<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1998
REGISTRATION NOS. 333-67993
333-67993-01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GREEN TREE LEASE FINANCE II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MINNESOTA 41-1892359
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
GREEN TREE LEASE FINANCE 1998-1, LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE NONE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
---------------
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102-1639
(651) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOEL H. GOTTESMAN, ESQ.
1100 LANDMARK TOWERS
345 ST. PETER STREET
ST. PAUL, MINNESOTA 55102-1639
(651) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO: COPIES TO:
CHARLES F. SAWYER, ESQ. SIEGFRIED P. KNOPF, ESQ.
DORSEY & WHITNEY LLP BROWN & WOOD LLP
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
(612) 343-7986 (212) 839-5300
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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: [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES AMOUNT TO BE AGGREGATE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lease-Backed Notes... $394,839,210 100% $394,839,210 $109,765.30(2)
- -------------------------------------------------------------------------------
</TABLE>
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457.
(2) Of this amount $278.00 has been previously paid and $109,487.30 is being
paid herewith.
---------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE 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 +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OR 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS, DATED DECEMBER 11, 1998; SUBJECT TO COMPLETION
PROSPECTUS
$394,839,210 (APPROXIMATE)
GREEN TREE LEASE FINANCE 1998-1, LLC,
ISSUER GREEN TREE VENDOR SERVICES CORPORATION, SERVICER
LEASE-BACKED NOTES
We are offering the following classes of Notes:
<TABLE>
<CAPTION>
ORIGINAL
PRINCIPAL PRICE TO UNDERWRITING PROCEEDS TO
CLASS INTEREST RATE AMOUNT (1) PUBLIC DISCOUNT ISSUER (2)
----- ------------- ------------ ----------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
A-1 % $122,794,994 % % %
A-2 % 51,723,937 % % %
A-3 % 122,400,155 % % %
A-4 % 58,436,203 % % %
B % 25,664,549 % % %
C % 13,819,372 % % %
------------ ----------- -------- ------------------
Total $394,839,210 $ $ $
</TABLE>
-----
(1) Approximate.
(2) Before deducting expenses, which we estimate to
be $575,000.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Notes are obligations only of the Issuer. The Notes will not represent
interests in or obligations of Green Tree Vendor Services Corporation, Green
Tree Financial Corporation or any of their affiliates other than the Issuer.
These Notes will be delivered through the Same-Day Funds Settlement System
of The Depository Trust Company, or through Cedelbank or the Euroclear System,
on or about December , 1998.
The underwriters named below will offer these securities to the public at
the offering price listed on this cover page and they will receive the discount
listed above. See "Underwriting."
UNDERWRITERS OF THE CLASS A NOTES
FIRST UNION CAPITAL MARKETS
LEHMAN BROTHERS
NATIONSBANC MONTGOMERY SECURITIES LLC
UNDERWRITER OF THE CLASS B NOTES AND CLASS C NOTES
FIRST UNION CAPITAL MARKETS
The date of this Prospectus is December , 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
REPORTS TO NOTEHOLDERS................................................... iii
WHERE YOU CAN FIND MORE INFORMATION...................................... iii
SUMMARY.................................................................. 1
RISK FACTORS............................................................. 7
THE ISSUER AND THE SPC................................................... 11
GREEN TREE VENDOR SERVICES CORPORATION................................... 13
THE LEASES............................................................... 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE
ISSUER.................................................................. 28
MANAGERS OF THE ISSUER................................................... 29
WEIGHTED AVERAGE LIFE OF THE NOTES....................................... 30
COLLATERAL CASHFLOWS AND RESIDUALS....................................... 35
DESCRIPTION OF THE NOTES................................................. 37
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT.................. 53
CERTAIN LEGAL ASPECTS OF THE LEASES...................................... 58
FEDERAL INCOME TAX CONSEQUENCES.......................................... 60
ERISA CONSIDERATIONS..................................................... 65
RATINGS OF THE NOTES..................................................... 66
USE OF PROCEEDS.......................................................... 66
EXPERTS.................................................................. 66
UNDERWRITING............................................................. 66
LEGAL MATTERS............................................................ 68
INDEX OF PRINCIPAL TERMS................................................. 69
INDEX TO FINANCIAL STATEMENTS............................................ F-1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES............ A-1
</TABLE>
The Underwriters may engage in transactions that stabilize, maintain, or
in some way affect the price of the Notes. These types of transactions may
include stabilizing, the purchase of Notes to cover syndicate short positions
and the imposition of penalty bids. For a description of these activities,
please read the section entitled "Underwriting."
If you have received a copy of this prospectus in an electronic format,
and if the legal prospectus delivery period has not expired, you may obtain a
paper copy of this prospectus from Green Tree Financial Corporation or an
underwriter by asking for it.
Certain capitalized terms used in this prospectus are defined on the
pages indicated in the section entitled "Index of Principal Terms."
ii
<PAGE>
REPORTS TO NOTEHOLDERS
Unless the Notes are issued in physical, rather than book-entry, form,
unaudited monthly and annual reports, which contain information concerning the
Issuer prepared by the Servicer, will be sent by the Trustee on behalf of the
Issuer only to Cede & Co. You can find a more detailed description of this
under the heading "Description of the Notes--Book-Entry Registration."
If you purchase a Note, you may receive these reports by making a written
request to the Trustee, together with a certification that you are a Note
Owner. You should send any such request to the Trustee at the following
address: 180 East Fifth Street, St. Paul, Minnesota 55102. These reports do not
constitute financial statements prepared in accordance with generally accepted
accounting principles. Neither Green Tree Financial Corporation nor Green Tree
Vendor Services Corporation intends to send any of its financial reports to
Note Owners. The Servicer, on behalf of the Issuer, will file with the
Securities and Exchange Commission periodic reports concerning the Issuer as
required by law.
WHERE YOU CAN FIND MORE INFORMATION
The Issuer and the SPC have filed a registration statement relating to
the Notes with the Securities and Exchange Commission (the "SEC"). This
prospectus is part of the registration statement, but the registration
statement contains additional information. Federal securities law requires the
filing of certain information with the SEC, including annual, quarterly and
special reports, proxy statements and other information. You can read and copy
the registration statement and these documents at the public reference facility
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. You can also read and copy the registration statement
and such reports, proxy statements and other information at the following
regional offices of the SEC:
<TABLE>
<S> <C>
New York Regional
Office Chicago Regional Office
Seven World Trade
Center Citicorp Center
Suite 1300 500 West Madison Street, Suite 1400
New York, NY 10048 Chicago, IL 60661
</TABLE>
Please call the SEC at 1-800-SEC-0330 for more information about the
public reference rooms. SEC filings are also available to the public on the
SEC's web site at http://www.sec.gov.
iii
<PAGE>
SUMMARY
This summary highlights selected information regarding the Notes, and
does not contain all of the information that you need to consider in making
your investment decision. To understand all of the terms of the Notes, read
this entire prospectus.
Securities Offered.......... We are offering six classes of Notes:
<TABLE>
<CAPTION>
ORIGINAL
INTEREST PRINCIPAL
CLASS RATE AMOUNT (1)
- ----- -------- ------------
<S> <C> <C>
A-1....................................................... % $122,794,994
A-2....................................................... % $ 51,723,937
A-3....................................................... % $122,400,155
A-4....................................................... % $ 58,436,203
B......................................................... % $ 25,664,549
C......................................................... % $ 13,819,372
</TABLE>
- --------
(1) Approximate.
The Class C Notes will be subordinate to the Class B Notes, and the Class
B Notes will be subordinate to the Class A Notes. For a further explanation of
this subordination, see "Description of the Notes--Subordination of the Class B
and Class C Notes."
Issuer......................
Green Tree Lease Finance 1998-1, LLC, will issue
the Notes. It is referred to as the "Issuer" in
this prospectus. The sole member of the Issuer is
Green Tree Lease Finance II, Inc., a special-
purpose corporation that is a subsidiary of Green
Tree Vendor Services Corporation. Green Tree
Lease Finance II, Inc. is referred to as the
"SPC" in this prospectus.
Seller and Servicer.... Green Tree Vendor Services Corporation ("Vendor
Services") will sell the Leases to the SPC which
will in turn sell them to the Issuer and will
service the Leases owned by the Issuer. As
Servicer, Vendor Services will collect payments
on the Leases and enforce defaulted Leases when
necessary.
Trustee.....................
U.S. Bank Trust National Association will act as
Trustee under the Indenture that governs the
terms of the Notes.
Terms of the Notes
. Payment Date............ The 20th day of each month, beginning on January
20, 1999.
. Interest............... Interest on the Notes will accrue at the
applicable interest rate from a payment date to
the day before the next payment date. For the
first payment date, interest begins to accrue on
the day the Notes are issued.
The interest rate for each class of Notes is
specified above.
Interest on the Class A-1 Notes will be computed
on the basis of the actual number of days elapsed
and a 360-day year. Interest on the Class A-2,
Class A-3, Class A-4, Class B and Class C Notes
will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
1
<PAGE>
. Principal............... Principal will be paid on the Notes on each
payment date. On each payment date, the Trustee
will pay principal to the Noteholders in the
following order of priority:
- First, all principal payable on the Notes
will be paid to the Class A-1 Notes until
they are paid in full;
- After the Class A-1 Notes have been paid
in full, a portion of the principal
payable on the Notes will be paid to the
Class A-2 Notes until paid in full, then
to the Class A-3 Notes until paid in full,
and then to the Class A-4 Notes until paid
in full;
- After the Class A-1 Notes have been paid
in full, a portion of the principal
payable on the Notes will be paid to the
Class B Notes until paid in full (subject
to the maintenance of certain credit
enhancement levels for the Class A Notes);
- After the Class A-1 Notes have been paid
in full, a portion of the principal
payable on the Notes will be paid to the
Class C Notes until paid in full (subject
to the maintenance of certain credit
enhancement levels for the Class A and
Class B Notes).
See "Description of the Notes--Principal" for a
more complete description of the amount of
principal payable on each class of Notes on each
payment date.
. Stated Maturity Dates... Each class of Notes must be paid in full on or
before the Stated Maturity Date of that class:
<TABLE>
<CAPTION>
STATED MATURITY
CLASS DATE
----- ---------------
<S> <C>
A-1........................................ January , 2000
A-2........................................ December 20, 2000
A-3........................................ July 20, 2002
A-4........................................ January 20, 2004
B.......................................... October 20, 2004
C.......................................... October 20, 2006
</TABLE>
. Denominations........... The Notes will be available for purchase in
denominations of $10,000 and integral multiples
thereof.
. Closing Date............ On or about December , 1998.
. Subordination........... The Class C Notes will be subordinated to the
Class A and Class B Notes, and the Class B Notes
will be subordinated to the Class A Notes:
- On each Payment Date, the Indenture Trustee
will use the Amount Available to pay
interest on the Class A Notes, then interest
on the Class B Notes, and then interest on
the Class C Notes, and
- On each Payment Date, the Indenture Trustee
will use the Amount Available (after paying
interest on the Notes as described above) to
pay the amount of principal due on the
2
<PAGE>
Class A Notes, then the amount of principal
due on the Class B Notes, and then the
amount of principal due on the Class C
Notes.
This makes it more likely that the Class A Notes
will be paid all interest and principal due on
them, but less likely that the Class C Notes will
be paid all interest and principal due on them.
For a more complete description of the
subordination of the Class B and Class C Notes,
see "Description of the Notes."
. Ratings................. We will not issue the Notes unless Standard &
Poor's Rating Services and Fitch IBCA, Inc. have
assigned the following ratings (or higher) to
each class of Notes:
<TABLE>
<CAPTION>
CLASS S&P FITCH
----- ---- -------
<S> <C> <C>
A-1............. A-1+ F1+/AAA
A-2............. AAA AAA
A-3............. AAA AAA
A-4............. AAA AAA
B............... A A
C............... BBB BBB
</TABLE>
The rating of each class of Notes addresses the
likelihood of the timely receipt of interest and
payment of principal on that class on or before
the Stated Maturity Date for that class. A rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning Rating
Agency. The ratings of the Notes do not address
the likelihood of payment of principal on any
class of Notes prior to its Stated Maturity Date.
For a more complete description of the ratings of
the Notes, see "Ratings of the Notes."
Issuer's Assets.............
Payments on the Notes will be made solely from
the Issuer's assets. The Issuer's assets will
consist primarily of:
- a pool of equipment lease contracts and
other similar types of receivables (each, a
"Lease") with various lessees or other
obligors thereunder, including scheduled
payments, prepayments and liquidation
proceeds of the Leases;
- certain rights to the proceeds from
disposition of the leased equipment
following expiration of each Lease that is a
lease rather than a loan; and
- amounts on deposit in certain accounts,
including the Collection Account and the
Reserve Account.
The Leases..................
As of December 1, 1998, the pool of Leases that
the SPC will transfer to the Issuer had the
following characteristics (unless otherwise
noted, amounts and percentages are calculated
using the Statistical Discount Rate and all
percentages are expressed as percentages of the
Statistical Discounted Present Value of the
Leases):
- the Statistical Discounted Present Value of
the Leases was $394,839,208.76;
3
<PAGE>
- there were 34,621 Leases;
- the average Lease Principal Balance was
approximately $11,404.62;
- approximately 32.72% of the Leases related
to data processing equipment; approximately
20.02% of the Leases related to office
equipment; approximately 19.63% of the
Leases related to telecommunication
equipment; and no other equipment type
represented more than 5.00% of the Leases;
- the obligors on approximately 11.97% of the
Leases were located in California;
approximately 10.81% were located in New
York; approximately 8.72% were located in
Florida; approximately 6.42% were located in
New Jersey; approximately 6.32% were located
in Texas; and no other state represented
more than 5.00% of the Leases;
- approximately 73.51% of the Leases had been
originated by Vendor Services, with the
remaining 26.49% of the Leases having been
originated by third parties and purchased by
Vendor Services
- the remaining term of the Leases ranged from
6 months to 82 months; and
- the weighted average remaining term of the
Leases was approximately 41.33 months and
the weighted average age of the Leases was
approximately 6.32 months.
All the percentages shown above are based on an
assumed principal balance for the Leases. In
preparing these statistics, we calculated the
principal balance of each Lease by computing the
present value of all future scheduled payments on
that Lease (and not including delinquent
amounts), using a discount rate of 6.506%. Based
on this assumed discount rate, which we refer to
as the "Statistical Discount Rate," the aggregate
principal balance of the Leases as of December 1,
1998 was calculated to be $394,839,208.76. For
more information about the Leases, see "The
Leases--Certain Statistics Relating to the Cut-
Off Date Pool" in this prospectus.
The aggregate Principal Balance of the Leases as
of each Payment Date will be calculated using a
discount rate of % (the "Discount Rate"). As of
the Initial Cut-Off Date, the aggregate Principal
Balance of the Leases calculated using the
Discount Rate was $ .
As described under "The Leases--Substitution,"
under certain circumstances Vendor Services or
the SPC may substitute new leases for Leases to
be removed from the Issuer.
4
<PAGE>
Servicer Advances........... For any payment date, the Servicer may, but will
not be required to, advance to the Trustee an
amount to cover delinquencies in scheduled
payments on the Leases. If the Servicer makes
such an advance, it will be entitled to recover
that advance from late payments made on that
delinquent Lease or, if necessary, from payments
made on other Leases.
Lease Equipment and
Residual Realizations......
Because many of the Leases are "true leases," the
equipment subject to those Leases will belong to
the SPC, and the SPC will sell or re-lease the
equipment following the expiration of the Lease.
The SPC will not transfer to the Issuer its
interest in the equipment subject to the Leases,
but it will make the cash flows realized from the
sale or re-lease of equipment during any month
available to the Issuer on the next payment date,
to be used to make payments on the Notes if
collections on the Leases are insufficient. As of
December 1, 1998, Vendor Services estimated the
residual value of the equipment subject to the
Leases to be $31,677,285.62. The amounts the SPC
actually realizes from the disposition of the
equipment could be less.
Reserve Account.............
We will establish a "Reserve Account" and deposit
an amount equal to 2.50% of the Initial Pool
Principal Balance (approximately $ ). The
Trustee will use amounts on deposit in the
Reserve Account to pay the following amounts if
payments received on the Leases are insufficient:
- amounts owed to the Servicer (if Vendor
Services or an affiliate is not longer the
Servicer);
- interest due on the Notes; and
- principal due on the Notes.
For more information about the Reserve Account,
see "Description of the Notes--Reserve Account."
Mandatory Purchase or
Replacement of Certain
Leases..................... Vendor Services will make certain representations
and warranties with respect to each Lease and the
related Equipment, as more fully described in
"The Leases--Representations and Warranties Made
by Vendor Services." If there is a serious breach
of any such representation or warranty and it is
not cured within a specified period, the Trustee
can require Vendor Services to purchase that
Lease. In lieu of such purchase, Vendor Services
may, at its option, replace that lease with a
substitute lease. See "The Leases--
Substitution."
Priority of Payments........ On each Payment Date, the Indenture Trustee will
use payments collected on the Leases and, if
necessary (but only for certain items
5
<PAGE>
described below), amounts from the Reserve
Account, in the following order of priority:
- if Vendor Services is no longer the
Servicer, to pay the servicing fee to the
successor servicer;
- to repay the Servicer for any advances it
made in prior months but has not
recovered;
- to pay interest on the Notes in the
priority described under "Interest" above;
- to pay principal on the Notes in the
priority described under "Principal"
above;
- to deposit in the Reserve Account the
amount, if any, necessary to increase the
balance therein to its requisite amount;
- if Vendor Services is the Servicer, to pay
the servicing fee to Vendor Services; and
- the remainder, if any, to the SPC.
Optional Purchase of
Leases..................... Once the unpaid principal balance of the Notes is
less than 10% of the initial principal balance of
the lease pool, the SPC may repurchase all the
Leases. That would result in a prepayment of the
outstanding Notes. For a more complete
description of this repurchase right, see
"Description of the Notes -- Optional Purchase of
Leases."
U.S. Taxation............... In the opinion of Dorsey & Whitney LLP, counsel
to the Issuer, the Notes will be characterized as
indebtedness and the Issuer will not be
characterized as an "association" or "publicly
traded partnership" taxable as a corporation for
federal income tax purposes. By purchasing a
Note, you will agree to treat your Note as
indebtedness for federal, state and local income
tax purposes. You should consult your own tax
advisor regarding the federal income tax
consequences of the purchase, ownership and
disposition of Notes, and the tax consequences
arising under the laws of any state or other
taxing jurisdiction. See "United States
Taxation."
ERISA Considerations........
Subject to the considerations described in "ERISA
Considerations," employee benefit plans that are
subject to the Employee Retirement Income
Security Act of 1974, as amended, may purchase
Notes. A fiduciary of an employee benefit plan
must determine that the purchase of a Note is
consistent with its fiduciary duties under
applicable law and does not result in a non-
exempt prohibited transaction under applicable
law.
Legal Investment............ The Class A-1 Notes will be eligible securities
for purchase by money market funds under Rule 2a-
7 under the Investment Company Act of 1940.
6
<PAGE>
RISK FACTORS
You should consider the following factors in deciding whether to purchase
Notes.
RISKS RESULTING FROM LIMITED ASSETS OF THE ISSUER
The Issuer will have no assets other than the Leases (including the
proceeds derived from the liquidation of defaulted Leases), certain rights to
residual realizations on the related equipment, amounts on deposit from time to
time in the Collection Account, the Residual Account, the Reserve Account and
the accounts established pursuant to the Contribution and Servicing Agreement.
The Notes will represent obligations solely of the Issuer, and will not be
insured or guaranteed by Vendor Services, the SPC, or the Trustee. As a result,
you may be subject to delays in payment and may incur losses on your investment
as a result of defaults or delinquencies on the Leases, or because of
depreciation in the value of the related equipment or because of some other
inability to realize on the equipment. See "--Enforceability of the Leases"
below.
RISKS OF LOSSES TO HOLDERS OF THE CLASS B NOTES AND CLASS C NOTES RESULTING
FROM SUBORDINATION
Payments of interest and principal on the Class B Notes will be
subordinated in priority of payment to interest and principal, respectively, on
the Class A Notes. Similarly, payments of interest and principal on the Class C
Notes will be subordinated in priority of payment to interest and principal,
respectively, on the Class A Notes and the Class B Notes.
The only protection afforded the Class C Noteholders against
delinquencies and defaults on the Leases and resulting losses of principal will
be any residual realizations each month, and the amounts, if any, on deposit in
the Residual Account and the Reserve Account (in each case to the extent not
used to make payments of interest and principal on the Class A and Class B
Notes). High delinquencies and liquidation losses on the Leases will have the
effect of reducing, and could eliminate, the protection against loss afforded
by the residual realizations and the amounts, if any, on deposit in the
Residual Account and the Reserve Account. As a result, the Class C Noteholders
would bear directly the risk of losses on the Leases, and the Class C
Noteholders could incur losses on their investment as a result.
Further, delinquencies and defaults on the Leases could eliminate the
protection afforded the Class B Noteholders by the subordination of the Class C
Notes, and the Class B Noteholders could incur losses on their investment as a
result. In addition, delinquencies and defaults on the Leases could eliminate
the protection offered to the Class A Noteholders by the subordination of the
Class B Notes and the Class C Notes, and the Class A Noteholders could also
incur losses on their investment as a result.
RISKS RELATED TO BANKRUPTCY
Risks Relating to Characterization of the Transfer of the Leases and
Equipment as a Borrowing by Vendor Services. Dorsey & Whitney LLP, counsel to
the Issuer, will deliver a legal opinion to the effect that, the transfer of
the Leases and the related equipment from Vendor Services to the SPC
constitutes a sale or absolute assignment, rather than a pledge to secure
indebtedness of Vendor Services; and that in the event that Vendor Services
were to become a debtor under the federal bankruptcy code, the Leases, payments
thereunder and the equipment would not be property of the bankruptcy estate of
Vendor Services. However, if Vendor Services were to become a debtor under the
federal bankruptcy code or similar applicable state laws, a creditor or trustee
in bankruptcy of Vendor Services, or Vendor Services as debtor-in-possession,
might argue that such transfer of the Leases and the equipment from Vendor
Services to the SPC was (or should be recharacterized as) a pledge of such
assets rather than a sale or absolute assignment. If this position were
accepted by a court, any Leases considered to be "true" leases under the
applicable insolvency laws (as described under "The Leases-- Description of the
Leases"), and any other Lease considered to be executory under such insolvency
laws, could be rejected by the trustee in bankruptcy or by Vendor Services as
debtor-in-possession, which
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would result in the termination of scheduled payments under any such Leases and
reductions in distributions to you, and you could incur a loss on your
investment as a result. To reduce the likelihood of such rejection, the SPC
will file UCC financing statements perfecting a security interest for the
benefit of the SPC in Vendor Services' interests in the equipment, and
assignments of such perfected security interest to the Issuer and the Trustee,
against Vendor Services in those states where equipment subject to leases
constituting at least 75% of the initial pool principal balance and at least
75% of the aggregate book value of the equipment as of December 1, 1998 is
located. Even if such Leases were not so rejected in the event of an insolvency
of Vendor Services, the Issuer and the Trustee could experience a delay in or
reduction of collections on all of the Leases, and you could incur a loss on
your investment as a result.
A case decided by the United States Court of Appeals for the Tenth
Circuit contains language to the effect that accounts sold by an entity that
subsequently became bankrupt remained property of the debtor's bankruptcy
estate because the sale of accounts is treated as a "security interest" that
must be perfected under the Uniform Commercial Code ("UCC"). Although the
Leases constitute chattel paper or general intangibles rather than accounts
under the UCC, sales of chattel paper, like sales of accounts, must be
perfected under Article 9 of the UCC. If Vendor Services were to become a
debtor in bankruptcy and a court were to follow the reasoning of the Tenth
Circuit Court of Appeals and apply such reasoning to chattel paper, the Issuer
(and thus the Trustee) could experience a delay in or reduction of collections
on the Leases, and you could incur a loss on your investment as a result.
Risks Relating to Substantive Consolidation of Vendor Services and the
SPC. Dorsey & Whitney LLP will deliver a legal opinion to the effect that, if
Vendor Services were to become a debtor in a bankruptcy case, a bankruptcy
court would not order that the assets and liabilities of the SPC be
consolidated with those of Vendor Services. The SPC has taken steps in
structuring the transactions described herein that are intended to prevent the
voluntary or involuntary application for relief by or on behalf of Vendor
Services under any insolvency law from resulting in the consolidation of the
assets and liabilities of the SPC with those of Vendor Services. Such steps
include the maintenance of separate books and records and the insistence on
arm's-length terms in all agreements with Vendor Services and affiliates
thereof. Nevertheless, there can be no assurance that, in the event of a
bankruptcy or insolvency of Vendor Services, a court would not order that the
Issuer's or the SPC's assets and liabilities be consolidated with those of
Vendor Services. Any such order would adversely affect the Issuer's ability to
receive payments on the Leases, and you could incur a loss on your investment
as a result.
Risks Related to Fraudulent Transfer Laws. Under federal or state
fraudulent transfer laws, a court could, among other things, subordinate the
rights of the Noteholders in the Leases and equipment to the rights of
creditors of Vendor Services, if a court were to find, among other things, that
Vendor Services received less than reasonably equivalent value or fair
consideration for the Leases and the equipment and, at the time of any
transfers, was insolvent or rendered insolvent as a result of such transfer,
and you could incur a loss on your investment as a result.
Risks Relating to Commingling of Trust Assets by Vendor Services as
Servicer. While Vendor Services is the Servicer, cash collections held by
Vendor Services will be commingled and used for its benefit prior to the date
on which those collections must be deposited in a Collection Account. In the
event of the insolvency or receivership of the Servicer or, in certain
circumstances, the lapse of certain time periods, the Issuer may not have a
perfected ownership or security interest in those collections, and you could
incur a loss on your investment as a result.
Risks Relating to Reliance on Representations and Warranties Made by
Vendor Services. Vendor Services will make certain representations and
warranties regarding the Leases, the equipment and certain other matters (see
"The Leases--Representations and Warranties Made by Vendor Services"). In the
event that any such representation or warranty with regard to a specific Lease
is breached, is not cured within a specified period of time, and the value of
such Lease is materially and adversely affected by such breach, Vendor
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Services will be required to purchase the Lease from the Issuer (or, subject to
certain conditions, deliver a substitute lease therefor). In the event of a
bankruptcy or insolvency of Vendor Services, the Trustee may be unable to
compel Vender Services to repurchase leases, and you could incur a loss on your
investment as a result.
Risks Relating to Insolvency of the SPC or the Issuer. If the SPC or the
Issuer were to become insolvent under any insolvency law, delays in the amount
of distributions to Noteholders would be likely and Noteholders could incur a
loss on their investment as a result. The SPC and the Issuer have each taken
certain steps to minimize the likelihood that it will become bankrupt or
otherwise insolvent. The SPC is prohibited by its organizational documents and
the agreements related to this transaction from engaging in activities
(including the incurrence or guaranty of debt) other than certain specifically
permitted activities. See "The Issuer and the SPC."
Risk Relating to Insolvency of a Financial Intermediary. As described
under "Green Tree Vendor Services Corporation--Equipment Lease Business,"
Vendor Services from time to time acquires leases from financial
intermediaries. Similar to the risks described above related to any insolvency
of Vendor Services, in the event that a financial intermediary were to become
insolvent, the sale of the related Leases from such financial intermediary to
Vendor Services could be characterized as a fraudulent transfer or as a pledge
to secure indebtedness rather than a sale. In such event, the Issuer and the
Trustee could experience a delay in or reduction of collections on such Leases,
and you could incur a loss on your investment as a result.
PREPAYMENT AND EARLY TERMINATION OF LEASES AND RELATED REINVESTMENT RISKS
The weighted average life of the Notes may be reduced by prepayments and
early terminations of the Leases. Prepayments and early terminations may result
from voluntary prepayments by obligors, defaults, physical damage to the
related equipment, purchases by Vendor Services of Leases as a result of
certain uncured breaches of the representations and warranties made by it with
respect thereto (see "The Leases--Representations and Warranties Made by Vendor
Services") or purchases by Vendor Services of Leases because, as Servicer, it
agreed to certain modifications of the terms of the Lease. In addition, the
Notes may be prepaid in full if the SPC exercises its option to purchase all of
the remaining Leases (see "Description of the Notes--Optional Purchase of
Leases"). The Servicer may allow a voluntary prepayment of a Lease by an
obligor at any time so long as the amount paid by or on behalf of the obligor
is at least equal to the Required Payoff Amount of that Lease. The rate of
prepayments and early terminations on the Leases (including those due to
obligors seeking early termination and those due to defaults) may be influenced
by a wide variety of economic and other factors, including, among others,
changes in the reimbursement policies of governmental or third party payors,
obsolescence of the equipment, changes in interest rates, changes in the local,
regional or national economies or changes in federal income tax laws.
Therefore, you must not assume the Leases will prepay at a certain rate, or
when any prepayments will occur. As the rate of payment of principal of the
Notes will depend on the rate of payment (including prepayments) on the Leases,
the rate at which such principal will be paid cannot be predicted and the final
payment of a class of Notes could occur significantly earlier than the Stated
Maturity Date of such class of Notes. You may not be able to reinvest principal
paid on any Notes at an interest rate equal to the interest rate for such
Notes, and you will bear all reinvestment risk resulting from the timing of
payments of principal on your Notes. See "Weighted Average Life of the Notes."
RISKS RELATING TO SUBSTITUTE LEASES
Vendor Services may, but is not obligated to, substitute one or more
leases in exchange for liquidated leases, leases that it is required to
repurchase, and leases that have been modified. Although any substitute lease
must satisfy certain criteria, we cannot assure you that the delinquency and
default experience of the Issuer with respect to such substitute leases will be
comparable to that of the Leases so replaced. The Servicer's monthly report to
Noteholders will disclose all substitute leases delivered to the Issuer during
the related monthly period, and Vendor Services will make representations and
warranties regarding any substitute leases described under "The Leases--
Representations and Warranties Made by Vendor Services," but the
characteristics of such substitute leases will not be verified by independent
accountants or any other third party.
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RISKS RELATING TO RELIANCE ON RESIDUAL REALIZATIONS
The availability of residual realizations will depend on various factors,
including the timing of Lease terminations and the future value of equipment,
which in each case is inherently uncertain. The Servicer will be obligated to
use its best efforts to sell or re-lease any equipment upon the termination of
the Lease to which such equipment is subject (whether as a result of early
termination or upon scheduled expiration of the Lease), in a timely manner and
in a manner so as to maximize, to the extent possible under then prevailing
market conditions, the net proceeds from such Equipment. However, because,
among other things, the market value of equipment generally declines with age
and may be subject to sudden, significant declines in value due to
technological obsolescence, we cannot assure you what amount the Servicer will
be able to realize on any such equipment at that time. Other factors that may
also affect the amount of the residual realization will include whether the
equipment is returned to the Servicer upon termination or expiration of such
Lease and whether there has been damage to or loss of any item of equipment. In
addition, the expected residual value of the equipment subject to some of the
Leases is zero (because it is a financing lease) or insignificant.
Moreover, any month's residual realizations not used to pay interest or
principal on the related Payment Date generally will be (i) deposited into the
Reserve Account to the extent that the amount on deposit in the Reserve Account
is less than the Required Reserve Amount or (ii) released to the SPC, and, upon
such release to the SPC, will not thereafter be available to make payments on
the Notes. Accordingly, we cannot assure you that residual realizations will be
available on a Payment Date when the collections on the Leases are insufficient
to pay interest and principal on the Notes.
ENFORCEABILITY OF THE LEASES
Risks Relating to Decision Not to File Certain UCC Financing
Statements. It has been the general policy of Vendor Services, depending on the
dollar amount of the particular Lease, not to file UCC financing statements
with respect to the equipment relating to certain Leases. See "Green Tree
Vendor Services Corporation--Documentation." Vender Services will make no
representation and warranty about the perfection or priority of any security
interest in the related equipment (see "The Leases--Representations and
Warranties Made by Vendor Services"). With respect to some of the Leases, that
means a purchaser from the applicable obligor of the related equipment would
acquire such equipment free and clear of the interest of Vendor Services in
such equipment, and a creditor of the obligor which has taken a security
interest in such equipment and filed a UCC financing statement with respect
thereto or a trustee in the bankruptcy of such obligor would have priority over
the interest of Vendor Services in such equipment. Any such purchaser, creditor
or trustee would have an interest superior to the interest of the Issuer in
such equipment, which interest is derived from the transfer and conveyance of a
security interest in the equipment by Vendor Services to the SPC, and by the
SPC to the Issuer. All of the Leases prohibit the obligor from selling or
pledging the related equipment to third parties.
Due to the administrative burden and expense, we will not file
assignments of the UCC financing statements perfecting the security interest of
Vendor Services in the equipment (to the extent that such financing statements
have been filed against the obligor, as discussed above) to reflect the SPC's,
the Issuer's or the Trustee's interests therein. While not filing such
assignments does not affect the Issuer's interest in the Leases or perfection
of the Trustee's interest in such Leases, it does expose the Issuer (and thus
Noteholders) to the risk that Vendor Services could release its security
interest in the equipment of record, and it could complicate the Issuer's
enforcement, as assignee, of Vendor Services's security interest in the
equipment. While these risks should not affect the perfection or priority of
the interest of the Trustee in the Leases or rights to payment thereunder, they
may adversely affect the right of the Trustee to receive proceeds of
disposition of the equipment subject to a liquidated lease. 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 Trustee.
Risks Relating to Servicer's Retention of Lease Documents; Risk of Sale
to Third Party. The Servicer will hold the Leases and certain related documents
on behalf of the Issuer and the Trustee. To facilitate
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servicing and save administrative costs, the documents will not be physically
segregated from other similar documents that are in the Servicer's possession.
UCC financing statements will be filed in the appropriate jurisdictions
reflecting (i) the sale and assignment of the Leases and Vendor Services'
interests in the Equipment to the SPC (provided that filings with respect to
Vendor Services' interests in the Equipment will be made only in those
jurisdictions described above under "Risks Related to Bankruptcy--Risks
Relating to Characterization of the Transfer of the Leases and Equipment as a
Borrowing by Vendor Services"), (ii) the transfer and assignment of the Leases
and rights to residual realizations by the SPC to the Issuer, and (iii) the
pledge of the Leases and the residual realizations by the Issuer to the
Trustee. The Servicer's accounting records and computer systems will also
reflect such transfers. The Leases will not, however, be stamped or otherwise
marked to reflect that such Leases have been sold to the SPC, transferred to
the Issuer or pledged to the Trustee. If, through inadvertence or otherwise,
Vendor Services were to sell any of the Leases to another party (or grant
security interest therein to another party) that purchased (or took a security
interest in) any of such Leases in the ordinary course of business and took
possession of such Leases, the purchaser (or secured party) would acquire an
interest in the Leases superior to the interest of the Issuer and the Trustee
if the purchaser (or secured party) acquired (or took a security interest in)
such Leases for new value and without actual knowledge of the Issuer's or the
Trustee's interest. Such superior interest may include an ownership interest,
which would cut off all rights of the Issuer to such Leases and payments
thereunder, or a security interest, which would be senior to the security
interest held by the Issuer; in either case, you could incur a loss on your
investment as a result.
LIMITED LIQUIDITY OF THE NOTES
There is currently no market for the Notes. Each Underwriter expects, but
will not be obligated, to make a market for the classes of Notes for which it
is acting as underwriter. We cannot assure you that a secondary market for the
Notes will develop or, if it does develop, that it will provide you with
liquidity of investment or will continue for the life of such Notes. As a
result, you must be prepared to bear the risk of holding the Notes for as long
as the Notes are outstanding.
EFFECT OF BOOK-ENTRY REGISTRATION
The Notes will be issued in book-entry, rather than physical, form and,
as a result, in certain circumstances, the liquidity of the Notes in the
secondary market and your ability to pledge them may be adversely affected. See
"Underwriting" and "Description of the Notes--Book-Entry Registration." The
Notes will be registered in the name of a nominee of DTC and will not be
registered in the names of the beneficial owners or their nominees. As a
result, unless and until Definitive Notes are issued in the limited
circumstances described under "Description of the Notes--Definitive Notes,"
beneficial owners will not be recognized by the 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,
Cedelbank or Euroclear, as the case may be, and their participating
organizations. In addition, the laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such limits and such laws may impair the ability to transfer
beneficial interests in the Notes.
THE ISSUER AND THE SPC
The Issuer is a limited liability company organized under the laws of the
State of Delaware. Green Tree Lease Finance II, Inc. ("SPC"), a corporation
organized under the laws of the State of Minnesota, is the sole and managing
member of the Issuer. The SPC is wholly owned by Vendor Services.
The Issuer has been formed solely for the purposes of the transactions
described in this Prospectus. Under its LLC Agreement and the Indenture, the
Issuer is not permitted to engage in any activity other than (i) acquiring the
Leases and rights to the Residual Realizations from the SPC, (ii) pledging the
Leases and its rights to the Residual Realizations to the Trustee, (iii)
executing and performing its obligations under the
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Contribution and Servicing Agreement and the Indenture, and (iv) engaging in
other transactions, including entering into agreements, that are necessary,
suitable or convenient to accomplish the foregoing or are incidental thereto or
connected therewith. The Issuer is prohibited from incurring any debt, issuing
any obligations, incurring any liabilities, except in connection with the
issuance of the Notes or voting to file for bankruptcy without the affirmative
vote of all of the SPC's directors, including the independent director.
The SPC, as sole and managing member of the Issuer, does not intend to
engage in any business or activities other than (i) becoming a member or
shareholder of, making capital contributions to, and acting as the managing
member of, the Issuer and other similar special purpose entities; (ii)
acquiring, owning, leasing, transferring, receiving and pledging the Leases and
related equipment (the "Equipment"), other similar leases and related
equipment, and related activities set forth in the SPC's Articles of
Incorporation; and (iii) engaging in any lawful act or activity and exercising
any powers permitted to corporations organized under the Minnesota Business
Corporation Act that are incidental to and necessary or convenient for the
accomplishment of the above mentioned business and purposes, all as more
specifically set forth in its Articles of Incorporation, provided that none of
the actions referenced in clauses (ii) and (iii) with respect to such other
leases and equipment and related activities above, shall result in a downgrade
of a rating issued by a Rating Agency with respect to the Notes. The SPC is not
liable, responsible or obligated, directly or indirectly, for payment of any
principal, interest or any other amount in respect of any of the Notes.
Pursuant to its Articles of Incorporation, the SPC must at all times have at
least one director who is "independent" of Green Tree and its affiliates, as
defined in such articles.
On the Closing Date, Vendor Services will contribute the Leases and the
Equipment to the SPC pursuant to the Transfer Agreement, dated as of December
1, 1998 (the "Transfer Agreement"), between Vendor Services, as seller and the
SPC, as purchaser. Immediately thereafter, the SPC will, pursuant to the
Contribution and Servicing Agreement, dated as of December 1, 1998 (the
"Contribution and Servicing Agreement"), among the Issuer, the SPC, Vendor
Services, as Servicer and the Trustee, contribute to the Issuer all of the
Leases and certain rights to the Residual Realizations and the Reserve Account,
and Vendor Services will agree to service the Leases on behalf of the Issuer.
The Issuer will pledge the Trust Assets to the Trustee and issue the Notes
pursuant to the Indenture.
The Trust Assets will consist of:
(1) a pool of equipment lease contracts (each, a "Lease" and in the
aggregate, the "Lease Pool") with various lessees, borrowers or other
obligors thereunder (each, an "Obligor"), including all monies at any time
paid or payable thereon or in respect thereof from and after December 1,
1998 (the "Initial Cut-Off Date") or, in the case of Substitute Leases, the
first day of the month of transfer to the Issuer (each such date, or the
Initial Cut-Off Date, as applicable to each Lease, a "Cut-Off Date") (in
the form of (i) Scheduled Payments (including all Scheduled Payments due
prior to, but not received as of, the Cut-Off Date, but excluding any
Scheduled Payments due on or after, but received prior to, the Cut-Off
Date), (ii) Prepayments, and (iii) Liquidation Proceeds (including all net
proceeds from the disposition of the related Equipment) received with
respect to defaulted Leases;
(2) certain rights to Residual Realizations and amounts, if any, on
deposit in the Residual Account, to the extent necessary to make payments
of interest and principal then due on the Notes;
(3) amounts on deposit in (and Eligible Investments allocated to) certain
accounts established pursuant to the Indenture and the Contribution and
Servicing Agreement, including the Collection Account;
(4) funds on deposit in the Reserve Account; and
(5) the Issuer's rights under the Contribution and Servicing Agreement
and the SPC's rights under the Transfer Agreement.
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GREEN TREE VENDOR SERVICES CORPORATION
GENERAL
The Leases comprising the Trust Assets have been originated by Green Tree
Vendor Services Corporation ("Vendor Services"), a Delaware corporation, or, in
some cases, purchased from third parties by Vendor Services. Vendor Services is
a leading independent provider of vendor/manufacturer-oriented equipment
finance programs, with headquarters in Bloomington, Minnesota, additional
operations in Paramus, New Jersey, and twelve regional sales offices located
throughout the United States. Vendor Services, a wholly-owned subsidiary of
Green Tree Financial Corporation ("Green Tree"), was acquired from FINOVA
Corporation in November 1996. Vendor Services' original predecessor,
TriContinental Leasing Corporation, was established in 1968, although its
equipment leasing business has undergone several restructurings and changes of
ownership since that time.
Vendor Services offers "small-ticket" equipment leasing programs, for
assets with a purchase price generally less than $100,000, to manufacturers,
dealers and distributors, and to a select group of financial intermediaries
nationwide, facilitating the sale of their products to end-user customers.
EQUIPMENT LEASE BUSINESS
Market Position
Vendor Services establishes customized financing programs for the end-
user customers of equipment vendors and select financial intermediaries that
focus on end-user customers who meet Vendor Services's general customer
profiles. The equipment vendor segment has been the primary focus of Vendor
Services's activities. In total, as of November 1998, Vendor Services had in
its portfolio a total of 70,000 individual end-user customers with active
accounts. Vendor Services attempts to maintain geographical diversity and a
broad cross-section of commercial account types in its lease portfolio.
Equipment Vendors
The primary sales focus of Vendor Services is on providing point-of-sale
financing for the customers of equipment vendors, including equipment
manufacturers, dealers and distributors that sell their products regionally or
nationally. While Vendor Services primarily finances office equipment such as
copy machines, fax machines, personal computers and related peripherals, office
furniture and telephone systems, its vendor base also consists of sellers of
commercial laundry equipment, automotive diagnostic equipment and health-care
related products.
Financial Intermediaries
With respect to financial intermediaries, Vendor Services focuses its
activities on those that have industry recognition, proven track records in
generating new business through end-user contracts or through low-end equipment
dealers and a customer base consistent with Vendor Services's general customer
profiles. Each lease acquired from financial intermediaries is individually
approved by Vendor Services using Vendor Services' own credit underwriting
criteria.
CREDIT UNDERWRITING STANDARDS
Vendor Services has established policies, controls, systems and
procedures designed to manage and limit credit risk. These policies, controls,
systems and procedures are subject to periodic review by management.
Vendor Services seeks to minimize credit risk through diversification of
the portfolio by customer, industry segment, equipment type, geography and
transaction maturity. Vendor Services's financing activities
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are spread across a wide range of equipment types, including general equipment,
office equipment, information technology and light commercial equipment, with
end-users located throughout the United States.
Underwriting procedures are divided into three main categories: Equipment
Dealers and Manufacturers, Financial Intermediaries and Lessees. Listed below
is an overview of each underwriting process.
Equipment Dealers and Manufacturers
Vendor Services requires that all leased equipment be sold by authorized
sellers that have sufficient experience with each brand they sell. Credit
requirements vary depending on the degree to which Vendor Services relies on
the dealer or manufacturer to support and service the equipment.
Financial Intermediaries
Financial intermediaries are required to have well-established histories
and conform to Vendor Services's approved equipment Dealer/Manufacturers
business line. Although standard industry representations and warranties are
required, Vendor Services's credit decision will not depend on an financial
intermediary's ability to honor these obligations.
Lessees
Vendor Services's underwriting standards are intended to evaluate a
prospective customer's credit standing and repayment ability. Credit decisions
are based on the credit characteristics of the applicant, loss experience with
comparable customers, the amount, terms and conditions of the proposed
transaction and the type of equipment to be leased or financed. Vendor Services
uses a proprietary automated credit scoring system, which is a statistically
based scoring system that quantifies information obtained from customers'
credit applications and credit reports.
DOCUMENTATION
Prior to funding a leasing and financing transaction, a complete
documentation package must be completed. Generally, such a package includes a
credit application, signed lease/installment sale or financing agreement,
vendor invoice, initial lease/advance payment, proof of insurance (where
relevant), delivery and acceptance acknowledgments and appropriate UCC
financing statements. UCC filings are generally required if the underlying
equipment cost is over $25,000.
COLLECTIONS
Invoices are generated 21 days prior to the due date with a 10-day grace
period before late charges accrue. Identified payments are electronically
posted according to an established hierarchy.
The collection processes begin after 15 days with an automatic late
notice. Collection calls are placed between 15 and 30 days after the due date.
A contract is classified as delinquent when it reaches 31 days past due.
Automated "work to be done screens" are updated daily, allowing individual
collectors to customize their follow-up procedures. Management approval is
required for contract rewrites or extensions.
CHARGE-OFF POLICY
Vendor Services works closely with vendors to manage delinquencies by
maintaining and closely monitoring non-accrual and write-off policies. Vendor
Services requires that accounts 90-plus days past due (or less, if in the
judgment of the collection manager the account is impaired) are deemed "non-
earning" and are placed on non-accrual status. Non-accrual accounts are
assigned to the legal administration department. This department is responsible
for ensuring collection costs are reasonable in relation to exposure and
ability to collect from a lessee or guarantor, and for negotiating and
processing settlements and write-offs within
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authorized levels. A write-off is recommended by the legal administration
department if it has been determined that the lease is uncollectible even
through litigation. A legal administrator may refer a delinquent account to a
pre-approved collection agency or to an attorney, based upon dollar amount and
the likelihood of collection.
Before an account is written-off or settled, its disposition must be
approved at a level of management commensurate with the size of the account.
Similarly, re-writes and extensions must be approved at a level of management
commensurate with the size of the account.
PORTFOLIO MONITORING
Portfolio Performance Tracking
Vendor Services uses a number of tools to monitor portfolio performance.
Monthly vendor performance reports are prepared for all active accounts,
indicating the dollar amount of delinquent accounts, the percentage of accounts
delinquent, the dollar amount of accounts on non-accrual status, the percentage
of accounts on non-accrual status and the dollar amount of any accounts written
off. Accounts that fall outside standard Vendor Services guidelines are subject
to further analysis.
Each vendor relationship with a portfolio balance in excess of $1,000,000
is given an annual in-depth review covering portfolio performance, an analysis
of management, the quality of the business sent to Vendor Services and the
financial condition of the vendor. Any vendors whose portfolio performance
falls outside the standard guidelines are assigned to a more senior analyst or
manager for further review.
Ongoing Credit Review
In addition to the initial credit review, Vendor Services conducts
ongoing credit review procedures to identify at an early stage those customers
who may be experiencing financial difficulty. These customers are monitored by
credit personnel, who periodically summarize for the credit committee the
possible remedial actions, what portion, if any, of total credit exposures
should be written off, and whether a specific allocation of Vendor Services's
loss reserves is appropriate.
In establishing allowances for credit losses, Vendor Services' management
reviews, among other things, the maturity of Vendor Services' portfolio, the
status of all non-performing leases and receivables, prior collection
experience and Vendor Services' overall exposure and changes in credit risk.
YEAR 2000 COMPLIANCE
Many existing computer programs had been designed and developed to use
only two digits to identify a year in the date field. If not corrected, these
computer programs could cause system failures in the year 2000, with possible
adverse effects on Vendor Services' operations. In 1997, Vendor Services
initiated a comprehensive program designed to ensure that its computer programs
function properly in the year 2000. A number of Vendor Services' employees
(including several officers), as well as external consultants and contract
programmers, are working on various year-2000 projects.
Vendor Services also has been working with vendors and other external
business relations to help avoid year-2000 problems related to the software or
services they provide to Vendor Services. Under the program, Vendor Services is
analyzing its application systems, operating systems, hardware, networks,
electronic data interfaces and infrastructure devices (such as facsimile
machines and telephone systems).
Vendor Services' year-2000 projects are currently on schedule. It is
conducting its year-2000 projects in three phases: (i) an audit and assessment
phase, designed to identify year-2000 issues; (ii) a modification phase,
designed to correct year-2000 issues; and (iii) a testing phase, designed to
test the modifications after they have been installed. Vendor Services has
completed the audit and assessment phase for all critical systems. It expects
to substantially complete the second phase of its program by the end of the
second quarter of 1999. The testing phase of its program will be conducted
throughout 1999. Vendor Services has provided for significant contingency time
in order to complete any additional modifications before December 31, 1999.
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THE LEASES
DESCRIPTION OF THE LEASES
General
Substantially all of the Leases are commercial leases rather than
consumer leases. The following description of the Leases generally describes
the material terms of the Leases to be included in the Lease Pool, although an
immaterial number of Leases may differ in one or more provisions from the
following description.
Vendor Services offers a variety of lease and financing plans based on
(i) the type of equipment sold by the vendor, (ii) the average transaction
size, (iii) the vendor's monthly lease volume, (iv) the general credit
characteristics of the vendor's end-user customers and (v) the end-of-lease
purchase option.
The Leases include both true leases and leases intended for security.
Under a true lease the lessor bears the risk of ownership and takes any federal
tax benefits associated with the lease, and no title is conferred upon the
lessee. The lessee under a true lease has the right to the temporary use of
equipment for a term shorter than the economic life of such equipment in
exchange for payments at scheduled intervals during the lease term and the
lessor retains a significant "residual" economic interest in the leased
equipment. End of lease options for true leases include purchase of the
equipment at fair market value or renewal of the lease at fair market value.
Under leases intended for security, the lessor in effect finances the
"purchase" of the leased assets by the lessee and retains a security interest
in the leased assets. The lessee retains the leased property for substantially
all its economic life and the lessor retains no significant residual interest.
These leases are considered conditional sales type leases for federal tax
purposes, and, accordingly, the lessor may not claim any federal tax benefits
of ownership of the leased equipment. End of lease options for such leases
depend on the terms of the related Lease, although generally these terms
provide for purchase of the Equipment at a prestated price. The inclusion of
true leases in the Lease Pool will have no income tax impact on Noteholders
since the Notes are treated as debt for income tax purposes. See "Federal
Income Tax Consequences." However, true leases are treated differently under
the Bankruptcy Code from leases intended for security. See "Risk Factors--Risks
Related to Bankruptcy" and "Certain Legal Aspects of the Leases--Insolvency
Matters" for a discussion of these differences.
Lease Forms
The Leases are generally in one of two forms: (a) a master lease
agreement containing all of the general terms and conditions of the lease
transaction or transactions, with schedules setting forth the specific terms of
each lease transaction with that particular Obligor (a "Master Form Lease") or
(b) a specific lease agreement form containing all of the terms and conditions
of the lease transaction (a "Specific Lease Form"). In certain cases, the Lease
may be written on another form which was created by Vendor Services, by a
customer or by a financial intermediary.
Payments
All of the Leases require that the Obligor make periodic payments on a
monthly basis. The payments under all of the Leases are required to be made in
United States dollars and are fixed and specified payments, rather than
payments which are tied to a formula or are otherwise at a floating rate.
Payments under the Leases are ordinarily payable in advance, although a small
percentage provide for payments in arrears. Many Leases also require security
deposits which are held until all contractual obligations are met.
Expenses Relating to Equipment
The Leases require the Obligors to assume the responsibility for payment
of all expenses of the related Equipment including (without limitation) any
expenses in connection with the maintenance and repair of the related
Equipment, the payment of any and all premiums for casualty and liability
insurance and the payment of all taxes relating to the Equipment.
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<PAGE>
Insurance; Repair and Replacement
The Leases (except for a small number of Leases which, in relation to the
Initial Pool Principal Balance, is not material) require the Obligors to
maintain liability insurance which must name the lessor as additional insured.
Leases require Obligors to procure property insurance against the loss, theft
or destruction of, or damage to, the Equipment for its full replacement value,
naming the lessor (or lender) as loss payee. This requirement is, from time to
time, waived by the originator for a small number of transactions and, for some
Leases, the Obligor is permitted to self-insure the Equipment under the
Obligor's already existing self-insurance program.
For transactions involving Equipment with a cost of $200,000 or less, the
Obligor is generally provided with written information concerning its property
insurance obligations under the Lease and the originator's own property
insurance coverage that will be provided at the expense of the Obligor if the
Obligor does not provide the originator with satisfactory evidence of its own
insurance coverage. The Obligor is given a specified time period in which to
provide such evidence. Proper evidence of coverage is verified independently
and tracked by a third party tracking company and licensed broker. If the
originator provides the insurance coverage, the Obligor is charged a monthly
fee covering the insurance charges and other related administrative charges.
The Obligor has the ability to "opt out" of the program by providing evidence
of its own coverage, at which time such monthly charges cease.
For transactions involving Equipment with a cost of more than $200,000,
insurance coverage generally is verified and traced by the respective
originator, and the failure to maintain such insurance constitutes an event of
default under the applicable Lease. Generally, either pursuant to the Specific
Lease Form or the Master Form Lease, the Obligor also agrees to indemnify the
originator for all liability and expenses arising from the use, condition or
ownership of the Equipment.
Under each Lease, if the Equipment is damaged or destroyed, the Obligor
is required (i) to repair such Equipment, (ii) to make a termination payment to
the lessor in an amount not less than the Required Payoff Amount, or (iii) in
some cases, to replace such damaged or destroyed Equipment with other equipment
of comparable use and value. Under the Contribution and Service Agreement, the
Servicer is permitted (in the case of the destruction of the Equipment related
to a particular Lease) either to allow the Lessee to replace such Equipment
(provided that the replacement equipment is, in the judgment of the Servicer,
of comparable use and at least equivalent value to the value of the Equipment
which was destroyed) or to accept the termination payment referred to above.
Assignment of Leases
The Leases permit the assignment thereof by the lessor or secured party
without the consent of the Obligor, except for a small number of Leases which
require notification of the assignment to, or the consent of, the Obligor.
The Leases do not permit the assignment thereof (or the Equipment related
thereto) by the Obligor without the prior consent of the lessor or secured
party, other than Leases which (i) may permit assignments to a parent,
subsidiary or affiliate, (ii) permit the assignment to a third party, provided
the Obligor remains liable under the Lease or (iii) permit assignment to a
third party with a credit standing (determined by Vendor Services in accordance
with its underwriting policy and practice at the time for an equivalent
contract type, term and amount) equal to or better than the original Obligor.
Under the Contribution and Servicing Agreement, the Servicer may permit
an assignment of a particular Lease from an Obligor to a third party only if
the Servicer (utilizing the current underwriting criteria for its contract
origination activities generally) determines that such third party is of
sufficient credit quality that the Servicer would permit such third party to
become an Obligor with respect to a Lease originated by the Servicer generally.
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<PAGE>
Hell-or-High-Water Leases
The Leases are "hell-or-high-water" contracts which require any payments
thereunder to be made regardless of the condition or suitability of the related
Equipment and notwithstanding any defense, set-off or counterclaim that the
Obligor may have against the lessor.
Events of Default and Remedies
Events of default under the Leases generally include the failure to pay
all amounts required by the Lease when due, the failure of the Obligor to
perform its agreements and covenants under the applicable Lease, material
misrepresentations made by the Obligor, the bankruptcy or insolvency of the
Obligor or the appointment of a receiver for the Obligor and, in some cases,
default by the Obligor under other contracts or agreements. Some of these
default provisions are subject to notice provisions and cure periods. Remedies
available to the lessor or secured party upon the occurrence of an event of
default by the Obligor include the right to cancel or terminate the Lease, to
recover possession of the related Equipment, and to receive an amount intended
to make the lessor or secured party (as the case may be) whole plus costs and
expenses (including legal fees) incurred by the lessor or secured party as a
result of such default. Notwithstanding such events of default and remedies,
under the Contribution and Servicing Agreement, the Servicer is permitted to
take such actions, with respect to delinquent and defaulted Leases, as a
reasonably prudent creditor would do under similar circumstances. See
"Description of the Contribution and Servicing Agreement--Servicing." Vendor
Services may occasionally provide payment extensions (generally of three months
or less, although longer extensions are occasionally granted) to customers
experiencing delays in payment due to cash flow shortages or other reasons.
However, it is not intended that extensions be used to provide a temporary
solution for a delinquent account. Rather, extensions are intended to be used
when, in the judgment of the relevant credit authority, it will permit the
permanent resolution of the delinquency.
Prepayments and Early Termination
None of the Leases permit the prepayment or early termination of the
Lease (except for a de minimis number of Leases which allow for a prepayment or
early termination upon payment of an amount which is not less than the Required
Payoff Amount). Nevertheless, the Servicer is permitted under the Contribution
and Servicing Agreement to accept prepayments of any of the Leases, but only if
the amount paid by or on behalf of the Obligor (or, in the case of a partial
prepayment, the sum of such amount and the remaining Principal Balance of the
Lease after application of such amount) is at least equal to the Required
Payoff Amount for such Lease.
Disclaimer of Warranties
The Leases contain provisions whereby the lessor (or Vendor Services, as
assignee of the lessor) disclaims all warranties with respect to the Equipment
and, in the majority of cases, the lessor assigns the manufacturer's warranties
to the Obligor for the term of the Lease. Under the Leases, the Obligor
"accepts" the Equipment under the applicable Lease following delivery and an
opportunity to inspect the related Equipment.
REPRESENTATIONS AND WARRANTIES MADE BY VENDOR SERVICES
Under the Transfer Agreement, Vendor Services will make the following
representations and warranties regarding each Lease (and the related Equipment)
as of the Initial Cut-Off Date, and regarding each Substitute Lease as of the
applicable Cut-Off Date:
(A) Each Lease (i) constitutes a valid, binding and enforceable payment
obligation of the Obligor in accordance with its terms (except as may be
limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforceability of creditors' rights generally and the
availability of equitable remedies), (ii) has been duly and properly sold,
assigned and conveyed by Vendor Services under the Transfer Agreement to
the SPC and has been duly and properly transferred and conveyed by the SPC
to the Issuer
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pursuant to the Contribution and Servicing Agreement, (iii) was originated
by Vendor Services in the ordinary course of its business, or (in the case
of any Lease purchased by Vendor Services) was acquired by Vendor Services
for proper consideration and was validly assigned to Vendor Services by the
originator of such Lease, and (iv) contains customary and enforceable
provisions adequate to enable realization against the Obligor and/or the
related Equipment (although no representation or warranty is made with
respect to the perfection or priority of any security interest in such
related Equipment);
(B) No selection procedures adverse to the Noteholders were utilized in
selecting the Leases from those leases owned by Vendor Services on the Cut-
Off Date;
(C) All requirements of applicable Federal, state and local laws, and
regulations thereunder, in respect of all of the Leases, have been complied
with in all material respects;
(D) There is no known default, breach, violation or event permitting
cancellation or termination of the Lease by the lessor under the terms of
any Lease (other than Scheduled Payment delinquencies (in excess of 10% of
the Scheduled Payment due) of not more than 59 days), and (except for
payment extensions and waivers of Administrative Fees in accordance with
Vendor Services's servicing and collection policies and procedures) there
has been no waiver of any of the foregoing; and as of the Cut-Off Date, no
related Equipment had been repossessed;
(E) Immediately prior to the sale, assignment and conveyance of each
Lease by Vendor Services to the SPC, Vendor Services had good title to such
Lease and Vendor Services' interest in the related Equipment (subject to
the terms of such Lease) and was the sole owner thereof, free of any lien;
and immediately prior to the transfer and conveyance of the Leases by the
SPC to the Issuer, the SPC had good title to such Leases and such interest
in the related Equipment and was the sole owner thereof, free of any lien
(other than the rights of the Obligor under the related Lease);
(F) No person has a participation in or other right to receive Scheduled
Payments under any Lease, and neither the SPC nor Vendor Services has taken
any action to convey any right to any person that would result in such
person having a right to Scheduled Payments received with respect to any
Lease;
(G) Each Lease was originated by Vendor Services or acquired by Vendor
Services and was sold and assigned by Vendor Services to the SPC without
any fraud or misrepresentation on the part of Vendor Services;
(H) Each Obligor (i) is located in the United States, and (ii) is not (a)
the United States of America or any state or local government or any
agency, department, subdivision, or instrumentality thereof (except for
Leases representing no more than 1% of the Initial Pool Principal Balance)
or (b) Vendor Services or an affiliate thereof;
(I) The sale, transfer and assignment of such Lease and Vendor Services'
interest in the related Equipment to the SPC under the Transfer Agreement,
and the transfer and conveyance of such Lease from, and the grant of rights
to the related Residual Realizations by, the SPC to the Issuer under the
Contribution and Servicing Agreement, are not unlawful, void or voidable
under the laws of the jurisdiction applicable to such Lease;
(J) All filings and other actions required to be made, taken or performed
by any person in any jurisdiction to give the Issuer a first priority
perfected lien or ownership interest in the Leases and a first priority
perfected security interest in Vendor Services' interest in the Equipment
have been made, taken or performed;
(K) There exists a Lease File pertaining to each Lease, and such Lease
File contains the Lease or a facsimile copy thereof;
(L) There is only one original executed copy of each Lease;
(M) The Leases constitute chattel paper within the meaning of the UCC as
in effect in the States of Minnesota and Delaware (other than those Leases
in which the lessor is financing exclusively the Obligor's software license
or maintenance contract for Equipment, which Leases, in proportion to the
Initial Pool Principal Balance, are not material);
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(N) Each Lease was entered into by an Obligor who, at the Cut-Off Date,
had not been identified on the records of Vendor Services as being the
subject of a current bankruptcy proceeding;
(O) The computer tape containing information with respect to the Leases
that was made available by Vendor Services to the Trustee on the Closing
Date and was used to select the Leases was complete and accurate in all
material respects as of the Cut-Off Date and includes a description of the
same Leases that are described in the Schedule of Leases to the
Contribution and Servicing Agreement;
(P) By the Closing Date, the portions of the electronic master record of
Vendor Services relating to the Leases will have been clearly and
unambiguously marked to show that the Leases constitute part of the Trust
Assets and are owned by the Issuer in accordance with the terms of the
Contribution and Servicing Agreement;
(Q) No Lease has a Scheduled Payment delinquency (in excess of 10% of the
Scheduled Payment due) of more than 59 days past due as of the Cut-Off
Date;
(R) Each Lease may be sold, assigned and transferred by Vendor Services
to the SPC, and may be assigned and transferred by the SPC to the Issuer,
without the consent of, or prior approval from, or any notification to, the
applicable Obligor, other than (i) certain Leases (which, in proportion to
the aggregate of all of the Leases, are not material) that require
notification of the assignment to the Obligor, which notification will be
given by the Servicer not later than 10 days following the Closing Date,
and (ii) Leases (which, in proportion to the aggregate of all of the
Leases, are not material) that require the consent of the Obligor, which
consent will be obtained by the Servicer not later than 10 days following
the Closing Date;
(S) Each Lease prohibits the sale, assignment or transfer of the
Obligor's interest therein, the assumption of the Lease by another person
in a manner that would release the Obligor thereof from the Obligor's
obligation, or any sale, assignment or transfer of the related Equipment,
without the prior consent of the lessor, other than Leases which may (i)
permit assignment to a subsidiary, corporate parent or other affiliate,
(ii) permit the assignment to a third party, provided the Obligor remains
liable under the Lease, or (iii) permit assignment to a third party with a
credit standing (determined by Vendor Services in accordance with its
underwriting policy and practice at the time for an equivalent contract
type, term and amount) equal to or better than the original Obligor;
(T) The Obligor under each Lease is required to make payments thereunder
(i) in United States dollars, and (ii) in fixed amounts and on fixed and
predetermined dates;
(U) Each Lease requires the Obligor to assume responsibility for payment
of all expenses in connection with the maintenance and repair of the
related Equipment, the payment of all premiums for insurance of such
Equipment and the payment of all taxes (including sales and property taxes)
relating to such Equipment;
(V) Each Lease requires the Obligor thereunder to make all Scheduled
Payments thereon under all circumstances and regardless of the condition or
suitability of the related Equipment and notwithstanding any defense, set-
off or counterclaim that the Obligor may have against the manufacturer,
lessor or lender (as the case may be);
(W) Under each Lease, if the Equipment is damaged or destroyed, the
Obligor is required either (i) to repair such Equipment, (ii) to make a
termination payment to the lessor in an amount not less than the Required
Payoff Amount, or (iii) in some cases, to replace such damaged or destroyed
Equipment with other equipment of comparable use and value;
(X) None of the Leases permit the Obligor to terminate the Lease prior to
the latest Stated Maturity Date or to otherwise prepay the amounts due and
payable thereunder, except for a de minimis number of Leases which allow
for an early termination or prepayment upon payment of an amount which is
not less than the Required Payoff Amount;
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(Y) It is not a precondition to the valid transfer or assignment of
Vendor Services' interest in any of the Equipment related to any Lease that
title to such Equipment be transferred on the records of any governmental
or quasi-governmental agency, body or authority;
(Z) The information with respect to the Leases listed on the Schedule of
Leases attached to the Contribution and Servicing Agreement is true,
correct and complete in all material respects;
(AA) No provisions of any Lease have been waived, altered or modified in
any material respect, except as indicated in the Lease File;
(BB) No Lease is a "consumer lease" as defined in Article 2A of the
Uniform Commercial Code, except for a de minimis number of Leases;
(CC) To the best of Vendor Services' knowledge, each Obligor has accepted
the related Equipment and has had reasonable opportunity to inspect and
test such Equipment; and
(DD) The Obligor has made at least one payment under the Lease.
The above-described representations and warranties of Vendor Services
will survive the transfer and assignment of the related Leases and other Trust
Assets to the Issuer.
In the event of a breach of any such representation or warranty with
respect to a Lease that materially and adversely affects the value of such
Lease (any such breach being a "Repurchase Event"), Vendor Services, unless it
cures the breach by the end of the second Collection Period after the date on
which Vendor Services becomes aware of or receives written notice from the
Trustee or the Servicer of such breach, will be obligated to repurchase (or
substitute another lease for) the Lease and the related Equipment. Any such
repurchase shall be made on the Deposit Date immediately following the end of
such second Collection Period at a price equal to the Required Payoff Amount
applicable to such Lease plus the Book Value of the related Equipment. The
"Required Payoff Amount," with respect to any Collection Period for any Lease,
is equal to the sum of: (i) the Scheduled Payment due in such Collection
Period, together with any Scheduled Payments due in prior Collection Periods
and not yet received, plus (ii) the Principal Balance of such Lease as of the
last day of such Collection Period (after taking into account the Scheduled
Payment due in such Collection Period). This repurchase or substitution
obligation may be enforced by the Trustee on behalf of the holders of the
Notes, and will constitute the sole remedy available to the Noteholders against
Vendor Services for any such uncured breach, except that pursuant to the
Transfer Agreement, Vendor Services will indemnify the Trustee, the Issuer and
the Noteholders against losses, damages, liabilities and claims which may be
asserted against any of them as a result of third-party claims arising out of
the facts giving rise to such breach.
Upon the repurchase or substitution by Vendor Services of a Lease and any
related Equipment, such Lease and related Equipment will be released to Vendor
Services.
SUBSTITUTION
Vendor Services will have the option to substitute one or more Leases
having similar characteristics (each, a "Substitute Lease") for (a) Liquidated
Leases, (b) Leases subject to repurchase as a result of a breach or
representation or warranty ("Warranty Leases") and (c) Leases following a
material modification or adjustment to the terms of such Lease ("Adjusted
Leases"). The aggregate Principal Balance of the Liquidated Leases, Warranty
Leases or Adjusted Leases for which Vendor Services may substitute Substitute
Leases cannot exceed 10% of the Initial Pool Principal Balance.
In no event will the Lease Pool Principal Balance after the inclusion of
the Substitute Leases be less than the Lease Pool Principal Balance prior to
such substitution. In addition, after giving effect to such substitutions, the
aggregate Book Value of the Equipment subject to the Leases cannot be
materially less than the aggregate Book Value of the Equipment subject to the
Leases immediately prior to such substitutions. Additionally, the final payment
on each Substitute Lease must be on or prior to September 30, 2005 or, to the
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extent the final payment on such Lease is due subsequent to September 30, 2005,
only scheduled payments due on or prior to such date may be included in
calculating the Principal Balance of such Lease.
CERTAIN STATISTICS RELATING TO THE CUT-OFF DATE POOL
General
Vendor Services has prepared certain statistics relating to the Lease
Pool as of the Initial Cut-Off Date (the "Cut-Off Date Pool"). All statistical
information concerning the Leases set forth herein, insofar as it involves
calculations of the Principal Balances of the Leases, are made using the
Statistical Discount Rate of 6.506%.
The aggregate Principal Balance of the Leases calculated using the
Statistical Discount Rate, and not including delinquent amounts (the
"Statistical Discounted Present Value of the Leases") is equal to
$394,839,208.76. The aggregate Principal Balance of each Lease (the "Lease Pool
Principal Balance") as of the Initial Cut-Off Date (the "Initial Pool Principal
Balance") and as of each Payment Date will be calculated at the "Discount Rate"
of %.
The total number of Leases in the Cut-Off Date Pool is 34,621. The
average Principal Balance of the Leases, as of the Initial Cut-Off Date, was
approximately $11,404.62.
COMPOSITION OF THE CUT-OFF DATE POOL
<TABLE>
<CAPTION>
STATISTICAL DISCOUNTED WEIGHTED AVERAGE
NUMBER PRESENT VALUE OF THE ORIGINAL TERM WEIGHTED AVERAGE AVERAGE PRINCIPAL
OF LEASES LEASES (RANGE) REMAINING TERM (RANGE) BALANCE (RANGE)
- --------- ---------------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
34,621 $394,839,208.76 47.65 months 41.33 months $11,404.62
(7 months to 84 months) (6 months to 82 months) ($98.54 to $3,193,926.43)
</TABLE>
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Geographical Diversity
The following table shows the geographical diversity of the Cut-Off Date
Pool, by indicating the number of Leases, the aggregate Statistical Discounted
Present Value of the Leases and the percentage (by number of Leases and by
aggregate Statistical Discounted Present Value) of such Leases relative to all
of the Leases in the Cut-Off Date Pool by reference to the State in which the
Obligors on such Leases are (according to the Servicer's records) located:
<TABLE>
<CAPTION>
AGGREGATE % OF STATISTICAL
STATISTICAL DISCOUNTED DISCOUNTED PRESENT
% OF TOTAL NUMBER PRESENT VALUE VALUE OF THE
STATE NUMBER OF LEASES OF LEASES OF THE LEASES LEASES
- ----- ---------------- ----------------- ---------------------- ------------------
<S> <C> <C> <C> <C>
Alabama................. 287 0.83% $3,073,725.63 0.78%
Alaska.................. 70 0.20 479,890.77 0.12
Arizona................. 604 1.74 6,977,195.61 1.77
Arkansas................ 112 0.32 783.252.47 0.20
California.............. 3,421 9.88 47,253,950.52 11.97
Colorado................ 621 1.79 6,248,521.29 1.58
Connecticut............. 680 1.96 8,184,154.83 2.07
Delaware................ 178 0.51 2,045,067.83 0.52
District of Columbia.... 168 0.49 2,116,882.21 0.54
Florida................. 3,329 9.62 34,447,676.65 8.72
Georgia................. 1,024 2.96 11,881,996.54 3.01
Hawaii.................. 55 0.16 575,597.98 0.15
Idaho................... 63 0.18 391,622.12 0.10
Illinois................ 1,416 4.09 16,551,269.13 4.19
Indiana................. 603 1.74 6,790,755.77 1.72
Iowa.................... 245 0.71 1,989,644.32 0.50
Kansas.................. 238 0.69 3,084,275.73 0.78
Kentucky................ 313 0.90 2,846,244.59 0.72
Louisiana............... 358 1.03 3,404,755.25 0.86
Maine................... 150 0.43 1,284,251.39 0.33
Maryland................ 650 1.88 9,054,610.69 2.29
Massachusetts........... 1,276 3.69 12,591,703.54 3.19
Michigan................ 807 2.33 13,005,672.44 3.29
Minnesota............... 934 2.70 8,605,454.22 2.18
Mississippi............. 172 0.50 1,691,243.89 0.43
Missouri................ 470 1.36 5,659,869.54 1.43
Montana................. 80 0.23 518,517.65 0.13
Nebraska................ 103 0.30 1,142,206.67 0.29
Nevada.................. 386 1.11 4,281,898.10 1.08
New Hampshire........... 245 0.71 2,445,385.96 0.62
New Jersey.............. 2,030 5.86 25,330,704.62 6.42
New Mexico.............. 135 0.39 1,317,869.12 0.33
New York................ 3,555 10.27 42,676,206.58 10.81
North Carolina.......... 1,418 4.10 16,155,347.87 4.09
North Dakota............ 48 0.14 560,643.60 0.14
Ohio.................... 1,106 3.19 10,132,850.30 2.57
Oklahoma................ 306 0.88 2,747,690.15 0.70
Oregon.................. 342 0.99 2,783,396.25 0.70
Pennsylvania............ 1,509 4.36 16,031,010.32 4.06
Rhode Island............ 159 0.46 2,209,732.70 0.56
South Carolina.......... 494 1.43 4,695,214.99 1.19
South Dakota............ 51 0.15 414,201.29 0.10
Tennessee............... 419 1.21 4,735,186.67 1.20
Texas................... 1,918 5.54 24,970,870.82 6.32
Utah.................... 160 0.46 1,754,092.01 0.44
Vermont................. 68 0.20 757,010.91 0.19
Virginia................ 918 2.65 10,052,108.68 2.55
Washington.............. 466 1.35 4,358,103.99 1.10
West Virginia........... 125 0.36 1,033,202.96 0.26
Wisconsin............... 286 0.83 2,518,788.04 0.64
Wyoming................. 50 0.14 197,683.52 0.05
------ ------ --------------- ------
Total.................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
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Adverse economic conditions in states where a substantial number of
Obligors are located, such as New York, California and Florida, may adversely
affect such Obligors' ability to make payments on the related Leases, and the
Noteholders could suffer a loss on their investment as a result.
Payment Status
The following table shows the payment status of the Cut-Off Date Pool, by
indicating the number of Leases, the aggregate Statistical Discounted Present
Value of such Leases and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases in the Cut-Off Date Pool by reference to whether such Leases were
current as of the Initial Cut-Off Date or were 31-60 days delinquent. For these
purposes, a "delinquency" means that the Obligor on the Lease has failed to
make a required Scheduled Payment in an amount equal to at least 90% of the
required Scheduled Payment within 30 days of the due date.
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
PAYMENT STATUS NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- -------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Current................. 33,859 97.80% $388,779,154.22 98.47%
31-60 Days Delinquent... 762 2.20 6,060,054.54 1.53
------ ------ --------------- ------
Total................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
Leases by Equipment Type
The following table shows the type of Equipment securing or otherwise
related to the Leases, by the number of Leases, the aggregate Statistical
Discounted Present Value of such Leases, and the percentage (by number of
Leases and by aggregate Statistical Discounted Present Value) of such Leases
relative to all of the Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
TYPE OF EQUIPMENT NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Data Processing
Equipment.............. 15,798 45.63% $129,206,580.26 32.72%
Office Machines......... 7,305 21.10 79,046,457.24 20.02
Telecommunications...... 6,068 17.53 77,493,428.70 19.63
Auto Services........... 1,263 3.65 16,890,907.92 4.28
Healthcare Related...... 460 1.33 13,699,467.72 3.47
Laundry & Cleaning...... 545 1.57 13,423,134.35 3.40
Furniture............... 715 2.07 11,998,664.96 3.04
Machine Tool............ 483 1.40 10,991,781.97 2.78
Other................... 438 1.27 10,029,283.29 2.54
Recreation.............. 422 1.22 6,386,195.06 1.62
Secured Loans........... 22 0.06 6,089,040.63 1.54
Food & Lodging.......... 307 0.89 5,397,999.88 1.37
Printing................ 245 0.71 4,174,015.82 1.06
HVAC.................... 112 0.32 2,734,617.03 0.69
Imaging................. 144 0.42 1,880,903.10 0.48
Construction............ 65 0.19 1,376,407.42 0.35
Material Handling....... 97 0.28 1,337,493.95 0.34
Maintenance............. 59 0.17 897,414.84 0.23
Unclassified............ 34 0.10 771,366.30 0.20
Waste Management........ 26 0.08 605,268.51 0.15
Manufacturing........... 9 0.03 295,745.74 0.07
Transportation.......... 4 0.01 113,034.07 0.03
------ ------ --------------- ------
Total................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
24
<PAGE>
Principal Balances
The following table shows the distribution of the Cut-Off Date Pool by
Principal Balance by indicating the number of Leases which have a Principal
Balance within a defined range and the aggregate Statistical Discounted Present
Value of the Leases, and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
PRINCIPAL BALANCE NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
$ 0.01 to
$ 10,000.00.......... 24,215 69.94% $102,196,506.28 25.88%
$ 10,000.01 to
$ 25,000.00.......... 7,066 20.41 110,124,029.37 27.89
$ 25,000.01 to
$ 40,000.00.......... 1,772 5.12 55,080,040.75 13.95
$ 40,000.01 to
$ 60,000.00.......... 825 2.38 39,856,448.99 10.09
$ 60,000.01 to
$ 80,000.00.......... 319 0.92 21,797,021.93 5.52
$ 80,000.01 to
$ 100,000.00.......... 159 0.46 14,255,309.09 3.61
$100,000.01 to
$ 150,000.00.......... 163 0.47 19,295,820.73 4.89
$150,000.01 to
$ 200,000.00.......... 46 0.13 8,075,149.88 2.05
$200,000.01 to
$ 300,000.00.......... 29 0.08 7,031,530.07 1.78
$300,000.01 to
$ 400,000.00.......... 12 0.03 4,210,628.16 1.07
$400,000.01 to
$ 500,000.00.......... 5 0.01 2,263,426.03 0.57
$500,000.01 to
$1,000,000.00.......... 7 0.02 4,975,500.12 1.26
Over $1,000,000.00...... 3 0.01 5,677,797.37 1.44
------ ------ --------------- ------
Total................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
Original Equipment Costs
The following table shows the distribution of the Cut-Off Date Pool by
original equipment costs by indicating the number of Leases, the aggregate
Statistical Discounted Present Value of such Leases, and the percentage (by
number of Leases and by aggregate Statistical Discounted Present Value) of such
Leases relative to all of the Leases:
<TABLE>
<CAPTION>
AGGREGATE % OF STATISTICAL
% OF TOTAL STATISTICAL DISCOUNTED
NUMBER OF DISCOUNTED PRESENT PRESENT VALUE OF
ORIGINAL EQUIPMENT COSTS NUMBER OF LEASES LEASES VALUE OF THE LEASES THE LEASES
- ------------------------ ---------------- ---------- ------------------- ----------------
<S> <C> <C> <C> <C>
$ 0.01 to
$ 10,000.00.......... 22,973 66.36% $ 91,767,383.20 23.24%
$ 10,000.01 to
$ 25,000.00.......... 7,828 22.61 110,721,386.60 28.04
$ 25,000.01 to
$ 40,000.00.......... 2,033 5.87 57,654,821.66 14.60
$ 40,000.01 to
$ 60,000.00.......... 949 2.74 42,273,773.95 10.71
$ 60,000.01 to
$ 80,000.00.......... 346 1.00 21,882,102.79 5.54
$ 80,000.01 to
$ 100,000.00.......... 176 0.51 14,606,356.29 3.70
$100,000.01 to
$ 150,000.00.......... 191 0.55 20,823,752.93 5.27
$150,000.01 to
$ 200,000.00.......... 58 0.17 9,040,527.97 2.29
$200,000.01 to
$ 300,000.00.......... 39 0.11 8,750,315.70 2.22
$300,000.01 to
$ 400,000.00.......... 7 0.02 2,208,711.19 0.56
$400,000.01 to
$ 500,000.00.......... 9 0.03 3,524,739.50 0.89
$500,000.01 to
$1,000,000.00.......... 9 0.03 5,907,539.61 1.50
Over $1,000,000......... 3 0.01 5,677,797.37 1.44
------ ------ --------------- ------
Total................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
25
<PAGE>
Remaining Terms of Leases
The following table shows the remaining term of the Leases from the
Initial Cut-Off Date to the scheduled expiration date of such Leases, by
indicating the number of Leases, the aggregate Statistical Discounted Present
Value of such Leases, and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
REMAINING TERMS OF LEASES NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ------------------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
One Month to 12 Months... 1,165 3.37% $4,663,363.27 1.18%
13 Months to 24 Months... 6,298 18.19 34,884,289.48 8.84
25 Months to 36 Months... 17,023 49.17 139,401,451.28 35.31
37 Months to 48 Months... 3,516 10.16 51,071,282.69 12.93
49 Months to 60 Months... 6,479 18.71 156,903,654.97 39.74
Over 60 Months........... 140 0.40 7,915,167.06 2.00
------ ------ --------------- ------
Total.................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
Original Terms of Leases
The following table shows the original term of the Leases from the date
of origination to the scheduled expiration date of such leases, by indicating
the number of Leases, the aggregate Statistical Discounted Present Value of
such Leases, and the percentage (by number of Leases and by aggregate
Statistical Discounted Present Value) of such Leases relative to all of the
Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
ORIGINAL TERMS OF LEASES NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ------------------------ ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
One Month to 12 Months.. 493 1.42% $ 2,024,746.67 0.51%
13 Months to 24 Months.. 4,472 12.92 21,128,835.89 5.35
25 Months to 36 Months.. 18,611 53.76 146,831,944.89 37.19
37 Months to 48 Months.. 3,072 8.87 36,628,707.41 9.28
49 Months to 60 Months.. 7,390 21.35 172,798,496.53 43.76
61 Months to 72 Months.. 558 1.61 11,783,347.73 2.98
73 Months to 84 Months.. 25 0.07 3,643,129.64 0.92
------ ------ --------------- ------
Total................. 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
Leases by Purchase Options
The following table shows the types of equipment purchase options related
to the Leases, by the number of Leases, the aggregate Statistical Discounted
Present Value of such Leases, and the percentage (by number of Leases and by
aggregate Statistical Present Value) of such Leases relative to all of the
Leases:
<TABLE>
<CAPTION>
AGGREGATE
STATISTICAL % OF STATISTICAL
% OF TOTAL DISCOUNTED DISCOUNTED
NUMBER OF PRESENT VALUE PRESENT VALUE OF
TYPE NUMBER OF LEASES LEASES OF THE LEASES THE LEASES
- ---- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Nominal Buyout.......... 15,001 43.33% $183,483,751.24 46.47%
Fixed Purchase Option... 3,451 9.97 35,041,007.17 8.87
Fair Market Value....... 16,145 46.63 175,832,120.24 44.53
Put Option.............. 24 0.07 482,330.11 0.12
------ ------ --------------- ------
Totals................ 34,621 100.00% $394,839,208.76 100.00%
====== ====== =============== ======
</TABLE>
26
<PAGE>
CERTAIN STATISTICS RELATING TO DELINQUENCIES AND DEFAULTS
Delinquencies
The following table sets forth statistics relating to delinquencies on
leases within Vendor Services' owned and managed portfolio of receivables
similar to the Leases as of December 31, 1996, December 31, 1997 and November
30, 1998. Vendor Services was acquired by Green Tree in November 1996, and
current management, accordingly, cannot certify delinquency and default
experience for prior periods. However, current management does not believe that
Vendor Services' delinquency and default experience in prior periods was
substantially different from the experience presented here. For these purposes,
a "Delinquency" means that the obligor on the lease has failed to make a
required Scheduled Payment in an amount equal to at least 90% of the required
Scheduled Payment within 30 days of the due date. For these purposes, any
payment made by the obligor on a lease subsequent to the required payment date
is applied to the earliest payment which was unpaid. The following table is
based, where indicated, on the gross receivable balance of the leases, as it
appears on the accounting records of Vendor Services as of the date set forth
below and not solely the overdue payments.
