinated
Notes or Certificateholders or the Indenture Trustee on
behalf of such Noteholders of Notes or holders of the
Subordinated Notes or holders of Certificates aggregating
not less than 25% of the Principal Amount of any Class or
the Certificates adversely affected thereby and (ii) the
date on which a responsible officer of the Servicer becomes
aware thereof and such failure continues to materially
adversely affect such Noteholders or holders of the
Subordinated Notes or Certificateholders for such period; or
(c) any representation, warranty or certification made by the
Servicer in the Sale and Servicing Agreement or in any
certificate delivered pursuant to the Sale and Servicing
Agreement shall prove to have been incorrect when made,
which has a material adverse effect on the Noteholders or
Certificateholders and which continues to be incorrect in
any material respect for a period of 30 days after the first
to occur of (i) the date on which written notice of such
incorrectness requiring the same to be remedied shall have
been given to the Servicer and the Owner Trustee by the
Indenture Trustee, or to the Servicer, the Owner Trustee and
the Indenture Trustee by Noteholders or Certificateholders
or by the Indenture Trustee on behalf of Noteholders of
Notes or holders of Certificates aggregating not less than
25% of the Principal Amount of any Class adversely affected
thereby and (ii) the date on which a responsible of the
Servicer becomes aware thereof, and such incorrectness
continues to materially adversely affect such Holders for
such period; or
(d) an Insolvency Event shall occur with respect to the Servicer.
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Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of five Business Days or
referred to under clause (b) or (c) for a period of 60 days (in addition to
any period provided in (a), (b) or (c)) shall not constitute a Servicer
Default until the expiration of such additional five Business Days or 60
days, respectively, if such delay or failure could not be prevented by the
exercise of reasonable diligence by the Servicer and such delay or failure
was caused by an act of God or other similar occurrences. Upon the
occurrence of any such event the Servicer shall not be relieved from using
its best efforts to perform its obligations in a timely manner in accordance
with the terms of the Sale and Servicing Agreement and the Servicer shall
provide the Owner Trustee, the Indenture Trustee and the Trust Depositor
prompt notice of such failure or delay by it, together with a description of
its efforts to so perform its obligations. The Servicer shall immediately
notify the Indenture Trustee in writing of any Servicer Default.
EVIDENCE AS TO COMPLIANCE
The Sale and Servicing Agreement provides that on or before March 31 of
each calendar year the Servicer will cause a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer or the Trust Depositor) to furnish a report to the effect that such
firm has applied certain procedures agreed upon with the Servicer and
enumerated in the Sale and Servicing Agreement and examined certain documents
and records relating to the servicing of the related Contracts all as
described in the Sale and Servicing Agreement and that, on the basis of such
procedures, nothing came to the attention of such firm that caused them to
believe that such servicing was not conducted in compliance with the Sale and
Servicing Agreement except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in
such statement.
The Sale and Servicing Agreement provides for delivery to the Indenture
Trustee and each Rating Agency on or before March 31 of each calendar year of
a statement signed by an officer of the Servicer to the effect that, to the
best of such officer's knowledge, the Servicer has performed its obligations
in all material respects under the Sale and Servicing Agreement throughout
the preceding year or, if there has been a default in the performance of any
such obligation, specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the
Indenture Trustee may be obtained by a request in writing delivered to the
Indenture Trustee.
AMENDMENTS
The Sale and Servicing Agreement may be amended from time to time by
agreement of the Owner Trustee, the Indenture Trustee and the Trust Depositor
without the consent of the Noteholders or Certificateholders (or the
Indenture Trustee) (i) to cure any ambiguity or (ii) to add any consistent
provisions; provided, that such action shall not as evidenced by an Opinion
of Counsel, adversely affect in any material respect the interests of any
Noteholder or holders of the Subordinated Securities.
The Sale and Servicing Agreement may also be amended from time to time
by the Trust Depositor, the Servicer, the Indenture Trustee and the Owner
Trustee with the consent of the Required Holders for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of the Sale and Servicing Agreement or of modifying in any manner
the rights of Noteholders. No such amendment, however, may
(i) reduce in any manner the amount of, or delay the timing of,
distributions which are required to be made on any Note,
Subordinated Note or Certificate without the consent of each
Noteholder or holder of a Subordinated Security affected
thereby;
(ii) change the definition of (or that of any definition included
within the definition of) or the manner of calculating the
"CLASS A-1 PRINCIPAL PAYMENT AMOUNT", the "CLASS A-2
PRINCIPAL PAYMENT AMOUNT", the "CLASS A-3 PRINCIPAL PAYMENT
AMOUNT", the "CLASS A-4 PRINCIPAL PAYMENT AMOUNT", the
"CLASS B PRINCIPAL PAYMENT AMOUNT", the "CLASS C PRINCIPAL
PAYMENT AMOUNT", the "CLASS D PRINCIPAL PAYMENT AMOUNT", the
"CLASS E PRINCIPAL PAYMENT AMOUNT", the "DISCOUNTED CONTRACT
BALANCE", the "PRINCIPAL AMOUNT", or the "AVAILABLE AMOUNT"
without the consent of each Noteholder and holder of a
Subordinated Security; or
(iii) reduce the aforesaid percentage required to consent to any
such amendment without the consent of each Noteholder or
holder of a Subordinated Security affected thereby; or
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(iv) modify, amend or supplement the provisions of the Sale and
Servicing Agreement relating to the allocation of Available
Amounts (see "DESCRIPTION OF THE NOTES--ALLOCATIONS")
without the consent of each Noteholder and holder of a
Subordinated Security;
(v) make any Note or Certificate payable in money other than Dollars
without the consent of each Noteholder or holder of a Subordinated
Security affected thereby; or
(vi) affect the Owner Trustee's or Indenture Trustee's, as appropriate,
rights or obligations under the Trust Agreement, Sale and Servicing
Agreement or Indenture without the Owner Trustee's or Indenture
Trustee's Consent.