<TABLE>
<CAPTION>
PERCENTAGE OF GROSS RECEIVABLE
BALANCE OF LEASES WHICH WERE
GROSS DELINQUENT
RECEIVABLE -------------------------------
BALANCE OF 31 TO 60 61 TO 90 OVER 90
DATE OF CALCULATION LEASES DAYS DAYS DAYS TOTAL
------------------- ------------ -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
12/31/96....................... $618,075,465 2.20% 0.36% 0.13% 2.69%
12/31/97....................... $735,621,630 2.07% 0.39% 0.15% 2.61%
11/30/98....................... $893,014,108 1.81% 0.35% 0.09% 2.25%
</TABLE>
Non-Accruals
The following table sets forth statistics relating to Non-Accruals on
leases within Vendor Services' owned and managed portfolio of receivables
similar to the Leases as of December 31, 1996, December 31, 1997 and as of
November 30, 1998. Vendor Services was acquired by Green Tree in November 1996,
and current management, accordingly, cannot certify non-accrual experience for
prior periods. However, current management does not believe that Vendor
Services' non-accrual experience in prior periods was substantially different
from the experience presented here. For these purposes, a "Non-Accrual" means
that, as of the date indicated, the obligor on the relevant lease had failed to
make payments in an amount at least equal to 90% of the required Scheduled
Payment for at least 90 days beyond the date required (or less, if in the
judgment of the collection manager the account is impaired), or commenced a
bankruptcy or insolvency proceeding. The following table is based, where
indicated, on the net investment of the leases (gross of any allowance for
losses) as it appears on the records of Vendor Services as of the date
specified below:
<TABLE>
<CAPTION>
PERCENTAGE OF
AGGREGATE NET AGGREGATE NET INVESTMENT
INVESTMENT OF OF LEASES WHICH WERE
DATE OF CALCULATION LEASES ON NON-ACCRUAL
------------------- ------------- ------------------------
<S> <C> <C>
12/31/96............................ $558,040,000 3.42%
12/31/97............................ $672,210,148 3.58%
11/30/98............................ $832,231,935 4.05%
</TABLE>
Losses and Recoveries
The following table sets forth statistics relating to gross losses and
losses net of recoveries on defaulted leases within Vendor Services' owned and
managed portfolio of receivables similar to the Leases during the twelve-month
periods ending December 31, 1996 and December 31, 1997 and during the eleven-
month period ending November 30, 1998. Vendor Services was acquired by Green
Tree in November 1996, and current management, accordingly, cannot certify loss
and recovery experience for prior periods. However,
27
<PAGE>
current management does not believe that Vendor Services' loss and recovery
experience in prior periods was substantially different from the experience
presented here. For these purposes, "gross losses" means total losses before
recoveries measured against the net investment of the leases (gross of any
allowance for losses), and "net losses" means losses after recoveries measured
against the net investment of the leases (gross of any allowance for losses).
<TABLE>
<CAPTION>
AGGREGATE
NET GROSS LOSSES AS A NET LOSSES AS A
INVESTMENT PERCENTAGE OF NET PERCENTAGE OF NET
DATE OF CALCULATION OF LEASES INVESTMENT INVESTMENT
------------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
12/31/96.................... $558,040,000 2.96% 1.83%
12/31/97.................... 672,210,148 2.40% 1.51%
11/30/98.................... 832,231,935 2.17% 1.38%
</TABLE>
Vendor Services' delinquency, non-accrual and net loss experience has
historically been affected by prevailing economic conditions, particularly in
industries and geographic regions where it has customer concentrations. These
conditions are often volatile, and no predictions can be made regarding them.
There can be no assurance that the delinquency, non-accrual and net loss
experience on the Leases will be comparable to that set forth above.
It has been Vendor Services' experience that collections from the
obligors constitute a significant portion of recoveries on defaulted equipment
lease receivables, in addition to the proceeds from liquidation of the related
equipment. The resale value of individual items of Equipment, which would be
collected by the Servicer in the event of a default under the related Lease,
will vary substantially, depending on such factors as the expected remaining
useful life of the Equipment at the time of the default and the obsolescence of
the Equipment, it is possible that the resale values for some Equipment would
be negligible or insufficient to justify repossession and resale. See "Risk
Factors--Risks Relating to Reliance on Residual Realizations."
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE ISSUER
As of the date of this Prospectus, the Issuer has had no operating
history. The net proceeds of the sale of the Notes will be employed to purchase
the Leases. See "Use of Proceeds." The Issuer is prohibited by its LLC
Agreement from engaging in business other than (i) acquiring the Leases and
rights to the Residual Realizations from the SPC, (ii) pledging the Leases and
its rights to the Residual Realizations to the Trustee, (iii) executing and
performing its obligations under the Contribution and Servicing Agreement and
the Indenture, and (iv) engaging in other transactions, including entering into
agreements, that are necessary, suitable or convenient to accomplish the
foregoing or are incidental thereto or connected therewith.
28
<PAGE>
MANAGERS OF THE ISSUER
The following table sets forth the managers of the Issuer and their ages
and positions as of the date of this Prospectus. Because the Issuer is
organized as a special purpose company and will be largely passive, it is
expected that the managers in such capacity will participate in the management
of the Issuer to a limited extent. Most of the actions related to maintaining
and servicing the assets will be performed by the Servicer.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------------------------------------
<S> <C> <C>
Joel H. Gottesman............... 49 Manager and Chair of Board of Managers
Richard G. Evans................ 50 Manager
</TABLE>
Joel H. Gottesman was named to the Board of Managers of the Issuer in
November 1998. Mr. Gottesman has been Senior Vice President and General Counsel
of Green Tree Financial Corporation since September 1995, and Secretary since
May 1996. From 1983 to 1995, Mr. Gottesman was an attorney at Briggs & Morgan,
Professional Association, Minneapolis, Minnesota.
Richard G. Evans was named to the Board of Managers of the Issuer in
November 1998. Mr. Evans has been the Executive Vice President of Green Tree
Financial Corporation since 1993. From 1985 to 1993, Mr. Evans was General
Counsel of Green Tree Financial Corporation.
None of the above-listed managers of the Issuer will be compensated
directly by the Issuer nor with any funds or assets of the Issuer nor will any
such managers receive compensation in the capacities in which they act for the
Issuer.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to managers and controlling persons of the Issuer pursuant
to its LLC Agreement, or otherwise, the Issuer has been advised that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Issuer of expenses incurred or paid by a manager, officer or
controlling person of the Issuer in the successful defense of any action, suit
or proceeding) is asserted by such manager or controlling person in connection
with the Notes, the Issuer 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 Securities Act and will be governed
by the final adjudication of such issue.
29
<PAGE>
WEIGHTED AVERAGE LIFE OF THE NOTES
THE FOLLOWING INFORMATION IS GIVEN SOLELY TO ILLUSTRATE THE EFFECT OF
PREPAYMENTS ON THE LEASES ON THE WEIGHTED AVERAGE LIFE OF THE NOTES UNDER THE
ASSUMPTIONS STATED BELOW AND IS NOT A PREDICTION OF THE PREPAYMENT RATE THAT
MIGHT ACTUALLY BE EXPERIENCED BY THE LEASES.
Weighted average life refers to the average amount of time from the date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average life of the Notes will be
primarily a function of the rate at which payments are made on the Leases.
Payments on the Leases may be in the form of Scheduled Payments or prepayments
(including, for this purpose, liquidations due to default). See "Risk Factors--
Prepayment and Early Termination of Leases and Related Reinvestment Risks."
The Constant Prepayment Rate prepayment model ("CPR") represents an
assumed constant rate of prepayment of Leases outstanding as of the beginning
of each month expressed as a per annum percentage. There can be no assurance
that Leases will experience prepayments at a constant prepayment rate or
otherwise in the manner assumed by the prepayment model. See "Risk Factors--
Prepayment and Early Termination of Leases and Related Reinvestment Risk."
The weighted average lives in the following tables were created assuming
that the Discount Rate is equal to the Statistical Discount Rate and further
assuming that: (i) Scheduled Payments on the Leases are received in a timely
manner and prepayments are made at the percentages of the prepayment model set
forth in the table; (ii) with respect to the caption "Weighted Average Life to
Call" the SPC will exercise its right to purchase the Leases on the Payment
Date following the date on which the unpaid principal balance of all of the
outstanding Notes is less than 10% of the Initial Pool Principal Balance, and
with respect to the caption "Weighted Average Life to Maturity," the SPC will
not exercise that right at any time; (iii) payments are made on the Notes on
the 20th day of each month commencing January 20, 1999; (iv) the Notes are
issued on December 23, 1998; (v) the SPC does not substitute new leases for
Leases that are prepaid in full and (vi) there are no investment earnings on
funds in the Collection Account, Reserve Account or Residual Account. In
addition, it was assumed for purposes of preparing the following tables only
that on the Closing Date the Issuer will issue $122,794,994 aggregate principal
amount of 5.22% Class A-1 Notes, $51,723,937 aggregate principal amount of
5.60% Class A-2 Notes, $122,400,155 aggregate principal amount of 5.56% Class
A-3 Notes, $58,436,203 aggregate principal amount of 5.72% Class A-4 Notes,
$25,664,549 aggregate principal amount of 6.50% Class B Notes, and $13,819,372
aggregate principal amount of 7.56% Class C Notes. No representation is made
that these assumptions will be correct, including the assumption that the
Leases will not experience delinquencies or losses. In addition, since the
Discount Rate will differ from the Statistical Discount Rate, the assumed level
of the Initial Pool Principal Balance, for purposes of the following tables,
will differ from the actual amount, as described herein.
30
<PAGE>
In making an investment decision with respect to the Notes, investors
should consider a variety of possible prepayment scenarios, including the
limited scenarios described in the tables below.
<TABLE>
<CAPTION>
PERCENTAGE OF THE PERCENTAGE OF THE
INITIAL PRINCIPAL BALANCE INITIAL PRINCIPAL BALANCE
OF THE OF THE
CLASS A-1 NOTES CLASS A-2 NOTES
------------------------------ ------------------------------
CPR CPR
------------------------------ ------------------------------
PAYMENT DATE 0% 7% 12% 18% 0% 7% 12% 18%
------------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
January 20, 1999........ 91.81 89.92 88.49 86.67 100.00 100.00 100.00 100.00
February 20, 1999....... 83.57 79.90 77.14 73.64 100.00 100.00 100.00 100.00
March 20, 1999.......... 75.28 69.95 65.95 60.92 100.00 100.00 100.00 100.00
April 20, 1999.......... 66.96 60.06 54.92 48.49 100.00 100.00 100.00 100.00
May 20, 1999............ 58.58 50.24 44.05 36.35 100.00 100.00 100.00 100.00
June 20, 1999........... 50.16 40.48 33.34 24.50 100.00 100.00 100.00 100.00
July 20, 1999........... 41.74 30.83 22.82 12.96 100.00 100.00 100.00 100.00
August 20, 1999......... 33.32 21.29 12.50 1.74 100.00 100.00 100.00 100.00
September 20, 1999...... 24.90 11.85 2.37 0.00 100.00 100.00 100.00 81.37
October 20, 1999........ 16.48 2.51 0.00 0.00 100.00 100.00 84.63 59.82
November 20, 1999....... 8.07 0.00 0.00 0.00 100.00 86.39 64.85 38.87
December 20, 1999....... 0.00 0.00 0.00 0.00 99.41 67.98 45.53 18.59
January 20, 2000........ 0.00 0.00 0.00 0.00 82.51 49.84 26.63 0.00
February 20, 2000....... 0.00 0.00 0.00 0.00 65.67 31.96 8.13 0.00
March 20, 2000.......... 0.00 0.00 0.00 0.00 48.89 14.33 0.00 0.00
April 20, 2000.......... 0.00 0.00 0.00 0.00 32.15 0.00 0.00 0.00
May 20, 2000............ 0.00 0.00 0.00 0.00 15.50 0.00 0.00 0.00
June 20, 2000........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life to
Call (in years)........ 0.53 0.46 0.41 0.36 1.28 1.12 1.02 0.91
Weighted Average Life To
Maturity (in years).... 0.53 0.46 0.41 0.36 1.28 1.12 1.02 0.91
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF THE PERCENTAGE OF THE
INITIAL PRINCIPAL BALANCE INITIAL PRINCIPAL BALANCE
OF THE OF THE
CLASS A-3 NOTES CLASS A-4 NOTES
------------------------------ ------------------------------
CPR CPR
------------------------------ ------------------------------
PAYMENT DATE 0% 7% 12% 18% 0% 7% 12% 18%
------------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
January 20, 1999........ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
February 20, 1999....... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
March 20, 1999.......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
April 20, 1999.......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
May 20, 1999............ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
June 20, 1999........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
July 20, 1999........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
August 20, 1999......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
September 20, 1999...... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October 20, 1999........ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November 20, 1999....... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December 20, 1999....... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
January 20, 2000........ 100.00 100.00 100.00 99.54 100.00 100.00 100.00 100.00
February 20, 2000....... 100.00 100.00 100.00 91.48 100.00 100.00 100.00 100.00
March 20, 2000.......... 100.00 100.00 95.79 83.66 100.00 100.00 100.00 100.00
April 20, 2000.......... 100.00 98.71 88.31 76.08 100.00 100.00 100.00 100.00
May 20, 2000............ 100.00 91.48 80.99 68.74 100.00 100.00 100.00 100.00
June 20, 2000........... 99.55 84.36 73.85 61.63 100.00 100.00 100.00 100.00
July 20, 2000........... 92.60 77.36 66.88 54.76 100.00 100.00 100.00 100.00
August 20, 2000......... 85.69 70.49 60.09 48.12 100.00 100.00 100.00 100.00
September 20, 2000...... 78.85 63.75 53.48 41.71 100.00 100.00 100.00 100.00
October 20, 2000........ 72.10 57.17 47.06 35.55 100.00 100.00 100.00 100.00
November 20, 2000....... 65.45 50.76 40.86 29.64 100.00 100.00 100.00 100.00
December 20, 2000....... 58.95 44.54 34.88 24.00 100.00 100.00 100.00 100.00
January 20, 2001........ 52.65 38.56 29.18 18.65 100.00 100.00 100.00 100.00
February 20, 2001....... 46.60 32.88 23.78 13.63 100.00 100.00 100.00 100.00
March 20, 2001.......... 40.83 27.48 18.69 8.93 100.00 100.00 100.00 100.00
April 20, 2001.......... 35.33 22.39 13.91 4.54 100.00 100.00 100.00 100.00
May 20, 2001............ 30.14 17.62 9.44 0.47 100.00 100.00 100.00 100.00
June 20, 2001........... 25.23 13.13 5.27 0.00 100.00 100.00 100.00 93.07
July 20, 2001........... 20.65 8.96 1.41 0.00 100.00 100.00 100.00 85.79
August 20, 2001......... 16.37 5.09 0.00 0.00 100.00 100.00 95.49 79.10
September 20, 2001...... 12.45 1.56 0.00 0.00 100.00 100.00 88.70 73.05
October 20, 2001........ 8.85 0.00 0.00 0.00 100.00 96.51 82.53 67.56
November 20, 2001....... 5.58 0.00 0.00 0.00 100.00 90.39 76.93 62.61
December 20, 2001....... 2.45 0.00 0.00 0.00 100.00 84.57 71.65 57.24
January 20, 2002........ 0.00 0.00 0.00 0.00 98.68 78.90 66.54 52.03
February 20, 2002....... 0.00 0.00 0.00 0.00 92.33 73.37 60.75 0.00
March 20, 2002.......... 0.00 0.00 0.00 0.00 86.06 67.98 55.15 0.00
April 20, 2002.......... 0.00 0.00 0.00 0.00 79.89 61.84 0.00 0.00
May 20, 2002............ 0.00 0.00 0.00 0.00 73.78 55.81 0.00 0.00
June 20, 2002........... 0.00 0.00 0.00 0.00 67.71 0.00 0.00 0.00
July 20, 2002........... 0.00 0.00 0.00 0.00 60.70 0.00 0.00 0.00
August 20, 2002......... 0.00 0.00 0.00 0.00 53.78 0.00 0.00 0.00
September 20, 2002...... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life to
Call (in years)........ 2.20 2.00 1.86 1.71 3.59 3.33 3.16 2.97
Weighted Average Life to
Maturity (in years).... 2.20 2.00 1.86 1.71 3.77 3.56 3.40 3.21
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF THE
INITIAL PRINCIPAL BALANCE
OF THE
CLASS B NOTES
------------------------------
CPR
------------------------------
PAYMENT DATE 0% 7% 12% 18%
------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Closing Date................................... 100.00% 100.00% 100.00% 100.00%
January 20, 1999............................... 100.00 100.00 100.00 100.00
February 20, 1999.............................. 100.00 100.00 100.00 100.00
March 20, 1999................................. 100.00 100.00 100.00 100.00
April 20, 1999................................. 100.00 100.00 100.00 100.00
May 20, 1999................................... 100.00 100.00 100.00 100.00
June 20, 1999.................................. 100.00 100.00 100.00 100.00
July 20, 1999.................................. 100.00 100.00 100.00 100.00
August 20, 1999................................ 100.00 100.00 100.00 100.00
September 20, 1999............................. 100.00 100.00 100.00 95.86
October 20, 1999............................... 100.00 100.00 96.58 91.06
November 20, 1999.............................. 100.00 96.97 92.18 86.40
December 20, 1999.............................. 99.87 92.88 87.88 81.89
January 20, 2000............................... 96.11 88.84 83.68 77.52
February 20, 2000.............................. 92.37 84.87 79.57 73.28
March 20, 2000................................. 88.63 80.95 75.54 69.16
April 20, 2000................................. 84.91 77.08 71.60 65.17
May 20, 2000................................... 81.21 73.27 67.76 61.31
June 20, 2000.................................. 77.52 69.53 64.00 57.56
July 20, 2000.................................. 73.86 65.84 60.33 53.95
August 20, 2000................................ 70.23 62.23 56.75 50.45
September 20, 2000............................. 66.63 58.68 53.27 47.08
October 20, 2000............................... 63.07 55.22 49.90 43.84
November 20, 2000.............................. 59.58 51.84 46.63 40.73
December 20, 2000.............................. 56.15 48.57 43.49 37.76
January 20, 2001............................... 52.84 45.42 40.48 34.94
February 20, 2001.............................. 49.66 42.43 37.64 32.30
March 20, 2001................................. 46.61 39.59 34.96 29.83
April 20, 2001................................. 43.72 36.91 32.45 27.52
May 20, 2001................................... 40.99 34.40 30.10 25.38
June 20, 2001.................................. 38.41 32.04 27.90 23.39
July 20, 2001.................................. 36.00 29.84 25.87 21.56
August 20, 2001................................ 33.74 27.81 24.00 19.88
September 20, 2001............................. 31.68 25.95 22.29 18.35
October 20, 2001............................... 29.79 24.25 20.74 16.98
November 20, 2001.............................. 28.07 22.71 19.33 15.73
December 20, 2001.............................. 26.42 21.25 18.00 15.60
January 20, 2002............................... 24.80 19.83 16.72 15.60
February 20, 2002.............................. 23.20 18.44 16.72 0.00
March 20, 2002................................. 21.62 17.08 16.72 0.00
April 20, 2002................................. 20.07 17.07 0.00 0.00
May 20, 2002................................... 18.54 17.07 0.00 0.00
June 20, 2002.................................. 17.01 0.00 0.00 0.00
July 20, 2002.................................. 17.01 0.00 0.00 0.00
August 20, 2002................................ 17.01 0.00 0.00 0.00
September 20, 2002............................. 0.00 0.00 0.00 0.00
Weighted Average Life To Call (in years)....... 2.35 2.14 2.00 1.85
Weighted Average Life To Maturity (in years)... 2.49 2.31 2.19 2.05
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF THE
INITIAL PRINCIPAL BALANCE
OF THE
CLASS C NOTES
------------------------------
CPR
------------------------------
PAYMENT DATE 0% 7% 12% 18%
------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Closing Date................................... 100.00% 100.00% 100.00% 100.00%
January 20, 1999............................... 100.00 100.00 100.00 100.00
February 20, 1999.............................. 100.00 100.00 100.00 100.00
March 20, 1999................................. 100.00 100.00 100.00 100.00
April 20, 1999................................. 100.00 100.00 100.00 100.00
May 20, 1999................................... 100.00 100.00 100.00 100.00
June 20, 1999.................................. 100.00 100.00 100.00 100.00
July 20, 1999.................................. 100.00 100.00 100.00 100.00
August 20, 1999................................ 100.00 100.00 100.00 100.00
September 20, 1999............................. 100.00 100.00 100.00 95.86
October 20, 1999............................... 100.00 100.00 96.58 91.06
November 20, 1999.............................. 100.00 96.97 92.18 86.40
December 20, 1999.............................. 99.87 92.88 87.88 81.89
January 20, 2000............................... 96.11 88.84 83.68 77.52
February 20, 2000.............................. 92.37 84.87 79.57 73.28
March 20, 2000................................. 88.63 80.95 75.54 69.16
April 20, 2000................................. 84.91 77.08 71.60 65.17
May 20, 2000................................... 81.21 73.27 67.76 61.31
June 20, 2000.................................. 77.52 69.53 64.00 57.56
July 20, 2000.................................. 73.86 65.84 60.33 53.95
August 20, 2000................................ 70.23 62.23 56.75 50.45
September 20, 2000............................. 66.63 58.68 53.27 47.08
October 20, 2000............................... 63.07 55.22 49.90 43.84
November 20, 2000.............................. 59.58 51.84 46.63 40.73
December 20, 2000.............................. 56.15 48.57 43.49 37.76
January 20, 2001............................... 52.84 45.42 40.48 34.94
February 20, 2001.............................. 49.66 42.43 37.64 32.30
March 20, 2001................................. 46.61 39.59 34.96 29.83
April 20, 2001................................. 43.72 36.91 32.45 27.52
May 20, 2001................................... 40.99 34.40 30.10 25.38
June 20, 2001.................................. 38.41 32.04 27.90 23.39
July 20, 2001.................................. 36.00 29.84 25.87 21.56
August 20, 2001................................ 33.74 27.81 24.00 19.88
September 20, 2001............................. 31.68 25.95 22.29 18.35
October 20, 2001............................... 29.79 24.25 20.74 16.98
November 20, 2001.............................. 28.07 22.71 19.33 15.73
December 20, 2001.............................. 26.42 21.25 18.00 15.73
January 20, 2002............................... 24.80 19.83 16.72 15.73
February 20, 2002.............................. 23.20 18.44 16.72 0.00
March 20, 2002................................. 21.62 17.08 16.72 0.00
April 20, 2002................................. 20.07 17.08 0.00 0.00
May 20, 2002................................... 18.54 17.08 0.00 0.00
June 20, 2002.................................. 17.01 0.00 0.00 0.00
July 20, 2002.................................. 17.01 0.00 0.00 0.00
August 20, 2002................................ 17.01 0.00 0.00 0.00
September 20, 2002............................. 0.00 0.00 0.00 0.00
Weighted Average Life To Call (in years)....... 2.35 2.14 2.00 1.85
Weighted Average Life To Maturity (in years)... 2.61 2.42 2.29 2.13
</TABLE>
34
<PAGE>
COLLATERAL CASHFLOWS AND RESIDUALS
<TABLE>
<CAPTION>
SCHEDULED SCHEDULED
COLLECTION PERIOD CASHFLOW RESIDUALS
----------------- ------------- ------------
<S> <C> <C>
December-1998...................................... 12,202,912.60 --
January-1999....................................... 12,202,912.60 --
February-1999...................................... 12,202,912.60 --
March-1999......................................... 12,202,912.60 --
April-1999......................................... 12,202,912.60 --
May-1999........................................... 12,202,912.60 --
June-1999.......................................... 12,147,776.13 8,950.77
July-1999.......................................... 12,091,423.62 12,985.72
August-1999........................................ 12,038,227.85 25,307.82
September-1999..................................... 11,982,441.84 26,246.61
October-1999....................................... 11,909,911.66 39,604.34
November-1999...................................... 11,795,853.98 98,481.04
December-1999...................................... 11,698,362.92 90,342.86
January-2000....................................... 11,606,207.93 134,238.31
February-2000...................................... 11,516,877.88 95,013.59
March-2000......................................... 11,433,949.49 94,452.62
April-2000......................................... 11,326,709.38 116,155.50
May-2000........................................... 11,221,601.49 139,369.80
June-2000.......................................... 11,100,344.59 195,253.86
July-2000.......................................... 10,974,033.45 219,312.09
August-2000........................................ 10,829,685.69 239,143.56
September-2000..................................... 10,656,484.85 252,804.73
October-2000....................................... 10,440,058.98 353,550.16
November-2000...................................... 10,192,952.33 507,740.31
December-2000...................................... 9,850,709.10 847,659.82
January-2001....................................... 9,432,342.25 1,111,927.84
February-2001...................................... 9,005,946.02 1,143,492.62
March-2001......................................... 8,552,881.01 1,092,031.31
April-2001......................................... 8,074,312.06 1,238,189.77
May-2001........................................... 7,635,810.36 1,274,634.20
June-2001.......................................... 7,129,551.26 1,282,105.29
July-2001.......................................... 6,661,763.50 1,283,807.91
August-2001........................................ 6,111,986.52 1,396,873.32
September-2001..................................... 5,610,932.05 1,372,849.61
October-2001....................................... 5,124,175.78 1,410,874.42
November-2001...................................... 4,892,125.72 782,677.62
December-2001...................................... 4,804,071.62 253,432.37
January-2002....................................... 4,711,383.48 247,288.70
February-2002...................................... 4,628,526.87 183,004.42
March-2002......................................... 4,533,280.49 187,643.79
April-2002......................................... 4,476,387.16 159,376.34
May-2002........................................... 4,416,104.18 152,762.06
June-2002.......................................... 4,350,340.67 167,048.26
July-2002.......................................... 4,272,258.06 171,854.51
August-2002........................................ 4,190,395.94 188,330.30
September-2002..................................... 4,097,316.12 177,698.27
October-2002....................................... 3,951,615.20 261,982.46
November-2002...................................... 3,747,392.48 553,311.14
December-2002...................................... 3,490,913.99 812,402.45
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
SCHEDULED SCHEDULED
COLLECTION PERIOD CASHFLOW RESIDUALS
----------------- ------------ ------------
<S> <C> <C>
January-2003........................................ 3,218,423.51 901,086.46
February-2003....................................... 2,926,986.65 865,857.63
March-2003.......................................... 2,636,559.28 918,309.75
April-2003.......................................... 2,333,643.84 1,027,066.02
May-2003............................................ 2,015,133.34 1,022,540.55
June-2003........................................... 1,710,645.77 922,969.52
July-2003........................................... 1,393,064.18 935,288.73
August-2003......................................... 1,090,235.59 859,197.08
September-2003...................................... 808,951.74 982,121.81
October-2003........................................ 378,738.40 1,406,914.87
November-2003....................................... 152,714.99 1,110,959.60
December-2003....................................... 136,264.59 72,206.14
January-2004........................................ 117,177.81 93,618.72
February-2004....................................... 106,695.91 49,290.47
March-2004.......................................... 100,792.68 4.00
April-2004.......................................... 97,075.20 5.00
May-2004............................................ 95,753.45 2.00
June-2004........................................... 86,789.22 5.00
July-2004........................................... 83,090.94 2.00
August-2004......................................... 76,336.48 4,360.90
September-2004...................................... 74,379.04 4.00
October-2004........................................ 59,872.01 28,831.37
November-2004....................................... 55,882.17 2.00
December-2004....................................... 54,149.86 3.00
January-2005........................................ 48,478.97 2.00
February-2005....................................... 44,039.72 2.00
March-2005.......................................... 31,196.92 71,348.90
April-2005.......................................... 26,458.66 1.00
May-2005............................................ 23,418.26 3,059.60
June-2005........................................... 21,912.87 1.00
July-2005........................................... 18,134.36 4.00
August-2005......................................... 10,034.18 2.00
September-2005...................................... 4,814.43 2.00
October-2005........................................ -- 4.00
November-2005....................................... -- --
December-2005....................................... -- --
</TABLE>
36
<PAGE>
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued pursuant to the terms of the Indenture. The
following summary describes certain terms of the Notes and the Indenture. A
copy of the form of the Indenture has been filed with the Commission as an
Exhibit to the Registration Statement of which this Prospectus is a part. U.S.
Bank Trust National Association, a national banking association headquartered
in St. Paul, Minnesota, will be the Trustee.
Pursuant to the Indenture, the Issuer will issue six classes of notes
(the "Notes"), consisting of classes of senior notes, designated as the %
Lease-Backed Notes, Class A-1, in the original principal amount of $122,794,994
(approximate), the % Lease-Backed Notes, Class A-2, in the original principal
amount of $51,723,937 (approximate), the % Lease-Backed Notes, Class A-3, in
the original principal amount of $122,400,155 (approximate)and the % Lease-
Backed Notes, Class A-4, in the original principal amount of $58,436,203
(approximate) (together, the "Class A Notes") and two classes of subordinated
notes, designated as the % Lease-Backed Notes, Class B, in the original
principal amount of $25,664,549 (approximate) and the % Lease-Backed Notes,
Class C, in the original principal amount of $13,819,372 (approximate).
Payments on the Notes will be made by the Trustee on each Payment Date to
persons in whose names the Notes are registered as of the related Record Date
(the "Holders" or "Noteholders"). The Payment Date for the Notes will be the
20th day of each month (or if such 20th day is not a Business Day, the next
succeeding Business Day), commencing in January 1999. If the Class A-1 Notes
have not been paid in full on or before the December 1999 Payment Date, the
Payment Date for the Class A-1 Notes in January 2000 will be January , 2000.
The Record Date for any Payment Date will be the Business Day immediately
preceding the Payment Date (so long as the Notes are held in the book-entry
form), or the last day of the prior calendar month (if Definitive Notes have
been issued).
A "Business Day" is any day (other than a Saturday, Sunday or legal
holiday) on which commercial banks in New York City, or any other location of a
successor Servicer or Trustee, are open for regular business.
Each Class of Notes initially will be represented by one or more
certificates (the "Book-Entry Certificates") registered in the name of the
nominee of DTC (together with any successor depository selected by the Trustee,
the "Depository"), except as set forth below. Beneficial interests in each
Class of Notes will be available for purchase in minimum denominations of
$10,000 and integral multiples of $1,000 in excess thereof, except that one
Class C Note may be issued in another denomination in book-entry form only. The
Issuer has been informed by DTC that DTC's nominee will be Cede & Co.
Accordingly, Cede & Co. is expected to be the Holder of record of the Notes.
Unless and until Definitive Notes are issued under the limited circumstances
described herein, no Note Owner acquiring an interest in any Class of Notes
will be entitled to receive a certificate representing such Note Owner's
interest in such Notes. Until such time, all references herein to actions by
Noteholders of any Class of Notes will refer to actions taken by the Depository
upon instructions from its participating organizations and all references
herein to distributions, notices, reports and statements to Noteholders of any
Class of Notes will refer to distributions, notices, reports and statements to
the Depository or its nominee, as the registered Holder of the Notes of such
Class, for distribution to Note Owners of such Class in accordance with the
Depository's procedures. See "--Book-Entry Registration" and "--Definitive
Notes."
Subject to applicable laws with respect to escheat of funds, any money
held by the Trustee or any paying agent in trust under the Indenture for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and, upon request of the Issuer, shall be deposited by the Trustee
in the Collection Account; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Issuer for payment thereof, and
all liability of the Trustee or such paying agent with respect to such money
shall thereupon cease.
37
<PAGE>
DISTRIBUTIONS
Principal of and interest on the Notes will be paid on each Payment Date,
solely from, and secured by, the "Amount Available" for such Payment Date,
which is equal to the sum of those (a) Pledged Revenues on deposit in the
Collection Account as of the last Business Day preceding the related
Determination Date (the "Deposit Date") which were received by the Servicer
during the related Collection Period or which represent amounts paid by Vendor
Services to repurchase Leases as of the end of such Collection Period and
investment earnings on funds on deposit in the Collection Account (the
"Available Pledged Revenues") plus (b) Servicer Advances made by the Servicer,
plus (c) funds, if any, on deposit in the Residual Account and investment
earnings thereon, as described under "--Residual Realizations" below, plus (d)
funds on deposit in the Reserve Account and investment earnings thereon. See
"--The Reserve Account" below.
"Pledged Revenues" will consist of (i) "Scheduled Payments" on the Leases
(which will consist of all required payments under the Leases other than those
portions of such payments which, under the Leases, are to be (A) applied by the
Servicer to the payment of insurance charges, maintenance, taxes and other
similar obligations, or (B) under the Contribution and Servicing Agreement, are
to be retained by the Servicer in payment of Administrative Fees or are late
payments as to which Servicer Advances were made on a Payment Date) received on
or after the Cut-Off Date and due during the term of the Leases, without giving
effect to end-of-term extensions or renewals thereof (including all Scheduled
Payments due prior to, but not received as of, the Cut-Off Date, but excluding
any Scheduled Payments due on or after, but received prior to, the Cut-Off
Date); (ii) any voluntary prepayments ("Prepayments") of Scheduled Payments
received on or after the Cut-Off Date under the Leases; (iii) any amounts paid
by Vendor Services to repurchase Leases (to the extent Vendor Services has not
delivered a Substitute Lease) due to a breach of representations and warranties
with respect thereto, as described under "The Leases--Representations and
Warranties Made by Vendor Services" or as a result of a Lease becoming an
Adjusted Lease, as described under "Description of the Contribution and
Servicing Agreement--Servicing"; (iv) any amounts paid by the SPC to repurchase
the Leases as described under "--Optional Repurchase of Leases"; (v)
Liquidation Proceeds derived from the liquidation of the Leases and the
disposition of the related Equipment, as described under "--Liquidated Leases"
below (unless Vendor Services has substituted a Substitute Lease therefor); and
(vi) any earnings on the investment of amounts credited to the Collection
Account.
On each Payment Date, the Trustee will be required to make the following
payments, first, from Available Pledged Revenues plus any Servicer Advances,
second, from amounts on deposit in the Residual Account as described under "--
Residual Realizations" below, and third, from amounts on deposit in the Reserve
Account, in the following order of priority (except as otherwise described
under "--Events of Default; Rights Upon Event of Default" below):
(i) the Servicing Fee if Vendor Services or an affiliate is no longer
the Servicer;
(ii) to reimburse the Servicer for unreimbursed Nonrecoverable
Servicer Advances made with respect to a prior Payment Date;
(iii) interest on the Notes in the following order of priority:
(a) interest on the Class A Notes,
(b) interest on the Class B Notes, and
(c) interest on the Class C Notes;
(iv) an amount equal to the Monthly Principal Amount as of such
Payment Date, in respect of principal on the Notes in the amounts and in
the priority described under "--Principal" below;
(v) from Available Pledged Revenues and amounts (if any) on deposit
in the Residual Account, to the Reserve Account, an amount equal to the
excess of the Required Reserve Amount over the Available Reserve Amount;
(vi) from Available Pledged Revenues only, for so long as Vendor
Services or an affiliate is the Servicer, the Servicing Fee; and
(vii) the remainder of Available Pledged Revenues, if any, to the
SPC.
38
<PAGE>
CLASS A INTEREST
Interest will be paid to the Holders of each Class of the Class A Notes
on each Payment Date, to the extent the Amount Available (after taking into
account any prior applications described under "--Distributions" above) is
sufficient therefor, at the Interest Rate for such Class on the Outstanding
Principal Amount of such Class. Interest on the Class A-1 Notes will be
calculated on the basis of actual days elapsed in a year of 360 days, and
interest on the Class A-2 Notes, Class A-3 Notes and Class A-4 Notes will be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Such interest so payable on such Payment Date will be equal to the product of
(i) the Interest Rate for such Class (calculated in the manner described above)
and (ii) the Outstanding Principal Amount of such Class as of such Payment
Date. Interest on each Class of the Class A Notes will accrue from and
including the Closing Date to but excluding January 20, 1999 (in the case of
the first interest period), and thereafter for each successive Payment Date
from and including the most recent prior Payment Date to which interest has
been paid, to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available is not
sufficient to make a full payment of interest to the Holders of Class A Notes,
the amount of interest to be paid on the Class A Notes will be allocated among
the Notes of each Class of Class A Notes pro rata in accordance with their
respective entitlements to interest (and within each such Class pro rata among
the holders of such Class), and the amount of such shortfall will be carried
forward and, together with interest thereon at the applicable Interest Rate,
added to the amount of interest such Holders will be entitled to receive on the
next Payment Date.
CLASS B INTEREST
Interest will be paid to the Holders of the Class B Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
all prior applications described under "--Distributions" above) is sufficient
therefor, at the Class B Interest Rate on the Outstanding Principal Amount of
the Class B Notes, and will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest so paid on such Payment Date
will be equal to one-twelfth of the product of (i) the Class B Interest Rate
and (ii) the Outstanding Principal Amount of the Class B Notes as of such
Payment Date. Interest on the Class B Notes will accrue from and including the
Closing Date to but excluding January 20, 1999 (in the case of the first
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A Notes, is not sufficient to make a full
payment of interest to the Holders of Class B Notes, the amount of interest to
be paid on the Class B Notes will be allocated among the Class B Notes pro
rata, and the amount of such shortfall will be carried forward and, together
with interest thereon at the Class B Interest Rate, added to the amount of
interest such Holders will be entitled to receive on the next Payment Date.
CLASS C INTEREST
Interest will be paid to the Holders of the Class C Notes on each Payment
Date, to the extent the remaining Amount Available (after taking into account
all prior applications described under "--Distributions" above) is sufficient
therefor, at the Class C Interest Rate on the Outstanding Principal Amount of
the Class C Notes, and will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. Such interest so paid on such Payment Date
will be equal to one-twelfth of the product of (i) the Class C Interest Rate
and (ii) the Outstanding Principal Amount of the Class C Notes as of such
Payment Date. Interest on the Class C Notes will accrue from and including the
Closing Date to but excluding January 20, 1999 (in the case of the first
interest period), and thereafter for each successive Payment Date from and
including the most recent prior Payment Date to which interest has been paid,
to but excluding such Payment Date.
In the event that, on a given Payment Date, the Amount Available, after
payment of interest on the Class A and Class B Notes, is not sufficient to make
a full payment of interest to the Holders of Class C Notes,
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the amount of interest to be paid on the Class C Notes will be allocated among
the Class C Notes pro rata, and the amount of such shortfall will be carried
forward and, together with interest thereon at the Class C Interest Rate, added
to the amount of interest such Holders will be entitled to receive on the next
Payment Date.
PRINCIPAL
For each Payment Date, each of the Class A Noteholders, the Class B
Noteholders and the Class C Noteholders will be entitled to receive payments of
principal, to the extent funds are available therefor, in the priorities set
forth in the Indenture and described herein below and under "--Distributions."
On each Payment Date, to the extent funds are available therefor, principal
will be paid to the Noteholders in the following priority:
(a) (i) to the Class A-1 Noteholders only, until the Outstanding
Principal Amount on the Class A-1 Notes has been reduced to zero, the Class
A Principal Payment, then (ii) to the Class A-2 Noteholders, Class A-3
Noteholders and Class A-4 Noteholders, sequentially, the Class A Principal
Payment in that order, until the Outstanding Principal Amount of each such
Class has been reduced to zero,
(b) to the Class B Noteholders, the Class B Principal Payment,
(c) to the Class C Noteholders, the Class C Principal Payment,
(d) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount and the Class C Floor exceeds the Class C Target
Investor Principal Amount, Additional Principal (defined below) shall be
distributed, sequentially, as an additional principal payment 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, in that order, until the Outstanding Principal Amount of
each such Class has been reduced to zero, and
(e) to the extent the Class C Floor exceeds the Class C Target
Investor Principal Amount, but the Class B Floor does not exceed the Class
B Target Investor Principal Amount, Additional Principal shall be
distributed as an additional principal payment on the Class A and Class B
Notes, pro rata (and among the Class A Notes, sequentially on the Class A-
2, Class A-3 and Class A-4 Notes, in that order), until the Outstanding
Principal Amount of each such Class has been reduced to zero.
The "Outstanding Principal Amount" as of a Payment Date shall mean the
then unpaid principal amounts 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 Class C Notes,
as applicable (determined prior to payment of any principal in respect thereof
on such Payment Date).
The "Class A Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, (i) on all Payment Dates prior to the January 2000 Payment
Date, the lesser of (1) the amount necessary to reduce the Outstanding
Principal Amount on the Class A-1 Notes to zero and (2) the Monthly Principal
Amount, and (ii) on the January 2000 Payment Date, the entire Outstanding
Principal Amount on the Class A-1 Notes and (b) after the Class A-1 Notes have
been paid in full, the amount necessary to reduce the aggregate Outstanding
Principal Amount of the Class A Notes to the Class A Target Investor Principal
Amount.
The "Class B Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount on the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B Notes to the greater of the Class B
Target Investor Principal Amount and the Class B Floor.
The "Class C Principal Payment" shall equal (a) while the Class A-1 Notes
are outstanding, zero and (b) after the Outstanding Principal Amount of the
Class A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C Notes to the greater of the Class C
Target Investor Principal Amount and the Class C Floor.
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"Additional Principal" with respect to each Payment Date is an amount
equal to (a) the Monthly Principal Amount, less (b) the Class A Principal
Payment, the Class B Principal Payment and the Class C Principal Payment to be
paid on such Payment Date.
The "Class A Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the product of (a) the Class A Percentage
and (b) the Lease Pool Principal Balance as of the last day of the Collection
Period related to such Payment Date.
The "Class B Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the product of (a) the Class B Percentage
and (b) the Lease Pool Principal Balance as of the last day of the Collection
Period related to such Payment Date.
The "Class C Target Investor Principal Amount" with respect to each
Payment Date is an amount equal to the product of (a) the Class C Percentage
and (b) the Lease Pool Principal Balance as of the last day of the Collection
Period related to such Payment Date.
The "Class A Percentage" will be approximately 85.4862%. The "Class B
Percentage" will be approximately 9.4340%. The "Class C Percentage" will be
approximately 5.0798%.
The "Class B Floor" with respect to each Payment Date means (a) 4.25% of
the Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date, minus (c) the sum of the Outstanding Principal
Amount of the Class C Notes as of such Payment Date and the amount on deposit
in the Reserve Account after giving effect to withdrawals to be made on such
Payment Date.
The "Class C Floor" with respect to each Payment Date means (a) 2.75% of
the Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with
respect to such Payment Date minus (c) the amount on deposit in the Reserve
Account after giving effect to withdrawals to be made on such Payment Date;
provided that if the Outstanding Principal Amount on the Class B Notes is equal
to the Class B Floor on such Payment Date, the Class C Floor will equal the
Outstanding Principal Amount of the Class C Notes as of such Payment Date.
The "Monthly Principal Amount" for any Payment Date will equal the
excess, if any, of (i) the sum of the Outstanding Principal Amount of the Notes
for such Payment Date, over (ii) the Lease Pool Principal Balance as of the
last day of the Collection Period relating to such Payment Date.
The "Cumulative Loss Amount" with respect to each Payment Date is an
amount equal to the excess, if any, of
(a) the total of (i) the Outstanding Principal Amount of the Notes
for such Payment Date, minus (ii) the lesser of (A) the Monthly Principal
Amount and (B) the Amount Available remaining after the payment of amounts
owing to the Servicer (other than the Servicing Fee to the extent that
Vendor Services is the Servicer) and in respect of interest on the Notes on
such Payment Date, over
(b) the Lease Pool Principal Balance as of the last day of the
Collection Period related to such Payment Date.
The "Principal Balance" of any Lease as of the last day of any Collection
Period is:
(1) in the case of any Lease that does not by its terms permit
prepayment or early termination, the present value of the unpaid Scheduled
Payments due on such Lease after such last day of the Collection Period
(excluding all Scheduled Payments due on or prior to, but not received as
of, such last day, as well as any Scheduled Payments due after such last
day and received on or prior thereto), after giving effect to any
Prepayments received on or prior to such last day, discounted monthly
(assuming, for
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purposes of such calculation, that each Scheduled Payment is due on the
last day of the applicable Collection Period) at the Discount Rate.
(2) in the case of any Lease that permits prepayment or early
termination only upon payment of a premium that is at least equal to the
present value (calculated in the manner described in clause (1) above) of
the unpaid Scheduled Payments due on such Lease after the date of such
prepayment, the amount specified in clause (1) above; and
(3) in the case of any Lease that permits prepayment or early
termination without payment of a premium at least equal to the amount
specified in clause (2) above, the lesser of (a) the outstanding principal
balance of such Lease after giving effect to Scheduled Payments due on or
prior to such last day of the Collection Period, whether or not received,
as well as any Prepayments, and any Scheduled Payments due after such last
day, received on or prior to such last day, and (b) the amount specified in
clause (1) above.
The "Initial Pool Principal Balance," which is the aggregate Principal
Balance of the Leases as of the Initial Cut-Off Date, calculated at the
Discount Rate, is $ .
The Principal Balance of any Lease which became a Liquidated Lease during
a given Collection Period or which Vendor Services was obligated to purchase as
of the end of a given Collection Period due to a breach of representations and
warranties, will be deemed to be zero on and after the last day of such
Collection Period.
A "Liquidated Lease" is any Lease (a) which the Servicer has charged off
as uncollectible in accordance with its credit and collection policies and
procedures (which shall be no later than the date as of which the Servicer has
repossessed and disposed of the related Equipment, or otherwise collected all
proceeds which, in the Servicer's reasonable judgment, can be collected under
such Lease), or (b) as to which 10% or more of a Scheduled Payment is
delinquent 180 days or more.
The "Collection Period" for any Payment Date will be the calendar month
preceding the month in which such Payment Date occurs.
SERVICER ADVANCES
Prior to any Payment Date, the Servicer may, but will not be required to,
advance to the Trustee an amount sufficient to cover delinquencies in Scheduled
Payments on the Leases with respect to the prior Collection Period (a "Servicer
Advance"). The Servicer will be reimbursed for Servicer Advances from late
payments on the delinquent Leases with respect to which such advances were made
and, if the Servicer later determines that such Servicer Advance will not be
reimbursed from the recovery on the delinquent Lease (a "Nonrecoverable
Servicer Advance"), from the Amount Available on the next Payment Date.
RESIDUAL REALIZATIONS
Cash flows realized from the sale or re-lease of the Equipment following
the scheduled expiration dates or voluntary early termination of the Leases,
other than Equipment subject to Liquidated Leases (the "Residual
Realizations"), will provide additional credit support for the Notes.
Historically Vendor Services has realized amounts greater than book value
through sale or re-lease of equipment similar to the Equipment, but there can
be no assurance as to the amount or timing of Residual Realizations. See "Risk
Factors--Risks Relating to Reliance on Residual Realizations." The Residual
Realizations will be deposited in the Residual Account. As provided in the
Indenture, funds on deposit in the Residual Account will be available to cover
shortfalls in the Available Pledged Revenues to pay interest and principal
payments then due on the Notes. As of the Initial Cut-Off Date, the aggregate
residual value of the Equipment recorded on the accounting books of Vendor
Services (the "Book Value") of the Leases was $31,677,285.62. Actual Residual
Realizations may be more or less than Book Value. The Residual Realizations for
a Collection Period not distributed to Noteholders,
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paid to the Servicer or deposited into the Reserve Account on the related
Payment Date will be released to the SPC on such Payment Date, except during
the continuation of certain limited circumstances specified in the Indenture (a
"Residual Event"). Amounts released to the SPC will not be available to the
Noteholders under any circumstances. During the continuation of a Residual
Event, amounts in the Residual Account that otherwise would be released to the
SPC will be retained in the Residual Account for application on future Payment
Dates.
Upon the termination of a Residual Event, any amounts on deposit in the
Residual Account will be (i) deposited into the Reserve Account, to the extent
that the amount on deposit in the Reserve Account is less than the Required
Reserve Amount, or (ii) released to the SPC, and thereafter will not be
available to Noteholders under any circumstance. The Residual Events will be
established prior to the Closing Date based on criteria prescribed by the
Rating Agencies. Such criteria may be amended or otherwise altered after the
Closing Date, without the consent of Noteholders, to alter the performance
parameters that must occur to cause a Residual Event, so long as doing so would
not cause either Rating Agency to reduce, withdraw or qualify any of its
ratings on the Notes.
RESERVE ACCOUNT
On the Closing Date, the SPC will make an initial deposit in an amount
equal to 2.50% of the Initial Pool Principal Balance into the Reserve Account.
In the event that Available Pledged Revenues are insufficient to pay the
amounts owing the Servicer, interest payments on the Notes and the Class A
Principal Payment, the Class B Principal Payment, the Class C Principal Payment
and any Additional Principal for the related Payment Date (such payments, the
"Required Payments"), and amounts on deposit in the Residual Account are
insufficient to make up such shorfall, the Trustee will withdraw from the
Reserve Account an amount equal to the lesser of the funds on deposit in the
Reserve Account (the "Available Reserve Amount") and such deficiency. In
addition, on each Payment Date, the Amount Available remaining after the
payment of the Required Payments will be deposited into the Reserve Account to
the extent that the Required Reserve Amount exceeds the Available Reserve
Amount. The "Required Reserve Amount" equals the lesser of (a) 2.50% of the
Initial Pool Principal Balance and (b) the Outstanding Principal Amount of the
Notes. Any amounts on deposit in the Reserve Account in excess of the Required
Reserve Amount will be released to the SPC, and thereafter will not be
available to Noteholders under any circumstance.
SUBORDINATION OF CLASS B NOTES AND CLASS C NOTES
The likelihood of payment of interest on each Class of Notes will be
enhanced by the application of the Amount Available to the payment of such
interest prior to the payment of principal on any of the Notes, as well as by
the preferential right of the Holders of Class A and Class B Notes to receive
such interest (1) in the case of the Class A Notes, prior to the payment of any
interest on the Class B Notes or the Class C Notes, and (2) in the case of the
Class B Notes, prior to the payment of any interest on the Class C Notes.
Likewise, the likelihood of payment of principal, to the extent of the Class A
Principal Payment and the Class B Principal Payment on a Payment Date on the
Class A and Class B Notes, respectively, will be enhanced by the preferential
right of the Holders of Notes of each such Class to receive such principal, to
the extent of the Amount Available, after payment of interest on the Notes as
aforesaid, (i) in the case of the Class A Notes, prior to the payment of any
principal on the Class B Notes or the Class C Notes and (ii) in the case of the
Class B Notes, prior to the payment of any principal on the Class C Notes.
LIQUIDATED LEASES
Liquidation Proceeds (which will consist generally of all amounts
received by the Servicer in connection with the liquidation of a Liquidated
Lease and disposition of the related Equipment, net of any related out-of-
pocket liquidation expenses) will be deposited in the Collection Account and
constitute Pledged Revenues to be applied to the payment of interest and
principal on the Notes in accordance with the priorities described under "--
Distributions" above (except that, to the extent that Vendor Services elects to
substitute
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one or more Substitute Leases for all or a portion of the unpaid Principal
Balance of the Liquidated Lease, Liquidation Proceeds will be remitted to
Vendor Services and will not be available to Noteholders).
OPTIONAL REPURCHASE OF LEASES
The SPC may purchase all of the Leases on any Payment Date following the
date on which the unpaid principal balance of the Notes is less than 10% of the
Initial Pool Principal Balance. The purchase price to be paid in connection
with such purchase shall be at least equal to the unpaid principal balance of
the Notes as of such Payment Date plus interest to be paid on the Notes on such
Payment Date. The proceeds of such purchase shall be applied on such Payment
Date to the payment of the remaining principal balance of the Notes, together
with accrued interest thereon.
TRUST ACCOUNTS
The Trustee will establish and maintain under the Indenture segregated
trust accounts (which need not be deposit accounts, but which shall constitute
"Eligible Accounts"), consisting of the "Collection Account," the "Servicing
Account," the "Residual Account," the "Reserve Account" and the "Note
Distribution Account" (collectively, the "Trust Accounts"). An "Eligible
Account" means any account which is (i) an account maintained with an Eligible
Institution (as defined below); (ii) an account or accounts the deposits in
which are fully insured by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the FDIC; (iii) a "segregated trust account"
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository institution
or trust company has capital and surplus (or, if such depository institution or
trust company is a subsidiary of a bank holding company system, the bank
holding company has capital and surplus) of not less than $50,000,000 and the
securities of such depository institution or trust company (or, if such
depository institution or trust company is a subsidiary of a bank holding
company system and such depository institution's or trust company's securities
are not rated, the securities of the bank holding company) have a credit rating
from each of the Rating Agencies (if rated by such Rating Agency) which
signifies "investment grade"; or (iv) an account that will not cause any Rating
Agency to reduce, qualify or withdraw its then-current rating assigned to the
Notes, as confirmed in writing by such Rating Agency. "Eligible Institution"
means any depository institution organized under the laws of the United States
or any state, the deposits of which are insured to the full extent permitted by
law by the Bank Insurance Fund (currently administered by the Federal Deposit
Insurance Corporation), whose short-term deposits or unsecured long-term debt
have a credit rating that is acceptable to each of the Rating Agencies, and
which is subject to supervision and examination by federal or state
authorities.
The Servicer, as agent for the Trustee, may designate, or otherwise
arrange for the purchase by the Trustee of, investments to be made with funds
in the Trust Accounts, which investments shall be Eligible Investments (as
defined in the Indenture) that will mature not later than the business day
preceding the applicable monthly Payment Date. "Eligible Investments" include,
among other investments, obligations of the United States or of any agency
thereof backed by the full faith and credit of the United States; federal
funds, certificates of deposit, time deposits and bankers' acceptances sold by
eligible financial institutions; certain repurchase agreements with eligible
institutions and other investments which would not result in the reduction,
qualification or withdrawal of any rating of the Notes by any Rating Agency.
REPORTS TO NOTEHOLDERS
The Servicer will furnish to the Trustee, and the Trustee will include
with each distribution to a Noteholder, a statement in respect of the related
Payment Date setting forth, among other things:
(i) the amount of interest paid on each Class of Class A Notes,
including any unpaid interest from the prior Payment Date, and any
remaining unpaid interest on each Class of Class A Notes;
(ii) the amount of interest paid on the Class B Notes, including any
unpaid interest from the prior Payment Date, and any remaining unpaid
interest on the Class B Notes;
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(iii) the amount of interest paid on the Class C Notes, including any
unpaid interest from the prior Payment Date, and any remaining unpaid
interest on the Class C Notes;
(iv) the amount of principal paid on each Class of Class A Notes;
(v) the amount of principal paid on the Class B Notes;
(vi) an amount of principal paid on the Class C Notes;
(vii) the Cumulative Loss Amount, if any, for such Payment Date;
(viii) all Substitute Leases delivered by Vendor Services;
(ix) the balance in the Reserve Account and the Required Reserve
Amount; and
(x) the balance in the Residual Account.
The Notes will be registered in the name of a nominee of DTC and will not
be registered in the names of the beneficial owners or their nominees. As a
result, unless and until Definitive Notes are issued in the limited
circumstances described under "--Definitive Notes" below, beneficial owners
will not be recognized by the Trustee as Noteholders, as that term is used in
the Indenture. Hence, until such time, beneficial owners will receive reports
and other information provided for under the Indenture only if, when and to the
extent provided by DTC and its participating organizations.
BOOK-ENTRY REGISTRATION
Notes may only be held through the Depository Trust Company ("DTC") (in
the United States) or, Cedel or Euroclear (in Europe) if they are participants
of such systems, or indirectly through organizations that are participants in
such systems. Cede & Co., as nominee for DTC, will hold the Notes. Cedel and
Euroclear will hold omnibus positions in the Notes on behalf of the Cedel
Participants and the Euroclear Participants, respectively, through customers'
securities accounts in Cedel's and Euroclear's names on the books of their
respective depositaries (collectively, the "Cedel/Euroclear Depositaries"),
which in turn will hold such positions in customers' securities accounts in the
Cedel/Euroclear Depositaries' names on the books of DTC. All references in this
Prospectus to "Holders" or "Noteholders" shall reflect the right of beneficial
owners of the Notes (the "Note Owners") as they may indirectly exercise such
rights through DTC, Cedel and Euroclear and their respective Participants
(except as otherwise specified herein).
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 New York UCC and a "clearing agency"
registered pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). DTC was created to hold securities for its
Participants and to facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entries, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations. 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 DTC's participating organizations (the "Participants")
will occur in accordance with DTC rules. Transfers between Cedel Participants
and Euroclear Participants will occur in the ordinary way in accordance with
their applicable 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 in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by its Depositary; however, such cross-market transactions will
require delivery of instructions to the relevant
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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 in Cedel or
Euroclear as a result of a transaction with a Participant will be made during
the subsequent securities settlement processing, dated the business day
following the DTC settlement date, and such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Cedel Participant or Euroclear Participant 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.
Note Owners 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, Note Owners will receive all distributions of principal and interest
from the Trustee, only through Participants. Under a book-entry format, Note
Owners may therefore experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to DTC's nominee. DTC will
forward such payments to its Participants, which thereafter will forward them
to Indirect Participants or Note Owners. The only "Noteholder" will be DTC's
nominee. Note Owners will not be recognized by the Trustee as Noteholders, as
such term is used in the Indenture, and Note Owners will be permitted to
exercise the rights of Noteholders only indirectly through DTC and its
Participants.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
of securities among Participants on whose behalf it acts with respect to the
Notes and to receive and transmit distributions of principal of, and interest
on, the Notes. Participants and Indirect Participants with which Note Owners
have accounts with respect to the Notes similarly are required to make book-
entry transfers and receive and transmit such payments on behalf of their
owners. Accordingly, although Note Owners will not possess Notes, the Rules
provide a mechanism by which Participants will receive payments and will be
able to transfer their interests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Note Owner
to pledge Notes to persons or entities that do not participate in the DTC
system, or to otherwise act with respect to such Notes, may be limited due to
the lack of a physical certificate for such Notes.
DTC has advised the Issuer that it will take any action permitted to be
taken by a Note Owner under the Indenture only at the direction of one or more
Participants to whose accounts with DTC the Notes are credited. DTC may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings include
such undivided interests.
Except as required by law, Vendor Services, the SPC, the Issuer, and the
Trustee will not have any liability for any aspect of the records relating to
or payments made on account of beneficial ownership interest of the Notes held
by DTC's nominee, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DTC has advised the Issuer that DTC management is aware that some
computer applications, systems, and the like for processing data ("Systems")
that are dependent upon calendar dates, including dates before, on, and after
January 1, 2000, may encounter "Year 2000 Problems." DTC has informed its
Participants and other
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members of the financial community (the "Industry") that it has developed and
is implementing a program so that its Systems, as the same relate to the timely
payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within DTC,
continue to function appropriately. This program includes a technical
assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third party vendors from whom DTC licenses software and hardware, and
third party vendors on whom DTC relies for information of the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the Industry that it is contacting (and will
continue to contact) third party vendors from whom DTC acquires services to:
(i) impress upon them the importance of such services being Year 2000
compliant; and (ii) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
Cedelbank ("Cedel") is incorporated under the laws of Luxembourg as a
professional depository. Cedel holds securities for its participating
organizations ("Cedel Participants") and facilitates the clearance and
settlement of securities transactions between Cedel Participants through
electronic book-entry changes in accounts of Cedel Participants, thereby
eliminating the need for physical movement of certificates. Transactions may be
settled in Cedel in any of 28 currencies, including United States dollars.
Cedel provides to its Cedel Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Cedel interfaces with domestic
markets in several countries. As a professional depository, Cedel is subject to
regulation by the Luxembourg Monetary Institute. Cedel Participants are
recognized financial institutions around the world, including underwriters,
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations and may include the underwriters for the Notes.
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.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System ("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 Euroclear
in any of 32 currencies, including United States dollars. The Euroclear System
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. The Euroclear System is
operated by Morgan Guaranty Trust Company of New York, Brussels, Belgium office
(the "Euroclear Operator" or "Euroclear"), under contract with Euroclear
Clearance System, S.C., a Belgian cooperative corporation (the "Cooperative").
All operations are conducted by the Euroclear Operator, and all Euroclear
securities clearance accounts and Euroclear cash accounts are accounts with the
Euroclear Operator, not the Cooperative. The Cooperative establishes policy for
the Euroclear System 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
underwriters of the Notes. Indirect access to the Euroclear System is also
available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
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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 State 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 the Euroclear System,
withdrawal of securities and cash from the Euroclear System, and receipts of
payments with respect to securities in the Euroclear System. All securities in
the Euroclear System are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts. The Euroclear
Operator acts under the Terms and Conditions only on behalf of Euroclear
Participants and has no record of or relationship with persons holding through
Euroclear Participants.
Distributions with respect to Notes held through Cedel or Euroclear will
be credited to the cash accounts of Cedel Participants or Euroclear
Participants in accordance with the relevant system's rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Federal Income Tax Consequences" in this Prospectus and
"Global Clearance, Settlement and Tax Documentation Procedures" in Annex I to
this Prospectus. Cedel or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a 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.
In the event that any of DTC, Cedel or Euroclear should discontinue its
services, the Trustee would seek an alternative depository (if available) or
cause the issuance of Definitive Notes to the owners thereof or their nominees
in the manner described below under "--Definitive Notes".
DEFINITIVE NOTES
The Notes of each Class will be issued in registered, certificated form
to the Note Owners of such Class or their nominees ("Definitive Notes"), rather
than to the Depository or its nominee, only if (i) the Depository advises the
Trustee in writing that it is no longer willing or able to discharge properly
its responsibilities as Depository with respect to the Notes of such Class, and
the Trustee is unable to locate a qualified successor, or (ii) an Event of
Default has occurred, and Note Owners representing not less than 50% of the
principal balance of such Class advise the Trustee and the Depository through
Participants in writing that the continuation of a book-entry system through
the Depository is no longer in the best interest of the Note Owners of such
Class.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Depository is required to notify all Participants of
the availability through the Depository of Definitive Notes. Upon surrender by
the Depository of the definitive certificate representing the Notes of the
affected Class and instructions for registration, the Trustee will issue the
Notes of such Class as Definitive Notes, and thereafter the Trustee will
recognize the Note Owners of such Definitive Notes as Noteholders under the
Indenture.
Distributions of principal and interest on the Notes will be made by the
Trustee directly to Noteholders in accordance with the procedures set forth
herein and in the Indenture. Interest payments and any principal payments on
each Payment Date will be made to Noteholders in whose names the Definitive
Notes were registered at the close of business on the related Record Date.
Distributions will be made by check mailed to
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the address of such Noteholder as it appears on the register maintained by the
Trustee. The final payment on any Note, however, will be made only upon
presentation and surrender of such Note at the office or agency specified in
the notice of final distribution to Noteholders. The Trustee will provide such
notice to registered Noteholders mailed not later than the fifth day of the
month of such final distributions.
Definitive Notes will be transferable and exchangeable at the offices of
the transfer agent and registrar, which initially will be the Trustee (in such
capacity, the "Transfer Agent and Registrar"). No service charge will be
imposed for any registration of transfer or exchange, but the Transfer Agent
and Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge imposed in connection therewith. The Transfer Agent and
Registrar will not be required to register the transfer or exchange of
Definitive Notes for the period from the Record Date preceding the due date for
any payment to the Payment Date with respect to such Definitive Notes.
MODIFICATION OF INDENTURE WITHOUT NOTEHOLDER CONSENT
The Issuer and the Trustee may, when authorized by an Issuer Order,
without consent of the Noteholders, enter into one or more supplemental
indentures for any of the following purposes: (i) to correct or amplify the
description of the collateral or add additional collateral; (ii) to provide for
the assumption of the Notes and the Indenture obligations by a permitted
successor to the Issuer (as described under "--Certain Covenants"); (iii) to
add additional covenants for the benefit of the Noteholders, or to surrender
any rights or power conferred upon the Issuer; (iv) to convey, transfer,
assign, mortgage or pledge any property to or with the Trustee; (v) to cure any
ambiguity or correct or supplement any provision in the Indenture or in any
supplemental indenture which may be inconsistent with any other provision of
the Indenture; (vi) to provide for the acceptance of the appointment of a
successor Trustee or to add to or change any of the provisions of the Indenture
or in any supplemental indenture as shall be necessary and permitted to
facilitate the administration by more than one trustee; (vii) to modify,
eliminate or add to the provisions of the Indenture in order to comply with the
Trust Indenture Act of 1939, as amended; (viii) to avoid a reduction,
qualification or withdrawal of any rating of the Notes; or (ix) to add any
provisions to, or change in any manner or eliminate any of the provisions of,
the Indenture or to modify in any manner the rights of the Holders of the Notes
under the Indenture, provided that such action shall not (a) result in a
reduction, qualification or withdrawal of the then-current ratings of the
Notes, or (b) as evidenced by an opinion of counsel, adversely affect in any
material respect the interests of any Noteholder.
MODIFICATION OF INDENTURE WITH NOTEHOLDER CONSENT
With the consent of the Holders representing a majority of the principal
balance of each Class of the Notes affected thereby, the Issuer and the Trustee
may, when authorized by an Issuer Order, execute a supplemental indenture to
add provisions to change in any manner or eliminate any provisions of, the
Indenture, or modify in any manner the rights of the Noteholders.
Without the consent of the Holder of each outstanding Note affected
thereby, however, no supplemental indenture may: (i) change the date, timing or
method of determination of any installment of principal of or interest on any
Note or reduce the principal amount thereof, the interest rate specified
thereon or the redemption price with respect thereto or change the manner of
calculating any such payment or any place of payment where, or the coin or
currency in which, any Note or any interest thereon is payable; (ii) impair the
right to institute suit for the enforcement of certain provisions of the
Indenture regarding payment; (iii) reduce the percentage of each Class of the
Notes then outstanding the consent of the Holders of which is required for any
such supplemental indenture or for any waiver of compliance with certain
provisions of the Indenture or of certain defaults thereunder and their
consequences; (iv) modify or alter the provisions of the Indenture regarding
the voting of Notes held by the Issuer, any other obligor on the Notes, the
Issuer or an affiliate of any of them; (v) reduce the percentage of the Notes
the consent of the Holders of which is required to direct the Trustee to sell
or liquidate the Trust Assets if the proceeds of such sale would be
insufficient to pay the principal amount and accrued but unpaid interest on the
outstanding Notes; (vi) reduce the percentage of each
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Class of the Notes then outstanding required to amend the sections of the
Indenture which specify the applicable percentage of each Class of the Notes
then outstanding necessary to amend the Indenture or certain other related
agreements; (vii) permit the creation of any lien ranking prior to or on a
parity with the lien of the Indenture with respect to any of the collateral for
the Notes or, except as otherwise permitted or contemplated in the Indenture,
terminate the lien of the Indenture on any such collateral or deprive the
Holder of any Note of the security afforded by the lien of the Indenture; or
(viii) result in a reduction, qualification or withdrawal of the rating of any
Class of Notes by a Rating Agency, as confirmed in writing by each Rating
Agency.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
"Events of Default" under the Indenture will consist of: (i) a default
for five calendar days or more in the payment of interest due on any Note; (ii)
failure to pay the unpaid principal amount of any Class of Notes on the Stated
Maturity Date or any redemption date for such Class; (iii) a default in the
observance or performance in any material respect of any covenant or agreement
of the Issuer made in the Indenture, or any representation or warranty made by
the Issuer in the Indenture or in any certificate delivered pursuant thereto or
in connection therewith having been incorrect as of the time made, and the
continuation of any such default or the failure to cure such breach of a
representation or warranty for a period of 30 calendar days after notice
thereof is given to the Issuer by the Trustee or to the Issuer and the Trustee
by the Holders of at least 25% in principal amount of the Notes then
outstanding; or (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Issuer.
If an Event of Default should occur and be continuing with respect to the
Notes, the Trustee or a Note Majority may declare the principal of the Notes to
be immediately due and payable. Such declaration may, under certain
circumstances, be rescinded by a majority of the Principal Balance of each
Class of the Notes then outstanding (a "Note Majority").
If the Notes have been declared due and payable following an Event of
Default, the Trustee may institute proceedings to collect amounts due or
foreclose on Trust Assets or any portion thereof, exercise remedies as a
secured party, sell the Trust Assets or any portion thereof or elect to have
the Issuer maintain possession of the Trust Assets and continue to apply
collections on the Trust Assets as if there had been no declaration of
acceleration. The Trustee, however, will be prohibited from selling the Trust
Assets following an Event of Default, unless (i) the Holders of all the
outstanding Notes consent to such sale; (ii) the proceeds of such sale
distributable to Holders of the Notes are sufficient to pay in full the
principal of and the accrued interest on all the outstanding Notes at the date
of such sale; or (iii) the Trustee determines that the Trust Assets would not
be sufficient on an ongoing basis to make all payments on the Notes as such
payments would have become due if such obligations had not been declared due
and payable, and the Trustee obtains the consent of the Holders of 66 2/3% of
the aggregate outstanding amount of the Notes. Following a declaration upon an
Event of Default that the Notes are immediately due and payable, any proceeds
of liquidation of the Trust Assets, will be applied in the following order of
priority: (i) to the Servicer, the Servicing Fee (if Vendor Services or an
affiliate is no longer the Servicer); (ii) to the reimbursement of the Trustee
for its expenses; (iii) to the payment of interest, sequentially, on the Class
A Notes until paid in full (and among the Class A Notes, pro rata), then on the
Class B Notes until paid in full, and then on the Class C Notes until paid in
full; (iv) to the payment of principal, sequentially, on the Class A Notes, the
Class B Notes and the Class C Notes; (v) to the Servicer, the Servicing Fee (if
Vendor Services or an affiliate is the Servicer); and (vi) the remainder, if
any, to the Issuer.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, if an Event of Default occurs and is continuing, the Trustee will be
under no obligation to exercise any of the rights or powers under the Indenture
at the request or direction of any of the Holders of the Notes, if the Trustee
reasonably believes it will not be adequately indemnified against the costs,
expenses and liabilities which might be incurred by it in complying with such
request. Subject to the provisions for indemnification and certain limitations
contained in the Indenture, a Note Majority will have the right to direct the
time, method and place of conducting any
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proceeding or any remedy available to the Trustee, and a Note Majority may, in
certain cases, waive any default with respect thereto, except a default in the
payment of principal or interest or a default in respect of a covenant or
provision of the Indenture that cannot be modified without the waiver or
consent of all of the Holders of such outstanding Notes.
No Holder of a Note will have the right to institute any proceeding with
respect to the Indenture, unless (i) such Holder previously has given to the
Trustee written notice of a continuing Event of Default, (ii) the Holders of
not less than 25% in principal amount of the outstanding Notes have made
written request of the Trustee to institute such proceeding in its own name as
Trustee, (iii) such Holder or Holders have offered the Trustee reasonable
indemnity, (iv) the Trustee has for 60 days failed to institute such
proceeding, and (v) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of such outstanding Notes.
If an Event of Default occurs and is continuing and if it is known to the
Trustee, the Trustee will mail to each Noteholder notice of the Event of
Default within 90 days after it occurs. Except in the case of a failure to pay
principal of or interest on any Note, the Trustee may withhold the notice if
and so long as it determines in good faith that withholding the notice is in
the interests of the Noteholders.
In addition, the Trustee and the Noteholders, by accepting the Notes,
will covenant that they will not at any time institute against the Issuer any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
Neither the Trustee nor the Issuer in its individual capacity, nor any
Holder of a Note including, without limitation, the SPC, nor any of their
respective owners, beneficiaries, agents, officers, directors, employees,
affiliates, successors or assigns will, in the absence of an express agreement
to the contrary, be personally liable for the payment of the Notes or for any
agreement or covenant of the Issuer contained in the Indenture.
CERTAIN COVENANTS
The Indenture will provide that the Issuer may not consolidate with or
merge into any other entity, unless (i) the entity formed by or surviving such
consolidation or merger is organized under the laws of the United States or any
state, (ii) such entity expressly assumes the Issuer's obligation to make due
and punctual payments upon the Notes and the performance or observance of every
agreement and covenant of the Issuer under the Indenture, (iii) no Event of
Default shall have occurred and be continuing immediately after such merger or
consolidation, (iv) the Issuer has been advised that the rating of the Notes
then in effect would not be reduced, qualified or withdrawn by the Rating
Agencies as a result of such merger or consolidation, (v) the Issuer has
received an opinion of counsel to the effect that such consolidation or merger
would have no material adverse tax consequence to the Issuer or to any
Noteholder, and (vi) the Issuer or the Person (if other than the Issuer) formed
by or surviving such consolidation or merger has a net worth, immediately after
such consolidation or merger, that is (a) greater than zero and (b) not less
than the net worth of the Issuer immediately prior to giving effect to such
consolidation or merger.
The Issuer will not, among other things, (i) except as expressly
permitted by the Indenture, sell, transfer, exchange or otherwise dispose of
any of the Trust Assets, (ii) claim any credit on or make any deduction from
the principal and interest payable in respect of the related Notes (other than
amounts withheld under the Code or applicable state law) or assert any claim
against any present or former Holder of such Notes because of the payment of
taxes levied or assessed upon the Issuer, (iii) dissolve or liquidate in whole
or in part, (iv) permit the validity or effectiveness of the Indenture to be
impaired or permit any person to be released from any covenants or obligations
with respect to the Notes under the indenture except as may be expressly
permitted thereby, or (v) except as expressly permitted by the Indenture or the
Contribution and Servicing Agreement, permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance to be
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created on or extend to or otherwise arise upon or burden the assets of the
Issuer or any part thereof, or any interest therein or proceeds thereof.
The Issuer may not engage in any activity other than as specified under
"The Issuer and the SPC." The Issuer will not incur, assume or guarantee any
indebtedness other than indebtedness incurred pursuant to the Notes and the
Indenture or otherwise in accordance with the Indenture and the Contribution
and Servicing Agreement.
ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Trustee a written
statement as to the fulfillment of its obligations under the Indenture.
TRUSTEE'S ANNUAL REPORT
The Trustee will be required to mail each year to all Noteholders a brief
report relating to its eligibility and qualification to continue as Trustee
under the related Indenture, any amounts advanced by it under the Indenture,
the amount, interest rate and maturity date of certain indebtedness owing by
the Issuer to the Trustee in its individual capacity, the property and funds
physically held by the Trustee as such and any action taken by it that
materially affects the Notes and that has not been previously reported.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged with respect to the collateral securing
the Notes upon the delivery to the related Trustee for cancellation of all such
Notes or, with certain limitations, upon deposit with the Trustee of funds
sufficient for the payment in full of all of such Notes.
THE TRUSTEE
U.S. Bank Trust National Association will be the Trustee. The Trustee may
resign at any time, in which event the Issuer will be obligated to appoint a
successor trustee. The Issuer may also remove the Trustee if the Trustee ceases
to be eligible to continue as such under the Indenture, if the Trustee becomes
insolvent or if the rating assigned to the long-term unsecured debt obligations
of the Trustee (or the holding company thereof) by the Rating Agencies shall be
lowered below an investment grade rating or be withdrawn by any Rating Agency.
In such circumstances and others set forth in the Indenture, the Issuer will be
obligated to appoint a successor trustee. Any resignation or removal of the
Trustee and appointment of a successor trustee will not become effective until
acceptance of the appointment by a successor trustee.
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DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT
TRANSFER AND ASSIGNMENT OF LEASES AND EQUIPMENT
On the Closing Date, Vendor Services will transfer to the SPC pursuant to
the Transfer Agreement all of its right, title and interest in the Leases and
the related Equipment, including all security interests created thereby and
therein, the right to receive all Scheduled Payments and Prepayments received
on the Leases on or after the Cut-Off Date (including all Scheduled Payments
due prior to, but not received as of, the Cut-Off Date, but excluding any
Scheduled Payments due on or after, but received prior to, the Cut-Off Date),
all rights under insurance policies maintained on the Equipment pursuant to the
Leases, all documents contained in the Lease Files and all proceeds derived
from any of the foregoing. Pursuant to the Contribution and Servicing
Agreement, on the Closing Date, the SPC will transfer all of its rights in the
Leases and certain rights to Residual Realizations, together with all its
rights under the Transfer Agreement, to the Issuer.
The Contribution and Servicing Agreement will designate the Servicer as
custodian to maintain possession, as the Issuer's agent, of the Leases and all
documents related thereto. To facilitate servicing and save administrative
costs, the documents will not be physically segregated from other similar
documents that are in the Servicer's possession. UCC financing statements will
be filed on the Closing Date in the applicable jurisdictions reflecting the
transfer of the Leases by Vendor Services to the SPC, by the SPC to the Issuer,
and the pledge of the Leases by the Issuer to the Trustee, and Vendor
Services's accounting records and computer systems will also reflect such
assignments and pledge. The Leases will not, however, be stamped or otherwise
physically marked to reflect their assignment to the Issuer. If, through fraud,
negligence or otherwise, a subsequent purchaser were able to take physical
possession of the Leases without knowledge of the assignment, the Issuer's
interest in the Leases could be defeated. See "Risk Factors--Enforceability of
the Leases" and "Certain Legal Aspects of the Leases."
COLLECTIONS ON LEASES
The Trustee will establish and maintain a Servicing Account, into which
the Servicer will deposit, no later than the second Business Day after receipt
thereof, all Scheduled Payments, Prepayments, Liquidation Proceeds, Residual
Realizations and other amounts received by the Servicer in respect of the
Leases on and after the Cut-Off Date. The Servicer will thereafter transfer to
the Collection Account, no later than the third Business Day after deposit
thereof in the Servicing Account, the following amounts:
(i) all Scheduled Payments made by or on behalf of Obligors under the
Leases;
(ii) all Prepayments;
(iii) all amounts constituting Liquidation Proceeds on Liquidated
Leases (to the extent Vendor Services has not delivered Substitute Leases);
(iv) any and all payments made by Vendor Services pursuant to the
Transfer Agreement in connection with the purchase of any Leases as a
result of a breach of a representation or warranty with respect thereto, as
described under "The Leases--Representations and Warranties Made by Vendor
Services," or pursuant to the Contribution and Servicing Agreement as a
result of the Lease becoming an Adjusted Lease as described below under "--
Servicing"; and
(v) the amount paid by the SPC to purchase the Leases, as described
under "Description of the Notes--Optional Purchase of Leases."
The Servicer will transfer all Residual Realizations from the Servicing
Account to the Residual Account no later than the third Business Day after
deposit thereof in the Servicing Account.
So long as no Event of Termination shall have occurred and be continuing
with respect to the Servicer, the Servicer, if Vendor Services or an affiliate
is no longer the Servicer, may make the remittances to
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be made by it to the Collection Account net of amounts (which amounts may be
netted prior to any such remittance for a Collection Period) otherwise to be
distributed to it in payment of its Servicing Fee.
The Servicer will be entitled to withdraw from the Collection Account any
amounts deposited therein in error or required to be repaid to an Obligor,
based on the Servicer's good-faith determination that such amount was deposited
in error or must be returned to the Obligor.
Under the Contribution and Servicing Agreement, the Servicer is required
to establish in its own name one or more "Insurance, Maintenance and Tax
Accounts," into which are to be deposited any payments made by or on behalf of
Obligors which constitute (a) insurance charges paid by an Obligor to the
lessor or secured party under a Lease (unless such payments are made directly
by the Obligor to the applicable insurance company, or Vendor Services has
previously paid such charges), (b) any insurance payments or recoveries paid by
an insurance company or comparable third party and related to the damage to, or
destruction of, the Equipment related to such Lease (unless paid directly by
such insurance company or comparable third party directly to the Obligor), (c)
any payments made by or on behalf of Obligors which constitute amounts paid by
an Obligor to the lessor or secured party under a Lease in respect of the
maintenance of the related Equipment, and (d) taxes paid by the Obligor and
related to the applicable Lease or the Equipment related thereto (unless such
payment is made directly by the Obligor to the applicable taxing authority or
authorities, or Vendor Services has previously paid such taxes). The Servicer
may withdraw amounts from the Insurance, Maintenance and Tax Accounts, when and
if appropriate, to pay when due (or may pay from its own funds and thereafter
reimburse itself from amounts in the Insurance, Maintenance and Tax Accounts)
(1) all insurance charges in the amounts received under clause (a) above, (2)
any amounts payable under any applicable maintenance contract or otherwise with
respect to the maintenance of the related Equipment in the amounts received
under clause (c) above, and (3) all taxes in the amounts received under clause
(d) above. Amounts on deposit in the Insurance, Maintenance and Tax Accounts
which represent amounts received by the Servicer pursuant to clause (b) above
shall be applied by the Servicer as follows: if equipment is purchased to
replace the Equipment that was damaged or destroyed, and such replacement
equipment is (in the reasonable opinion of the Servicer) of comparable use and
equivalent value to the Equipment that was damaged or destroyed, or if the
Equipment is to be repaired, the Servicer shall release such amount so received
from the insurance company or comparable third party in payment or
reimbursement for such replacement equipment or such repair; and if this
replacement option is not exercised and the Equipment is not to be repaired,
then the Servicer shall treat such amount as Liquidation Proceeds and transfer
that portion thereof which would be allocable to the Notes from the Insurance,
Maintenance and Tax Accounts to the Collection Account.
On or before the first Business Day preceding each Payment Date (the
"Determination Date"), the Servicer is required to determine the amount of
Available Pledged Revenues for such Payment Date, the amount of interest
payable on the Notes on such Payment Date, the Monthly Principal Amount for
such Payment Date, the Cumulative Loss Amount (if any) for such Payment Date,
and the amount, if any, by which such Available Pledged Revenues plus any
Servicer Advances with respect to such Payment Date, when applied in accordance
with the priorities described under "Description of the Notes--Distributions,"
are insufficient to pay the interest and principal payable on the Notes on such
Payment Date (a "Payment Shortfall"). If there is a Payment Shortfall for such
Payment Date, amounts on deposit in the Residual Account and then amounts on
deposit in the Reserve Account will be applied to the payment of interest and
principal on the Notes to the extent necessary to cure such Payment Shortfall.
The Servicer shall further give notice to the Trustee of (1) any remaining
Payment Shortfall (after giving effect to the previous application of funds in
the Residual Account or Reserve Account as aforesaid), (2) the Cumulative Loss
Amount (if any), and (3) if such Payment Date is the Stated Maturity Date for
any Class of Notes, the remaining unpaid principal balance of such Class of
Notes (after giving effect to previous application of funds in the Residual
Account as aforesaid).
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SERVICING
Pursuant to the Contribution and Servicing Agreement, Vendor Services
will be engaged to act as Servicer on behalf of the Issuer. The Servicer is
generally obligated under the Contribution and Servicing Agreement to service
the Leases in accordance with customary and usual procedures of institutions
which service equipment Leases, installment sale contracts, promissory notes,
loan and security agreements and other similar types of receivables comparable
to the Leases and, to the extent more exacting, the degree of skill and
attention that the Servicer exercises from time to time with respect to all
comparable such contracts that it services for itself or others. In performing
such duties, so long as Vendor Services is the Servicer, it shall comply in all
material respects with its credit and collection policies and procedures in
effect from time to time (which credit and collection policies currently in
effect are described under "Green Tree Vendor Services Corporation"). The
Servicer may delegate certain of its servicing responsibilities with respect to
the Leases to third parties, provided that the Servicer will remain obligated
to the Issuer for the proper performance of all such servicing
responsibilities.
The Servicer will use its best efforts to sell or re-lease any Equipment
upon the termination of the Lease to which such Equipment is subject (whether
as a result of early termination following an Obligor default or upon scheduled
expiration of the Lease), in a timely manner and in a manner so as to maximize,
to the extent possible under then prevailing market conditions, the net
proceeds from such Equipment. The Servicer may, in its discretion, choose to
dispose of Equipment through a new lease or in some other manner which provides
for payment for the Equipment over time. In any such event, the Servicer will
be required to pay from its own funds an amount which, in its reasonable
judgment, is equal to the fair market value of such Equipment (less any related
out-of-pocket liquidation expenses), and the Servicer will be entitled to all
payments received thereafter in respect of such Equipment. Any such amounts so
paid by the Servicer will be deemed to constitute additional Liquidation
Proceeds or Residual Realizations, depending on the reason for the disposition
of the Equipment, with respect to the related Lease and Equipment.
Under the Contribution and Servicing Agreement, the Servicer is
responsible for, among other things: reviewing and certifying that the Lease
Files are complete; monitoring and tracking any property and sales taxes to be
paid by Obligors; billing, collection and recording of payments from Obligors;
communicating with and providing billing records to Obligors; deposit of funds
into the Collection Account; receiving payments as the Issuer's agent on the
insurance policies maintained by the Obligors and communicating with insurers
with respect thereto; issuance of reports to the Trustee specified in the
Indenture and in the Contribution and Servicing Agreement; repossession and
remarketing of Equipment following Obligor defaults or upon scheduled
termination or early termination of Leases; and paying the fees and ordinary
expenses of the Trustee.
The Servicer shall, to the extent the proceeds of such liquidation are
sufficient therefor, be entitled to recover all reasonable out-of-pocket
expenses incurred by it in the course of liquidating a Lease and disposing of
the related Equipment, which amounts may be retained by the Servicer from such
proceeds to the extent of such expenses. The Servicer is entitled under the
Contribution and Servicing Agreement to retain, from liquidation proceeds, a
reserve for out-of-pocket liquidation expenses in an amount equal to such
expenses, in addition to those previously incurred, as it reasonably estimates
will be incurred. Upon completion of such liquidation, the remainder of any
such reserve, after reimbursement to the Servicer of all out-of-pocket
liquidation expenses, shall constitute Liquidation Proceeds and be deposited in
the Collection Account.