Promptly following the execution of any such amendment (other than an
amendment described in the preceding paragraph), the Owner Trustee will
furnish written notice of the substance of such amendment to each affected
Noteholder and holder of a Subordinated Security.
THE OWNER TRUSTEE
[ ] will be the Owner Trustee under
the Sale and Servicing Agreement. Newcourt USA and its affiliates may from
time to time enter into banking and trustee relationships with the Owner
Trustee and its affiliates. Newcourt USA and its affiliates may hold Notes
in their own names; however, any Notes so held shall not be entitled to
participate in any decisions made or instructions given to the Owner Trustee
by the Noteholders as a group. The Owner Trustee's address is
[ ].
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust Assets may at the time be located, the Owner
Trustee will have the power to appoint a co-trustee or separate trustee of
all or any part of the Trust Assets. To the extent permitted by law, all
rights, powers, duties and obligations conferred or imposed upon the Owner
Trustee will be conferred or imposed upon and exercised or performed by the
Owner Trustee and such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Owner Trustee will be incompetent or unqualified
to perform certain acts, singly upon such separate trustee or co-trustee who
shall exercise and perform such rights, powers, duties and obligations solely
at the direction of the Owner Trustee.
The Owner Trustee may resign at any time, in which event a successor
Owner Trustee will be appointed as provided in the Sale and Servicing
Agreement. The Servicer may also remove the Owner Trustee if such Owner
Trustee ceases to be eligible to continue as such under the Sale and
Servicing Agreement. In such circumstances, a successor Owner Trustee will
be appointed as provided in the Sale and Servicing Agreement. Any
resignation or removal of the Owner Trustee and appointment of a successor
Owner Trustee shall not become effective until acceptance of the appointment
by the successor Owner Trustee.
THE INDENTURE
GENERAL
The Notes will be issued pursuant to an Indenture between the Trust and
the Indenture Trustee. Pursuant to the Sale and Servicing Agreement, the
Indenture Trustee will obtain the benefits of the Sale and Servicing
Agreement for itself and the Noteholders represented thereby.
PAYMENTS OF PRINCIPAL AND INTEREST
Pursuant to the Indenture, each payment received by the Indenture
Trustee as described above under "DESCRIPTION OF THE NOTES--ALLOCATIONS;
PRIOR TO AN EVENT OF DEFAULT" 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;
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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;
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;
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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 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
holders of Subordinated Notes to the Indenture Trustee (to
the extent not previously reimbursed) shall be distributed
to the Noteholders and 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 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
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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 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;
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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 amount of each Class D
Note bears to the aggregate unpaid principal amount of all
Class D Notes; and
FIFTEENTH, 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 and is continuing, then and in
every such case the unpaid principal of the Notes, together with interest
accrued but unpaid thereon, and all other amounts due to the Noteholders
under the Indenture, shall immediately and without further act become due and
payable.
If any other Event of Default shall have occurred and be continuing,
then and in every such case, the Notes shall be accelerated with accrued but
unpaid interest thereon; PROVIDED, HOWEVER, such Event of Default may be
waived if the Required Holders may provide the Trustee and the Trust
Depositor written notice of such waiver.
THE INDENTURE TRUSTEE
The Indenture Trustee with respect to the Notes is [ ].
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 Sale and Servicing Agreement,
the authentication and registration of transfer of Notes under the Indenture,
and the delivery of certain information received from the Trust Depositor.
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For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust Assets may at the time be located, the Indenture
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust Assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Indenture Trustee
will be conferred or imposed upon and exercised or performed by the Indenture
Trustee and such separate trustee or co-trustee jointly, or, in any jurisdiction
in which the Indenture Trustee will be incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall exercise
and perform such rights, powers, duties and obligations solely at the direction
of the Indenture Trustee.
The Indenture Trustee may resign at any time, in which event a successor
Indenture Trustee which meets the requirements of Section 310(a) of the Trust
Indenture Act of 1939, as amended (the "TIA"), will be appointed by the
Servicer. The Servicer may also remove the Indenture Trustee if the Indenture
Trustee ceases to be eligible to continue as such under the Indenture. In such
circumstances, a successor Indenture Trustee which meets the requirements of
Section 310(a) of the TIA will be appointed by the Servicer. Any resignation or
removal of the Indenture Trustee and appointment of a successor Indenture
Trustee does not become effective until acceptance of the appointment by the
successor Indenture Trustee.
GOVERNING LAW
The Indenture will be governed by the laws of the State of New York.