Under the Contribution and Servicing Agreement, the Servicer, subject to
certain limitations, is permitted to grant payment extensions on a Lease in
accordance with its credit and collection policies and procedures if the
Servicer believes in good faith that such extension is necessary to avoid a
termination and liquidation of such Lease and will maximize the amount to be
received by the Issuer with respect to such Lease. Under the Contribution and
Servicing Agreement, the Servicer, subject to certain limitations, is permitted
to grant modifications or amendments to a Lease in accordance with its credit
and collection policies and procedures. Following modifications or amendments
to a Lease that exceed the limitations imposed on the
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Servicer's ability to agree to such modifications or amendments under the
Contribution and Servicing Agreement, such a Lease will be deemed an "Adjusted
Lease" and must either be purchased by the Servicer for a price equal to the
Required Payoff Amount or substituted for in the manner described under "The
Leases--Substitution."
Prepayments. The Servicer may in its discretion allow a Prepayment of any
Lease, but only if the amount paid by or on behalf of the Obligor (or, in the
case of a partial Prepayment, the sum of such amount and the remaining
Principal Balance of the Lease after application of such amount) is at least
equal to the Required Payoff Amount of such Lease. To the extent any Prepayment
exceeds the Required Payoff Amount of a Lease, such excess will be paid to the
Issuer.
Evidence as to Compliance. On or before March 31 (or within 90 days after
the end of the Servicer's fiscal year, if other than December 31) of each year,
the Servicer must deliver to the Trustee a report of a nationally recognized
accounting firm stating that such firm has examined certain documents and
records relating to the servicing of equipment leases and loans serviced by the
Servicer and stating that, on the basis of such procedures, such servicing has
been conducted in compliance with the Contribution and Servicing Agreement,
except for any exceptions set forth in such report.
Certain Matters Regarding the Servicer. The Servicer may not resign from
its obligations under the Contribution and Servicing Agreement except upon a
determination that its duties thereunder are no longer permissible under
applicable law. No such resignation will become effective until a successor
servicer has assumed the Servicer's obligations and duties under the
Contribution and Servicing Agreement. The Servicer can be removed as Servicer
only upon the occurrence of an Event of Termination as discussed below.
The Servicer must keep in place throughout the term of the Contribution
and Servicing Agreement (i) a policy or policies of insurance covering errors
and omissions by the Servicer, and (ii) a fidelity bond. Such policy or
policies and such fidelity bond shall be in such form and amount as is
generally customary among persons that service a portfolio of equipment leases
having an unpaid balance of at least $100 million and which are generally
regarded as servicers acceptable to institutional investors.
Servicing Compensation and Payment of Expenses. Compensation to the
Servicer will include a monthly fee (the "Servicing Fee"), which will be
payable to the Servicer from the Amount Available on each Payment Date, in an
amount equal to the product of one-twelfth of .75% per annum multiplied by the
Lease Pool Principal Balance as of the last day of the second preceding
Collection Period (or, in the case of the Servicing Fee with respect to the
Collection Period commencing on the Initial Cut-Off Date, the Initial Pool
Principal Balance), plus any late fees, late payment interest, documentation
fees, insurance administration charges and other administrative fees and
charges and a portion of any extension fees (collectively, the "Administrative
Fees") collected with respect to the Leases during the prior Collection Period
and any investment earnings on collections prior to deposit thereof in the
Collection Account. The Servicer is authorized under the Contribution and
Servicing Agreement, in its discretion, to waive any Administrative Fees or
extension fees that may be collected in the ordinary course of servicing any
Lease.
Events of Termination. An Event of Termination under the Contribution and
Servicing Agreement will occur if (a) the Servicer fails to make any payment or
deposit required under the Contribution and Servicing Agreement and such
failure continues for five business days after notice from the Trustee or after
discovery by the Servicer; (b) the Servicer fails to deliver to the Trustee and
the Issuer the Servicer's Certificate (as defined in the Contribution and
Servicing Agreement) by the third Business Day prior to the related Payment
Date; (c) the Servicer fails to observe or perform in any material respect any
other covenants or agreements of the Servicer set forth in the Contribution and
Servicing Agreement (and, if Vendor Services is the Servicer, the Transfer
Agreement), and such failure (i) materially and adversely affects the rights of
the Issuer or Noteholders, and (ii) continues unremedied for 30 days after
written notice thereof has been given to the Servicer by the Issuer, the
Trustee or any Noteholder; (d) certain events of bankruptcy or insolvency occur
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with respect to the Servicer; or (e) any representation, warranty or statement
of the Servicer made in the Contribution and Servicing Agreement or any
certificate, report or other writing delivered pursuant thereto proves to be
incorrect in any material respect, and such incorrectness (i) has a material
adverse effect on the Issuer or Noteholders, and (ii) continues uncured for 30
days after written notice thereof has been given to the Servicer by the Issuer,
the Trustee or any Noteholder. The Servicer is required under the Contribution
and Servicing Agreement to give the Trustee, the Issuer and each Rating Agency
notice of an Event of Termination promptly after having obtained knowledge of
such event.
Federal bankruptcy laws limit the termination of contracts solely by
reason of the fact that the party obligated to provide such performance is
subject to federal bankruptcy proceedings. In such a circumstance, the Trustee
may be unable to terminate the Servicer unless it could demonstrate that
independent grounds (whether or not arising from the same facts causing the
Servicer to be subject to bankruptcy proceedings) exist to declare an Event of
Termination and the court supervising the bankruptcy proceeding determines that
such grounds warrant termination of the Servicer.
Rights upon Event of Termination. So long as an Event of Termination
remains unremedied, the Trustee may, and at the written direction of a Note
Majority (as defined in the Indenture) shall, terminate all of the rights and
obligations of the Servicer under the Contribution and Servicing Agreement in
and to the Leases, whereupon a successor servicer (which, unless and until the
Trustee appoints a new servicer, will be the Trustee) will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Contribution
and Servicing Agreement and will be entitled to similar compensation
arrangements; provided, however, that any successor servicer be liable for any
acts or omissions of the prior Servicer occurring prior to a transfer of the
Servicer's servicing and related functions or for any breach by such Servicer
of any of its obligations contained in the Contribution and Servicing
Agreement.
A Note Majority may waive any default by the Servicer in the performance
of its obligations under the Contribution and Servicing Agreement and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Termination arising therefrom shall be deemed to
have been remedied. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
AMENDMENT
The Contribution and Servicing Agreement may be amended by the parties
thereto (i) to cure any ambiguity, (ii) to correct or supplement any provision
therein that may be inconsistent with any other provision therein, or (iii) to
make any other provisions with respect to matters or questions arising under
the Contribution and Servicing Agreement that are not inconsistent with the
provisions thereof, provided that such action will not adversely affect in any
material respect the interests of the Noteholders. The Contribution and
Servicing Agreement may also be amended by the parties thereto with the consent
of a Note Majority for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of the Contribution and
Servicing Agreement or of modifying in any manner the rights of the
Noteholders; provided, however, that no such amendment (a) that reduces in any
manner the amount of, or accelerates or delays the timing of, any payment
received on or with respect to Leases that are required to be distributed on
any Note or that reduces the aforesaid percentage required to consent to any
such amendment or any waiver under the Contribution and Servicing Agreement,
may be effective without the consent of the Holder of each such Note, or (b)
will be effective unless each Rating Agency confirms that such amendment will
not result in a reduction, qualification or withdrawal of the ratings on the
Notes.
TERMINATION OF THE CONTRIBUTION AND SERVICING AGREEMENT
The obligations created by the Contribution and Servicing Agreement will
terminate (after distribution of all interest and principal then due to
Noteholders) on the earlier of (i) the Payment Date next succeeding the later
of the final payment or other liquidation of the last Lease or the disposition
of all Equipment acquired
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upon termination of any Lease; or (b) the Payment Date on which the SPC
repurchases the Leases as described under "Description of the Notes--Optional
Purchase of Leases." However, Vendor Services's representations, warranties and
indemnities will survive any termination of the Contribution and Servicing
Agreement.
CERTAIN LEGAL ASPECTS OF THE LEASES
ENFORCEMENT OF SECURITY INTERESTS IN THE EQUIPMENT
Due to the administrative burden and expense, no assignments of the UCC
financing statements evidencing the security interest of Vendor Services in the
Equipment (to the extent that such financing statements have been filed against
the Obligor, as discussed under "Green Tree Vendor Services Corporation--
Documentation") will be filed to reflect the SPC's, the Issuer's or the
Trustee's interests therein, except to the extent described under "Risk
Factors--Risks Related to Bankruptcy--Risks Relating to Characterization of the
Transfer of the Leases and Equipment as a Borrowing by Vendor Services." While
failure to file such assignments does not affect the Issuer's interest in the
Leases (including Vendor Services's interest in the related Equipment), it does
expose the Issuer and the Noteholders to the risk that Vendor Services could
release its security interest in the Equipment of record, and it could
complicate the Issuer's enforcement, as assignee, of Vendor Services's security
interest in the Equipment. While these risks should not affect the perfection
or priority of the interest of the Trustee in the Leases or rights to payment
thereunder, they may adversely affect the right of the Trustee to receive
proceeds of disposition of the Equipment subject to a Liquidated Lease, which
are to be allocated to the payment of the Notes as described under "Description
of the Notes--Liquidated Leases." 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 assigned to the Trustee in the
Equipment.
In the event of a default by the Obligor under a Lease intended for
security, the Servicer on behalf of the Issuer may take action to enforce
Vendor Services' interest in the related Equipment by repossession and resale
or re-lease of the Equipment. Under the UCC in most states, a creditor can,
without prior notice to the debtor, repossess assets securing a defaulted
contract by the Obligor's voluntary surrender, or by "self-help" repossession
that does not involve a breach of the peace and by judicial process. In the
event of bankruptcy or insolvency of the Obligor these remedies may require the
permission of a bankruptcy court or may otherwise not be immediately available.
See "--Insolvency Matters" below.
In the event of a default by the Obligor under a Lease intended for
security, some jurisdictions require that the Obligor be notified of the
default and be given a time period within which it may cure the default prior
to repossession. Generally, this right of reinstatement may be exercised on a
limited number of occasions in any one-year period.
The UCC and other state laws place restrictions on repossession sales,
including requirements that the secured party provide the debtor with
reasonable notice of the date, time and place of any public sale and/or the
date after which any private sale of the collateral may be held and that any
such sale be conducted in a commercially reasonable manner.
Under most state laws, an Obligor under a Lease intended for security has
the right to redeem collateral for its obligations prior to actual sale by
paying the lessor or secured party the unpaid balance of the obligation plus
reasonable expenses for repossessing, holding and preparing the collateral for
disposition and arranging for its sale, plus, to the extent provided for in the
written agreement of the parties, reasonable attorneys' fees.
In addition, because the market value of equipment of the type subject to
the Leases generally declines with age, due to obsolescence, the net
disposition proceeds of Equipment at any time during the term of the Leases may
not equal or exceed the Principal Balance on the related Lease. Because of
this, and because other
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creditors may in certain cases have rights in the related Equipment superior to
those of the Issuer, the Servicer may not be able to recover the entire amount
due on a defaulted Lease in the event that the Servicer elects to repossess and
dispose of such Equipment at any time.
Under the UCC and laws applicable in most states, a creditor is entitled
to obtain a deficiency judgment from an Obligor under a Lease intended for
security for any deficiency on repossession and resale of the asset securing
the unpaid balance of such Obligor's Lease. However, some states impose
prohibitions or limitations on deficiency judgments. In most jurisdictions, the
courts, in interpreting the UCC, would impose upon a creditor an obligation to
repossess the equipment in a commercially reasonable manner and to "mitigate
damages" in the event of an Obligor's failure to cure a default. The creditor
would be required to exercise reasonable judgment and follow acceptable
commercial practice in seizing, selling or re-leasing the equipment and to
offset the net proceeds of such disposition against its claim. In addition, an
Obligor may successfully invoke an election of remedies defense to a deficiency
claim in the event that the Servicer's repossession and sale of the Equipment
is found to be a retention discharging the Obligor from all further obligations
under the UCC. If a deficiency judgment were granted, the judgment would be a
personal judgment against the Obligor for the shortfall, but a defaulting
Obligor may have limited assets or sources of income available following
repossession. Therefore, in many cases, it may not be useful to seek a
deficiency judgment or, if one is obtained, it may be settled at a significant
discount.
Many states have adopted a version of Article 2A of the UCC ("Article
2A"). Article 2A purports to codify many provisions of existing common law.
Although there is little precedental authority regarding how Article 2A will be
interpreted, it may, among other things, limit enforceability of any
"unconscionable" provision in a Lease, provide an Obligor with remedies
including the right to cancel the Lease for any lessor breach or default, and
may add to or modify the terms of "consumer leases" and leases where the
Obligor is a "merchant lessee." However, each Lease contains an acknowledgement
by the Obligor that the Equipment was acquired for business purposes, and
Vendor Services will represent in the Contribution and Servicing Agreement that
no Lease (other than a de minimis number of Leases) is a "consumer lease" under
Article 2A. 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 Obligor defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context a wide latitude to vary provisions of the law.
INSOLVENCY MATTERS
Certain statutory provisions, including federal and state bankruptcy and
insolvency laws, may also limit the ability of the Servicer to repossess and
resell or re-lease Equipment or obtain a deficiency judgment. In the event of
the bankruptcy or reorganization of an Obligor, various provisions of the
Bankruptcy Code of 1978 (the "Bankruptcy Code") and related laws may interfere
with or eliminate the ability of the Servicer to enforce the Issuer's rights
under the Leases. For example, although the bankruptcy or reorganization of an
Obligor would constitute an event of default under such Lease, the Bankruptcy
Code provides generally that rights and obligations under an unexpired lease or
an executory contract may not be terminated or modified solely because of a
provision in the lease or executory contract conditioned upon the commencement
of a case under the Bankruptcy Code. If bankruptcy proceedings were instituted
in respect of an Obligor under such a Lease, the Issuer could be prevented from
continuing to collect payments due from or on behalf of such Obligor or
exercising any remedies assigned to the Issuer without the approval of the
bankruptcy court, and, with respect to a Lease intended as security, the
bankruptcy court could permit the Obligor, as owner of the Equipment, to use or
dispose of the Equipment and provide the Issuer with a lien on substitute
collateral, so long as the court held that such substitute collateral
constituted "adequate protection" within the meaning of the Bankruptcy Code.
In the case of a Lease that is deemed not to be intended as security, the
Bankruptcy Code grants to the bankruptcy trustee or the debtor-in-possession a
right to elect to assume or reject any executory contract or
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unexpired lease. Any such rejection by the lessee would result in the return of
the leased equipment to the lessor. Any rejection of such a lease or contract
constitutes a breach of such lease or contract, entitling the non-breaching
party to a claim for breach of contract, which claim would be payable only from
the assets of the debtor's bankruptcy estate. The net proceeds from any
resulting judgment would be deposited into the Collection Account by the
Servicer. See "Description of the Notes--Liquidated Leases."
In the event that, as a result of the bankruptcy or reorganization of an
Obligor, the related Lease becomes a defaulted Lease without breach of any
representation or warranty of Vendor Services, no recourse would be available
against Vendor Services and the Noteholders could suffer a loss with respect to
such Lease.
These UCC and bankruptcy provisions, in addition to the possible decrease
in the value of a repossessed item of Equipment, may limit the amount realized
on the sale of Equipment securing the Leases to less than the amount due
thereunder.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain United States federal
income tax considerations relevant to the purchase, ownership and disposition
of the Notes by the holders thereof. Dorsey & Whitney LLP, counsel to the
Issuer ("Counsel"), will deliver their opinion regarding the treatment of the
Notes and the treatment of the Issuer, as discussed below. The opinion of
Counsel addresses only those issues specifically identified below as being
covered by such opinion; however, the opinion of Counsel also states that the
additional discussion set forth below accurately sets forth Counsel's advice
with respect to material tax issues. The opinion of Counsel is not binding on
the Internal Revenue Service (the "IRS"). There can be no assurance that the
IRS will take a similar view of such issues, and no assurance can be given that
the opinion of Counsel would be sustained if challenged by the IRS. No ruling
on any of the issues discussed below will be sought from the IRS.
This summary does not purport to be a complete analysis of all the
potential federal income tax consequences relating to the purchase, ownership
and disposition of the Notes. Moreover, the discussion does not address all
aspects of taxation that may be relevant to particular purchasers in light of
their individual circumstances (including the effect of any foreign, state or
local tax laws) or to certain types of purchasers (including dealers in
securities, insurance companies, financial institutions and tax-exempt
entities) subject to special treatment under United States federal income tax
laws. The discussion below assumes that the Notes are held as capital assets.
The discussion of the United States federal income tax consequences set
forth below is based upon currently existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), judicial decisions and administrative
interpretations, all of which are subject to change, which changes may be
retroactive. Because individual circumstances may differ, each prospective
purchaser of the Notes is strongly urged to consult its own tax advisor with
respect to its particular tax situation and the tax effects of any state,
local, foreign, or other tax laws and possible changes in the tax laws.
As used herein, the term "United States Holder" means a beneficial owner
of a Note who or which is for United States federal income tax purposes either
(i) a citizen or resident of the United States, (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States,
including any state thereof and the District of Columbia, (iii) an estate the
income of which is subject to United States federal income taxation regardless
of its source, (iv) a trust with respect to which a court within the United
States is able to exercise primary supervision over its administration, and one
or more United States persons have the authority to control all of its
substantial decisions, or (v) certain trusts in existence on August 20, 1996
and treated as a United States person prior to such date that elect to continue
to be so treated. The term also includes certain former citizens of the United
States whose income and gain on the Notes will be subject to
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United States taxation. As used herein, the term "United States Alien Holder"
means a beneficial owner of a Note that is not a United States Holder.
OPINION OF COUNSEL REGARDING TREATMENT OF THE NOTES
In the opinion of Counsel, the Notes will be treated as indebtedness for
United States federal income tax purposes. Under the terms of the Notes and the
Indenture, each Noteholder agrees and acknowledges upon its purchase of the
Notes and by acceptance of the Notes that it will also treat the Notes as
indebtedness for such purposes.
OPINION OF COUNSEL REGARDING TREATMENT OF THE ISSUER
In the opinion of Counsel, the Issuer will not be characterized as an
"association" taxable as a corporation for United States federal income tax
purposes. In addition, in the opinion of Counsel, the Issuer will not be
characterized as a "publicly traded partnership" taxable as a corporation for
United States federal income tax purposes, based on Counsel's opinion that the
Notes will be treated as indebtedness for federal income tax purposes. If the
Issuer were treated as either an association or a publicly traded partnership
taxable as a corporation, the resulting entity would be subject to federal
income taxes at corporate tax rates on its taxable income generated by
ownership of the Leases, and certain distributions by the entity would not be
deductible in computing the entity's taxable income. Such an entity-level tax
could result in reduced distributions to Noteholders.
PAYMENTS OF INTEREST
Interest paid on a Note will generally be taxable to a United States
Holder as ordinary interest income at the time it accrues or is received in
accordance with the United States Holder's method of accounting for federal
income tax purposes.
ORIGINAL ISSUE DISCOUNT
Under applicable regulations, a Note will be considered issued with
original issue discount ("OID") if the "stated redemption price at maturity" of
the Note (generally equal to its principal amount as of the date of issuance
plus all interest other than "qualified stated interest" payable prior to or at
maturity) exceeds the original issue price (in this case, the initial offering
price at which a substantial amount of the Notes are sold to the public). Any
OID would be considered de minimis under the regulations if it does not exceed
0.25% of the stated redemption price at maturity of a Note multiplied by the
number of full years until its maturity date or, in the case of the Notes which
have more than one principal payment, the weighted average maturity date. It is
anticipated that the Notes will not be considered issued with more than de
minimis OID. Under the OID regulations, a holder of a Note issued with a de
minimis amount of OID must include an allocable portion of such OID in income
as principal payments are made on the Note.
While it is not anticipated that the Notes will be issued with more than
de minimis OID, it is possible that they will be so issued. If the Notes are
issued with more than de minimis OID, such OID would be includible in the
income of United States Holders as interest over the term of the Notes under a
constant yield method. Any amount included in income as OID would not, however,
be includible again when the amount is actually received. Noteholders would be
required to currently include accrued OID in gross income without regard to
their regular method of accounting. Each United States Holder should consult
its own tax advisor regarding the impact of the OID rules if the Notes are
issued with OID and the consequences to such holder as a result of special
rules in the Code which are applicable to debt instruments whose principal
payments may be accelerated by reason of prepayments of other obligations
securing such debt instruments.
MARKET DISCOUNT
If a United States Holder purchases a Note at a price that is less than
its remaining principal amount or, in the case of a Note issued with OID, its
adjusted issue price, by 0.25% or more of its remaining
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redemption amount multiplied by the number of whole years to maturity, the Note
will be considered to bear "market discount" in the hands of such United States
Holder. In such case, principal payments received by the United States Holder,
or gain realized by the United States Holder on the disposition of the Note,
generally will be treated as ordinary interest income to the extent of the
market discount that accrued on the Note while held by such United States
Holder and that has not previously been included in income. Market discount
generally accrues on a straight-line basis over the remaining term of a Note
except that, at the election of the United States Holder, market discount may
accrue on a constant yield basis. A United States Holder may not be allowed to
deduct immediately all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or to carry such Note. A United States Holder
may elect to include market discount in income currently as it accrues (either
on a straight-line basis or, if the United States Holder so elects, on a
constant yield basis), in which case the interest deferral rule set forth in
the preceding sentence will not apply. Such an election will apply to all bonds
acquired by the United States Holder on or after the first day of the first
taxable year to which such election applies and may be revoked only with the
consent of the IRS.
AMORTIZABLE BOND PREMIUM
If a United States Holder purchases a Note for an amount that is greater
than the amount payable at maturity, such holder will be considered to have
purchased such Note with "amortizable bond premium" equal in amount to such
excess, and may elect (in accordance with applicable Code provisions) to
amortize such premium using a constant yield method over the remaining term of
the Note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note in such year. A United
States Holder that elects to amortize bond premium must reduce its tax basis in
the Note by the amount of the premium amortized in any year. An election to
amortize bond premium applies to all taxable debt obligations held on the first
day of the first taxable year to which the election applies or thereafter
acquired by the United States Holder and may be revoked only with the consent
of the IRS.
SALE, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement of a Note, a United States Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (not including any amount
attributable to accrued but unpaid interest) and such holder's adjusted tax
basis in the Note. To the extent attributable to accrued but unpaid interest,
the amount realized by a United States Holder would be treated as a payment of
interest. A United States Holder's adjusted tax basis in a Note will equal the
cost of the Note to such holder, increased by the amount of any OID and market
discount previously included in income by such holder with respect to such Note
and reduced by any amortized bond premium and any principal payments received
by such holder.
Subject to the discussion of market discount above, gain or loss realized
on the sale, exchange or retirement of a Note by a United States Holder will be
capital gain or loss, and will be short-term or long-term capital gain or loss
depending upon whether, at the time of the sale, exchange or retirement, the
Note has been held for one year or less or more than one year. Long-term
capital gains are taxed at a lower rate than ordinary income for certain non-
corporate taxpayers, but not for corporate taxpayers. The distinction between
capital gain or loss and ordinary income or loss is also relevant for purposes
of, among other things, limitations on the deductibility of capital losses.
TAX CONSEQUENCES TO UNITED STATES ALIEN HOLDERS
Under present United States federal income and estate tax law, and
subject to the discussion below concerning backup withholding:
(a) payments of principal of and interest on the Notes by the Trustee
or any paying agent to a beneficial owner of a Note that is a United States
Alien Holder, as defined above, will not be subject to United States
federal withholding tax, provided that, in the case of interest, (i) such
holder does not own, actually or constructively, 10 percent or more of the
total combined voting power of all classes of stock of
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Green Tree entitled to vote, (ii) such holder is not, for United States
federal income tax purposes, a controlled foreign corporation related,
directly or indirectly, to Green Tree through stock ownership, (iii) such
holder is not a bank receiving interest described in Section 881(c)(3)(A)
of the Code, and (iv) the certification requirements under Section 871(h)
or Section 881(c) of the Code and Treasury regulations thereunder
(summarized below) are met:
(b) a United States Alien Holder of a Note will not be subject to
United States federal income tax on gain realized on the sale, exchange or
other disposition of such Note, unless (i) such holder is an individual who
is present in the United States for 183 days or more in the taxable year of
sale, exchange or other disposition, and certain conditions are met or (ii)
such gain is effectively connected with the conduct by such holder of a
trade or business in the United States; and
(c) a Note held by an individual who is not a citizen or resident of
the United States at the time of his death will not be subject to United
States federal estate tax as a result of such individual's death, provided
that, at the time of such individual's death, the individual does not own,
actually or constructively, 10 percent or more of the total combined voting
power of all classes of stock of Green Tree entitled to vote and payments
with respect to such Note would not have been effectively connected to the
conduct by such individual of a trade or business in the United States.
Sections 871(h) and 881(c) of the Code and Treasury Regulations
thereunder require that, in order to obtain the exemption from withholding tax
described in paragraph (a) above, either (i) the beneficial owner of a Note
must certify under penalties of perjury to the Trustee or the paying agent, as
the case may be, that such owner is a United States Alien Holder and must
provide such owner's name and address, and United States taxpayer
identification number, if any, or (ii) a securities clearing organization, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "Financial Institution") and holds the Note
on behalf of the beneficial owner thereof must certify under penalties of
perjury to the Indenture Trustee or the paying agent, as the case may be, that
such certificate has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and must furnish the
payor with copy thereof. A certificate described in this paragraph is effective
only with respect to payments of interest made to the certifying United States
Alien Holder after issuance of the Notes in the calendar year of its issuance
and the two immediately succeeding calendar years. Under temporary United
States Treasury Regulations, such requirement will be fulfilled if the
beneficial owner of a Note certifies on IRS Form W-8, under penalties of
perjury, that it is a United States Alien Holder and provides its name and
address, and any Financial Institution holding the Note on behalf of the
beneficial owner files a statement with the withholding agent to the effect
that it has received such a statement from the beneficial owner (and furnishes
the withholding agent with a copy thereof). If the information shown on IRS
Form W-8 changes, a new IRS Form W-8 must be filed within 30 days of such
change. IRS Form W-8 is valid for the calendar year in which filed and the two
succeeding calendar years.
A United States Alien Holder residing in a country that has a tax treaty
with the United States may be eligible for an exemption or reduced rate
(depending upon the terms of the treaty) with respect to U.S. withholding tax.
In order to secure this exemption or reduced rate, the United States Alien
Holder (or his agent) must certify the holder's residence in the treaty country
filing IRS Form 1001. If the treaty provides only for a reduced rate, U.S.
withholding tax will be imposed at the reduced rate unless the requirements set
forth in paragraph (a) above and the immediately preceding paragraph (including
filing of IRS Form W-8) are satisfied. IRS Form 1001 is valid for the calendar
year in which filed and the two succeeding calendar years.
If the United States Alien Holder of a Note is engaged in a trade or
business in the United States, and if interest on the Note, or gain realized on
the sale, exchange or other disposition of the Note, is effectively connected
with the conduct of such trade or business, the United States Alien Holder,
although exempt from United States withholding tax, will generally be subject
to regular United States income tax on such interest or gain in the same manner
as if it were a United States Holder. In lieu of the certificate described in
the preceding paragraph, such a holder will be required to provide to the
Trustee or the paying agent, as the case
63
<PAGE>
may be, a properly executed IRS Form 4224 in order to claim an exemption from
withholding tax. In addition, if such United States Alien Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% (or such
lower rate provided by an applicable treaty) of its effectively connected
earnings and profits for the taxable year, subject to certain adjustments. For
purposes of the branch profits tax, interest on and any gain recognized on the
sale, exchange or other disposition of a Note will be included in the
effectively connected earnings and profits of such United States Alien Holder
if such interest or gain is effectively connected with the conduct by the
United States Alien Holder of a trade or business in the United States. IRS
Form 4224 is valid solely for the calendar year in which filed.
New Withholding Rules in 2000. Effective January 1, 2000, new withholding
tax regulations will take effect with respect to interest payments and certain
other categories of payments made to United States Alien Holders. Among other
things, these regulations generally will require any United States Alien Holder
that seeks the protection of an income tax treaty with respect to the
imposition of U.S. withholding tax to obtain a taxpayer identification number
("TIN") from the IRS in advance and provide verification that such holder is
entitled to the protection of the relevant income tax treaty. Tax-exempt United
States Alien Holders will generally be required to provide verification of
their tax-exempt status. United States Alien Holders are urged to consult with
their tax advisors with respect to these new withholding rules.
BACKUP WITHHOLDING
Under current United States federal income tax law, a 31% backup
withholding tax requirement applies to certain payments of interest on, and the
proceeds of a sale, exchange or redemption of, the Notes.
Backup withholding will generally not apply with respect to payments made
to certain exempt recipients such as corporations or other tax-exempt entities.
In the case of a non-corporate United States Holder, backup withholding will
apply only if such holder (i) fails to furnish its TIN which, for an
individual, would be his social security number, (ii) furnishes an incorrect
TIN, (iii) is notified by the IRS that it has failed to report properly
payments of interest and dividends or (iv) under certain circumstances, fails
to certify under penalties of perjury that it has furnished a correct TIN and
has not been notified by the IRS that it is subject to backup withholding for
failure to report interest and dividend payments.
In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments made by the
Indenture Trustee or any paying agent thereof on a Note if such holder has
provided the required certificate under penalties of perjury that it is not a
United States Holder (as defined above) or has otherwise established an
exemption, provided in each case that the Trustee or such paying agent, as the
case may be, does not have actual knowledge that the payee is a United States
Holder.
Under current Treasury Regulations, if payments on a Note are made to or
through a foreign office of a custodian, nominee or other agent acting on
behalf of a beneficial owner of a Note, such custodian, nominee or other agent
will not be required to apply backup withholding to such payments made to such
beneficial owner.
Under current Treasury Regulations, payments on the sale, exchange or
other disposition of a Note made to or through a foreign office of a broker
generally will not be subject to backup withholding. Payments to or through the
United States office of a broker will be subject to backup withholding and
information reporting unless the holder certifies under penalties of perjury
that it is not a United States Holder and that certain other conditions are met
or otherwise establishes an exemption.
Holders of Notes should consult their tax advisors regarding the
application of backup withholding in their particular situations, the
availability of an exemption therefrom and the procedure for obtaining such an
exemption, if available. Any amounts withheld from payment under the backup
withholding rules will be allowed as a credit against a holder's United States
federal income tax liability and may entitle such holder to a refund, provided
that the required information is furnished to the IRS.
64
<PAGE>
POSSIBLE ALTERNATIVE TREATMENT OF THE NOTES
If, contrary to the opinion of Counsel, the Service successfully asserted
that one or more classes of Notes did not represent indebtedness for federal
income tax purposes, the Notes might be treated as equity interests in the
Issuer. If so treated, the Issuer might be characterized as a publicly traded
partnership taxable as a corporation with the adverse consequences described
above (and the taxable corporation would not be able to reduce its taxable
income by deductions for interest expense on Notes recharacterized as equity).
In addition, treatment of the Notes as equity interests in such a partnership
could have adverse tax consequences to certain holders. For example, income to
foreign holders generally would be subject to federal tax and federal tax
return filing and withholding requirements at a rate as high as 30%, and
individual holders might be subject to certain limitations on their ability to
deduct their share of Issuer expenses.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX
ADVICE. ACCORDINGLY, EACH PROSPECTIVE NOTEHOLDER SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THE PROSPECTIVE NOTEHOLDER,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN INCOME
TAX LAWS AND ANY RECENT OR POSSIBLE CHANGES IN APPLICABLE TAX LAWS.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act ("ERISA"),
and/or Section 4975 of the Code, prohibits a pension, profit-sharing or other
employee benefit plan, as well as an individual retirement account and a Keogh
Plan of certain types (each a "Benefit Plan") from engaging in certain
transactions with persons that are "parties in interest" under ERISA or
"disqualified persons" under the Code with respect to such Benefit Plan. A
violation of these "prohibited transaction" rules may result in an excise tax
or other penalties and liabilities under ERISA and the Code for such persons.
Title I of ERISA also requires that fiduciaries of a Benefit Plan subject to
ERISA make investments that are prudent, diversified (except if prudent not to
do so) and in accordance with governing plan documents.
Certain transactions involving the purchase, holding or transfer of the
Notes might be deemed to constitute prohibited transactions under ERISA and the
Code if assets of the Issuer were deemed to be assets of a Benefit Plan. Under
a regulation issued by the United States Department of Labor (the "Plan Assets
Regulation"), the assets of the Issuer would be treated as plan assets of a
Benefit Plan for the purposes of ERISA and the Code only if the Benefit Plan
acquires an "equity interest" in the Issuer and none of the exceptions
contained in the Plan Assets Regulation is applicable. An equity interest is
defined under the Plan Assets Regulation as an interest in an entity other than
an instrument which is treated as indebtedness under applicable local law and
which has no substantial equity features. Although there can be no assurances
in this regard, it appears that the Notes should be treated as debt without
substantial equity features for purposes of the Plan Assets Regulation and that
the Notes do not constitute equity interests in the Issuer for purposes of the
Plan Assets Regulation. However, without regard to whether the Notes are
treated as an equity interest for such purposes, the acquisition or holding of
Notes by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Issuer or the Trustee, or any of their respective
affiliates is or becomes a party in interest or a disqualified person with
respect to such Benefit Plan. In such case, certain exemptions from the
prohibited transaction rules could be applicable depending on the type and
circumstances of the plan fiduciary making the decision to acquire a Note.
Included among these exemptions are: Prohibited Transaction Class Exemption
("PTCE") 96-23, regarding transactions effected by "in-house asset managers";
PTCE 90-1, regarding investments by insurance company pooled separate accounts;
PTCE 95-60, regarding transactions effected by insurance company general
accounts; PTCE 91-38, regarding investments by bank collective investment
funds; and PTCE 84-14, regarding transactions effected by "qualified
professional asset managers."
65
<PAGE>
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA) and certain church plans (as defined in Section 3(33) of ERISA)
are not subject to ERISA requirements.
A PLAN FIDUCIARY CONSIDERING THE PURCHASE OF ANY OF THE NOTES SHOULD
CONSULT ITS TAX AND/OR LEGAL ADVISORS REGARDING WHETHER THE ASSETS OF THE
ISSUER WOULD BE CONSIDERED PLAN ASSETS, THE POSSIBILITY OF EXEMPTIVE RELIEF
FROM THE PROHIBITED TRANSACTION RULES AND OTHER ISSUES AND THEIR POTENTIAL
CONSEQUENCES.
RATINGS OF THE NOTES
It is a condition of issuance that each of S&P and Fitch (i) rate the
Class A-1 Notes "A-1+" and "F1+/AAA," respectively, (ii) rate the Class A-2
Notes, Class A-3 Notes and Class A-4 Notes "AAA," (iii) rate the Class B Notes
at least "A," and (iv) rate the Class C Notes at least "BBB." The rating of
each Class of Notes addresses the likelihood of the timely receipt of interest
and payment of principal on such Class of Notes on or before the Stated
Maturity Date for such Class of Notes. The rating of the Class A and Class B
Notes will be based primarily upon the Pledged Revenues, the Residual
Realizations, the Reserve Account and the subordination provided by (1) the
Class B Notes and the Class C Notes, in the case of the Class A Notes and (2)
the Class C Notes, in the case of the Class B Notes. A variety of events
subsequent to the issuance of the Notes could cause a Rating Agency to qualify,
reduce or withdraw its ratings of some or all Classes of the Notes. These
events may include unexpected negative performance of the Leases, unexpected
negative developments at Green Tree Financial Corporation or Vendor Services,
unexpected negative performance of other pools of leases serviced by Vendor
Services, or unexpected changes in law. In the event that a rating or ratings
with respect to the Notes is qualified, reduced or withdrawn, no person or
entity will be obligated to provide any additional credit enhancement with
respect to the Notes so qualified, reduced or withdrawn.
The rating of the Notes should be evaluated independently from similar
ratings on other types of securities. A rating is not a recommendation to buy,
sell or hold the Notes, inasmuch as such rating does not comment as to market
price or suitability for a particular investor. The ratings of the Notes do not
address the likelihood of payment of principal on any Class of Notes prior to
the Stated Maturity Date thereof, or the possibility of the imposition of
United States withholding tax with respect to non-United States Persons.
USE OF PROCEEDS
The proceeds from the offering and sale of the Notes, after paying the
expenses of the Issuer and the funding of the Reserve Account, will be paid by
the Issuer to the SPC and by the SPC to Vendor Services in connection with the
transfer of the Leases and Vendor Services' interests in the Equipment.
EXPERTS
The financial statements of Green Tree Lease Finance 1998-1, LLC as of
December 11, 1998 included herein have been included in reliance upon the
report of PricewaterhouseCoopers LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their representative, First Union Capital Markets,
66
<PAGE>
a division of Wheat First Securities, Inc. (the "Representative"), have
severally agreed to purchase from the Issuer the following respective initial
principal amount of Notes at the initial public offering price less the
underwriting discounts set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL INITIAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B CLASS C
UNDERWRITERS NOTES NOTES NOTES NOTES NOTES NOTES
- ------------ ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
First Union
Capital Markets.. $ $ $ $ $ $
Lehman Brothers
Inc..............
NationsBanc
Montgomery
Securities LLC...
------------ ----------- ------------ ----------- ----------- -----------
Total........... $ $ $ $ $ $
============ =========== ============ =========== =========== ===========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the Notes
offered hereby if any of such Notes are purchased. The Issuer has been advised
by the Representative that the Underwriters propose initially to offer the
Notes to the public at the respective public offering prices set forth on the
cover page of this Prospectus, and to certain dealers at such price, less a
concession not in excess of % per Class A-1 Note, % per Class A-2 Note,
% per Class A-3 Note, % per Class A-4 Note, % per Class B Note and
% per Class C Note. The Underwriters may allow and such dealers may reallow
to other dealers a discount not in excess of % per Class A-1 Note, % per
Class A-2 Note, % per Class A-3 Note, % per Class A-4 Note, % per
Class B Note and % per Class C Note. After the initial public offering of
the Notes, the offering prices and such concessions and discounts may be varied
by the Underwriters.
Until the distribution of the Notes is completed, rules of the SEC may
limit the ability of the Underwriters and certain selling group members to bid
for and purchase the Notes. As an exception to these rules, the Underwriters
are permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Issuer nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the prices of the Notes. In addition,
neither the Issuer nor any of the Underwriters makes any representation that
the Underwriters will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
Green Tree Financial Corporation has agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
The Notes are new issues of securities with no established trading
market. The Issuer has been advised by the Representative that each Underwriter
intends to make a market in the United States in the Classes of Notes for which
it is acting as underwriter but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for the Notes.
Funds in the Trust Accounts may, from time to time, be invested in
Eligible Investments acquired from the Underwriters.
67
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for
the Issuer by Dorsey & Whitney LLP. Brown & Wood LLP will act as counsel to the
Underwriters. The Indenture, the Contribution and Servicing Agreement, the
Transfer Agreement and the Notes will be governed by the laws of the State of
Minnesota.
68
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Additional Principal................................................ 41
Adjusted Lease...................................................... 21, 57
Administrative Fees................................................. 57
Amortizable Bond Premium............................................ 63
Amount Available.................................................... 38
Article 2A.......................................................... 60
Available Pledged Revenues.......................................... 38
Available Reserve Amount............................................ 43
Bankruptcy Code..................................................... 60
Benefit Plan........................................................ 66
Book-Entry Certificates............................................. 37
Book Value.......................................................... 43
Business Day........................................................ 37
Cedel............................................................... 47
Cedel/Euroclear Depositaries........................................ 45
Cedel Participants.................................................. 47
Class A Notes....................................................... 37
Class A Percentage.................................................. 41
Class A Principal Payment........................................... 40
Class A Target Investor Principal Amount............................ 41
Class B Floor....................................................... 41
Class B Percentage.................................................. 41
Class B Principal Payment........................................... 41
Class B Target Investor Principal Amount............................ 41
Class C Floor....................................................... 41
Class C Percentage.................................................. 41
Class C Principal Payment........................................... 41
Class C Target Investor Principal Amount............................ 41
Code................................................................ 61
Collection Account.................................................. 44
Collection Period................................................... 42
Company............................................................. F-4
Contribution & Servicing Agreement.................................. 12
Cooperative......................................................... 47
Counsel............................................................. 61
CPR................................................................. 30
Cumulative Loss Amount.............................................. 41
Cut-Off Date........................................................ 12
Cut-Off Date Pool................................................... 22
Definitive Notes.................................................... 48
Delinquency......................................................... 24, 27
Deposit Date........................................................ 38
Depository.......................................................... 37
Determination Date.................................................. 55
Discount Rate....................................................... 4, 22
DTC................................................................. 45
Eligible Account.................................................... 44
Eligible Institution................................................ 44
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Eligible Investments................................................ 44
Equipment........................................................... 12
ERISA............................................................... 66
Events of Default................................................... 51
Exchange Act........................................................ 45
Euroclear........................................................... 47
Euroclear Operator.................................................. 47
Euroclear Participants.............................................. 47
Financial Institution............................................... 64
Global Securities................................................... A-1
Green Tree.......................................................... 13
Gross Losses........................................................ 28
Hell-or-High-Water.................................................. 18
Holders............................................................. 37, 38
Indirect Participants............................................... 46
Industry............................................................ 47
Initial Cut-Off Date................................................ 12
Initial Pool Principal Balance...................................... 22, 42
Insurance, Maintenance and Tax Accounts............................. 55
IRS................................................................. 61
Issuer.............................................................. 1
Lease............................................................... 3, 12
Lease Pool.......................................................... 12
Lease Pool Principal Balance........................................ 22
Liquidated Lease.................................................... 42
Market Discount..................................................... 63
Master Form Lease................................................... 16
Monthly Principal Amount............................................ 41
Net Losses.......................................................... 28
Non-Accrual......................................................... 27
Non-Earning......................................................... 14
Nonrecoverable Servicer Advance..................................... 42
Note Distribution Account........................................... 44
Note Majority....................................................... 51
Note Owner.......................................................... 45
Noteholders......................................................... 37, 38
Notes............................................................... 37
Obligor............................................................. 12
OID................................................................. 62
Outstanding Principal Amounts....................................... 40
Participants........................................................ 46
Payment Date........................................................ 1, 38
Payment Shortfall................................................... 55
Plan Assets Regulation.............................................. 66
Pledged Revenues.................................................... 38
Prepayments......................................................... 38
Principal Balance................................................... 42
PTCE................................................................ 66
Record Date......................................................... 38
Registrants......................................................... II-3
Representative...................................................... 68
Repurchase Event.................................................... 21
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- ---- ----
<S> <C>
Required Payoff Amount.............................................. 21
Required Payment.................................................... 43
Required Reserve Amount............................................. 43
Reserve Account..................................................... 5, 44
Residual Account.................................................... 44
Residual Event...................................................... 43
Residual Realizations............................................... 43
Rules............................................................... 46
Scheduled Payments.................................................. 38
Securities & Exchange Commission.................................... iii
Servicer Advance.................................................... 43
Servicing Account................................................... 44
Servicing Fee....................................................... 57
SPC................................................................. 1, 11, F-4
Specific Lease Form................................................. 16
Statistical Discounted Present Value of the Leases.................. 22
Substitute Lease.................................................... 21
Systems............................................................. 47
Terms and Conditions................................................ 48
TIN................................................................. 65
Transfer Agent and Registrar........................................ 30
Transfer Agreement.................................................. 12
Trust Accounts...................................................... 44
Trustee............................................................. 1
UCC................................................................. 8
Underwriters........................................................ 67
Underwriting Agreement.............................................. 67
United States Alien Holder.......................................... 62
United States Holder................................................ 61
U.S. Person......................................................... A-4
Vendor Services..................................................... 1, 13
Warranty Leases..................................................... 21
</TABLE>
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ............................................... F-2
Balance Sheet as of December 11, 1998....................................... F-3
Notes to Balance Sheet ..................................................... F-4
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Green Tree Financial Corporation:
We have audited the accompanying balance sheet of Green Tree Lease
Finance 1998-1, LLC, a wholly owned subsidiary of Green Tree Lease Finance II,
Inc., as of December 11, 1998. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit of a balance sheet
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Green Tree Lease Finance 1998-
1, LLC as of December 11, 1998 in conformity with generally accepted accounting
principles.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
December 11, 1998
F-2
<PAGE>
GREEN TREE LEASE FINANCE 1998-1, LLC
BALANCE SHEET
DECEMBER 11, 1998
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash................................................................ $1,000
======
MEMBER'S EQUITY
Member's Equity (authorized 10 Units; issued
and outstanding 10 Units).......................................... $1,000
======
</TABLE>
The accompanying notes are an integral part of the balance sheet.
F-3
<PAGE>
GREEN TREE LEASE FINANCE 1998-1, LLC
NOTES TO BALANCE SHEET
DECEMBER 11, 1998
(1) ORGANIZATION
Green Tree Lease Finance 1998-1, LLC (the "Company"), a wholly owned
subsidiary of Green Tree Lease Finance II, Inc., (the "SPC"), was formed as a
limited liability company in the State of Delaware on November 24, 1998. The
Company has been inactive since that date.
The Company was organized to engage exclusively in the following business
and financial activities: to acquire leases and rights to residual realizations
on the underlying equipment from the SPC; to issue and sell notes
collateralized by any or all of its assets pursuant to one or more indentures
between the Company and an indenture trustee; and to engage in other
transactions, including entering into agreements that are incidental and
necessary, suitable or convenient to the foregoing and permitted under Delaware
law.
(2) CAPITAL CONTRIBUTION
The SPC purchased 10 Units of the Company for $1,000 on November 25,
1998.
(3) ACCOUNTING POLICIES
Generally all lease receivables are classified as direct financing leases
as defined in Statement of Financial Accounting Standards Boards No. 13. The
carrying value of lease receivables represents the present value of both the
future minimum lease payments and related residual value less an allowance for
expected losses. Revenue is recognized in interest income as a constant
percentage return on the asset carrying value.
F-4
<PAGE>
ANNEX 1
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Notes (the
"Global Securities") will be available only in book-entry form. Investors in
the Global Securities may hold such Global Securities through any of DTC, Cedel
or Euroclear. The Global Securities will be tradeable as home market
instruments in both the European and U.S. domestic markets. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding Global Securities
through Cedel and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Cedel or Euroclear and DTC
Participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Cedel and Euroclear (in such capacity)
and DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book-entry form by DTC in the name
of Cede & Co. as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Cedel and Euroclear will
hold positions on behalf of their participants through their respective
Depositaries, which in turn will hold such positions in accounts as DTC
Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to prior debt issues. Investors'
securities custody accounts will be credited with their holdings against
payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Cedel or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to
the securities custody accounts on the settlement date against payments in
same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to book-entry
securities in same-day funds.
A-1
<PAGE>
TRADING BETWEEN CEDEL AND/OR EUROCLEAR PARTICIPANTS. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
TRADING BETWEEN DTC SELLER AND CEDEL OR EUROCLEAR PURCHASER. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or
Euroclear Participant at least one business day prior to settlement. Cedel or
Euroclear, as applicable, will instruct its Depositary to receive the Global
Securities against payment. Payment will include interest accrued on the Global
Securities from and including the last coupon payment date to and excluding the
settlement date. Payment will then be made by such Depositary to the DTC
Participant's account against delivery of the Global Securities. After
settlement has been completed, the Global Securities will be credited to the
applicable clearing system and by the clearing system, in accordance with its
usual procedures, to the Cedel Participant's or Euroclear Participant's
account. The Global Securities credit will appear the next day (European time)
and the cash debit will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Cedel or Euroclear cash debit
will be valued instead as of the actual settlement date.
Cedel Participants and Euroclear Participants will need to make available
to the respective clearing systems the funds necessary to process same-day
funds settlement. The most direct means of doing so is to pre-position funds
for settlement, either from cash on hand or existing lines of credit, as they
would for any settlement occurring within Cedel or Euroclear. Under this
approach, they may take on credit exposure to Cedel or Euroclear until the
Global Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to pre-
position funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Cedel Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day,
assuming they cleared the overdraft when the Global Securities were credited to
their accounts. However, interest on the Global Securities would accrue from
the value date. Therefore, in many cases the investment income on the Global
Securities earned during that one-day period may substantially reduce or offset
the amount of such overdraft charges, although this result will depend on each
Cedel Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective Depositary for the benefit of Cedel Participants or Euroclear
Participants. The sale proceeds will be available to the DTC seller on the
settlement date. Thus, to the DTC Participant a cross-market transaction will
settle no differently than a trade between two DTC Participants.
TRADING BETWEEN CEDEL OR EUROCLEAR SELLER AND DTC PURCHASER. Due to time
zone differences in their favor, Cedel Participants and Euroclear Participants
may employ their customary procedures for transactions in which Global
Securities are to be transferred by the respective clearing systems, through
their respective Depositaries, to a DTC Participant. The seller will send
instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. In these cases,
Cedel or Euroclear will instruct their respective Depositaries, as appropriate,
to deliver the bonds to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date. The payment will
then be reflected in the account of the Cedel Participant or Euroclear
Participant the following day, and receipt of the cash proceeds in the Cedel
Participant's or Euroclear Participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Cedel Participant or Euroclear Participant have a line of
credit with its clearing system and elect to be in debit in anticipation of
A-2
<PAGE>
receipt of the sale proceeds in its account, the back-valuation will
extinguish any overdraft charges incurred over that one-day period. If
settlement is not completed on the intended value date (i.e., the trade
fails), receipt of the cash proceeds in the Cedel Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement
date. Finally, day traders that use Cedel or Euroclear and that purchase
Global Securities from DTC Participants for delivery to Cedel Participants or
Euroclear Participants should note that these trades would automatically fail
on the sale side unless affirmative action were taken. At least three
techniques should be readily available to eliminate this potential problem:
(a) borrowing through Cedel or Euroclear for one day (until the purchase
side of the day trade is reflected in their Cedel or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant no
later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel or Euroclear
account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade so
that the value date for the purchase from the DTC Participant is at least
one day prior to the value date for the sale to the Cedel Participant or
Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course
of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
EXEMPTION ON NON-U.S. PERSONS (FORM W-8). Beneficial owners of Notes that
are non-U.S. Persons generally can obtain a complete exemption from the
withholding tax by filing a signed Form W-8 (Certificate of Foreign
Status). If the information shown on Form W-8 changes, a new Form W-8 must
be filed within 30 days of such change.
EXEMPTION FOR NON-U.S. PERSON WITH EFFECTIVELY CONNECTED INCOME (FORM
4224). A non-U.S. Person, including a non-U.S. corporation or bank with a
U.S. branch, for which the interest income is effectively connected with
its conduct of a trade or business in the United States can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States).
EXEMPTION OR REDUCED RATE FOR NON-U.S. PERSONS RESIDENT IN TREATY
COUNTRIES (FORM 1001). Non-U.S. Persons that are beneficial owners of Notes
residing in a country that has a tax treaty with the United States can
obtain an exemption or reduced tax rate (depending on the treaty terms) by
filing Form 1001 (Ownership, Exemption or Reduced Rate Certificate). If the
treaty provides only for a reduced rate, withholding tax will be imposed at
that rate unless the filer alternatively files Form W-8. Form 1001 may be
filed by the beneficial owner of Notes or such owner's agent.
EXEMPTION FOR U.S. PERSONS (FORM W-9). U.S. Persons can obtain a complete
exemption from the withholding tax by filing Form W-9 (Payer's request for
Taxpayer Identification Number and Certification).
U.S. FEDERAL INCOME TAX REPORTING PROCEDURE. The beneficial owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, such
owner's agent, files by submitting the appropriate form to the person
through whom it holds the security (the clearing agency, in the case of
persons holding directly
A-3
<PAGE>
on the books of the clearing agency). Form W-8 and Form 1001 are effective
for three calendar years and Form 4224 is effective for one calendar year.
The term "U.S. Person" means a citizen or resident of the United States, a
corporation or a partnership organized in or under the laws of the United
States or any political subdivision thereof or an estate, the income of
which from sources outside the United States is includible in gross income
for federal income tax purposes regardless of its connection with the
conduct of a trade or business within the United States or a trust if a
court within the United States is able to exercise primary supervision of
the administration of the trust and one or more United States fiduciaries
have the authority to control all substantial decisions of the trust.
This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of the Global
Securities. Investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the Global
Securities.
A-4
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information.
We are not offering the Notes in any state where the offer is not
permitted.
We do not claim the accuracy of the information in this prospectus as of
any date other than the date of this document stated on the cover.
Dealers will deliver a prospectus when acting as underwriters of the
Notes and with respect to their unsold allotments or subscriptions. In
addition, all dealers selling the Notes will deliver a prospectus until ,
1999.
[GreenTree Logo]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in connection
with the offering of the Lease-Backed Notes, other than underwriting discounts
and commissions, described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $109,765
Printing and Engraving...................................... 100,000 *
Legal Fees and Expenses..................................... 100,000 *
Blue Sky Filing and Counsel Fees............................ 5,000 *
Accounting Fees and Expenses................................ 30,000 *
Trustee Fees and Expenses................................... 20,000 *
Rating Agencies' Fees....................................... 150,000 *
Miscellaneous Expenses...................................... 60,235 *
-----------
Total..................................................... $ 575,000 *
===========
</TABLE>
- --------
* Other than the registration fee, all expense items are estimates.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Green Tree Lease Finance 1998-1, LLC is a limited liability company formed
under the laws of Delaware. Section 18-108 of the Delaware Limited Liability
Company Act provides that a Delaware limited liability company may indemnify
any member or manager or other person from and against any and all claims and
demands whatsoever. The Limited Liability Company Agreement of Green Tree
Lease Finance 1998-1, LLC provides, in effect, that, subject to certain
limited exceptions, such company will indemnify its managers and named
officers to the extent permitted by the Delaware Limited Liability Company
Act.
Green Tree Lease Finance II, Inc. is incorporated under the laws of
Minnesota. Section 302A.521 of the Minnesota Statutes provides that a
corporation shall indemnify any person made or threatened to be made a party
to a proceeding by reason of the former or present official capacity of such
person against judgments, penalties, fines (including, without limitation,
excise taxes assessed against such person with respect to any employee benefit
plan), settlements and reasonable expenses, including attorneys' fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person (1) has not been indemnified therefor by another
organization or employee benefit plan for the same judgments, penalties or
fines; (2) acted in good faith; (3) received no improper personal benefit and
Section 302A.255 (with respect to director conflicts of interest), if
applicable, has been satisfied; (4) in the case of a criminal proceeding, had
no reasonable cause to believe the conduct was unlawful; and (5) in the case
of acts or omissions in such person's official capacity for the corporation,
reasonably believed that the conduct was in the best interests of the
corporation, or in the case of acts or omissions in such person's official
capacity for other affiliated organizations, reasonably believed that the
conduct was not opposed to the best interests of the corporation. Section
302A.521 also requires payment by a corporation, upon written request, of
reasonable expenses in advance of final disposition of the proceeding in
certain instances. A decision as to required indemnification is made by a
disinterested majority of the Board of Directors present at a meeting at which
a disinterested quorum is present, or by a designated committee of the Board,
by special legal counsel, by the shareholders or by a court.
The Bylaws of Green Tree Lease Finance II, Inc. provide, in effect, that,
subject to certain limited exceptions, such corporation will indemnify its
officers and directors to the extent permitted by the Minnesota Business
Corporation Act.
II-1
<PAGE>
Green Tree Financial Corporation is incorporated under the laws of Delaware.
Section 145 of the Delaware General Corporation Law provides that a Delaware
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation,
by reason of the fact that such person was an officer, director, employee or
agent of such corporation, or is or was serving at the request of such
corporation as a director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise). The indemnity may include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding, provided such person acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was illegal. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where and officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
The Certificate of Incorporation and Bylaws of Green Tree Financial
Corporation provide, in effect, that, subject to certain limited exceptions,
such corporation will indemnify its officers and directors to the extent
permitted by the Delaware General Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Exhibits filed as part of this Registration Statement are:
<TABLE>
<C> <S>
1.1 --Form of Underwriting Agreement.
3.1 --Certificate of Formation of Green Tree Lease Finance 1998-1, LLC.
3.2 --LLC Agreement of Green Tree Lease Finance 1998-1, LLC.
3.3* --Articles of Incorporation of Green Tree Lease Finance II, Inc.
3.4* --By-Laws of Green Tree Lease Finance II, Inc.
4.1 --Form of Transfer Agreement.
4.2 --Form of Contribution and Servicing Agreement.
4.3 --Form of Indenture.
5.1 --Opinion and consent of Dorsey & Whitney LLP with respect to
legality.
8.1 --Opinion and consent of Dorsey & Whitney LLP with respect to tax
matters.
23.1 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 5.1).
23.2 --Consent of Dorsey & Whitney LLP (included as part of Exhibit 8.1).
23.3 --Consent of Dorsey & Whitney LLP (true sale and nonconsolidation
opinions).
23.4 --Consent of PricewaterhouseCoopers LLP.
24.1** --Power of attorney from officers and directors of Green Tree Lease
Finance II, Inc.
25.1 --Statement of eligibility of Trustee.
99.1 --Form of Opinion of Dorsey & Whitney LLP with respect to true sale
of the Leases.
99.2 --Form of Opinion of Dorsey & Whitney LLP with respect to
nonconsolidation.
</TABLE>
- --------
* Incorporated by reference to the corresponding exhibit number in
Registration Statement on Form S-3 Amendment No. 3 filed December 9, 1997,
Registration Statement Nos. 333-38687, 333-38687-01 and 333-38687-02
** Previously filed on November 25, 1998, as part of Page II-5
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Each of the undersigned, Green Tree Lease Finance 1998-1, LLC, and Green
Tree Lease Finance II, Inc. (collectively, the "Registrants"), hereby
undertakes that, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the Registrants pursuant to the foregoing provisions,
or otherwise, the Registrants have been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants 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
Registrants 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.
The Registrants hereby undertake:
(1) 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 Registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) 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.
The Registrants hereby undertake to file an application for the purpose of
determining the eligibility of the trustee to act under subsection (a) of
Section 310 of the Trust Indenture Act in accordance with the rules and
regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE OF MINNESOTA, ON THE
11TH DAY OF DECEMBER, 1998.
Green Tree Lease Finance 1998-1, LLC
By: Green Tree Lease Finance II,
Inc.
/s/ Joel H. Gottesman
By: _________________________________
Joel H. Gottesman
Senior Vice President and
Secretary
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, REGISTRANT HAS
DULY CAUSED THIS AMENDMENT NO. 1 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ST. PAUL, STATE OF
MINNESOTA, ON THE 11TH DAY OF DECEMBER, 1998.
Green Tree Lease Finance II, Inc.
/s/ Joel H. Gottesman
By: _________________________________
Joel H. Gottesman
Senior Vice President and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON
DECEMBER 11, 1998.
SIGNATURE TITLE DATE
President (Principal
* Executive Officer) December 11,
- ------------------------------------- 1998
RICHARD G. EVANS
*
- ------------------------------------- Senior Vice
PHYLLIS A. KNIGHT President and December 11,
Treasurer 1998
(Principal
Financial and
Accounting Officer)
/s/ Joel H. Gottesman
- ------------------------------------- Director
JOEL H. GOTTESMAN December 11,
1998
*
- ------------------------------------- Director
PAUL A. BOYUM December 11,
1998
/s/ Joel H. Gottesman
By: ____________________________
Joel H. Gottesman
Attorney-in-fact
II-5
<PAGE>
Exhibit 1.1
GREEN TREE LEASE FINANCE II, INC.
GREEN TREE LEASE FINANCE 1998-1, LLC
AND GREEN TREE FINANCIAL CORPORATION
Lease-Backed Notes, Class A-1, Class A-2
Class A-3, Class A-4, Class B and Class C
UNDERWRITING AGREEMENT
December __, 1998
First Union Capital Markets, a division of Wheat First Securities, Inc.
Lehman Brothers Inc.
NationsBanc Montgomery Securities LLC
c/o FIRST UNION CAPITAL MARKETS CORP.
One First Union Center
301 South College Street - TW6
Charlotte, North Carolina 28288
Dear Sirs:
Green Tree Lease Finance 1998-1, LLC (the "Issuer") is a Delaware limited
liability company. Green Tree Lease Finance II, Inc. (the "SPC"), a wholly owned
subsidiary of Green Tree Vendor Services Corporation ("Vendor Services"), is the
sole member of the Issuer. Vendor Services is a wholly owned subsidiary of Green
Tree Financial Corporation ("Green Tree"). The Issuer's Lease-Backed Notes
identified in Schedule I hereto (the "Notes") will be issued pursuant to an
Indenture, dated as of December 1, 1998 (the "Indenture"), between the Issuer
and U.S. Bank Trust National Association (the "Trustee"). The Notes will be
secured by a pledge by the Issuer of a pool of equipment lease contracts,
installment sale contracts, promissory notes, loan and security agreements and
other similar types of receivables (the "Leases") and certain other property,
including certain rights to the proceeds of disposition of the equipment
underlying the Leases (the "Equipment") to be held in trust pursuant to the
Indenture. The Leases will be serviced by Vendor Services pursuant to a
Contribution and Servicing Agreement, dated as of December 1, 1998 (the
"Contribution and Servicing Agreement"), among the Issuer, Vendor Services and
the SPC. The Leases will have been contributed by Vendor Services, together with
Vendor Services' rights in the Equipment, to the SPC pursuant to a Transfer
Agreement, dated as of December 1, 1998 (the "Transfer Agreement"), between
Vendor Services and the SPC and the SPC will in turn contribute the Leases,
together with certain rights to the proceeds of disposition of the Equipment, to
the Issuer pursuant to the Contribution and Servicing Agreement. The forms of
the Indenture, Transfer Agreement and Contribution and
<PAGE>
Servicing Agreement (collectively, the "Transaction Agreements") have been filed
as exhibits to the Registration Statement (hereinafter defined).
The Notes are more fully described in the Registration Statement (defined
below) which the Issuer and the SPC as the registrants thereunder (together, the
"Registrants") have furnished to you. The Notes identified in Schedule I hereto
will be sold in a public offering through the underwriters listed in Schedule II
hereto, one or more of which may act as representative of such underwriters (any
underwriter through which Notes are sold shall be referred to herein as an
"Underwriter" or, collectively, all such Underwriters may be referred to as
"you" or the "Underwriters") and First Union Capital Markets, a division of
Wheat First Securities, Inc., will act as representative of the Underwriters and
may be referred to herein as the "Representative". Capitalized terms used but
not defined herein shall have the meanings given to them in the Registration
Statement.
The offering of the Notes will be governed by this Underwriting Agreement
which forms one agreement between the Registrants and Green Tree, on one hand,
and the Underwriters, on the other, and references herein to "this Agreement"
shall, unless the context provides otherwise, refer to this Underwriting
Agreement.
SECTION 1. Representations and Warranties. The Registrants and Green Tree
represent and warrant to the Underwriters as of the date hereof as follows:
(a) The Registrants have prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of
the Securities Act of 1933, as amended, and the rules and regulations of
the Commission thereunder (collectively, the "Securities Act"), a
registration statement on Form S-1 (registration number 333-[_______]),
including a form of prospectus, relating to the Notes. The registration
statement, and any post-effective amendment thereto, each in the form
heretofore delivered to you and, excluding exhibits thereto, have been
declared effective by the Commission. As used in this Agreement, "Effective
Time" means the date and the time as of which such registration statement,
or the most recent post-effective amendment thereto, if any, was declared
effective by the Commission and "Effective Date" means the date of the
Effective Time. The Registrants have furnished to you, for use by the
Underwriters, copies of one or more preliminary prospectuses (each, a
"Preliminary Prospectus"), relating to the Notes. Except where the context
otherwise requires, the registration statement, as amended at the Effective
Time, including all documents filed as a part thereof, and including any
information contained in a prospectus subsequently filed with the
Commission pursuant to Rule 424(b) under the Securities Act and deemed to
be part of the registration statement as of the Effective Time pursuant to
Rule 430A under the Securities Act, is herein called the "Registration
Statement", and the prospectus, in the form filed by the Registrants with
the Commission pursuant to Rule 424(b) under the Securities Act or, if no
such filing is required, the form of final prospectus included in the
Registration Statement at the time it became effective, is hereinafter
called the "Prospectus".
(b) The Registration Statement relating to the Notes, has been filed
with the Commission and such Registration Statement has become effective.
No stop order
2
<PAGE>
suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or, to the knowledge
of the Registrants or Green Tree, threatened by the Commission. No order
preventing or suspending the use of any Preliminary Prospectus has been
issued by the Commission, and each Preliminary Prospectus, at the time of
filing thereof, conformed in all material respects to the requirements of
the Securities Act, and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which
they were made (and taking into account Rule 430A of the Securities Act,
which permits certain information to be omitted from a preliminary
prospectus), not misleading; provided, however, that this representation
and warranty shall not apply to any statements or omissions made in
reliance upon or conformity with the Underwriters' Information (as defined
in Section 10(d) herein).
(c) The Registration Statement conforms, and any amendments or
supplements thereto and the Prospectus will conform, in all material
respects to the requirements of the Securities Act and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"), and do not and will
not, as of the Effective Date and as of the Closing Date (as defined
herein), contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however that this
representation and warranty shall not apply to (i) that part of the
Registration Statement which shall constitute the Statement of Eligibility
and Qualification (Form T-1) of the Trustee under the Trust Indenture Act
or (ii) any Underwriters' Information (as defined in Section 10(d) herein)
contained therein. The Indenture conforms in all respects to the
requirements of the Trust Indenture Act and the rules and regulations of
the Commission thereunder.
(d) The Issuer has been duly organized and is validly existing as a
limited liability company in good standing under the laws of the State of
Delaware. The SPC has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Minnesota. Each
of Vendor Services and Green Tree has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware. Each Registrant, Vendor Services and Green Tree possess the power
and authority to own, lease and operate its properties and conduct its
business as described in the Prospectus and to enter into and perform its
obligations under this Agreement, the Indenture, the Contribution and
Servicing Agreement and the Transfer Agreement, as applicable; and each
Registrant and Green Tree are duly qualified as a foreign entity to
transact business and are in good standing in each jurisdiction in which
the ownership or lease of its properties or the conduct of its business
requires such qualification.
(e) None of the Registrants, Vendor Services or Green Tree are in
violation of its limited liability company agreement or articles of
incorporation or by-laws, as the case may be, or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement,
3
<PAGE>
note, lease or other instrument to which it is a party or by which it or
its properties may be bound, which default might result in any material
adverse change in the financial condition, earnings, affairs or business of
such Registrant, Vendor Services or Green Tree, as applicable, or which
might materially and adversely affect the properties or assets thereof.
(f) The execution, delivery and performance by each Registrant, Vendor
Services and Green Tree of this Agreement and the Transaction Agreements,
as applicable, are within its corporate or limited liability company power,
as applicable, and have been duly authorized by all necessary corporate or
limited liability company action on the part of such Registrant, Vendor
Services or Green Tree.
(g) The execution, delivery and performance of this Agreement, the
Transaction Agreements to which the Registrants, Vendor Services or Green
Tree, as the case may be, is a party, the issuance and sale of the Notes
and the consummation of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any material
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which any of the Registrants, Vendor Services or Green Tree
is a party or by which any of the Registrants, Vendor Services or Green
Tree is bound or to which any of the property or assets of any of the
Registrants, Vendor Services or Green Tree is subject, nor will such
actions result in any violation of the provisions of the charter, by-laws
or limited liability company agreement, as applicable, of any of the
Registrants, Vendor Services or Green Tree or any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over any of the Registrants, Vendor Services or Green Tree or
any of their properties or assets; and except for the registration of the
Notes under the Securities Act, the qualification of the Indenture under
the Trust Indenture Act, such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Exchange Act") and applicable
state securities laws in connection with the purchase and distribution of
the Notes by the Underwriters and the filing of any financing statements
required to perfect the Issuer's interest in the Trust Assets, no consent,
approval, authorization or order of, or filing or registration with, any
such court or governmental agency or body is required for the execution,
delivery and performance of this Agreement or the Transaction Agreements,
the issuance and sale of the Notes and the consummation of the transactions
contemplated hereby and thereby.
(h) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change,
or any development involving a prospective change, in or affecting the
Registrants, Vendor Services or Green Tree (other than as may be
contemplated in the Registration Statement) which would be expected to have
a material adverse effect on either (i) the ability of such person to
consummate the transactions contemplated by, or to perform its respective
obligations under, this Agreement or the Transaction Agreements, as
applicable, or (ii) the Leases or the Trust Assets.
4
<PAGE>
(i) Each of the Indenture, the Transfer Agreement and the Contribution
and Servicing Agreement when executed and delivered as contemplated hereby
and thereby will have been duly authorized, executed and delivered by each
of the Registrants or Vendor Services, as the case may be, purporting to
execute the same, and will constitute when so executed and delivered, a
legal, valid and binding instrument enforceable against each such
Registrant or Vendor Services, as applicable, in accordance with its terms,
subject (i) to applicable bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights generally and
(ii) as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(j) As of the Closing Date, the Notes will have been duly and validly
authorized by the Issuer, and, when executed and authenticated as specified
in the Indenture, will be validly issued and outstanding and will be
entitled to the benefits of the Indenture, and will be binding obligations
of the Issuer to the extent provided in the Indenture, subject (i) to
applicable bankruptcy, reorganization, insolvency, moratorium or other
similar laws affecting creditors' rights generally and (ii) as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law).
(k) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act and which have not been so described or
filed.
(l) Any taxes, fees and other governmental charges on the part of the
Registrants or Vendor Services that are assessed and due in connection with
the execution, delivery and issuance of this Agreement or the Transaction
Agreements shall have been paid or will be paid at or prior to the Closing
Date to the extent then due.
(m) There are no legal or governmental proceedings pending to which
any of the Registrants, Vendor Services or Green Tree is a party or of
which any property or assets of any of the Registrants, Vendor Services or
Green Tree is the subject which, individually or in the aggregate, would
(i) be reasonably likely to, if determined adversely to any of the
Registrants, Vendor Services or Green Tree, have a material adverse effect
on the condition (financial or otherwise), results of operations, business
or prospects of any of the Registrants, Vendor Services or Green Tree, as
the case may be, or taken as a whole; and to the best of each Registrant's
or Green Tree's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others, that (i)
assert the invalidity of this Agreement or the Transaction Agreements, (ii)
seek to prevent the issuance of the Notes or the consummation of any of the
transactions contemplated by this Agreement or the Transaction Agreements,
(iii) be reasonably likely to, if determined adversely to any of the
Registrants, Vendor Services or Green Tree, materially and adversely affect
the performance by the Registrants, Vendor Services or Green Tree, as the
case may be, of their respective obligations under, or the validity or
enforceability of, this Agreement or the Transaction Agreements, as
applicable, or (iv) seek to affect adversely the federal income tax
attributes of the Notes described in the Prospectus.
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(n) This Agreement has been duly authorized, executed and delivered by
each of the Registrants and Green Tree.
(o) Each of the Registrants, Vendor Serivces and Green Tree possess
all material licenses, certificates, authorities or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct the business now operated by it and as described in
the Prospectus and has received no notice of proceedings relating to the
revocation or modification of any such license, certificate, authority or
permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would materially and adversely affect its
business, operations, financial condition or earnings.
(p) As of the Closing Date, the Leases and the other Trust Assets will
have been duly and validly granted to the Trustee in accordance with the
Indenture; and when such assignment is effected, a duly and validly
perfected transfer to the Trustee of all such Trust Assets subject to no
prior lien, mortgage, security interest, pledge, charge or other
encumbrance created by Vendor Services or any of the Registrants, will have
occurred.
(q) The representations and warranties of the SPC in Section __ of the
Contribution and Servicing Agreement and of Vendor Services in Section __
of the Transfer Agreement will be true and correct as of the Closing Date.
(r) Neither the Issuer nor the Trust Assets created by the Indenture
is required to be registered under the Investment Company Act of 1940, as
amended (the "1940 Act").
(s) The Notes, the Indenture, the Contribution and Servicing
Agreement, and the Transfer Agreement conform in all material respects to
the descriptions thereof contained in the Prospectus.
SECTION 2. Purchase and Sale. Subject to the terms and conditions and in
reliance upon the covenants, representations and warranties herein set forth,
the Issuer agrees to sell to each Underwriter, and each Underwriter agrees,
severally and not jointly, to purchase from the Issuer, the principal amount of
Notes set forth opposite such Underwriter's name in Schedule II hereto. The
purchase price for the Notes shall be as set forth in Schedule I hereto.
SECTION 3. Delivery and Payment. Payment for the Notes shall be made to the
Issuer or to its order by wire transfer of same day funds at the office of
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402, at
10:00 a.m., Minneapolis time, on the Closing Date, or at such other time on the
same or such other date as the Representative and the Issuer may agree upon. The
time and date of such payment for the Notes as specified in Schedule I hereto
are referred to herein as the "Closing Date." As used herein, the term "Business
Day" means any day other than a day on which banks are permitted or required to
be closed in New York City or Minneapolis, Minnesota.
Payment for the Notes shall be made against delivery to the Representative
for the respective accounts of the several Underwriters of the Notes registered
in the name of Cede & Co. as nominee of The Depository Trust Company and in such
denominations as the
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Representative shall request in writing not later than two full Business Days
prior to the Closing Date. The Issuer shall make the Notes available for
inspection by the Representative in Minneapolis, Minnesota not later than one
full Business Day prior to the Closing Date.
SECTION 4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Notes for sale to the public, which may
include selected dealers, as set forth in the Prospectus.
SECTION 5. Covenants of the Registrants and Green Tree. Each of the
Registrants and Green Tree, jointly and severally, covenants with each of the
Underwriters, as follows:
(a) The Registrants will prepare the Prospectus in a form approved by
the Representative and file such Prospectus pursuant to Rule 424(b) under
the Securities Act not later than the Commission's close of business on the
second business day following the execution and delivery of this Agreement
or, if applicable, such earlier time as may be required by Rule 430A(a)(3)
under the Securities Act.
(b) During the period that a prospectus relating to the Notes is
required to be delivered under the Securities Act in connection with sales
of such Notes (such period being hereinafter sometimes referred to as the
"prospectus delivery period"), before filing any amendment or supplement to
the Registration Statement or the Prospectus, the Registrants will furnish
to the Representative a copy of the proposed amendment or supplement for
review and will not file any such proposed amendment or supplement to which
the Representative reasonably objects.
(c) During the prospectus delivery period, the Registrants will advise
the Representative promptly after it receives notice thereof, (i) when any
amendment to the Registration Statement shall have become effective, (ii)
of any request by the Commission for any amendment or supplement to the
Registration Statement or the Prospectus or for any additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation or
threatening of any proceeding for that purpose, (iv) of the issuance by the
Commission of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or the initiation or threatening of any
proceedings for that purpose and (v) of any notification with respect to
any suspension of the qualification of the Notes for offer and sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and will use its best efforts to prevent the issuance of any such
stop order or suspension and, if any is issued, will promptly use its best
efforts to obtain the withdrawal thereof.
(d) If, at any time during the prospectus delivery period, any event
occurs as a result of which the Prospectus as then supplemented would
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Prospectus to comply with the
Securities Act, the Registrants promptly will prepare and file with the
Commission, an
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amendment or a supplement which will correct such statement or omission or
effect such compliance.
(e) The Registrants will endeavor to qualify the Notes for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
Representative shall reasonably request and will continue such
qualification in effect so long as reasonably required for distribution of
the Notes; provided, however, that neither Registrant shall be obligated to
qualify to do business in any jurisdiction in which it is not currently so
qualified; and provided, further, that neither Registrant shall be required
to file a general consent to service of process in any jurisdiction.
(f) The Registrants will furnish to the Representative, without
charge, two copies of the Registration Statement (including exhibits
thereto), one of which will be signed, and to each Underwriter conformed
copies of the Registration Statement (without exhibits thereto) and, during
the prospectus delivery period, as many copies of any Preliminary
Prospectus and the Prospectus and any supplement thereto as the
Underwriters may reasonably request.
(g) For a period from the date of this Agreement until the retirement
of the Notes, or until such time as the Underwriters shall cease to
maintain a secondary market in the Notes, whichever first occurs, the
Registrants will deliver to the Representative (i) the annual statements of
compliance under the Indenture, (ii) the annual independent certified
public accountants' reports furnished to the Trustee, (iii) all documents
required to be distributed to the Noteholders of the Trust and (iv) all
documents filed with the Commission pursuant to the Exchange Act or any
order of the Commission thereunder, in each case as provided to the Trustee
or filed with the Commission, as soon as such statements and reports are
furnished to the Trustee or filed or as soon thereafter as practicable.
(h) To the extent, if any, that the rating provided with respect to
the Notes by the rating agency or agencies that initially rate the Notes is
conditional upon the furnishing of documents or the taking of any other
actions by the Registrants, the Registrants shall furnish such documents
and take any such other actions.
(i) The Issuer will use the net proceeds received by it from the
issuance of the Notes in the manner specified in the Prospectus under the
caption "Use of Proceeds".
(j) The Registrants will cause the Trust to make generally available
to Noteholders and to the Representative as soon as practicable an earnings
statement covering a period of at least twelve months beginning with the
first fiscal quarter of the Trust occurring after the Effective Date of the
Registration Statement, which shall satisfy the provisions of Section 11(a)
of the Securities Act and Rule 158 of the Commission promulgated
thereunder.
(k) The Registrants will file with the Commission within fifteen days
of the issuance of the Notes a current report on Form 8-K setting forth
specific information
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concerning the Notes and the Leases to the extent that such information is
not set forth in the Prospectus.
SECTION 6. Conditions to the Obligations of the Underwriters. The
respective obligations of the several Underwriters to purchase Notes pursuant to
this Agreement are subject to the accuracy of the representations and warranties
on the part of the Registrants and Green Tree herein contained, to the accuracy
of the statements of the officers of each of the Registrants, Vendor Services
and Green Tree made pursuant hereto, to the performance by each of the
Registrants and Green Tree of all of its obligations hereunder and to the
following further conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424 in the manner and within the applicable time period prescribed
for such filing by the rules and regulations of the Commission under the
Securities Act and in accordance with Section 5(a) of this Agreement; and,
prior to the Closing Date, no stop order suspending the effectiveness of
the Registration Statement or any part thereof shall have been issued and
no proceedings for such purpose shall have been initiated or threatened by
the Commission; and all requests for additional information from the
Commission with respect to the Registration Statement shall have been
complied with to the reasonable satisfaction of the Representative.
(b) (i) All corporate proceedings and other legal matters incident to
the authorization, form and validity of this Agreement, the Transaction
Agreements, the Notes, the Registration Statement, the Preliminary
Prospectus and the Prospectus, and all other legal matters relating to such
agreements and the transactions contemplated hereby and thereby shall be
reasonably satisfactory in all material respects to counsel for the
Underwriters, and the Registrants shall have furnished to such counsel all
documents and information that they may reasonably request to enable them
to pass upon such matters and (ii) prior to or contemporaneously with the
purchase of Notes hereunder, all transactions contemplated to be
consummated under such Transaction Documents on the Closing Date shall have
been so consummated to the reasonable satisfaction of the Underwriters.
(c) At the Closing Date you shall have received:
(1) The favorable opinion, dated as of the Closing Date, of
Dorsey & Whitney L.L.P., counsel for the Registrants, in form and
substance satisfactory to you, to the effect that:
(i) The Issuer has been duly organized and is validly
existing as a limited liability company in good standing under
the laws of the State of Delaware; the SPC has been duly
organized and is validly existing as a corporation in good
standing under the laws of the State of Minnesota, and that each
of Green Tree and Vendor Services has been duly incorporated and
is validly existing as a corporation in good standing under the
laws of the State of Delaware.
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(ii) The execution and delivery by the Registrants, Vendor
Services and Green Tree, as applicable, of this Agreement and the
Transaction Agreements and the signing of the Registration
Statement by the Registrants are within the corporate or limited
liability company power of the Registrants and have been duly
authorized by all necessary corporate or limited liability
company action on the part of the Registrants.
(iii) This Agreement has been duly authorized, executed and
delivered by the Registrants and Green Tree, and each is a valid
and binding obligation of the Registrants and Green Tree
enforceable against the Registrants and Green Tree in accordance
with its terms, except that (A) such enforcement may be subject
to applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to
creditors' or secured parties' rights generally, (B) such
enforcement may be limited by general principles of equity,
including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally
(regardless of whether enforcement is sought in a proceeding in
equity or at law), and (C) the enforceability as to rights to
indemnity thereunder is subject to the effect of federal and
state securities laws and public policy relating thereto.
(iv) The Transaction Agreements and the Registration
Statement have been duly authorized, executed and delivered by
each of Vendor Services, if applicable, and the Registrants
purporting to execute the same, and are the valid and binding
obligations of Vendor Services and the Registrants, as
applicable, enforceable against Vendor Services and the
Registrants, as applicable, in accordance with its terms, except
that (A) such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally
and (B) such enforcement may be limited by general principles of
equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(v) None of the transfer of the Leases and its rights in the
Equipment by Vendor Services to the SPC or of the Leases and its
rights to disposition proceeds of the Equipment by the SPC to the
Issuer, the pledge of the Trust Assets by the Issuer, the issue
and sale of the Notes by the Issuer or the consummation of the
transactions contemplated herein nor the fulfillment of the terms
hereof will, to the best of such counsel's knowledge, conflict
with or constitute a breach of, or default under, any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which Vendor Services or any of the Registrants may
be a party or by which any may be bound or to which the property
or assets of Vendor Services or any of the Registrants are
subject (which contracts, indentures, mortgages, loan agreements,
notes, leases and other such instruments have been identified by
Vendor Services and the Registrants
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to such counsel), nor will such action result in any violation of
the provisions of the certificate of incorporation or by-laws or
limited liability company agreement, as the case may be, of
Vendor Services or any of the Registrants or, to the best of such
counsel's knowledge, any order or regulation known to us to be
applicable to Vendor Services or any of the Registrants of any
state or federal court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over Vendor
Services or any of the Registrants.
(vi) The Notes have been duly authorized and executed by the
Issuer and when authenticated as specified in the Indenture and
delivered and paid for pursuant to this Agreement, will be duly
issued obligations of the Issuer, entitled to the benefits of the
Indenture.
(vii) The Indenture creates a valid security interest in
favor of the Trustee in the Leases and other property included in
the Trust Assets on the date hereof, which security interest of
the Trustee in the Leases and the Trust Assets will be perfected
and will constitute a first perfected security interest upon the
filing of Uniform Commercial Code ("UCC") financing statements in
the offices of the Secretary of State of Minnesota and Delaware;
provided, however, that such counsel may take customary
exceptions acceptable to you. Such counsel need express no
opinion (a) as to the continuation of a security interest in the
Leases if the Trustee does not file continuation statements as
required by the Indenture or (b) as to the priority of any
security interest in the Leases against any liens, claims or
other interests that arise by operation of law and do not require
any filing or similar action in order to take priority over
perfected security interests.
(viii) To the best of such counsel's knowledge, no filing or
registration with or notice to or consent, approval,
authorization or order of any Minnesota or federal court or
governmental authority or agency is required to be obtained by
Vendor Services or the Registrants for the consummation by Vendor
Services or any of the Registrants, as applicable, of the
transactions contemplated by the Transaction Agreements, except
such as may be required under the Securities Act or the
regulations thereunder, or state securities or Blue Sky laws.
(ix) The Registration Statement is effective under the
Securities Act and, to the best of such counsel's knowledge and
information, no stop order suspending the effectiveness of the
Registration Statement has been issued under the Securities Act
or proceedings therefor initiated or threatened by the
Commission.
(x) The Indenture has been duly qualified under the Trust
Indenture Act.
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(xi) To the best of such counsel's knowledge, there are no
contracts or documents of the Registrants which are required to
be filed as exhibits to the Registration Statement pursuant to
the Securities Act or the regulations thereunder which have not
been so filed or incorporated by reference.
(xii) The statements in the Prospectus under the heading
"Federal Income Tax Consequences," to the extent that they
constitute statements of law or legal conclusions as to the
likely outcome of material issues under the federal income tax
laws, have been prepared or reviewed by such counsel and are
correct in all material respects.