AMENDMENTS
At any time and from time to time, (i) the Owner Trustee, the Trust
Depositor, and the Indenture Trustee, with the written consent of the Required
Holders) represented thereby, may execute a supplement to the Indenture for the
purpose of adding provisions to, or changing or eliminating provisions of, the
Indenture (including any appendix or schedule hereto) and (ii) the Indenture
Trustee, with the written consent of a Majority in Interest of the Noteholders
represented thereby, may consent to or execute a written amendment of or
supplement to, or waiver or consent under, the Sale and Servicing Agreement;
PROVIDED, HOWEVER, that, without the consent of each Noteholder under the
Indenture, no such amendment, supplement, waiver or consent shall
(i) reduce the amount or extend the time of payment
of any amount owing or payable under any Note or
Subordinated Note or (except as provided in the Indenture)
increase or reduce the interest payable on any Note or
Subordinated Note (except that only the consent of the
affected holder of a Note or Subordinated Note (as
applicable) shall be required for any decrease in an amount
of or the rate of interest payable on such Note or any
extension for the time of payment of any amount payable
under such Note or Subordinated Note), or alter or modify
the provisions of the Sale and Servicing Agreement with
respect to the order of priorities in which distributions
thereunder shall be made or with respect to the amount or
time of payment of any such distribution,
(ii) reduce, modify or amend any indemnities in
favor of any Noteholder or in favor of or to be paid by the
Trust Depositor, or alter the definition of "INDEMNITEES" to
exclude any Noteholder (except as consented to by each
Person adversely affected thereby),
(iii) make any Note payable in money other than U.S.
dollars,
(iv) modify, amend or supplement the provisions of
the Sale and Servicing Agreement relating to amendments,
waivers and supplements to the Indenture, the Sale and
Servicing Agreement or any other document, or
(v) modify the definition of "MAJORITY IN INTEREST"
(as defined in the Indenture) or the percentage of
Noteholders required to effect any modification of the
Indenture.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
TRANSFER OF CONTRACTS. As of the Cutoff Date, Newcourt USA, as Seller,
will sell the Contracts to the Trust Depositor, which Contracts will be
immediately conveyed to the Trust pursuant to the Sale and Servicing Agreement.
Under commercial law, the transfer of the Contracts to the Trust is either a
sale of the Contracts to the Trust or a grant of a security interest in such
property to the Trust. The Trust Depositor has taken and will take all actions
that are required under applicable law to perfect the Trust's interest in the
Contracts in the event the transfer by the Trust Depositor to the Trust is
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deemed to be a loan for commercial law purposes, and it is the intent of the
Trust Depositor that the Trust will at all times have a first priority perfected
security interest in the Contracts and in the proceeds thereof, with certain
exceptions. The Trust Depositor will represent and warrant to the Trust that,
in the event the sale of such Contracts by the Trust Depositor to the Trust is
deemed to create a security interest under the UCC, there will exist a valid,
subsisting and enforceable first priority perfected security interest in the
Contracts, in existence at the time of the formation of the Trust with respect
to Contracts conveyed on the Closing Date or at the date of conveyance of any
Additional Contracts or Substitute Contracts, in favor of the Trust. For a
discussion of the Trust's rights arising from these representations and
warranties not being satisfied, see "THE TRANSFER AND SALE AGREEMENT AND THE
SALE AND SERVICING AGREEMENT GENERALLY--REPRESENTATIONS AND WARRANTIES".
Financing statements covering the Contracts will be filed under the UCC by
the Trust Depositor, the Trust and the Indenture Trustee to perfect their
respective interests in the Contracts and continuation statements will be filed
as required to continue the perfection of such interests. In addition, the
Seller will indicate in the appropriate computer files relating to the
Contracts, that such Contracts have been transferred by the Seller to the Trust
Depositor, by the Trust Depositor to the Trust and by the Trust to the Indenture
Trustee, and the Seller will notate in the appropriate computer records that
such Contracts have been transferred to the Trust and assigned to the Indenture
Trustee, and deliver to the Indenture Trustee a computer file or microfiche or
written list containing a true and complete list of all Contracts then being
transferred to the Trust and all Secondary Contracts in which a security
interest is then being transferred to the Trust, identified by account number
and by the Discounted Contract Balance as of the related Cutoff Date. To
facilitate servicing and reduce administrative costs, however, the Contract
Files (as defined herein) will be retained in the possession of the Servicer and
not deposited with the Indenture Trustee or any other agent or custodian for the
benefit of the Noteholders. Because the Contract Files will remain in the
Servicer's possession, if a subsequent purchaser were able to take physical
possession of the Contract Files without knowledge of such assignment, the
Indenture Trustee's priority interest in the Contracts (as assignee of the
Seller's, Trust Depositor's and the Trust's interest) could be defeated. In
such event, distributions to Noteholders could be adversely affected. The
notation in the computer records, however, mitigates this risk.
Similarly, with respect to Secondary Contracts securing Vendor Loans, in
some instances the Vendor will retain the original contract files associated
with the related End-User Contracts which are Secondary Contracts securing such
Vendor Loan. Although UCC financing statements are filed reflecting the pledge
of such Contracts to the Seller as security for the Vendor Loans, because these
contract files will remain in the Vendor's possession, if a subsequent purchaser
were able to take physical possession of such contract files without knowledge
of the pledge to the Seller, the Indenture Trustee's priority security interest
(as assignee of the Seller's, Trust Depositor's and the Trust's interest) in the
such Secondary Contracts, as security for the related Vendor Loan, could be
defeated. In such event, distributions to Noteholders could be adversely
affected. Each Vendor represents, warrants and covenants in the applicable
agreement evidencing a Vendor Loan, however, that it has not and will not sell
or otherwise convey, unless subordinated to the Trust, or otherwise pledge,
assign or convey to any other party (other than the Seller) any interest in the
Secondary Contracts securing such Vendor Loan, and agrees that it will maintain
possession of the related contract files as custodian for the benefit of the
Seller as secured party with respect to such Secondary Contracts.
There are also certain limited circumstances under applicable federal or
state law in which prior transferees of Contracts or Secondary Contracts could
have an interest in such contracts with priority over the Indenture Trustee's
interest. A tax or other government lien on property of the Seller or the Trust
Depositor arising prior to the time a Contract or interest in a Secondary
Contract is conveyed to the Trust may also have priority over the interest of
the Trust and the Indenture Trustee in such contract. Under the Transfer and
Sale Agreement, the Seller will warrant to the Trust Depositor, and, under the
Sale and Servicing Agreement, the Trust Depositor will warrant to the Indenture
Trustee, that the Contracts have been transferred free and clear of the lien of
any third party other than Permitted Liens (other than the Subordinated Residual
Interest, if any, assigned to any Residual Assignee) and that the interests in
Secondary Contracts transferred thereunder have been transferred free and clear
of the lien of any third party other than Permitted Liens. The 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
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and that no filing in the Copyright Office is required in connection with
such assignment. The Seller believes that the receivables arising from
Contracts that are Software licenses or purport to be secured by Software
licenses constitute property separate from those Software licenses and that
no filing at the U.S. Copyright office is required in order to perfect any
transfers of those receivables that have occurred prior to, or will occur on,
the Closing Date, and no filings have been, or will be, made at the U.S.
Copyright office in connection with those transfers. While the Seller
believes, and will represent, that the Trust will have a perfected ownership
or security interest in those Receivables (and appropriate UCC filings will
be made relating to those Receivables), no assurance can be given that a
court would concur with that conclusion in light of the split in legal
authorities referred to above. The Seller will not make any representation or
warranty as to its interest in any Software underlying any Contract or any
Software license securing or purporting to secure any Contract.
TRANSFERS OF INTERESTS IN FINANCED EQUIPMENT. In connection with the
conveyance of the Contracts to the Trust, security interests in the related
financed Equipment securing such Contracts (or, in connection with Leases,
the Seller's ownership interest in or title to such Equipment) will be
assigned by the Seller to the Trust Depositor and by the Trust Depositor to
the Trust and by the Trust or the Indenture Trustee. It has been the general
policy of the Seller to file or cause to be filed UCC financing statements
with respect to the Equipment relating to the Contracts. Due to the
administrative burden and expense associated with amending many filings in
numerous states where Equipment is located, no assignments of the UCC
financing statements evidencing the security interest of the Seller in the
Equipment will be filed to reflect the Trust Depositor's, the Trust's or the
Indenture Trustee's interests therein. While failure to file such assignments
does not affect the Trust's interest in the Contracts or perfection of the
Indenture Trustee's interest in such Contracts (including the related
Seller's security interest in the related Equipment), it does expose the
Trust (and thus Noteholders) to the risk that the Servicer could
inadvertently release its security interest in the Equipment of record, and
it could complicate the Trust's enforcement, as assignee, of the Seller's
security interest in the Equipment. While these risks should not affect the
perfection or priority of the interest of the Indenture Trustee in the
Contracts or rights to payment thereunder, they may adversely affect the
right of the Indenture Trustee to receive proceeds of a disposition of the
Equipment related to a Defaulted Contract. Additionally, statutory liens for
repairs or unpaid taxes and other liens arising by operation of law may have
priority even over prior perfected security interests in the Equipment
assigned to the Indenture Trustee.
In addition, some of the Equipment related to the Contracts may
constitute "FIXTURES" under the real estate or UCC provisions of the
jurisdiction in which such Equipment is located. In order to perfect a
security interest in such Equipment, the holder of the security interest must
file either a "FIXTURE FILING" under the provisions of the UCC or a real
estate mortgage under the real estate laws of the state where the Equipment
is located. These filings must be made in the real estate records office of
the county in which such Equipment is located. So long as the Obligor does
not 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. Also, the Seller will represent that as of the Cutoff Date, in
the Seller's reasonable judgment, the Discounted Contract Balance of End-User
Contracts in the Contract Pool that are secured by fixtures, does not exceed
[ ]% of the ADCB of the Contract Pool.