(xiii) The Issuer is not and will not as a result of the
offer and sale of the Notes as contemplated in the Prospectus and
in this Agreement become, an "investment company" or "under the
control of an investment company" as such terms are defined in
the 1940 Act.
(xiv) The statements in the Prospectus under the caption
"Description of the Notes," "The Leases - Representations and
Warrantees Made by Vender Services" and "Description of the
Contribution and Servicing Agreement" insofar as such statements
purport to summarize certain terms of the Notes, and the
Transaction Agreements constitute a fair and accurate summary of
such documents.
(xv) The Registration Statement and the Prospectus (other
than the financial statements and other financial, statistical
and numerical information included therein, as to which no
opinion need be rendered) as of their respective effective or
issue dates, complied as to form in all material respects with
the requirements of the Securities Act and the regulations
thereunder.
(xvi) The execution, delivery and performance by Vendor
Services or the Registrants, as applicable, of the Transaction
Agreements do not require the consent or approval of, the giving
of notice to, the registration with, or the taking of any other
action in respect of any federal, state or other governmental
agency or authority which has not previously been effected.
(xvii) To such counsel's knowledge, there are no pending or
overtly threatened lawsuits or claims against the Registrants or
Green Tree, or relating to the transaction, Vendor Services or
contemplated by the Underwriting Agreement and the Transaction
Agreements which, if adversely determined, would have a material
adverse effect on the transactions contemplated by the
Underwriting Agreement and the Transaction Agreements.
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Such counsel shall deliver to you such additional opinions addressing the
transfer by Vendor Services or the Registrants of any right, title and interest
in and to the Leases and other property included in the Trust Assets on the
Closing Date as may be required by each Rating Agency rating the Notes.
Such counsel shall state that it has participated in the conferences with
officers and other representatives of the Registrants, your counsel,
representatives of the independent accountants for the Registrants and you at
which the contents of the Registration Statement and the Prospectus were
discussed and, although such counsel is not passing upon and does not assume
responsibility for, the factual accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus (except as
stated in paragraphs (xii) and (xiv) above) and has made no independent check or
verification thereof for the purpose of rendering this opinion, on the basis of
the foregoing, nothing has come to their attention that leads such counsel to
believe that the Registration Statement, when it became effective, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that the Prospectus on the date of this Agreement contained, or on the
Closing Date contains, any untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that such counsel need express no view with respect to the
financial statements, schedules and other financial, statistical and numerical
data included in the Registration Statement or the Prospectus.
Said counsel may state that they are admitted to practice only in the State
of Minnesota, that they are not admitted to the Bar in any other State and are
not experts in the law of any other State and to the extent that the foregoing
opinions concern the laws of any other State such counsel may rely upon the
opinion of counsel satisfactory to the Underwriters and admitted to practice in
such jurisdiction. Any opinions relied upon by such counsel as aforesaid shall
be addressed to the Underwriters and shall be delivered together with the
opinion of such counsel, which shall state that such counsel believes that their
reliance thereon is justified.
(2) The favorable opinion, dated as of the Closing Date, of Joel
H. Gottesman, Senior Vice President and Secretary to the Issuer and
the SPC and Senior Vice President and General Counsel to Green Tree,
in form and substance satisfactory to you and your counsel, to the
effect that:
(i) There are no pending or threatened litigation or
administrative proceeding of or before any court, tribunal or
governmental agency, authority or body or any arbitrator which,
if adversely determined, would have a material adverse effect on
the financial condition of Vendor Services or any of the
Registrants or Green Tree.
(ii) Each of Vendor Services or the Registrants and Green
Tree is qualified to do business, and is in good standing, as a
foreign corporation or other appropriate entity in each U.S.
jurisdiction in which the character of the business owned or
leased by it makes such qualification necessary, except where the
failure to be so qualified would not have a material
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adverse effect on the financial condition of Vendor Services,
such Registrant or Green Tree.
(3) The favorable opinion of counsel to the Trustee, dated as of
the Closing Date, addressed to you and in form and scope satisfactory
to your counsel, to the effect that:
(i) The Trustee has duly authorized, executed and delivered
the Indenture and the Indenture is enforceable against the
Trustee in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights in general and by general principles of equity
regardless of whether such enforcement is considered in a
proceeding in equity or at law.
(ii) The Trustee has full power and authority to execute and
deliver the Indenture and to perform its obligations thereunder.
(iii) To the best of such counsel's knowledge, there are no
actions, proceedings or investigations pending or threatened
against or affecting the Trustee before or by any court,
arbitrator, administrative agency or other governmental authority
which, if adversely decided, would materially and adversely
affect the ability of the Trustee to carry out the transactions
contemplated in the Indenture.
(iv) No consent, approval or authorization of, or
registration, declaration or filing with, any court or
governmental agency or body of the jurisdiction of incorporation
of the Trustee is required for the execution, delivery or
performance by the Trustee of the Indenture.
(v) The Notes have been duly authenticated by the Trustee.
In rendering such opinion, such counsel may rely, as to matters of fact, to
the extent deemed proper and stated therein, on certificates of responsible
officers of the Trustee or public officials.
(4) The favorable opinion or opinions, dated as of the Closing
Date, of Brown & Wood LLP, counsel for the Underwriters, with respect
to the issue and sale of the Notes, the Registration Statement, this
Agreement, the Prospectus, and other related matters as the
Underwriters may require and the Registrants shall have furnished to
such counsel such documents as they reasonably request for enabling
them to pass upon such matters.
(d) Each of the Registrants shall have furnished to the Representative
a certificate, dated the Closing Date, of any of its Chairman of the Board,
President or Vice President and its chief financial officer stating that
(i) such officers have carefully examined the Registration Statement and
the Prospectus, (ii) the Prospectus does not contain any untrue statement
of a material fact or omit to state a material fact required to
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be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(provided that each of the Registrants may exclude Underwriters'
Information (as defined in Section 10(d) herein) from such representation),
(iii) the representations and warranties of any of the Registrants
contained in this Agreement and the Transaction Agreements are true and
correct in all material respects on and as of the Closing Date, (iv) each
of the Registrants has complied in all material respects with all
agreements and satisfied in all material respects all conditions on its
part to be performed or satisfied hereunder and under such agreements at or
prior to the Closing Date, (v) no stop order suspending the effectiveness
of the Registration Statement has been issued and is outstanding and no
proceedings for that purpose have been instituted and not terminated or, to
the best of his or her knowledge, are contemplated by the Commission, and
(vi) since the date of its most recent financial statements, there has been
no material adverse change in the financial position or results of
operations of any of the Registrants or Green Tree, as applicable, or any
change, or any development including a prospective change, in or affecting
the condition (financial or otherwise), results of operations or business
of any of the Registrants, Vendor Services or Green Tree except as set
forth in or contemplated by the Registration Statement and the Prospectus.
(e) Subsequent to the date of this Agreement, there shall not have
occurred (i) any change, or any development involving a prospective change,
in or affecting particularly the business or properties of any of the
Registrants, Vendor Services or Green Tree which materially impairs the
investment quality of the Notes; (ii) trading in securities generally on
the New York Stock Exchange, the American Stock Exchange or the
over-the-counter market shall have been suspended or limited, or minimum
prices shall have been established on either of such exchanges or such
market by the Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, or trading in securities of
any of the Registrants or Green Tree on any exchange or in the
over-the-counter market shall have been suspended or (iii) a general
moratorium on commercial banking activities shall have been declared by
Federal or New York State authorities or (iv) an outbreak or escalation of
hostilities or a declaration by the United States of a national emergency
or war or such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the
financial markets in the United States shall be such) as to make it, in the
judgment of the Representative, impracticable or inadvisable to proceed
with the public offering or the delivery of the Notes on the terms and in
the manner contemplated in the Prospectus.
(f) The Underwriters shall have received from KPMG Peat Marwick LLP or
other independent certified public accountants acceptable to the
Underwriters, a letter, dated as of the date hereof and as of the Closing
Date, delivered at such times, in the form heretofore agreed to.
(g) The Underwriters shall receive evidence satisfactory to them that,
on or before the Closing Date, UCC-1 financing statements have been or are
being filed in each office in each jurisdiction in which such financing
statements are required to perfect the
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first priority security interests created by the Transaction Agreements
reflecting the interest of the Trustee in the Trust Assets and the proceeds
thereof.
[(h) Subsequent to the execution and delivery of this Agreement, (i)
no downgrading shall have occurred in the rating accorded Green Tree's
non-asset-backed debt securities by any "nationally recognized statistical
rating organization," as that term is defined by the Commission for
purposes of Rule 436(g)(2) of the Securities Act and (ii) no such
organization shall have publicly announced that it has under surveillance
or review (other than an announcement with positive implications of a
possible upgrading), its rating of any of Green Tree's other
non-asset-backed debt securities.]
(i) At the Closing Date, the Class A-1 Notes shall be rated by each of
S&P and Fitch in their highest rating category; the Class A-2, Class A-3
and Class A-4 Notes shall be rated at least ""AAA" by each of S&P and
Fitch, the Class B Notes shall be rated at least "A" by each of S&P and
Fitch; and the Class C Notes shall be rated at least "BBB" by each of S&P
and Fitch.
All opinions, letters, evidence and certificates mentioned above or elsewhere in
this Agreement shall be deemed to be in compliance with the provisions hereof
only if they are in form and substance reasonably satisfactory to counsel for
the Underwriters.
SECTION 7. Termination of Agreement. The obligations of the Underwriters
hereunder may be terminated by the Representative, in its absolute discretion,
by notice given to and received by the Registrants prior to delivery of and
payment for the Notes if, prior to that time, any of the events described in
Section 6(e) or Section 6(j) shall have occurred.
SECTION 8. Defaulting Underwriters.
(a) If, on the Closing Date, any Underwriter or Underwriters default
in the performance of its or their obligations under this Agreement, the
Representative may make arrangements for the purchase of such Notes by
other persons satisfactory to the Registrants and the Representative,
including any of the Underwriters, but if no such arrangements are made by
the Closing Date, then each remaining non-defaulting Underwriter shall be
severally obligated to purchase the Notes which the defaulting Underwriter
or Underwriters agreed but failed to purchase on the Closing Date in the
respective proportions which the principal amount of Notes set forth
opposite the name of each remaining non-defaulting Underwriter in Schedule
I hereto bears to the aggregate principal amount of Notes set forth
opposite the names of all the remaining non-defaulting Underwriters in
Schedule I hereto; provided, however, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Notes on the
Closing Date if the aggregate principal amount of Notes which the
defaulting Underwriter or Underwriters agreed but failed to purchase on
such date exceeds one-eleventh of the aggregate principal amount of the
Notes to be purchased on the Closing Date, and any remaining non-defaulting
Underwriter shall not be obligated to purchase in total more than 10% of
the principal amount of the Notes which it agreed to purchase on the
Closing Date pursuant to the terms of Section 2. If the foregoing maximums
are exceeded and the remaining Underwriters or other underwriters
16
<PAGE>
satisfactory to the Representative and the Registrants do not elect to
purchase the Notes which the defaulting Underwriter or Underwriters agreed
but failed to purchase, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriter or the Registrants, except that
the provisions of Sections 9 and 13 shall not terminate and shall remain in
effect. As used in this Agreement, the term "Underwriter" includes, for all
purposes of this Agreement unless the context otherwise requires, any party
not listed in Schedule I hereto who, pursuant to this Section 8, purchases
Notes which a defaulting Underwriter agreed but failed to purchase.
(b) Nothing contained herein shall relieve a defaulting Underwriter of
any liability it may have for damages caused by its default. If other
Underwriters are obligated or agree to purchase the Notes of a defaulting
Underwriter, either the Representative or the Registrants may postpone the
Closing Date for up to seven full business days in order to effect any
changes that in the opinion of counsel for the Registrants or counsel for
the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement, and the Registrants
agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus that effects any such changes.
SECTION 9. Reimbursement of Underwriters' Expenses. If (i) the Issuer shall
fail to tender the Notes for delivery to the Underwriters for any reason
permitted under this Agreement or (ii) the Underwriters shall decline to
purchase the Notes for any reason permitted under this Agreement, Green Tree
shall reimburse the Underwriters for the fees and expenses of their counsel and
for such other out-of-pocket expenses as shall have been reasonably incurred by
them in connection with this Agreement and the proposed purchase of the Notes,
and upon demand Green Tree shall pay the full amount thereof to the
Representative. If this Agreement is terminated pursuant to Section 8 by reason
of the default of one or more Underwriters, Green Tree shall not be obligated to
reimburse any defaulting Underwriter on account of those expenses.
SECTION 10. Indemnification.
(a) The Registrants and Green Tree shall, jointly and severally,
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Securities Act
(collectively referred to for the purposes of this Section 10 as the
Underwriter) against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which that Underwriter may
become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of or is based upon (i)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement as originally filed or in any
amendment thereof or supplement thereto, or in any Preliminary Prospectus
or the Prospectus or in any amendment thereof or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each Underwriter for any legal or other
expenses reasonably incurred by that Underwriter directly in connection
with investigating or preparing to defend or defending against or appearing
as a third party witness in connection with any such loss, claim, damage,
liability or action
17
<PAGE>
as such expenses are incurred; provided, however, that none of the
Registrants or Green Tree shall be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out of or is
based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any Registration Statement as originally filed or
in any amendment thereof or supplement thereto, or in any Preliminary
Prospectus or the Prospectus or in any amendment thereof or supplement
thereto in reliance upon and in conformity with the Underwriters'
Information (as defined in Section 10(d) herein), and provided, further,
that none of the Registrants or Green Tree shall be liable to any
Underwriter or any person controlling such Underwriter under the indemnity
agreement in this subsection (a) with respect to any of such documents to
the extent that any such loss, claim, damage or liability of such
Underwriter or such controlling person results from the fact that such
Underwriter sold Notes to a person to whom there was not sent or given, at
or prior to the written confirmation of such sale, a copy of the Prospectus
or of the Prospectus as then amended or supplemented, whichever is most
recent, if the Registrants have previously furnished copies thereof to you.
(b) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless each of the Registrants and Green Tree, and each of their
directors, each officer of the Registrants and Green Tree who signed the
Registration Statement and each person, if any, who controls the
Registrants and Green Tree within the meaning of the Securities Act,
against any loss, claim, damage or liability, joint or several, or any
action in respect thereof, to which the Registrants and Green Tree may
become subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of or is based upon (i)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement as originally filed or in any
amendment thereof or supplement thereto, or in any Preliminary Prospectus
or the Prospectus or in any amendment thereof or supplement thereto or (ii)
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but in each case only to the extent that the untrue statement
or alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with the Underwriters' Information (as
defined in Section 10(d) herein), and shall reimburse the Registrants and
Green Tree for any legal or other expenses reasonably incurred by the
Registrants and Green Tree in connection with investigating or preparing to
defend or defending against or appearing as third party witness in
connection with any such loss, claim, damage or liability (or any action in
respect thereof) as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 10, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 10 except to the extent it has been materially prejudiced by such
failure; and, provided, further, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to an indemnified party otherwise than under this Section 10. If any
such claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party
18
<PAGE>
thereof, the indemnifying party shall be entitled to participate therein
and, to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with counsel
reasonably satisfactory to the indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party). After notice from the indemnifying party to the indemnified party
of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 10 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that the
Representative shall have the right to employ counsel to represent jointly
the Representative and the other Underwriters (and their respective
controlling persons who may be subject to liability arising out of any
claim in respect of which indemnity may be sought under this Section 10)
if, in the reasonable judgment of the Representative, it is advisable for
the Representative and the other Underwriters and controlling persons to be
jointly represented by separate counsel, and in that event the fees and
expenses of such separate counsel shall be paid by the Registrants and
Green Tree. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 10(a) and 10(b), shall use all reasonable
efforts to cooperate with the indemnifying party in the defense of any such
action or claim. No indemnifying party shall be liable for any settlement
of any such action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such
action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment.
(d) The Underwriters confirm that the information (such information,
the "Underwriters' Information") set forth (i) in the [last] paragraph on
the cover page, and (ii) in the [_____] and [______] paragraphs under the
caption "Underwriting" in the Prospectus is correct and constitutes the
only information furnished in writing to the Registrants by or on behalf of
the Underwriters specifically for inclusion in the Registration Statement
and the Prospectus.
(e) The obligations of the Registrants and Green Tree in this Section
10 shall be in addition to any liability which the Registrants or Green
Tree may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Securities Act; and the obligations of the Underwriters
under this Section 10 shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each director and officer of the Registrants and
Green Tree (including any person who, with his or her consent, is named in
the Registration Statement as about to become a director of the Registrants
or Green Tree) and to each person, if any, who controls the Registrants or
Green Tree within the meaning of the Securities Act.
SECTION 11. Contribution. If the indemnification provided for in Section 10
is unavailable or insufficient to hold harmless an indemnified party under
Section 10, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or
19
<PAGE>
liability, or any action in respect thereof, (i) in such proportion as shall be
appropriate to reflect the relative benefits received by the Registrants and
Green Tree on the one hand and the Underwriters on the other from the offering
of the Notes or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Registrants and Green Tree on the one hand and the Underwriters on
the other with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or any action in respect thereof, as well as
any other relevant equitable considerations. The relative benefits received by
the Registrants and Green Tree on the one hand and the Underwriters on the other
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Notes purchased hereunder
(before deducting expenses) received by the Issuer bear to the total
underwriting discounts and commissions received by the Underwriters with respect
to the Notes purchased hereunder, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Registrants and Green Tree on the one
hand or the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such untrue statement or omission. The Registrants and Green Tree and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 11 were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim damage or liability referred to above in
Section 10 shall be deemed to include, for purposes of this Section 11, any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such claim or any action.
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Notes underwritten by it and distributed to the public were
offered to the public less the amount of any damages which such Underwriter has
otherwise paid or become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 10(d) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to indemnify and
contribute as provided in Section 10 and this Section 11 are several in
proportion to their respective underwriting obligations and not joint.
SECTION 12. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon you, the Registrants and Green Tree
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the parties hereto and their respective successors and
the controlling persons and officers and directors referred to in Sections 10
and 11 and their heirs and legal representatives any legal or equitable right,
remedy or claim under or with respect to this Agreement or any provision herein
or therein contained.
SECTION 13. Expenses. Green Tree will pay all expenses incident to the
performance of the Registrants' obligations under this Agreement, including
without limitation those related to (i) the costs incident to the authorization,
issuance, sale, preparation and delivery of the Notes
20
<PAGE>
and any taxes payable in that connection; (ii) the costs incident to the
preparation, printing and filing under the Securities Act of the Registration
Statement and any amendments and exhibits thereto; (iii) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), any Preliminary Prospectus and the Prospectus, all as provided in
this Agreement; (iv) the costs of reproducing and distributing this Agreement
and any other underwriting and selling group documents by mail, telex or other
means of communications; (v) the fees and expenses of qualifying the Notes under
the securities laws of the several jurisdictions as provided in Section __ and
of preparing, printing and distributing Blue Sky Memoranda and Legal Investment
Surveys (including the related reasonable and documented fees and expenses of
counsel to the Underwriters); (vi) any fees charged by rating agencies for
rating the Notes; (vii) all fees and expenses of the Trustee and its counsel;
(viii) any transfer taxes payable in connection with its sale of the Notes
pursuant to this Agreement; and (ix) all other costs and expenses incident to
the performance of the obligations of the Registrants under this Agreement;
provided that, except as otherwise provided in this Section __, the Underwriters
shall pay their own costs and expenses, including, the costs and expenses of
their counsel and the expenses of advertising any offering of the Notes made by
the Underwriters.
SECTION 14. Survival. The respective indemnities, rights of contribution,
agreements, representations, warranties and other statements of the Registrants,
Green Tree and the several Underwriters, as set forth in this Agreement or made
by or on behalf of them, respectively, pursuant to this Agreement, shall remain
in full force and effect, regardless of any investigation (or any statement as
to the results thereof) made by or on behalf of any Underwriter or any
controlling person of any Underwriter, or any of the Registrants or Green Tree,
or any officer, director or controlling person of the Registrants or Green Tree,
and shall survive delivery of and payment for the Notes.
SECTION 15. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunications and, (i) if sent to the
Underwriters will be mailed, delivered or telecopied and confirmed to them at
First Union Capital Markets, a division of Wheat First Securities, Inc., Asset
Securitization Division, 301 South College Street, TW-9, Charlotte, North
Carolina 28288-0610, Telecopy Number: (704) 374-3254; provided, however, that
any notice to an Underwriter pursuant to Section 9(c) shall be delivered or sent
by mail, delivery or telecopy to such Underwriter at its address set forth in
its acceptance telex to the Representative, which address will be supplied to
any other party hereto by the Representative upon request; and (ii) if sent to
the Issuer, the SPC, Vendor Services or Green Tree will be mailed, delivered or
telecopied and confirmed to them at 1100 Landmark Towers, 345 St. Peter Street,
Saint Paul, Minnesota 55102-1639, attention of the Secretary, with a copy to the
Treasurer Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof. The Issuer, the SPC, the Servicer and Green Tree
shall be entitled to act and rely upon any request, consent, notice or agreement
given or made on behalf of the Underwriters by the Representative.
SECTION 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
21
<PAGE>
SECTION 17. Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original of any party whose signature appears
on it, and all of which shall together constitute one and the same instrument.
SECTION 18. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
SECTION 19. Effectiveness. This Agreement shall become effective upon
execution and delivery.
22
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this instrument
along with all counterparts will become a binding agreement among you, the
Registrants and Green Tree in accordance with its terms.
Very truly yours,
GREEN TREE LEASE FINANCE II, INC.
By:
-------------------------------
Name:
Title:
GREEN TREE LEASE FINANCE 1998-1, LLC
By: GREEN TREE LEASE FINANCE II, INC.
By:
-------------------------------
Name:
Title:
GREEN TREE FINANCIAL CORPORATION
By:
-------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of
the date first above written:
FIRST UNION CAPITAL MARKETS, A DIVISION
OF WHEAT FIRST SECURITIES, INC., as
Representative of the Underwriters
By:
-------------------------------
Name:
Title:
[Other Underwriters]
23
<PAGE>
SCHEDULE I
Date of Underwriting Agreement: December [__], 1998
Underwriters: First Union Capital Markets, a division of Wheat
First Securities, Inc.
Lehman Brothers Inc.
NationsBanc Montgomery Securities LLC
Representative and Address: First Union Capital Markets, a division of Wheat
First Securities, Inc.
One First Union Center, TW-9
301 South College Street
Charlotte, NC 28288-0610
Schedule I-1
<PAGE>
Title, Purchase Price and Description of Notes:
<TABLE>
<S> <C>
Class A-1 Notes
---------------
Title: $[___________] [_____]% Class A-1 Receivable-Backed Notes, Series 1998-1
Price to public: [_____]%
Purchase price: [_____]%
Underwriting
discount: [______]%
Maturity: [_________] [____] Payment Date
Class A-2 Notes
---------------
Title: $[___________] [_____]% Class A-2 Receivable-Backed Notes, Series 1998-1
Price to public: [_____]%
Purchase price: [_____]%
Underwriting
discount: [______]%
Maturity: [_________] [____] Payment Date
Class A-3 Notes
---------------
Title: $[___________] [_____]% Class A-3 Receivable-Backed Notes, Series 1998-1
Price to public: [_____]%
Purchase price: [_____]%
Underwriting
discount: [______]%
Maturity: [_________] [____] Payment Date
Class A-4 Notes
---------------
Title: $[___________] [_____]% Class A-4 Receivable-Backed Notes, Series 1998-1
Price to public: [_____]%
Purchase price: [_____]%
Underwriting
discount: [______]%
Maturity: [_________] [____] Payment Date
Class B Notes
-------------
Title: $[__________] [_____]% Class B Receivable-Backed Notes, Series 1998-1
Price to public: [_____]%
</TABLE>
Schedule I-2
<PAGE>
<TABLE>
<S> <C>
Purchase price: [_____]%
Underwriting
discount: [______]%
Maturity: [_________] [____] Payment Date
Class C Notes
-------------
Title: $[_________] [_____]% Class C Receivable-Backed Notes, Series 1998-1
Price to public: [______]%
Purchase price: [______]%
Underwriting
discount: [______]%
Maturity: [________] [____] Payment Date
Closing Date, Time and Location:
Date: December [__], 1998
Time: [____ Minneapolis, Minnesota time]
Location: [Dorsey & Whitney LLP, _________________________, Minneapolis, Minnesota]
</TABLE>
Schedule I-3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
UNDERWRITERS
<S> <C>
$[__________] Principal Amount of Class A-1 Notes to be Purchased
Principal Amount
----------------
First Union Capital Markets, a division of Wheat First Securities, Inc. $ __________
[Other Underwriters] __________
__________
__________
UNDERWRITERS
$[__________] Principal Amount of Class A-2 Notes to be Purchased
Principal Amount
----------------
First Union Capital Markets, a division of Wheat First Securities, Inc. $ __________
[Other Underwriters] __________
__________
__________
UNDERWRITERS
$[__________] Principal Amount of Class A-3 Notes to be Purchased
Principal Amount
----------------
First Union Capital Markets, a division of Wheat First Securities, Inc. $ __________
[Other Underwriters] __________
__________
__________
UNDERWRITER
$[__________] Principal Amount of Class B Notes to be Purchased
Principal Amount
----------------
First Union Capital Markets, a division of Wheat First Securities, Inc. $ __________
</TABLE>
Schedule II-1
<PAGE>
<TABLE>
<CAPTION>
UNDERWRITER
<S> <C>
$[__________] Principal Amount of Class C Notes to be Purchased
Principal Amount
----------------
First Union Capital Markets, a division of Wheat First Securities, Inc. $ __________
</TABLE>
Schedule II-2
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
GREEN TREE LEASE FINANCE 1998-1, LLC
This Certificate of Formation of Green Tree Lease Finance 1998-1, LLC (the
"Company") is executed and filed by the undersigned, as organizer, to form a
limited liability company under the Delaware Limited Liability Company Act (the
"Act").
1. The name of the Company is Green Tree Lease Finance 1998-1, LLC.
2. The address of the registered office of the Company in the State of
Delaware is The Corporation Trust Company, located at Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
3. The name and address of the registered agent for service of process on
the Company in the State of Delaware is The Corporation Trust Company, located
at Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801.
4. The only duties of the member or members of the Company to the Company
or to each other in respect of the Company shall be those established in the
limited liability company agreement (as that term is defined in the Act), and
there shall be no other express or implied duties of the members of the Company
to the Company or to each other in respect of the Company.
5. Each manager of the Company shall owe duties of care and loyalty to the
Company and the member or members of the Company. A manager of the Company shall
not be personally liable to the Company or its members for monetary damages for
breach of fiduciary duty as a manager except (a) for any breach of the manager's
duty of loyalty to the Company or the members; (b) for acts or omissions not in
good faith or that involve intentional misconduct or a knowing violation of law;
or (c) for any transaction from which the manager derived an improper personal
benefit.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation this 24th day of November, 1998.
-----------------------------------
Charles F. Sawyer, Organizer
<PAGE>
EXHIBIT 3.2
GREEN TREE LEASE FINANCE 1998-1, LLC
LIMITED LIABILITY COMPANY AGREEMENT
NOVEMBER 24, 1998
<PAGE>
TABLE OF CONTENTS
Article I.
General ........................................................ 1
Section 1.1. Name ............................................. 1
Section 1.2. Principal Place of Business ...................... 1
Section 1.3. Name and Address of the Member ................... 2
Section 1.4. Term of Existence ................................ 2
Section 1.5. Agent for Service of Process ..................... 2
Section 1.9. Duties of Managers ............................... 3
Article II.
Definitions .................................................... 3
Article III.
Purpose and Character of the Business .......................... 5
Article IV.
The Member ..................................................... 5
Article V.
New Members .................................................... 5
Article VI.
Management and Operation of Company Business ................... 5
Section 6.1. Board of Managers ................................ 5
Section 6.2. Number, Qualification; Term of Office; Vote ...... 5
Section 6.3. Initial Board .................................... 6
Section 6.4. Place of Meetings ................................ 6
Section 6.5. Special Meetings ................................. 6
Section 6.6. Adjournments ..................................... 6
Section 6.7. Notice of Meetings ............................... 6
Section 6.8. Quorum ........................................... 6
Section 6.9. Absent Members ................................... 6
Section 6.10. Conference Communications ........................ 7
Section 6.11. Proxies .......................................... 7
Section 6.12. Removal .......................................... 7
Section 6.13. Acts of Managers ................................. 7
Section 6.15. Committees ....................................... 8
Section 6.16. No Fiduciary Duty ................................ 8
Section 6.17. Compensation ..................................... 8
Section 6.19. Unanimous Vote ................................... 8
-i-
<PAGE>
Article VII.
Indemnification ................................................ 9
Section 7.1. Indemnification .................................. 9
Section 7.2. Indemnification Procedures; Survival ............. 10
Article VIII.
Certificates ................................................... 11
Article IX.
Books of Account; Reports and Fiscal Matters ................... 11
Article X.
Amendment ...................................................... 12
Article XI.
Liability; Tax Status .......................................... 12
Section 11.1. Liability of the Member .......................... 12
Section 11.2. Tax Status ....................................... 12
Article XII.
Dissolution and Liquidation .................................... 13
Section 12.1. Events of Dissolution ............................ 13
Section 12.3. Liquidation and Winding Up ....................... 13
Article XIII.
Capital ........................................................ 14
Section 13.1. Capital Contributions ............................ 14
Section 13.3. Creditor's Interest in the Company ............... 14
Article XIV.
Allocation of Income, Gains and Losses;
Distributions .................................................. 14
Article XV.
Miscellaneous Provisions ....................................... 14
Section 15.1. Pronouns ......................................... 14
Section 15.2. Headings ......................................... 14
Section 15.3. Governing Law .................................... 15
-ii-
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
GREEN TREE LEASE FINANCE 1998-1, LLC
This Limited Liability Company Agreement, dated as of November 24, 1998,
made and entered into by Green Tree Lease Finance II, Inc. ("Lease Finance" or
the "Member").
WITNESSETH THAT:
WHEREAS, the Delaware Limited Liability Company Act, as amended (the
"Act"), permits the formation of a limited liability company with a single
member; and
WHEREAS, the undersigned has caused the formation of Green Tree Lease
Finance 1998-1, LLC, a Delaware limited liability company (the "Company"), of
which the undersigned constitutes the sole member.
NOW, THEREFORE, the undersigned hereby adopts the following Articles which
shall constitute the "limited liability company agreement" of the Company within
the meaning of Section 18-101(7) of the Act.
Article I.
GENERAL
The Member hereby adopts, approves and ratifies the execution and filing in
the office of the Secretary of State of the State of Delaware of the certificate
of formation (the "Certificate of Formation") of the Company by Charles F.
Sawyer and acknowledges, approves and ratifies his designation as an "authorized
person" of the Company in the Certificate of Formation as contemplated by
Section 18-201(a) of the Act. This Agreement shall be effective as of the date
of filing of the Certificate of Formation in the office of the Secretary of
State of Delaware, and the Act shall govern the rights, duties and obligations
of the Member, except as otherwise expressly stated herein.
Section 1.1. Name. The name of the Company shall be and the business shall
be conducted under the name of "Green Tree Lease Finance 1998-1, LLC." The
Member shall have the power at any time to change the name of the Company.
Section 1.2. Principal Place of Business. The principal business office of
the Company shall be at 1100 Landmark Towers, 345 St. Peter Street, St. Paul,
Minnesota 55102-1639 or such other place as the Board of Managers may from time
to time determine (the "Principal Office").
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Section 1.3. Name and Address of the Member. The name and address of the
Member is Green Tree Lease Finance II, Inc., 1100 Landmark Towers, 345 St. Peter
Street, St. Paul, Minnesota 55102-1639.
Section 1.4. Term of Existence. The Company shall be formed as of the time
of the filing of the Certificate of Formation in the Office of the Secretary of
State of Delaware and its existence shall continue until the fiftieth
anniversary of the filing of the Certificate of Formation of the Company, unless
earlier terminated, dissolved or liquidated in accordance with the provisions of
this Agreement.
Section 1.5. Agent for Service of Process. The name and address of the
agent for service of process is, until changed by the Board of Managers, The
Corporate Trust Company, located at Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801.
Section 1.6. Purpose of Company. The purpose to be conducted or promoted by
the Company is to engage in the following activities:
(a) to acquire a pool of equipment lease contracts ("Leases") and
certain rights to the proceeds of disposition of the equipment
("Equipment") subject to such Leases ("Residual Realizations") from Lease
Finance and to hold, sell, transfer or pledge such Leases and Residual
Realizations, and other related rights and assets (collectively, "Assets");
(b) to issue and sell Lease-Backed Notes, Series 1998-1 (the "Notes")
in one or more classes, and to pledge the Assets to secure repayment of the
Notes;
(c) to enter into and perform its obligations under a Contribution and
Servicing Agreement among the Company, Lease Finance and Green Tree Vendor
Services Corporation, and an Indenture between the Company and U.S. Bank
National Association, as Trustee;
(d) to enter into and perform its obligations under any intercompany
services agreement or management agreement with the Member or any
affiliates thereof; and
(e) to engage in any transactions, to enter into any agreement and to
exercise any powers permitted to limited liability companies under the laws
of the State of Delaware that are related or incidental to the foregoing
and necessary, convenient or advisable to accomplish the foregoing.
Section 1.7. Percentage Interest. The Member shall hold a 100% interest in
the Company.
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Section 1.8. Duties of the Member. The only duties of the Member to the
Company shall be those established in this Agreement, and there shall be no
other express or implied duties of the Member to the Company.
Section 1.9. Duties of Managers. Each Manager shall owe duties of care and
loyalty to the Company and the Member. A Manager shall not be personally liable
to the Company or the Member for monetary damages for breach of fiduciary duty
as a Manager except (a) for any breach of the Manager's duty of loyalty to the
Company or the Member; (b) for acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law; or (c) for any
transaction from which such Manager derived an improper personal benefit.
Article II.
DEFINITIONS
Unless the context otherwise specifies or requires, the terms defined in
this Article II shall, for the purposes of this Agreement, have the meanings
herein specified. Certain other capitalized terms used herein are defined
elsewhere in the Agreement.
"Act" is defined in the introduction to Article I.
"Agreement" means this Limited Liability Company Agreement, as it may be
amended or supplemented from time to time.
"Board of Managers" means the Board of Managers of the Company established
pursuant to Article VI.
"Capital Contribution" means the amount of money or the fair market value
of any property contributed to the Company by the Member pursuant to Section
13.1.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder. All references in this Agreement to
a section of the Code or the Treasury Regulations shall be considered to include
any subsequent amendment or replacement of that section.
"Company" means Green Tree Lease Finance 1998-1, LLC, the Delaware limited
liability company formed pursuant to the filing of the Certificate of Formation
in Delaware and the terms of this Agreement.
"Assets" means all assets and property, whether tangible or intangible and
whether real, personal or mixed, at any time owned by the Company.
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"Contributed Assets" shall mean the assets contributed, transferred,
conveyed and assigned by the Member as a capital contribution to the Company
pursuant to the Contribution Agreement.
"Contribution Agreement" shall mean the Contribution and Servicing
Agreement dated as of December 1, 1998 between the Company, Lease Finance and
Green Tree Vendor Services Corporation, as the same may be amended from time to
time in accordance with its terms.
"Manager" or "Managers" means the Person or Persons appointed to the Board
of Managers pursuant to Section 6.2.
"Member" means Green Tree Lease Finance II, Inc.
"Person" means any natural person, corporation, limited liability company,
association, partnership (whether general or limited), joint venture,
proprietorship, governmental agency, trust, estate, association, custodian,
nominee or any other individual or entity, whether acting in an individual,
fiduciary, representative or other capacity.
"Principal Office" is defined in Section 1.2.
"Reorganization" means (x) any consolidation or merger of the Company with
or into any other Person, whether or not the Company is the surviving entity or
(y) any sale, transfer or other disposition of all or substantially all of the
Company's assets in a single transaction or a series of related transactions. A
dissolution or liquidation of the Company pursuant to Article XII will not
constitute a "Reorganization" within the meaning of this Agreement.
"Treasury Regulations" or "Treas. Reg." refers to the regulations
promulgated by the United States Treasury Department under the Code.
"Units" means the ten units representing the ownership interest of the
Member in the Company.
Article III.
Purpose and Character of the Business
The purpose and character of the business of the Company shall be to
undertake and carry on any lawful business, purpose or activity described in
Section 1.6 that is permitted under the Act and approved by the Board of
Managers.
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Article IV.
THE MEMBER
Green Tree Lease Finance II, Inc. shall be the sole Member of the Company
and shall have all of the rights, powers and privileges of a member under the
Act.
Article V.
NEW MEMBERS
No Person other than Lease Finance may be admitted to the Company as an
additional member.
Article VI.
MANAGEMENT AND OPERATION OF COMPANY BUSINESS
Section 6.1. Board of Managers. The business and affairs of the Company
shall be managed by or under the authority of the Board of Managers, except as
otherwise required by the Act or this Agreement.
Section 6.2. Number, Qualification; Term of Office; Vote. The number of
members of the Board of Managers shall be up to four (4). Each Manager shall be
appointed from time to time by the Member. A Manager shall hold office until
such Manager's successor shall have been elected, or until the earlier death,
resignation, removal or disqualification of such Manager. The Member may
increase the number of Managers at any time or from time to time. At any time at
which there is more than one Manager, each Manager shall have one vote in all
matters to come before the Board of Managers. The provisions of Sections 6.4
through 6.11 apply (i) when more than one Manager is serving and (ii) with
respect to any committee established by the Board of Managers.
Section 6.3. Initial Board. The initial Board of Managers shall be
comprised of the following individual(s):
Joel H. Gottesman (Chair)
Richard G. Evans
Section 6.4. Place of Meetings. Meetings of the Board of Managers shall be
held at the principal executive office of the Company or at such other place as
may be agreed by the Managers from time to time.
Section 6.5. Special Meetings. A special meeting of the Board of Managers
may be called for any purpose or purposes at any time by the Chair or by the
Member.
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Section 6.6. Adjournments. Any meeting of the Board of Managers may be
adjourned from time to time to another date, time and place. If any meeting of
the Board of Managers is so adjourned, no notice as to such adjourned meeting
need be given if the date, time and place at which the meeting will be
reconvened are announced at the time of adjournment.
Section 6.7. Notice of Meetings. Unless otherwise required by law, written
notice of each meeting of the Board of Managers, stating the date, time and
place and, in the case of a special meeting, the purpose or purposes, shall be
given at least five (5) days and not more than ninety (90) days prior to the
meeting to every member of the Board of Managers. A member of the Board of
Managers may waive notice of the date, time, place and purpose or purposes of a
meeting of the Board of Managers. A waiver of notice is effective whether given
before, at or after the meeting, and whether given in writing, orally or by
attendance. Attendance by a member of the Board of Managers at a meeting is a
waiver of notice of that meeting, unless the member objects at the beginning of
the meeting to the transaction of business because the meeting is not lawfully
called or convened, or objects before a vote on an item of business because the
item may not lawfully be considered at that meeting and does not participate in
the consideration of the item at that meeting.
Section 6.8. Quorum. Members of the Board of Managers representing 51% of
all votes held by the members of the Board of Managers shall constitute a quorum
for the transaction of business at each meeting of the Board of Managers.
Section 6.9. Absent Members. A member of the Board of Managers may give
advance written consent or opposition to a proposal to be acted on at a meeting
of the Board of Managers. If such member is not present at the meeting, such
consent or opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but such consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the member has consented or objected.
Section 6.10. Conference Communications. Any or all of the members of the
Board of Managers may participate in any meeting of the Board of Managers, or of
any duly constituted committee thereof, by any means of communication through
which such members may simultaneously hear each other during such meeting. For
the purposes of establishing a quorum and taking any action at the meeting,
members of the Board of Managers participating pursuant to this Section 6.10
shall be deemed present in person at the meeting, and the place of the meeting
shall be the place of origination of the conference telephone conversation or
other comparable communication technique.
Section 6.11. Proxies. A member of the Board of Managers may cast or
authorize the casting of a vote by filing a written appointment of a proxy with
the Chair at or before the meeting at which the appointment is to be effective.
The member may sign or authorize the written appointment by telegram, cablegram
or other means of electronic transmission setting forth or
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submitted with information sufficient to determine that the member authorized
such transmission. Any copy, facsimile, telecommunication or other reproduction
of the original of either the writing or transmission may be used in lieu of the
original, provided that it is a complete and legible reproduction of the entire
original.
Section 6.12. Removal. Any Manager may be removed from office at any time,
with or without cause, by the action of the Member; provided, however, that any
such removal shall be without prejudice to any contract rights of such member of
the Board of Managers pursuant to any employment or other agreement between such
member and the Members or the Company.
Section 6.13. Acts of Managers. Except as otherwise provided herein, the
Board of Managers shall take action by the affirmative vote of (i) the sole
Manager or (ii) those Managers who have the power to vote 51% of all votes held
by the Managers, as the case may be, and any such act shall be deemed to be the
action of the Board of Managers for all purposes of this Agreement and the Act.
Section 6.14. Written Action. Any action which might be taken by the sole
Manager or at a meeting of the Board of Managers, or any duly constituted
committee thereof, may be taken without a meeting if done in writing and signed
by, as the case may be, the sole Manager or a number of the members of the Board
of Managers, or committee members, whose approval would be sufficient to approve
the action at a meeting at which all of the members of the Board of Managers (or
such committee) were present.
Section 6.15. Committees.
(a) A resolution approved by the Board of Managers may establish committees
having the authority of the Board of Managers in the management of the business
of the Company to the extent provided in the resolution. A committee shall
consist of one or more Persons, who need not be members of the Board of
Managers. Committees are subject to the direction and control of, and vacancies
in the membership thereof shall be filled by, the Board of Managers.
(b) A majority of the members of a committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in the resolution of the Board of Managers creating the
committee.
(c) No committee of the Board of Managers shall have the power or authority
in reference to any of the actions requiring a unanimous vote of the Board of
Managers or the consent of the Members as described herein, including the
actions described in Section 5.20 and amendment of this Agreement as described
in Article X.
Section 6.16. No Fiduciary Duty. No Person serving on the Board of Managers
shall incur any personal liability in such capacity to the Members or the
creditors of the Company.
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Section 6.17. Compensation. Members of the Board of Managers shall not be
compensated by the Company for serving in such capacity. The Company shall bear
the expenses, if any, incurred by each Member's respective representatives in
attending meetings of the Board of Managers.
Section 6.18. Binding Authority. Except as otherwise provided herein, only
the Board of Managers shall have the authority to bind the Company.
Section 6.19. Unanimous Vote.
The following actions of the Company shall require the unanimous vote of
the Board of Managers and the approval or authorization of the Member:
(i) the approval of any Reorganization, any other merger or
consolidation to which the Company is a party;
(ii) the assignment of any Assets for the benefit of the Company's
creditors or the granting of any material lien, charge or encumbrance upon
any of the Company's Assets, other than liens to secure indebtedness
incurred pursuant to the transactions set forth in Section 1.6;
(iii) the incurring of any indebtedness, or the assumption or guaranty
of any indebtedness of any other entity, other than indebtedness incurred
pursuant to transactions set forth in Section 1.6;
(iv) the appointment of the certified public accountants and any
attorneys for the Company; and
(v) a decision to dissolve or liquidate, in whole or in part (except
as set forth in Article XII), file a voluntary petition that commences a
case under Title 11 of the United States Code (or any successor statutes)
with respect to the Company, or consent to the institution of bankruptcy or
insolvency proceedings against the Company or file a petition seeking, or
consent to, relief under any applicable Federal or state law relating to
bankruptcy, or commence or consent to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or a substantial part of the property of the Company, or make
any assignment for the benefit of creditors, or admit in writing its
inability to pay the debts of the Company generally as they become due, or
take action in furtherance of any such action.
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Article VII.
INDEMNIFICATION
Section 7.1. Indemnification.
(a) To the fullest extent permitted by law, each Manager (individually, an
"Indemnitee") shall be indemnified, held harmless and defended by the Company
from and against any and all losses, claims, damages, liabilities, whether joint
or several, expenses (including legal fees and expenses), judgments, fines and
other amounts paid in settlement, incurred or suffered by such Indemnitee, as a
party or otherwise, in connection with any threatened, pending or completed
claim, demand, action, suit or proceeding, whether civil, criminal,
administrative or investigative, and whether formal or informal, arising out of
or in connection with the business or the operation of the Company and by reason
of the Indemnitee's status as a Manager regardless of whether the Indemnitee
continues to be a Manager of the Company at the time any such loss, claim,
damage, liability or other expense is paid or incurred if (i) the Indemnitee
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the Company and, with respect to any criminal proceeding, had
no reasonable cause to believe that his or her conduct was unlawful, (ii) the
Indemnitee's conduct did not constitute intentional misconduct or a material
breach of the terms of this Agreement and (iii) the Indemnitee's conduct did not
involve a transaction from which the Manager derived an improper personal
benefit. The termination of any action, suit or proceeding by judgment, order,
settlement or upon a plea of nolo contendere, or its equivalent, shall not, of
itself, create a presumption that the Indemnitee acted in a manner contrary to
the standards specified in clauses (i), (ii) or (iii) of this Section 7.1(a).
(b) To the fullest extent permitted by law, expenses incurred by an
Indemnitee in defending any claim, demand, action, suit or proceeding subject to
this Section 7.1 shall, from time to time, be advanced by the Company prior to
the final disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the Indemnitee to
repay such amount unless it is determined that such Indemnitee is entitled to be
indemnified therefor pursuant to this Section 7.1.
(c) The indemnification provided by this Section 7.1 shall be in addition
to any other rights to which any Indemnitee may be entitled under any other
agreement, pursuant to any vote of the Managers, as a matter of law or
otherwise, and shall inure to the benefit of the heirs, legal representatives,
successors, assigns and administrators of the Indemnities.
(d) Any indemnification under this Section 7.1 shall be satisfied solely
out of the assets of the Company and no Indemnitee shall have any recourse
against the Member with respect to such indemnification.
(e) An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.1 merely because the Indemnitee had an interest in the
transaction with respect to
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which the indemnification applies, if the transaction was not otherwise
prohibited by the terms of this Agreement and the conduct of the Indemnitee
satisfied the conditions set forth in Section 7.1(a).
(f) The Company may, but shall have no obligation to, purchase and maintain
insurance covering any potential liability of the Indemnitees for any actions or
omissions for which indemnification is permitted hereunder, including such types
of insurance (including extended coverage liability and casualty and workers'
compensation) as would be customary for any person engaged in a similar
business, and may name the Indemnitees as additional insured parties thereunder.
Section 7.2. Indemnification Procedures; Survival.
(a) An Indemnitee shall notify the Company in writing within 30 days after
receipt by the Indemnitee of notice of the commencement of any action that may
result in a claim for indemnification pursuant to Section 7.1; provided,
however, that any omission so to notify the Company will not relieve it of any
liability for indemnification hereunder as to the particular item for which
indemnification may then be sought (except to the extent that the failure to
give notice shall have been materially prejudicial to the Company) nor from any
other liability that it may have to any Indemnitee.
(b) An Indemnitee shall have the right to employ separate counsel in any
action as to which indemnification may be sought under any provision of this
Agreement and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnitee unless (i) the
Company has agreed in writing to pay such fees and expenses, (ii) the Company
has failed to assume the defense thereof and employ counsel within a reasonable
period of time after being given the notice required above or (iii) the
Indemnitee shall have been advised by its counsel that representation of such
Indemnitee and other parties by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them. It is understood, however, that the Company shall, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys at any time for all such Indemnitees having
actual or potential differing interests with the Company, unless but only to the
extent, the Indemnitees have actual or potential differing interests with each
other.
(c) The Company shall not be liable for any settlement of any such action
effected without its written consent, but if settled with such written consent,
or if there is a final judgment against the Indemnitee in any such action, the
Company agrees to indemnify and hold harmless the Indemnitee to the extent
provided above from and against any loss, claim, damage, liability or expense by
reason of such settlement or judgment.
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(d) The indemnification obligations set forth in Section 7.1 and this
Section 7.2 shall survive the termination of this Agreement.
Article VIII.
CERTIFICATES
The Units of the Company shall not be represented by certificates.
Article IX.
BOOKS OF ACCOUNT; REPORTS AND FISCAL MATTERS
The Company shall maintain such books of account and such financial
information as may be required by the Member and the Act. The Member or a
designee shall retain a copy of this Agreement and all written actions of the
Member and the Board of Managers at the Principal Office or at such other place
as the Member may designate.
Article X.
AMENDMENT
The Certificate of Formation and this Agreement may be amended by the
Member. Any amendment of this Agreement shall be in writing and a copy thereof
shall be kept with a copy of this Agreement at the Principal Office of the
Company.
Article XI.
LIABILITY; TAX STATUS
Section 11.1. Liability of the Member. Except as otherwise provided in the
Act, the Member, as such, shall have no personal liability whatsoever to the
Company or any of the creditors of the Company for the debts, liabilities,
contracts or other obligations of the Company or any of the Company's losses
beyond the Member's Capital Contribution and, solely to the extent and for the
period required by applicable law, the amount of the Member's Capital
Contribution, if any, which is returned to it. Each Unit, on issuance, shall be
fully paid and not subject to assessment for additional Capital Contributions.
The Member shall not be required to lend any funds to the Company. It is the
intent of the Member that (i) no distribution to the Member (other than a
distribution upon the dissolution and liquidation of the Company) shall be
deemed a withdrawal of capital, even if such distribution represents, for
federal income tax purposes or otherwise (in full or in part), a distribution of
depreciation or any other non-cash item accounted for as a loss or deduction
from or offset to the Company's income, and (ii) the Member shall not be
obligated to pay any such amount to or for the account of the Company or any
creditor of the Company. However, if any court of competent jurisdiction holds
that, notwithstanding the provisions of this Agreement, any distribution made by
the Company to the Member constitutes a withdrawal of capital, any obligation
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under applicable law to return the same or any portion thereof to or for the
account of the Company or its creditors shall be the obligation of the Member.
Section 11.2. Tax Status. The Member intends that the Company will be
classified solely for federal income tax purposes as an "eligible entity" that
is disregarded as an entity separate from its owner as provided in Treasury
Regulations Section 301.7701-3(a).
Article XII.
DISSOLUTION AND LIQUIDATION
Section 12.1. Events of Dissolution. The Company shall be dissolved upon
the occurrence of any of the following events:
(a) the written consent of the Member; or
(b) the entry of a decree of judicial dissolution under ss. 18-802 of the
Act.
Section 12.2. Continuation of Business. Upon the occurrence of any event
described in Section 18-801(4) of the Act, or any successor provision, the
Company shall continue unless dissolved by the Member pursuant to Section
12.1(a).
Section 12.3. Liquidation and Winding Up. If dissolution of the Company
should be caused by reason of (i) any of the events set forth in paragraphs (a)
or (b) of Section 12.1 hereof, the Company shall be liquidated and the Person
designated at such time by the Board of Managers (or other Person or Persons
designated by a decree of court) shall wind up the affairs of the Company. The
Person or Persons winding up the affairs of the Company shall promptly proceed
to the liquidation of the Assets and, in settling the accounts of the Company,
the Assets shall be distributed in the following order of priority:
(a) To creditors to the extent otherwise permitted by law, in satisfaction
of liabilities of the Company (whether by payment or the making of reasonable
provision for payment thereof), other than liabilities for which reasonable
provision for payment has been made and liabilities for distributions to the
Member;
(b) To the repayment of outstanding loans from the Member to the Company;
(c) The balance, if any, to the Member.
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Article XIII.
CAPITAL
Section 13.1. Capital Contributions. Lease Finance has contributed all of
its right, title and interest in, to and under the Contributed Assets as a
Capital Contribution to the Company.
Section 13.2. No Right to Return of Contribution. The Member shall have no
right to the withdrawal or to the return of its Capital Contribution, except
upon the dissolution and liquidation of the Company pursuant to Article XII.
Section 13.3. Creditor's Interest in the Company. No creditor who makes a
loan to the Company shall have or acquire at any time as a result of making the
loan any direct or indirect interest in the profits, capital or property of the
Company, other than such interest as may be accorded to a secured creditor.
Notwithstanding the foregoing, this provision shall not prohibit in any manner
whatsoever a secured creditor from participating in the profits of operation or
gross or net sales of the Company or in the gain on sale or refinancing of the
Company, all as may be provided in its loan or security agreements.
Article XIV.
ALLOCATION OF INCOME, GAINS AND LOSSES;
DISTRIBUTIONS
The income, profits, gains, losses and tax credits of the Company and
distributions of cash or property of the Company to the Member shall be treated
for federal income tax purposes as if the Company were a division of the Member
in accordance with Treasury Regulation Section 301.7701-2(a).
Article XV.
MISCELLANEOUS PROVISIONS
Section 15.1. Pronouns. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular or plural, as the
identity of the person or entity may require.
Section 15.2. Headings. Article and Section headings contained in this
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Agreement for any purpose, and shall not in any way define or
affect the meaning, construction or scope of any of the provisions hereof.
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Section 15.3. Governing Law. This Agreement, the rights and obligations of
the parties hereto, and any claims or disputes relating thereto, shall be
governed by and construed in accordance with the laws of the State of Delaware
(but not including the choice of law rules thereof).
Section 15.4. Survival. It is the express intention and agreement of the
Members that all covenants, agreements, statements, representations, warranties
and indemnities made in this Agreement shall survive the execution and delivery
of this Agreement.
Section 15.5. Severability. The invalidity of any one or more provisions
hereof or of any other agreement or instrument given pursuant to or in
connection with this Agreement shall not affect the remaining portions of this
Agreement or any such other agreement or instrument or any part thereof; and in
the event that one or more of the provisions contained herein or therein should
be invalid, or should operate to render this Agreement or any such other
agreement or instrument invalid, this Agreement and such other agreements and
instruments shall be construed as if such invalid provisions had not been
inserted.
Section 15.6. Entire Agreement. This Agreement contains the entire
agreement with respect to the matters contained herein, and supersedes all prior
oral or written agreements, commitments or understandings with respect to the
matters provided for herein.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date first above written.
GREEN TREE LEASE FINANCE II, INC.
-----------------------------------
By: Joel H. Gottesman
Its: Senior Vice President
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Exhibit 4.1
TRANSFER AGREEMENT
AMONG
GREEN TREE LEASE FINANCE II, INC.
PURCHASER
AND
GREEN TREE VENDOR SERVICES CORPORATION
SELLER AND SERVICER
---------------
DATED AS OF DECEMBER 1, 1998
---------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS ..................................................... 2
SECTION 1.1 General ................................................... 2
SECTION 1.2 Specific Terms ............................................ 2
SECTION 1.3 Certain References ........................................ 3
SECTION 1.4 No Recourse ............................................... 3
SECTION 1.5 Action by or Consent of Noteholders ....................... 3
ARTICLE II CONVEYANCE OF THE LEASES ........................................ 4
SECTION 2.1 Conveyance of Leases and Related Assets ................... 4
SECTION 2.2 Intention of the Parties .................................. 5
ARTICLE III REPRESENTATIONS AND WARRANTIES .................................. 5
SECTION 3.1 Representations and Warranties of
Vendor Services ........................................... 5
SECTION 3.2 Representations and Warranties of Lease
Finance ................................................... 7
ARTICLE IV COVENANTS OF VENDOR SERVICES .................................... 10
SECTION 4.1 Protection of Title of Lease Finance and the LLC .......... 10
SECTION 4.2 Other Liens or Interests .................................. 12
SECTION 4.3 Costs and Expenses ........................................ 12
SECTION 4.4 Indemnification ........................................... 12
SECTION 4.5 Further Assurances ........................................ 14
SECTION 4.6 Negative Covenant ......................................... 14
ARTICLE V REPURCHASES ..................................................... 15
SECTION 5.1 Repurchase of Leases Upon Breach of
Representation or Warranty ................................ 15
SECTION 5.2 Reassignment of Purchased Leases and
Equipment ................................................. 15
SECTION 5.3 Waivers ................................................... 16
ARTICLE VI MISCELLANEOUS ................................................... 16
SECTION 6.1 [Reserved] ................................................ 16
SECTION 6.2 Merger or Consolidation of Vendor Services
or Lease Finance .......................................... 16
SECTION 6.3 Limitation on Liability of Vendor Services
and Others ................................................ 17
SECTION 6.4 Vendor Services May Own Notes ............................. 17
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SECTION 6.5 Amendment ................................................. 17
SECTION 6.6 Notices ................................................... 18
SECTION 6.7 Merger and Integration .................................... 19
SECTION 6.8 Severability of Provisions ................................ 20
SECTION 6.9 GOVERNING LAW ............................................. 19
SECTION 6.10 Counterparts .............................................. 19
SECTION 6.11 Conveyance of the Leases to the LLC ....................... 19
SECTION 6.12 Nonpetition Covenant ...................................... 20
SCHEDULES
Schedule A -- Schedule of Leases and Equipment
Schedule B -- Schedule of Representations and Warranties of Vendor Services
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TRANSFER AGREEMENT
THIS TRANSFER AGREEMENT, dated as of December 1, 1998, executed between
Green Tree Lease Finance II, Inc., a Minnesota corporation, as purchaser ("Lease
Finance") and Green Tree Vendor Services Corporation, a Delaware corporation
("Vendor Services"), as seller and servicer (in such capacity, the "Servicer").
W I T N E S S E T H:
WHEREAS, Vendor Services owns certain Leases (the "Leases") as are more
particularly described in Schedule A attached hereto and has an ownership or
security interest in the items of Equipment subject thereto (the "Equipment"),
as more particularly described in Schedule A attached hereto; and
WHEREAS, Lease Finance has agreed to acquire the Leases and the
Equipment from Vendor Services, and Vendor Services has agreed to transfer the
Leases and the Equipment to Lease Finance; and
WHEREAS, pursuant to the terms of a Contribution and Servicing
Agreement, dated as of December 1, 1998 (the "Contribution and Servicing
Agreement"), by and among Green Tree Lease Finance 1998-1, LLC (the "LLC"),
Lease Finance, as contributor, and Vendor Services, in its individual capacity
and as Servicer, to be executed concurrently with the execution of this
Agreement, Lease Finance will convey the Leases and certain rights to the
proceeds of disposition of the Equipment ("Residual Realizations") to the LLC;
and
WHEREAS, pursuant to the terms of an Indenture, dated as of December 1,
1998 (the "Indenture"), between Green Tree Lease Finance 1998-1, LLC (the "LLC")
and U.S. Bank Trust National Association, as Trustee (the "Trustee"), to be
executed concurrently with this Agreement, the LLC will, on the Closing Date,
issue the Notes (as defined in the Indenture), secured by a pledge of the Leases
and the Residual Realizations.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, and for other good and valuable consideration, the receipt of which
is acknowledged, Lease Finance, Vendor Services and the Servicer, intending to
be legally bound, hereby agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1 General.
(a) The words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and Article, Section, Schedule and
Exhibit references, unless otherwise specified, refer to Articles and Sections
of and Schedules and Exhibits to this Agreement. All capitalized terms used
herein without definition shall have the respective meanings assigned to such
terms in the Contribution and Servicing Agreement or, if not defined in the
Contribution and Servicing Agreement, in the Indenture.
(b) With respect to all terms used in this Agreement, the singular
includes the plural and the plural the singular; words importing any gender
include the other gender; references to "writing" include printing, typing,
lithography, and other means of reproducing words in a visible form; references
to agreements and other contractual instruments include all subsequent
amendments thereto or changes therein entered into in accordance with their
respective terms and not prohibited by this Agreement or the Contribution and
Servicing Agreement; references to Persons include their permitted successors
and assigns; and the terms "include" or "including" mean "include without
limitation" or "including without limitation."
SECTION 1.2 Specific Terms. Whenever used in this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
"Agreement" means this Transfer Agreement and all amendments
hereof and supplements hereto.
"Closing Date" means December , 1998.
"Related Documents" means the Indenture, the Contribution and
Servicing Agreement, the Underwriting Agreement and related Terms Agreement with
the Underwriters of the Notes, and the Notes. The Related Documents to be
executed by any party are referred to herein as "such party's Related
Documents," "its Related Documents" or by a similar expression.
"Repurchase Event" means, with respect to any Lease, the
occurrence of a breach of any of the representations and warranties set forth in
the Schedule of Representations that materially and adversely affects the value
of such Lease.
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"Schedule of Leases" means, collectively, the schedule of
Leases and Equipment attached hereto as Schedule A, as the same may be revised
from time to time in accordance with the Contribution and Servicing Agreement.
"Schedule of Representations" means the Schedule of
Representations and Warranties of Vendor Services attached hereto as Schedule B.
"Trust Assets" means the property and proceeds of every
description conveyed pursuant to Section 2.1 of the Contribution and Servicing
Agreement, together with the Trust Accounts (including all Eligible Investments
therein and all proceeds therefrom).
SECTION 1.3 Certain References. All references to the
Principal Balance of a Lease as of an Accounting Date shall refer to the close
of business on such day, or as of the first day of a Collection Period shall
refer to the opening of business on such day. All references to the last day of
a Collection Period shall refer to the close of business on such day.
SECTION 1.4 No Recourse. Without limiting the obligations of
Vendor Services hereunder, no recourse may be taken, directly or indirectly,
under this Agreement or any certificate or other writing delivered in connection
herewith or therewith, against any stockholder, officer or director, as such, of
any of Vendor Services, the Servicer, Lease Finance or the Trustee, or of any
predecessor or successor of any of Vendor Services, the Servicer, Lease Finance
or the Trustee.
SECTION 1.5 Action by or Consent of Noteholders. Whenever any
provision of this Agreement refers to action to be taken, or consented to, by
Noteholders, such provision shall be deemed to refer to Noteholders of record as
of the Record Date immediately preceding the date on which such action is to be
taken, or consent given, by such Noteholders. Solely for the purposes of any
action to be taken, or consented to, by Noteholders, any Note registered in the
name of any of Lease Finance, Vendor Services or any Affiliate thereof, shall be
deemed not to be outstanding, and the related Principal Balance, as applicable,
evidenced thereby shall not be taken into account in determining whether the
requisite Principal Balance necessary to effect any such action or consent has
been obtained; provided, however, that, solely for the purpose of determining
whether the Trustee is entitled to rely upon any such action or consent, only
Notes which the Trustee knows to be so owned shall be so disregarded.
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ARTICLE II
CONVEYANCE OF THE LEASES
SECTION 2.1 Conveyance of Leases and Related Assets.
(a) As a contribution to the capital of Lease Finance, Vendor
Services hereby sells, transfers, assigns, and otherwise conveys to Lease
Finance, without recourse (but without limitation of its obligations in this
Agreement), and Lease Finance hereby acquires, all right, title and interest,
including security interests, whether now owned or hereafter acquired, of Vendor
Services in and to the following:
(i) the Leases, including, without limitation, (A) all monies
at any time paid or payable thereon or in respect thereof from and after the
Initial Cut-Off Date or in the case of Substitute Leases, the applicable Cut-Off
Date, including but not limited to (1) Scheduled Payments (including those
Scheduled Payments due prior to, but not received as of, the Cut-Off Date, but
excluding those Scheduled Payments due on or after, but received prior to, the
Cut-Off Date), (2) Prepayments, (3) Liquidation Proceeds (including all net
proceeds from the disposition of the related Equipment), (4) Extension Fees, (5)
payments to be applied by the Servicer to the payment of insurance charges,
maintenance, taxes or other similar obligations, and (6) payments to be retained
by the Servicer in payment of Administrative Fees, (B) all security interests of
the lessor or secured party, as the case may be, in the related Equipment and
all present or future leases and other contracts relating to the Equipment and
all revenues, payments, rights to payment, profits, accounts, chattel paper,
products and contract rights arising from or related to the Equipment or any use
thereof or from any such lease or other contract, (C) all rights of the lessor
or secured party, as the case may be, in all Insurance Policies and all other
security for the payment of amounts due under the Leases (including all rights,
if any, the lessor or the secured party may have against vendors and other third
parties for payments of such amounts) and (D) all items contained in the related
Lease Files and any and all other documents that are kept on file in accordance
with Vendor Services's customary procedures relating to the Leases;
(ii) the Equipment and all proceeds thereof, including in any
event and without limitation, all present and future leases and other contracts
relating to the Equipment and all revenues, payments, rights to payment,
profits, accounts, chattel paper, products and contract rights arising from or
related to the Equipment or any use thereof or from any such lease or other
contract; and
(iii) any and all proceeds of any and all of the foregoing.
(b) LEASE FINANCE ACKNOWLEDGES THAT VENDOR SERVICES IS
TRANSFERRING THE EQUIPMENT "AS-IS, WHERE-IS," AND THAT VENDOR SERVICES MAKES NO
REPRESENTATION, EXPRESS OR IMPLIED,
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WITH RESPECT TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION ITS MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE.
SECTION 2.2 Intention of the Parties. The execution and
delivery of this Agreement shall constitute an acknowledgment by each of Vendor
Services and Lease Finance that they intend that each assignment and transfer
herein contemplated constitute a sale and assignment outright, and not for
security, of the property described in Section 2.1(a), conveying good title
thereto free and clear of any Liens, from Vendor Services to Lease Finance, and
that all such property shall not be a part of the estate of Vendor Services in
the event of the bankruptcy, reorganization, arrangement, insolvency or
liquidation proceeding, or other proceeding under any federal or state
bankruptcy or similar law, or the occurrence of another similar event, of, or
with respect to Vendor Services. In the event that such conveyance is determined
to be made as security for a loan made by Lease Finance, the LLC or the
Noteholders to Vendor Services, Vendor Services hereby grants to Lease Finance a
security interest in all of Vendor Services's right, title and interest in and
to the property described in Section 2.1(a) to secure the loan determined to
have been made to Vendor Services and the payment and performance of the other
obligations of Vendor Services under this Agreement, and agrees that in such
event this Agreement shall constitute a security agreement under applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Vendor Services.
Vendor Services makes the following representations and warranties, on which
Lease Finance relies in purchasing the Leases and in transferring the Leases to
the LLC under the Contribution and Servicing Agreement. Such representations are
made as of the Closing Date, or with respect to each Substitute Lease, as of the
applicable Cut-Off Date, but shall survive the sale, transfer and assignment of
the Leases hereunder and the transfer of the Leases and the Residual
Realizations by Lease Finance to the LLC under the Contribution and Servicing
Agreement, and the Granting thereof under the Indenture. Vendor Services and
Lease Finance agree that Lease Finance will assign to the LLC, and the LLC will
immediately Grant to the Trustee, all of Lease Finance's rights under this
Agreement at the Closing Date and that the Trustee will thereafter be entitled
to enforce this Agreement against Vendor Services directly or on behalf of the
Noteholders.
(a) Schedule of Representations. With respect to each Lease,
the representations and warranties set forth on the Schedule of Representations
are true and correct as of the date specified therein.
(b) Organization and Good Standing. Vendor Services has been
duly organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware, with power and authority to own its
properties and to conduct its business as such
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properties are currently owned and such business is currently conducted, and had
at all relevant times, and now has, power, authority and legal right to acquire,
own and sell the Leases transferred to Lease Finance.
(c) Due Qualification. Vendor Services is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in each jurisdiction in which the ownership or
lease of its property or the conduct of its business requires such qualification
and in which the failure to so qualify would have a material adverse impact on
its business or financial condition.
(d) Power and Authority. Vendor Services has the power and
authority to execute and deliver this Agreement and its Related Documents and to
carry out its terms and their terms, respectively, and the execution, delivery
and performance of this Agreement and all of Vendor Services's Related Documents
have been duly authorized by Vendor Services by all necessary corporate action.
(e) No Consents. Vendor Services holds all necessary licenses,
certificates and permits from all government authorities necessary for
conducting its business as it is presently conducted, and is not required to
obtain the consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, except for such
consents, licenses, approvals or authorizations, or registrations or
declarations, as shall have been obtained or filed, as the case may be, prior to
the Closing Date.
(f) Valid Sale; Binding Obligations. This Agreement and each
of Vendor Services's Related Documents have been duly executed and delivered,
and effect a valid sale, transfer and assignment of the Leases and Vendor
Services's interest in the related Equipment, enforceable against Vendor
Services, and creditors of and purchasers from Vendor Services; and this
Agreement and each of Vendor Services's Related Documents constitute legal,
valid and binding obligations of Vendor Services, enforceable in accordance with
their respective terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the availability of
specific remedies, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
(g) No Violation. The execution and delivery of this
Agreement, the consummation of the transactions contemplated by this Agreement
and the Related Documents and the fulfillment of the terms of this Agreement and
the Related Documents shall not conflict with, result in any breach of any of
the terms and provisions of or constitute (with or without notice or lapse of
time, or both) a default under, the certificate of incorporation or bylaws of
Vendor Services, or any indenture, agreement, mortgage, deed of trust or other
instrument to which Vendor Services is a party or by which it is bound, or
result in the creation or imposition
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of any Lien upon any of its properties pursuant to the terms of any such
indenture, agreement, mortgage, deed of trust or other instrument, other than
this Agreement, the Contribution and Servicing Agreement and the Indenture, or
violate any law, order, rule or regulation applicable to Vendor Services of any
court or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over Vendor Services or any of
its properties.
(h) No Proceedings. There are no proceedings or investigations
pending or, to the knowledge of Vendor Services, threatened against Vendor
Services, before any court, regulatory body, administrative agency or other
tribunal or governmental instrumentality having jurisdiction over Vendor
Services or any properties of Vendor Services (i) asserting the invalidity of
this Agreement or any of the Related Documents, (ii) seeking to prevent the
issuance of the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Related Documents, (iii) seeking
any determination or ruling that might materially and adversely affect the
performance by Vendor Services of its obligations under, or the validity or
enforceability of, this Agreement or any of the Related Documents or (iv)
seeking to affect adversely the federal income tax or other federal, state or
local tax attributes of, or seeking to impose any excise, franchise, transfer or
similar tax upon, the transfer and acquisition of the Leases hereunder or under
the Contribution and Servicing Agreement.
(i) Chief Executive Offices. The chief executive office of
Vendor Services is located at 1100 Landmark Towers, 345 St. Peter Street, St.
Paul, MN 55102, and the offices where Vendor Services keeps its records
concerning the Leases and related documents are at 3601 Minnesota Drive, 9th
Floor, France Place, Bloomington, Minnesota 55435.
SECTION 3.2 Representations and Warranties of Lease Finance.
Lease Finance makes the following representations and warranties, on which
Vendor Services relies in selling, assigning, transferring and conveying the
Leases to Lease Finance hereunder. Such representations are made as of the
Closing Date but shall survive the sale, transfer and assignment of the Leases
hereunder and the transfer thereof by Lease Finance to the LLC under the
Contribution and Servicing Agreement.
(a) Organization and Good Standing. Lease Finance has been
duly organized and is validly existing and in good standing as a corporation
under the laws of the State of Minnesota, with the power and authority to own
its properties and to conduct its business as such properties are currently
owned and such business is currently conducted, and had at all relevant times,
and has, full power, authority and legal right to acquire and own the Leases and
to transfer the Leases to the LLC pursuant to the Contribution and Servicing
Agreement.
(b) Due Qualification. Lease Finance is duly qualified to do
business as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals in each jurisdiction where the failure to do so
would materially and adversely affect (i) Lease
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Finance's ability to acquire the Leases, (ii) the validity or enforceability of
the Leases or (iii) Lease Finance's ability to perform its obligations hereunder
and under the Related Documents.
(c) Power and Authority. Lease Finance has the power and
authority to execute and deliver this Agreement and its Related Documents and to
carry out its terms and their terms, respectively, and to acquire the Leases and
the Equipment; and the execution, delivery and performance of this Agreement and
its Related Documents and all of the documents required pursuant hereto or
thereto have been duly authorized by Lease Finance by all necessary action.
(d) No Consents. Lease Finance holds all necessary licenses,
certificates and permits from all government authorities necessary for
conducting its business as it is presently conducted, and is not required to
obtain the consent of any other party or any consent, license, approval or
authorization from, or registration or declaration with, any governmental
authority, bureau or agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement, except for such
consents, licenses, approvals or authorizations, or registrations or
declarations, as shall have been obtained or filed, as the case may be, prior to
the Closing Date.
(e) Binding Obligation. This Agreement and each of Lease
Finance's Related Documents constitutes a legal, valid and binding obligation of
Lease Finance, enforceable against Lease Finance in accordance with its terms;
and this Agreement and each of Lease Finance's Related Documents constitute
legal, valid and binding obligations of Lease Finance, enforceable in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting the
enforcement of creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(f) No Violation. The execution, delivery and performance by
Lease Finance of this Agreement, the consummation of the transactions
contemplated by this Agreement and the Related Documents and the fulfillment of
the terms of this Agreement and the Related Documents do not and will not
conflict with, result in any breach of any of the terms and provisions of or
constitute (with or without notice or lapse of time, or both) a default under
the articles of incorporation or bylaws of Lease Finance, or any indenture,
agreement, mortgage, deed of trust or other instrument to which Lease Finance is
a party or by which Lease Finance is bound or to which any of its properties are
subject, or result in the creation or imposition of any Lien upon any of its
properties pursuant to the terms of any such indenture, agreement, mortgage,
deed of trust or other instrument (other than the Contribution and Servicing
Agreement and the Indenture), or violate any law, order, rule or regulation,
applicable to Lease Finance or its properties, of any federal or state
regulatory body or any court, administrative agency, or other governmental
instrumentality having jurisdiction over Lease Finance or any of its properties.
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(g) No Proceedings. There are no proceedings or investigations
pending, or, to the knowledge of Lease Finance, threatened against Lease
Finance, before any court, regulatory body, administrative agency, or other
tribunal or governmental instrumentality having jurisdiction over Lease Finance
or its properties: (i) asserting the invalidity of this Agreement or any of the
Related Documents, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Related Documents,
(iii) seeking any determination or ruling that might materially and adversely
affect the performance by Lease Finance of its obligations under, or the
validity or enforceability of, this Agreement or any of the Related Documents or
(iv) that may adversely affect the federal or state income tax attributes of, or
seeking to impose any excise, franchise, transfer or similar tax upon, the
transfer and acquisition of the Leases hereunder or the transfer of the Leases
to the LLC pursuant to the Contribution and Servicing Agreement.
(h) Chief Executive Offices. The chief executive office of
Lease Finance is located at 1100 Landmark Towers, 345 St. Peter Street, St.
Paul, Minnesota 55102, and the offices where Lease Finance keeps its records
concerning the Leases and related documents are at 3601 Minnesota Drive, 9th
Floor, France Place, Bloomington, Minnesota 55435.
In the event of any breach of a representation and warranty made by Lease
Finance hereunder, Vendor Services covenants and agrees that (i) it will not
take any action or pursue any remedy that it may have hereunder, in law, in
equity or otherwise, until a year and a day have passed since the date on which
all Notes have been paid in full, and (ii) any remedy it may have hereunder is
subject to Section 6.12. Each of Vendor Services and Lease Finance agree that
damages will not be an adequate remedy for breach of the foregoing covenant and
that this covenant may be specifically enforced by Lease Finance on behalf of
the LLC.
ARTICLE IV
COVENANTS OF VENDOR SERVICES
SECTION 4.1 Protection of Title of Lease Finance and the LLC.
(a) At or prior to the Closing Date, Vendor Services shall
have filed or caused to be filed UCC-1 financing statements, executed by Vendor
Services, as seller or debtor, naming Lease Finance as secured party and the LLC
as assignee and (i) describing the Leases and other property described in
Section 2.1 as collateral, filed with the office of the Secretary of State of
the State of Minnesota, and (ii) describing the Equipment as collateral, filed
with the appropriate filing office in those jurisdictions where Equipment
subject to Leases constituting at least 75% of the Initial Pool Principal
Balance and at least 75% of the aggregate Book Value as of the Initial Cut-Off
Date is located. Vendor Services shall deliver (or cause to be delivered) to
Lease Finance, the LLC and the Trustee file-stamped copies of, or filing
receipts for, any document filed as provided above, as soon as available
following such filing. In the event that
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Vendor Services fails to perform its obligations under this subsection, Lease
Finance or the LLC may do so at the expense of Vendor Services.
(b) If Vendor Services changes its name, identity, or
corporate structure in any manner that would, could or might make any financing
statement or continuation statement filed by Vendor Services (or by Lease
Finance or the LLC on behalf of Vendor Services) in accordance with paragraph
(a) above, seriously misleading within the meaning of ss. 9-402(7) of the UCC,
it shall give Lease Finance and the LLC written notice thereof no later than 10
days following the occurrence of such change, and shall file appropriate
amendments to all such previously filed financing statements and continuation
statements within the time period required by the UCC.
(c) If Vendor Services relocates its principal executive
office and, as a result of such relocation, the applicable provisions of the UCC
would require the filing of any amendment of any previously filed financing or
continuation statement or of any new financing statement, it shall give Lease
Finance, the LLC and the Trustee written notice thereof; and shall promptly file
such appropriate amendments or financing statements within the time period
required by the UCC.
(d) Vendor Services shall at all times maintain its principal
executive office, and any office from which it services Leases, within the
United States of America.
(e) Vendor Services shall maintain its computer systems so
that, from and after the time of sale under this Agreement of the Leases, the
Equipment and the other items described in Section 2.1(a) to Lease Finance, and
the conveyance of the Leases by Lease Finance to the LLC, the master computer
records (including archives) of Vendor Services that shall refer to a Lease, any
Equipment or any of the other items described in Section 2.1(a) indicate clearly
that such Lease, Equipment or other item described in Section 2.1(a) has been
sold to Lease Finance and that such Lease has been conveyed by Lease Finance to
the LLC. Indication of the LLC's ownership of a Lease shall be deleted from or
modified on any of Vendor Services's computer systems when, and only when, the
Lease has been paid in full, liquidated (including receipt of all recoveries
reasonably expected to be collected) or purchased by Vendor Services or Lease
Finance.
(f) If at any time Vendor Services shall propose to sell,
grant a security interest in, or otherwise transfer any interest in lease
contracts of a character similar to the Leases to any prospective purchaser,
lender or other transferee, Vendor Services shall give to such prospective
purchaser, lender, or other transferee computer tapes, records, or print-outs
(including any restored from archives) that, if they shall refer in any manner
whatsoever to any Lease, shall indicate clearly that such Lease has been sold to
Lease Finance and is owned by the LLC. Vendor Services and Lease Finance agree
that, if any one of them receives an inquiry from a bona fide potential creditor
regarding whether any lease contract or item of equipment is identified on the
Schedule of Leases, they will instruct the Trustee to disclose the contents of
the
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Schedule of Leases to such potential creditor in accordance with the provisions
of Section 11.17 of the Indenture.
(g) If Vendor Services receives payments in respect of Leases,
any Equipment or any of the other items described in Section 2.1(a), Vendor
Services agrees to pay or cause to be paid to the Servicer all such payments as
soon as practicable after identification thereof, but in no event later than two
Business Days after receipt thereof by Vendor Services.
(h) Vendor Services shall notify Lease Finance and the Trustee
within three Business Days after becoming aware of any Lien on any Lease,
Equipment or other item described in Section 2.1(a), other than the conveyances
hereunder or under the Contribution and Servicing Agreement.
(i) Vendor Services will promptly pay and discharge all taxes,
assessments, levies and other governmental charges imposed on it which may
materially and adversely affect any of the Leases, Equipment or other items
described in Section 2.1(a), or Lease Finance's rights with respect thereto.
(j) Vendor Services hereby agrees that it will perform its
obligations under the agreements relating to the Leases in conformity with its
customary and usual policies and procedures relating to the Leases.
(k) No later than 10 days after the Closing Date, Vendor
Services shall deliver to Lease Finance and the Trustee a written certification
that all notifications and consents required by paragraph (J) in the Schedule of
Representations hereto have been given or obtained, as applicable.
(l) With respect to lease transactions, Vendor Services's
credit underwriting standards generally require the filing of appropriate UCC
financing statements if the underlying equipment cost is over $25,000.
SECTION 4.2 Other Liens or Interests. Except for the
conveyances hereunder, with respect to any Lease and the related Equipment,
Vendor Services will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur, assume or suffer to exist any Lien on such Lease or
Equipment or any interest therein, and Vendor Services shall defend the right,
title, and interest of Lease Finance and the LLC in and to such Lease and
Equipment against all claims of third parties claiming through or under Vendor
Services.
SECTION 4.3 Costs and Expenses. Vendor Services shall pay all
reasonable costs and disbursements in connection with the performance of its
obligations hereunder and under its Related Documents.
SECTION 4.4 Indemnification.
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Vendor Services shall defend, indemnify and hold harmless
Lease Finance, the LLC, the Trustee and the Noteholders from and against:
(a) any and all costs, expenses, losses, damages, claims, and
liabilities, arising out of or resulting from any breach of any representations
and warranties of Vendor Services contained herein (other than those set forth
in the Schedule of Representations, the exclusive remedies for which are
specified in Section 5.1);
(b) any and all costs, expenses, losses, damages, claims, and
liabilities, arising out of or resulting from the use, ownership or operation of
any item of Equipment (notwithstanding the disclaimer of Section 2.1(b)); and,
in addition, Vendor Services shall cause Lease Finance and the LLC to be named
as an additional insured under its liability insurance policies;
(c) any and all costs, expenses, losses, damages, claims and
liabilities arising out of or resulting from any action taken, or failed to be
taken, by it in respect of any portion of the Trust Assets other than any action
taken in accordance with this Agreement or any Related Document;
(d) any taxes that may at any time be asserted against Lease
Finance, the LLC, the Trustee and the Noteholders with respect to the
transactions contemplated in this Agreement, including, without limitation, any
sales, gross receipts, general corporation, tangible or intangible personal
property, privilege, or license taxes (but not including any taxes asserted with
respect to, and as of the date of, the sale, transfer and assignment of the
Leases to Lease Finance and of the Trust Assets to the LLC or the issuance and
original sale of the Notes, or asserted with respect to ownership of the Leases
or the Trust Assets, which shall be indemnified by Vendor Services pursuant to
clause (e) below), or federal, state or other income taxes, arising out of
distributions on the Notes or transfer taxes arising in connection with the
transfer of the Notes) and costs and expenses in defending against the same,
arising or imposed against such Persons by reason of the acts to be performed by
Vendor Services under this Agreement;
(e) any taxes which may at any time be asserted against such
Persons with respect to, and as of the date of, the conveyance or ownership of
the Leases and the conveyance or ownership of the Trust Assets under the
Transfer Agreement or the Contribution and Servicing Agreement or the issuance
and original sale of the Notes, including, without limitation, any sales, gross
receipts, personal property, tangible or intangible personal property, privilege
or license taxes (but not including any federal or other income taxes, including
franchise taxes, arising out of the transactions contemplated hereby or transfer
taxes arising in connection with the transfer of Notes) and costs and expenses
in defending against the same, arising or imposed against such Persons;
(f) any and all costs, expenses, losses, claims, damages, and
liabilities to the extent that such cost, expense, loss, claim, damage, or
liability arose out of, or was imposed upon
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Lease Finance, the LLC, the Trustee and the Noteholders through the negligence,
willful misfeasance, or bad faith of Vendor Services in the performance of its
duties under this Agreement or by reason of reckless disregard of the
obligations and duties of Vendor Services under this Agreement;
(g) any loss, liability or expense incurred by reason of the
violation by Vendor Services or any of its Affiliates of federal or state
securities laws in connection with the registration or the sale of the Notes;
(h) any loss, liability or expense imposed upon, or incurred
by, Lease Finance, the LLC, the Trustee or the Noteholders as a result of the
failure of any Lease, or the sale of the related Equipment, to comply with all
requirements of applicable law, but only to the extent such loss, liability or
expense is not covered by the repurchase of such Lease and Equipment as required
by Section 5.1; and
(i) any loss, liability or expense imposed upon, or incurred
by, Lease Finance, the LLC, the Trustee or the Noteholders as a result of any
actions taken by or in the name of Lease Finance, the LLC or the Trustee at the
request of Vendor Services pursuant to the last sentence of Section 5.2.
Indemnification under this Section 4.4 shall include
reasonable fees and expenses of counsel and expenses of litigation and shall
survive termination of the Indenture. The indemnity obligations hereunder shall
be in addition to any obligation that Vendor Services may otherwise have.
Promptly after receipt by an indemnified party under this
Section 4.4 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be
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sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
SECTION 4.5 Further Assurances. Following the Closing Date,
Vendor Services shall, at the reasonable request of Lease Finance or the
Trustee, and at Vendor Services' expense, execute and deliver any further
instruments of transfer or other documents, and shall take all such other
actions that may be necessary, appropriate or desirable, to fully convey the
Leases and the Equipment (subject to Section 4.1(a)(ii)) to the Issuer or
otherwise to evidence, effectuate or implement the transactions contemplated
hereby. In addition, Vendor Services, as agent for Lease Finance, shall defend
the Leases and the Equipment against any and all claims and demands of all
Persons at any time claiming the same or any interest therein adverse to that of
the Lease Finance.