The Trust Depositor will be obligated to reacquire any Contract
transferred to the Trust (subject to the Seller's reacquisition thereof) in
the event it is determined that a first priority perfected security interest,
or ownership interest in the case of Leases, in the name of the Seller in the
Equipment related to such Contract did not exist as of the date such Contract
was conveyed to the Trust (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
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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, or its
ownership interest in the Vehicles subject to Leases, and the transfer of
such interests by the Trust Depositor to the Trust and by the Trust to the
Indenture Trustee, is subject to state vehicle registration laws. Due to the
significant administrative burden and expense associated with reregistering
transfers of titles and of security interests with respect to the Vehicles,
the certificates of title with respect to the Vehicles securing Contracts,
and to the Vehicles subject to Leases, will not identify the Trust or the
Indenture Trustee as secured party or owner, as the case may be, of such
Equipment. There exists a risk in not so identifying the Trust or the
Indenture Trustee as the new secured party or owner that, through fraud or
negligence, a third party could acquire an interest in the Vehicles superior
to that of the Trust or the Indenture Trustee. In addition, statutory liens
for repairs or unpaid taxes may have priority even over a perfected security
interest in the Vehicles. The Seller will represent that as of the Cutoff
Date, in the Seller's reasonable judgment, the Discounted Contract Balance of
End-User Contracts in the Contract Pool that are secured by the Vehicles,
does not exceed [ ]% of the ADCB of the Contract Pool. Also, the
Seller will execute a power of attorney to the Indenture Trustee authorizing
the Indenture Trustee to designate the Indenture Trustee as the first and
sole lien holder on the certificate of title with respect to the Vehicles
after an Event of Default.
With respect to motor Vehicles, in the event that the owner of a
Vehicle moves to a state other than the state in which such Vehicle is
registered, under the laws of most states the perfected security interest in
the Vehicle would continue for four months after such relocation and
thereafter until the owner titles the Vehicle in such state. A majority of
states generally require surrender of a certificate of title to re-register a
Vehicle. Accordingly, Newcourt USA as Servicer must surrender possession if
it holds the certificates of title to such Vehicle or, in the case of
Vehicles originally registered in a state which provides for notation of lien
but does not require possession of the certificate of title by the holder of
the security interest in the related motor vehicle, Newcourt USA as Servicer
would receive notice of surrender if the security interest in the Vehicle is
noted on the certificate of title. Accordingly, the Servicer would have the
opportunity to re-perfect its security interest in the Vehicle in the state
of relocation. In states which do not require a certificate of title for
registration of a motor vehicle, re-registration could defeat perfection. In
the ordinary course of servicing its portfolio of motor vehicle financing
agreements, Newcourt USA takes steps to effect such reperfection upon receipt
of notice of re-registration of information from the Obligor as to
relocation. Similarly, when an Obligor sells a Vehicle, Newcourt USA must
surrender possession of the certificates of title or will receive notice as a
result of its lien noted thereon and accordingly will have an opportunity to
require satisfaction of the related Contract before release of the lien.
Under the Sale and Servicing Agreement, the Servicer is obligated to take
such steps, at the Servicer's expense, as are necessary to maintain
perfection of security interests in the Vehicles.
Under the laws of many states, certain possessory liens for repairs
performed on a motor vehicle and storage, as well as certain rights in favor
of federal and state governmental authorities arising from the use of a motor
vehicle in connection with illegal activities, may take priority even over a
perfected security interest. Certain federal tax liens may have priority
over the lien of a secured party. In the Transfer and Sale Agreement, the
Seller will represent, and the Trust Depositor will represent in the Sale and
Servicing Agreement, that they have no knowledge of any such liens with
respect to any Vehicle. However, such liens could arise at any time during
the term of a Contract. No notice will be given to the Indenture Trustee in
the event such a lien arises.
The Servicer on behalf of the Trust may take action to enforce the
Trust's security interest by repossession and resale of the Vehicles securing
the related Contracts. The actual repossession may be contracted out to third
party contractors.
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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 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.
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The Trust Depositor will warrant in the Sale and Servicing Agreement
that the security interest therein granted by the Trust in favor of the
Indenture Trustee is a valid and duly perfected security interest (except
with respect to the Minimum Value Filing Exception), 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" thereunder, will be subject to rejection
by such Seller, as debtor in possession, or by such Seller's bankruptcy
trustee. Upon any such rejection, Scheduled Payments under such rejected
End-User Contract may terminate and the Noteholders may be subject to losses
if the remaining unaffected Contracts and security interests in the related
Equipment are insufficient to cover the losses. In addition, any End-User
Contract which is a "TRUE LEASE" originated by a Vendor and transferred to a
Seller in a transaction whereby such Vendor continues to be the "LESSOR"
thereunder (such as a transfer by a Vendor to the Seller of a security
interest in such End-User Contract or a transfer by a Vendor to the Seller of
an interest in the right to payments only under any such End-User Contract),
will be subject to rejection by such Vendor, as debtor in possession, or by
such Vendor's bankruptcy trustee. Upon any such rejection, Scheduled
Payments under such rejected End-User Contract may terminate and the
Noteholders may be subject to losses if the remaining unaffected Contracts,
and security interests in the Equipment related thereto, are insufficient to
cover the losses.
Certain restrictions have been imposed on the Trust Depositor and the
Trust and certain other parties to the transactions described herein which
are intended to reduce the risk of an insolvency proceeding involving the
Trust Depositor or the Trust. These restrictions include incorporating the
Trust Depositor as a separate, special purpose company pursuant to a
certificate of incorporation containing certain restrictions on the nature of
its business. Additionally, the Trust Depositor may commence a voluntary case
or proceeding under any bankruptcy or insolvency law, or cause the Trust to
commence a voluntary case or proceeding under any bankruptcy or insolvency
law, only upon the affirmative vote of all its directors, including its
independent directors, as long as the Trust Depositor is solvent and does not
reasonably foresee becoming insolvent. The Trust Depositor's certificate of
incorporation requires that the Trust Depositor have at all times at least
two independent directors. However, no assurance can be given that insolvency
proceedings involving either the Trust Depositor or the Trust will not occur.