SECTION 4.6 Negative Covenant. Vendor Services (a) shall not
engage in any transaction or series of transactions or otherwise take any action
or omit to take any action which could result in a determination that Vendor
Services shall have received less than reasonably equivalent value for the
transfer and conveyance of the Leases and the other property described in
Section 2.1(a) to Lease Finance either on the Closing Date or thereafter and (b)
in any event, shall not use the proceeds received from the transfer and
conveyance of the Leases and the other property described in Section 2.1(a)
either on the Closing Date or thereafter (i) to pay any dividend or make any
distribution on or in respect of its capital stock or (ii) to purchase, redeem
or otherwise acquire or retire for value any of its capital stock or the capital
stock of any of its affiliates (other than any of its wholly owned
subsidiaries), if, in the case of either (i) or (ii), at the time of any such
action and after giving effect thereto (x) the present fair saleable value of
the assets of Vendor Services is less than the amount that would be required to
be paid on or in respect of Vendor Services's total liabilities (including a
reasonable estimate of its contingent liabilities (net of tax benefits to the
extent reasonably likely to be realized)), (y) the assets of Vendor Services
constitute an unreasonably small capital to carry out Vendor Services's business
as it is then conducted or as Vendor Services then intends to conduct its
business or (z) Vendor Services has incurred, intends to incur, or believes that
it will incur, debts that would be beyond Vendor Services's ability to pay as
they mature.
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ARTICLE V
REPURCHASES
SECTION 5.1 Repurchase of Leases Upon Breach of Representation
or Warranty. Upon the occurrence of a Repurchase Event, Vendor Services shall,
unless such breach shall have been cured in all material respects by the end of
the second Collection Period after the date on which Vendor Services becomes
aware of or receives written notice from the Trustee or the Servicer of such
breach, (i) repurchase (or substitute a Substitute Lease for) such Lease from
the LLC and the related Equipment from Lease Finance and (ii) on or before the
related Deposit Date, Vendor Services shall either pay the Purchase Amount to
the Servicer on behalf of the LLC and Lease Finance pursuant to Section 2.6 of
the Contribution and Servicing Agreement or deliver a Substitute Lease pursuant
to Article IX of the Contribution and Servicing Agreement. It is understood and
agreed that, except as set forth in the following paragraph, the obligation of
Vendor Services to repurchase any Lease and the related Equipment as to which a
breach has occurred and is continuing shall, if such obligation is fulfilled,
constitute the sole remedy against Vendor Services for such breach available to
Lease Finance, the LLC, the Noteholders or the Trustee on behalf of the
Noteholders. The provisions of this Section 5.1 are intended to grant the LLC
and the Trustee a direct right against Vendor Services to demand performance
hereunder, and in connection therewith, Vendor Services waives any requirement
of prior demand against Lease Finance with respect to such repurchase
obligation. Notwithstanding any other provision of this Agreement or the
Contribution and Servicing Agreement to the contrary, the obligation of Vendor
Services under this Section shall not terminate upon a termination of Vendor
Services as Servicer under the Contribution and Servicing Agreement and shall be
performed by Vendor Services in accordance with the terms hereof notwithstanding
the failure of the Servicer or Lease Finance to perform any of their respective
obligations with respect to such Lease under the Contribution and Servicing
Agreement.
In addition to the foregoing and notwithstanding whether the
related Lease and the related Equipment shall have been purchased by Vendor
Services, Vendor Services shall indemnify Lease Finance, the LLC, the Trustee
and the Noteholders against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to such breach.
SECTION 5.2 Reassignment of Purchased Leases and Equipment.
Upon deposit in the Collection Account of the Purchase Amount of any Lease and
the related Equipment (if applicable) repurchased by Vendor Services under
Section 5.1, or upon delivery of a Substitute Lease, Lease Finance and the LLC
shall take such steps as may be reasonably requested by Vendor Services in order
to assign to Vendor Services all of Lease Finance's and the LLC's right, title
and interest in and to such Lease and the related Equipment (if applicable) and
all security and documents conveyed to Lease Finance and the LLC directly
relating thereto, without
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recourse, representation or warranty, except as to the absence of liens, charges
or encumbrances created by or arising as a result of actions of Lease Finance or
the LLC. Such assignment shall be a sale and assignment outright, and not for
security. If, following the reassignment of a Purchased Lease and the related
Equipment (if applicable), in any enforcement suit or legal proceeding, it is
held that Vendor Services may not enforce any such Lease on the ground that it
shall not be a real party in interest or a holder entitled to enforce the Lease,
Lease Finance and the LLC shall, at the expense of Vendor Services, take such
steps as Vendor Services deems reasonably necessary to enforce the Lease,
including bringing suit in Lease Finance's or the LLC's name or the name of the
Trustee on behalf of the Noteholders.
SECTION 5.3 Waivers. No failure or delay on the part of Lease
Finance or the LLC in exercising any power, right or remedy under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or remedy preclude any other or future exercise thereof or
the exercise of any other power, right or remedy.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 Reserved.
SECTION 6.2 Merger or Consolidation of Vendor Services or
Lease Finance. Any corporation or other entity (i) into which Vendor Services or
Lease Finance may be merged or consolidated, (ii) resulting from any merger or
consolidation to which Vendor Services or Lease Finance is a party or (iii)
succeeding to the business of Vendor Services or Lease Finance, shall be the
successor to Vendor Services or Lease Finance, as the case may be (without
relieving Vendor Services or Lease Finance of its responsibilities hereunder, if
it survives such merger or consolidation) without the execution or filing of any
document or any further act by any of the parties to this Agreement. Vendor
Services or Lease Finance shall promptly inform the other parties, the LLC and
the Trustee of such merger, consolidation or purchase and assumption.
Notwithstanding the foregoing, as a condition to the consummation of the
transactions referred to in clauses (i), (ii) and (iii) above, (x) immediately
after giving effect to such transaction, no representation or warranty made
pursuant to Sections 3.1 (other than subsections (b) and (i)) and 3.2 (other
than subsections (a) and (h)) of this Agreement shall have been breached (for
purposes hereof, such representations and warranties shall speak as of the date
of the consummation of such transaction), (y) Vendor Services or Lease Finance,
as applicable, shall have delivered written notice of such consolidation, merger
or purchase and assumption to the Rating Agencies prior to the consummation of
such transaction and shall have delivered to the LLC and the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this Section 6.2 and that all conditions precedent, if any, provided for in this
Agreement, relating to such transaction have been complied with, and (z) Vendor
Services or Lease Finance, as applicable, shall have
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delivered to the LLC and the Trustee an Opinion of Counsel, stating that, in the
opinion of such counsel, either (A) all financing statements and continuation
statements and amendments thereto have been executed and filed that are
necessary to preserve and protect the interest of the LLC in the Trust Assets
and reciting the details of the filings or (B) no such action shall be necessary
to preserve and protect such interest.
SECTION 6.3 Limitation on Liability of Vendor Services and
Others.
(a) Except with respect to the Representations and Warranties
herein and in the Schedule of Representations, and the indemnification
obligations set forth in Section 4.4 herein, Vendor Services may rely in good
faith on the advice of counsel or on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
under this Agreement. Vendor Services shall not be under any obligation to
appear in, prosecute or defend any legal action that is not incidental to its
obligations under this Agreement or its Related Documents and that in its
reasonable judgment may involve it in any expense or liability.
(b) Any officer, director, employee or agent of Vendor
Services may rely in good faith on the advice of counsel or on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising under this Agreement. Vendor Services shall be under no
obligation to appear in, prosecute or defend any legal action that is not
incidental to its obligations under this Agreement or its Related Documents and
that in its reasonable judgment may involve it in any expense or liability.
SECTION 6.4 Vendor Services May Own Notes. Subject to the
provisions of the Contribution and Servicing Agreement, Vendor Services, and any
Affiliate of Vendor Services, may in its individual or any other capacity become
the owner or pledgee of Notes with the same rights as it would have if it were
not Vendor Services or an Affiliate thereof (except as provided in Section 1.5).
SECTION 6.5 Amendment.
(a) This Agreement may be amended by Vendor Services and Lease
Finance without the consent of the LLC, the Trustee or the Noteholders (i) to
cure any ambiguity; (ii) to correct or supplement any provisions in this
Agreement that may be inconsistent with any other provisions herein; or (iii) to
make any other provisions with respect to matters or questions arising under
this Agreement that are not inconsistent with the provisions hereof, provided,
however, that such action shall not, as evidenced by an Opinion of Counsel
delivered to the LLC and the Trustee, adversely affect in any material respect
the interests of the Noteholders.
(b) This Agreement may also be amended from time to time by
Vendor Services and Lease Finance, with the prior written consent of a Note
Majority (which consent of any Holder of a Note given pursuant to this Section
or pursuant to any other provision of this
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Agreement shall be conclusive and binding on such Holder and on all future
Holders of such Note and of any Note issued upon the transfer thereof or in
exchange thereof or in lieu thereof whether or not notation of such consent is
made upon the Note), for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement, or of
modifying in any manner the rights of the Noteholders; provided, however, that
no such amendment shall (i) increase or reduce in any manner the amount of, or
accelerate or delay the timing of, collections of payments on Leases,
distributions that shall be required to be made on any Note or the applicable
rate of interest payable thereon, (ii) amend any provisions of Section 5.06 or
8.03 of the Indenture in such a manner as to affect the priority of payment of
interest or principal to Noteholders, or (iii) reduce the aforesaid percentage
required to consent to any such amendment or any waiver hereunder, without the
consent of the Holders of all Notes then Outstanding and affected thereby; and
provided, further, that no such amendment shall be effective unless and until
the Rating Agency Condition has been satisfied.
(c) Promptly after the execution of any such amendment or
consent, the LLC or the Trustee, as applicable, shall furnish written
notification of the substance of such amendment or consent to each Noteholder.
(d) It shall not be necessary for the consent of Noteholders
pursuant to this Section to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents (and any other
consents of Noteholders provided for in this Agreement) and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable requirements as the LLC or the Trustee, as applicable, may prescribe,
including the establishment of record dates. The consent of any Holder of a Note
given pursuant to this Section or pursuant to any other provision of this
Agreement shall be conclusive and binding on such Holder and on all future
Holders of such Note and of any Note issued upon the transfer thereof or in
exchange thereof or in lieu thereof whether or not notation of such consent is
made upon the Note.
SECTION 6.6 Notices. All demands, notices and communications
to Vendor Services or Lease Finance hereunder shall be in writing, personally
delivered, or sent by telecopier (subsequently confirmed in writing), reputable
overnight courier or mailed by certified mail, return receipt requested, and
shall be deemed to have been given upon receipt:
(a) in the case of Vendor Services, to 1100 Landmark Towers,
345 St. Peter Street, St. Paul, Minnesota 55102, Attention: General Counsel, or
such other address as shall be designated by Vendor Services in a written notice
delivered to the other parties and to the LLC and the Trustee; and
(b) in the case of Lease Finance, to 1100 Landmark Towers, 345
St. Peter Street, St. Paul, Minnesota 55102, Attention: General Counsel, or such
other address as Lease
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Finance shall be designated by a written notice delivered to the other parties
and to the LLC and the Trustee.
SECTION 6.7 Merger and Integration. Except as specifically
stated otherwise herein, this Agreement and the Related Documents set forth the
entire understanding of the parties relating to the subject matter hereof, and
all prior understandings, written or oral, are superseded by this Agreement and
the Related Documents. This Agreement may not be modified, amended, waived or
supplemented except as provided herein.
SECTION 6.8 Severability of Provisions. If any one or more of
the covenants, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, provisions or terms shall be
deemed severable from the remaining covenants, provisions or terms of this
Agreement and shall in no way affect the validity or enforceability of the other
provisions of this Agreement.
SECTION 6.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF, AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
SECTION 6.10 Counterparts. For the purpose of facilitating the
execution of this Agreement and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and all of which counterparts
shall constitute but one and the same instrument.
SECTION 6.11 Conveyance of the Leases to the Trust. Vendor
Services acknowledges that Lease Finance intends, pursuant to the Contribution
and Servicing Agreement, to convey the Leases, the Residual Realizations and the
other items described in Section 2.1(a), together with its rights under this
Agreement, to the LLC on the Closing Date. Vendor Services acknowledges and
consents to such conveyance and waive any further notice thereof and covenants
and agrees that the representations and warranties of Vendor Services contained
in this Agreement and the rights of Lease Finance hereunder are intended to
benefit the LLC, the Trustee and the Noteholders. In furtherance of the
foregoing, Vendor Services covenants and agrees to perform its duties and
obligations hereunder, in accordance with the terms hereof, for the benefit of
the LLC, the Trustee and the Noteholders and that, notwithstanding anything to
the contrary in this Agreement, Vendor Services shall be directly liable to the
LLC and the Trustee (notwithstanding any failure by the Servicer or Lease
Finance to perform its duties and obligations hereunder or under the
Contribution and Servicing Agreement) and that the LLC and the Trustee may
enforce the duties and obligations of Vendor Services under this Agreement
against Vendor Services for the benefit of the Noteholders.
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SECTION 6.12 Nonpetition Covenant. Neither Vendor Services nor
Lease Finance shall petition or otherwise invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the LLC (or, in the case of Vendor Services, against Lease Finance) under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the LLC (or Lease Finance, as applicable) or any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the LLC
(or, in the case of Vendor Services, of Lease Finance).
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IN WITNESS WHEREOF, the parties have caused this Transfer
Agreement to be duly executed by their respective officers as of the day and
year first above written.
GREEN TREE LEASE FINANCE II, INC.,
as Purchaser
By ___________________________
Name:
Title:
GREEN TREE VENDOR SERVICES
CORPORATION,
In its individual capacity and as Servicer
By ___________________________
Name:
Title:
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SCHEDULE A
SCHEDULE OF LEASES AND EQUIPMENT
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SCHEDULE B
SCHEDULE OF REPRESENTATIONS AND WARRANTIES
OF VENDOR SERVICES
With respect to each Lease as of the Initial Cut-Off Date, and
regarding each Substitute Lease as of the applicable Cut-Off Date, Vendor
Services represents and warrants as follows :
A. Characteristics of Leases. Each Lease (i) constitutes a
valid, binding and enforceable payment obligation of the Obligor in accordance
with its terms (except as may be limited by applicable bankruptcy, insolvency or
other similar laws affecting the enforceability of creditors' rights generally
and the availability of equitable remedies), (ii) has been duly and properly
sold, assigned and conveyed by Vendor Services to Lease Finance, (iii) was
originated by Vendor Services in the ordinary course of its business, or (in the
case of any Lease purchased by Vendor Services) was acquired by Vendor Services
for proper consideration and was validly assigned to Vendor Services by the
originator of such Lease, and (iv) contains customary and enforceable provisions
adequate to enable realization against the Obligor and/or the related Equipment
(although no representation or warranty is made with respect to the perfection
or priority of any security interest in such related Equipment).
B. No Waivers. No provisions of any Lease have been waived,
altered or modified in any material respect, except as indicated in the Lease
File.
C. No Consumer Leases. No Lease is a "consumer lease" as
defined in Article 2A of the Uniform Commercial Code, except for a de minimis
number of Leases.
D. Acceptance of Equipment. To the best of Vendor Services's
knowledge, each Obligor has accepted the related Equipment and has had
reasonable opportunity to inspect and test such Equipment.
E. Compliance with Law. All requirements of applicable
Federal, state and local laws, and regulations thereunder, in respect of all of
the Leases, have been complied with in all material respects.
F. No Default. There is no known default, breach, violation or
event permitting cancellation or termination of the Lease by the lessor under
the terms of any Lease (other than Scheduled Payment delinquencies (in excess of
10% of the Scheduled Payment due) of not more than 59 days), and (except for
payment extensions and waivers of Administrative Fees in accordance with Vendor
Services's servicing and collection policies and procedures) there has been no
waiver of any of the foregoing; and as of the Cut-Off Date, no related Equipment
had been repossessed.
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G. The Obligors. Each Obligor (i) is located in the United
States, and (ii) is not (a) the United States of America or any State or local
government or any agency, department, subdivision or instrumentality thereof
(except for Leases representing no more than 3% of the Initial Pool Principal
Balance) or (b) Vendor Services or any Affiliate thereof .
H. Obligor Bankruptcy. Each Lease was entered into by an
Obligor who, at the Cut-Off Date, had not been identified on the records of
Vendor Services as being the subject of a current bankruptcy proceeding.
I. Delinquencies. No Lease has a Scheduled Payment delinquency
(in excess of 10% of the Scheduled Payment due) of more than 59 days past due as
of the Cut-Off Date.
J. Assignment to the LLC. Each Lease may be sold, assigned and
transferred by Vendor Services to Lease Finance, and may be assigned and
transferred by Lease Finance to the LLC, without the consent of, or prior
approval from, or any notification to, the applicable Obligor, other than (i)
certain Leases (which, in proportion to the aggregate of all of the Leases, are
not material) that require notification of the assignment to the Obligor, which
notification will be given by the Servicer not later than 10 days following the
Closing Date, and (ii) Leases (which, in proportion to the aggregate of all of
the Leases, are not material) that require the consent of the Obligor, which
consent will be obtained not more than 10 days following the Closing Date.
K. Lease Not Assumable. Each Lease prohibits the sale,
assignment or transfer of the Obligor's interest therein, the assumption of the
Lease by another person in a manner that would release the Obligor thereof from
the Obligor's obligation, or any sale, assignment or transfer of the related
Equipment, without the prior consent of the lessor, other than Leases which may
(i) permit assignment to a subsidiary, corporate parent or other affiliate, (ii)
permit the assignment to a third party, provided the Obligor remains liable
under the Lease, or (iii) permit assignment to a third party with a credit
standing (determined by Vendor Services in accordance with its underwriting
policy and practice at the time for an equivalent contract type, term and
amount) equal to or better than the original Obligor.
L. Payments in United States Dollars. The Obligor under each
Lease is required to make payments thereunder (i) in United States dollars, and
(ii) in fixed amounts and on fixed and predetermined dates.
M. Maintenance and Repair. Each Lease requires the Obligor to
assume responsibility for payment of all expenses in connection with the
maintenance and repair of the related Equipment, the payment of all premiums for
insurance of such Equipment and the payment of all taxes (including sales and
property taxes) relating to such Equipment.
N. Scheduled Payments. Each Lease requires the Obligor
thereunder to make all Scheduled Payments thereon under all circumstances and
regardless of the condition or
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suitability of the related Equipment and notwithstanding any defense, set-off or
counterclaim that the Obligor may have against the manufacturer, lessor or
lender (as the case may be).
O. Repair or Replacement of Damaged Equipment. Under each
Lease, if the Equipment is damaged or destroyed, the Obligor is required either
(i) to repair such Equipment, (ii) to make a termination payment to the lessor
in an amount not less than the Required Payoff Amount, or (iii) in some cases,
to replace such damaged or destroyed Equipment with other equipment of
comparable use and value.
P. No Termination by Lessee. None of the Leases permit the
Obligor to terminate the Lease prior to the latest Stated Maturity Date or to
otherwise prepay the amounts due and payable thereunder, except for a de minimis
number of Leases which allow for an early termination or prepayment upon payment
of an amount which is not less than the Required Payoff Amount.
Q. No Transfer of Title Required. It is not a precondition to
the valid transfer or assignment of Vendor Services interest in any of the
Equipment related to any Lease that title to such Equipment be transferred on
the records of any governmental or quasi-governmental agency, body or authority.
R. Good Title. Immediately prior to the sale, assignment and
conveyance of each Lease by Vendor Services to Lease Finance, Vendor Services
had good title to such Lease and Vendor Services's interest in the related
Equipment (subject to the terms of such Lease) and was the sole owner thereof,
free of any Lien.
S. No Impairment. No person has a participation in or other
right to receive Scheduled Payments under any Lease, and neither Lease Finance
nor Vendor Services has taken any action to convey any right to any Person that
would result in such Person having a right to Scheduled Payments received with
respect to any Lease.
T. Lawful Assignment. The sale, transfer and assignment of
such Lease and Vendor Services interest in the related Equipment to Lease
Finance under this Agreement, and the transfer and conveyance of such Lease
from, and the grant of rights to the related Residual Realizations by, Lease
Finance to the LLC under the Contribution and Servicing Agreement, are not
unlawful, void or voidable under the laws of the jurisdiction applicable to such
Lease.
U. All Filings Made. All filings and other actions required to
be made, taken or performed by any Person in any jurisdiction to give the LLC a
first priority perfected lien or ownership interest in the Leases and a first
priority perfected security interest in Vendor Services's interest in the
Equipment have been made, taken or performed.
V. Lease Files Complete. There exists a Lease File pertaining
to each Lease, and such Lease File contains the Lease or a facsimile copy
thereof.
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W. One Original. There is only one original executed copy of
each Lease, and such original executed copy is in the possession of Vendor
Services.
X. Chattel Paper. The Leases constitute chattel paper within
the meaning of the UCC as in effect in the States of Minnesota and Delaware
(other than those Leases in which the lessor is financing exclusively the
Obligor's software license or maintenance contract for Equipment, which Leases,
in proportion to the Initial Pool Principal Balance, are not material).
Y. Marking Records. By the Closing Date, the portions of the
electronic master record of Vendor Services relating to the Leases will have
been clearly and unambiguously marked to show that the Leases constitute part of
the Trust Assets and are owned by the LLC in accordance with the terms of the
Contribution and Servicing Agreement.
Z. Computer Tape. The Computer Tape containing information
with respect to the Leases that was made available by Vendor Services to the
Trustee on the Closing Date and was used to select the Leases was complete and
accurate in all material respects as of the Cut-Off Date and includes a
description of the same Leases that are described in the Schedule of Leases to
the Contribution and Servicing Agreement.
AA. Schedule of Leases. The information with respect to the
Leases listed on the Schedule of Leases attached to the Contribution and
Servicing Agreement is true, correct and complete in all material respects.
BB. No Fraud or Misrepresentation. Each Lease was originated
by Vendor Services or acquired by Vendor Services and was sold and assigned by
Vendor Services to Lease Finance without any fraud or misrepresentation on the
part of Vendor Services.
CC. Adverse Selection. No selection procedures adverse to the
Noteholders were utilized in selecting the Lease from those leases owned by
Vendor Services on the Cut-Off Date.
DD. One Payment. The Obligor has made at least one payment
under the Lease.
B-4
<PAGE>
Exhibit 4.2
================================================================================
CONTRIBUTION AND SERVICING AGREEMENT
AMONG
GREEN TREE LEASE FINANCE 1998-1, LLC
ISSUER
GREEN TREE LEASE FINANCE II, INC.
CONTRIBUTOR
GREEN TREE VENDOR SERVICES CORPORATION
IN ITS INDIVIDUAL CAPACITY AND AS SERVICER
U.S. BANK TRUST NATIONAL ASSOCIATION
TRUSTEE
-----------------------
DATED AS OF DECEMBER 1, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
INTRODUCTION................................................................. 1
ARTICLE I DEFINITIONS ..................................................... 1
SECTION 1.1. Definitions .............................................. 1
SECTION 1.2. Usage of Terms ........................................... 9
SECTION 1.3. Calculations ............................................. 9
SECTION 1.4. Section References ....................................... 9
SECTION 1.5. No Recourse .............................................. 9
ARTICLE II CONVEYANCE OF LEASES ........................................... 9
SECTION 2.1. Conveyance of Leases and Related Assets .................. 9
SECTION 2.2. Custody of Lease Files ................................... 11
SECTION 2.3. Further Assurances ....................................... 12
SECTION 2.4. Representations and Warranties of Contributor ............ 12
SECTION 2.5. Nonpetition Covenant ..................................... 15
SECTION 2.6. Repurchase of Leases Upon Breach of Representations and
Warranties ............................................... 15
ARTICLE III ADMINISTRATION AND SERVICING OF LEASES ......................... 17
SECTION 3.1. Duties of the Servicer ................................... 17
SECTION 3.2. Collection of Lease Payments; Modifications of Leases .... 18
SECTION 3.3. Realization Upon Leases .................................. 20
SECTION 3.4. Insurance, Maintenance and Taxes ......................... 21
SECTION 3.5. Maintenance of Security Interests in Equipment ........... 24
SECTION 3.6. Covenants, Representations, and Warranties of Servicer ... 24
SECTION 3.7. Sub-Servicers ............................................ 26
SECTION 3.8. Total Servicing Fee; Payment of Expenses by Servicer ..... 26
SECTION 3.9. Servicer's Certificate ................................... 27
SECTION 3.10. Annual Statement as to Compliance; Notice of Servicer
Termination Event ........................................ 27
SECTION 3.11. Annual Independent Accountants' Report ................... 28
SECTION 3.12. Access to Certain Documentation and Information
Regarding Leases ......................................... 29
SECTION 3.13. Certain Duties of the Servicer ........................... 29
SECTION 3.14. Duties of the Servicer under the Indenture ............... 29
SECTION 3.15. Fidelity Bond ............................................ 30
ARTICLE IV COLLECTIONS AND DEPOSITS ....................................... 31
SECTION 4.1. Initial Deposit .......................................... 31
SECTION 4.2. Collections .............................................. 31
SECTION 4.3. Application of Collections ............................... 32
SECTION 4.4. Net Deposits ............................................. 33
SECTION 4.5. Servicer Advances ........................................ 33
<PAGE>
ARTICLE V TERMINATION .................................................... 34
SECTION 5.1. Optional Purchase of All Leases; Liquidation of Trust
Assets ................................................... 34
ARTICLE VI THE CONTRIBUTOR ................................................ 35
SECTION 6.1. Liability of Contributor ................................. 35
SECTION 6.2. Merger or Consolidation of, or Assumption of the
Obligations of, Contributor; Amendment of Certificate of
Incorporation ............................................ 35
SECTION 6.3. Limitation on Liability of Contributor and Others ........ 36
SECTION 6.4. Contributor May Own Notes ................................ 36
SECTION 6.5. Covenants of the Contributor.............................. 37
ARTICLE VII THE SERVICER ................................................... 37
SECTION 7.1. Liability of Servicer; Indemnities ....................... 37
SECTION 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer ............................. 38
SECTION 7.3. Limitation on Liability of Servicer and Others ........... 38
SECTION 7.4. Servicer Not to Resign ................................... 39
SECTION 7.5. Corporate Existence ...................................... 39
ARTICLE VIII SERVICER TERMINATION EVENTS .................................... 40
SECTION 8.1. Servicer Termination Event ............................... 40
SECTION 8.2. Consequences of a Servicer Termination Event ............. 41
SECTION 8.3. Trustee to Act; Appointment of Successor ................. 42
SECTION 8.4. Notification to Noteholders .............................. 42
SECTION 8.5. Waiver of Past Defaults .................................. 42
ARTICLE IX SUBSTITUTION OF LEASES ......................................... 43
SECTION 9.1. Substitution ............................................. 43
SECTION 9.2. Procedure ................................................ 44
SECTION 9.3. Objection and Repurchase ................................. 45
SECTION 9.4. Vendor Services' and Servicer's Subsequent
Obligations .............................................. 45
ARTICLE X MISCELLANEOUS PROVISIONS ....................................... 46
SECTION 10.1. Amendment ................................................ 46
SECTION 10.2. Protection of Title to Trust Assets ...................... 47
SECTION 10.3. Governing Law ............................................ 49
SECTION 10.4. Severability of Provisions ............................... 49
SECTION 10.5. Assignment ............................................... 49
SECTION 10.6. Third-Party Beneficiaries ................................ 49
SECTION 10.7. Counterparts ............................................. 49
SECTION 10.8. Intention of Parties ..................................... 50
SECTION 10.9. Notices .................................................. 50
SECTION 10.10. Income Tax Characterization .............................. 50
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<PAGE>
EXHIBITS
Exhibit A -- Schedule of Leases and Equipment
Exhibit B -- Form of Servicer's Certificate
- iii -
<PAGE>
THIS CONTRIBUTION AND SERVICING AGREEMENT, dated as of
December 1, 1998, is made among GREEN TREE LEASE FINANCE 1998-1, LLC, a Delaware
limited liability company (the "Issuer"), GREEN TREE LEASE FINANCE II, INC., a
Minnesota corporation, as Contributor (the "Contributor"), GREEN TREE VENDOR
SERVICES CORPORATION, a Delaware corporation, in its individual capacity and as
Servicer (in its individual capacity, "Vendor Services"; in its capacity as
Servicer, the "Servicer"), and U.S. Bank Trust National Association, a national
banking association organized and existing under the laws of the United States
of America, as trustee under the Indenture (the "Trustee").
In consideration of the mutual agreements herein contained,
and of other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. All terms defined in the Indenture
(as defined below) shall have the same meaning in this Agreement. Whenever
capitalized and used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Accountants' Report: The report of a firm of nationally
recognized independent accountants described in Section 3.11.
Accounting Date: With respect to a Payment Date, the last day
of the preceding calendar month.
Adjusted Lease: A Lease that has had one or more terms
adjusted or modified by the Servicer, other than modifications permitted by
Section 3.2.
Administrative Fee: With respect to any Collection Period, all
administrative fees, expenses and charges collected in respect of the Leases
during such Collection Period, including late fees, late payment interest,
documentation fees, insurance administration charges and any Extension Fees.
Affiliate: With respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
Agreement or "this Agreement": This Contribution and Servicing
Agreement, all amendments and supplements thereto and all exhibits and schedules
to any of the foregoing.
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<PAGE>
Book Value: With respect to any Equipment, the value of such
Equipment as shown on the accounting books and records of Vendor Services as of
the Cut-Off Date. The Book Value for each item of Equipment shall be set forth
on Exhibit A hereto (as the same may be revised from time to time).
Business Day: Any day (other than a Saturday, Sunday or legal
holiday) on which commercial banking institutions in St. Paul, Minnesota, or any
other location of any successor Servicer or successor Trustee, are open for
regular business.
Collection Account: The account designated as such in, and
established and maintained pursuant to, Section 8.02 of the Indenture.
Collection Period: With respect to a Payment Date, the
calendar month preceding the month in which such Payment Date occurs (such
calendar month being referred to as the "related" Collection Period with respect
to such Payment Date). With respect to an Accounting Date, the Collection Period
in which such Accounting Date occurs is referred to herein as the "related"
Collection Period with respect to such Accounting Date.
Collection Records: All manually prepared or computer
generated records relating to collection efforts or payment histories with
respect to the Leases.
Contributor: Green Tree Lease Finance II, Inc., a Minnesota
corporation, or its successor in interest pursuant to Section 6.2.
Cut-Off Date: The Initial Cut-Off Date or, in the case of a
Substitute Lease, the first day of the month of transfer of such Substitute
Lease to the Issuer.
Deposit Date: With respect to any Collection Period, the
Business Day immediately preceding the related Determination Date.
Determination Date: With respect to any Collection Period, the
first Business Day immediately preceding the related Payment Date.
Eligible Lease: A Lease satisfying the Representations and
Warranties.
Eligible Servicer: Vendor Services, the Trustee or another
Person which at the time of its appointment as Servicer (i) is servicing a
portfolio of equipment lease contracts, installment sale contracts, promissory
notes, loan and security agreements and/or other similar types of receivables
comparable to the Leases, (ii) is legally qualified and has the capacity to
service the Leases, (iii) has demonstrated the ability professionally and
competently to service a portfolio of equipment lease contracts, installment
sale contracts, promissory notes, loan and security agreements and other similar
types of receivables comparable to the Leases with reasonable skill and care,
(iv) has available software which is adequate to perform its duties and
responsibilities under this Agreement, and (v) satisfies the Rating Agency
Condition.
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<PAGE>
Equipment: The Equipment subject to a Lease, as more
particularly described on Exhibit A hereto (as the same may be revised from time
to time).
Extension Fees: Any fee received by the Servicer in
consideration for the granting of an extension on the payment of any Scheduled
Payment due under a Lease.
Indenture: The Indenture, dated as of December 1, 1998,
between the Issuer and the Trustee, as the same may be amended and supplemented
from time to time.
Independent Accountants: As defined in Section 3.11(a).
Initial Cut-Off Date: December 1, 1998.
Initial Pool Principal Balance: $___________________.
Insurance, Maintenance and Tax Accounts: The accounts which
are established and maintained pursuant to Section 3.4(a).
Insurance Policy: Any insurance policy benefiting the lessor
or secured party under a Lease providing loss or physical damage, theft or
similar coverage with respect to the Equipment.
Issuer: Green Tree Lease Finance 1998-1, LLC.
Lease File: The documents, electronic entries, instruments and
writings listed in Section 2.2 pertaining to a particular Lease.
Lease Pool Principal Balance: With respect to any Payment
Date, the sum of the Principal Balances (computed as of the related Accounting
Date) for all Leases.
Leases: The lease contracts listed on Exhibit A hereto
(excluding any such lease contract which has become a Purchased Lease but
including all Substitute Leases) and all rights and obligations under such
contracts, including, without limitation, all monies at any time paid or payable
thereon or in respect thereof from and after the Cut-Off Date (whether in the
form of (i) Scheduled Payments (including those Scheduled Payments due prior to,
but not received as of, the Cut-Off Date, but excluding those Scheduled Payments
due on or after, but received prior to, the Cut-Off Date), (ii) Prepayments,
(iii) Liquidation Proceeds (including all net proceeds from the disposition of
the related Equipment), (iv) Extension Fees, (v) payments to be applied by the
Servicer to the payment of insurance charges, maintenance, taxes or other
similar obligations, (vi) payments to be retained by the Servicer in payment of
Administrative Fees, or otherwise), and all rights of the lessor in the related
Equipment (other than any ownership interest of the lessor in such Equipment),
Insurance Policies and any other security for the payment of amounts due under
such contracts.
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<PAGE>
Lien: Any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and any
liens that attach by operation of law.
Liquidated Lease: With respect to any Collection Period, (i) a
Lease which, during such Collection Period, was charged off as uncollectible by
the Servicer in accordance with its credit and collection policies and
procedures (which shall be no later than the date as of which the Servicer has
repossessed and disposed of the related Equipment and otherwise collected all
proceeds (including any proceeds of insurance to be applied as described in
Section 3.4(c)(ii)) which, in the Servicer's reasonable judgment, can be
collected under such Lease) following a default thereunder or upon damage to or
destruction of such Equipment (if such Equipment is not to be replaced or
repaired in accordance with Section 3.4(c)(i)), or (ii) a Lease as to which,
during such Collection Period, 10% or more of a Scheduled Payment shall have
become 180 days delinquent.
Liquidation Proceeds: All amounts received by the Servicer (i)
in connection with the liquidation of any Lease and disposition of the related
Equipment or (ii) as insurance proceeds with respect to any damaged or destroyed
Equipment to be applied as described in Section 3.4(c)(ii), in each case net of
(a) reasonable out-of-pocket expenses incurred by or on behalf of the Servicer
in connection with the collection of such Lease and the maintenance,
repossession, repair, storage and disposition of the related Equipment
(including taxes and insurance charges, to the extent in excess of amounts
available therefor and relating to such Lease in the Insurance, Maintenance and
Tax Accounts, as well as attorneys' fees) and (b) amounts that are required to
be refunded to the Obligor on such Lease; provided, however, that the
Liquidation Proceeds with respect to any Lease and disposition of the related
Equipment shall in no event be less than zero.
Monthly Records: All records and data maintained by the
Servicer with respect to the Leases in accordance with its customary standards,
policies and procedures.
Note Majority: Holders of Notes representing a majority of the
Principal Balance of each Class of the Notes then Outstanding.
Obligor: The lessee, borrower, purchaser or any other Person
or Persons who are obligated to make payments under a Lease.
Opinion of Counsel: A written opinion of counsel acceptable in
form and substance and from counsel acceptable to the Issuer and, if such
opinion or a copy thereof is required to be delivered to the Trustee, to the
Trustee.
Original Term: The term of a Lease as of the Cut-Off Date
(which shall include any renewals or extensions of the original term thereof
prior to the Cut-Off Date), as such term may be extended in accordance with
Section 3.2(c) or as a result of a bankruptcy proceeding with respect to the
related Obligor, but excluding, in the case of any Lease, any other extensions
or renewals thereof.
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<PAGE>
Payment Date: The twentieth day of each calendar month (or, if
such twentieth day is not a Business Day, the next succeeding Business Day),
commencing February 20, 1999.
Person: Any legal person, including any individual,
corporation, partnership, joint venture, estate, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof, or any other entity.
Pledged Revenues: (i) All Scheduled Payments on the Leases
received on or after the Cut-Off Date (including all Scheduled Payments due
prior to, but not received as of, the CutOff Date, but excluding any Scheduled
Payments due on or after, but received prior to, the CutOff Date); (ii) any
Prepayments received on the Leases on or after the Cut-Off Date; (iii) the
Purchase Amount of any Leases repurchased by Vendor Services (to the extent
Vendor Services has not delivered a Substitute Lease) in accordance with Section
2.6 (other than any portion thereof attributable to the Book Value of the
Equipment); (iv) the amount paid by the Contributor to repurchase the Leases
pursuant to Section 5.1; (v) Liquidation Proceeds received in respect of any
Leases and the disposition of the related Equipment on or after the Cut-Off
Date; and (vi) any earnings on the investment of amounts credited to the
Collection Account.
Predecessor Lease: As defined in Section 9.1.
Prepayment: With respect to any Collection Period for any
Lease, a voluntary prepayment during such Collection Period of amounts due and
owing under such Lease.
Principal Balance: As of any Accounting Date,
(1) in the case of any Lease that does not by its terms permit
prepayment or early termination, the present value of the unpaid
Scheduled Payments due on such Lease after such last day of the
Collection Period (excluding all Scheduled Payments due on or prior to,
but not received as of, such last day, as well as any Scheduled
Payments due after such last day and received on or prior thereto),
after giving effect to any Prepayments received on or prior to such
last day, discounted monthly (assuming, for purposes of such
calculation, that each Scheduled Payment is due on the last day of the
applicable Collection Period) at the rate of ___% per annum;
(2) in the case of any Lease that permits prepayment or early
termination only upon payment of a premium that is at least equal to
the present value (calculated in the manner described in clause (1)
above) of the unpaid Scheduled Payments due on such Lease after the
date of such prepayment, the amount specified in clause (1) above; and
(3) in the case of any Lease that permits prepayment or early
termination without payment of a premium at least equal to the amount
specified in clause (2) above, the lesser of (a) the outstanding
principal balance of such Lease after giving effect to Scheduled
Payments due on or prior to such last day of the Collection Period,
whether or not received, as well as any Prepayments, and any Scheduled
Payments due after such last day, received on or prior to such last
day, and (b) the amount specified in clause (1) above;
- 5 -
<PAGE>
provided that the Principal Balance of any Lease which became a Liquidated Lease
during the related Collection Period or was required to be repurchased by Vendor
Services as of the last day of the related Collection Period in accordance with
Section 2.6, will be deemed to be zero on and after the last day of such
Collection Period.
Purchase Amount: With respect to a Lease and related Equipment
required to be repurchased by Vendor Services in accordance with Section 2.6,
the sum of (i) the Required Payoff Amount for such Lease as of the Accounting
Date on which such obligation to so repurchase arises, plus (ii) the Book Value
(if any) of the related Equipment.
Purchased Lease: As of any Deposit Date, any Lease which
Vendor Services has repurchased (or substituted with a Substitute Lease
therefor) as of the related Accounting Date, as required by Section 2.6.
Related Assets: The assets, in addition to the Leases,
transferred by the Contributor to the Issuer pursuant to Section 2.1(a).
Related Documents: The Indenture, the Underwriting Agreement
and related Terms Agreement with the Underwriters of the Notes, the Notes and
the Transfer Agreement. The Related Documents executed by any party are referred
to herein as "such party's Related Documents," "its Related Documents" or by a
similar expression.
Representations and Warranties: As defined in Section 2.6.
Required Payoff Amount: With respect to any Collection Period
for any Lease, the sum of (i) the Scheduled Payment due in such Collection
Period, together with any Scheduled Payments due in prior Collection Periods but
not yet received, plus (ii) the Principal Balance of such Lease (after taking
into account the Scheduled Payment due in such Collection Period, whether or not
received).
Reserve Account: The account designated as such in, and
established and maintained pursuant to, Section 8.07 of the Indenture.
Residual Account: The account designated as such in, and
established and maintained pursuant to, Section 8.06 of the Indenture.
Residual Realizations: Cash flows realized from the sale or
re-lease of the Equipment following the scheduled expiration dates or voluntary
early termination of the Leases, other than Equipment subject to Liquidated
Leases.
Responsible Officer: When used with respect to the Servicer,
the Contributor or any other Person, the President, any Vice-President or
Assistant Vice-President or the Controller of such Person, or any other officer
or employee having similar functions.
Schedule of Leases: Collectively, the schedules of Leases
(which shall be made available to the parties hereto on a computer disk or other
data storage medium) attached hereto
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<PAGE>
as (or described in) Exhibit A, as such schedules may be revised from time to
time in accordance with Sections 2.6 and 9.2(a).
Scheduled Payment: With respect to any Collection Period for
any Lease during the Original Term of such Lease, the required payment or
payments due under such Lease in such Collection Period other than those
portions of such payments which, (i) under such Lease, are to be applied by the
Servicer to the payment of insurance charges, maintenance, taxes and other
similar obligations, or (ii) retained by the Servicer in payment of
Administrative Fees or are late payments as to which Servicer Advances were made
on a Payment Date.
Servicer: Green Tree Vendor Services Corporation, its
successor in interest pursuant to Section 8.2 or, after any termination of the
Servicer upon a Servicer Termination Event, any successor Servicer.
Servicer Advance: As defined in Section 4.5.
Servicer Termination Event: An event described in Section 8.1.
Servicer's Certificate: With respect to each Determination
Date, a certificate, completed by and executed on behalf of the Servicer, in
accordance with Section 3.9, substantially in the form attached hereto as
Exhibit B.
Servicing Account: The account designated as such in, and
established and maintained pursuant to, Section 8.05 of the Indenture.
Servicing Fee: With respect to any Collection Period, the fee
payable to the Servicer for services rendered during such Collection Period,
which shall be equal to one-twelfth of the Servicing Fee Rate multiplied by the
Lease Pool Principal Balance determined as of the last day of the second
preceding Collection Period (or, in the case of the Servicing Fee with respect
to the Collection Period commencing on the Initial Cut-Off Date, an amount equal
to the product of (i) the Servicing Fee Rate, (ii) the Initial Lease Pool
Principal Balance, and (iii) a fraction, the numerator of which is __ and the
denominator of which is 360.
Servicing Fee Rate: ______% per annum.
Sub-Servicer: The Person named as servicer or sub-servicer in
any agreement between the Servicer and such Person by which such Person is
contractually obligated to perform on the Servicer's behalf all or a part of the
servicing obligations described herein.
Substitute Lease: An Eligible Lease substituted by Vendor
Services for (a) a Liquidated Lease, (b) a Warranty Lease or (c) an Adjusted
Lease, in accordance with Section 9.2.
Total Servicing Fee: The sum of the Servicing Fee, the
Administrative Fees and any earnings on the investment of amounts in the
Servicing Account.
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<PAGE>
Transfer Agreement: The Transfer Agreement, dated as of
December 1, 1998, among Vendor Services and the Contributor.
Trust Accounts: The Collection Account, the Servicing Account,
the Residual Account, the Reserve Account, the Insurance, Maintenance and Tax
Accounts and such other accounts as may be established in the name of the Issuer
or the Trustee pursuant to the Indenture or this Agreement.
Trustee: The Person acting as Trustee under the Indenture, its
successors in interest and any successor Trustee under the Indenture.
UCC: The Uniform Commercial Code as in effect in the relevant
jurisdiction.
Vendor Services: Green Tree Vendor Services Corporation, a
Delaware corporation.
Warranty Lease: A Lease subject to repurchase by Vendor
Services pursuant to Section 2.6.
SECTION 1.2. Usage of Terms. With respect to all terms used in
this Agreement, the singular includes the plural and the plural the singular;
words importing any gender include the other gender; references to "writing"
include printing, typing, lithography, and other means of reproducing words in a
visible form; references to agreements and other contractual instruments include
all subsequent amendments thereto or changes therein entered into in accordance
with their respective terms and not prohibited by this Agreement; references to
Persons include their permitted successors and assigns; and the terms "include"
or "including" mean "include without limitation" or "including without
limitation."
SECTION 1.3. Calculations. All calculations of the Principal
Balance of any Lease and of the amount of the Servicing Fee shall be made on the
basis of a 360-day year consisting of twelve 30-day months. All references to
the Principal Balance of a Lease as of any date shall refer to the close of
business on such date.
SECTION 1.4. Section References. All references to Articles,
Sections, paragraphs, subsections, exhibits and schedules shall be to such
portions of this Agreement unless otherwise specified.
SECTION 1.5. No Recourse. No recourse may be taken, directly
or indirectly, under this Agreement or any certificate or other writing
delivered in connection herewith or therewith, against any stockholder, officer
or director, as such, of the Contributor, Vendor Services, the Servicer or the
Trustee or of any predecessor or successor of the Contributor, Vendor Services,
the Servicer or the Trustee.
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<PAGE>
ARTICLE II
CONVEYANCE OF LEASES
SECTION 2.1. Conveyance of Leases and Related Assets. (a)
Subject to the terms and conditions of this Agreement, the Contributor, pursuant
to the mutually agreed upon terms contained herein, hereby transfers, assigns,
and otherwise conveys to the Issuer, without recourse (but without limitation of
its obligations in this Agreement), as of the Closing Date, all of the right,
title and interest, including any security interest, whether now owned or
hereafter acquired, of the Contributor in and to the following:
(i) the Leases, including, without limitation, (A) all monies
at any time paid or payable thereon or in respect thereof from and
after the Initial Cut-Off Date or, in the case of Substitute Leases,
the applicable Cut-Off Date, in the form of (1) Scheduled Payments
(including those Scheduled Payments due prior to, but not received as
of, the Cut-Off Date, but excluding those Scheduled Payments due on or
after, but received prior to, the Cut-Off Date), (2) Prepayments, (3)
Liquidation Proceeds (including all net proceeds from the disposition
of the related Equipment), (4) Extension Fees, (5) payments to be
applied by the Servicer to the payment of insurance charges,
maintenance, taxes or other similar obligations, and (6) payments to be
retained by the Servicer in payment of Administrative Fees, (B) all
rights of the lessor or the secured party, as the case may be, in all
present or future leases and other contracts relating to the Equipment
and all revenues, payments, rights to payment, profits, accounts,
chattel paper, products and contract rights arising from or related to
such Equipment or any use thereof or from any such lease or other
contract, (C) all rights of the lessor or secured party, as the case
may be, in all Insurance Policies and any other security (other than
any ownership interest of the lessor in the Equipment) for the payment
of amounts due under the Leases (including all rights, if any, the
lessor or the secured party may have against vendors and other third
parties for payments of such amounts) and (D) all items contained in
the related Lease Files and any and all other documents that are kept
on file in accordance with Vendor Services's customary procedures
relating to the Leases;
(ii) all funds on deposit from time to time in the Trust
Accounts and all investments therein and proceeds thereof;
(iii) the Transfer Agreement;
(iv) the Residual Realizations; and
(v) any and all proceeds of the foregoing;
The foregoing does not constitute, nor is it intended to result in, the creation
or assumption by the Issuer, the Trustee or any Noteholder of any obligation of
the Contributor, the Servicer or any other Person in connection with the Leases
or the related Equipment or any agreement or instrument relating thereto,
including any obligation to the Obligors.
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<PAGE>
(b) As security for the payment of amounts described in
Section 2.1(a)(i)(3) and 2.1(a)(iv), the Contributor hereby grants to the Issuer
a security interest in all of the right, title and interest, whether now owned
or hereafter acquired, of the Contributor in and to the Equipment and all
proceeds thereof.
(c) The execution and delivery of this Agreement shall
constitute an acknowledgment by each of the Contributor and the Issuer that they
intend that each assignment and transfer herein contemplated constitute an
assignment outright, and not for security, of the property described in Section
2.1(a), conveying good title thereto free and clear of any Liens, from the
Contributor to the Issuer, and that all such property shall not be a part of the
estate of the Contributor in the event of the bankruptcy, reorganization,
arrangement, insolvency or liquidation proceeding, or other proceeding under any
federal or state bankruptcy or similar law, or the occurrence of another similar
event, of, or with respect to the Contributor. In the event that such conveyance
is determined to be made as security for a loan made by the Issuer or the
Noteholders to the Contributor, the Contributor hereby grants to the Issuer a
security interest in all of the Contributor's right, title and interest in and
to the property described in Section 2.1(a) to secure the loan determined to
have been made to the Contributor and the payment and performance of the other
obligations of the Contributor under this Agreement, and agrees that in such
event this Agreement shall constitute a security agreement under applicable law.
SECTION 2.2. Custody of Lease Files.
(a) The Issuer hereby appoints the Servicer, and the Servicer
hereby accepts such appointment, to act as the agent of the Issuer as custodian
of the following documents or instruments (with respect to each Lease), which
will be, as of the Closing Date (or, in the case of a Substitute Lease, as of
the date of substitution in accordance with Section 9.2), in the possession of
the Servicer or its agents:
(i) the fully executed original of the Lease (together with
any agreements modifying the Lease, including, without limitation, any
extension agreements);
(ii) all documents related to the Leases;
(iii) documents evidencing or related to any Insurance Policy,
or copies thereof; and
(iv) such documents, if any, that Vendor Services keeps on
file in accordance with its customary procedures indicating that the
Equipment is owned or leased by the Obligor and subject to the interest
of the lessor or secured party.
(b) The Servicer agrees to maintain the Lease Files at the
locations where they are currently maintained, or at such other locations as
shall from time to time be identified to the Trustee by written notice. The
Servicer may temporarily move individual Lease Files or any portion thereof
without notice as necessary to conduct collection and other servicing activities
in accordance with its customary practices and procedures.
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(c) As custodian, the Servicer shall have and perform the
following powers and duties:
(i) hold the Lease Files on behalf of the
Contributor, the Issuer, the Noteholders and the Trustee, maintain
accurate records pertaining to each Lease to enable it to comply with
the terms and conditions of this Agreement and the Related Documents,
maintain a current inventory thereof and certify to the Trustee
annually that it continues to maintain possession of such Lease Files;
(ii) implement written policies and procedures with
respect to persons authorized to have access to the Lease Files and the
receipting for Lease Files taken from their storage area by an employee
of the Servicer for purposes of servicing or any other purposes; and
(iii) attend to all details in connection with
maintaining custody of the Lease Files on behalf of the Contributor,
the Issuer, the Noteholders and the Trustee.
(d) In performing its duties under this Section, the Servicer
agrees to service the Leases in accordance with customary and usual procedures
of institutions which service equipment Leases, installment sale contracts,
promissory notes, loan and security agreements and other similar types of
receivables comparable to the Leases and, to the extent more exacting, the
degree of skill and attention that the Servicer exercises from time to time with
respect to all comparable such contracts that it services for itself or others.
The Servicer shall promptly report to the Trustee any failure by it to hold the
Lease Files as herein provided and shall promptly take appropriate action to
remedy any such failure. In acting as custodian of the Lease Files, the Servicer
agrees further not to assert any beneficial ownership interests in the Leases or
the Lease Files. The Servicer agrees to indemnify the Contributor, the Issuer,
the Noteholders and the Trustee for any and all liabilities, obligations,
losses, damages, payments, costs or expenses of any kind whatsoever which may be
imposed on, incurred or asserted against the Contributor, the Issuer, the
Noteholders or the Trustee as the result of any act or omission by the Servicer
relating to the maintenance and custody of the Lease Files; provided, however,
that the Servicer will not be liable for any portion of any such amount
resulting from the negligence or willful misconduct of the Contributor, the
Issuer, any Noteholder or the Trustee.
SECTION 2.3. Further Assurances. Following the Closing Date,
the Contributor shall, at the reasonable request of the Trustee or the Servicer,
and at the Contributor's expense, execute and deliver any further instruments of
transfer or other documents, and shall take all such other actions that may be
necessary, appropriate or desirable, to fully convey the Leases and the Related
Assets to the Issuer or otherwise to evidence, effectuate or implement the
transactions contemplated hereby. In addition, the Contributor, as agent for the
Issuer, shall defend the Leases and the Related Assets against any and all
claims and demands of all Persons at any time claiming the same or any interest
therein adverse to that of the Issuer.
SECTION 2.4. Representations and Warranties of Contributor. By
its execution of this Agreement, the Contributor makes the following
representations and warranties. Unless otherwise specified, such representations
and warranties speak as of the Closing Date.
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(a) Organization and Good Standing. The Contributor
has been duly organized and is validly existing as a corporation in
good standing under the laws of the State of Minnesota, with power and
authority to own its properties and to conduct its business as such
properties are currently owned and such business is currently
conducted, and had at all relevant times, and now has, power, authority
and legal right to acquire, own and transfer the Leases and the other
property transferred to the Issuer.
(b) Due Qualification. The Contributor is duly
qualified to do business as a foreign corporation in good standing, and
has obtained all necessary licenses and approvals, in all jurisdictions
where the failure to do so would materially and adversely affect the
performance of its obligations under this Agreement and the Related
Documents.
(c) Power and Authority. The Contributor has the
power and authority to execute and deliver this Agreement and the
Contributor's Related Documents and to carry out the terms hereof and
thereof; the Contributor has full power and authority to transfer and
assign the Trust Assets to be transferred and assigned to and deposited
with the Issuer by it and has duly authorized such transfer and
assignment to the Issuer by all necessary corporate action; and the
execution, delivery and performance of this Agreement and the
Contributor's Related Documents have been duly authorized by the
Contributor by all necessary corporate action.
(d) No Consent Required. No consent, license,
approval or authorization of, or registration or declaration with, any
Person or any governmental authority, bureau or agency is required in
connection with the execution, delivery or performance of this
Agreement and the Related Documents, except for such as have been
obtained, effected or made or as described in paragraph (n) below.
(e) Valid Transfer; Binding Obligations. This
Agreement effects, as of the Closing Date, a valid transfer and
assignment of the Leases and the other Trust Assets, enforceable
against the Contributor and creditors of and purchasers from the
Contributor; and this Agreement and the Contributor's Related
Documents, when duly executed and delivered, shall constitute legal,
valid and binding obligations of the Contributor enforceable in
accordance with their respective terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by
equitable limitations on the availability of specific remedies,
regardless of whether such enforceability is considered in a proceeding
in equity or at law.
(f) No Violation. The execution and delivery of this
Agreement and the Related Documents, the consummation of the
transactions contemplated by this Agreement and the Related Documents
and the fulfillment of the terms of this Agreement and the Related
Documents shall not conflict with, result in any breach of any of the
terms and provisions of or constitute (with or without notice or lapse
of time, or both) a default under the articles of incorporation or
by-laws of the Contributor, or any indenture, agreement, mortgage, deed
of trust or other instrument to which the Contributor is a party
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or by which it is bound, or result in the creation or imposition of any
Lien upon any of its properties pursuant to the terms of any such
indenture, agreement, mortgage, deed of trust or other instrument,
other than this Agreement, or violate any law, order, rule or
regulation applicable to the Contributor of any court or of any federal
or state regulatory body, administrative agency or other governmental
instrumentality having jurisdiction over the Contributor or any of its
properties.
(g) No Proceedings. There are no proceedings or
investigations pending or, to the Contributor's knowledge, threatened
against the Contributor, before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality
having jurisdiction over the Contributor or its properties (A)
asserting the invalidity of this Agreement or any of the Related
Documents, (B) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement or any of the Related
Documents, (C) seeking any determination or ruling that might
materially and adversely affect the performance by the Contributor of
its obligations under, or the validity or enforceability of, this
Agreement or any of the Related Documents, or (D) seeking to adversely
affect (i) the federal income tax or other federal, state or local tax
attributes of the Notes or (ii) the federal, state or local tax
treatment of any of the transactions contemplated by this Agreement and
the Related Documents.
(h) Place of Business. The principal executive
offices of the Contributor, and the offices where the Contributor keeps
its records concerning the Leases and related documents, are located at
1100 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102.
(i) Registration Statement. No stop order suspending
the effectiveness of the Registration Statement relating to the Notes
has been issued, and no proceeding for that purpose has been instituted
or is threatened, by the Securities and Exchange Commission.
(j) Filings. Since the effective date of the
Registration Statement relating to the Notes, there has occurred no
event required to be set forth in an amendment or supplement to the
Registration Statement or Prospectus that has not been so set forth,
and there has been no document required to be filed under the
Securities Exchange Act of 1934 and the rules and regulations of the
Securities and Exchange Commission thereunder that upon such filing
would be deemed to be incorporated by reference in the Prospectus that
has not been so filed.
(k) Good Title. Immediately prior to the transfer and
assignment of the Leases and Related Assets to the Issuer pursuant to
Section 2.1(a), the Contributor had good title thereto and was the sole
owner thereof (subject, in the case of amounts in the Insurance,
Maintenance and Tax Accounts, to the rights of the Obligors therein),
free of any Lien. Upon the transfer and assignment of the Leases and
Related Assets to the Issuer pursuant to Section 2.1(a), the Issuer
will have good title thereto and will be the sole owner thereof
(subject, in the case of amounts in the Insurance, Maintenance and Tax
Accounts, to the rights of the Obligors therein), free of any Lien.
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(l) No Impairment. No person has a participation in
or other right to receive Scheduled Payments under any Lease, and the
Contributor has taken no action to convey any right to any Person that
would result in such Person having a right to Scheduled Payments
received with respect to any Lease.
(m) Lawful Assignment. No Lease was originated in, or
is subject to the laws of, any jurisdiction the laws of which would
make unlawful, void or voidable the transfer and assignment of such
Lease from the Contributor to the Issuer under this Agreement. Each
Lease may be sold, assigned and transferred by the Contributor to the
Issuer without the consent of, or prior approval from, or any
notification to, the applicable Obligor, other than (i) certain Leases
(which, in proportion to the aggregate of all of the Leases, are not
material) that require notification of the assignment to the Obligor,
which notification will be given by the Servicer not later than 10 days
following the Closing Date, and (ii) certain Leases (which, in
proportion to the aggregate of all of the Leases, are not material)
that require the consent of the Obligor, which consent will be obtained
by the Servicer not later than 10 days following the Closing Date.
(n) All Filings Made. All filings and other actions
required to be made, taken or performed by any Person in any
jurisdiction to give the Issuer a first priority perfected lien or
ownership interest in the Leases has been made, taken or performed.
(o) Schedule of Leases Accurate. The information with
respect to the Leases contained in the Schedule of Leases is true and
correct in all material respects.
SECTION 2.5. Nonpetition Covenant. None of the Contributor,
the Servicer, nor Vendor Services shall petition or otherwise invoke the process
of any court or government authority for the purpose of commencing or sustaining
a case against the Issuer or the Contributor under any federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of the
Issuer or the Contributor or any substantial part of its property, or ordering
the winding up or liquidation of the affairs of the Issuer or the Contributor.
SECTION 2.6. Repurchase of Leases Upon Breach of
Representations and Warranties. Concurrently with the execution and delivery of
this Agreement, Vendor Services and the Contributor have entered into the
Transfer Agreement, the rights of the Contributor under which have been assigned
by the Contributor to the Issuer pursuant to Section 2.1(a). Under the Transfer
Agreement, Vendor Services has made certain representations and warranties to
the Contributor with respect to the Leases (the "Representations and
Warranties"). As of the second Deposit Date following its discovery or its
receipt of notice of any breach of the Representations and Warranties that
materially and adversely affects the value of any Lease (including any
Liquidated Lease), Vendor Services shall, unless such breach shall have been
cured in all material respects, either (A) (i) repurchase such Lease from the
Issuer and (ii) repurchase the related Equipment from the Contributor or (B)
substitute a Substitute Lease for such Lease and the related Equipment. On or
before the related Deposit Date, Vendor Services shall pay the Purchase Amount
to the Servicer and the Contributor, as their interests may appear, or
substitute
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a Substitute Lease. The obligations of the Contributor with respect to any such
breach of representations and warranties shall be limited to taking any and all
actions necessary to enable the Issuer or the Trustee to enforce directly the
obligations of Vendor Services to repurchase the applicable Lease and Equipment
under the Transfer Agreement. It is understood and agreed that, except as set
forth in the following paragraph, the obligation of Vendor Services to
repurchase or substitute another Lease for any Lease, together with the related
Equipment, as to which a breach has occurred and is continuing shall, if such
obligation is fulfilled, constitute the sole remedy against Vendor Services for
such breach available to the Contributor or the Trustee on behalf of the
Noteholders and to the Contributor, as their interests may appear.
In addition to the foregoing and notwithstanding whether the
Lease and related Equipment shall have been repurchased by Vendor Services,
Vendor Services shall indemnify the Contributor, the Issuer, the Noteholders and
the Trustee against all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel, which may be
asserted against or incurred by any of them as a result of third party claims
arising out of the events or facts giving rise to such breach.
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ARTICLE III
ADMINISTRATION AND SERVICING OF LEASES
SECTION 3.1. Duties of the Servicer. The Servicer is hereby
authorized to act as agent for the Issuer and the Contributor and in such
capacity shall manage, service, administer and make collections on the Leases,
and perform the other actions required by the Servicer under this Agreement. The
Servicer agrees that its servicing of the Leases shall be carried out in
accordance with customary and usual procedures of institutions which service
equipment lease contracts, installment sale contracts, promissory notes, loan
and security agreements and other similar types of receivables comparable to the
Leases and, to the extent more exacting, the degree of skill and attention that
the Servicer exercises from time to time with respect to all comparable such
contracts that it services for itself or others. In performing such duties, so
long as Vendor Services is the Servicer, it shall comply in all material
respects with its customary standards, policies and procedures in effect from
time to time. The Servicer may at any time change its customary standards,
policies and procedures; provided that any such change shall not materially
impair the collectibility of any Lease nor the Servicer's ability to perform its
obligations under this Agreement and the Related Documents. The Servicer's
duties shall include, without limitation, billing, collection and posting of all
payments, responding to inquiries of Obligors on the Leases, investigating
delinquencies, sending invoices to Obligors, accounting for collections and
furnishing monthly and annual statements to the Issuer and the Trustee with
respect to distributions, monitoring the status of Insurance Policies with
respect to the Equipment and performing the other duties specified herein. The
Servicer shall also administer and enforce all material rights and
responsibilities of the lessor or secured party under the Leases and provided
for in the Insurance Policies, to the extent that such Insurance Policies relate
to the Leases, the Equipment or the Obligors. To the extent consistent with the
standards, policies and procedures otherwise required hereby, the Servicer shall
follow its customary standards, policies and procedures and shall have full
power and authority to do any and all things in connection with such managing,
servicing, administration and collection that it may deem necessary or
desirable, including the authority to forego collection efforts under
circumstances deemed appropriate by the Servicer in accordance with its
customary standards, policies and procedures. Without limiting the generality of
the foregoing, the Servicer is hereby authorized and empowered by the Issuer to
execute and deliver, on behalf of the Contributor and the Issuer or either of
them, any and all instruments of satisfaction or cancellation, or of partial or
full release or discharge, and all other comparable instruments, with respect to
the Leases and with respect to the Equipment in accordance with its customary
standards, policies and procedures. The Servicer is hereby authorized to
commence, in its own name (or in the name of the Issuer, provided the Servicer
has obtained the Issuer's consent, which consent shall not be unreasonably
withheld), a legal proceeding to enforce a Lease pursuant to Section 3.3 or to
commence or participate in any other legal proceeding (including, without
limitation, a bankruptcy proceeding) relating to or involving a Lease, an
Obligor or the related Equipment. If the Servicer commences or participates in
such a legal proceeding in its own name, the Issuer shall thereupon be deemed to
have automatically assigned such Lease to the Servicer solely for purposes of
commencing or participating in any such proceeding as a party or claimant, and
the Servicer is authorized and empowered by the Issuer to execute and deliver in
the Servicer's name any notices, demands, claims, complaints, responses,
affidavits or other documents or instruments in connection with any such
proceeding.
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The Issuer shall furnish the Servicer with any powers of attorney and other
documents which the Servicer may reasonably request and which the Servicer deems
necessary or appropriate and take any other steps which the Servicer may deem
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.
SECTION 3.2. Collection of Lease Payments; Modifications of
Leases.
(a) Consistent with the standards, policies and procedures
required by this Agreement, the Servicer shall make reasonable efforts to
collect all payments called for under the terms and provisions of the Leases as
and when the same shall become due, and shall follow such collection procedures
as it follows with respect to all comparable contracts that it services for
itself or others and otherwise act with respect to the Leases, the related
Equipment, the Insurance Policies and the other Trust Assets in such manner as
will, in the reasonable judgment of the Servicer, maximize the amount to be
received by the Issuer and the Contributor with respect thereto. The Servicer is
authorized in its discretion to waive any Administrative Fees or Extension Fees
that may be collected in the ordinary course of servicing any Lease.
(b) The Servicer may at any time agree to a modification or
amendment of a Lease in accordance with its credit and collection policies and
procedures (it being acknowledged that any modification or amendment of a Lease
resulting from a bankruptcy proceeding with respect to the Obligor will not be
deemed to have been agreed to by the Servicer hereunder):
(i) in order to (A) change the Obligor's regular due
date to a date within the Collection Period in which such due date
occurs or (B) re-amortize (over the remainder of the original term) the
Scheduled Payments on a Lease following a partial Prepayment (provided
that the sum of such partial Prepayment and the Principal Balance of
the Lease after the re-amortization is at least equal to the Required
Payoff Amount for such Lease prior to the partial Prepayment), or
(ii) for any other purpose, provided that no such
modification or amendment shall:
(A) change the amount or the due date of any
Scheduled Payment (except as provided in clauses (i)(A) and
(B) above, Section 3.2(c) or Section 3.2(d)),
(B) release the related Equipment from the Lease,
unless (1) equipment of equal or greater value is substituted,
(2) the remaining related Equipment has a value at least equal
to the Required Payoff Amount of the Lease, or (3) the release
is pursuant to a partial Prepayment (which, in the case of a
partial Prepayment on a Lease, meets the requirements of
Section 3.2(d)) and the ratio of the value of the related
Equipment to the Principal Balance of the Lease after such
Prepayment and release is at least equal to such ratio prior
to such Prepayment and release;
(C) cause any of the representations or warranties
contained in the Representations and Warranties to cease to be
true; or
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(D) except as provided in clause (ii)(A) above,
result in the Principal Balance or Required Payoff Amount of
the Lease being less than it would have been absent such
modification or amendment.
(c) The Servicer may grant payment extensions on a Lease in
accordance with its credit and collection policies and procedures (it being
acknowledged that any extensions on a Lease resulting from a bankruptcy
proceeding with respect to the Obligor will not be deemed to have been granted
by the Servicer hereunder) if the Servicer believes in good faith that such
extension is necessary to avoid a termination and liquidation of such Lease and
will maximize the amount to be received by the Issuer with respect to such
Lease; provided, however, that:
(i) the aggregate period of all extensions granted on
a Lease shall not exceed six months; and
(ii) in no event may any Lease be extended beyond the
Collection Period immediately preceding the final Stated Maturity Date.
Nothing in this Section 3.2(c) shall be deemed to prevent the Servicer from
extending or renewing, or otherwise accepting the continued performance by the
Obligor under, a Lease after expiration of its stated term.
(d) The Servicer may, in its discretion, allow a Prepayment,
in whole or in part, of any Lease which, by its terms, is not prepayable, but
only if the amount of such Prepayment (or, in the case of a partial Prepayment,
the sum of such Prepayment and the remaining Principal Balance of the Lease
after application of such Prepayment), together with such additional amounts as
are (i) available to the Servicer for the purpose of prepaying such Lease
(excluding any monies otherwise constituting Pledged Revenues) and (ii)
deposited in the Collection Account in respect of such Lease contemporaneously
with the deposit therein of such Prepayment, is at least equal to the Required
Payoff Amount for such Lease.
(e) The Servicer shall remit all payments by or on behalf of
the Obligors (other than amounts constituting Administrative Fees) received by
the Servicer to the Servicing Account as soon as practicable, but in no event
later than the second Business Day after receipt thereof.
(f) If the Servicer agrees to a modification, amendment or
extension of a Lease not permitted by Sections 3.2(b) or 3.2(c), the Servicer
shall, on the next Deposit Date, either (i) repurchase such Adjusted Lease in
accordance with Section 2.6, or (ii) deliver a Substitute Lease therefor in
accordance with Article IX.
SECTION 3.3. Realization Upon Leases. Consistent with the
standards, policies and procedures required by this Agreement, the Servicer
shall, except as provided in the following paragraph, take such action as is
reasonably necessary (including making commercially reasonable efforts to
repossess (or otherwise comparably convert the ownership of) and dispose of the
related Equipment) to collect from the Obligor or otherwise all amounts payable
under any Lease as to which the Obligor is in default in the making of one or
more Scheduled Payments
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thereunder, if the Servicer has determined such default is not likely to be
cured. The Servicer will not be required to repossess (or otherwise comparably
convert the ownership of) any Equipment the repossession of which, in accordance
with the Servicer's credit and collection policies and procedures, and based on
the Servicer's good faith estimate of the value of the Equipment and its
availability, would not be reasonable. The Servicer is authorized to follow such
customary practices and procedures as it shall deem necessary or advisable,
consistent with the standard of care required by Section 3.1, which practices
and procedures may include the sale of the related Equipment at public or
private sale, the submission of claims under an Insurance Policy and other
actions by the Servicer in order to realize upon such a Lease. The foregoing is
subject to the provision that, in any case in which the Equipment shall have
suffered damage, the Servicer shall not expend funds in connection with any
repair or towards the repossession of such Equipment unless it shall determine
in its reasonable judgment that such repair and/or repossession shall increase
the proceeds of liquidation of the related Lease by an amount greater than the
amount of such expenses. All amounts received upon liquidation of a Lease
(except as otherwise provided below), including any proceeds derived from the
disposition of the related Equipment, shall be remitted by the Servicer to the
Servicing Account as soon as practicable, but in no event later than the second
Business Day after receipt thereof. The Servicer shall, to the extent the
proceeds of such liquidation are sufficient therefor, be entitled to recover all
reasonable out-of-pocket expenses incurred by it in the course of liquidating a
Lease, which amounts may be retained by the Servicer from such proceeds (and
shall not be required to be deposited as provided in Section 3.2(e)) to the
extent of such expenses. The Servicer shall be entitled to retain in the
Servicing Account, from liquidation proceeds, a reserve for out-of-pocket
liquidation expenses in an amount equal to such expenses, in addition to those
previously incurred, as it reasonably estimates will be incurred. Upon
completion of such liquidation, the remainder of any such reserve, after
reimbursement to the Servicer of all out-of-pocket liquidation expenses, shall
constitute Liquidation Proceeds and be transferred as provided in Section
4.2(a). The Servicer shall, in accordance with Section 3.4(f), pay on behalf of
the Issuer and the Contributor any sales, use, personal property and other taxes
assessed on repossessed Equipment, as well as any sales or similar taxes on the
disposition thereof, and shall be entitled to reimbursement of any such tax from
liquidation proceeds with respect to the related Lease as provided in Section
3.4(b).
The Servicer will use its best efforts to sell or re-lease any
Equipment upon the termination of the Lease to which such Equipment is subject
(whether as a result of early termination following an Obligor default or upon
scheduled expiration of the Lease), in a timely manner and in a manner so as to
maximize, to the extent possible under the prevailing market conditions, the net
proceeds of such Equipment. The Servicer may, in its discretion, choose to
dispose of Equipment through a new lease or in some other manner which provides
for payment for the Equipment over time. In any such event (other than
permitting continued payments by the Obligor beyond the scheduled expiration
date of the Lease), the Servicer will be required to pay from its own funds, and
deposit in the Servicing Account, an amount which, in its reasonable judgment,
is equal to the fair market value of such Equipment (less any related
out-of-pocket liquidation expenses), and the Servicer will be entitled to all
payments received thereafter in respect of such Equipment. Any such amounts so
deposited by the Servicer shall be treated as additional Liquidation Proceeds,
or Residual Realizations, depending on the reason for the disposition of the
Equipment, with respect to the related Lease and Equipment.
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SECTION 3.4. Insurance, Maintenance and Taxes.
(a) The Servicer shall establish one or more insurance,
maintenance and tax accounts (collectively, the "Insurance, Maintenance and Tax
Accounts") in the name of the Servicer and for the benefit of the respective
Obligors and, to the extent provided herein, the Issuer and the Contributor. The
Servicer shall deposit into the Insurance, Maintenance and Tax Accounts any
payments made by or on behalf of Obligors which constitute (i) insurance charges
paid by an Obligor to the lessor or secured party under a Lease (unless paid
directly by such insurance company or comparable third party directly to the
Obligor), (ii) any insurance payments or recoveries paid by an insurance company
or comparable third party and related to the damage to, or destruction of, the
Equipment related to such Lease (unless paid directly by such insurance company
or comparable third party directly to the Obligor), (iii) any payments made by
or on behalf of Obligors which constitute amounts paid by an Obligor to the
lessor or secured party under a Lease in respect of the maintenance of the
related Equipment, and (iv) taxes paid by the Obligor with respect to the
related Lease or Equipment (except for any such payments in respect of taxes
which were paid by Vendor Services prior to the Cut-Off Date, which payments
shall constitute Scheduled Payments hereunder). None of the foregoing payments
shall constitute Pledged Revenues except under the circumstances described in
clause (c)(ii) below.
(b) The Servicer may pay from its own funds, or may withdraw
amounts from the Insurance, Maintenance and Tax Accounts, when and if
appropriate, to pay, when due (i) all insurance charges in the amounts received
under clause (a)(i) above, (ii) any amounts payable under any applicable
maintenance contract or otherwise with respect to the maintenance of the related
Equipment in the amounts received under clause (a)(iii) above, and (iii) all
taxes in the amounts received under clause (a)(iv) above. If the Servicer has
paid any such insurance charges, maintenance costs or taxes from its own funds
(including any such amounts that may have been paid prior to the Closing Date),
the Servicer shall be entitled to reimbursement therefor from any appropriate
amounts available therefor in the Insurance, Maintenance and Tax Accounts, from
payments thereafter received from the applicable Obligor in respect thereof or
from liquidation proceeds in the event such Lease is liquidated. The Servicer is
authorized in its discretion to waive its right to receive reimbursement of any
such amount.
(c) Amounts on deposit in the Insurance, Maintenance and Tax
Accounts which represent amounts received by the Servicer pursuant to clause
(a)(ii) above shall be applied by the Servicer as follows: (i) if equipment is
purchased to replace the Equipment that was damaged or destroyed, and such
replacement equipment is (in the reasonable opinion of the Servicer) of
comparable use and equivalent value to the Equipment that was damaged or
destroyed, or if the Equipment is to be repaired, the Servicer shall release
such amount so received from the insurance company or comparable third party in
payment or reimbursement for such replacement equipment or such repair; and (ii)
if such replacement option is not exercised or the Equipment is not to be
repaired, then the Servicer shall treat such amount as Liquidation Proceeds
(after netting any amounts therefrom as is provided pursuant to the definition
of "Liquidation Proceeds" herein) and transfer such amount from the Insurance,
Maintenance and Tax Accounts to the Collection Account.
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(d) The Servicer may sue to enforce or collect upon the
Insurance Policies, in its own name, if possible, or as agent of the Issuer and
the Contributor. If the Servicer elects to commence a legal proceeding to
enforce an Insurance Policy, the act of commencement shall be deemed to be an
automatic assignment of the rights of the Issuer and the Contributor under such
Insurance Policy to the Servicer for purposes of collection only. If, however,
in any enforcement suit or legal proceeding it is held that the Servicer may not
enforce an Insurance Policy on the grounds that it is not a real party in
interest or a holder entitled to enforce the Insurance Policy, the Issuer, on
behalf of the Contributor, shall take such steps as the Servicer deems necessary
to enforce such Insurance Policy, including bringing suit in its name or the
name of the Trustee for the benefit of the Noteholders.
(e) Consistent with its customary standards, policies and
procedures, with respect to each Lease, the Servicer shall maintain insurance
against casualty loss with respect to any Equipment financed by or leased
pursuant to the Lease, to the extent the Lease requires the lessor or secured
party under the Lease to maintain such insurance, and shall otherwise require
the Obligor under the Lease to maintain such insurance, to the extent the Lease
requires that such insurance be maintained by the Obligor. The Servicer shall
not otherwise be liable to the Issuer, the Trustee, the Contributor or any
Noteholder for any casualty loss with respect to any Equipment related to a
Lease, except to the extent otherwise explicitly provided in this Agreement.
(f) The Servicer shall determine and pay when due all sales,
use, personal property and other taxes payable in respect of the Equipment
related to each Lease. To the extent the Servicer has previously received from
the related Obligor payments with respect to such taxes and has deposited such
payments in the Insurance, Maintenance and Tax Accounts in accordance with
clause (a)(iv) above, the Servicer shall, in accordance with clause (b)(iii)
above, either (i) pay such taxes from amounts withdrawn from the Insurance,
Maintenance and Tax Accounts, or (ii) pay such taxes from its own funds and
thereafter reimburse itself from amounts withdrawn from the Insurance,
Maintenance and Tax Accounts. In the event the Servicer has not previously
received payments from the Obligor for this purpose, or to the extent any such
payments received were insufficient to pay the taxes due, the Servicer shall
nonetheless pay such taxes from its own funds and shall bill the Obligor for any
amounts so paid. The Servicer shall be entitled to reimbursement for any taxes
so paid from its own funds, as provided in clause (b)(iii) above. Failure on the
part of the Servicer to perform its duties in a timely fashion under this clause
shall constitute a breach of this Agreement by the Servicer for which indemnity
will be available in accordance with Section 7.1.
(g) The Servicer shall give prompt written notice to the
Trustee of the Servicer's failure to pay when due any insurance charge or tax
payment required to be paid pursuant to this Section 3.4 and the reason for such
failure. Upon receipt of any such notice, or if the Trustee has otherwise
received notice of any such failure to pay an insurance charge or tax payment,
the Trustee shall take such actions as are reasonably necessary (including the
withdrawal of monies, if any, available therefor in the Insurance, Maintenance
and Tax Accounts and attributable to payments previously made by the related
Obligor and payment of such insurance charge or tax payment) to cause any such
amounts to be paid. The Trustee shall be permitted to withdraw monies from the
Insurance, Maintenance and Tax Accounts for purposes
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of performing its obligations under this paragraph, but shall not, in any event,
be required to use its own funds for such purposes.
SECTION 3.5. Maintenance of Security Interests in Equipment.
To the extent the Servicer's credit and collection policies and procedures in
this regard would so require (it being acknowledged that, in certain instances,
such credit and collection policies and procedures would not so require), the
Servicer shall take such steps as are necessary to maintain perfection of any
security interest created by each Lease in the related Equipment on behalf of
the Issuer and the Contributor, including, but not limited to, obtaining the
execution by the Obligors and the recording, registering, filing, re-recording,
re-filing, and re-registering of all security agreements, financing statements
and continuation statements as are necessary to maintain such security interest
granted by the Obligors under the respective Leases. The Issuer hereby
authorizes the Servicer, and the Servicer agrees (to the extent the Servicer's
credit and collection policies and procedures in this regard would so require),
to take any and all steps necessary to re-perfect such security interest on
behalf of the Issuer and the Contributor as necessary because of the relocation
of Equipment or for any other reason.
SECTION 3.6. Covenants, Representations, and Warranties of
Servicer. By its execution and delivery of this Agreement, the Servicer makes
the following representations, warranties and covenants.
(a) The Servicer covenants as follows:
(i) Liens in Force. The Equipment securing
each Lease shall not be released in whole or in part from any
interest the lessor or secured party may have in such
Equipment under the terms of the Lease, except upon payment in
full of the Lease or as otherwise contemplated herein;
(ii) No Impairment. The Servicer shall do
nothing to impair the rights of the Issuer, the Contributor or
the Noteholders in the Leases, the Insurance Policies or the
other Trust Assets; and
(iii) No Amendments. The Servicer shall not
extend or otherwise amend the terms of any Lease with respect
to the Scheduled Payments thereon, except (A) in accordance
with Section 3.2, or (B) at such time as the Notes are no
longer Outstanding, with the consent of the Issuer.
(b) The Servicer represents, warrants and covenants
as of the date of execution and delivery of this Agreement:
(i) Organization and Good Standing. The
Servicer has been duly organized and is validly existing and
in good standing under the laws of its jurisdiction of
organization, with power, authority and legal right to own its
properties and to conduct its business as such properties are
currently owned and such business is currently conducted, and
had at all relevant times, and now has,
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power, authority and legal right to enter into and perform its
obligations under this Agreement and the Servicer's Related
Documents;
(ii) Due Qualification. The Servicer is duly
qualified to do business as a foreign corporation in good
standing, and has obtained all necessary licenses and
approvals, in all jurisdictions where the failure to do so
would materially and adversely affect the performance of its
obligations under this Agreement and the Related Documents;
(iii) Power and Authority. The Servicer has
the power and authority to execute and deliver this Agreement
and to carry out the terms hereof; and the execution, delivery
and performance of this Agreement and the Servicer's Related
Documents have been duly authorized by the Servicer by all
necessary corporate action;
(iv) Binding Obligation. This Agreement and
the Servicer's Related Documents shall each constitute the
legal, valid and binding obligation of the Servicer
enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by equitable limitations on
the availability of specific remedies, regardless of whether
such enforceability is considered in a proceeding in equity or
at law;
(v) No Violation. The execution and delivery
of this Agreement, the consummation of the transactions
contemplated by this Agreement and the Servicer's Related
Documents, and the fulfillment of the terms hereof, shall not
conflict with, result in any breach of any of the terms and
provisions of, or constitute (with or without notice or lapse
of time, or both) a default under, the articles of
incorporation or bylaws of the Servicer, or any indenture,
agreement, mortgage, deed of trust or other instrument to
which the Servicer is a party or by which it is bound, or
result in the creation or imposition of any Lien upon any of
its properties pursuant to the terms of any such indenture,
agreement, mortgage, deed of trust or other instrument, other
than this Agreement or any Related Document, or violate any
law, order, rule or regulation applicable to the Servicer of
any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality
having jurisdiction over the Servicer or any of its
properties;
(vi) No Proceedings. There are no
proceedings or investigations pending or, to the Servicer's
knowledge, threatened against the Servicer, before any court,
regulatory body, administrative agency or other tribunal or
governmental instrumentality having jurisdiction over the
Servicer or its properties (A) asserting the invalidity of
this Agreement or any of the Servicer's Related Documents, (B)
seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this
Agreement or any of the Servicer's Related Documents, or (C)
seeking any determination or
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ruling that might materially and adversely affect the
performance by the Servicer of its obligations under, or the
validity or enforceability of, this Agreement or any of the
Servicer's Related Documents or (D) seeking to adversely
affect (i) the federal income tax or other federal, state or
local tax attributes of the Notes or (ii) the federal, state
or local tax treatment of any of the transactions contemplated
by this Agreement and the Related Documents; and
(vii) No Consents. The Servicer is not
required to obtain the consent of any other party or any
consent, license, approval or authorization, or registration
or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery,
performance, validity or enforceability of this Agreement or
any of the Servicer's Related Documents.
SECTION 3.7. Sub-Servicers. The Servicer may, without the
Issuer's or the Trustee's consent, maintain or enter into one or more agreements
with Sub-Servicers for the servicing and administration of the Leases by such
Sub-Servicers. Notwithstanding the terms or existence of any such agreement
between the Servicer and a Sub-Servicer, the Servicer shall not be relieved of
any of its obligations under this Agreement by reason of such agreement and
shall be obligated to the same extent and under the same terms and conditions as
if the Servicer alone was servicing and administering the Leases, and neither
the Issuer nor the Trustee shall have any obligation to deal with anyone other
than the Servicer with respect to the servicing of the Leases.
SECTION 3.8. Total Servicing Fee; Payment of Expenses by
Servicer. On each Payment Date, the Servicer shall be entitled to receive out of
the Collection Account the Servicing Fee for the related Collection Period and
any unreimbursed Servicer Advances in respect of a prior Payment Date, pursuant
to Section 8.03 of the Indenture. The Servicer shall be entitled to retain, as
additional servicing compensation under this Agreement, any Administrative Fees
and any earnings on the investment of amounts in the Servicing Account. The
Servicer shall be required to pay all expenses incurred by it in connection with
its activities under this Agreement (including taxes imposed on the Servicer and
all expenses incurred in connection with reports to Noteholders). In addition,
the Servicer shall pay to the Trustee, and the Trustee shall be entitled to,
certain annual fees and shall reimburse the Trustee for all ordinary and
reasonable out-of-pocket expenses incurred or made by it in connection with the
performance of its duties under the Indenture (excluding those incurred or made
in the performance of its duties under Article V of the Indenture, as referred
to in Section 6.07(b) of the Indenture).