In the event the Trust Depositor becomes subject to insolvency proceedings,
the Trust, the Trust's interest in the Trust Assets, and the Trust's
obligation to make payments on the Notes might also become subject to such
insolvency proceedings. In the event of insolvency proceedings involving the
Trust, the Trust's interest in the Trust Assets and the Trust's obligation to
make payments on the Notes would become subject to such insolvency
proceedings. No assurance can be given that insolvency proceedings involving
Newcourt USA would not lead to insolvency proceedings of either, or both, of
the Trust Depositor or the Trust. In either such event, or if an attempt
were made to litigate any of the foregoing issues, delays of distributions on
the Notes, possible reductions in the amount of payment of principal of and
interest on the Notes and limitations (including a stay) on the exercise of
remedies under the Indenture and the Sale and Servicing Agreement could
occur, although the Noteholders would continue to have the benefit of the
Indenture Trustee's security interest in the Trust Assets under the Sale and
Servicing Agreement.
The right of the Indenture Trustee, as secured party under the Sale and
Servicing Agreement for the benefit of the Noteholders, to foreclose upon and
sell the Trust Assets is likely to be significantly impaired by applicable
bankruptcy laws, including the automatic stay pursuant to Section 362 of the
Bankruptcy Code, if a bankruptcy proceeding were to be commenced by or
against the Trust, and possibly the Trust Depositor, before or possibly even
after the Indenture Trustee
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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, should the court
rule in favor of such creditor, representative or Vendor, reductions in the
amount of such payments could result. If the transfer of End-User Contracts
to the Seller as described in clause (ii) above is recharacterized as a
pledge, a tax or government lien on the property of the pledging Vendor
arising before the Contracts came into existence may have priority over the
Seller's (and hence the Trust Depositor's, the Trust's and the Indenture
Trustee's) interest in the Contracts. No law firm will, in connection with
the offering of the Notes, express any opinion as to the issues discussed in
this paragraph.
If an Insolvency Event with respect to the Trust Depositor were to
occur, then an Event of Default would occur with respect to the Notes and,
pursuant to the terms of the Sale and Servicing Agreement, and assuming the
Trust Assets were not then subject to being involved in a bankruptcy case,
the Indenture Trustee would sell the Contracts, thereby causing early
termination of the Trust and would use the proceeds of such sale to pay the
outstanding principal of and accrued interest on the Notes to the extent and
in the order of priority described under "DESCRIPTION OF THE
NOTES--ALLOCATIONS; FOLLOWING AN EVENT OF DEFAULT". 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
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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 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
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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 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 Sale 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.
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<PAGE>
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 but not more than 18 months
is subject to federal income tax at a maximum rate of 28% and capital gain
recognized on the disposition of a Note held for more than 18 months 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 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
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Person's name and address. If the information provided in this
statement changes, the Foreign Person must provide a new Form W-8
within 30 days. The Form W-8 is generally effective for three
years. If such interest were not portfolio interest, then it
would be subject to United States federal income and withholding
tax at a rate of 30 percent unless reduced or eliminated pursuant
to an applicable income tax treaty. To qualify for any reduction
as the result of an income tax treaty, the Foreign Person must
provide the paying agent with Form 1001. This form is also
effective for three years.
(b) Any capital gain realized on the sale or other taxable
disposition of a Note by a Foreign Person will be exempt
from United States federal income and withholding tax,
PROVIDED that (i) the gain is not effectively connected with
the conduct of a trade or business in the United States by
the Foreign Person, and (ii) in the case of an individual
Foreign Person, the Foreign Person is not present in the
United States for 183 days or more in the taxable year. If
an individual Foreign Person is present in the U.S. for 183
days or more during the taxable year, the gain on the
disposition of the Notes could be subject to a 30%
withholding tax unless reduced by treaty.
(c) If the interest, gain or income on a Note held by a Foreign
Person is effectively connected with the conduct of a trade
or business in the United States by the Foreign Person, the
holder (although exempt from the withholding tax previously
discussed if an appropriate statement (Form 4224) is
furnished to the paying agent) generally will be subject to
United States federal income tax on the interest, gain or
income at regular federal income tax rates. Form 4224 is
effective for only one calendar year. In addition, if the
Foreign Person is a foreign corporation, it may be subject
to a branch profits tax equal to 30 percent of its
"EFFECTIVELY CONNECTED EARNINGS AND PROFITS" within the
meaning of the Code for the taxable year, as adjusted for
certain items, unless it qualifies for a lower rate under an
applicable tax treaty.
CERTAIN STATE 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
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Trustee or the Owner Trustee or certain affiliates thereof may be considered
or may become parties in interest or disqualified persons with respect to a
Plan. If so, the acquisition or holding of the Notes by, on behalf of or
with "PLAN ASSETS" of such Plan may be considered to give rise to a
"PROHIBITED TRANSACTION" within the meaning of ERISA and/or Section 4975 of
the Code, unless an administrative exemption described below or some other
exemption is available.
The Notes may not be purchased with the assets of a Plan if the Trust
Depositor, the Underwriter, the Servicer, the Indenture Trustee, or the Owner
Trustee or an affiliate thereof either (a) has discretionary authority or
control with respect to the investment or management of such assets or (b) has
authority or responsibility to give, or regularly gives, investment advice
with respect to such assets pursuant to an agreement or understanding that
such advice will serve as a primary basis for investment decisions with
respect to such assets and that such advice will be based on the particular
needs of the Plan or (c) is an employer of employees covered under the Plan
unless such investment is made through an insurance company general or pooled
separate account or a bank collective investment fund and an exemption is
available.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the Notes -
for example, Prohibited Transaction Class Exemption ("PTCE") 96-23, which
exempts certain transactions effected on behalf of a Plan by an "IN-HOUSE
ASSET MANAGER;" PTCE 95-60, which exempts certain transactions between
insurance company general accounts and parties in interest; PTCE 91-38, which
exempts certain transactions between bank collective investment funds and
parties in interest; PTCE 90-1, which exempts certain transactions between
insurance company pooled separate accounts and parties in interest; or
PTCE 84-14, which exempts certain transactions effected on behalf of a Plan
by a "QUALIFIED PROFESSIONAL ASSET MANAGER." There can be no assurance that
any of these exemptions will apply with respect to any Plan's investment in
the Notes or, even if an exemption were deemed to apply, that any exemption
would apply to all prohibited transactions that may occur in connection with
such investment.
Due to the complexity of these rules and the penalties imposed, any
fiduciary or other Plan investor who proposes to invest assets of a Plan in
the Notes should consult with its counsel with respect to the potential
consequences under ERISA and Section 4975 of the Code of doing so.
PLAN OF DISTRIBUTION
GENERAL
Subject to the terms and conditions set forth in an underwriting
agreement dated [ ], 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:
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<TABLE>
<CAPTION>
<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.
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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 and
Moody's Investors Service, respectively.
Such rating will reflect only the views of the Rating Agency and will be
based primarily on the subordination of the Class A-2 Notes, Class A-3 Notes,
Class A-4 Notes, Class B Notes, Class C Notes and the Subordinated Securities
(in the case of the Class A-1 Notes), the subordination of the Class A-3
Notes, Class A-4 Notes, Class B Notes, Class C Notes and the Subordinated
Securities (in the case of the Class A-2 Notes), the subordination of the
Class A-4 Notes, Class B Notes, Class C Notes and the Subordinated Securities
(in the case of the Class A-3 Notes), the subordination of the Class B Notes,
Class C Notes and the Subordinated Securities (in the case of the Class A-4
Notes), the subordination of the Class C Notes and the Subordinated
Securities (in the case of the Class B Notes) and the subordination of the
Subordinated Securities (in the case of the Class C Notes), as well as the
value and creditworthiness of the Contracts and Equipment. The ratings are
not a recommendation to purchase, hold or sell the Notes, inasmuch as such
ratings do not comment as to market price or suitability for a particular
investor. Each rating may be subject to revision or withdrawal at any time
by the assigning Rating Agency. There is no assurance that any such rating
will continue for any period of time or that it will not be lowered or
withdrawn entirely by the Rating Agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse effect
on the market price of the Notes. The rating of the Notes addresses the
likelihood of the timely payment of interest and the ultimate payment of
principal on the Notes pursuant to their terms. The rating does not address
the rate of Prepayments that may be experienced on the Contracts and,
therefore, does not address the effect of the rate of Prepayments on the
return of principal to the Noteholders.
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.
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INDEX OF TERMS
<TABLE>
<CAPTION>
Term(s) Page(s)
<S> <C>
ADCB. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 56
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 55
Additional Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 47
Additional Contract Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Additional Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Adjusted Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Administration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Aggregate Discounted Contract Balance. . . . . . . . . . . . . . . . . . . . . 17, 56
Aggregate Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Applicable Class Percentage. . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Article 2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 90
Available Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Available Amounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Bankruptcy Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 88
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Calculation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Cedel Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-1 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 6
Class A-1 Notes Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Class A-1 Principal Payment Amount. . . . . . . . . . . . . . . . . . . . . . . . 78
Class A-1 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . 57
Class A-2 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-2 Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Class A-2 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-2 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Class A-2 Notes Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Class A-2 Principal Payment Amount. . . . . . . . . . . . . . . . . . . . . . . . 78
Class A-2 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . 57
Class A-3 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-3 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-3 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Class A-3 Notes Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Class A-3 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . 57, 78
Class A-4 Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-4 Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class A-4 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Class A-4 Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . 57, 78
Class B Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class B Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Class B Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13, 81
Class B Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Class B Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Class B Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . 57, 78
Class B Target Principal Amount. . . . . . . . . . . . . . . . . . . . . . . . . . 58
Class C Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class C Noteholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Class C Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class C Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
100
<PAGE>
Class C Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Class C Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . 57, 78
Class D Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class D Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 71
Class D Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Class D Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . 58, 78
Class E Interest Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Class E Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 71
Class E Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Class E Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . 58
Cleanup Call Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17, 67
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Code Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 65
Collection Period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Conditional Payment Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Contract Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Contracts Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Cooperative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
CPR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
CSA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Defaulted Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Definitive Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Depositaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Determination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 73
Discounted Contract Balance. . . . . . . . . . . . . . . . . . . . . . . . 17, 59, 78
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Distribution Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 6
DTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Early Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Early Termination Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Eligible Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73, 74
Eligible Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Eligible Secondary Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Eligible Secondary Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
End-User . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 74
End-User Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 43
ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ERISA Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Euroclear. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Euroclear Operator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Euroclear Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Excess Concentration Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Excess Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Excluded Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Excluded Residual Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Financed Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 43
101
<PAGE>
Financing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
First Union. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Foreign Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Guaranteed Residual Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Indemnitees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Indenture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
Indenture Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Indirect Participants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Ineligible Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
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
Insolvency Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Insolvency Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
investment company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
IPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5
Late Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8, 61
Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
lessor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Majority in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Maturity Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Minimum Value Filing Exception . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MLA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
MLA Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Monthly Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Newcourt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5
Newcourt Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Newcourt USA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Note Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Noteholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 6
NRC II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Obligor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 74
Operative Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Optional Prepayment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Owner Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5
Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Prepaid Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Prepayment Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Principal Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59, 78
Program Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Program Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PTCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Qualified Institution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Rating Agencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 6
102
<PAGE>
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Required Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Reserve Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reserve Fund Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Residual Assignee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Residual Investment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
S&P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Sale and Servicing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Scheduled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 59
Secondary Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Secured Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8, 43
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Service Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 5
Servicer Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 76
Servicer Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 12, 43
Servicing Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Servicing Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 66
Servicing Fee Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Servicing Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 12, 43
Statistical Discount Rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Subject Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Subordinated Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 71
Subordinated Residual Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Subordinated Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Substitute Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 47
Substitute Contract Cutoff Date. . . . . . . . . . . . . . . . . . . . . . . . . . .5
Tax Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Termination Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Terms and Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Third-Party Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
TIA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
Title Registry Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Total Principal Payment Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Transfer and Sale Agreement. . . . . . . . . . . . . . . . . . . . . . . . .2, 29, 71
Transfer Deposit Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Transferred Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Transferred Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Transferred Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
True Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5
Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 7
Trust Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Trust Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 5
Trust Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
UCC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Underwriter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
UNL Pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Vendor Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Vendor Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
103
<PAGE>
Vendor Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2, 44
Vendors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 44
VFCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Warranty Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 75
</TABLE>
104
<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 . . . . . . . . . . . 20
USE OF PROCEEDS . . . . . . . . . . 28
THE TRUST . . . . . . . . . . . . . 29
THE CONTRACT POOL . . . . . . . . . 29
THE CONTRACTS GENERALLY . . . . . 41
PREPAYMENT AND YIELD CONSIDERATIONS 47
NEWCOURT CREDIT GROUP INC.
FIRST UNION CAPITAL MARKETS
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 . . . . . . . . . . . . . 76
CERTAIN LEGAL ASPECTS OF THE
CONTRACTS . . . . . . . . . . . . 84
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES . . . . . . . . . . 91
ERISA CONSIDERATIONS . . . . . . . 93
PLAN OF DISTRIBUTION . . . . . . . 94
RATING OF THE NOTES . . . . . . . . 96
LEGAL MATTERS . . . . . . . . . . . 96
</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
NEWCOURT RECEIVABLES ASSET
TRUST 1998-1
NEWCOURT RECEIVABLES
CORPORATION II
-----------
----------------
----------------------
PROSPECTUS
----------------------
[ ]
FIRST UNION CAPITAL MARKETS
[ ], 1998
<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
Exhibits
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of Trust Agreement (including form of Certificates)
4.2* Form of Indenture (including form of Notes)
5.1* Opinion of Winston & Strawn with respect to legality
8.1* Opinion of Winston & Strawn with respect to tax matters
10.1* Form of Sale and Servicing Agreement
10.2* Form of Administration Agreement
10.3* Form of Transfer and Sale Agreement
23.1* Consent of Winston & Strawn (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
25.1* Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Indenture Trustee
- -------------------------------------
* To be filed by amendment at a later date.
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 this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
State of Illinois, on June 30, 1998.
NEWCOURT RECEIVABLES CORPORATION II,
as Trust Depositor for
NEWCOURT RECEIVABLES ASSET TRUST 1998-1
By: /s/ Bradley D. Nullmeyer
----------------------------------------
Name: Bradley D. Nullmeyer
--------------------------------------
Title: Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Glen J. DuMont and Glenn Votek and
each of them his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any Registration
Statement for the same offering covered by this Registration Statement that
is to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to
file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bradley D. Nullmeyer Chief Executive Officer and Director (Principal June 30, 1998
- ---------------------------- Executive Officer)
Bradley D. Nullmeyer
/s/ Michel Beland Chief Financial Officer (Principal Financial and June 30, 1998
- ---------------------------- Accounting Officer)
Michel Beland
/s/ Daniel A. Jauernig Director June 30, 1998
- ----------------------------
Daniel A. Jauernig
/s/ Robert J. Hicks Director June 30, 1998
- ----------------------------
Robert J. Hicks
/s/ Peter H. Sorensen Director June 30, 1998
- ----------------------------
Peter H. Sorensen
</TABLE>
<PAGE>
Registration No. [ ]
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
1.1* Form of Underwriting Agreement
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of Trust Agreement (including form of Certificates)
4.2* Form of Indenture (including form of Notes)
5.1* Opinion of Winston & Strawn with respect to legality
8.1* Opinion of Winston & Strawn with respect to tax matters
10.1* Form of Sale and Servicing Agreement
10.2* Form of Administration Agreement
10.3* Form of Transfer and Sale Agreement
23.1* Consent of Winston & Strawn (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
25.1* Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of Indenture Trustee
- ----------------------
* To be filed by Amendment at a later date.