SECTION 3.9. Servicer's Certificate. No later than 10:00 a.m.
St. Paul, Minnesota time on each Determination Date, the Servicer shall deliver
to the Issuer, the Trustee and each Rating Agency a Servicer's Certificate
executed by a Responsible Officer of the Servicer containing, among other
things, (i) all information necessary to enable the Trustee to make the
withdrawals and distributions required by Section 8.03 of the Indenture, (ii)
all information necessary to enable the Trustee to send the statements to
Noteholders required by Section 7.05 of the Indenture, and (iii) all information
necessary to enable the Trustee to reconcile all deposits to, and withdrawals
from, the Servicing Account, the Collection Account, the Residual Account and
the Reserve Account for the related Collection Period and Payment Date,
including the accounting required by Section 4.4. Leases repurchased (or for
which a
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Substitute Lease was substituted) by Vendor Services on the related Deposit Date
or by the Contributor on the related Accounting Date and each Lease which became
a Liquidated Lease or which was paid in full during the related Collection
Period, shall be identified by account number (as set forth in the Schedule of
Leases), and information regarding each Substitute Lease shall be provided. A
copy of such certificate may be obtained by any Noteholder (or by any Note
Owner, upon certification that such Person is a Note Owner and payment of any
expenses associated with the distribution thereof) by a request in writing to
the Trustee addressed to the Corporate Trust Office.
SECTION 3.10. Annual Statement as to Compliance; Notice of
Servicer Termination Event.
(a) The Servicer shall deliver to the Issuer, the Trustee and
each Rating Agency, on or before March 31 (or 90 days after the end of the
Servicer's fiscal year, if other than December 31) of each year, beginning on
March 31, 1999, a certificate signed by any Responsible Officer of the Servicer,
dated as of December 31 (or other applicable date) of the immediately preceding
year, stating that (i) a review of the activities of the Servicer during the
preceding 12-month period (or such other period as shall have elapsed from the
Closing Date to the date of the first such certificate) and of its performance
under this Agreement has been made under such officer's supervision, and (ii) to
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such period, or, if there has
been a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof.
(b) The Servicer shall deliver to the Issuer, the Trustee and
each Rating Agency, promptly after having obtained knowledge thereof, but in no
event later than two Business Days thereafter, written notice in a certificate
signed by any Responsible Officer of the Servicer of any event which with the
giving of notice or lapse of time, or both, would become a Servicer Termination
Event under Section 8.1(a). The Contributor or the Servicer shall deliver to the
Issuer, the Trustee, the Servicer or the Contributor (as applicable) and each
Rating Agency promptly after having obtained knowledge thereof, but in no event
later than three Business Days thereafter, written notice in a certificate
signed by any Responsible Officer of the Servicer of any event which with the
giving of notice or lapse of time, or both, would become a Servicer Termination
Event under any other clause of Section 8.1.
SECTION 3.11. Annual Independent Accountants' Report.
(a) The Servicer shall cause a firm of nationally recognized
independent certified public accountants (the "Independent Accountants"), who
may also render other services to the Servicer, to deliver to the Issuer, the
Trustee and each Rating Agency, on or before March 31 (or 90 days after the end
of the Servicer's fiscal year, if other than December 31) of each year,
beginning on March 31, 1999, with respect to the twelve months ended the
immediately preceding December 31 (or other applicable date) (or such other
period as shall have elapsed from the Closing Date to the date of such
certificate), a statement (the "Accountant's Report") addressed to the Board of
Directors of the Servicer, to the Issuer and to the Trustee, to the effect that
such firm has audited the financial statements of the Servicer and issued its
report
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thereon and that such audit was made in accordance with generally accepted
auditing standards, and accordingly included such tests of the accounting
records and such other auditing procedures as such firm considered necessary in
the circumstances, including procedures as determined by the Independent
Accountants related to (i) the documents and records concerning the servicing of
equipment lease contracts, installment sale contracts, promissory notes, loan
and security agreements and/or other similar types of receivables under
servicing agreements substantially similar one to another (such Accountant's
Report to have attached thereto a schedule setting forth the servicing
agreements covered thereby, including this Agreement); and (ii) the delinquency
and loss statistics relating to the Servicer's portfolio of equipment lease
contracts, installment sale contracts, promissory notes, loan and security
agreements and/or other similar types of receivables; and except as described in
the Accountant's Report, disclosed no exceptions or errors in the records
relating to the contracts serviced for others that, in the firm's opinion,
generally accepted auditing standards requires such firm to report. The
Accountant's Report shall further state that (1) a review of certain agreed upon
procedures was performed with respect to two randomly selected Servicer's
Certificates during the applicable period, and (2) except as disclosed in the
Report, no exceptions or errors in the Servicer's Certificates so examined were
found.
(b) The Accountants' Report shall also indicate that the firm
is independent of the Contributor and the Servicer within the meaning of the
Code of Professional Ethics of the American Institute of Certified Public
Accountants.
(c) A copy of the Accountants' Report may be obtained by any
Noteholder (or by any Note Owner, upon certification that such Person is a Note
Owner and payment of any expenses associated with the distribution thereof) by a
request in writing to the Trustee addressed to the Corporate Trust Office.
SECTION 3.12. Access to Certain Documentation and Information
Regarding Leases. The Servicer shall provide to representatives of the Issuer
and the Trustee reasonable access to the documentation regarding the Leases. In
each case, such access shall be afforded without charge but only upon reasonable
request and during normal business hours. Nothing in this Section shall derogate
from the obligation of the Servicer to observe any applicable law, rule or
contractual provision with an Obligor prohibiting disclosure of information
regarding the Obligors, and the failure of the Servicer to provide access as
provided in this Section as a result of such obligation shall not constitute a
breach of this Section.
SECTION 3.13. Certain Duties of the Servicer. The Servicer
shall, and hereby agrees that it will, monitor the Issuer's compliance with all
applicable provisions of federal securities laws, notify the Issuer of any
actions to be taken by the Issuer necessary for compliance with such laws and
prepare on behalf of the Issuer all notices, filings or other documents or
instruments required to be filed under such laws.
SECTION 3.14. Duties of the Servicer under the Indenture. The
Servicer shall, and hereby agrees that it will, perform on behalf of the Issuer
the following duties of the Issuer under the Indenture (references are to the
applicable Sections in the Indenture):
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(a) the direction to the Paying Agents, if any, to
deposit moneys with the Trustee (Section 3.03);
(b) the obtaining and preservation of the Issuer's
qualification to do business in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of the Indenture, the Notes and each other instrument
and agreement included in the Trust Estate (Section 3.04);
(c) the preparation of all supplements, amendments,
financing statements, continuation statements, instruments of further
assurance and other instruments, in accordance with Section 3.05 of the
Indenture, necessary to protect the Trust Estate (Section 3.05);
(d) the annual delivery of Opinions of Counsel, in
accordance with Section 3.06 of the Indenture, as to the Trust Estate,
and the annual delivery of the Officers' Certificate and certain other
statements, in accordance with Section 3.09 of the Indenture, as to
compliance with the Indenture (Sections 3.06 and 3.09);
(e) the preparation and obtaining of documents and
instruments required for the release of the Issuer from its obligations
under the Indenture (Section 4.01);
(f) the monitoring of the Issuer's obligations as to
the satisfaction and discharge of the Indenture and the preparation of
an Officers' Certificate and the obtaining of the Opinion of Counsel
and the Independent Certificate relating thereto (Section 4.01);
(g) the preparation of any written instruments
required to confirm more fully the authority of any co-trustee or
separate trustee and any written instruments necessary in connection
with the resignation or removal of any co-trustee or separate trustee
(Sections 6.08 and 6.11);
(h) the opening of one or more accounts in the
Issuer's name, the preparation of Issuer Orders, Officers' Certificates
and Opinions of Counsel and all other actions necessary with respect to
investment and reinvestment of funds in the Trust Accounts (Sections
8.02, 8.04, 8.05 and 8.06);
(i) the preparation of Issuer Orders and the
obtaining of Opinions of Counsel with respect to the execution of
supplemental indentures (Sections 9.01, 9.02 and 9.03);
(j) the preparation of all Officers' Certificates,
Opinions of Counsel and Independent Certificates with respect to any
requests by the Issuer to the Trustee to take any action under the
Indenture (Section 11.01); and
(k) the recording of the Indenture, if applicable
(Section 11.15).
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SECTION 3.15. Fidelity Bond. Within 30 days after the Closing
Date, the Servicer shall obtain, and shall thereafter maintain, (i) a policy or
policies of insurance covering errors and omissions by the Servicer, and (ii) a
fidelity bond. Such policy or policies and such fidelity bond shall be in such
form and amount as is generally customary among persons that service a portfolio
of equipment lease contracts, installment sale contracts, promissory notes, loan
and security agreements and/or other similar types of receivables having an
unpaid balance of at least $100,000,000 and which are generally regarded as
servicers acceptable to institutional investors. Each such policy shall name the
Issuer, the Trustee and the Contributor as parties insured thereunder as their
respective interests may appear.
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ARTICLE IV
COLLECTIONS AND DEPOSITS
SECTION 4.1. Initial Deposit. No later than the second
Business Day following the Closing Date, the Servicer shall deposit in the
Servicing Account (i) all Scheduled Payments and Prepayments of Leases received
by the Servicer on or after the Initial Cut-Off Date (including those Scheduled
Payments due prior to, but not received as of, the Initial Cut-Off Date, but
excluding those Scheduled Payments due on or after, but received prior to, the
Cut-Off Date) and on or prior to the second Business Day immediately preceding
such date and (ii) all Liquidation Proceeds (including proceeds of Insurance
Policies to be treated as such in accordance with Section 3.4) realized in
respect of the Leases and related Equipment and applied by the Servicer on and
after the Initial Cut-Off Date.
SECTION 4.2. Collections.
(a) Pursuant to the Indenture, the Trustee has established the
Servicing Account. The Servicer shall make deposits to and transfers from the
Servicing Account, and shall be entitled to make withdrawals therefrom, as
provided in this Agreement. The Servicer shall remit to the Servicing Account
all payments by or on behalf of the Obligors on the Leases (other than amounts
constituting Administrative Fees), all Residual Realizations and all Liquidation
Proceeds (including (1) proceeds of Insurance Policies to be treated as such in
accordance with Section 3.4 and (2) deficiency amounts paid by the Servicer with
respect to the disposition of Equipment to be treated as such in accordance with
the last paragraph of Section 3.3) received by the Servicer, in each case, as
soon as practicable, but in no event later than the second Business Day after
receipt thereof. Within three Business Days after the deposit of such payments
and proceeds therein, the Servicer shall transfer all amounts credited to the
Servicing Account on account of such payments and proceeds (i) to the extent
they constitute Pledged Revenues, to the Collection Account and (ii) to the
extent they represent Residual Realizations, to the Residual Account.
Notwithstanding the foregoing, the Servicer may utilize an alternative
remittance schedule acceptable to the Servicer if the Servicer provides to the
Trustee written confirmation from each Rating Agency that such alternative
remittance schedule will not result in the downgrading or withdrawal by the
Rating Agency of the rating then assigned to the Notes. Amounts from time to
time in the Servicing Account shall be invested in accordance with Section 8.07
of the Indenture, and the Servicer shall be entitled to any earnings on such
investments as additional servicing compensation hereunder. In the event of any
losses on such investments, the Servicer shall deposit in the Servicing Account
the amount thereof, net of any earnings otherwise distributable to the Servicer.
(b) The Servicer shall remit to the Collection Account (i) no
later than the second Business Day prior to a Payment Date, that portion of any
Purchase Amount relating to the Required Payoff Amount received by the Servicer
upon the repurchase by Vendor Services of any Lease pursuant to Section 2.6, and
(ii) that portion of the amount paid by the Contributor to repurchase the Leases
pursuant to Section 5.1 as is required to be deposited in the Collection Account
pursuant to such Section.
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(c) Notwithstanding the provisions of subsections (a) and (b)
hereof, the Servicer will be entitled to be reimbursed from amounts on deposit
in the Servicing Account or the Collection Account with respect to a Collection
Period for amounts previously deposited in the Servicing Account or the
Collection Account but later determined by the Servicer in good faith to (i)
have resulted from mistaken deposits or postings or checks returned for
insufficient funds, or (ii) be required to be repaid to an Obligor. The amount
to be reimbursed hereunder may be retained pursuant to Section 4.4 at any time
or may otherwise be paid to the Servicer on the related Payment Date pursuant to
Section 8.03(i) of the Indenture upon certification by the Servicer of such
amounts and the provision of such information to the Trustee as may be necessary
to verify the accuracy of such certification.
SECTION 4.3. Application of Collections. For the purposes of
this Agreement, all collections for a Collection Period shall be applied by the
Servicer as follows:
(a) With respect to each Lease, payments by or on
behalf of the Obligor thereof (other than Administrative Fees with
respect to such Lease, to the extent collected) shall be applied to
Scheduled Payments and Prepayments in accordance with the terms of such
Lease and the Servicer's credit and collection policies and procedures.
With respect to each Liquidated Lease, the Liquidation Proceeds shall
be applied, for purposes of this Agreement and the Indenture only, to
Scheduled Payments and Prepayment on the Lease as if the Liquidation
Proceeds had been paid by the Obligor on the Accounting Date, and then
to any other amounts due and payable with respect to such Lease. The
Servicer shall not be entitled to any Administrative Fees with respect
to a Liquidated Lease unless the Required Payoff Amount for such Lease
has been deposited in the Collection Account.
(b) With respect to each Lease that has become a
Purchased Lease as of any Deposit Date, the Purchase Amount shall be
applied, for purposes of this Agreement and the Indenture only, to
Scheduled Payments and Prepayment on the Lease as if the Purchase
Amount had been paid by the Obligor on the related Accounting Date. All
payments by or on behalf of an Obligor received with respect to any
Purchased Lease after the Accounting Date immediately preceding the
Deposit Date on which the Purchase Amount was paid by Vendor Services,
shall be paid to Vendor Services and shall not be included in Pledged
Revenues.
(c) With respect to each Lease that has been
repurchased by the Contributor pursuant to Section 5.1, the purchase
price shall be applied, for purposes of this Agreement and the
Indenture only, to Scheduled Payments and Prepayments on the Lease as
if such purchase price had been paid by the Obligor on the Accounting
Date. All payments by or on behalf of an Obligor received with respect
to any Lease so repurchased after the Accounting Date on which the
purchase price was paid by the Contributor, shall be paid to the
Contributor and shall not be included in the Amount Available.
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SECTION 4.4. Net Deposits. So long as no Servicer Termination
Event shall have occurred and be continuing with respect to the Servicer, the
Servicer may make the remittances or transfers to be made by it pursuant to
Section 4.2 net of amounts (which amounts may be netted prior to any such
remittance or transfer) that would otherwise be distributed to it pursuant to
Section 8.03(i) of the Indenture; provided, however, that the Servicer shall
account for all of such amounts in the related Servicer's Certificate as if such
amounts were deposited and distributed separately. If an error is made by the
Servicer in calculating the amount to be deposited or retained by it, with the
result that an amount less than required is deposited in the Collection Account,
the Servicer shall make a payment of the deficiency to the Collection Account
immediately upon becoming aware, or receiving notice from the Trustee, of such
error.
SECTION 4.5. Servicer Advances. On each Determination Date,
the Servicer may, but will not be required to, advance and remit to the Trustee,
in such manner as will ensure that the Trustee will have immediately available
funds on account thereof by 11:00 a.m. St. Paul, Minnesota time on the second
Business Day prior to the next succeeding Payment Date, an amount (a "Servicer
Advance") equal to any Scheduled Payments due during the prior Collection Period
but unpaid prior to such Determination Date with respect to any Lease. In
consideration of each Servicer Advance the Servicer will be entitled to retain
any late payment fees recovered from the Obligor with respect to any Lease
Payment covered by a Servicer Advance. In addition, the Servicer will be
reimbursed for Servicer Advances from funds in the Collection Account in
accordance with the Indenture on the second following Payment Date.
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ARTICLE V
TERMINATION
SECTION 5.1. Optional Purchase of All Leases; Liquidation of
Trust Assets.
(a) At such time as the sum of the Aggregate Principal Balance
of the Notes is less than 10% of the Initial Pool Principal Balance, the
Contributor shall have the option to purchase all of the Leases from the Issuer;
provided, however, that the amount to be paid for such purchase (as set forth in
the following sentence) shall, in any event, be sufficient to pay the full
amount of unpaid principal of and interest payable on the Notes on the related
Payment Date. To exercise such option, Contributor shall, on any Accounting
Date, pay to the Servicer the aggregate purchase price for the Leases (which
shall be an amount equal to the sum of the Required Payoff Amounts for all of
the Leases), plus the appraised value of any other property (including the right
to receive any future recoveries) held as Trust Assets, such appraisal to be
conducted by an appraiser mutually agreed upon by the Contributor and the
Trustee (or, if the Notes are no longer Outstanding, the Issuer), and shall
succeed to all interests in and to the Trust Assets. The fees and expenses
related to such appraisal shall be paid by the Contributor. The Servicer shall
immediately deposit the purchase price so paid into the Collection Account, to
be treated as Available Pledged Revenues and distributed in accordance with
Section 8.03 of the Indenture.
(b) Notice of any termination of the Issuer shall be given by
the Servicer to the Issuer and the Trustee as soon as practicable (but in no
event more than three Business Days) after the Servicer has received notice
thereof.
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ARTICLE VI
THE CONTRIBUTOR
SECTION 6.1. Liability of Contributor. The Contributor shall
be liable hereunder only to the extent of the obligations in this Agreement
specifically undertaken by the Contributor and the representations made by the
Contributor.
SECTION 6.2. Merger or Consolidation of, or Assumption of the
Obligations of, Contributor; Amendment of Certificate of Incorporation.
(a) The Contributor shall not merge or consolidate with any
other Person or permit any other Person to become the successor to the
Contributor's business except in accordance with the requirements of this
Section. The certificate of incorporation of any corporation (i) into which the
Contributor may be merged or consolidated, (ii) resulting from any merger or
consolidation to which the Contributor shall be a party, or (iii) succeeding to
the business of Contributor, shall contain provisions relating to limitations on
business and other matters substantively identical to those contained in the
Contributor's certificate of incorporation. Any such successor corporation shall
execute an agreement of assumption of every obligation of the Contributor under
this Agreement and each Related Document and, whether or not such assumption
agreement is executed, shall be the successor to the Contributor under this
Agreement without the execution or filing of any document or any further act on
the part of any of the parties to this Agreement. The Contributor shall provide
prompt notice of any merger, consolidation or succession pursuant to this
Section 6.2 to the Issuer, the Trustee and the Rating Agencies. Notwithstanding
the foregoing, the Contributor shall not merge or consolidate with any other
Person or permit any other Person to become a successor to the Contributor's
business, unless (w) immediately after giving effect to such transaction, no
representation or warranty made pursuant to Section 2.4 shall have been breached
(for purposes hereof, such representations and warranties shall speak as of the
date of the consummation of such transaction) and no event that, after notice or
lapse of time, or both, would become an Event of Default or a Servicer
Termination Event shall have occurred and be continuing, (x) the Contributor
shall have delivered to the Issuer and the Trustee a certificate of a
Responsible Officer of the Contributor and an Opinion of Counsel each stating
that such consolidation, merger or succession and such agreement of assumption
comply with this Section 6.2 and that all conditions precedent, if any, provided
for in this Agreement relating to such transaction have been complied with, (y)
the Contributor shall have delivered to the Issuer and the Trustee an Opinion of
Counsel, stating that, in the opinion of such counsel, either (A) all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary to preserve and protect the interest of the Issuer
in the Trust Assets and reciting the details of the filings or (B) no such
action shall be necessary to preserve and protect such interest, and (z) the
Rating Agency Condition shall have been satisfied.
(b) The Contributor hereby agrees that it shall not (i) take
any action prohibited by Article VIII of its certificate of incorporation or
(ii) without the prior written consent of the Issuer and the Trustee and without
satisfaction of the Rating Agency Condition, amend Article III, Article V,
Article VI or Article VIII of its certificate of incorporation.
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SECTION 6.3. Limitation on Liability of Contributor and
Others. The Contributor and any director or officer or employee or agent of the
Contributor may rely in good faith on the advice of counsel or on any document
of any kind prima facie properly executed and submitted by any Person respecting
any matters arising under this Agreement. The Contributor shall not be under any
obligation to appear in, prosecute or defend any legal action that is not
incidental to its obligations as transferor of the Leases under this Agreement
and that in its opinion may involve it in any expense or liability.
SECTION 6.4. Contributor May Own Notes. Each of the
Contributor and any Affiliate of the Contributor may in its individual or any
other capacity become the owner or pledgee of Notes with the same rights as it
would have if it were not the Contributor or an Affiliate thereof except as
otherwise specifically provided herein or in the Related Documents. Notes so
owned by or pledged to the Contributor or such Affiliate shall have an equal and
proportionate benefit under the provisions of this Agreement or any Related
Document, without preference, priority, or distinction as among all of Notes;
provided that any Notes owned by the Contributor or any Affiliate thereof,
during the time such Notes are owned by them, shall be without voting rights for
any purpose set forth in this Agreement or any Related Document. The Contributor
shall notify the Issuer and the Trustee promptly after it or any of its
Affiliates become the owner or pledgee of a Note.
SECTION 6.5. Covenants of the Contributor. The Contributor
hereby covenants that:
(a) Separate Business. The Contributor will not permit its
assets to be commingled with those of Vendor Services and the Contributor shall
maintain separate corporate records, books of accounts and bank accounts from
those of Vendor Services. The Contributor will not conduct its business in the
name of Vendor Services and will cause Vendor Services to conduct its business
solely in its own name so as not to mislead others as to the identity of the
entity with which those others are concerned. The Contributor will provide for
its own operating expenses and liabilities from its own funds, except that the
organizational expenses of the Contributor may be paid by Vendor Services. The
Contributor will not hold itself out, or permit itself to be held out, as having
agreed to pay, or as generally being liable for, the debts of Vendor Services.
The Contributor shall cause Vendor Services not to hold itself out, or permit
itself to be held out, as having agreed to pay, or as generally being liable
for, the debts of the Contributor except that the organizational expenses of the
Contributor may be paid by Vendor Services. The Contributor will maintain an
arm's length relationship with Vendor Services with respect to any transactions
between the Contributor, on the one hand, and Vendor Services, on the other.
(b) Adequate Capitalization. The Contributor shall at all
times remain adequately capitalized for the normal obligations reasonably
foreseeable in the conduct of its business, and shall not make any dividend or
other distribution to its shareholders unless the net worth of the Contributor
following such distribution is adequate for the normal obligations reasonably
foreseeable in the conduct of its business.
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ARTICLE VII
THE SERVICER
SECTION 7.1. Liability of Servicer; Indemnities.
(a) The Servicer (in its capacity as such and, in the case of
Vendor Services, without limitation of its obligations under the Transfer
Agreement) shall be liable hereunder only to the extent of the obligations in
this Agreement specifically undertaken by the Servicer and the representations
made by the Servicer.
(b) The Servicer shall indemnify, defend and hold harmless the
Issuer, the Trustee, the Contributor, their respective officers, directors,
agents and employees and the Noteholders from and against any and all costs,
expenses, losses, claims, damages and liabilities to the extent that such cost,
expense, loss, claim, damage or liability arose out of, or was imposed upon the
Issuer, the Trustee, the Contributor or the Noteholders through the Servicer's
breach of this Agreement, the gross negligence, willful misfeasance or bad faith
of the Servicer in the performance of its duties under this Agreement or by
reason of reckless disregard of its obligations and duties under this Agreement.
(c) The Servicer shall indemnify, defend and hold harmless the
Issuer, in its individual capacity, its officers, directors, agents and
employees, from and against all costs, taxes, expenses, losses, claims, damages
and liabilities arising out of or incurred in connection with the acceptance or
performance of the trusts and duties contained in the Related Documents, except
to the extent that such cost, taxes (other than income taxes), expense, loss,
claim, damage or liability is due to the willful misfeasance or gross negligence
of the Issuer.
(d) Indemnification under this Article shall include, without
limitation, reasonable fees and expenses of counsel and expenses of litigation.
If the Servicer has made any indemnity payments pursuant to this Article and the
recipient thereafter collects any of such amounts from others, the recipient
shall promptly repay such amounts collected to the Servicer, together with any
interest earned thereon.
(e) Vendor Services, in its individual capacity, hereby
acknowledges that the indemnification provisions in the Transfer Agreement
benefiting the Issuer and the Trustee are enforceable by each hereunder.
(f) The provisions of this Section shall survive the
termination of the Related Documents.
SECTION 7.2. Merger or Consolidation of, or Assumption of the
Obligations of, the Servicer. The Servicer shall not merge or consolidate with
any other Person, convey, transfer or lease substantially all its assets as an
entirety to another Person, or permit any other Person to become the successor
to the Servicer's business unless, after the merger, consolidation, conveyance,
transfer, lease or succession, the successor or surviving entity shall be an
Eligible Servicer and shall be capable of fulfilling the duties of the Servicer
contained in this Agreement.
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Any corporation (i) into which the Servicer may be merged or consolidated, (ii)
resulting from any merger or consolidation to which the Servicer shall be a
party, (iii) which acquires by conveyance, transfer, or lease substantially all
of the assets of the Servicer, or (iv) succeeding to the business of the
Servicer, in any of the foregoing cases shall execute an agreement of assumption
to perform every obligation of the Servicer under this Agreement and, whether or
not such assumption agreement is executed, shall be the successor to the
Servicer under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties to this Agreement, anything in
this Agreement to the contrary notwithstanding; provided, however, that nothing
contained herein shall be deemed to release the Servicer from any obligation.
The Servicer shall provide notice of any merger, consolidation or succession
pursuant to this Section to the Issuer, the Trustee and each Rating Agency.
Notwithstanding the foregoing, the Servicer shall not merge or consolidate with
any other Person or permit any other Person to become a successor to the
Servicer's business, unless (a) immediately after giving effect to such
transaction, no representation or warranty made pursuant to Section 3.6 shall
have been breached (for purposes hereof, such representations and warranties
shall speak as of the date of the consummation of such transaction) and no event
that, after notice or lapse of time, or both, would become a Servicer
Termination Event shall have occurred and be continuing, (b) the Servicer shall
have delivered to the Issuer and the Trustee a certificate of a Responsible
Officer of the Servicer and an Opinion of Counsel each stating that such
consolidation, merger or succession and such agreement of assumption comply with
this Section and that all conditions precedent, if any, provided for in this
Agreement relating to such transaction have been complied with, (c) the Servicer
shall have delivered to the Issuer and the Trustee an Opinion of Counsel,
stating that, in the opinion of such counsel, either (1) all financing
statements and continuation statements and amendments thereto have been executed
and filed that are necessary to preserve and protect the interest of the Issuer
in the Trust Assets and reciting the details of the filings or (2) no such
action shall be necessary to preserve and protect such interest, and (d) the
Rating Agency Condition has been satisfied.
SECTION 7.3. Limitation on Liability of Servicer and Others.
Neither the Servicer nor any of the directors or officers or employees or agents
of the Servicer shall be under any liability to the Issuer, the Contributor, the
Noteholders or the Trustee except as provided in this Agreement, for any action
taken or for refraining from the taking of any action in good faith pursuant to
this Agreement; provided, however, that this provision shall not protect the
Servicer or any such person against any liability that would otherwise be
imposed by reason of a breach of this Agreement or willful misfeasance, bad
faith or gross negligence (excluding errors in judgment) in the performance of
duties, by reason of reckless disregard of obligations and duties under this
Agreement or any violation of law by the Servicer or such person, as the case
may be; provided further, that this provision shall not affect any liability to
indemnify the Issuer and the Trustee for costs, taxes, expenses, claims,
liabilities, losses or damages paid by the Issuer or the Trustee, each in its
individual capacity. The Servicer and any director, officer, employee or agent
of the Servicer may rely in good faith on the advice of counsel or on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising under this Agreement.
SECTION 7.4. Servicer Not to Resign. Subject to the provisions
of Section 7.2, the Servicer shall not resign from the obligations and duties
imposed on it by this Agreement as
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Servicer except upon a determination that by reason of a change in legal
requirements the performance of its duties under this Agreement would cause it
to be in violation of such legal requirements in a manner which would have a
material adverse effect on the Servicer, and a Note Majority does not elect to
waive the obligations of the Servicer to perform the duties which render it
legally unable to act or to delegate those duties to another Person. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Issuer and the Trustee. No
resignation of the Servicer shall become effective until a successor Servicer
that is an Eligible Servicer shall have assumed the responsibilities and
obligations of the Servicer; provided, however, that in the event a successor
Servicer is not appointed within 60 days after the Servicer has given notice of
its resignation and has provided the Opinion of Counsel required by this
Section, the Servicer may petition a court for its removal.
SECTION 7.5. Corporate Existence. The Servicer shall maintain
its existence, rights and franchises as a corporation under the laws of the
jurisdiction of its incorporation, and will obtain and preserve its
qualification to do business as a foreign corporation in each jurisdiction in
which the failure to so qualify would have an adverse effect on the validity or
enforceability of any Lease or this Agreement or on the ability of the Servicer
to perform its duties under this Agreement.
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ARTICLE VIII
SERVICER TERMINATION EVENTS
SECTION 8.1. Servicer Termination Event. For purposes of this
Agreement, each of the following shall constitute a "Servicer Termination
Event":
(a) Any failure by the Servicer to deposit within the
time periods specified in this Agreement in the Collection Account for
distribution to Noteholders, or to distribute to the Contributor, any
proceeds or payment required to be so deposited or distributed under
the terms of this Agreement (or, if Vendor Services is the Servicer,
the Transfer Agreement) that continues unremedied for a period of five
Business Days (three Business Days with respect to payment of Purchase
Amounts) after written notice is received by the Servicer from the
Trustee or after discovery of such failure by a Responsible Officer of
the Servicer; or
(b) Failure by the Servicer to deliver to the Trustee
and the Issuer the Servicer's Certificate by the third Business Day
prior to the related Payment Date, or failure on the part of the
Servicer to observe its covenants and agreements set forth in Section
7.2; or
(c) Failure on the part of the Servicer duly to
observe or perform in any material respect any other covenants or
agreements of the Servicer set forth in this Agreement (or, if Vendor
Services is the Servicer, the Transfer Agreement), which failure (i)
materially and adversely affects the rights of the Issuer or
Noteholders, and (ii) continues unremedied for a period of 30 days
after the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Servicer by the
Issuer, the Trustee or any Noteholder; or
(d) (i) The commencement of an involuntary case under
the federal bankruptcy laws, as now or hereinafter in effect, or
another present or future federal or state bankruptcy, insolvency or
similar law and such case is not dismissed within 60 days; or (ii) the
entry of a decree or order for relief by a court or regulatory
authority having jurisdiction in respect of the Servicer in an
involuntary case under the federal bankruptcy laws, as now or hereafter
in effect, or another present or future, federal or state, bankruptcy,
insolvency or similar law, or appointing a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of
the Servicer or of any substantial part of their respective properties
or ordering the winding up or liquidation of the affairs of the
Servicer; or
(e) The commencement by the Servicer of a voluntary
case under the federal bankruptcy laws, as now or hereafter in effect,
or any other present or future, federal or state, bankruptcy,
insolvency or similar law, or the consent by the Servicer to the
appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator or other similar official of
the Servicer or of any substantial part of its property or the making
by the Servicer of an assignment for the benefit of creditors
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or the failure by the Servicer generally to pay its debts as such debts
become due or the taking of corporate action by the Servicer in
furtherance of any of the foregoing; or
(f) Any representation, warranty or statement of the
Servicer made in this Agreement or any certificate, report or other
writing delivered by the Servicer pursuant hereto shall prove to be
incorrect in any material respect as of the time when the same shall
have been made, the incorrectness of such representation, warranty or
statement has a material adverse effect on the Issuer or Noteholders,
and, within 30 days after written notice thereof shall have been given
to the Servicer or the Contributor by the Issuer, the Trustee or any
Noteholder, the circumstances or condition in respect of which such
representation, warranty or statement was incorrect shall not have been
eliminated or otherwise cured.
SECTION 8.2. Consequences of a Servicer Termination Event. If
a Servicer Termination Event shall occur and be continuing, the Trustee may, and
at the direction of a Note Majority shall, by notice given in writing to the
Servicer and the Issuer, terminate all of the rights and obligations of the
Servicer under this Agreement. On or after the receipt by the Servicer of such
written notice, all authority, power, obligations and responsibilities of the
Servicer under this Agreement, whether with respect to the Notes, the Trust
Assets or otherwise, shall be terminated and automatically shall pass to, be
vested in and become obligations and responsibilities of the Trustee (unless and
until a successor Servicer is appointed in accordance with Section 8.3);
provided, however, that the Trustee shall have no liability with respect to any
obligation which was required to be performed by the terminated Servicer prior
to the date that the Trustee becomes the Servicer or any claim of a third party
based on any alleged action or inaction of the terminated Servicer. The Trustee
is authorized and empowered by this Agreement to execute and deliver, on behalf
of the terminated Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination.
The terminated Servicer agrees to cooperate with the Trustee in effecting the
termination of the responsibilities and rights of the terminated Servicer under
this Agreement, including, without limitation, the transfer to the Trustee for
administration by it of all cash amounts that shall at the time be held by the
terminated Servicer for deposit, or have been deposited by the terminated
Servicer, in any of the Trust Accounts or thereafter received with respect to
the Leases and the delivery to the Trustee of all Lease Files, Monthly Records
and Collection Records and a computer tape in readable form as of the most
recent Business Day containing all information necessary to enable the Trustee
or a successor Servicer to service the Leases and the other Trust Assets. The
terminated Servicer shall grant the Issuer, the Trustee and the successor
Servicer reasonable access to the terminated Servicer's premises at the
terminated Servicer's expense.
SECTION 8.3. Trustee to Act; Appointment of Successor.
(a) On and after the time the Servicer receives a notice of
termination pursuant to Section 8.2, the Trustee shall be the successor in all
respects to the Servicer in its capacity as servicer under this Agreement and
the transactions set forth or provided for in this Agreement, and shall be
subject to all the responsibilities, restrictions, duties, liabilities and
termination provisions relating thereto placed on the Servicer by the terms and
provisions of this Agreement. As compensation therefor, the Trustee shall be
entitled to receive the Total
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Servicing Fee. The Issuer and the Trustee shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
(b) Notwithstanding the foregoing, the Trustee may, if it
shall be unwilling to so act, or shall, if it is legally unable to so act,
appoint, or petition a court of competent jurisdiction to appoint, any Eligible
Servicer as the successor to the Servicer hereunder in the performance of all or
any part of the responsibilities, duties or liabilities of the Servicer
hereunder. Pending appointment of a successor pursuant to the preceding
sentence, the Trustee shall act as successor Servicer unless it is legally
unable to do so, in which event the outgoing Servicer shall continue to act as
Servicer until a successor has been appointed and accepted such appointment.
(c) In connection with such appointment and assumption, the
Trustee may make such arrangements for the compensation of such successor out of
payments on the Leases as it and such successor shall agree; provided, however,
that no such monthly compensation shall, without the written consent of the
Contributor and 100% of the Noteholders, exceed the Total Servicing Fee. The
Trustee and such successor shall take such action, consistent with this
Agreement, as shall be necessary to effectuate any such succession.
(d) If a successor Servicer is acting as Servicer hereunder,
it shall be subject to termination under Section 8.2 upon the occurrence of any
Servicer Termination Event applicable to it as Servicer.
SECTION 8.4. Notification to Noteholders. Upon any termination
of, or appointment of a successor to, the Servicer pursuant to this Article
VIII, the Issuer shall give prompt written notice thereof to each Rating Agency,
and the Trustee shall give prompt written notice thereof to Noteholders at their
respective addresses appearing in the Note Register.
SECTION 8.5. Waiver of Past Defaults. A Note Majority may
waive any default by the Servicer in the performance of its obligations
hereunder and its consequences. Upon any such waiver of a past default, such
default shall cease to exist, and any Servicer Termination Event arising
therefrom shall be deemed to have been remedied for every purpose of this
Agreement. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
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ARTICLE IX
SUBSTITUTION OF LEASES
SECTION 9.1. Substitution.
(a) Subject to the satisfaction of the requirements set forth
in Section 9.1(b) hereof, Vendor Services will have the right (but not the
obligation) at any time to substitute one or more Substitute Leases and the
Equipment subject thereto for a Lease (for purposes of this Section 9.1, such
Lease referred to as a "Predecessor Lease") and the Equipment subject thereto
if:
(i) the Predecessor Lease became (A) a Liquidated
Lease, (B) a Warranty Lease or (C) an Adjusted Lease during
the immediately preceding Collection Period; and
(ii) the aggregate Principal Balance of the
Liquidated Leases, Adjusted Leases and Warranty Leases that
are Predecessor Leases shall not in the aggregate exceed 10%
of the Initial Pool Principal Balance.
(b) Each transfer of Substitute Leases will be subject to the
satisfaction of the following conditions precedent:
(i) after giving effect to such substitutions and any
adjustments pursuant to Section 3.2, the aggregate Book Value
of such Leases must be not less than 90% of the Book Value of
the Leases substituted or adjusted since the Closing Date.
(ii) either the final payment on such Substitute
Lease must be on or prior to _______ or, to the extent the
final payment on such Lease is due subsequent to _______, only
scheduled payments due on or prior to such date may be
included in the Principal Balance of such Lease for the
purpose of making any calculation under the Indenture.
(iii) the Lease Pool Principal Balance, after giving
effect to such adjustments and substitutions, must not be less
than the Lease Pool Principal Balance prior to such adjustment
or substitution (without giving effect to the proviso to the
definition of "Principal Balance").
(iv) the weighted average life of the Notes, after
giving effect to such adjustments and substitutions, must not
differ materially from the weighted average life of the Notes
prior to such adjustments and substitutions.
(v) after giving effect to such adjustments and
substitutions, the aggregate Principal Balance of the Leases
that were originated by Vendor Services must not be less than
the aggregate Principal Balance of the Leases that were
originated by Vendor Services prior to such adjustment or
substitution.
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SECTION 9.2. Procedure.
(a) By 11:00 a.m. on the Business Day prior to each Deposit
Date, Vendor Services shall give written notice to the Servicer of any
substitution of Substitute Leases for Predecessor Leases during the preceding
Collection Period. By 11:00 a.m. on the Deposit Date, Vendor Services shall
deliver to the Servicer and the Trustee and, to the extent not included in the
Servicer's Certificate, the Trustee shall promptly deliver to each Rating Agency
(i) a supplement to Exhibit A hereto setting forth the information shown thereon
for each such Substitute Lease, (ii) an Officer's Certificate (A) certifying
that each such Substitute Lease is an Eligible Lease, (B) specifying each
Predecessor Lease for which a substitution has been made and the Principal
Balance and the Book Value under each such Predecessor Lease and the Principal
Balance and the Book Value under each Substitute Lease being transferred thereby
and (C) that all conditions precedent to such addition or substitution have been
satisfied and (iii) such additional information concerning such Substitute
Leases or Predecessor Leases as may be needed for the Servicer to prepare its
Servicer's Certificates pursuant to Section 3.9 and to otherwise carry out its
duties as servicer hereunder.
(b) Subject to the provisions of Section 9.3, the delivery of
any Officer's Certificate and supplement to Exhibit A pursuant to Section 9.2(a)
shall be conclusive evidence, without further act or deed, that during the
immediately preceding Collection Period and as of the related Cut-Off Date (i)
Vendor Services assigned to the Contributor pursuant to the Transfer Agreement
all of Vendor Services' right, title and interest in and to the Substitute
Leases identified in such supplement and the related rights described in Section
2.1 of the Transfer Agreement, (ii) Vendor Services transferred to the
Contributor, as a contribution to capital pursuant to the Transfer Agreement,
all of Vendor Services' right, title and interest in and to the Equipment
subject to such Substitute Leases and the related rights described in Section
2.1 of the Transfer Agreement, and (iii) the Contributor assigned and
transferred to Vendor Services, without representation or warranty, all of the
Contributor's right, title and interest in and to the Predecessor Leases
identified in such Officer's Certificate and the Equipment subject thereto.
Vendor Services shall promptly deliver to the Servicer the original executed
copy of each Substitute Lease assigned to the Contributor pursuant to Section
9.1 hereof and the related Lease File and the Contributor shall promptly request
the Servicer to deliver to Vendor Services the original executed copy of each
Predecessor Lease for which substitution has been made pursuant to Section 9.1
hereof and the related Lease File.
(c) Subject to the provisions of Section 9.3, the delivery of
any Officer's Certificate and supplement to Exhibit A pursuant to Section 9.2(a)
shall be conclusive evidence, without further act or deed, that during the
immediately preceding Collection Period and as of the related Cut-Off Date (i)
the Contributor assigned to the Issuer pursuant to Section 9.1 hereof all of the
Contributor's right, title and interest in and to the Substitute Leases
identified in such supplement and the related rights described in Section 2.1
hereof, (ii) the Contributor transferred to the Issuer, as a contribution to
capital, all of the Contributor's right, title and interest in and to the rights
described in Section 2.1 hereof as they relate to the Equipment subject to such
Substitute Leases, and (iii) the Issuer assigned and transferred to the
Contributor, without representation or warranty, all of the Issuer's right,
title and interest in and to the Predecessor Leases identified in such Officer's
Certificate and the Equipment subject thereto. Upon such
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assignment of a Substitute Lease, the Issuer shall be deemed to have appointed
and the Servicer shall be deemed to have accepted appointment as Custodian of
the related Lease File pursuant to Section 2.2.
SECTION 9.3. Objection and Repurchase. If any holder of the
Notes objects to any substitution of Leases within ten days of receipt of the
Servicer's Certificate providing notice thereof pursuant to Section 3.9, on the
grounds either that any Substitute Lease is not an Eligible Lease or that such
substitution or addition is otherwise not permitted under the provisions of
Section 9.1 hereof, Vendor Services shall be entitled to present such additional
information as it deems appropriate in an effort to demonstrate that such Lease
is an Eligible Lease and that such substitution is permitted under the
provisions of Section 9.1 hereof. Following such presentation, the substitution
shall remain effective if each person originally objecting to the substitution
withdraws his objection. If the conditions specified in the preceding sentence
are not satisfied, or if at any time it is established that any lease was not,
at the time of substitution, an Eligible Lease, then Vendor Services shall be
required to repurchase such Lease in accordance with the provisions of Section
2.6 hereof.
SECTION 9.4. Vendor Services' and Servicer's Subsequent
Obligations. Upon any substitution of Leases in accordance with the provisions
of this Section 9, Vendor Services' and the Servicer's obligations hereunder
with respect to the Predecessor Lease shall cease but Vendor Services and the
Servicer shall each thereafter have the same obligations with respect to the
Substitute Lease substituted as it has with respect to all other Leases subject
to the terms hereof.
- 43 -
<PAGE>
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Amendment.
(a) This Agreement may be amended by the Contributor, the
Servicer, the Issuer and the Trustee without the consent of any of the
Noteholders, (i) to cure any ambiguity, (ii) to correct or supplement any
provisions in this Agreement that may be inconsistent with any other provision
herein, or (iii) to make any other provisions with respect to matters or
questions arising under this Agreement that are not inconsistent with the
provisions hereof; provided, however, that such action shall not, as evidenced
by an Opinion of Counsel, adversely affect in any material respect the interests
of the Noteholders.
(b) This Agreement may also be amended from time to time by
the Contributor, the Servicer, the Issuer and the Trustee with the consent of a
Note Majority (which consent of any Holder of a Note given pursuant to this
Section or pursuant to any other provision of this Agreement shall be conclusive
and binding on such Holder and on all future Holders of such Note and of any
Note issued upon the transfer thereof or in exchange thereof or in lieu thereof
whether or not notation of such consent is made upon the Note) for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement, or of modifying in any manner the rights of the
Holders of Notes; provided, however, that no such amendment shall (a) increase
or reduce in any manner the amount of, or accelerate or delay the timing of,
collections of payments on Leases or distributions required to be made on any
Note or the rate of interest payable thereon, (b) amend any provisions of
Section 5.06 or 8.03 of the Indenture in such a manner as to affect the priority
of payment of interest or principal to Noteholders, or (c) reduce the aforesaid
percentage required to consent to any such amendment or any waiver hereunder,
without the consent of the Holders of all Notes then Outstanding and affected
thereby; and provided, further, that no such amendment shall be effective unless
and until the Rating Agency Condition has been satisfied.
(c) Promptly after the execution of any such amendment or
consent, the Issuer or the Trustee, as appropriate, shall furnish written
notification of the substance of such amendment or consent to each Noteholder.
(d) It shall not be necessary for the consent of Noteholders
pursuant to Section 10.1(b) to approve the particular form of any proposed
amendment or consent, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents (and any other
consents of Noteholders provided for in this Agreement) and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable requirements as the Issuer or Trustee, as applicable, may prescribe,
including the establishment of record dates.
(e) Prior to the execution of any amendment to this Agreement,
the Issuer shall be entitled to receive and rely upon an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by this
Agreement, in addition to the Opinion of Counsel
- 44 -
<PAGE>
referred to in Section 10.2(h). The Issuer may, but shall not be obligated to,
enter into any such amendment which affects the Issuer's own rights, duties or
immunities under this Agreement or otherwise.
SECTION 10.2. Protection of Title to Trust Assets.
(a) The Contributor shall execute and file such financing
statements and cause to be executed and filed such continuation and other
statements (including those prepared by the Servicer pursuant to Section
3.14(c)), all in such manner and in such places as may be required by law fully
to preserve, maintain and protect the interest of the Issuer, the Issuer and the
Trustee in the Trust Assets and in the proceeds thereof; except that (i) UCC-1
financing statements and continuation statements, listing the Obligor as debtor
and the related Equipment as collateral, need be filed only as required by
Section 3.5; and (ii) no assignments of any such financing statements relating
to the Equipment shall be filed to reflect the assignment of the Leases by
Vendor Services to the Contributor and by the Contributor to the Issuer. The
Contributor shall deliver (or cause to be delivered) to the Issuer and the
Trustee file-stamped copies of, or filing receipts for, any document filed as
provided above, as soon as available following such filing.
(b) Neither the Contributor nor the Issuer shall change its
name, identity or corporate structure in any manner that would, could or might
make any financing statement or continuation statement filed by the Contributor
in accordance with paragraph (a) above seriously misleading within the meaning
of Section 9-402(7) of the UCC, unless it shall have given the Issuer and the
Trustee at least 60 days' prior written notice thereof, and shall promptly file
appropriate amendments to all previously filed financing statements and
continuation statements.
(c) Each of the Contributor, the Servicer and the Issuer shall
give the Issuer and the Trustee at least 60 days' prior written notice of any
relocation of its principal executive office if, as a result of such relocation,
the applicable provisions of the UCC would require the filing of any amendment
of any previously filed financing or continuation statement or of any new
financing statement. The Servicer shall at all times maintain each office from
which it services Leases and its principal executive office within the United
States of America.
(d) The Servicer shall maintain accounts and records as to
each Lease accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Lease, including payments and recoveries
made and payments owing (and the nature of each) and (ii) reconciliation between
payments or recoveries on (or with respect to) each Lease and the amounts from
time to time deposited in the Collection Account in respect of such Lease.
(e) The Servicer shall maintain its computer systems so that,
from and after the time of transfer and assignment under this Agreement of the
Leases to the Issuer, the Servicer's master computer records (including any
backup archives) that refer to any Lease indicate clearly that the Lease is
owned by the Issuer. Indication of the Issuer's ownership of a Lease shall be
deleted from or modified on the Servicer's computer systems when, and only when,
the Lease has been paid in full, liquidated (including receipt of all recoveries
reasonably expected to be collected), a Substitute Lease substituted therefor,
or purchased by the Contributor or Vendor Services.
- 45 -
<PAGE>
(f) Upon receipt by the Servicer of reasonable prior notice,
Servicer shall permit the Issuer, the Trustee and their respective agents, at
any time during the Servicer's normal business hours to inspect, audit and make
copies of and abstracts from the Servicer's records regarding any Leases or any
other portion of the Trust Assets.
(g) The Servicer shall furnish to the Issuer and the Trustee
at any time upon request a list (which may, at the option of the Servicer, be on
a computer disk or other electronic storage medium) of all Leases then held as
part of the Trust Assets, together with a reconciliation of such list to the
Schedule of Leases and to each of the Servicer's Certificates furnished before
such request indicating removal of Leases from the Issuer. Upon request, the
Servicer shall furnish a copy of any list to the Contributor. Subject to the
following sentence, the Issuer shall hold any such list and Schedule of Leases
for examination by interested parties during normal business hours at the
Corporate Trust Office upon reasonable notice by such Persons of their desire to
conduct an examination. The Issuer shall and shall cause its representatives to
hold in confidence all information thereon relating to the identity of the
Obligors except to the extent disclosure may be required by ss. 9-208 of the UCC
or by other applicable law (and all reasonable applications for confidential
treatment are unavailing) and except to the extent that the Issuer may
reasonably determine that such disclosure is consistent with its obligations
under the Indenture.
(h) The Contributor and the Servicer shall deliver to the
Issuer and the Trustee simultaneously with the execution and delivery of this
Agreement and of each amendment thereto and upon the occurrence of the events
giving rise to an obligation to give notice pursuant to Section 10.2(b) or (c),
an Opinion of Counsel either (a) stating that, in the opinion of such Counsel,
all financing statements and continuation statements have been executed and
filed that are necessary fully to preserve and protect the interest of the
Issuer and the Trustee in the Leases and the other Trust Assets, and reciting
the details of such filings or referring to prior Opinions of Counsel in which
such details are given, or (b) stating that, in the opinion of such counsel, no
such action is necessary to preserve and protect such interest.
(i) The Servicer shall deliver to the Issuer and the Trustee,
within 90 days after the beginning of each calendar year beginning with the
first calendar year beginning more than three months after the Closing Date, an
Opinion of Counsel, either (a) stating that, in the opinion of such counsel, all
financing statements and continuation statements have been executed and filed
that are necessary fully to preserve and protect the interest of the Issuer and
the Trustee in the Leases, and reciting the details of such filings or referring
to prior Opinions of Counsel in which such details are given, or (b) stating
that, in the opinion of such counsel, no action shall be necessary to preserve
and protect such interest.
SECTION 10.3. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF AND THE OBLIGATIONS,
RIGHTS AND REMEDIES OF THE PARTIES UNDER THIS AGREEMENT SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
- 46 -
<PAGE>
SECTION 10.4. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Notes or the
respective rights of the Holders thereof.
SECTION 10.5. Assignment. Notwithstanding anything to the
contrary contained in this Agreement, except as provided in Section 7.2 or
Section 8.2 (and as provided in the provisions of the Agreement concerning the
resignation of the Servicer), this Agreement may not be assigned by the
Contributor or the Servicer without (i) the prior written consent of the Issuer,
the Trustee and a Note Majority, and (ii) satisfaction of the Rating Agency
Condition.
SECTION 10.6. Third-Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder, any benefit or any legal or equitable right, remedy or
claim under this Agreement.
SECTION 10.7. Counterparts. For the purpose of facilitating
its execution and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and all of which counterparts shall constitute but
one and the same instrument.
SECTION 10.8. Intention of Parties. The parties hereto intend
that, in the event that the conveyance of the Leases and other Trust Assets
pursuant to this Agreement is determined to be made as security for a loan made
by the Issuer or the Noteholders to the Contributor, the Contributor hereby
grants to the Issuer to secure such loan a first priority security interest in
all of the Contributor's right, title and interest in and to the rights and
property intended to be conveyed to the Issuer pursuant to Section 2.1(a). This
Agreement shall, in such event, constitute a security agreement under applicable
law.
SECTION 10.9. Notices. All demands, notices and communications
under this Agreement shall be in writing, personally delivered or mailed by
certified mail-return receipt requested, or by facsimile transmission, and shall
be deemed to have been duly given upon receipt (a) in the case of Vendor
Services, the Contributor, the Issuer or the Servicer, at the following address:
1100 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102,
Attention: General Counsel and (b) in the case of the Trustee, at its Corporate
Trust Office, or at such other address as shall be designated by any such party
in a written notice to the other parties.
SECTION 10.10. Income Tax Characterization. The Contributor
has structured the Indenture and the Notes with the intention that the Notes
will qualify under applicable federal, state, local and foreign tax law as
indebtedness of the Contributor secured by the Leases. The Contributor and the
Servicer agree to treat and to take no action inconsistent with the treatment of
the Notes as such indebtedness for purposes of federal, state, local and foreign
income or franchise taxes and any other tax imposed on or measured by income.
- 47 -
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Contributor, Vendor
Services, the Servicer and the Trustee have caused this Contribution and
Servicing Agreement to be duly executed by their respective officers as of the
day and year first above written.
ISSUER:
GREEN TREE LEASE FINANCE 1998-1, LLC
By GREEN TREE LEASE FINANCE II, INC.
By _____________________________________
Name: ______________________________
Title: _____________________________
CONTRIBUTOR:
GREEN TREE LEASE FINANCE II, INC.
By _____________________________________
Name: ______________________________
Title: _____________________________
GREEN TREE VENDOR SERVICES
CORPORATION
In its individual capacity and as Servicer
By _____________________________________
Name: ______________________________
Title: _____________________________
TRUSTEE:
U.S. BANK TRUST NATIONAL ASSOCIATION,
not in its individual capacity but solely
as Trustee
By _____________________________________
Name: ______________________________
Title: _____________________________
- 48 -
<PAGE>
EXHIBIT A
SCHEDULE OF LEASES AND EQUIPMENT
A-1
<PAGE>
EXHIBIT B
FORM OF SERVICER'S CERTIFICATE
The undersigned, on behalf of Green Tree Vendor Services
Corporation, in its capacity as servicer (the "Servicer") under the Contribution
and Servicing Agreement, dated as of December 1, 1998 (the "Contribution and
Servicing Agreement"), among Green Tree Lease Finance 1998-1, LLC, Green Tree
Lease Finance II, Inc., U.S. Bank Trust National Association, as trustee under
the Indenture, and Green Tree Vendor Services Corporation, in its individual
capacity and as Servicer, DOES HEREBY CERTIFY that he/she is a Responsible
Officer of the Servicer and, pursuant to Section 3.9 of the Contribution and
Servicing Agreement, DOES HEREBY FURTHER CERTIFY the following with respect to
the Payment Date occurring on _____________________:
B-1
<PAGE>
This Certificate shall constitute the Servicer's Certificate
required by Section 3.9 of the Contribution and Servicing Agreement with respect
to the above Payment Date. Any term capitalized but not defined herein shall
have the meaning ascribed thereto in the Contribution and Servicing Agreement.
IN WITNESS WHEREOF the undersigned has hereunto set his/her
hand this __________ day of ______________, ______.
GREEN TREE VENDOR SERVICES
CORPORATION
By _____________________________________
Name: ______________________________
Title: _____________________________
B-2
<PAGE>
EXHIBIT 4.3
GREEN TREE LEASE FINANCE 1998-1, LLC
____% LEASE-BACKED NOTES, CLASS A-1
____% LEASE-BACKED NOTES, CLASS A-2
____% LEASE-BACKED NOTES, CLASS A-3
____% LEASE-BACKED NOTES, CLASS A-4
____% LEASE-BACKED NOTES, CLASS B
____% LEASE-BACKED NOTES, CLASS C
INDENTURE
DATED AS OF DECEMBER 1, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
TRUSTEE
<PAGE>
CROSS REFERENCE TABLE
TIA Indenture
Section Section
- ------- ---------
310(a)(1)...................................................... 6.11
(a)(2)...................................................... 6.11
(a)(3)...................................................... 6.10
(a)(4)...................................................... N.A.(2)
(a)(5)...................................................... 6.11
(b)......................................................... 6.08; 6.11
(c)......................................................... N.A.
311(a)......................................................... 6.12
(b)......................................................... 6.12
(c)......................................................... N.A.
312(a)......................................................... 7.01
(b)......................................................... 7.02
(c)......................................................... 7.02
313(a)......................................................... 7.04
(b)(1)...................................................... 7.04
(b)(2)...................................................... 7.04
(c)......................................................... 11.05
(d)......................................................... 7.04
314(a)......................................................... 7.03
(b)......................................................... 3.06;
11.15
(c)(1)...................................................... 11.01
(c)(2)...................................................... 11.01
(c)(3)...................................................... 11.01
(d)......................................................... 11.01
(e)......................................................... 11.01
(f)......................................................... 11.01
315(a)......................................................... 6.01
(b)......................................................... 6.05;
11.05
(c)......................................................... 6.01
(d)......................................................... 6.01
(e)......................................................... 5.14
316(a)(last sentence).......................................... 1.01
(a)(1)(A)................................................... 5.12
(a)(1)(B)................................................... 5.13
(a)(2)...................................................... N.A.
(b)......................................................... 5.08
(c)......................................................... N.A.
317(a)(1)...................................................... 5.03
(a)(2)...................................................... 5.03
(b)......................................................... 3.03
318(a)......................................................... 11.07
- ----------------
1 Note: This Cross Reference Table shall not, for any purpose, be deemed to be
part of this Indenture.
2 N.A. means Not Applicable.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I Definitions and Incorporation by Reference ................................... 3
SECTION 1.01. Definitions .......................................................... 3
SECTION 1.02. Incorporation by Reference of Trust Indenture Act .................... 22
SECTION 1.03. Rules of Construction ................................................ 22
ARTICLE II The Notes .................................................................... 24
SECTION 2.01. Form ................................................................. 24
SECTION 2.02. Execution, Authentication and Delivery ............................... 24
SECTION 2.03. Temporary Notes ...................................................... 25
SECTION 2.04. Registration; Registration of Transfer and Exchange .................. 25
SECTION 2.05. Mutilated, Destroyed, Lost or Stolen Notes ........................... 26
SECTION 2.06. Person Deemed Owner .................................................. 27
SECTION 2.07. Payment of Principal and Interest; Defaulted Interest ................ 28
SECTION 2.08. Cancellation ......................................................... 28
SECTION 2.09. Book-Entry Notes ..................................................... 29
SECTION 2.10. Notices to Depository ................................................ 30
SECTION 2.11. Definitive Notes ..................................................... 30
SECTION 2.12. Calculations ......................................................... 30
ARTICLE III Covenants ................................................................... 31
SECTION 3.01. Payment of Principal and Interest .................................... 31
SECTION 3.02. Maintenance of Office or Agency ...................................... 31
SECTION 3.03. Money for Payments To Be Held in Trust ............................... 31
SECTION 3.04. Existence ............................................................ 33
SECTION 3.05. Protection of Trust Estate ........................................... 33
SECTION 3.06. Opinions as to Trust Estate .......................................... 34
SECTION 3.07. Performance of Obligations; Servicing of Leases ...................... 34
SECTION 3.08. Negative Covenants ................................................... 36
SECTION 3.09. Annual Statement as to Compliance .................................... 36
SECTION 3.10. Issuer May Consolidate or Merge Only on Certain Terms ................ 37
SECTION 3.11. Successor or Transferee .............................................. 39
SECTION 3.12. No Other Business .................................................... 39
SECTION 3.13. No Borrowing ......................................................... 39
SECTION 3.14. Servicer's Obligations ............................................... 39
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities .................... 40
SECTION 3.16. Income Tax Characterization ......................................... 40
SECTION 3.17. Restricted Payments .................................................. 40
SECTION 3.18. Notice of Events of Default........................................... 40
SECTION 3.19. Further Instruments and Acts ......................................... 40
SECTION 3.20. Compliance with Laws ................................................. 41
SECTION 3.21. Amendments of Contribution and Servicing Agreement ................... 41
SECTION 3.22. Issuer Obligation .................................................... 41
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV Satisfaction and Discharge ................................................... 42
SECTION 4.01. Satisfaction and Discharge of Indenture .............................. 42
SECTION 4.02. Application of Trust Money ........................................... 43
SECTION 4.03. Repayment of Moneys Held by Paying Agent ............................. 43
SECTION 4.04. Release of Trust Estate .............................................. 43
ARTICLE V Remedies ...................................................................... 44
SECTION 5.01. Events of Default .................................................... 44
SECTION 5.02. Rights upon Event of Default ......................................... 45
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee; Authority of Trustee ........................................ 45
SECTION 5.04. Remedies ............................................................. 47
SECTION 5.05. Optional Preservation of the Leases .................................. 48
SECTION 5.06. Priorities ........................................................... 48
SECTION 5.07. Limitation of Suits .................................................. 49
SECTION 5.08. Unconditional Rights of Noteholders To Receive Principal and
Interest ............................................................. 50
SECTION 5.09. Restoration of Rights and Remedies ................................... 50
SECTION 5.10. Rights and Remedies Cumulative ....................................... 51
SECTION 5.11. Delay or Omission Not a Waiver ....................................... 51
SECTION 5.12. Control by Noteholders ............................................... 51
SECTION 5.13. Waiver of Past Defaults .............................................. 51
SECTION 5.14. Undertaking for Costs ................................................ 52
SECTION 5.15. Waiver of Stay or Extension Laws ..................................... 52
SECTION 5.16. Action on Notes ...................................................... 52
SECTION 5.17. Performance and Enforcement of Certain Obligations ................... 53
ARTICLE VI The Trustee .................................................................. 54
SECTION 6.01. Duties of Trustee .................................................... 54
SECTION 6.02. Rights of Trustee .................................................... 56
SECTION 6.03. Individual Rights of Trustee ......................................... 57
SECTION 6.04. Trustee's Disclaimer ................................................. 58
SECTION 6.05. Notice of Defaults ................................................... 58
SECTION 6.06. Reports by Trustee to Holders ........................................ 58
SECTION 6.07. Compensation and Indemnity ........................................... 58
SECTION 6.08. Replacement of Trustee ............................................... 59
SECTION 6.09. Successor Trustee by Merger .......................................... 60
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee ........................ 61
SECTION 6.11. Eligibility; Disqualification ........................................ 62
SECTION 6.12. Preferential Collection of Claims Against Issuer ..................... 62
SECTION 6.13. Representations and Warranties of the Trustee ........................ 62
SECTION 6.14. Servicer's Obligations ............................................... 63
ARTICLE VII Noteholders' Lists and Reports .............................................. 64
SECTION 7.01. Note Registrar To Furnish Trustee Names and Addresses to
Noteholders .......................................................... 64
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
SECTION 7.02. Preservation of Information; Communications to Noteholders ........ 64
SECTION 7.03. Reports by Issuer ................................................. 64
SECTION 7.04. Reports by Trustee ................................................ 65
SECTION 7.05. Statements to Noteholders and Equity Certificateholders ........... 65
ARTICLE VIII Trust Accounts, Disbursements and Releases .............................. 66
SECTION 8.01. Collection of Money ............................................... 66
SECTION 8.02. Collection Account ................................................ 66
SECTION 8.03. Distributions ..................................................... 66
SECTION 8.04. [Reserved] ........................................................ 67
SECTION 8.05. Servicing Account ................................................. 68
SECTION 8.06. Residual Account .................................................. 68
SECTION 8.07. Reserve Account ................................................... 68
SECTION 8.08. General Provisions Regarding Servicing Account, Collection
Account, Residual Account and Reserve Account ..................... 70
ARTICLE IX Supplemental Indentures ................................................... 72
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders ............ 73
SECTION 9.02. Supplemental Indentures With Consent of Noteholders ............... 73
SECTION 9.03. Execution of Supplemental Indentures .............................. 75
SECTION 9.04. Effect of Supplemental Indenture .................................. 75
SECTION 9.05. Conformity With Trust Indenture Act ............................... 75
SECTION 9.06. Reference in Notes to Supplemental Indentures ..................... 75
ARTICLE X Redemption of Notes ........................................................ 76
SECTION 10.01. Redemption ........................................................ 76
SECTION 10.02. Form of Redemption Notice ......................................... 76
SECTION 10.03. Notes Payable on Redemption Date .................................. 77
ARTICLE XI Miscellaneous ............................................................. 78
SECTION 11.01. Compliance Certificates and Opinions, etc. ........................ 78
SECTION 11.02. Form of Documents Delivered to Trustee ............................ 80
SECTION 11.03. Acts of Noteholders ............................................... 81
SECTION 11.04. Notices, etc., to Trustee, Issuer and Rating Agencies ............. 81
SECTION 11.05. Notices to Noteholders; Waiver .................................... 82
SECTION 11.06. Alternate Payment and Notice Provisions ........................... 82
SECTION 11.07. Conflict with Trust Indenture Act ................................. 83
SECTION 11.08. Effect of Headings and Table of Contents .......................... 83
SECTION 11.09. Successors and Assigns ............................................ 83
SECTION 11.10. Severability ...................................................... 83
SECTION 11.11. Benefits of Indenture ............................................. 83
SECTION 11.12. Legal Holidays .................................................... 83
SECTION 11.13. Governing Law ..................................................... 38
SECTION 11.14. Counterparts ...................................................... 84
SECTION 11.15. Recording of Indenture ............................................ 84
SECTION 11.16. No Petition ....................................................... 84
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 11.17. Inspection ........................................................ 84
Testimonium, Signatures and Seals...................................................... 85
</TABLE>
Exhibit A Form of Depository Agreement
Exhibit B Form of Monthly Statements to Noteholders
Exhibit C-1 Form of Class A Note
Exhibit C-2 Form of Class B Note
Exhibit C-3 Form of Class C Note
-iv-
<PAGE>
INDENTURE, dated as of December 1, 1998, between GREEN TREE LEASE FINANCE
1998-1, LLC, a limited liability company formed pursuant to the laws of the
State of Delaware (the "Issuer"), and U.S. Bank Trust National Association, a
national banking association organized and existing under the laws of the United
States of America, in its capacity as Trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Issuer's ____% Lease-Backed
Notes, Class A-1 (the "Class A-1 Notes"), ____% Lease-Backed Notes, Class A-2
(the "Class A-2 Notes"), ____% Lease-Backed Notes, Class A-3 (the "Class A-3
Notes"), ____% Lease-Backed Notes, Class A-4 (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"), ____% Lease-Backed Notes, Class B (the "Class B Notes")
and ____% Lease-Backed Notes, Class C (the "Class C Notes" and, together with
the Class A Notes and the Class B Notes, the "Notes"):
As security for the payment and performance by the Issuer of its
obligations under this Indenture and the Notes, the Issuer hereby Grants to the
Trustee, on behalf of and for the benefit of the Noteholders to secure the
payment and performance of the Secured Obligations, the following (collectively,
the "Trust Estate"):
GRANTING CLAUSE FIRST
All rights, title, interest (including security interests) and privileges
of the Issuer, whether now owned or hereafter acquired, whether now existing or
hereafter arising and wherever located, in and to:
(a) the Leases, including, without limitation, (A) all monies at any
time paid or payable thereon or in respect thereof from and after the
Initial Cut-Off Date or, in the case of Substitute Leases, the applicable
Cut-Off Date, in the form of (1) Scheduled Payments (including those
Scheduled Payments due prior to, but not received as of, the Cut-Off Date,
but excluding those Scheduled Payments due on or after, but received prior
to, the Cut-Off Date), (2) Prepayments, and (3) Liquidation Proceeds
(including all net proceeds from the disposition of the related Equipment);
(b) the Pledged Revenues;
(c) all rights of the lessor or the secured party, as the case may be,
in all present or future leases and other contracts relating to the
Equipment and all revenues, payments, rights to payment, profits, accounts,
chattel paper, products and contract rights arising from or related to such
Equipment or any use thereof or from any such lease or other contract;
(d) all rights of the lessor or secured party, as the case may be, in
all Insurance Policies and any other security (other than any ownership
interest of the lessor in the Equipment) for the payment of amounts due
under the Leases (including all rights, if any,
<PAGE>
the lessor or the secured party may have against vendors and other
third parties for payments of such amounts);
(e) all items contained in the related Lease Files and any and all
other documents that are kept on file in accordance with Vendor Services's
customary procedures relating to the Leases;
(f) the Residual Realizations;
(g) the Trust Accounts, including amounts on deposit in the Residual
Account and Reserve Account;
(h) the Insurance, Maintenance and Tax Accounts;
(i) the Contribution and Servicing Agreement, including (i) any deemed
loan made by the Issuer to the SPC and the security therefor, including the
security interest granted by the SPC to the Issuer to secure such deemed
loan, as described in Section 2.1(c) of the Contribution and Servicing
Agreement, and (ii) the obligation of the SPC pursuant to Section
2.1(a)(i)(3) of the Contribution and Servicing Agreement to cause payment
of the Residual Realizations to the Issuer and the security interest in the
Equipment granted by the SPC to the Issuer pursuant to Section 2.1(b) of
the Contribution and Servicing Agreement;
(j) the Transfer Agreement, including (i) any Purchase Amount paid and
(ii) any deemed loan made by the SPC to Vendor Services and the security
therefor, including the security interest in the Leases and Equipment
granted by Vendor Services to the SPC to secure such deemed loan, as
described in Section 2.2 of the Transfer Agreement; and
(k) all present and future claims, demands, causes and choses in
action in respect of any or all of the foregoing and all payments on or
under and all proceeds of every kind and nature whatsoever in respect of
any or all of the foregoing, including all proceeds of the conversion,
voluntary or involuntary, into cash or other liquid property, all cash
proceeds, accounts, accounts receivables, notes, drafts, acceptances,
chattel paper, checks, deposit accounts, insurance proceeds, condemnation
awards, rights to payment of any and every kind and other forms of
obligations and receivables, instruments and other property which at any
time constitute all or part of or are included in the proceeds of any of
the foregoing.
GRANTING CLAUSE SECOND
All other property of every name and nature from time to time hereafter by
delivery or by writing of any kind conveyed, pledged, assigned or transferred,
as and for additional security hereunder by the Issuer or by anyone in its
behalf or with its written consent to the Trustee, which is hereby authorized to
receive any and all such property at any and all times and to hold and apply the
same subject to the terms hereof.
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The Trustee, for the benefit of the Holders of the Notes, acknowledges such
Grant. The Trustee, on behalf of the Holders of the Notes, accepts the trusts
under this Indenture in accordance with the provisions of this Indenture and
agrees to perform its duties required in this Indenture to the best of its
ability to the end that the interests of the Holders of the Notes may be
adequately and effectively protected.
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ARTICLE I
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
All terms defined in the Contribution and Servicing Agreement (as defined
below) shall have the same meaning in this Indenture. Except as otherwise
specified herein or as the context may otherwise require, the following terms
have the respective meanings set forth below for all purposes of this Indenture.
"Accounting Date" means, with respect to a Payment Date, the last day of
the preceding calendar month.
"Act" has the meaning specified in Section 11.03(a).
"Additional Principal" with respect to each Payment Date is an amount equal
to (a) the Monthly Principal Amount, less (b) the Class A Principal Payment, the
Class B Principal Payment and the Class C Principal Payment to be paid on such
Payment Date.
"Affiliate" means, with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregate Principal Amount" means, as of any date, the aggregate of the
Outstanding Principal Amounts of each Class of Notes.
"Amount Available" means, with respect to any Payment Date, the sum of (i)
the Available Pledged Revenues for such Payment Date, (ii) Servicer Advances,
(iii) funds on deposit in the Residual Account and (iv) funds on deposit in the
Reserve Account.
"Authorized Officer" means, with respect to the Issuer, any officer of the
Issuer who is authorized to act for the Issuer and who is identified on the list
of Authorized Officers delivered by the Issuer to the Trustee on the Closing
Date (as such list may be modified or supplemented from time to time
thereafter).
"Available Funds Shortfall" has the meaning specified in Section 8.06(c).
"Available Pledged Revenues" means, with respect to any Payment Date, the
sum of (i) those Scheduled Payments due during the related Collection Period and
on deposit in the Collection Account as of the immediately preceding Deposit
Date, (ii) prepayments and Liquidation Proceeds received by the Servicer during
the related Collection Period, (iii) all Purchase Amounts on deposit in the
Collection Account as of the immediately preceding Deposit
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Date, (iv) the amount paid by the SPC to purchase the Leases pursuant to Section
5.1 of the Contribution and Servicing Agreement on deposit in the Collection
Account as of the immediately preceding Deposit Date and (v) all net income from
investments of funds in the Collection Account since the preceding Deposit Date.
"Available Reserve Amount" means the amount on deposit in the Reserve
Account.
"Book-Entry Note" means any Note registered in the name of the Depository
or its nominee, ownership of which is reflected on the books of the Depository
or on the books of a person maintaining an account with such Depository
(directly or as an indirect participant in accordance with the rules of such
Depository).
"Business Day" means any day (other than a Saturday, Sunday or legal
holiday) on which commercial banking institutions in St. Paul, Minnesota, or any
other location of any successor Servicer or successor Trustee, are open for
regular business.
"Class" means, when used with respect to the Notes, all Notes of a given
Class.
"Class A Notes" means, collectively, the Class A-1 Notes, the Class A-2
Notes, the Class A-3 Notes and the Class A-4 Notes.
"Class A Percentage" is ____%.
"Class A Principal Payment" means (a) while the Class A-1 Notes are
outstanding, (i) on all Payment Dates prior to the ____ Payment Date, the lesser
of (1) the amount necessary to reduce the Outstanding Principal Amount on the
Class A-1 Notes to zero and (2) the Monthly Principal Amount, and (ii) on the
____ Payment Date, the entire Outstanding Principal Amount on the Class A-1
Notes and (b) after the Class A-1 Notes have been paid in full, the amount
necessary to reduce the aggregate Outstanding Principal Amount on the Class A
Notes to the Class A Target Investor Principal Amount.
"Class A Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class A Percentage and (b) the
Lease Pool Principal Balance with respect to such Payment Date.
"Class A-1 Interest Carryover Shortfall" means, with respect to any Payment
Date, the excess, if any, of the Class A-1 Interest Distributable Amount for the
preceding Payment Date over the amount that was actually distributed in respect
of interest on the Class A-1 Notes on such preceding Payment Date, plus, to the
extent permitted by law, an amount equal to the product of (i) the Class A-1
Interest Rate, (ii) such excess, and (iii) a fraction, the numerator of which is
the actual number of days elapsed since the preceding Payment Date (or the
Closing Date, in the case of the first Payment Date) and the denominator of
which is 360.
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"Class A-1 Interest Distributable Amount" means, with respect to any
Payment Date, the sum of the Class A-1 Monthly Interest Distributable Amount and
the Class A-1 Interest Carryover Shortfall for such Payment Date.
"Class A-1 Interest Rate" means ____% per annum.
"Class A-1 Monthly Interest Distributable Amount" means, with respect to
any Payment Date, an amount equal to the product of (i) the Class A-1 Interest
Rate, (ii) the Outstanding Principal Amount of the Class A-1 Notes for such
Payment Date (or, in the case of the first Payment Date, the Original Principal
Amount of the Class A-1 Notes), and (iii) a fraction, the numerator of which is
the actual number of days elapsed since the preceding Payment Date (or the
Closing Date, in the case of the first Payment Date) and the denominator of
which is 360.
"Class A-1 Notes" means the ____% Lease-Backed Notes, Class A-1,
substantially in the form of Exhibit C-1.
"Class A-1 Stated Maturity Date" means ____________ (or, if such day is not
a Business Day, the next succeeding Business Day thereafter).
"Class A-2 Interest Carryover Shortfall" means, with respect to any Payment
Date, the excess, if any, of the Class A-2 Interest Distributable Amount for the
preceding Payment Date over the amount that was actually distributed in respect
of interest on the Class A- 2 Notes on such preceding Payment Date, plus, to the
extent permitted by law, an amount equal to one-twelfth of the product of (i)
the Class A-2 Interest Rate and (ii) such excess.
"Class A-2 Interest Distributable Amount" means, with respect to any
Payment Date, the sum of the Class A-2 Monthly Interest Distributable Amount and
the Class A-2 Interest Carryover Shortfall for such Payment Date.
"Class A-2 Interest Rate" means ____% per annum.
"Class A-2 Monthly Interest Distributable Amount" means, with respect to
any Payment Date other than the first Payment Date, an amount equal to
one-twelfth of the product of (i) the Class A-2 Interest Rate and (ii) the
Outstanding Principal Amount of the Class A-2 Notes for such Payment Date, and,
in the case of the first Payment Date, an amount equal to the product of (i) the
Class A-2 Interest Rate, (ii) the Original Principal Amount of the Class A-2
Notes, and (iii) a fraction, the numerator of which is __ and the denominator of
which is 360.
"Class A-2 Notes" means the ____% Lease-Backed Notes, Class A-2,
substantially in the form of Exhibit C-1.
"Class A-2 Stated Maturity Date" means ____________ (or, if such day is not
a Business Day, the next succeeding Business Day thereafter).
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"Class A-3 Interest Carryover Shortfall" means, with respect to any Payment
Date, the excess, if any, of the Class A-3 Interest Distributable Amount for the
preceding Payment Date over the amount that was actually distributed in respect
of interest on the Class A- 3 Notes on such preceding Payment Date, plus, to the
extent permitted by law, an amount equal to one-twelfth of the product of (i)
the Class A-3 Interest Rate and (ii) such excess.
"Class A-3 Interest Distributable Amount" means, with respect to any
Payment Date, the sum of the Class A-3 Monthly Interest Distributable Amount and
the Class A-3 Interest Carryover Shortfall for such Payment Date.
"Class A-3 Interest Rate" means ____% per annum.
"Class A-3 Monthly Interest Distributable Amount" means, with respect to
any Payment Date other than the first Payment Date, an amount equal to
one-twelfth of the product of (i) the Class A-3 Interest Rate and (ii) the
Outstanding Principal Amount of the Class A-3 Notes for such Payment Date, and,
in the case of the first Payment Date, an amount equal to the product of (i) the
Class A-3 Interest Rate, (ii) the Original Principal Amount of the Class A-3
Notes, and (iii) a fraction, the numerator of which is __ and the denominator of
which is 360.
"Class A-3 Notes" means the ____% Lease-Backed Notes, Class A-3,
substantially in the form of Exhibit C-1.
"Class A-3 Stated Maturity Date" means ____________ (or, if such day is not
a Business Day, the next succeeding Business Day thereafter).
"Class A-4 Interest Carryover Shortfall" means, with respect to any Payment
Date, the excess, if any, of the Class A-4 Interest Distributable Amount for the
preceding Payment Date over the amount that was actually distributed in respect
of interest on the Class A-4 Notes on such preceding Payment Date, plus, to the
extent permitted by law, an amount equal to one-twelfth of the product of (i)
the Class A-4 Interest Rate and (ii) such excess.
"Class A-4 Interest Distributable Amount" means, with respect to any
Payment Date, the sum of the Class A-4 Monthly Interest Distributable Amount and
the Class A-4 Interest Carryover Shortfall for such Payment Date.
"Class A-4 Interest Rate" means ____% per annum.
"Class A-4 Monthly Interest Distributable Amount" means, with respect to
any Payment Date other than the first Payment Date, an amount equal to
one-twelfth of the product of (i) the Class A-4 Interest Rate and (ii) the
Outstanding Principal Amount of the Class A-4 Notes for such Payment Date, and,
in the case of the first Payment Date, an amount equal to the product of (i) the
Class A-4 Interest Rate, (ii) the Original Principal Amount of the Class A-4
Notes, and (iii) a fraction, the numerator of which is __ and the denominator of
which is 360.
"Class A-4 Notes" means the ____% Lease-Backed Notes, Class A-4,
substantially in the form of Exhibit C-1.
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"Class A-4 Stated Maturity Date" means ____________ (or, if such day is not
a Business Day, the next succeeding Business Day thereafter).
"Class B Floor" with respect to each Payment Date means (a) ____% of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with respect
to such Payment Date, minus (c) the Outstanding Principal Amount of the Class C
Notes as of such Payment Date and the amount on deposit in the Reserve Account
after giving effect to withdrawals to be made on such Payment Date.
"Class B Interest Carryover Shortfall"means, with respect to any Payment
Date, the excess, if any, of the Class B Interest Distributable Amount for the
preceding Payment Date over the amount that was actually distributed in respect
of interest on the Class B Notes on such preceding Payment Date, plus, to the
extent permitted by law, an amount equal to one-twelfth of the product of (i)
the Class B Interest Rate and (ii) such excess.
"Class B Interest Distributable Amount" means, with respect to any Payment
Date, the sum of the Class B Monthly Interest Distributable Amount and the Class
B Interest Carryover Shortfall for such Payment Date.
"Class B Interest Rate" means ____% per annum.
"Class B Monthly Interest Distributable Amount" means, with respect to any
Payment Date other than the first Payment Date, an amount equal to one-twelfth
of the product of (i) the Class B Interest Rate and (ii) the Outstanding
Principal Amount of the Class B Notes for such Payment Date, and, in the case of
the first Payment Date, an amount equal to the product of (i) the Class B
Interest Rate, (ii) the Original Principal Amount of the Class B Notes, and
(iii) a fraction, the numerator of which is __ and the denominator of which is
360.
"Class B Notes" means the ____% Lease-Backed Notes, Class B, substantially
in the form of Exhibit C-2.
"Class B Percentage" is ____%.
"Class B Principal Payment" shall equal (a) while the Class A-1 Notes are
outstanding, zero and (b) after the Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class B Notes to the greater of the Class B
Target Investor Principal Amount and the Class B Floor.
"Class B Stated Maturity Date" means ____________ (or, if such day is not a
Business Day, the next succeeding Business Day thereafter).
"Class B Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class B Percentage and (b) the
Lease Pool Principal Balance with respect to such Payment Date.
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"Class C Floor" with respect to each Payment Date means (a) ____% of the
Initial Pool Principal Balance, plus (b) the Cumulative Loss Amount with respect
to such Payment Date minus (c) the amount on deposit in the Reserve Account
after giving effect to withdrawals to be made on such Payment Date; provided
that if the Outstanding Principal Amount of the Class B Notes is equal to the
Class B Floor on such Payment Date, the Class C Floor will equal the Outstanding
Principal Amount of the Class C Notes of the Class C Notes on such Payment Date.
"Class C Interest Carryover Shortfall"means, with respect to any Payment
Date, the excess, if any, of the Class C Interest Distributable Amount for the
preceding Payment Date over the amount that was actually distributed in respect
of interest on the Class C Notes on such preceding Payment Date, plus, to the
extent permitted by law, an amount equal to one-twelfth of the product of (i)
the Class C Interest Rate and (ii) such excess.
"Class C Interest Distributable Amount" means, with respect to any Payment
Date, the sum of the Class C Monthly Interest Distributable Amount and the Class
C Interest Carryover Shortfall for such Payment Date.
"Class C Interest Rate" means ____% per annum.
"Class C Monthly Interest Distributable Amount" means, with respect to any
Payment Date other than the first Payment Date, an amount equal to one-twelfth
of the product of (i) the Class C Interest Rate and (ii) the Outstanding
Principal Amount of the Class C Notes for such Payment Date, and, in the case of
the first Payment Date, an amount equal to the product of (i) the Class C
Interest Rate, (ii) the Original Principal Amount of the Class C Notes, and
(iii) a fraction, the numerator of which is __ and the denominator of which is
360.
"Class C Notes" means the ____% Lease-Backed Notes, Class C, substantially
in the form of Exhibit C-3.
"Class C Percentage" is ____%.
"Class C Principal Payment" shall equal (a) while the Class A-1 Notes are
outstanding, zero and (b) after the Outstanding Principal Amount on the Class
A-1 Notes has been reduced to zero, the amount necessary to reduce the
Outstanding Principal Amount of the Class C Notes to the greater of the Class C
Target Investor Principal Amount and the Class C Floor.
"Class C Stated Maturity Date" means ____________ (or, if such day is not a
Business Day, the next succeeding Business Day thereafter).
"Class C Target Investor Principal Amount" with respect to each Payment
Date is an amount equal to the product of (a) the Class C Percentage and (b) the
Lease Pool Principal Balance with respect to such Payment Date.
"Closing Date" means December ___, 1998.
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"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and Treasury Regulations promulgated thereunder.
"Collection Account" means the Eligible Account or Accounts established and
maintained by the Trustee in accordance with Section 8.02.
"Collection Period" means, with respect to any Payment Date, the calendar
month preceding the month in which such Payment Date occurs (such calendar month
being referred to as the "related" Collection Period with respect to such
Payment Date). With respect to an Accounting Date, the Collection Period in
which such Accounting Date occurs is referred to herein as the "related"
Collection Period with respect to such Accounting Date.
"Contribution and Servicing Agreement" means the Contribution and Servicing
Agreement, dated as of December 1, 1998, among the SPC, the Servicer, the
Trustee and the Issuer.
"Corporate Trust Office" means the principal office of the Trustee at which
at any particular time its corporate trust business shall be administered, which
office at date of the execution of this Agreement is located at 180 East Fifth
Street, St. Paul, Minnesota 55101, Attention: Corporate Trust Administration,
Structured Finance; or at such other address as the Trustee may designate from
time to time by notice to the Noteholders and the Issuer, or the principal
corporate trust office of any successor Trustee (the address of which the
successor Trustee will notify the Noteholders and the Issuer).
"Cumulative Loss Amount" means, with respect to each Payment Date, an
amount equal to the excess, if any, of (a) the total of (i) the Aggregate
Principal Amount for such Payment Date, minus (ii) the lesser of (A) the Monthly
Principal Amount and (B) the Amount Available remaining after the payment of
amounts owing to the Servicer (other than the Servicing Fee to the extent that
Vendor Services is the Servicer) and in respect of interest on the Notes on such
Payment Date, over (b) the Lease Pool Principal Balance with respect to such
Payment Date.
"Cumulative Loss Percentage" means, with respect to each Payment Date, the
percentage equivalent of a fraction (a) the numerator of which is an amount
equal to the Discounted Present Value of all Leases that have become Liquidated
Leases since the Initial Closing Date, less any recoveries received by the
Issuer in respect thereof and (b) the denominator of which is the Initial Pool
Principal Balance.
"Cut-Off Date" means the Initial Cut-Off Date or, in the case of a
Substitute Lease, the first day of the month of transfer to the Issuer.
"Default" means any occurrence that is, or with notice or the lapse of time
or both would become, an Event of Default.
"Definitive Notes" means any Note evidenced by a definitive, fully
registered Note and any Note issued in lieu of a Book-Entry Note pursuant to
Section 2.11.
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"Delinquent Lease" means, as of any Determination Date, any Lease (other
than a Lease that became a Liquidated Lease prior to such Determination Date)
with respect to which the Obligor has not made all Scheduled Payments then due.
"Deposit Date" means, with respect to any Collection Period, the Business
Day immediately preceding the related Determination Date.
"Depository" means the initial Depository, The Depository Trust Company,
the nominee of which is Cede & Co., as the registered Holder of the Class A
Notes, the Class B Notes and the Class C Notes as of the Closing Date, and any
permitted successor depository. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(a)(5) of the Minnesota UCC.
"Depository Agreement" means the agreement among the Issuer, the Trustee
and The Depository Trust Company, as the initial Depository, dated as of the
Closing Date, relating to the Notes, substantially in the form of Exhibit A.
"Depository Participant" means a broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
"Determination Date" means, with respect to any Collection Period, the
first Business Day immediately preceding the related Payment Date.
"Eligible Account" means (i) an account maintained at an Eligible
Institution; (ii) an account or accounts the deposits in which are fully insured
by either the Bank Insurance Fund or the Savings Association Insurance Fund of
the FDIC; (iii) a trust account (which shall be a "segregated trust account")
maintained with the corporate trust department of a federal or state chartered
depository institution or trust company with trust powers and acting in its
fiduciary capacity for the benefit of the Trustee, which depository institution
or trust company (or, if such depository institution or trust company is a
subsidiary of a bank holding company, such bank holding company) shall have
capital and surplus of not less than $50,000,000 and the securities of such
depository institution or trust company (or, if such depository institution or
trust company is a subsidiary of a bank holding company and has no securities
which are rated, the securities of such bank holding company) shall have a
credit rating from each of the Rating Agencies (if rated by such Rating Agency)
in one of its generic credit rating categories which signifies investment grade;
or (iv) an account that will not cause any Rating Agency to downgrade or
withdraw its then-current rating assigned to the Notes, as confirmed in writing
by such Rating Agency.
"Eligible Institution" means any depository institution (which may be the
Trustee or an Affiliate of the Trustee) organized under the laws of the United
States or any state, the deposits of which are insured to the full extent
permitted by law by the Bank Insurance Fund of the FDIC, which is subject to
supervision and examination by federal or state authorities and whose short-term
deposits, commercial paper or other short-term debt obligations have been rated
at least A-1 by S&P and F1 by Fitch (if rated by Fitch) or whose unsecured
long-term debt
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has been rated in one of the two highest rating categories by each Rating Agency
(if rated by such Rating Agency).
"Eligible Investments" means any one or more of the following types of
investments:
(i) direct obligations of, and obligations fully guaranteed as to
timely receipt of principal and interest by, the United States of America,
or any agency or instrumentality of the United States of America the
obligations of which are backed by the full faith and credit of the United
States of America;
(ii) demand and time deposits in, certificates of deposit of, bankers'
acceptances issued by, or federal funds sold by any depository institution
or trust company (including the Trustee or any Affiliate of the Trustee,
acting in its commercial capacity) incorporated under the laws of the
United States of America or any state thereof and subject to supervision
and examination by federal or state authorities, so long as, at the time of
such investment or contractual commitment providing for such investment,
the short-term deposits, commercial paper or other short-term debt
obligations of such depository institution or trust company are rated at
least A-1+ by S&P and F1+ by Fitch (if rated by Fitch);
(iii) shares of an investment company registered under the Investment
Company Act of 1940, whose shares are registered under the Securities Act
of 1933, as amended, and have the highest credit rating then available from
Fitch (if rated by Fitch) and are rated AAAm or AAAm-G by S&P and whose
only investments are in securities described in clauses (i) and (ii) above
and (iv) below;
(iv) repurchase obligations with respect to (A) any security described
in clause (i) above or (B) any other security issued or guaranteed by an
agency or instrumentality of the United States of America, in either case
entered into with a depository institution or trust company (acting as
principal) described in clause (ii)(A) above;
(v) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any state thereof which, at the time of such investment, have a credit
rating of at least AAA from S&P and AAA from Fitch (if rated by Fitch);
(vi) commercial paper having a rating of at least A-1+ by S&P and F1+
by Fitch (if rated by Fitch) at the time of such investment;
(vii) investments in money market funds rated in the highest rating
category by each of S&P and Fitch (if rated by Fitch); and
(viii) any other investment which will not cause any Rating Agency to
downgrade or withdraw its then-current rating assigned to the Notes, as
confirmed in writing by such Rating Agency.
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Eligible Investments may be purchased by or through the Trustee or any of its
Affiliates.
"Equipment" means the property which is leased pursuant to a Lease, or
which otherwise provides security for the payment of amounts payable thereunder.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means, with respect to any corporation, the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer, President,
Executive Vice President, any Vice President, any Responsible Officer, the
Secretary or the Treasurer of such corporation; and with respect to any
partnership, any general partner thereof.
"Fitch" means Fitch IBCA, Inc., or any successor thereto.
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate, remise,
release, convey, assign, transfer, create, and grant a lien upon and a security
interest in and right of set-off against, deposit, set over and confirm pursuant
to this Indenture. A Grant of the Trust Estate or of any other agreement or
instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Trust Estate and all other moneys
payable thereunder, to give and receive notices and other communications, to
make waivers or other agreements, to exercise all rights and options, to bring
Proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Green Tree" means Green Tree Financial Corporation, a Delaware
corporation.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Note Register.
"Indebtedness" means, with respect to any Person at any time, (a)
indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b)
obligations of such Person as lessee under leases which should have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases; (c) current liabilities of such Person in respect of unfunded
vested benefits under plans covered by Title IV of ERISA; (d) obligations issued
for or liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities; (f) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (g) obligations of such Person
secured by any lien on property or assets of
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such Person, whether or not the obligations have been assumed by such Person; or
(h) obligations of such Person under any interest rate or currency exchange
agreement.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Independent" means, when used with respect to any specified Person, that
the Person (a) is in fact independent of the Issuer, any other obligor upon the
Notes, the SPC, the Servicer and any Affiliate of any of the foregoing Persons,
(b) does not have any direct financial interest or any material indirect
financial interest in the Issuer, any such other obligor, the SPC, the Servicer
or any Affiliate of any of the foregoing Persons and (c) is not connected with
the Issuer, any such other obligor, the SPC, the Servicer or any Affiliate of
any of the foregoing Persons as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
"Independent Certificate" means a certificate or opinion to be delivered to
the Trustee under the circumstances described in, and otherwise complying with,
the applicable requirements of Section 11.01, made by an Independent appraiser
or other expert appointed by an Issuer Order and approved by the Trustee in the
exercise of reasonable care, and such opinion or certificate shall state that
the signer has read the definition of "Independent" in this Indenture and that
the signer is Independent within the meaning thereof.
"Initial Cut-Off Date" means December 1, 1998.
"Initial Pool Principal Balance" is $________.
"Interest Rate" means the 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 and the Class C Interest Rate, as applicable.
"Issuer" means the party named as such in this Indenture until a successor
replaces it and, thereafter, means the successor and, for purposes of any
provision contained herein and required by the TIA, each other obligor on the
Notes.
"Issuer Order" and "Issuer Request" means a written order or request signed
in the name of the Issuer by any one of its Authorized Officers and delivered to
the Trustee.
"Lease Pool Principal Balance" means, with respect to any Payment Date, the
sum of the Principal Balances (computed as of the related Accounting Date) for
all Leases.
"Leases" means the lease contracts listed on the Schedule of Leases.
"Lien" means any security interest, lien, charge, pledge, preference,
equity or encumbrance of any kind, including tax liens, mechanics' liens and any
liens that attach by operation of law.
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"Liquidated Lease" means, with respect to any Collection Period, (i) a
Lease which, during such Collection Period, was charged off as uncollectible by
the Servicer in accordance with its credit and collection policies and
procedures (which shall be no later than the date as of which the Servicer has
repossessed and disposed of the related Equipment and otherwise collected all
proceeds (including any proceeds of insurance to be applied as described in
Section 3.4(c)(ii) of the Contribution and Servicing Agreement) which, in the
Servicer's reasonable judgment, can be collected under such Lease) following a
default thereunder or upon damage to or destruction of such Equipment (if such
Equipment is not to be replaced in accordance with Section 3.4(c)(i) of the
Contribution and Servicing Agreement), or (ii) a Lease as to which, during such
Collection Period, 10% or more of a Scheduled Payment shall have become 180 days
delinquent.
"Liquidation Proceeds" means all amounts received by the Servicer (i) in
connection with the liquidation of any Lease and disposition of the related
Equipment or (ii) as insurance proceeds with respect to any damaged or destroyed
Equipment to be applied as described in Section 3.4(c)(ii) of the Contribution
and Servicing Agreement, in each case net of (a) reasonable out-of-pocket
expenses incurred by or on behalf of the Servicer in connection with the
collection of such Lease and the maintenance, repossession, repair, storage and
disposition of the related Equipment (including taxes and insurance charges, to
the extent in excess of amounts available therefor and relating to such Lease in
the Insurance, Maintenance and Tax Accounts, as well as attorneys' fees) and (b)
amounts that are required to be refunded to the Obligor on such Lease; provided,
however, that the Liquidation Proceeds with respect to any Lease and disposition
of the related Equipment shall in no event be less than zero.
"Minnesota UCC" means the UCC as in effect in the State of Minnesota from
time to time.
"Monthly Delinquency Percentage" means, with respect to any Payment Date,
the percentage equivalent of a fraction (a) the numerator of which is the
Principal Balance of the Delinquent Leases determined as of the related
Accounting Date and (b) the denominator of which is the Lease Pool Principal
Balance as of such Payment Date.
"Monthly Loss Percentage" means, with respect to any Payment Date, the
percentage equivalent of a fraction (a) the numerator of which is the Principal
Balance of all Leases that have become Liquidated Leases during the preceding
Collection Period less Liquidation Proceeds and (b) the denominator of which is
the Lease Pool Principal Balance on the first day of such preceding Collection
Period.
"Monthly Principal Amount" means, with respect to any Payment Date, the
excess, if any, of (i) the sum of the Aggregate Principal Amount for such
Payment Date, over (ii) the Lease Pool Principal Balance with respect to such
Payment Date.
"Monthly Servicer Realization Percentage" means, with respect to any
Payment Date, the percentage equivalent of a fraction (a) the numerator of which
is the aggregate cumulative amount of Residual Realizations collected on all
Leases as to which the Servicer determined during the related Collection Period
that all Residual Realizations to be received with
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respect to the related Equipment have been collected and (b) the denominator of
which is equal to the aggregate Book Value with respect to such Leases.
"Nonrecoverable Servicer Advance" means any Servicer Advance previously
made by the Servicer which the Servicer has determined based on its sole
discretion will not be reimbursed from recoveries on the Lease with respect to
which the Servicer Advance was made.
"Note" means a Class A-1 Note, Class A-2 Note, Class A-3 Note, Class A-4
Note, Class B Note or Class C Note, as applicable.
"Note Majority" means Holders representing a majority of the Outstanding
Principal Amount of each Class of the Notes then Outstanding.
"Note Owner" means, with respect to a Book-Entry Note, the Person who is
the beneficial owner of such Book-Entry Note, as reflected on the books of the
Depository, or on the books of a Person maintaining an account with such
Depository (directly or as an indirect participant, in each case in accordance
with the rules of such Depository) and with respect to any Definitive Notes, the
Holder.
"Note Register" and "Note Registrar" have the respective meanings specified
in Section 2.04.
"Notes" means the Class A Notes, the Class B Notes and the Class C Notes.
"Officer's Certificate" means a certificate signed by any Authorized
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.01, and delivered to
the Trustee. Unless otherwise specified, any reference in this Indenture to an
Officer's Certificate shall be to an Officer's Certificate of any Authorized
Officer of the Issuer.
"Opinion of Counsel" means one or more written opinions of counsel who may,
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer or the Servicer and which shall comply with any applicable
requirements of Section 11.01.
"Original Principal Amount" means (i) with respect to the Class A-1 Notes,
$______, (ii) with respect to the Class A-2 Notes, $_______ , (iii) with respect
to the Class A-3 Notes, $_______ , (iv) with respect to the Class A-4 Notes,
$_______ , (v) with respect to the Class B Notes, $_______ and (vi) with respect
to the Class C Notes, $_________.
"Outstanding" means, as of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered to
the Note Registrar for cancellation;
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(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent in trust for the Holders of such Notes (provided, however,
that if such Notes are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor, satisfactory
to the Trustee, has been made); and
(iii) Notes in exchange for or in lieu of other Notes which have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Notes are held by a
bona fide purchaser;
provided, however, that in determining whether the Holders of the requisite
Outstanding Amount of the Notes have given any request, demand, authorization,
direction, notice, consent or waiver hereunder or under any Related Document,
Notes owned by the Issuer, any other obligor upon the Notes, the SPC or any
Affiliate of any of the foregoing Persons shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes that the Trustee knows to be so owned
shall be so disregarded. Notes so owned that have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Issuer, any other obligor upon the Notes, the SPC or any
Affiliate of any of the foregoing Persons.
"Outstanding Amount" means the Aggregate Principal Amount of the Notes, or
the Outstanding Principal Amount of a Class of Notes, as applicable, Outstanding
at the date of determination.
"Outstanding Principal Amount" means, as of any date, when used with
respect to a Class of Notes, the Original Principal Amount of such Class, less
all distributions previously made to such Class in respect of principal (before
giving effect to distributions of principal made on such date).
"Paying Agent" means the Trustee or any other Person that meets the
eligibility standards for the Trustee specified in Section 6.11 and is
authorized by the Issuer to make the distributions from the Collection Account,
including payment of principal of or interest on the Notes on behalf of the
Issuer.
"Payment Date" means the twentieth day of each calendar month (or, if such
twentieth day is not a Business Day, the next succeeding Business Day),
commencing January 20, 1998.
"Performing Lease" means, as of any Determination Date, any Lease with
respect to which the Obligor has paid all payments then due.
"Person" means any individual, corporation, estate, partnership, joint
venture, association, joint stock company, trust (including any beneficiary
thereof), unincorporated organization or government or any agency or political
subdivision thereof.
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"Pledged Revenues" means (i) all Scheduled Payments on the Leases received
on or after the Cut-Off Date and due during the term of the Leases without
giving effect to end-of-term extensions or renewals thereof (including all
Scheduled Payments due prior to, but not received as of, the Cut-Off Date, but
excluding any Scheduled Payments due on or after, but received prior to, the
Cut-Off Date); (ii) any Prepayments of Scheduled Payments received on or after
the Cut-Off Date; (iii) the Purchase Amount of any Leases purchased by Vendor
Services in accordance with Section 2.6 of the Contribution and Servicing
Agreement (to the extent Vendor Services has not delivered Substitute Leases);
(iv) the amount paid by the SPC to repurchase the Leases pursuant to Section 5.1
of the Contribution and Servicing Agreement; (v) all Liquidation Proceeds
received in respect of any Leases and the related Equipment on or after the
Cut-Off Date; and (vi) any earnings on the investment of amounts credited to the
Collection Account.
"Predecessor Note" means, with respect to any particular Note, every
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.05 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Prepayment" means, with respect to any Collection Period for any Lease, a
voluntary prepayment during such Collection Period of amounts due and owing
under such Lease.
"Principal Balance" means, as of any Accounting Date,
(1) in the case of any Lease that does not by its terms permit
prepayment or early termination, the present value of the unpaid
Scheduled Payments due on such Lease after such last day of the
Collection Period (excluding all Scheduled Payments due on or prior to,
but not received as of, such last day, as well as any Scheduled
Payments due after such last day and received on or prior thereto),
after giving effect to any Prepayments received on or prior to such
last day, discounted monthly (assuming, for purposes of such
calculation, that each Scheduled Payment is due on the last day of the
applicable Collection Period) at the rate of ____% per annum;
(2) in the case of any Lease that permits prepayment or early
termination only upon payment of a premium that is at least equal to
the present value (calculated in the manner described in clause (1)
above) of the unpaid Scheduled Payments due on such Lease after the
date of such prepayment, the amount specified in clause (1) above; and
(3) in the case of any Lease that permits prepayment or early
termination without payment of a premium at least equal to the amount
specified in clause (2) above, the lesser of (a) the outstanding
principal balance of such Lease after giving effect to Scheduled
Payments due on or prior to such last day of the Collection Period,
whether or not received, as well as any Prepayments, and any Scheduled
Payments due after such last day, received on or prior to such last
day, and (b) the amount specified in clause (1) above;
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provided that, for purposes of computing the Monthly Principal Amount for a
given Payment Date (as well as all Payment Dates thereafter), the Principal
Balance of any Lease which became a Liquidated Lease during the related
Collection Period or was required to be purchased by Vendor Services as of the
last day of the related Collection Period in accordance with Section 2.6, will
be deemed to be zero on and after the last day of such Collection Period.
"Proceeding" means any suit in equity, action at law or other judicial or
administrative proceeding.
"Purchase Amount" means, with respect to a Lease and related Equipment
required to be purchased by Vendor Services in accordance with Section 2.6 of
the Contribution and Servicing Agreement, the sum of (i) the Required Payoff
Amount for such Lease as of the Accounting Date on which such obligation to so
purchase arises, plus (ii) the Book Value (if any) of the related Equipment.
"Purchased Lease" means, as of any Deposit Date, any Lease which Vendor
Services has purchased (or substituted a Substitute Lease for) as of the related
Accounting Date, as required by Section 2.6 of the Contribution and Servicing
Agreement.
"Rating Agency" means each of S&P and Fitch, so long as such Persons
maintain a rating on the Notes; and, if neither S&P nor Fitch maintains a rating
on the Notes, such other nationally recognized statistical rating organization,
if any, selected by the SPC.
"Rating Agency Condition" means, with respect to any action, that each
Rating Agency shall have been given 10 days' prior notice thereof and that each
of the Rating Agencies shall have notified the Issuer, the Servicer, the
Trustee, and the SPC in writing that such action will not result in a reduction,
qualification or withdrawal of the then-current rating of the Notes.
"Record Date" means, with respect to a Payment Date or Redemption Date, the
close of business on the last Business Day immediately preceding such Payment
Date or Redemption Date (so long as the Notes are Book-Entry Notes), or the last
day of the prior calendar month (if Definitive Notes have been issued).
"Redemption Date" means, in the case of a redemption of the Notes pursuant
to Section 10.01, the Payment Date specified by the Servicer or the Issuer
pursuant to Section 10.01.
"Redemption Price" means, in the case of a redemption of the Notes pursuant
to Section 10.01, an amount equal to the principal amount of the Notes redeemed
plus accrued and unpaid interest on the principal amount of each Class of Notes
at the respective Interest Rate for each such Class of Notes being so redeemed
to but excluding the Redemption Date.
"Registered Holder" means the Person in whose name a Note is registered on
the Note Register on the applicable Record Date.
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"Related Documents" means the Notes, the Contribution and Servicing
Agreement, the Transfer Agreement, the Depository Agreement and the underwriting
agreements between the SPC, the Issuer and the underwriters of the Notes. The
Related Documents executed by any party are referred to herein as "such party's
Related Documents," "its Related Documents" or by a similar expression.
"Required Payments" has the meaning specified in Section 8.06(c).
"Remaining Available Funds Shortfall" has the meaning specified in Section
8.07.
"Required Payoff Amount" means, with respect to any Collection Period for
any Lease, the sum of (i) the Scheduled Payment due in such Collection Period,
together with any Scheduled Payments due in prior Collection Periods but not yet
received, plus (ii) the Principal Balance of such Lease (after taking into
account the Scheduled Payment due in such Collection Period, whether or not
received).
"Required Reserve Amount" means the lesser of (a) ____% of the Initial Pool
Principal Balance and (b) the Outstanding Principal Amount of the Notes.
"Reserve Account" means the account designated as such in, and established
and mentioned pursuant to, Section 8.07.
"Reserve Account Initial Deposit" means $________.
"Residual Account" means the account designated as such in, and established
and maintained pursuant to, Section 8.06.
"Residual Event" means the occurrence of one or more of the following: (a)
Vendor Services is no longer the Servicer; (b) with respect to the March 1999
Collection Period and each Collection Period thereafter, the Three-Month
Servicer Realization Percentage calculated on any Determination Date is less
than 100%; (c) with respect to the March 1999 Collection Period and each
Collection Period thereafter, the Three-Month Delinquency Percentage is greater
than 6.0%; (d) with respect to the February 1999 Collection Period and each
Collection Period thereafter, the Three-Month Loss Percentage is greater than
4.0%; (e) on any Payment Date occurring since the Closing Date to and including
the December 1999 Collection Period, the Cumulative Loss Percentage is greater
than 4.0%; (f) on any Payment Date occurring from the January 2000 Collection
Period to and including the December 2000 Collection Period, the Cumulative Loss
Percentage is greater than 5.0%; or (g) on any Payment Date occurring after the
December 2000 Collection Period, the Cumulative Loss Percentage is greater than
6.0%; provided, however, that the Residual Event referred to in (I) clause (b)
may be cured if the Three-Month Servicer Realization Percentage is greater than
or equal to 100% for three consecutive months thereafter; (II) clause (c) may be
cured if the Three Month Delinquency Percentage for any Collection Period
thereafter is less than or equal to 5.5%; (III) clause (d) may be cured if the
Three Month Loss Percentage for any Collection Period thereafter is less than or
equal to 3.5%; and (IV) clauses (e), (f) or (g) may be cured if the Cumulative
Loss Percentage for any Collection Period falling within the time frame
specified in such subsection and which follows the
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occurrence of any Residual Event thereunder is less than or equal to the
percentage specified in such subsection less .5%.
"Residual Realizations" means cash flows realized from the sale or re-lease
of the Equipment following the scheduled expiration dates or voluntary early
termination of the Leases, other than Equipment subject to Liquidated Leases.
"Responsible Officer" means, with respect to the Trustee, any officer of
the Trustee assigned by the Trustee to administer its corporate trust affairs
relating to the Trust Estate.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.
"Schedule of Leases" means, collectively, the schedules of Leases (which
shall be made available to the parties to the Contribution and Servicing
Agreement on a computer disk or other data storage medium) attached to the
Contribution and Servicing Agreement as (or described in) Exhibit A, as the same
may be revised from time to time in accordance with the Contribution and
Servicing Agreement.
"Scheduled Payment" means, with respect to any Collection Period for any
Lease during the Original Term of such Lease, the scheduled payment or payments
due under such Lease in such Collection Period (other than those portions of
such payments which, under such Lease, are to be (i) applied by the Servicer to
the payment of insurance charges, maintenance, taxes and other similar
obligations, (ii) retained by the Servicer in payment of Administrative Fees, or
(iii) are late payments as to which Servicer Advances were made on a Payment
Date), received on or after the Cut-Off Date and due during the term of the
Leases, without giving effect to end-of-term extensions or renewals thereof.
"Secured Obligations" means all amounts and obligations which the Issuer
may at any time owe to or on behalf of the Trustee for the benefit of the
Noteholders under this Indenture.
"Servicing Account" means the Eligible Account or Accounts established and
maintained pursuant to Section 8.05.
"SPC" means Green Tree Lease Finance II, Inc., a Minnesota corporation.
"State" means any one of the 50 states of the United States of America or
the District of Columbia.
"Stated Maturity Date" means the Class A-1 Stated Maturity Date, the Class
A-2 Stated Maturity Date, the Class A-3 Stated Maturity Date, the Class A-4
Stated Maturity Date, the Class B Stated Maturity Date and the Class C Stated
Maturity Date, as appropriate.
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"Termination Date" means the date on which the Trustee shall have received
payment and performance of all Secured Obligations.
"Three-Month Delinquency Percentage" means, with respect to any Payment
Date, the percentage equivalent of fraction, (a) the numerator of which is the
sum of the Monthly Delinquency Percentage for such Payment Date and the two
immediately preceding Payment Dates and (b) the denominator of which is three.
"Three-Month Loss Percentage" means, with respect to any Payment Date, the
percentage equivalent of a fraction, (a) the numerator of which is the sum of
the Monthly Loss Percentage for such Payment Date and the two immediately
preceding Payment Dates and (b) the denominator of which is three.
"Three-Month Servicer Realization Percentage" means, with respect to any
Payment Date, the percentage equivalent of a fraction, (a) the numerator of
which is the sum of the Monthly Servicer Realization Percentage for such Payment
Date and the two immediately preceding Payment Dates and (b) the denominator of
which is three.
"Transfer Agreement" means the Transfer Agreement, dated as of December 1,
1998, between Vendor Services and the SPC.
"Trust Accounts" means the Servicing Account, the Collection Account, the
Residual Account and the Reserve Account, and such other accounts as may be
established in the name of the Issuer or the Trustee pursuant to the
Contribution and Servicing Agreement.
"Trust Estate" means the Trust Estate as described in the Granting Clauses
hereof.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939, as
amended, as in force on the date hereof, unless otherwise specifically provided.
"Trustee" means U.S. Bank Trust National Association, a national banking
association organized and existing under the laws of the United States of
America, as Trustee under this Indenture, or any successor Trustee under this
Indenture.
"UCC" means, unless the context otherwise requires, the Uniform Commercial
Code, as in effect in the relevant jurisdiction, as amended from time to time.
"Vendor Services" means Green Tree Vendor Services Corporation, a Minnesota
corporation.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the TIA, the provision is incorporated
by reference in and made a part of this Indenture. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
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"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by Commission rule have
the meaning assigned to them by such definitions.
SECTION 1.03. Rules of Construction. Unless otherwise specified:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in
effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation;
(v) words in the singular include the plural and words in the plural
include the singular; and
(vi) references to Sections, Subsections, Schedules and Exhibits shall
refer to such portions of this Indenture.
Unless the context shall clearly indicate otherwise, or may otherwise
require, in this Indenture the terms "herein," "hereunder," "hereby," "hereto,"
"hereof" and any similar terms refer to this Indenture as a whole and not to any
particular article, section or subdivision hereof.
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ARTICLE II
The Notes
SECTION 2.01. Form. Each Class of Class A Notes, Class B Notes and Class C
Notes, in each case together with the Trustee's certificate of authentication,
shall be in substantially the forms set forth in Exhibits C-1, C-2 and C-3,
respectively, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistently herewith, be determined by the
officers executing such Notes, as evidenced by their execution of the Notes. Any
portion of the text of any Note may be set forth on the reverse thereof, with an
appropriate reference thereto on the face of the Note.
The Notes shall be typewritten, printed, lithographed or engraved or
produced by any combination of these methods (with or without steel engraved
borders), all as determined by the officers executing such Notes, as evidenced
by their execution of such Notes.
The terms of the Notes set forth in Exhibits C-1, C-2 and C-3 are part of
the terms of this Indenture.
SECTION 2.02. Execution, Authentication and Delivery. The Notes shall be
executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were at
any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Trustee shall upon receipt of an Issuer Order authenticate and deliver
Class A-1 Notes for original issue in an aggregate principal amount of
$________, Class A-2 Notes for original issue in an aggregate principal amount
of $________, Class A-3 Notes for original issue in an aggregate principal
amount of $________, Class A-4 Notes for original issue in an aggregate
principal amount of $________, Class B Notes for original issue in an aggregate
principal amount of $________ and Class C Notes in an aggregate principal amount
of $________. The aggregate principal amount of Class A-1 Notes, Class A-2
Notes, Class A-3 Notes, Class A-4 Notes, Class B Notes and Class C Notes
outstanding at any time may not exceed such respective amounts except as
provided in Section 2.05.
Each Note shall be dated the date of its authentication. The Notes shall be
issuable as registered Notes in the minimum denomination of $10,000 and in
integral multiples of $1,000 in excess thereof, except that one Class C Note may
be issued in another denomination.
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No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for herein executed by the
Trustee by the manual signature of one of its authorized signatories, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
SECTION 2.03. Temporary Notes. Pending the preparation of definitive Notes,
the Issuer may execute, and upon receipt of an Issuer Order the Trustee shall
authenticate and deliver, temporary Notes which are printed, lithographed,
typewritten, mimeographed or otherwise produced, of the tenor of the definitive
Notes in lieu of which they are issued and with such variations not inconsistent
with the terms of this Indenture as the officers executing such Notes may
determine, as evidenced by their execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes to be
prepared without unreasonable delay. After the preparation of definitive Notes,
the temporary Notes shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Notes, the Issuer shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Notes of authorized denominations. Until so exchanged, the
temporary Notes shall in all respects be entitled to the same benefits under
this Indenture as definitive Notes.
SECTION 2.04. Registration; Registration of Transfer and Exchange. The
Issuer shall cause to be kept a register (the "Note Register") in which, subject
to such reasonable regulations as it may prescribe, the Issuer shall provide for
the registration of Notes and the registration of transfers of Notes. The
Trustee shall be the initial "Note Registrar" for the purpose of registering
Notes and transfers of Notes as herein provided. The Issuer may revoke the
appointment of, and remove, any Note Registrar if the Issuer determines in its
sole discretion that such Note Registrar failed to perform its obligations under
this Indenture in any material respect. Any Note Registrar shall be permitted to
resign as Note Registrar upon 30 days' notice to the Issuer and, if the Note
Registrar is not the Trustee, to the Trustee; provided, however, that such
resignation shall not be effective and such Note Registrar shall continue to
perform its duties as Note Registrar until the Issuer has appointed a successor
Note Registrar or elected to assume such duties. Upon any resignation of any
Note Registrar, the Issuer shall promptly appoint a successor or, if it elects
not to make such an appointment, assume the duties of Note Registrar.
If a Person other than the Trustee is appointed by the Issuer as Note
Registrar, the Issuer will give the Trustee prompt written notice of the
appointment of such Note Registrar and of the location, and any change in the
location, of the Note Register, and the Trustee shall have the right to inspect
the Note Register at all reasonable times and to obtain copies thereof, and the
Trustee shall have the right to rely upon a certificate executed on behalf of
the Note Registrar by an Executive Officer thereof as to the names and addresses
of the Holders of the Notes and the principal amounts and number of such Notes.
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Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Issuer
shall execute, and the Trustee shall authenticate and the Noteholder shall
obtain from the Trustee, in the name of the designated transferee or
transferees, one or more new Notes of the same Class in any authorized
denominations, of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other Notes in any
authorized denominations, of a like aggregate principal amount, upon surrender
of the Notes to be exchanged at such office or agency. Whenever any Notes are so
surrendered for exchange, the Issuer shall execute, and the Trustee shall
authenticate and the Noteholder shall obtain from the Trustee, the Notes which
the Noteholder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange of Notes
shall be the valid obligations of the Issuer, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed by, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed by, the Holder
thereof or such Holder's attorney duly authorized in writing, with such
signature guaranteed by an "eligible guarantor institution" meeting the
requirements of the Note Registrar, which requirements include membership or
participation in a "signature guarantee program" determined by the Note
Registrar in accordance with the Exchange Act, and such other documents as the
Trustee may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Issuer or the Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section 2.03 or 9.06 not involving any
transfer.
The preceding provisions of this Section notwithstanding, the Issuer shall
not be required to make and the Note Registrar need not register transfers or
exchanges of Notes selected for redemption or of any Note for a period of 15
days preceding the due date for any payment with respect to the Note.
SECTION 2.05. Mutilated, Destroyed, Lost or Stolen Notes. If (i) any
mutilated Note is surrendered to the Trustee, or the Trustee receives evidence
to its satisfaction of the destruction, loss or theft of any Note, and (ii)
there is delivered to the Trustee such security or indemnity as may be required
by the Trustee to hold the Issuer and the Trustee harmless, then, in the absence
of notice to the Issuer, the Note Registrar or the Trustee that such Note has
been acquired by a bona fide purchaser, the Issuer shall execute and upon its
request the Trustee shall authenticate and deliver, in exchange for or in lieu
of any such mutilated, destroyed, lost or stolen Note, a replacement Note;
provided, however, that if any such destroyed, lost or stolen Note, but not a
mutilated Note, shall have become or within seven days shall be due and payable,
or shall have been called for redemption, instead of issuing a replacement Note,
the Issuer may pay such destroyed, lost or stolen Note when so due or payable or
upon the Redemption Date without
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surrender thereof. If, after the delivery of such replacement Note or payment of
a destroyed, lost or stolen Note pursuant to the proviso to the preceding
sentence, a bona fide purchaser of the original Note in lieu of which such
replacement Note was issued presents for payment such original Note, the Issuer
and the Trustee shall be entitled to recover such replacement Note (or such
payment) from the Person to whom it was delivered or any Person taking such
replacement Note from such Person to whom such replacement Note was delivered or
any assignee of such Person, except a bona fide purchaser, and shall be entitled
to recover upon the security or indemnity provided therefor to the extent of any
loss, damage, cost or expense incurred by the Issuer or the Trustee in
connection therewith.
Upon the issuance of any replacement Note under this Section, the Issuer or
the Trustee may require the payment by the Holder of such Note of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other reasonable expenses (including the fees and
expenses of the Trustee or the Note Registrar) connected therewith.
Every replacement Note issued pursuant to this Section in replacement of
any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.06. Person Deemed Owner. Prior to due presentment for
registration of transfer of any Note, the Issuer, the Trustee and any agent of
the Issuer or the Trustee may treat the Person in whose name any Note is
registered (as of the day of determination) as the owner of such Note for the
purpose of receiving payments of principal of and interest, if any, on such Note
and for all other purposes whatsoever, whether or not such Note be overdue, and
none of the Issuer, the Trustee nor any agent of the Issuer or the Trustee shall
be affected by notice to the contrary.
SECTION 2.07. Payment of Principal and Interest; Defaulted Interest.
(a) The Notes shall accrue interest as provided in the forms of the Class A
Notes, the Class B Note and the Class C Note set forth in Exhibits C-1, C-2 and
C-3, respectively, and such interest shall be payable on each Payment Date as
specified therein, subject to Section 3.01. Any installment of interest or
principal, if any, payable on any Note which is punctually paid or duly provided
for by the Issuer on the applicable Payment Date shall be paid to the Person in
whose name such Note (or one or more Predecessor Notes) is registered on the
Record Date, by check mailed first-class, postage prepaid to such Person's
address as it appears on the Note Register on such Record Date, except that,
unless Definitive Notes have been issued pursuant to Section 2.11, with respect
to Notes registered on the Record Date in the name of the nominee of the
Depository, payment will be made by wire transfer in immediately
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available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a Payment
Date, which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.03.
(b) The principal of each Note shall be payable in installments on each
Payment Date as provided in the forms of the Class A Notes, the Class B Notes
and the Class C Notes set forth in Exhibits C-1, C-2 and C-3, respectively.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable, if not previously paid, on the date on which an Event
of Default shall have occurred and be continuing and the Notes have been
declared immediately due and payable in the manner provided in Section 5.02. All
principal payments on a Class of Notes shall be made pro rata to the Noteholders
of such Class entitled thereto. The Trustee shall notify the Person in whose
name a Note is registered at the close of business on the Record Date preceding
the Payment Date on which the Issuer expects that the final installment of
principal of and interest on such Note will be paid. Such notice shall be mailed
no later than five days prior to such final Payment Date and shall specify that
such final installment will be payable only upon presentation and surrender of
such Note and shall specify the place where such Note may be presented and
surrendered for payment of such installment. Notices in connection with
redemptions of Notes shall be mailed to Noteholders as provided in Section
10.02.
SECTION 2.08. Cancellation. All Notes surrendered for payment, registration
of transfer, exchange or redemption shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee and shall be promptly canceled by
the Trustee. The Issuer may at any time deliver to the Trustee for cancellation
any Notes previously authenticated and delivered hereunder which the Issuer may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Trustee. No Notes shall be authenticated in lieu of or
in exchange for any Notes canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Notes may be held or
disposed of by the Trustee in accordance with its standard retention or disposal
policy as in effect at the time unless the Issuer shall direct by an Issuer
Order that they be destroyed or returned to it, provided that such Issuer Order
is timely and the Notes have not been previously disposed of by the Trustee.
SECTION 2.09. Book-Entry Notes. The Notes, upon original issuance, will be
issued in the form of a typewritten Note or Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company, the initial Depository,
by, or on behalf of, the Issuer. Each such Note shall initially be registered on
the Note Register in the name of Cede & Co., the nominee of the initial
Depository, and no Note Owner will receive a Definitive Note representing such
Note Owner's interest in such Note, except as provided in Section 2.11. Unless
and until Definitive Notes have been issued to Note Owners pursuant to Section
2.11:
(i) the provisions of this Section shall be in full force and effect;
(ii) the Note Registrar and the Trustee shall be entitled to deal with
the Depository for all purposes of this Indenture (including the payment of
principal of and
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interest on the Notes and the giving of instructions or directions
hereunder) as the sole holder of the Notes, and shall have no obligation to
the Note Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Indenture, the provisions of this Section
shall control;
(iv) the rights of Note Owners shall be exercised only through the
Depository and shall be limited to those established by law and agreements
between such Note Owners and the Depository and/or the Depository
Participants. Pursuant to the Depository Agreement, unless and until
Definitive Notes are issued pursuant to Section 2.11, the initial
Depository will make book-entry transfers among the Depository Participants
and receive and transmit payments of principal of and interest on the Notes
to such Depository Participants; and
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a
specified percentage of the Outstanding Amount of the Notes, the Depository
shall be deemed to represent such percentage only to the extent that it has
received instructions to such effect from Note Owners and/or Depository
Participants owning or representing, respectively, such required percentage
of the beneficial interest in the Notes and has delivered such instructions
to the Trustee.
SECTION 2.10. Notices to Depository. Whenever a notice or other
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.11, the Trustee shall give all such notices and communications specified
herein to be given to Holders of the Notes to the Depository and shall have no
obligation to the Note Owners.
SECTION 2.11. Definitive Notes. If (i) the SPC advises the Trustee in
writing that the Depository is no longer willing or able properly to discharge
its responsibilities with respect to the Notes, and the SPC is unable to locate
a qualified successor, (ii) the SPC at its option advises the Trustee in writing
that it elects to terminate the book-entry system through the Depository or
(iii) after the occurrence of an Event of Default, a Note Majority advises the
Trustee and the Depository in writing that the continuation of a book-entry
system through the Depository is no longer in the best interests of the Note
Owners, then the Depository shall notify all Note Owners and the Trustee of the
occurrence of any such event and of the availability of Definitive Notes to Note
Owners requesting the same. Upon surrender to the Trustee of the Note or Notes
representing the Book-Entry Notes by the Depository, accompanied by registration
instructions, the Issuer shall execute and the Trustee shall authenticate the
Definitive Notes in accordance with the instructions of the Depository. None of
the Issuer, the Note Registrar or the Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Notes, all references herein to obligations imposed upon or to be performed by
the Depository shall be deemed to be imposed upon and performed by the Trustee
or a Paying Agent (if other than the Trustee), to the extent applicable with
respect to such Definitive Notes, and the Trustee shall recognize the Holders of
the Definitive Notes as Noteholders.
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SECTION 2.12. Calculations. Interest on the Class A-1 Notes will be
calculated on the basis of actual days elapsed in a year of 360 days. All
calculations of the amount of interest accrued on the Class A-2, Class A-3,
Class A-4, Class B and Class C Notes, and all calculations of the amount of the
Servicing Fee, shall be made on the basis of a 360-day year consisting of twelve
30-day months.
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ARTICLE III
Covenants
SECTION 3.01. Payment of Principal and Interest. The Issuer will duly and
punctually pay the principal and interest on the Notes in accordance with the
terms of the Notes and this Indenture. Without limiting the foregoing, the
Issuer will cause to be distributed all amounts on deposit in the Collection
Account on a Payment Date in accordance with Section 8.03. Amounts properly
withheld under the Code by any Person from a payment to any Noteholder of
interest and/or principal shall be considered as having been paid by the Issuer
to such Noteholder for all purposes of this Indenture.
SECTION 3.02. Maintenance of Office or Agency. The Issuer will maintain in
the City of St. Paul, Minnesota, an office or agency where Notes may be
surrendered for registration of transfer or exchange, and where notices and
demands to or upon the Issuer in respect of the Notes and this Indenture may be
served. The Issuer hereby initially appoints the Trustee to serve as its agent
for the foregoing purposes. The Issuer will give prompt written notice to the
Trustee of the location, and of any change in the location, of any such office
or agency. If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Trustee with the address thereof, such
surrenders, notices and demands may be made or served at the Corporate Trust
Office, and the Issuer hereby appoints the Trustee as its agent to receive all
such surrenders, notices and demands.
SECTION 3.03. Money for Payments To Be Held in Trust. As provided in
Section 8.03, all payments of amounts due and payable with respect to any Notes
that are to be made from amounts withdrawn from the Collection Account pursuant
to Section 8.03(b) shall be made on behalf of the Issuer by the Trustee or by
another Paying Agent, and no amounts so withdrawn from the Collection Account
for payments of Notes shall be paid over to the Issuer.
On or before the Business Day preceding each Payment Date and Redemption
Date, the Issuer shall deposit or cause to be deposited in the Collection
Account an aggregate sum sufficient to pay the amounts then becoming due, such
sum to be held in trust for the benefit of the Persons entitled thereto and
(unless the Paying Agent is the Trustee) shall promptly notify the Trustee of
its action or failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall agree
with the Trustee (and if the Trustee acts as Paying Agent, it hereby so agrees),
subject to the provisions of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
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(ii) give the Trustee notice of any default (of which it has actual
knowledge) by the Issuer (or any other obligor upon the Notes) in the
making of any payment required to be made with respect to the Notes;
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent;
(iv) immediately resign as a Paying Agent and forthwith pay to the
Trustee all sums held by it in trust for the payment of Notes if at any
time it ceases to meet the standards required to be met by a Paying Agent
at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, by Issuer Order direct
any Paying Agent to pay to the Trustee all sums held in trust by such Paying
Agent, such sums to be held by the Trustee upon the same trusts as those upon
which the sums were held by such Paying Agent; and upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Subject to applicable laws with respect to escheat of funds, any money held
by the Trustee or any Paying Agent in trust for the payment of any amount due
with respect to any Note and remaining unclaimed for two years after such amount
has become due and payable shall be discharged from such trust and upon Issuer
Request shall be deposited by the Trustee in the Collection Account; and the
Holder of such Note shall thereafter, as an unsecured general creditor, look
only to the Issuer for payment thereof, and all liability of the Trustee or such
Paying Agent with respect to such trust money shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of the Issuer cause to be published once,
in a newspaper published in the English language, customarily published on each
Business Day and of general circulation in St. Paul, Minnesota, notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such publication, any unclaimed
balance of such money then remaining will be repaid to or for the account of the
Issuer. The Trustee may also adopt and employ, at the expense of the Issuer, any
other reasonable means of notification of such repayment (including, but not
limited to, mailing notice of such repayment to Holders whose Notes have been
called but have not been surrendered for redemption or whose right to or
interest in moneys due and payable but not claimed is determinable from the
records of the Trustee or of any Paying Agent, at the last address of record for
each such Holder).
SECTION 3.04. Existence. The Issuer will keep in full effect its existence,
rights and franchises as a limited liability company under the laws of the State
of Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other
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state or of the United States of America, in which case the Issuer will keep in
full effect its existence, rights and franchises under the laws of such other
jurisdiction) and will obtain and preserve its qualification to do business in
each jurisdiction in which such qualification is or shall be necessary to
protect the validity and enforceability of this Indenture, the Notes, the Leases
and each other instrument or agreement included in the Trust Estate.
SECTION 3.05. Protection of Trust Estate. The Issuer intends the security
interest Granted pursuant to this Indenture in favor of the Trustee to be prior
to all other liens in respect of the Trust Estate, and the Issuer shall take all
actions necessary to obtain and maintain, in favor of the Trustee, for the
benefit of the Noteholders, a first lien on and a first priority, perfected
security interest in the Trust Estate. The Issuer will from time to time execute
and deliver all such supplements and amendments hereto and all such financing
statements, continuation statements, instruments of further assurance and other
instruments, all as prepared by the Servicer and delivered to the Issuer, and
will take such other action necessary or advisable to:
(i) grant more effectively all or any portion of the Trust Estate;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) in favor of the Trustee for the benefit of the Trustee
created by this Indenture or carry out more effectively the purposes
hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the Leases and each other instrument or agreement
included in the Trust Estate;
(v) preserve and defend title to the Trust Estate and the rights of
the Trustee in such Trust Estate against the claims of all persons and
parties; or
(vi) pay all taxes or assessments levied or assessed upon the Trust
Estate when due.
The Issuer hereby designates the Trustee its agent and attorney-in-fact to
execute any financing statement, continuation statement or other instrument
required by the Trustee pursuant to this Section 3.05.
SECTION 3.06. Opinions as to Trust Estate.
(a) On the Closing Date, the Issuer shall furnish to the Trustee an Opinion
of Counsel either stating that, in the opinion of such counsel, such action has
been taken with respect to the recording and filing of this Indenture, any
indentures supplemental hereto, and any other requisite documents, and with
respect to the execution and filing of any financing statements and continuation
statements, as are necessary to perfect and make effective the first priority
lien and security interest in favor of the Trustee, for the benefit of the
Trustee, created by
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this Indenture and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective.
(b) On or before April 30 in each calendar year, beginning in 1999, the
Issuer shall furnish to the Trustee an Opinion of Counsel with respect to each
jurisdiction in which the Leases are located or a Uniform Commercial Code
financing statement has been filed by the Servicer either stating that, in the
opinion of such counsel, such action has been taken with respect to the
recording, filing, re-recording and refiling of this Indenture, any indentures
supplemental hereto and any other requisite documents and with respect to the
execution and filing of any financing statements and continuation statements as
is necessary to maintain the first priority lien and security interest created
by this Indenture and reciting the details of such action or stating that in the
opinion of such counsel no such action is necessary to maintain such lien and
security interest. Such Opinion of Counsel shall also describe the recording,
filing, rerecording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and the execution and filing of any
financing statements and continuation statements that will, in the opinion of
such counsel, be required to maintain the lien and security interest of this
Indenture until April 30 in the following calendar year.
SECTION 3.07. Performance of Obligations; Servicing of Leases.
(a) The Issuer will not take any action and will use its best efforts not
to permit any action to be taken by others that would release any Person from
any of such Person's material covenants or obligations under any instrument or
agreement included in the Trust Estate or that would result in the amendment,
hypothecation, subordination, termination or discharge of, or impair the
validity or effectiveness of, any such instrument or agreement, except as
expressly provided in this Indenture, the Contribution and Servicing Agreement
or such other instrument or agreement.
(b) The Issuer may contract with other Persons to assist it in performing
its duties under this Indenture, and any performance of such duties by a Person
identified to the Trustee in an Officer's Certificate of the Issuer shall be
deemed to be action taken by the Issuer. Initially, the Issuer has contracted
with the Servicer to assist the Issuer in performing its duties under this
Indenture.
(c) The Issuer will punctually perform and observe all of its obligations
and agreements contained in this Indenture, the Related Documents and in the
instruments and agreements included in the Trust Estate, including but not
limited to filing or causing to be filed all UCC financing statements and
continuation statements required to be filed by the terms of this Indenture and
the Contribution and Servicing Agreement in accordance with and within the time
periods provided for herein and therein. Except as expressly provided herein,
the Issuer shall not waive, amend, modify, supplement or terminate any of its
Related Documents or any provision thereof without the consent of the Trustee or
a Note Majority.
(d) If the Issuer shall have knowledge of the occurrence of a Servicer
Termination Event under the Contribution and Servicing Agreement, the Issuer
shall promptly notify the Trustee and the Rating Agencies thereof, and shall
specify in such notice the action, if
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any, the Issuer is taking with respect of such default. If a Servicer
Termination Event shall arise from the failure of the Servicer to perform any of
its duties or obligations under the Contribution and Servicing Agreement with
respect to the Leases, the Issuer shall take all reasonable steps available to
it to remedy such failure.
(e) Upon any termination of the Servicer's rights and powers pursuant to
the Contribution and Servicing Agreement, the Issuer shall promptly notify the
Rating Agencies.
(f) The Issuer agrees that it will not waive timely performance or
observance by the Servicer or the SPC of their respective duties under the
Related Documents if the effect thereof would adversely affect the Holders of
the Notes.
SECTION 3.08. Negative Covenants. Until the Termination Date, the Issuer
shall not:
(i) except as expressly permitted by this Indenture, sell, transfer,
exchange or otherwise dispose of any of the properties or assets of the
Issuer, including those included in the Trust Estate, unless directed to do
so by the Trustee;
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code or applicable state law) or
assert any claim against any present or former Noteholder by reason of the
payment of the taxes levied or assessed upon any part of the Trust Estate;
(iii) dissolve or liquidate in whole or in part;
(iv) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien in favor of the Trustee created by this
Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture except as may be
expressly permitted hereby;
(v) permit any lien, charge, excise, claim, security interest,
mortgage or other encumbrance (other than the lien in favor of the Trustee
created by this Indenture) to be created on or extend to or otherwise arise
upon or burden the Trust Estate or any part thereof or any interest therein
or the proceeds thereof (other than tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on the Equipment and
arising solely as a result of an action or omission of the related
Obligor);
(vi) permit the lien in favor of the Trustee created by this Indenture
not to constitute a valid first priority (other than with respect to any
such tax, mechanics' or other lien described in clause (v) above) security
interest in the Trust Estate; or
(vii) amend, modify or fail to comply with the provisions of the
Related Documents without the prior written consent of the Trustee.
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SECTION 3.09. Annual Statement as to Compliance. The Issuer will deliver to
the Trustee, within 120 days after the end of each fiscal year of the Issuer
(commencing with the fiscal year ended December 31, 1999), an Officer's
Certificate stating, as to the Authorized Officer signing such Officer's
Certificate, that
(i) a review of the activities of the Issuer during such year and of
performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has complied with all conditions and covenants under
this Indenture throughout such year, or, if there has been a default in the
compliance of any such condition or covenant, specifying each such default
known to such Authorized Officer and the nature and status thereof.
SECTION 3.10. Issuer May Consolidate or Merge Only on Certain Terms.
(a) The Issuer shall not consolidate or merge with or into any other
Person, unless
(i) the Person (if other than the Issuer) formed by or surviving
such consolidation or merger shall be a Person organized and existing
under the laws of the United States of America or any State and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form and substance satisfactory to the
Trustee, the due and punctual payment of the principal of and interest
on all Notes and the performance or observance of every agreement and
covenant of this Indenture and each other Related Document on the part
of the Issuer to be performed or observed, all as provided herein;
(ii) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel which
shall be delivered to and shall be satisfactory to the Trustee to the
effect that such transaction will not have any material adverse tax
consequence to the Issuer or any Noteholder;
(v) any action as is necessary to maintain the lien and security
interest created in favor of the Trustee by this Indenture shall have
been taken;
(vi) the Issuer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel (which shall describe the
actions taken as required by clause (a)(v) of this Section or state
that no such actions will be taken) each stating that such
consolidation or merger and such supplemental indenture comply with
this Article III and
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that all conditions precedent herein provided for relating to such
transaction have been compiled with (including any filing required by
the Exchange Act); and
(vii) the Issuer or the Person (if other than the Issuer) formed
by or surviving such consolidation or merger has a net worth,
immediately after such consolidation or merger, that is (a) greater
than zero and (b) not less than the net worth of the Issuer
immediately prior to giving effect to such consolidation or merger.
(b) The Issuer shall not convey or transfer all or substantially all of its
properties or assets, including those included in the Trust Estate, to any
Person (except as expressly permitted by the Indenture or the Contribution and
Servicing Agreement), unless
(i) the Person that acquires by conveyance or transfer the properties
and assets of the Issuer shall (A) be a United States citizen or a Person
organized and existing under the laws of the United States of America or
any State, (B) expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form and substance satisfactory
to the Trustee, the due and punctual payment of the principal of and
interest on all Notes and the performance or observance of every agreement
and covenant of this Indenture and each Related Document on the part of the
Issuer to be performed or observed, all as provided herein, (C) expressly
agree by means of such supplemental indenture that all right, title and
interest so conveyed or transferred shall be subject and subordinate to the
rights of Holders of the Notes, (D) unless otherwise provided in such
supplemental indenture, expressly agree to indemnify, defend and hold
harmless the Issuer against and from any loss, liability or expense arising
under or related to this Indenture and the Notes and (E) expressly agree by
means of such supplemental indenture that such Person (or if a group of
Persons, then one specified Person) shall make all filings with the
Commission (and any other appropriate Person) required by the Exchange Act
in connection with the Notes;
(ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing;
(iii) the Rating Agency Condition shall have been satisfied with
respect to such transaction;
(iv) the Issuer shall have received an Opinion of Counsel which shall
be delivered to and shall be satisfactory to the Trustee to the effect that
such transaction will not have any material adverse tax consequence to the
Trust or any Noteholder;
(v) any action as is necessary to maintain the lien and security
interest created in favor of the Trustee by this Indenture shall have been
taken;
(vi) the Issuer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel (which shall describe the actions
taken as required by clause (b)(v) of this Section or that no such actions
will be taken) each stating that such conveyance or transfer and such
supplemental indenture comply with this Article III and that all
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conditions precedent herein provided for relating to such transaction
have been complied with (including any filing required by the Exchange
Act); and
(vii) the Person acquiring by conveyance or transfer the properties or
assets of the Issuer has a net worth, immediately after such conveyance or
transfer, that is (a) greater than zero and (b) not less than the net worth
of the Issuer immediately prior to giving effect to such conveyance or
transfer.
SECTION 3.11. Successor or Transferee.
(a) Upon any consolidation or merger of the Issuer in accordance with
Section 3.10(a), the Person formed by or surviving such consolidation or merger
(if other than the Issuer) shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the same
effect as if such Person had been named as the Issuer herein.
(b) Upon a conveyance or transfer of all the assets and properties of the
Issuer pursuant to Section 3.10(b), the Issuer will be released from every
covenant and agreement of this Indenture to be observed or performed on the part
of the Issuer with respect to the Notes immediately upon the delivery of written
notice to the Trustee stating that the Issuer is to be so released.
SECTION 3.12. No Other Business. The Issuer shall not engage in any
business other than financing, purchasing, owning, selling and managing the
Leases and the related Equipment in the manner contemplated by this Indenture
and the Related Documents and activities incidental thereto.
SECTION 3.13. No Borrowing. The Issuer shall not issue, incur, assume,
guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes and (ii) any other Indebtedness permitted
by or arising under the Related Documents. The proceeds of the Notes shall be
used exclusively to fund the Depositor's purchase of the Leases and the other
assets specified in the Contribution and Servicing Agreement and to pay the
Issuer's organizational, transactional and start-up expenses.
SECTION 3.14. Servicer's Obligations. The Issuer shall monitor the
performance of the Servicer under the Contribution and Servicing Agreement, and
shall use its reasonable good faith efforts to cause the Servicer duly and
punctually to perform all of its duties and obligations thereunder.
SECTION 3.15. Guarantees, Loans, Advances and Other Liabilities. Except as
contemplated by the Contribution and Servicing Agreement or this Indenture, the
Issuer shall not make any loan or advance or credit to, or guarantee (directly
or indirectly or by an instrument having the effect of assuming another's
payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, any other interest in, or make any capital
contribution to, any other Person.
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SECTION 3.16. Income Tax Characterization. The SPC has structured this
Indenture and the Notes with the intention that the Notes will qualify under
applicable federal, state, local and foreign tax law as indebtedness of the SPC
secured by the Leases. The SPC, the Servicer, each Noteholder and each Note
Owner agree to treat and to take no action inconsistent with the treatment of
the Notes as such indebtedness for purposes of federal, state, local and foreign
income or franchise taxes and any other tax imposed on or measured by income.
Each Noteholder and each Note Owner, by acceptance of its Note or beneficial
interest therein, agrees to be bound by the provisions of this Section. Each
Noteholder agrees that it will cause any Note Owner acquiring an interest in a
Note through it to comply with this Indenture as to treatment as indebtedness
under applicable tax law, as described in this Section.
SECTION 3.17. Restricted Payments. Except as expressly permitted by this
Indenture or the Contribution and Servicing Agreement, the Issuer shall not,
directly or indirectly, (i) make any distribution (by reduction of capital or
otherwise), whether in cash, property, securities or a combination thereof, to
any owner of a membership interest in the Issuer or otherwise with respect to
any ownership or equity interest or security in or of the Issuer or to the
Servicer, (ii) redeem, purchase, retire or otherwise acquire for value any such
ownership or equity interest or security or (iii) set aside or otherwise
segregate any amounts for any such purpose. The Issuer will not, directly or
indirectly, make payments to or distributions from any of the Trust Accounts
except in accordance with this Indenture and the Related Documents.
SECTION 3.18. Notice of Events of Default. The Issuer agrees to give the
Trustee and the Rating Agencies prompt written notice of each Event of Default
hereunder and each default on the part of the Servicer or the SPC of its
obligations under the Contribution and Servicing Agreement.
SECTION 3.19. Further Instruments and Acts. Upon request of the Trustee,
the Issuer will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
purpose of this Indenture.
SECTION 3.20. Compliance with Laws. The Issuer shall comply with the
requirements of all applicable laws, the non-compliance with which would,
individually or in the aggregate, materially and adversely affect the ability of
the Issuer to perform its obligations under the Notes, this Indenture or any
Related Document.
SECTION 3.21. Amendments of Contribution and Servicing Agreement. The
Issuer shall not agree to any amendment to Section 9.1 of the Contribution and
Servicing Agreement to eliminate the requirements thereunder that the Trustee or
the Holders of the Notes consent to amendments thereto as provided therein.
SECTION 3.22. Issuer Obligation. No recourse may be taken, directly or
indirectly, with respect to the obligations of the Issuer or the Trustee on the
Notes or under this Indenture or any certificate or other writing delivered in
connection herewith or therewith, against (i) the Trustee in its individual
capacity, (ii) any owner of a beneficial interest in the Issuer or (iii) any
partner, owner, beneficiary, agent, officer, director, employee or agent of the
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer or the Trustee or
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of any successor or assign of the Trustee in its individual capacity, except as
any such Person may have expressly agreed (it being understood that the Trustee
has no such obligations in its individual capacity) and except that any such
partner, owner or beneficiary shall be fully liable, to the extent provided by
applicable law, for any unpaid consideration for stock, unpaid capital
contribution or failure to pay any installment or call owing to such entity.
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ARTICLE IV
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture. This Indenture shall
cease to be of further effect with respect to the Notes except as to (i) rights
of registration of transfer and exchange, (ii) substitution of mutilated,
destroyed, lost or stolen Notes, (iii) rights of Noteholders to receive payments
of principal and interest thereon, (iv) Sections 3.03, 3.04, 3.05, 3.07, 3.08,
3.10, 3.12, 3.13, 3.16, 3.20 and 3.21, (v) the rights, obligations and
immunities of the Trustee hereunder (including the rights of the Trustee under
Section 6.07 and the obligations of the Trustee under Section 4.02) and (vi) the
rights of Noteholders as beneficiaries hereof with respect to the property so
deposited with the Trustee payable to all or any of them, and the Trustee, on
demand of and at the expense of the Issuer, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture with respect to the
Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than
(i) Notes that have been destroyed, lost or stolen and that have been
replaced or paid as provided in Section 2.05 and (ii) Notes for whose
payment money has theretofore been deposited in trust or segregated
and held in trust by the Issuer and thereafter repaid to the Issuer or
discharged from such trust, as provided in Section 3.03) have been
delivered to the Trustee for cancellation; or
(2) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
Date within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Issuer,
and the Issuer, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee as part of the Trust Estate cash or direct obligations of or
obligations guaranteed by the United States of America (which will
mature prior to the date such amounts are payable), in trust in an
Eligible Account in the name of the Trustee for such purpose, in an
amount sufficient to pay and discharge the entire indebtedness on such
Notes not theretofore delivered to the Trustee for cancellation when
due to their Stated Maturity Date or Redemption Date (if Notes shall
have been called for redemption pursuant to Section 10.01(a)), as the
case may be;
(B) the Issuer has paid or caused to be paid all Secured Obligations;
and
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(C) the Issuer has delivered to the Trustee an Officer's Certificate,
an Opinion of Counsel and (if required by the TIA or the Trustee) an
Independent Certificate from a firm of certified public accountants, each
meeting the applicable requirements of Section 11.01(a) and each stating
that all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with and
the Rating Agency Condition has been satisfied.
SECTION 4.02. Application of Trust Money. All moneys deposited with the
Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in
accordance with the provisions of the Notes and this Indenture, to the payment,
either directly or through any Paying Agent, as the Trustee may determine, to
the Holders of the particular Notes for the payment or redemption of which such
moneys have been deposited with the Trustee, of all sums due and to become due
thereon for principal and interest; but such moneys need not be segregated from
other funds except to the extent required herein or in the Contribution and
Servicing Agreement or required by law.
SECTION 4.03. Repayment of Moneys Held by Paying Agent. In connection with
the satisfaction and discharge of this Indenture with respect to the Notes, all
moneys then held by any Paying Agent other than the Trustee under the provisions
of this Indenture with respect to such Notes shall, upon demand of the Issuer,
be paid to the Trustee to be held and applied according to Section 3.03 and
thereupon such Paying Agent shall be released from all further liability with
respect to such moneys.
SECTION 4.04. Release of Trust Estate. The Trustee shall, on or after the
Termination Date, release any remaining portion of the Trust Estate from the
lien created by this Indenture and deposit in the Collection Account any funds
then on deposit in any other Trust Account. The Trustee shall release property
from the lien created by this Indenture pursuant to this Section only upon
receipt of an Issuer Request accompanied by an Officer's Certificate, an Opinion
of Counsel and (if required by the TIA) Independent Certificates in accordance
with TIA ss.ss. 314(c) and 314(d)(1) meeting the applicable requirements of
Section 11.01.
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ARTICLE V
Remedies
SECTION 5.01. Events of Default. "Event of Default," wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment of any interest on any Note when the same
becomes due and payable, and such default shall continue for a period of
five days; or
(ii) default in the payment of the principal of any Note on the
Redemption Date or Stated Maturity Date applicable thereto; or
(iii) default in the observance or performance in any material respect
of any covenant or agreement of the Issuer made in this Indenture (other
than a covenant or agreement, a default in the observance or performance of
which is elsewhere in this Section specifically dealt with), or any
representation or warranty of the Issuer made in this Indenture or in any
certificate or other writing delivered pursuant hereto or in connection
herewith proving to have been incorrect in any material respect as of the
time when the same shall have been made, and such default shall continue or
not be cured, or the circumstance or condition in respect of which such
misrepresentation or warranty was incorrect shall not have been eliminated
or otherwise cured, for a period of 30 days after there shall have been
given, by registered or certified mail, to the Issuer by the Trustee or to
the Issuer and the Trustee by the Holders of at least 25% of the
Outstanding Amount of the Notes, a written notice specifying such default
or incorrect representation or warranty and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(iv) the commencement of an involuntary case against the Issuer or the
SPC under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, and such case is not dismissed
within 60 days; or
(v) (A) the commencement by the Issuer or the SPC of a voluntary case
under any applicable Federal or state bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) the entry of an order for
relief in an involuntary case against the Issuer or the SPC under any such
law, (C) the consent by the Issuer or the SPC to the entry of any such
order for relief, (D) the consent by the Issuer or the SPC to the
appointment or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Issuer or the
SPC or for any substantial part of the Trust Estate, (E) the making by the
Issuer or the SPC of any general assignment for the benefit of creditors,
(F) the failure by the Issuer or the SPC generally to pay its debts as such
debts become due, (G) the liquidation of the Issuer or the SPC, or (H) the
taking of action by the Issuer or the SPC, as applicable, in furtherance of
any of the foregoing.
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The Issuer shall deliver to the Trustee, within five days after obtaining
knowledge of the occurrence thereof, written notice in the form of an Officer's
Certificate of any event which with the giving of notice and the lapse of time
would become an Event of Default under clause (iii) or (iv), its status and what
action the Issuer is taking or proposes to take with respect thereto.
SECTION 5.02. Rights upon Event of Default.
If an Event of Default shall have occurred and be continuing, a Note
Majority or the Trustee may, upon prior written notice to the Rating Agencies,
declare by written notice to the Issuer that the Notes become, whereupon they
shall become, immediately due and payable at par, together with accrued interest
thereon. Notwithstanding anything to the contrary in this Section, if an Event
of Default specified in Section 5.01(iv) or (v) shall occur and be continuing,
the Notes shall become immediately due and payable at par, together with accrued
interest thereon. If an Event of Default shall have occurred and be continuing,
the Trustee may exercise any of the remedies specified in Sections 5.03 and
5.04.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee; Authority of Trustee.
(a) The Issuer covenants that if any Notes are accelerated following the
occurrence of an Event of Default, the Issuer will, upon demand of the Trustee,
pay to it, for the benefit of the Holders of such Notes, the whole amount then
due and payable on such Notes for principal and interest, with interest upon the
overdue principal, and, to the extent payment at such rate of interest shall be
legally enforceable, upon overdue installments of interest, at the applicable
Interest Rate and in addition thereto such further amount as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee and its agents
and counsel.
(b) If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders, by such appropriate Proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy or
legal or equitable right vested in the Trustee by this Indenture or by law.
(c) In case there shall be pending, relative to the Issuer, the SPC or any
other obligor upon the Notes or any Person having or claiming an ownership
interest in the Trust Estate, Proceedings under Title 11 of the United States
Code or any other applicable Federal or state bankruptcy, insolvency or other
similar law, or in case a receiver, assignee or trustee in bankruptcy or
reorganization, liquidator, sequestrator or similar official shall have been
appointed for or taken possession of the Issuer, the SPC or such other obligor
or Person, or its property, or in case of any other comparable judicial
Proceedings relative to the Issuer, the SPC or other obligor upon the Notes, or
to the creditors or property of the Issuer, the SPC or such other obligor, the
Trustee, irrespective of whether the principal of any Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the
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Trustee shall have made any demand pursuant to the provisions of this Section,
shall be entitled and empowered, by intervention in such Proceedings or
otherwise:
(i) to file and prove a claim or claims for the whole amount of
principal and interest owing and unpaid in respect of the Notes and to file
such other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for reasonable
compensation to the Trustee and each predecessor Trustee, and their
respective agents, attorneys and counsel, and for reimbursement of all
expenses and liabilities incurred, and all advances made, by the Trustee
and each predecessor Trustee, except as a result of negligence or bad
faith) and of the Noteholders allowed in such Proceedings;
(ii) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of Notes in any election of a trustee, a standby
trustee or Person performing similar functions in any such Proceedings;
(iii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute all amounts received with
respect to the claims of the Noteholders and of the Trustee on their
behalf; and
(iv) to file such proofs of claim and other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee or the
Holders of Notes allowed in any judicial proceedings relative to the
Issuer, its creditors and its property;
and any trustee, receiver, liquidator, custodian or other similar official in
any such Proceeding is hereby authorized by each of such Noteholders to make
payments to the Trustee, and, in the event that the Trustee shall consent to the
making of payments directly to such Noteholders, to pay to the Trustee such
amounts as shall be sufficient to cover reasonable compensation to the Trustee,
each predecessor Trustee and their respective agents, attorneys and counsel, and
all other expenses and liabilities incurred, and all advances made, by the
Trustee and each predecessor Trustee except as a result of negligence or bad
faith.
(d) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Noteholder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder thereof or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such proceeding
except, as aforesaid, to vote for the election of a trustee in bankruptcy or
similar Person.
(e) All rights of action and of asserting claims under this Indenture or
under any of the Notes, may be enforced by the Trustee without the possession of
any of the Notes or the production thereof in any trial or other Proceedings
relative thereto, and any such action or Proceedings instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment, subject to the payment of the expenses, disbursements and
compensation of the Trustee, each predecessor Trustee and their respective
agents and attorneys, shall be for the ratable benefit of the Holders of the
Notes.
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(f) In any Proceedings brought by the Trustee (including any Proceedings
involving the interpretation of any provision of this Indenture), the Trustee
shall be held to represent all the Holders of the Notes, and it shall not be
necessary to make any Noteholder a party to any such Proceedings.
SECTION 5.04. Remedies. If an Event of Default shall have occurred and be
continuing, the Trustee may (subject to Section 5.05) and, in the case of an
Event of Default described in Section 5.01(iv) or (v), shall, as to the actions
described in the following clauses (i), (ii) and (iii):
(i) institute Proceedings in its own name and as or on behalf of a
trustee of an express trust for the collection of all amounts then payable
on the Notes or under this Indenture with respect thereto, whether by
declaration or otherwise, enforce any judgment obtained, and collect from
the Issuer and any other obligor upon such Notes moneys adjudged due;
(ii) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Trust Estate;
(iii) exercise any remedies of a secured party under the UCC and any
other remedy available to the Trustee and take any other appropriate action
to protect and enforce the rights and remedies of the Trustee on behalf of
the Noteholders; and
(iv) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private sales called and
conducted in any manner permitted by law; provided, however, that the
Trustee may not sell or otherwise liquidate the Trust Estate following an
Event of Default unless
(A) the Holders of 100% of the Outstanding Amount of the Notes
consent thereto,
(B) the proceeds of such sale or liquidation distributable to the
Noteholders will be sufficient to discharge in full all amounts then
due and unpaid upon such Notes for principal and interest, or
(C) the Trustee determines that the Trust Estate will not
continue to provide sufficient funds for the payment of principal of
and interest on the Notes as they would have become due if the Notes
had not been declared due and payable, and the Trustee provides prior
written notice to the Rating Agencies and obtains the consent of
Holders of 66-2/3% of the Outstanding Amount of the Notes.
In determining such sufficiency or insufficiency with respect to clause (B) or
(C), the Trustee may, but need not, obtain and rely upon an opinion of an
Independent investment banking or accounting firm of national reputation as to
the feasibility of such proposed action and as to the sufficiency of the Trust
Estate for such purpose.
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SECTION 5.05. Optional Preservation of the Leases. If any Notes have been
declared to be due and payable under Section 5.02 following an Event of Default
and such declaration and its consequences have not been rescinded and annulled,
the Trustee may, but need not, elect to maintain possession of the Trust Estate.
It is the desire of the parties hereto and the Noteholders that there be at all
times sufficient funds for the payment of principal of and interest on the
Notes, and the Trustee shall take such desire into account when determining
whether or not to maintain possession of the Trust Estate. In determining
whether to maintain possession of the Trust Estate, the Trustee may, but need
not, obtain and rely upon an opinion of an Independent investment banking or
accounting firm of national reputation as to the feasibility of such proposed
action and as to the sufficiency of the Trust Estate for such purpose.
SECTION 5.06. Priorities.
If the Trustee collects any money or property pursuant to this Article V,
including any money or property in respect of liquidation of the Trust Estate
pursuant to Section 5.04(a)(iv), the Trustee shall pay as promptly as
practicable out the money or property in the following order:
FIRST: amounts due and owing and required to be distributed to the
Servicer pursuant to priority (i) of Section 8.03 and not previously
distributed;
SECOND: amounts due and owing to the Trustee pursuant to Section 6.07;
THIRD: to Class A Noteholders for amounts unpaid on the Class A Notes
for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class A Notes for interest;
FOURTH: to Class B Noteholders for amounts due and unpaid on the Class
B Notes for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class B Notes for interest;
FIFTH: to Class C Noteholders for amounts due and unpaid on the Class
C Notes for interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class C Notes for interest;
SIXTH: to Class A Noteholders for amounts unpaid on the Class A Notes
for principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class A Notes for
principal;
SEVENTH: to Class B Noteholders for amounts unpaid on the Class B
Notes for principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class B Notes for
principal;
EIGHTH: to Class C Noteholders for amounts unpaid on the Class C Notes
for principal, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Class C Notes for
principal;
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NINTH: amounts due and owing and required to be distributed to the
Servicer pursuant to priority (vi) of Section 8.03 and not distributed; and
TENTH: the remainder, if any, to the Issuer.
SECTION 5.07. Limitation of Suits. No Holder of any Note shall have any
right to institute any Proceeding, judicial or otherwise, with respect to this
Indenture, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless:
(i) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(ii) the Holders of not less than 25% of the Outstanding Amount of the
Notes have made written request to the Trustee to institute such Proceeding
in respect of such Event of Default in its own name as Trustee hereunder;
(iii) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
complying with such request;
(iv) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute such Proceedings; and
(v) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority of
the Outstanding Amount of the Notes;
it being understood and intended that no one or more Holders of Notes shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other
Holders of Notes or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided.
In the event the Trustee shall receive conflicting or inconsistent requests
and indemnity from two or more groups of Holders of Notes, each representing
less than a majority of the Outstanding Amount of the Notes, the Trustee may
conclusively rely on and act upon the request of the group representing the
largest Outstanding Amount of the Notes.
SECTION 5.08. Unconditional Rights of Noteholders To Receive Principal and
Interest. Notwithstanding any other provisions in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment of the principal of and interest on such Note on or after the respective
due dates thereof expressed in such Note or in this Indenture (or, in the case
of redemption, on or after the Redemption Date) and to institute suit for the
enforcement of any such payment, and such right shall not be impaired without
the consent of such Holder.
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SECTION 5.09. Restoration of Rights and Remedies. If the Trustee or any
Noteholder has instituted any Proceeding to enforce any right or remedy under
this Indenture and such Proceeding has been discontinued or abandoned for any
reason or has been determined adversely to the Trustee or to such Noteholder,
then and in every such case the Issuer, the Trustee and the Noteholders shall,
subject to any determination in such Proceeding, be restored severally and
respectively to their former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Noteholders shall continue as though no such
Proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Trustee or to the Noteholders is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.11. Delay or Omission Not a Waiver. No delay or omission of the
Trustee or any Holder of any Note to exercise any right or remedy accruing upon
any Default or Event of Default shall impair any such right or remedy or
constitute a waiver of any such Default or Event of Default or an acquiescence
therein. Every right and remedy given by this Article V or by law to the Trustee
or to the Noteholders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Noteholders, as the case may be.
SECTION 5.12. Control by Noteholders. The Holders of a majority of the
Outstanding Amount of the Notes shall have the right to direct the time, method
and place of conducting any Proceeding for any remedy available to the Trustee
with respect to the Notes or exercising any trust or power conferred on the
Trustee; provided that
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) subject to the express terms of Section 5.04, any direction to
the Trustee to sell or liquidate all or any portion of the Trust Estate
shall be by the Holders of Notes representing not less than 100% of the
Outstanding Amount of the Notes; and
(iii) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction; provided, however,
that, subject to Section 6.01, the Trustee need not take any action that it
determines might involve it in liability or might materially adversely
affect the rights of any Noteholders not consenting to such action.
SECTION 5.13. Waiver of Past Defaults.
The Holders of Notes of not less than a majority of the Outstanding Amount
of the Notes may waive any past Default or Event of Default and its consequences
except a Default (a) in payment of principal of or interest on any of the Notes
or (b) in respect of a covenant or provision hereof which cannot be modified or
amended without the consent of the Holder of each
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Note. In the case of any such waiver, the Issuer, the Trustee and the Holders of
the Notes shall be restored to their former positions and rights hereunder,
respectively; but no such waiver shall extend to any subsequent or other Default
or impair any right consequent thereto.
Upon any such waiver, such Default shall cease to exist and be deemed to
have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured and not to have occurred, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereto.
SECTION 5.14. Undertaking for Costs. All parties to this Indenture agree,
and each Holder of any Note by such Holder's acceptance thereof shall be deemed
to have agreed, that any court may in its discretion require, in any suit for
the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section shall not apply to (a)
any suit instituted by the Trustee, (b) any suit instituted by any Noteholder,
or group of Noteholders, in each case holding in the aggregate more than 10% of
the Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder
for the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.15. Waiver of Stay or Extension Laws. The Issuer covenants (to
the extent that it may lawfully do so) that it will not at any time insist upon,
or plead or in any manner whatsoever, claim or take the benefit or advantage of,
any stay or extension law wherever enacted, now or at any time hereafter in
force, that may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantages of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 5.16. Action on Notes. The Trustee's right to seek and recover
judgment on the Notes or under this Indenture shall not be affected by the
seeking, obtaining or application of any other relief under or with respect to
this Indenture. Neither the lien of this Indenture nor any rights or remedies of
the Trustee or the Noteholders shall be impaired by the recovery of any judgment
by the Trustee against the Issuer or by the levy of any execution under such
judgment upon any portion of the Trust Estate or upon any of the assets of the
Issuer.
SECTION 5.17. Performance and Enforcement of Certain Obligations.
(a) Promptly following a request from the Trustee to do so and at the
Depositor's expense, the Issuer agrees to take all such lawful action as the
Trustee may request to compel or secure the performance and observance by the
SPC or the Servicer, as applicable, of
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each of their obligations to the Issuer under or in connection with the
Contribution and Servicing Agreement in accordance with the terms thereof, and
to exercise any and all rights, remedies, powers and privileges lawfully
available to the Issuer under or in connection with the Contribution and
Servicing Agreement to the extent and in the manner directed by the Trustee,
including the transmission of notices of default on the part of the SPC or the
Servicer thereunder and the institution of legal or administrative actions or
proceedings to compel or secure performance by the SPC or the Servicer of each
of their obligations under the Contribution and Servicing Agreement.
(b) If an Event of Default has occurred and is continuing, the Trustee may,
and at the direction (which direction shall be in writing, including facsimile)
of the Holders of at least 66-2/3% of the Outstanding Amount of the Notes shall,
exercise all rights, remedies, powers, privileges and claims of the Issuer
against the SPC or the Servicer under or in connection with the Contribution and
Servicing Agreement, including the right or power to take any action to compel
or secure performance or observance by the SPC or the Servicer of each of their
obligations to the Issuer thereunder and to give any consent, request, notice,
direction, approval, extension or waiver under the Contribution and Servicing
Agreement, and any right of the Issuer to take such action shall be suspended.
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ARTICLE VI
The Trustee
SECTION 6.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture with the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture; however,
the Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture and, if
applicable, the Trustee's other Related Documents.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct, except
that:
(i) this paragraph does not limit the effect of paragraph (b) of this
Section;
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 5.12.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received by
it.
(f) Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law or the terms of this Indenture or the
Contribution and Servicing Agreement.
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(g) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers,
if it shall have reasonable grounds to believe that repayments of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(h) Every provision of this Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be subject to the
provisions of this Section and to the provisions of the TIA.
(i) In no event shall the Trustee be required to perform, or be responsible
for the manner of performance of, any of the obligations of the Servicer, or any
other party, under the Contribution and Servicing Agreement, except during such
time, if any, as the Trustee shall be the successor to, and be vested with the
rights, powers, duties and privileges of the Servicer, in accordance with the
terms of the Contribution and Servicing Agreement.
(j) The Trustee shall, and hereby agrees that it will, perform all of the
obligations and duties required of it under the Contribution and Servicing
Agreement.
(k) Without limiting the generality of this Section, the Trustee shall have
no duty (i) to see to any recording, filing or depositing of this Indenture or
any agreement referred to herein or any financing statement evidencing a
security interest in the Equipment, or to see to the maintenance of any such
recording or filing or depositing or to any recording, refiling or redepositing
of any thereof, (ii) to see to any insurance of the Equipment or Obligors or to
effect or maintain any such insurance, (iii) except as specifically provided in
the Contribution and Servicing Agreement, to see to the payment or discharge of
any tax, assessment or other governmental charge or any Lien or encumbrance of
any kind owing with respect to, assessed or levied against any part of the Trust
Estate, (iv) to confirm or verify the contents (other than compliance as to
form) of any reports or certificates delivered to the Trustee pursuant to this
Indenture or the Contribution and Servicing Agreement believed by the Trustee to
be genuine and to have been signed or presented by the proper party or parties,
or (v) to inspect the Equipment at any time or ascertain or inquire as to the
performance of observance of any of the Issuer's, the Depositor's or the
Servicer's representations, warranties or covenants or the Servicer's duties and
obligations as Servicer under the Contribution and Servicing Agreement.
(l) Except for actions expressly authorized by this Indenture or the
Contribution and Servicing Agreement or taken by the Trustee pursuant to Section
6.01(a), the Trustee shall take no action reasonably likely to impair (i) the
interests of the Trust Estate in any contract or agreement now existing or
hereafter created or (ii) the value of any contract or agreement now existing or
hereafter created.
(m) The Trustee shall have no power to vary the corpus of the Trust Estate,
except as expressly provided in this Indenture.
(n) In the event that the Note Registrar or the Paying Agent (if other than
the Trustee) shall fail to perform any obligation, duty or agreement in the
manner or on the day
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required to be performed by the Note Registrar or the Paying Agent, as the case
may be, under this Indenture, the Trustee shall be obligated, as soon as
possible upon knowledge of a Responsible Officer thereof and receipt of
appropriate records, if any, to perform such obligation, duty or agreement in
the manner so required.
(o) The Trustee shall not be required to take notice or be deemed to have
notice or knowledge of any Event of Default (other than an Event of Default
pursuant to Section 5.01(i) or (ii)) unless a Responsible Officer of the Trustee
shall have received written notice thereof or otherwise has actual knowledge
thereof. In the absence of receipt of such notice or knowledge, the Trustee may
conclusively assume that there is no Event of Default.
SECTION 6.02. Rights of Trustee.
Except as otherwise provided in Section 6.01:
(a) the Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not (except under the circumstances described in paragraph (g) below)
investigate any fact or matter stated in the document;
(b) before the Trustee acts or refrains from acting, it may require an
Officer's Certificate (with respect to factual matters) or an Opinion of
Counsel, as applicable. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on the Officer's
Certificate or Opinion of Counsel, as applicable, or as directed by the
requisite amount of Note Owners as provided herein;
(c) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian or nominee, and the Trustee shall not be
responsible for any misconduct or negligence on the part of, or for the
supervision of, any such agent, attorney, custodian or nominee appointed
with due care by it hereunder;
(d) the Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute willful misconduct, negligence or bad faith;
(e) the Trustee may consult with counsel, and the advice or opinion of
counsel with respect to legal matters relating to this Indenture and the
Notes shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it
hereunder in good faith and in accordance with the advice or opinion of
such counsel;
(f) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders of Notes, pursuant to the provisions of
this Indenture, unless such Holders of
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Notes shall have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities that may be incurred therein or
thereby; provided, however, that the Trustee shall, upon the occurrence of
an Event of Default (that has not been cured), exercise the rights and
powers vested in it by this Indenture with the same degree of care and
skill in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs;
(g) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval,
bond or other paper or document, unless requested in writing to do so by
the Holders of Notes evidencing not less than 25% of the Outstanding Amount
thereof; provided, however, that if the payment within a reasonable time to
the Trustee of the costs, expenses or liabilities likely to be incurred by
it in the making of such investigation is, in the opinion of the Trustee,
not reasonably assured to the Trustee by the security afforded to it by the
terms of this Indenture or the Contribution and Servicing Agreement, the
Trustee may require reasonable indemnity against such cost, expense or
liability as a condition to so proceeding; the reasonable expense of every
such examination shall be paid by the Person making such request, or, if
paid by the Trustee, shall be immediately reimbursed by the Person making
such request upon demand; and
(h) The right of the Trustee to perform any discretionary act
enumerated in this Indenture shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act.
SECTION 6.03. Individual Rights of Trustee. The Trustee in its individual
or any other capacity may become the owner or pledgee of Notes and may otherwise
deal with the Issuer or its Affiliates with the same rights it would have if it
were not Trustee. Any Paying Agent, Note Registrar, co-registrar or co-paying
agent may do the same with like rights. However, the Trustee is required to
comply with Sections 6.11 and 6.12.
SECTION 6.04. Trustee's Disclaimer. The Trustee shall not be responsible
for and, except as provided in Section 6.13, makes no representation as to the
validity or adequacy of this Indenture, the Trust Estate or the Notes, it shall
not be accountable for the Issuer's use of the proceeds from the Notes, and it
shall not be responsible for any statement of the Issuer in the Indenture or in
any document issued in connection with the sale of the Notes or in the Notes
other than the Trustee's certificate of authentication.
SECTION 6.05. Notice of Defaults. If a Default occurs and is continuing and
if it is known to a Responsible Officer of the Trustee, the Trustee shall mail
to each Noteholder notice of the Default within 90 days after it occurs. Except
in the case of a Default in payment of principal of or interest on any Note
(including payments pursuant to the mandatory redemption provisions of such
Note), the Trustee may withhold the notice if and so long as a committee of its
Responsible Officers in good faith determines that withholding the notice is in
the interests of Noteholders.
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SECTION 6.06. Reports by Trustee to Holders. The Trustee shall provide or
cause to be provided to each Noteholder all such tax information as may be
required by law to be distributed to enable such holder to prepare its federal
and state income tax returns.
SECTION 6.07. Compensation and Indemnity.
(a) The Servicer, pursuant to the Contribution and Servicing Agreement, has
covenanted and agreed to pay to the Trustee, and the Trustee shall be entitled
to, certain annual fees and to reimburse the Trustee for all ordinary and
reasonable out-of-pocket expenses incurred or made by it in connection with the
performance of its duties hereunder (excluding those incurred or made in the
performance of its duties under Article V, as referred to in paragraph (b)
below). Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Trustee's agents, counsel, accountants and
experts.
(b) The Trustee shall also be entitled to reimbursement, from moneys
available therefor in accordance with Section 5.06, for all reasonable
out-of-pocket expenses (including the reasonable fees of any attorneys,
investment bankers and public accountants) incurred or made by it in connection
with the performance of its duties under Article V. When the Trustee incurs
expenses after the occurrence of a Default specified in Section 5.01(iv) or (v)
with respect to the Issuer, the expenses are intended to constitute expenses of
administration under Title 11 of the United States Code or any other applicable
Federal or state bankruptcy, insolvency or similar law. Notwithstanding anything
else set forth in this Indenture or the Related Documents, the Trustee agrees
that the obligations of the Issuer to the Trustee hereunder and under the
Related Documents shall be recourse to the Trust Estate only. In addition, the
Trustee agrees that its recourse to the Issuer or the Trust Estate shall be
limited to the right to receive the reimbursement referred to in the first
sentence of this paragraph.
(c) The Trustee and any director, officer, employee or agent of the Trustee
shall be indemnified by the Issuer and held harmless against any loss, liability
or reasonable expense incurred in connection with this Indenture or the Notes,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance by the Trustee of its
duties hereunder or any loss, liability or expense incurred by the Trustee in
connection with the performance of its duties pursuant to Section 6.01,
including, without limitation, any such loss, liability or expense incurred in
connection with any legal action or resulting from any error in any tax or
information return prepared by any Person other than the Trustee.
SECTION 6.08. Replacement of Trustee. The Trustee may resign at any time by
so notifying the Issuer in writing. The Issuer may remove the Trustee if:
(i) the Trustee fails to comply with Section 6.11;
(ii) a court having jurisdiction in the premises in respect of the
Trustee in an involuntary case or proceeding under federal or state banking
or bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law,
shall have entered a decree or order granting relief or appointing a
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receiver, liquidator, assignee, custodian, trustee, conservator,
sequestrator (or similar official) for the Trustee or for any substantial
part of the Trustee's property, or ordering the winding-up or liquidation
of the Trustee's affairs;
(iii) an involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law is commenced with respect to the
Trustee and such case is not dismissed within 60 days;
(iv) the Trustee commences a voluntary case under any federal or state
banking or bankruptcy laws, as now or hereafter constituted, or any other
applicable federal or state bankruptcy, insolvency or other similar law, or
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, conservator, sequestrator (or
other similar official) for the Trustee or for any substantial part of the
Trustee's property, or makes any assignment for the benefit of creditors or
fails generally to pay its debts as such debts become due or takes any
corporate action in furtherance of any of the foregoing;
(v) the Trustee otherwise becomes incapable of acting; or
(vi) the rating assigned to the long-term unsecured debt obligations
of the Trustee (or the holding company thereof) by the Rating Agencies
shall be lowered below the rating of ["BBB"], ["Baa3"] or equivalent rating
or be withdrawn by any Rating Agency.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason (the Trustee in such event being referred to herein as
the retiring Trustee), the Issuer shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee, to the Issuer and to each Rating Agency. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Noteholders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the
Holders of a majority in Outstanding Amount of the Notes may petition any court
of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 6.11, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
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Any resignation or removal of the Trustee and appointment of a successor
Trustee pursuant to any of the provisions of this Section shall not become
effective until acceptance of appointment by the successor Trustee pursuant to
this Section and payment of all fees and expenses owed to the retiring Trustee.
Notwithstanding the replacement of the Trustee pursuant to this Section, the
retiring Trustee shall be entitled to payment or reimbursement of such amounts
as such Person is entitled pursuant to Section 6.07.
SECTION 6.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee; provided that no such merger,
conversion or consolidation shall relieve the Trustee of its obligation to
comply with Section 6.11. The Trustee shall provide the Rating Agencies prompt
notice of any such transaction.
In case at the time such successor or successors by merger, conversion or
consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 6.10. Appointment of Co-Trustee or Separate Trustee.
(a) Notwithstanding any other provisions of this Indenture, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Trust may at the time be located, the Trustee shall have the
power and may execute and deliver all instruments to appoint one or more Persons
to act as a co-trustee or co-trustees, or separate trustee or separate trustees,
of all or any part of the Trust, and to vest in such Person or Persons, in such
capacity and for the benefit of the Noteholders, such title to the Trust, or any
part hereof, and, subject to the other provisions of this Section, such powers,
duties, obligations, rights and trusts as the Trustee may consider necessary or
desirable. No co-trustee or separate trustee hereunder shall be required to meet
the terms of eligibility as a successor Trustee under Section 6.11 and no notice
to Noteholders of the appointment of any co-trustee or separate trustee shall be
required under Section 6.08.
(b) Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all rights, powers, duties and obligations conferred or imposed
upon the Trustee shall be conferred or imposed upon and exercised or
performed by the Trustee and such separate trustee or co-trustee jointly
(it being understood that such separate trustee or co-trustee is not
authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act
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or acts are to be performed the Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the Trust or any portion
thereof in any such jurisdiction) shall be exercised and performed singly
by such separate trustee or co-trustee, but solely at the direction of the
Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-trustees,
as effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VI. Each separate trustee and co-trustee, upon its acceptance of
the trusts conferred, shall be vested with the estates or property specified in
its instrument of appointment, either jointly with the Trustee or separately, as
may be provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 6.11. Eligibility; Disqualification. The Trustee shall at all times
satisfy the requirements of TIA ss. 310(a). The Trustee shall have a combined
capital and surplus of at least $50,000,000 as set forth in its most recent
published annual report of condition. The Trustee shall comply with TIA ss.
310(b), including the optional provision permitted by the second sentence of TIA
ss. 310(b)(9); provided, however, that there shall be excluded from the
operation of TIA ss. 310(b)(1) any indenture or indentures under which other
securities of the Issuer are outstanding if the requirements for such exclusion
set forth in TIA ss. 310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Issuer. The Trustee
shall comply with TIA ss. 311(a), excluding any creditor relationship listed in
TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to
TIA ss. 311(a) to the extent indicated.
SECTION 6.13. Representations and Warranties of the Trustee. The Trustee
represents and warrants as of the Closing Date that:
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(i) the Trustee is a national banking association organized, existing
and in good standing under the laws of the United States of America;
(ii) the Trustee has full power, authority and right to execute,
deliver and perform this Indenture and each of the Trustee's Related
Documents, and has taken all necessary action to authorize the execution,
delivery and performance by it of this Indenture and each such Related
Document; and
(iii) each of this Indenture and the Trustee's Related Documents has
been duly executed and delivered by the Trustee and represents a legal,
valid and binding obligation of the Trustee enforceable against the Trustee
in accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at
law or in equity).
SECTION 6.14. Servicer's Obligations. The Trustee shall, subject to Section
6.01, use its reasonable good faith efforts to cause the Servicer duly and
punctually to perform all of its duties and obligations under the Contribution
and Servicing Agreement.
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ARTICLE VII
Noteholders' Lists and Reports
SECTION 7.01. Note Registrar To Furnish Trustee Names and Addresses to
Noteholders. The Note Registrar will furnish or cause to be furnished to the
Trustee (a) not more than five days after the earlier of (i) each Record Date
and (ii) three months after the last Record Date, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders of
Notes as of such Record Date, (b) at such other times as the Trustee may request
in writing, within 30 days after receipt by the Note Registrar of any such
request, a list of similar form and content as of a date not more than 10 days
prior to the time such list is furnished; provided, however, that so long as the
Trustee is the Note Registrar, no such list shall be required to be furnished.
SECTION 7.02. Preservation of Information; Communications to Noteholders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Notes contained in the
most recent list furnished to the Trustee as provided in Section 7.01 and the
names and addresses of Holders of Notes received by the Trustee in its capacity
as Note Registrar. The Trustee may destroy any list furnished to it as provided
in such Section 7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have the
protection of TIA ss. 312(c).
SECTION 7.03. Reports by Issuer.
(a) The Issuer shall:
(i) file with the Trustee, within 15 days after the Issuer is required
to file the same with the Commission, copies of the annual reports and of
the information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Issuer may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act;
(ii) file with the Trustee and the Commission in accordance with rules
and regulations prescribed from time to time by the Commission such
additional information, documents and reports with respect to compliance by
the Issuer with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
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(iii) supply to the Trustee a sufficient number of copies (and the
Trustee shall transmit by mail to all Noteholders described in TIA ss.
313(c)) of such summaries of any information, documents and reports
required to be filed by the Issuer pursuant to clauses (i) and (ii) of this
paragraph as may be required by rules and regulations prescribed from time
to time by the Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the Issuer
shall end on December 31 of each year. In the event the Issuer changes its
fiscal year, it shall promptly notify the Trustee.
SECTION 7.04. Reports by Trustee. If required by TIA ss. 313(a), within 60
days after each March 31 beginning with March 31, 1999, the Trustee shall mail
to each Noteholder as required by TIA ss. 313(c) a brief report dated as of such
date that complies with TIA ss. 313(a). The Trustee also shall comply with TIA
ss. 313(b).
A copy of each report at the time of its mailing to Noteholders shall be
filed by the Trustee with the Commission and each stock exchange, if any, on
which the Notes are listed. The Issuer shall notify the Trustee if and when the
Notes are listed on any other stock exchange.
SECTION 7.05. Statements to Noteholders.
(a) On each Payment Date, the Trustee shall include with each distribution
to each Noteholder, a statement (which statement shall also be provided to each
Rating Agency), based solely on information in the Servicer's Certificate
delivered on the related Determination Date pursuant to Section 3.9 of the
Contribution and Servicing Agreement, in substantially the form attached hereto
as Exhibit B.
(b) Note Owners may obtain copies of the statements delivered by the
Trustee pursuant to subsection (a) above upon written request to the Trustee at
its Corporate Trust Office (together with a certification that such Person is a
Note Owner and payment of any expenses associated with the distribution
thereof).
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ARTICLE VIII
Trust Accounts, Disbursements and Releases
SECTION 8.01. Collection of Money. Except as otherwise expressly provided
herein, the Trustee may demand payment or delivery of, and shall receive and
collect, directly and without intervention or assistance of any fiscal agent or
other intermediary, all money and other property payable to or receivable by the
Trustee pursuant to this Indenture. The Trustee shall apply all such money
received by it as provided in this Indenture. Except as otherwise expressly
provided in this Indenture, if any default occurs in the making of any payment
or performance under any agreement or instrument that is part of this Indenture
or the Notes, the Trustee may take such action as may be appropriate to enforce
such payment or performance, including the institution and prosecution of
appropriate Proceedings. Any such action shall be without prejudice to any right
to claim a Default or Event of Default under this Indenture and any right to
proceed thereafter as provided in Article V.
SECTION 8.02. Collection Account. On or prior to the Closing Date, the
Trustee shall establish the Collection Account in the name of the Trustee for
the benefit of the Noteholders. The Collection Account shall be an Eligible
Account and initially shall be a segregated trust account established with the
Trustee and maintained with the Trustee, into which the Servicer shall deposit
or cause to be deposited all amounts described in Sections 4.1 and 5.1 of the
Contribution and Servicing Agreement.
SECTION 8.03. Distributions. No later than 3:00 p.m., St. Paul, Minnesota
time, on each Payment Date, the Trustee shall (based solely on the information
contained in the Servicer's Certificate delivered on the related Determination
Date, upon which the Trustee may conclusively rely) distribute the following
amounts and in the order of priority specified below. Within each order of
priority, amounts shall be deemed withdrawn first from Available Pledged
Revenues plus any Servicer Advances, second (but only as to amounts described in
clauses (i) through (v) below) from amounts on deposit in the Residual Account
and third, from amounts on deposit in the Reserve Account (but only as to
amounts described in clauses (i) through (iv) below:
(i) first, from the Available Pledged Revenues then on deposit in the
Collection Account, to the Servicer (if Vendor Services or an Affiliate is
no longer the Servicer), the Servicing Fee for the related Collection
Period, and any amounts specified in Section 4.2(c) of the Contribution and
Servicing Agreement, to the extent the Servicer has not reimbursed itself
in respect of such amounts pursuant to Section 4.4 of the Contribution and
Servicing Agreement;
(ii) second, from the Amount Available then remaining on deposit in
the Collection Account, to reimburse the Servicer for unreimbursed
Nonrecoverable Servicer Advances made with respect to a prior Payment Date;
(iii) third, from the Amount Available then remaining on deposit in
the Collection Account, interest on the Notes in the following order of
priority:
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(A) to the Class A-1 Noteholders, the Class A-1 Interest
Distributable Amount, to the Class A-2 Noteholders, the Class A-2
Interest Distributable Amount, to the Class A-3 Noteholders, the Class
A-3 Interest Distributable Amount and to the Class A-4 Noteholders,
the Class A-4 Interest Distributable Amount or, if the remaining
amount on deposit in the Collection Account is less than the sum of
the amounts specified in this clause (A), such remaining amount pro
rata to each of such Classes based their respective entitlements to
interest pursuant to this clause (A);
(B) to the Class B Noteholders, the Class B Interest
Distributable Amount; and
(C) to the Class C Noteholders, the Class C Interest
Distributable Amount;
(iv) fourth, from the Amount Available then remaining on deposit in
the Collection Account, principal on the Notes in the following order of
priority:
(A) (i) to the Class A-1 Noteholders only, until the Outstanding
Principal Amount on the Class A-1 Notes has been reduced to zero, the
Class A Principal Payment, then (ii) to the Class A-2 Noteholders, the
Class A-3 Noteholders and the Class A-4 Noteholders, sequentially, the
Class A Principal Payment, in that order, until the Outstanding
Principal Amount of each such Class has been reduced to zero;
(B) to the Class B Noteholders, the Class B Principal Payment;
(C) to the Class C Noteholders, the Class C Principal Payment;
(D) to the extent that the Class B Floor exceeds the Class B
Target Investor Principal Amount and the Class C Floor exceeds the
Class C Target Investor Principal Amount, Additional Principal shall
be distributed, sequentially, as an additional principal payment, to
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 Additional Principal, until
the Outstanding Principal Amount of each Class has been reduced to
zero; and
(E) to the extent the Class C Floor exceeds the Class C Target
Investor Principal Amount, but the Class B Floor does not exceed the
Class B Target Investor Principal Amount, Additional Principal shall
be distributed as an additional principal payment on the Class A and
Class B Notes, pro rata (and among the Class A Notes, sequentially on
the Class A-2, Class A-3 and Class A-4 Notes, in that order), until
the Outstanding Principal Amount of each such Class has been reduced
to zero;
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(v) fifth, from Available Pledged Revenues and amounts (if any) on
deposit in the Residual Account, to the Reserve Account, an amount equal to
the excess, if any, of the Required Reserve Amount over the Available
Reserve Amount;
(vi) sixth, from the Available Pledged Revenues then on deposit in the
Collection Account, to the Servicer (if Vendor Services or an Affiliate is
the Servicer), the Servicing Fee for the related Collection Period; and
(vii) seventh, the remainder of Available Pledged Revenues, if any, to
the Issuer.
SECTION 8.04. [Reserved].
SECTION 8.05. Servicing Account. On or prior to the Closing Date, the
Trustee shall establish the Servicing Account in the name of the Trustee for the
benefit of the Noteholders and the SPC. The Servicing Account shall be an
Eligible Account. The Servicer shall deposit or cause to be deposited in the
Servicing Account all amounts described in Sections 4.1 and 4.2 of the
Contribution and Servicing Agreement, subject to Section 4.4 thereof. The
Servicer shall make transfers from the Servicing Account, and shall be entitled
to make withdrawals from the Servicing Account, as provided in the Contribution
and Servicing Agreement.
SECTION 8.06. Residual Account.
(a) On or prior to the Closing Date, the Trustee shall establish the
Residual Account in the name of the Trustee for the benefit of the Noteholders
and the Issuer. The Residual Account shall be an Eligible Account. The Servicer
shall deposit or cause to be deposited in the Residual Account all Residual
Realizations pursuant to Section 4.2 of the Collection and Servicing Agreement.
(b) If on any Payment Date, the Available Pledged Revenues for such Payment
Date are insufficient to permit on such Payment Date all distributions required
by Section 8.03 (i) through (v) (such shortfall, an "Available Funds
Shortfall"), then the Trustee shall transfer from the Residual Account to the
Collection Account, an amount equal to the lesser of (i) the Available Funds
Shortfall and (ii) the amount, if any, on deposit in the Residual Account.
(c) On each Payment Date, unless a Residual Event has occurred and is
continuing, any funds on deposit in the Residual Account after making required
withdrawals, if any, on such Payment Date pursuant to Section 8.06(b) shall be
released to the Issuer.
(d) On each Payment Date on which a Residual Event has occurred or is
continuing, any funds on deposit in the Residual Account after making required
withdrawals, if any, on such Payment Date pursuant to Section 8.06(b) shall be
retained in the Residual Account.
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SECTION 8.07. Reserve Account.
(a) On or prior to the Closing Date, the Trustee shall establish the
Reserve Account in the name of the Trustee for the benefit of the Noteholders
and the Issuer, and shall deposit the Reserve Account Initial Deposit in the
Reserve Account. The Reserve Account shall be an Eligible Account.
(b) On each Payment Date, the Trustee shall transfer to the Reserve Account
from the Collection Account such amounts as shall be required by Section
8.03(v).
(c) If on any Payment Date, the Available Pledged Revenues for such Payment
Date, together with amounts to be withdrawn from the Residual Account pursuant
to Section 8.06(b), are insufficient to permit on such Payment Date all
distributions required by Section 8.03 (i) through (iv) (such shortfall, a
"Remaining Available Funds Shortfall"), then the Trustee shall transfer from the
Reserve Account to the Collection Account, an amount equal to the lesser of (i)
the Remaining Available Funds Shortfall and (ii) the Available Reserve Amount.
(d) If any Payment Date the Available Reserve Amount, after giving effect
to any withdrawals to be made pursuant to Section 8.07(c), exceeds the Required
Reserve Amount, the Trustee shall release such excess to the Issuer.
(e) Upon termination of this Indenture, any balance remaining in the
Reserve Account, after all obligations to the Noteholders hereunder have been
fully satisfied, shall be applied to reimburse the Trustee for any amounts owing
to it arising from the performance of its obligations under this Indenture and,
then, to the Issuer.
SECTION 8.08. General Provisions Regarding Servicing Account, Collection
Account, Residual Account and Reserve Account.
(a) So long as no Default or Event of Default shall have occurred and be
continuing, all amounts held in the Servicing Account, the Collection Account,
the Residual Account and the Reserve Account shall, to the extent permitted by
applicable laws, rules and regulations, be invested, as directed by the
Servicer, in Eligible Investments that mature not later than one Business Day
prior to the Payment Date for the Collection Period to which such amounts
relate. Any such written direction shall certify that any such investment is
authorized by this Section. Investments in Eligible Investments shall be made in
the name of the Trustee on behalf of the Trust, and such investments shall not
be (1) purchased at a price in excess of the principal amount thereof plus
accrued interest thereon, nor (2) sold or disposed of prior to their maturity at
a price less than the principal amount thereof plus accrued interest thereon.
Any investment of funds in the Servicing Account, the Collection Account, the
Residual Account or the Reserve Account shall be made in Eligible Investments
held by a financial institution in accordance with the following requirements:
(i) all Eligible Investments shall be held in an account with such
financial institution in the name of the Trustee;
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(ii) with respect to securities held in such account, such securities
shall be:
(A) certificated securities (as such term is used in Minnesota
UCC ss. 8-102(a)(4)), securities deemed to be certificated securities
under applicable regulations of the United States government, or
uncertificated securities issued by an issuer organized under the laws
of the State of New York or the State of Delaware,
(B) either (I) in the possession of such institution, (II) in the
possession of a "clearing corporation" (as such term is used in
Section 8-102(a)(5) of the Minnesota UCC), registered in the name of
such clearing corporation or its nominee, not endorsed for collection
or surrender or any other purpose not involving transfer, not
containing any evidence of a right or interest inconsistent with the
Trustee's security interest therein, and held by such clearing
corporation in an account of such institution, (III) held in an
account of such institution with the Federal Reserve Bank of New York,
or (IV) in the case of uncertificated securities, issued in the name
of such institution, and
(C) identified, by book entry or otherwise, as held for the
account of, or pledged to, the Trustee on the records of such
institution, and such institution shall have sent the Trustee a
confirmation thereof;
(iii) with respect to repurchase obligations held in such
account, such repurchase obligations shall be identified by such
institution, by book entry or otherwise, as held for the account
of, or pledged to, the Trustee on the records of such
institution, and the related securities shall be held in
accordance with the requirements of clause (ii) above; and
(iv) with respect to other Eligible Investments other than
securities and repurchase agreements, such Eligible Investments
shall be held in a manner acceptable to the Trustee.
Subject to the other provisions hereof, the Trustee shall have sole control over
each such investment and the income thereon, and any certificate or other
instrument evidencing any such investment, if any, shall be delivered directly
to the Trustee or its agent, together with each document of transfer, if any,
necessary to transfer title to such investment to the Trustee in a manner which
complies with this Section. All interest, dividends, gains upon transfer and
other income from, or earnings on, investments of funds in the Collection
Account shall be deposited in the Collection Account and distributed on the next
Payment Date in accordance with Section 8.03. All interest, dividends, gains
upon transfer and other income from, or earnings on, investments of funds in the
Servicing Account shall be retained therein until distributed to the Servicer as
additional servicing compensation in accordance with Section 3.8 of the
Contribution and Servicing Agreement. All interest, dividends, gains upon
transfer or other income from, or earnings on, investments of funds in the
Reserve Account and the Residual Account shall be added to the balance of such
account.
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(b) Subject to Section 6.01(c), the Trustee shall not in any way be held
liable by reason of any insufficiency in any of the Servicing Account, the
Collection Account, the Residual Account or the Reserve Account resulting from
any loss on any Eligible Investment included therein except for losses
attributable to the Trustee's failure to make payments on such Eligible
Investments issued by the Trustee in accordance with their terms.
(c) The Trustee, in holding all funds in the Servicing Account, the
Collection Account, the Residual Account and the Reserve Account, and in making
distributions as provided in this Agreement, shall act solely on behalf of and
as agent for the Noteholders.
(d) Any account which is required to be established as an Eligible Account
pursuant to this Indenture and which ceases to be an Eligible Account shall
within five Business Days (or such longer period, not to exceed 30 days, as to
which each Rating Agency may consent) be established by the Trustee as a new
account which shall be an Eligible Account, and any cash and/or any investments
shall be transferred to such new account.
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ARTICLE IX
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Noteholders.
(a) Without the consent of the Holders of any Notes, but with prior notice
to the Rating Agencies, the Issuer and the Trustee, when authorized by an Issuer
Order, at any time and from time to time, may enter into one or more indentures
supplemental hereto (which shall conform to the provisions of the Trust
Indenture Act as in force at the date of the execution thereof), in form
satisfactory to the Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Trustee any property subject to, or required to be
subjected to, the lien created by this Indenture, or to subject to the lien
created by this Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another Person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Trustee;
(v) to cure any ambiguity or to correct or supplement any provision
herein which may be inconsistent with any other provision herein;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the provisions of this Indenture as shall be necessary to
facilitate the administration of the trusts hereunder by more than one
trustee, pursuant to the requirements of Article VI;
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar Federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA;
(viii) to avoid a reduction, qualification or withdrawal of any rating
on the Notes; or
(ix) upon satisfaction of the Rating Agency Condition, to amend the
definition of "Residual Event" or of the terms used in such definition.
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The Trustee is hereby authorized to join in the execution of any such
supplemental indenture and to make any further appropriate agreements and
stipulations that may be therein contained.
(b) The Issuer and the Trustee, when authorized by an Issuer Order, may,
also without the consent of any of the Holders of the Notes, but upon
satisfaction of the Rating Agency Condition, enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to, or
changing in any manner or eliminating any of the provisions of, this Indenture
or of modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that such action shall not, as evidenced by an
Opinion of Counsel, adversely affect in any material respect the interests of
any Noteholder.
SECTION 9.02. Supplemental Indentures With Consent of Noteholders.
(a) The Issuer and the Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies and the consent of a Note Majority
of each Class affected thereby, enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or of
modifying in any manner the rights of the Holders of the Notes under this
Indenture; provided, however, that, no such supplemental indenture shall,
without the consent of the Holder of each Outstanding Note affected thereby:
(i) change the date, timing or method of determination of payment of
any installment of principal of or interest on any Note, or reduce the
principal amount thereof, the interest rate thereon or the Redemption Price
with respect thereto, change the provision of this Indenture relating to
the application of collections on, or the proceeds of the sale of, the
Trust Estate to payment of principal of or interest on the Notes, or change
any place of payment where, or the coin or currency in which, any Note or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of the provisions of this Indenture requiring the
application of funds available therefor, as provided in Article V, to the
payment of any such amount due on the Notes on or after the respective due
dates thereof (or, in the case of redemption, on or after the Redemption
Date);
(ii) impair the right of the Holder to institute suit pursuant to
Section 5.08;
(iii) reduce the percentage of the Outstanding Amount of the Notes,
the consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
(iv) modify or alter the provisions of the proviso to the definition
of the term "Outstanding";
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(v) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Trustee to direct the Issuer to sell or liquidate
the Trust Estate pursuant to Section 5.04;
(vi) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Related Documents cannot be modified or
waived without the consent of the Holder of each Outstanding Note affected
thereby;
(vii) permit the creation of any lien ranking prior to or on a parity
with the lien created by this Indenture with respect to any part of the
Trust Estate or, except as otherwise permitted or contemplated herein,
terminate the lien created by this Indenture on any property at any time
subject hereto or deprive the Holder of any Note of the security provided
by the lien created by this Indenture; or
(viii) result in a reduction, qualification or withdrawal of the
rating of any class of Notes.
Any supplemental indenture to be entered into in accordance with this
Section shall be deemed to affect all Outstanding Notes other than any Class of
Notes with respect to which an Opinion of Counsel for the Issuer is addressed
and delivered to the Trustee to the effect that the interests of the Holders of
Notes of such Class are not affected in any material respect by the supplemental
indenture.
It shall not be necessary for any Act of Noteholders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof. The manner of
obtaining such approvals shall be subject to such reasonable requirements as the
Trustee may prescribe.
(b) Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to this Section, the Trustee shall mail to the
Holders of the Notes to which such amendment or supplemental indenture relates a
notice setting forth in general terms the substance of such supplemental
indenture. Any failure of the Trustee to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 9.03. Execution of Supplemental Indentures. In executing, or
permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Trustee shall be entitled to receive, and subject to
Sections 6.01 and 6.02 shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture that affects the Trustee's own
rights, duties, liabilities or immunities under this Indenture or otherwise.
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SECTION 9.04. Effect of Supplemental Indenture. Upon the execution of any
supplemental indenture pursuant to the provisions hereof, this Indenture shall
be and be deemed to be modified and amended in accordance therewith with respect
to the Notes affected thereby, and the respective rights, limitations of rights,
obligations, duties, liabilities and immunities under this Indenture of the
Trustee, the Issuer, the Holders of the Notes shall thereafter be determined,
exercised and enforced hereunder subject in all respects to such modifications
and amendments, and all the terms and conditions of any such supplemental
indenture shall be and be deemed to be part of the terms and conditions of this
Indenture for any and all purposes.
SECTION 9.05. Conformity With Trust Indenture Act. Every amendment of this
Indenture and every supplemental indenture executed pursuant to this Article IX
shall conform to the requirements of the Trust Indenture Act as then in effect
so long as this Indenture shall then be qualified under the Trust Indenture Act.
SECTION 9.06. Reference in Notes to Supplemental Indentures. Notes
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Trustee shall, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Issuer or the Trustee shall so determine, new
notes so modified as to conform, in the opinion of the Trustee and the Issuer,
to any such supplemental indenture may be prepared and executed by the Issuer
and authenticated and delivered by the Trustee in exchange for Outstanding
Notes.
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ARTICLE X
Redemption of Notes
SECTION 10.01. Redemption. In the event that the SPC pursuant to Section
5.1 of the Contribution and Servicing Agreement purchases the corpus of the
Trust, the Notes are subject to redemption in whole, but not in part, on the
Payment Date on which such repurchase occurs, for a purchase price equal to the
Redemption Price; provided, however, that the Issuer has available funds
sufficient to pay the Redemption Price. The SPC, the Servicer or the Issuer
shall furnish the Rating Agencies notice of such redemption. If the Notes are to
be redeemed pursuant to this paragraph, the Servicer or the Issuer shall furnish
notice of such election to the Trustee not later than 25 days (or such lesser
number of days as shall be satisfactory to the Trustee) prior to the Redemption
Date, and the Issuer shall deposit, or cause to be deposited, into the
Collection Account the Redemption Price of the Notes to be redeemed, whereupon
all such Notes shall be due and payable on the Redemption Date upon the
furnishing of a notice complying with Section 10.02 to each Holder of the Notes.
SECTION 10.02. Form of Redemption Notice.
(a) Notice of redemption under Section 10.01(a) shall be given by the
Trustee not less than five days prior to the applicable Redemption Date by
first-class mail, postage prepaid, mailed to each Holder of Notes, as of the
close of business on the Record Date with respect to the Payment Date
immediately preceding the applicable Redemption Date, at such Holder's address
appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price; and
(iii) the place where such Notes are to be surrendered for payment of
the Redemption Price (which shall be the office or agency of the Issuer to
be maintained as provided in Section 3.02).
Notice of redemption of the Notes shall be given by the Trustee in the name
and at the expense of the Issuer. Failure to give notice of redemption, or any
defect therein, to any Holder of any Note shall not impair or affect the
validity of the redemption of any other Note.
(b) Prior notice of redemption under Section 10.01(b) is not required to be
given to Noteholders.
SECTION 10.03. Notes Payable on Redemption Date. The Notes or portions
thereof to be redeemed shall, following notice of redemption (if any) as
required by Section 10.02, on the Redemption Date, become due and payable at the
Redemption Price and (unless the Issuer shall default in the payment of the
Redemption Price) no interest shall accrue on the
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Redemption Price for any period after the date to which accrued interest is
calculated for purposes of calculating the Redemption Price.
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ARTICLE XI
Miscellaneous
SECTION 11.01. Compliance Certificates and Opinions, etc.
(a) Upon any application or request by the Issuer to the Trustee to take
any action under any provision of this Indenture, the Issuer shall furnish to
the Trustee (i) an Officer's Certificate stating that all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with, (ii) an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with and (iii)
(if required by the TIA) an Independent Certificate from a firm of certified
public accountants meeting the applicable requirements of this Section, except
that, in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion has
read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such signatory,
such condition or covenant has been complied with.
(b) (i) Prior to the deposit of any property or securities with the
Trustee that is to be made the basis for the release of any property
subject to the lien created by this Indenture, the Issuer shall, in
addition to any obligation imposed in Section 11.01(a) or elsewhere in this
Indenture, furnish to the Trustee (1) an Officer's Certificate certifying
or stating the opinion of each person signing such certificate as to the
fair value (within 90 days of such deposit) to the Issuer of the property
or securities to be so deposited, (2) an Opinion of Counsel either stating
that, in the opinion of such counsel, such action has been taken with
respect to the recording and filing of this Indenture and any other
requisite documents, and with respect to the execution and filing of any
financing statements and continuation statements, as are necessary to
perfect and make effective the first priority lien and security interest in
favor of the Trustee, for the benefit of the
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Trustee, created by this Indenture in the property or securities to be so
deposited, and reciting the details of such action, or stating that, in the
opinion of such counsel, no such action is necessary to make such lien and
security interest effective, and (3) evidence that the Rating Agency
Condition has been satisfied.
(ii) Whenever the Issuer is required to furnish to the Trustee an
Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (i) above, the Issuer shall
also deliver to the Trustee an Independent Certificate as to the same
matters, if the fair value to the Issuer of the property to be so deposited
and of all other such property made the basis of any such withdrawal or
release since the commencement of the then-current fiscal year of the
Issuer, as set forth in the certificates delivered pursuant to clause (i)
above and this clause (ii), is 10% or more of the Outstanding Amount of the
Notes, but such a certificate need not be furnished with respect to any
property so deposited, if the fair value thereof to the Issuer as set forth
in the related Officer's Certificate is less than $25,000 or less than one
percent of the Outstanding Amount of the Notes.
(iii) Other than with respect to any release described in clause (A)
or (B) of Section 11.01(b)(v), whenever any property or securities are to
be released from the lien created by this Indenture, the Issuer shall also
furnish to the Trustee an Officer's Certificate certifying or stating the
opinion of each person signing such certificate as to the fair value
(within 90 days of such release) of the property or securities proposed to
be released and stating that in the opinion of such person the proposed
release will not impair the security created by this Indenture in
contravention of the provisions hereof.
(iv) Whenever the Issuer is required to furnish to the Trustee an
Officer's Certificate certifying or stating the opinion of any signer
thereof as to the matters described in clause (iii) above, the Issuer shall
also furnish to the Trustee an Independent Certificate as to the same
matters if the fair value of the property or securities and of all other
property or securities (other than property described in clauses (A) or (B)
of Section 11.01(b)(v)) released from the lien created by this Indenture
since the commencement of the then current fiscal year, as set forth in the
certificates required by clause (iii) above and this clause (iv), equals
10% or more of the Outstanding Amount of the Notes, but such certificate
need not be furnished in the case of any release of property or securities
if the fair value thereof as set forth in the related Officer's Certificate
is less than $25,000 or less than one percent of the then Outstanding
Amount of the Notes.
(v) Notwithstanding any other provision of this Section, the Issuer
may, without compliance with the other provisions of this Section, (A)
collect, liquidate, sell or otherwise dispose of Leases as and to the
extent permitted or required by the Related Documents (including as
provided in Section 3.1 of the Contribution and Servicing Agreement) and
(B) make cash payments out of the Trust Accounts as and to the extent
permitted or required by the Related Documents.
SECTION 11.02. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person,
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it is not necessary that all such matters be certified by, or covered by the
opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate of an Authorized Officer or Opinion of Counsel
may be based, insofar as it relates to factual matters, upon a certificate or
opinion of, or representations by, an officer or officers of the Servicer, the
SPC or the Issuer, stating that the information with respect to such factual
matters is in the possession of the Servicer, the SPC or the Issuer, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Trustee, it is provided that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any term hereof, it is intended that
the truth and accuracy, at the time of the granting of such application or at
the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Trustee's right to rely upon the truth and accuracy of
any statement or opinion contained in any such document as provided in Article
VI.
SECTION 11.03. Acts of Noteholders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Noteholders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Noteholders in person or by agents duly appointed
in writing; and except as herein otherwise expressly provided, such action shall
become effective when such instrument or instruments are delivered to the
Trustee, and, where it is hereby expressly required, to the Issuer. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Noteholders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 6.01) conclusive in favor of
the Trustee and the Issuer, if made in the manner provided in this Section.
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(b) The fact and date of the execution by any person of any such instrument
or writing may be proved in any manner that the Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Notes shall bind the Holder of every Note
issued upon the registration thereof or in exchange therefor or in lieu thereof,
in respect of anything done, omitted or suffered to be done by the Trustee or
the Issuer in reliance thereon, whether or not notation of such action is made
upon such Note.
SECTION 11.04. Notices, etc., to Trustee, Issuer and Rating Agencies. Any
request, demand, authorization, direction, notice, consent, waiver or Act of
Noteholders or other documents provided or permitted by this Indenture to be
made upon, given or furnished to or filed with:
(a) the Trustee by any Noteholder or by the Issuer shall be sufficient
for every purpose hereunder if in writing and mailed, first-class, postage
prepaid, to the Trustee at its Corporate Trust Office, or
(b) the Issuer by the Trustee or by any Noteholder shall be sufficient
for every purpose hereunder if in writing and mailed, first-class, postage
prepaid, to the Issuer addressed to: Green Tree Lease Finance 1998-1, LLC,
1100 Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639,
or at any other address previously furnished in writing to the Trustee by
the Issuer. The Issuer shall promptly transmit any notice received by it
from the Noteholders to the Trustee.
Notices required to be given to the Rating Agencies by the Issuer or the
Trustee shall be in writing, personally delivered or mailed by certified mail,
return receipt requested to (i) in the case of Fitch, at the following address:
One State Street Plaza, New York, New York 10004, Attention: ABS Surveillance
Group and (ii) in the case of S&P, at the following address: 25 State Street,
New York, New York 10004; or as to each of the foregoing, at such other address
as shall be designated by written notice to the other parties.
SECTION 11.05. Notices to Noteholders; Waiver. Where this
IIndenture provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid, to each Noteholder affected by such
event, at his address as it appears on the Note Register. In any case where
notice to Noteholders is given by mail, neither the failure to mail such notice
nor any defect in any notice so mailed to any particular Noteholder shall affect
the sufficiency of such notice with respect to other Noteholders, and any notice
that is mailed in the manner herein provided shall conclusively be presumed to
have been duly given.
Where this Indenture provides for notice in any manner, such notice may be
waived in writing by any Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall
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be filed with the Trustee but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a result of
a strike, work stoppage or similar activity, it shall be impractical to mail
notice of any event of Noteholders when such notice is required to be given
pursuant to any provision of this Indenture, then any reasonable manner of
giving such notice as shall be satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies, failure to
give such notice shall not affect any other rights or obligations created
hereunder, and shall not under any circumstance constitute a Default or Event of
Default.
SECTION 11.06. Alternate Payment and Notice Provisions. Notwithstanding any
provision of this Indenture or any of the Notes to the contrary, the Issuer may
enter into any agreement with any Holder of a Note providing for a method of
payment, or notice by the Trustee or any Paying Agent to such Holder, that is
different from the methods provided for in this Indenture for such payments or
notices. The Issuer will furnish to the Trustee a copy of each such agreement
and the Trustee will cause payments to be made and notices to be given in
accordance with such agreements.
SECTION 11.07. Conflict with Trust Indenture Act. If any provision hereof
limits, qualifies or conflicts with another provision hereof that is required to
be included in this indenture by any of the provisions of the Trust Indenture
Act, such required provision shall control.
The provisions of TIA ss.ss. 310 through 317 that impose duties on any
Person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.08. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 11.09. Successors and Assigns. All covenants and agreements in this
Indenture and the Notes by the Issuer shall bind its successors and assigns,
whether so expressed or not.
All agreements of the Trustee in this Indenture shall bind its successors.
SECTION 11.10. Severability. In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality,
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
SECTION 11.11. Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person, other than the parties
hereto and their
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successors hereunder, and the Noteholders, and any other party secured
hereunder, and any other Person with an ownership interest in any part of the
Trust Estate, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 11.12. Legal Holidays. In any case where the date on which any
payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. Governing Law. THIS INDENTURE SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MINNESOTA, WITHOUT REFERENCE TO ITS
CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed in any number
of counterparts, each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is subject to
recording in any appropriate public recording offices, such recording is to be
effected by the Issuer and at its expense accompanied by an Opinion of Counsel
(which may be counsel to the Trustee or any other counsel reasonably acceptable
to the Trustee) to the effect that such recording is necessary either for the
protection of the Noteholders or any other Person secured hereunder or for the
enforcement of any right or remedy granted to the Trustee under this Indenture.
SECTION 11.16. No Petition. The Trustee, by entering into this Indenture,
and each Noteholder, by accepting a Note, hereby covenant and agree that they
will not at any time institute against the SPC or the Issuer, or join in any
institution against the SPC or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, this Indenture or any of the Related
Documents.
SECTION 11.17. Inspection. The Issuer agrees that, on reasonable prior
notice, it will permit any representative of the Trustee, during the Issuer's
normal business hours, to examine all the books of account, records, reports,
and other papers of the Issuer, to make copies and extracts therefrom, to cause
such books to be audited by independent certified public accountants, and to
discuss the Issuer's affairs, finances and accounts with the Issuer's officers,
employees, and independent certified public accountants, all at such reasonable
times and as often as may be reasonably requested. The Trustee shall and shall
cause its representatives to hold in confidence all such information (including
the identity of the Obligors on the Leases) except to the extent disclosure may
be required by ss.9-208 of the UCC or by any other applicable law (and all
reasonable applications for confidential treatment are unavailing) and except to
the extent that the Trustee may reasonably determine that such disclosure is
consistent with its obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, the Issuer and the Trustee have caused this Indenture
to be duly executed by their respective officers, thereunto duly authorized, all
as of the day and year first above written.
GREEN TREE LEASE FINANCE 1998-1, LLC
By: GREEN TREE LEASE FINANCE II, INC.
By
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
U.S. BANK TRUST NATIONAL ASSOCIATION,
not in its individual capacity but
solely as Trustee,
By
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
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<PAGE>
EXHIBIT A
Form of Depository Agreement
A-1
<PAGE>
EXHIBIT B
Form of Monthly Statements to Noteholders
B-1
<PAGE>
EXHIBIT C-1
REGISTERED $________ */
No. [ ]
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. _________
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is registered
in the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
GREEN TREE LEASE FINANCE 1998-1, LLC
______% LEASE-BACKED NOTE, CLASS A-[1][2][3][4]
Green Tree Lease Finance 1998-1, LLC, a limited liability company organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [ ], or registered
assigns, the principal sum of [ ] payable on each Payment Date in an amount
equal to the result obtained by multiplying (i) a fraction the numerator of
which is $__________ [INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the
denominator of which is $__________ [INSERT INITIAL CLASS A-[1][2][3][4]
PRINCIPAL BALANCE] by (ii) the aggregate amount, if any, payable from the
Collection Account in respect of principal on the Class A-[1][2][3][4] Notes
pursuant to Section 8.03(iv)(A) of the Indenture hereinafter referred to;
provided, however, that the entire unpaid principal amount of this Note shall be
due and payable on the earliest of the Payment Date occurring in [ ][ ] (the
"Class A-[1][2][3][4] Stated Maturity Date") and the Redemption Date, if any,
pursuant to Section 10.01(a) or (b) of the Indenture. The Issuer will pay
interest on this Note on each Payment Date in an amount equal to [one-twelfth
of] the product of (i) the rate per annum shown above [calculated on the basis
of actual days elapsed in a year of 360 days] [calculated on the basis of a
360-day year comprised of twelve 30-day months]
- ---------------
*/Denominations of $10,000 and integral multiples of $1,000 thereof.
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and (ii) the principal amount of this Note outstanding on the preceding Payment
Date (after giving effect to all payments of principal made on the preceding
Payment Date) or, with respect to the first Payment Date, the original principal
amount of this Note. Such principal of and interest on this Note shall be paid
in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture, or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
Date: GREEN TREE LEASE FINANCE 1998-1, LLC
By
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
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<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
U.S. BANK TRUST NATIONAL ASSOCIATION,
not in its individual capacity but
solely as Trustee,
By
--------------------------------------
Authorized Signatory
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<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer (herein
called the "Notes"), issued in four classes designated as its ____% Lease-Backed
Notes, Class A-1, ____% Lease-Backed Notes, Class A-2, ____% Lease-Backed Notes,
Class A-3, ____% Lease-Backed Notes, Class A-4, ____% Lease-Backed Notes, Class
B, and ____% Lease-Backed Notes, Class C, respectively, all issued under an
Indenture dated as of December 1, 1998 (such indenture, as supplemented or
amended, herein called the "Indenture"), between the Issuer and U.S. Bank Trust
National Association, as trustee (the "Trustee," which term includes any
successor Trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Notes are and will be secured by the collateral pledged as security
therefor as provided in the Indenture.
Principal of the Class A-[1][2][3][4] Notes will be payable on each Payment
Date in an amount described on the face hereof. "Payment Date" means the
twentieth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing in January 1999.
As described above, the entire unpaid principal amount of this Note shall
be due and payable on the earliest of the Class A-[1][2][3][4] Stated Maturity
Date and the Redemption Date, if any, pursuant to Section 10.01 of the
Indenture. Notwithstanding the foregoing, the entire unpaid principal amount of
the Notes shall be due and payable on the date on which an Event of Default
shall have occurred and be continuing and the Trustee or a Note Majority have
declared the Notes to be immediately due and payable in the manner provided in
Section 5.02 of the Indenture. All principal payments on the Class
A-[1][2][3][4] Notes shall be made pro rata to the Class A-[1][2][3][4]
Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Depository (initially, such nominee to be Cede & Co.), payments
will be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) affected by any payments made on any Payment Date
shall be binding upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be
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<PAGE>
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Payment Date, then the
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Registered Holder hereof as of the Record Date with respect to the
Payment Date immediately preceding such Redemption Date by notice mailed within
five days of such Redemption Date and the amount then due and payable shall be
payable only upon presentation and surrender of this Note at the Trustee's
principal Corporate Trust Office or at the office of the Trustee's agent
appointed for such purposes located in St. Paul, Minnesota.
The Issuer shall pay interest on overdue installments of interest at the
Class A- [1][2][3][4] Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to Section
10.01(a) of the Indenture, in whole, but not in part, at the option of the SPC
on any Payment Date on or after the date on which the sum of the Aggregate
Principal Amount of the Notes is less than or equal to 10% of the Initial Pool
Principal Balance.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in a "signature guarantee program" determined by the
Note Registrar in accordance with the Exchange Act, and such other documents as
the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer or the Trustee on the Notes or under the Indenture or any
certificate or other writing delivered in connection therewith, against (i) the
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or
employee of the Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer or the Trustee or of any successor or assign of the
Trustee in its individual capacity, except as any such Person may have expressly
agreed and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that by
accepting the benefits of the
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Indenture and such Note that such Noteholder or Note Owner will not at any time
institute against the SPC or the Issuer, or join in any institution against the
SPC or the Issuer, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Related Documents.
The SPC has structured the Indenture and the Notes with the intention that
the Notes will qualify under applicable federal, state, local and foreign tax
law as indebtedness of the SPC secured by the Leases. The SPC, the Servicer,
each Noteholder and each Note Owner agree to treat and to take no action
inconsistent with the treatment of the Notes as such indebtedness for purposes
of federal, state, local and foreign income or franchise taxes and any other tax
imposed on or measured by income. Each Noteholder and each Note Owner, by
acceptance of its Note or beneficial interest therein, agrees to be bound by the
provisions of this paragraph. Each Noteholder agrees that it will cause any Note
Owner acquiring an interest in a Note through it to comply with the Indenture as
to treatment as indebtedness under applicable tax law, as described in this
paragraph.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note (as of the day of determination or as of such
other date as may be specified in the Indenture) is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of each class of Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of each class
of Notes, on behalf of the Holders of all the Notes, to waive compliance by the
Issuer with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Note (or any one or more Predecessor Notes) shall be conclusive and
binding upon such Holders and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Note. The Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holder of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
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<PAGE>
This Note and the Indenture shall be construed in accordance with the laws
of the State of Minnesota, without reference to its conflict of law provisions,
and the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Related Documents, neither any owner of a beneficiary interest
in the Issuer, nor any of its partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for,
nor shall recourse be had to any of them for, the payment of principal of or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture. The
Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Related Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
C-1-7
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
____________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________________________________________________
_______________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated:_______________ ______________________________________**
Signature Guaranteed:
______________________________________
___________________________________
- -------------------
** NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
C-1-8
<PAGE>
EXHIBIT C-2
REGISTERED $________*/
No. [ ]
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. __________
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is registered
in the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO THE CLASS A-1 NOTES, THE
CLASS A-2 NOTES, THE CLASS A-3 NOTES AND THE CLASS A-4 NOTES, AS DESCRIBED IN
THE INDENTURE REFERRED TO HEREIN.
GREEN TREE LEASE FINANCE 1998-1, LLC
______% LEASE-BACKED NOTE, CLASS B
Green Tree Lease Finance 1998-1, LLC, a limited liability company organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [ ], or registered
assigns, the principal sum of [ ] payable on each Payment Date in an amount
equal to the result obtained by multiplying (i) a fraction the numerator of
which is $__________ [INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the
denominator of which is $__________ [INSERT INITIAL CLASS B PRINCIPAL BALANCE]
by (ii) the aggregate amount, if any, payable from the Collection Account in
respect of principal on the Class B Notes pursuant to Section 8.03(iv)(B) of the
Indenture hereinafter referred to; provided, however, that the entire unpaid
principal amount of this Note shall be due and payable on the earliest of the
Payment Date occurring in (the "Class B Stated Maturity Date") and the
Redemption Date, if any,
- ---------------
*/Denominations of $10,000 and integral multiples of $1,000 thereof.
C-2-1
<PAGE>
pursuant to Section 10.01(a) or (b) of the Indenture. The Issuer will pay
interest on this Note on each Payment Date in an amount equal to one-twelfth of
the product of (i) the rate per annum shown above and (ii) the principal amount
of this Note outstanding on the preceding Payment Date (after giving effect to
all payments of principal made on the preceding Payment Date) or, with respect
to the first Payment Date, the original principal amount of this Note. Such
principal of and interest on this Note shall be paid in the manner specified on
the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture, or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
Date: GREEN TREE LEASE FINANCE 1998-1, LLC
By
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
C-2-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
U.S. BANK TRUST NATIONAL ASSOCIATION,
not in its individual capacity but
solely as Trustee,
By
--------------------------------------
Authorized Signatory
C-2-3
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer (herein
called the "Notes"), issued in four classes designated as its ____% Lease-Backed
Notes, Class A-1, ____% Lease-Backed Notes, Class A-2, ____% Lease-Backed Notes,
Class A-3, ____% Lease-Backed Notes, Class A-4, ____% Lease-Backed Notes, Class
B, and ____% Lease-Backed Notes, Class C, respectively, all issued under an
Indenture dated as of December 1, 1997 (such indenture, as supplemented or
amended, herein called the "Indenture"), between the Issuer and U.S. Bank Trust
National Association, as trustee (the "Trustee," which term includes any
successor Trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Notes are and will be secured by the collateral pledged as security
therefor as provided in the Indenture.
Principal of the Class B Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the twentieth day of
each month, or, if any such date is not a Business Day, the next succeeding
Business Day, commencing in January 1999.
As described above, the entire unpaid principal amount of this Note shall
be due and payable on the earliest of the Class B Stated Maturity Date and the
Redemption Date, if any, pursuant to Section 10.01 of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which an Event of Default shall have
occurred and be continuing and the Trustee or a Note Majority have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Indenture. All principal payments on the Class B Notes shall be made pro
rata to the Class B Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Depository (initially, such nominee to be Cede & Co.), payments
will be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) affected by any payments made on any Payment Date
shall be binding upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be
C-2-4
<PAGE>
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Payment Date, then the
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Registered Holder hereof as of the Record Date with respect to the
Payment Date immediately preceding such Redemption Date by notice mailed within
five days of such Redemption Date and the amount then due and payable shall be
payable only upon presentation and surrender of this Note at the Trustee's
principal Corporate Trust Office or at the office of the Trustee's agent
appointed for such purposes located in St. Paul, Minnesota.
The Issuer shall pay interest on overdue installments of interest at the
Class B Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to Section
10.01(a) of the Indenture, in whole, but not in part, at the option of the SPC
on any Payment Date on or after the date on which the sum of the Aggregate
Principal Amount of the Notes is less than or equal to 10% of the Initial Pool
Principal Balance.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in a "signature guarantee program" determined by the
Note Registrar in accordance with the Exchange Act, and such other documents as
the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer or the Trustee on the Notes or under the Indenture or any
certificate or other writing delivered in connection therewith, against (i) the
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or
employee of the Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer or the Trustee or of any successor or assign of the
Trustee in its individual capacity, except as any such Person may have expressly
agreed and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that by
accepting the benefits of the
C-2-5
<PAGE>
Indenture and such Note that such Noteholder or Note Owner will not at any time
institute against the SPC or the Issuer, or join in any institution against the
SPC or the Issuer, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Related Documents.
The SPC has structured the Indenture and the Notes with the intention that
the Notes will qualify under applicable federal, state, local and foreign tax
law as indebtedness of the SPC secured by the Leases. The SPC, the Servicer,
each Noteholder and each Note Owner agree to treat and to take no action
inconsistent with the treatment of the Notes as such indebtedness for purposes
of federal, state, local and foreign income or franchise taxes and any other tax
imposed on or measured by income. Each Noteholder and each Note Owner, by
acceptance of its Note or beneficial interest therein, agrees to be bound by the
provisions of this paragraph. Each Noteholder agrees that it will cause any Note
Owner acquiring an interest in a Note through it to comply with the Indenture as
to treatment as indebtedness under applicable tax law, as described in this
paragraph.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note (as of the day of determination or as of such
other date as may be specified in the Indenture) is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of each class of Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of each class
of Notes, on behalf of the Holders of all the Notes, to waive compliance by the
Issuer with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Note (or any one or more Predecessor Notes) shall be conclusive and
binding upon such Holders and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Note. The Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holder of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
C-2-6
<PAGE>
This Note and the Indenture shall be construed in accordance with the laws
of the State of Minnesota, without reference to its conflict of law provisions,
and the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Related Documents, neither any owner of a beneficiary interest
in the Issuer, nor any of its partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for,
nor shall recourse be had to any of them for, the payment of principal of or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture. The
Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Related Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
C-2-7
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
______________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________________________________________
________________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ________________ _______________________________________**
Signature Guaranteed:
_______________________________________
___________________________________
- ----------------
** NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
C-2-8
<PAGE>
EXHIBIT C-3
REGISTERED $_______**/
No. [ ]
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ______________
Unless this Note is presented by an authorized representative of The Depository
Trust Company, a New York corporation ("DTC"), to the issuer or its agent for
registration of transfer, exchange or payment, and any Note issued is registered
in the name of Cede & Co. or in such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such other
entity as is requested by an authorized representative of DTC), ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
THIS NOTE IS SUBORDINATED IN RIGHT OF PAYMENT TO 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,
AS DESCRIBED IN THE INDENTURE REFERRED TO HEREIN.
GREEN TREE LEASE FINANCE 1998-1, LLC
______% LEASE-BACKED NOTE, CLASS C
Green Tree Lease Finance 1998-1, LLC, a limited liability company organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to [ ], or registered
assigns, the principal sum of [ ] payable on each Payment Date in an amount
equal to the result obtained by multiplying (i) a fraction the numerator of
which is $__________ [INSERT INITIAL PRINCIPAL AMOUNT OF NOTE] and the
denominator of which is $__________ [INSERT INITIAL CLASS C PRINCIPAL BALANCE]
by (ii) the aggregate amount, if any, payable from the Collection Account in
respect of principal on the Class C Notes pursuant to Section
- --------------
**/Denominations of $10,000 and integral multiples of $1,000 thereof, except for
one Class C Note.
C-3-1
<PAGE>
8.04(iv)(C) of the Indenture hereinafter referred to; provided, however,
that the entire unpaid principal amount of this Note shall be due and payable on
the earliest of the Payment Date occurring in _____________ (the "Class C Stated
Maturity Date") and the Redemption Date, if any, pursuant to Section 10.01(a) or
(b) of the Indenture. The Issuer will pay interest on this Note on each Payment
Date in an amount equal to one-twelfth of the product of (i) the rate per annum
shown above and (ii) the principal amount of this Note outstanding on the
preceding Payment Date (after giving effect to all payments of principal made on
the preceding Payment Date) or, with respect to the first Payment Date, the
original principal amount of this Note. Such principal of and interest on this
Note shall be paid in the manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, which shall have the same effect as though fully set forth on
the face of this Note.
Unless the certificate of authentication hereon has been executed by the
Trustee whose name appears below by manual signature, this Note shall not be
entitled to any benefit under the Indenture, or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be signed,
manually or in facsimile, by its Authorized Officer.
Date: GREEN TREE LEASE FINANCE 1998-1, LLC
By
--------------------------------------
Name:
Title:
C-3-2
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
U.S. BANK TRUST NATIONAL ASSOCIATION,
not in its individual capacity but
solely as Trustee,
By
--------------------------------------
Authorized Signatory
C-3-3
<PAGE>
[REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Issuer (herein
called the "Notes"), issued in four classes designated as its ____% Lease-Backed
Notes, Class A-1, ____% Lease-Backed Notes, Class A-2, ____% Lease-Backed Notes,
Class A-3, ____% Lease-Backed Notes, Class A-4, ____% Lease-Backed Notes, Class
B, and ____% Lease-Backed Notes, Class C, respectively, all issued under an
Indenture dated as of December 1, 1998 (such indenture, as supplemented or
amended, herein called the "Indenture"), between the Issuer and U.S. Bank Trust
National Association, as trustee (the "Trustee," which term includes any
successor Trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the respective
rights and obligations thereunder of the Issuer, the Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Notes are and will be secured by the collateral pledged as security
therefor as provided in the Indenture.
Principal of the Class C Notes will be payable on each Payment Date in an
amount described on the face hereof. "Payment Date" means the twentieth day of
each month, or, if any such date is not a Business Day, the next succeeding
Business Day, commencing in January 1999.
As described above, the entire unpaid principal amount of this Note shall
be due and payable on the earliest of the Class C Stated Maturity Date and the
Redemption Date, if any, pursuant to Section 10.01 of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable on the date on which an Event of Default shall have
occurred and be continuing and the Trustee or a Note Majority have declared the
Notes to be immediately due and payable in the manner provided in Section 5.02
of the Indenture. All principal payments on the Class C Notes shall be made pro
rata to the Class C Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Payment Date,
together with the installment of principal, if any, to the extent not in full
payment of this Note, shall be made by check mailed to the Person whose name
appears as the Registered Holder of this Note (or one or more Predecessor Notes)
on the Note Register as of the close of business on each Record Date, except
that with respect to Notes registered on the Record Date in the name of the
nominee of the Depository (initially, such nominee to be Cede & Co.), payments
will be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) affected by any payments made on any Payment Date
shall be binding upon all future Holders of this Note and of any Note issued
upon the registration of transfer hereof or in exchange hereof or in lieu
hereof, whether or not noted hereon. If funds are expected to be
C-3-4
<PAGE>
available, as provided in the Indenture, for payment in full of the then
remaining unpaid principal amount of this Note on a Payment Date, then the
Trustee, in the name of and on behalf of the Issuer, will notify the Person who
was the Registered Holder hereof as of the Record Date with respect to the
Payment Date immediately preceding such Redemption Date by notice mailed within
five days of such Redemption Date and the amount then due and payable shall be
payable only upon presentation and surrender of this Note at the Trustee's
principal Corporate Trust Office or at the office of the Trustee's agent
appointed for such purposes located in St. Paul, Minnesota.
The Issuer shall pay interest on overdue installments of interest at the
Class C Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to Section
10.01(a) of the Indenture, in whole, but not in part, at the option of the SPC
on any Payment Date on or after the date on which the sum of the Aggregate
Principal Amount of the Notes is less than or equal to 10% of the Initial Pool
Principal Balance.
As provided in the Indenture and subject to certain limitations set forth
therein, the transfer of this Note may be registered on the Note Register upon
surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Trustee duly executed by, the Holder hereof or his attorney duly authorized in
writing, with such signature guaranteed by an "eligible guarantor institution"
meeting the requirements of the Note Registrar, which requirements include
membership or participation in a "signature guarantee program" determined by the
Note Registrar in accordance with the Exchange Act, and such other documents as
the Trustee may require, and thereupon one or more new Notes of authorized
denominations and in the same aggregate principal amount will be issued to the
designated transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Note, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer or the Trustee on the Notes or under the Indenture or any
certificate or other writing delivered in connection therewith, against (i) the
Trustee in its individual capacity, (ii) any owner of a beneficial interest in
the Issuer or (iii) any partner, owner, beneficiary, agent, officer, director or
employee of the Trustee in its individual capacity, any holder of a beneficial
interest in the Issuer or the Trustee or of any successor or assign of the
Trustee in its individual capacity, except as any such Person may have expressly
agreed and except that any such partner, owner or beneficiary shall be fully
liable, to the extent provided by applicable law, for any unpaid consideration
for stock, unpaid capital contribution or failure to pay any installment or call
owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case of a
Note Owner, a beneficial interest in a Note, covenants and agrees that by
accepting the benefits of the
C-3-5
<PAGE>
Indenture and such Note that such Noteholder or Note Owner will not at any time
institute against the SPC or the Issuer, or join in any institution against the
SPC or the Issuer, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, the
Indenture or the Related Documents.
The SPC has structured the Indenture and the Notes with the intention that
the Notes will qualify under applicable federal, state, local and foreign tax
law as indebtedness of the SPC secured by the Leases. The SPC, the Servicer,
each Noteholder and each Note Owner agree to treat and to take no action
inconsistent with the treatment of the Notes as such indebtedness for purposes
of federal, state, local and foreign income or franchise taxes and any other tax
imposed on or measured by income. Each Noteholder and each Note Owner, by
acceptance of its Note or beneficial interest therein, agrees to be bound by the
provisions of this paragraph. Each Noteholder agrees that it will cause any Note
Owner acquiring an interest in a Note through it to comply with the Indenture as
to treatment as indebtedness under applicable tax law, as described in this
paragraph.
Prior to the due presentment for registration of transfer of this Note, the
Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Person in whose name this Note (as of the day of determination or as of such
other date as may be specified in the Indenture) is registered as the owner
hereof for all purposes, whether or not this Note be overdue, and neither the
Issuer, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Holders of Notes representing a
majority of the Outstanding Amount of each class of Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
Notes representing specified percentages of the Outstanding Amount of each class
of Notes, on behalf of the Holders of all the Notes, to waive compliance by the
Issuer with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by the Holder
of this Note (or any one or more Predecessor Notes) shall be conclusive and
binding upon such Holders and upon all future Holders of this Note and of any
Note issued upon the registration of transfer hereof or in exchange hereof or in
lieu hereof whether or not notation of such consent or waiver is made upon this
Note. The Indenture also permits the Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder.
The term "Issuer" as used in this Note includes any successor to the Issuer
under the Indenture.
The Issuer is permitted by the Indenture, under certain circumstances, to
merge or consolidate, subject to the rights of the Trustee and the Holder of
Notes under the Indenture.
The Notes are issuable only in registered form in denominations as provided
in the Indenture, subject to certain limitations therein set forth.
C-3-6
<PAGE>
This Note and the Indenture shall be construed in accordance with the laws
of the State of Minnesota, without reference to its conflict of law provisions,
and the obligations, rights and remedies of the parties hereunder and thereunder
shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Related Documents, neither any owner of a beneficiary interest
in the Issuer, nor any of its partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for,
nor shall recourse be had to any of them for, the payment of principal of or
interest on, or performance of, or omission to perform, any of the covenants,
obligations or indemnifications contained in this Note or the Indenture. The
Holder of this Note by the acceptance hereof agrees that except as expressly
provided in the Related Documents, in the case of an Event of Default under the
Indenture, the Holder shall have no claim against any of the foregoing for any
deficiency, loss or claim therefrom; provided, however, that nothing contained
herein shall be taken to prevent recourse to, and enforcement against, the
assets of the Issuer for any and all liabilities, obligations and undertakings
contained in the Indenture or in this Note.
C-3-7
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee:
________________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto __________________________________________________________________________
_______________________________________________________________________________
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated:_______________________ _______________________________________**
Signature Guaranteed:
_______________________________________
___________________________________
- ---------------
** NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
C-3-8
<PAGE>
Exhibit 5.1
-----------
Re: Green Tree Financial Corporation
Green Tree Lease Finance II, Inc.
Green Tree Lease Finance 1998-1, LLC
Registration Statement on Form S-1
Registration No. 333-67993 and 333-67993-01
Ladies and Gentlemen:
We have acted as counsel to Green Tree Financial Corporation ("Green
Tree"), a Delaware corporation, Green Tree Lease Finance II, Inc. ("Lease
Finance"), a Minnesota corporation, and Green Tree Lease Finance 1998-1, LLC
(the "LLC"), a Delaware limited liability company, in connection with a
Registration Statement on Form S-1 (the "Registration Statement") relating to
the issuance and sale of $ , , aggregate principal amount of Lease-Backed
Notes (the "Notes") issued by the LLC pursuant to an Indenture dated as of
December 1, 1998 (the "Indenture") between the LLC and U.S. Bank Trust National
Association, as Trustee (the "Trustee").
We have examined such documents and have reviewed such questions of
law as we have considered necessary and appropriate for the purposes of our
opinion set forth below. In rendering our opinion, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than Green Tree, Lease
Finance or the LLC, that such parties had the requisite power and authority
(corporate or otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly authorized by
all requisite action (corporate or otherwise), executed and delivered by such
parties and that such agreements or instruments are the valid, binding and
enforceable obligations of such parties. As to questions of fact material to
our opinion, we have relied upon certificates of officers of Green Tree, Lease
Finance and the LLC, and of public officials. We have also assumed that the
Notes will be issued and sold as described in the Registration Statement.
Based on the foregoing, we are of the opinion that the Notes have been
duly authorized by all requisite corporate action and, when executed and
authenticated as specified in the Indenture and delivered against payment
therefor
<PAGE>
Green Tree Financial Corporation
Page 2
in the manner described in the Registration Statement, will constitute valid
and binding obligations of the LLC, enforceable in accordance with their
terms.
The opinion set forth above is subject to the following
qualifications and exceptions:
(a) Our opinion is subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or other similar law of
general application affecting creditors' rights.
(b) Our opinion is subject to the effect of general principles of
equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing, and other similar doctrines
affecting the enforceability of agreements generally (regardless of whether
considered in a proceeding in equity or at law).
Our opinion expressed above is limited to the laws of the
State of Delaware.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the caption
"Legal Matters" in the Prospectus constituting part of the Registration
Statement.
Dated: December 10, 1998
Very truly yours,
/s/ Dorsey & Whitney LLP
CFS
<PAGE>
[LETTERHEAD OF DORSEY & WHITNEY LLP]
EXHIBIT 8.1
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102
Re: Green Tree Lease Finance 1998-1, LLC
Federal Income Tax Characterization
Ladies and Gentlemen:
We have acted as counsel for Green Tree Financial Corporation, a
Delaware corporation ("Green Tree Financial"), Green Tree Vendor Services
Corporation, a Delaware corporation and a subsidiary of Green Tree Financial
("Vendor Services"), Green Tree Lease Finance II, Inc., a Minnesota corporation
and a subsidiary of Vendor Services (the "SPC"), and Green Tree Lease Finance
1998-1, LLC, a Delaware limited liability company of which the SPC is the sole
member (the "Issuer"), in connection with the issuance of Lease-Backed Notes
(the "Notes") pursuant to an Indenture, dated as of December 1, 1998 (the
"Indenture"), among the Issuer and First Trust National Association (the
"Trustee"), as Trustee.
Pursuant to a Transfer Agreement dated as of December 1, 1998 (the
"Transfer Agreement"), among the SPC, as Purchaser, and Vendor Services, as
Seller and Servicer, Vendor Services has sold certain leases, including all
collections received with respect to the leases and certain other related rights
(the "Leases") and its interests (which may be deemed an ownership interest or a
security interest, depending on the terms of the related Lease) in the equipment
related to such Leases (such interests being hereinafter referred to as the
"Equipment") to the SPC. The Leases will be transferred by the SPC to the
Issuer pursuant to the terms of a Contribution and Servicing Agreement dated as
of December 1, 1997 (the "Contribution and Servicing Agreement"), among the
Issuer, the SPC, Vendor Services, in its individual capacity and as Servicer,
and the Trustee. Pursuant to the Contribution and Servicing Agreement, the SPC
will also grant to the Issuer certain rights to the proceeds of the Equipment
(the "Residual Realizations"). The Leases, the Equipment and the Residual
Realizations are collectively referred to as the "Trust Assets."
You have requested our opinion with respect to the federal income tax
<PAGE>
Green Tree Financial
December 10, 1998
Page 2
characterization of the Notes and the Issuer. For purposes of rendering our
opinion we have examined the Prospectus dated December _____ , 1998, relating to
the Notes (the "Prospectus"), the Transfer Agreement, the Contribution and
Servicing Agreement, the Indenture and the related documents and agreements
contemplated therein (collectively, the "Transaction Documents") and we have
reviewed such questions of law as we have considered necessary and appropriate.
All capitalized terms used herein and not defined herein have the meanings set
forth in the Indenture or the Contribution and Servicing Agreement.
Our opinion is based upon the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), currently applicable Treasury
Department regulations issued thereunder, current published administrative
positions of the Internal Revenue Service (the "Service") contained in revenue
rulings and revenue procedures, and judicial decisions, all of which are subject
to change, either prospectively or retroactively, and to possibly differing
interpretations. Any change in such authorities may affect the opinions
rendered herein.
Our opinion is also based on the projections, representations,
warranties, covenants and agreements set forth in the Transaction Documents and
the assumption that Vendor Services, the SPC, the Issuer, the Indenture Trustee
and the Noteholders will at all times comply with the requirements of the
Transaction Documents. We have also relied in part on various factual
representations made to us by the Green Tree Financial and Vendor Services.
Although we have not undertaken an independent investigation of any factual
matters, nothing contrary to any of these representations has come to our
attention in the course of our consideration of these matters. Any alteration
of such factual representations may adversely affect our opinion.
An opinion of counsel is predicated on all the facts and conditions
set forth in the opinion and is based upon counsel's analysis of the statutes,
regulatory interpretations and case law in effect as of the date of the opinion.
It should not be accepted as a guarantee that a court of law or an
administrative agency will concur in the opinion.
Federal Income Tax Characterization of the Notes
- ------------------------------------------------
In general, for federal income tax purposes, the characterization of
the issuance and sale of notes as the issuance and sale of debt, the issuance
and sale of an equity or beneficial interest in the issuer or the sale of an
ownership interest in property of the issuer is a question of fact, the
resolution of which is based upon a variety of factors, principal among which is
a determination of who will receive the benefits of, and bear the burdens
relating to, the property. Thus, the determination of whether an instrument
issued in connection with such a transaction will be treated as debt for federal
income tax purposes, or instead will be treated as an equity or beneficial
interest in the issuer or as an ownership interest in the assets of the issuer,
depends on all the facts and circumstances in each case. See generally, Plumb,
The Federal Income Tax Significance of Corporate Debt:
<PAGE>
Green Tree Financial
December 10, 1998
Page 3
A Critical Analysis and a Proposal, 26 Tax L. Rev. 369 (1971).
In any such determination, several factors must be considered, and
debt characterization may be indicated by, among other things, the independence
of the debt holders and equity holders, the intention of the parties to create a
debt, the issuance of a formal debt instrument, the provision of a fixed
maturity date, the likelihood and expectation that the principal amount will be
repaid, the debt to equity ratio of the issuer, the nature of the assets serving
as security for the obligation, and various other factors. In the context of
this transaction, the most important considerations are: (i) whether the
Noteholders bear the burdens of ownership (i.e., the risk of loss from the Trust
Assets) and (ii) whether the Noteholders have acquired the benefits of ownership
(i.e., the potential for gain from the Trust Assets). In view of all of the
relevant facts and circumstances, the likelihood of the Noteholders bearing any
actual loss in respect of the Trust Assets is considered to be remote, as
evidenced by the investment grade debt ratings assigned to the Notes by the
Rating Agencies. Accordingly, the Noteholders should not be regarded as bearing
a significant risk of loss associated with ownership of the Trust Assets. In
addition, because the Noteholders are entitled to receive a fixed principal
amount and a fixed rate of interest, the economic return to the Noteholders will
not be affected by any change in the value of the Trust Assets. Accordingly, the
Noteholders will not receive any benefit from any increase in the value of the
Trust Assets.
A number of other factors are consistent with the treatment of the
Notes as debt. The most important of these factors are as follows: the form of
the Notes as debt, the sequential payment feature of the Notes, the Servicer's
ability to permit prepayments on the Leases, the ultimate retention of
reinvestment risk by the SPC, the fact that delinquencies on the Leases and the
negative carry resulting therefrom are not borne by the Noteholders and the
existence of a clean-up call option in favor of the SPC. In addition, debt
characterization is also supported by the rights of Noteholders in the proceeds
of any liquidation of Equipment upon a default under the related Lease, the
rights of Noteholders in Residual Realizations and the initial deposit and
subsequent deposits to be made to the Reserve Account.
Based upon the foregoing, we are of the opinion that the Notes will be
treated as debt for federal income tax purposes.
Federal Income Tax Characterization of the Issuer
- -------------------------------------------------
The Issuer is similar in many respects to trusts established to hold
collateral pledged as security in connection with lending transactions. If all
classes of Notes and other interests issued by the Issuer were debt for federal
income tax purposes, the Issuer would be disregarded for federal income tax
purposes and would be characterized as a mere security arrangement. Treas. Reg.
(S) 1.61-13(b); Rev. Rul. 76-265, 1976-2 C.B. 448; see also Rev. Rul. 73-100,
1973-1 C.B. 613 (domestic corporations's transfer of securities to Canadian
security holder, to secure liabilities to policyholders in Canada, does not
create a trust where discretionary powers retained by corporation); Rev. Rul.
71-119, 1971 C.B. 163 (settlement fund administered by "trustee" not a trust).
<PAGE>
Green Tree Financial
December 10, 1998
Page 4
The Issuer, however, has issued a membership interest to the SPC and
the membership interest (i) will not take the form of debt, (ii) is intended not
to be treated as debt for federal income tax purposes, and (iii) is intended to
be treated instead as evidencing the ownership interest of the SPC in property
transferred by the SPC to the Issuer, subject to the security interests of the
Noteholders. As long as, for federal income tax purposes, the Notes are treated
as debt and the SPC is viewed to hold all interests in the Issuer other than the
Notes, the Issuer should be treated as a mere security arrangement and
disregarded for federal income tax purposes.
If the Issuer is recognized as an entity for federal tax purposes, the
Issuer will be viewed as a business entity whose federal tax characterization
will be determined under Treasury Regulations (S)(S) 301.7701-2 and 301.7701-3.
Treasury Regulations (S) 301.7701-2 provides that "a business entity is any
entity recognized for federal tax purposes . . . that is not properly classified
as a trust under (S) 301.7701-4 or otherwise subject to special treatment under
the Internal Revenue Code."
Treasury Regulations (S) 301.7701-2 also provides that certain types
of entities are treated as corporations for federal tax purposes, including
entities formed under a state statute which refers to the entity as
"incorporated or as a corporation, body corporate or body politic," or as a
"joint-stock company or joint-stock association". The definition of corporation
also includes insurance companies, certain banking entities, foreign entities
and other entities specified in (S) 301.7701-2. The Issuer is not an entity
which is treated as a corporation under (S) 301.7701-2.
Treasury Regulations (S) 301.7701-3 refers to a business entity that
is not classified as a corporation as an "eligible entity." That section
provides that an eligible entity with a single owner can elect to be classified
as an association (which is taxed as a corporation) or to be disregarded as an
entity separate from its owner. An eligible entity with at least two members
can elect to be classified as either an association or a partnership. Treasury
Regulations (S) 301.7701-3 further provides certain default rules pursuant to
which, unless the entity affirmatively elects to be classified as an
association, an eligible entity is disregarded as an entity separate from its
owner if it has a single owner, and is treated as a partnership if it has two or
more members.
If the Issuer is recognized as an entity for federal tax purposes and
all classes of Notes are treated as debt for federal tax purposes, then the
Issuer would be an eligible entity with a single owner, the SPC. Under the
default rules of Treasury Regulations (S) 301.7701-3 described above, the Issuer
would be disregarded as an entity separate from the SPC for federal tax
purposes.
If any interest in the Issuer other than the membership interest of
the SPC were treated as an equity interest in the Issuer, the Issuer would be an
eligible entity with two or more members. In such a case, under the default
rules of Treasury Regulations (S) 301.7701-3 described above, the Issuer would
be treated as a partnership for federal tax purposes.
<PAGE>
Green Tree Financial
December 10, 1998
Page 5
Under Section 10.10 of the Contribution and Servicing Agreement, all
of the parties to such Agreement have agreed not to file an election to treat
the Issuer as an association taxable as a corporation.
Based on the foregoing, it is our opinion that the Issuer will not be
treated as an association taxable as a corporation for federal income tax
purposes.
Publicly Traded Partnership
- ---------------------------
Section 7704 of the Code provides that, subject to certain exceptions,
a partnership the interests in which are (i) traded on an established securities
market or (ii) readily tradable on a secondary market (or the substantial
equivalent thereof) will be treated as a corporation for federal income tax
purposes.
Treasury Regulations Section 1.7704-1, issued on November 29, 1995
(the "PTP Regulations"), provide further explanation of the rules governing
publicly traded partnerships. The PTP Regulations provide that an "established
securities market" includes a national, foreign, regional or local exchange, as
well as an interdealer quotation system which regularly disseminates firm buy or
sell quotations by identified brokers or dealers, by electronic means or
otherwise. The PTP Regulations also provide that interests in a partnership are
readily tradable on a secondary market or the substantial equivalent thereof if
the partners are readily able to buy, sell or exchange their partnership
interests in a manner that is economically comparable to trading on an
established securities market.
Interests in the Issuer or in the Trust Assets which might be viewed
to constitute interests in a partnership will not be traded on an established
securities market within the meaning of the PTP Regulations. The PTP
Regulations provide a safe harbor pursuant to which interests in a partnership
will not be considered readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in such partnership were issued in a
transaction (or transactions) that was not required to be registered under the
Securities Act of 1933 (the "Securities Act") and (ii) the partnership does not
have more than 100 partners at any time during the taxable year of the
partnership.
As discussed above, it is our opinion that the Notes will be treated
as debt and will not be viewed to constitute interests in a partnership for
federal income tax purposes. The membership interest in the Issuer will be
issued to the SPC and the SPC will be required to retain such interest, except
that such interest may be transferred in connection with a sale of all or
substantially all of the assets of the SPC, provided that such transfer is
exempt from registration under the Securities Act. Thus, no interests in the
Issuer will be issued in a transaction that is required to be registered under
the Securities Act of 1933.
<PAGE>
Green Tree Financial
December 10, 1998
Page 6
Based upon the foregoing and on our opinion that the Notes will be
treated as debt for federal income tax purposes, it is our opinion that the
Issuer will not be characterized as a "publicly traded partnership" taxable as a
corporation for federal income tax purposes.
We express no opinions other than those expressly set forth above.
Except as provided below, the foregoing opinions are being furnished
to you solely for your benefit and may not be relied upon by, nor may copies be
delivered to, any other person without our prior written consent.
We hereby consent to the inclusion of this opinion as an exhibit to
the Registration Statement (File No. 333-38687-01) and to the use of our name
under the heading "Federal Income Tax Consequences" in the Prospectus, and we
hereby confirm that the discussion under such heading accurately sets forth our
advice as to the likely outcome of material issues under the federal income tax
laws.
Dated: December 10, 1998
Very truly yours,
<PAGE>
Exhibit 23.3
CONSENT OF DORSEY & WHITNEY LLP
Green Tree Lease Finance II, Inc.
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
We hereby consent to the summary of our opinions under the heading "Risk Factors
Risks Related to Bankruptcy" in the Registration Statement on Form S-1
(Registration Nos. 333-67993 and 333-67993-01) of Green Tree Lease Finance II,
Inc and Green Tree Lease Finance 1998-1, LLC and the related Prospectus.
/s/ Dorsey & Whitney LLP
December 10, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of Green Tree
Lease Finance 1998-1, LLC, a wholly owned subsidiary of Green Tree Lease Finance
II, Inc. on Form S-1 (File No. 333-67993), of our report dated December 11, 1998
on our audit of the balance sheet of Green Tree Lease Finance 1998-1, LLC as of
December 11, 1998. We also consent to the reference to our firm under the
caption "Experts."
PricewaterhouseCoopers LLP
Indianapolis, Indiana
December 11, 1998
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
GREEN TREE LEASE FINANCE II, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1892359
(State of Incorporation) (I.R.S. Employer
Identification No.)
GREEN TREE LEASE FINANCE 1998-1, LLC
(Exact name of Registrant as specified in its charter)
Delaware None
(State of Incorporation) (I.R.S. Employer
Identification No.)
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
(Address of Principal Executive Offices) (Zip Code)
LEASE-BACKED NOTES
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information Furnish the following information as to the
Trustee.
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe
each such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which
the Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this
statement of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust
powers (included in Exhibits 1 and 2; no separate
instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the
act.
7. Copy of the latest report of condition of the Trustee
published pursuant to law or the requirements of its
supervising or examining authority is incorporated by
reference to Registration Number 333-53211.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 11th day of December 11,
1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
-----------------------
Richard H. Prokosch
Assitant Vice President
/s/ Judith M. Zuzek
- -------------------
Judith M. Zuzek
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned, U.S. BANK TRUST NATIONAL ASSOCIATION hereby consents that
reports of examination of the undersigned by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Dated: December 11, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ Richard H. Prokosch
-----------------------
Richard H. Prokosch
Assistant Vice President
<PAGE>
Exhibit 99.1
U.S. Bank Trust National Association Fitch IBCA, Inc.
180 East Fifth Street One State Street Plaza
St. Paul, Minnesota 55101 New York, New York 10004
Standard & Poor's Ratings Services, First Union Capital Markets Corp.
a Division of The McGraw-Hill One First Union Center
Companies, Inc. Charlotte, North Carolina 28288
25 Broadway
New York, New York 10004
Re: Green Tree Lease Finance 1998-1, LLC
Lease-Backed Notes
Ladies and Gentlemen:
We have acted as counsel for Green Tree Financial Corporation,
a Delaware corporation ("Green Tree Financial"), Green Tree Vendor Services
Corporation, a Delaware corporation and a subsidiary of Green Tree Financial
("Vendor Services"), Green Tree Lease Finance II, Inc., a Minnesota corporation
and a subsidiary of Vendor Services (the "SPC"), and Green Tree Lease Finance
1998-1, LLC, a Delaware limited liability company of which the SPC is the sole
and managing member (the "Issuer"), in connection with the issuance of
Lease-Backed Notes (the "Notes") pursuant to an Indenture, dated as of December
1, 1998 (the "Indenture"), among the Issuer and U.S. Bank Trust National
Association (the "Trustee"), as Trustee.
Pursuant to a Transfer Agreement dated as of December 1, 1998
(the "Transfer Agreement"), among the SPC, as Purchaser, and Vendor Services, as
Seller and Servicer, Vendor Services has sold certain leases, including all
collections received with respect to the leases and certain other related rights
(the "Leases") and its interests (which may be deemed an ownership interest or a
security interest, depending on the terms of the related Lease) in the equipment
related to such Leases (such interests being hereinafter referred to as the
"Equipment") to the SPC. The Leases will be transferred by the SPC to the Issuer
pursuant to the terms of a Contribution and Servicing Agreement dated as of
December 1, 1998 (the "Contribution and Servicing Agreement"), among the Issuer,
the SPC, Vendor Services, in its individual capacity and as Servicer, and the
Trustee. Pursuant to the Contribution and Servicing Agreement, the SPC will also
grant to the Issuer certain rights to the proceeds of the Equipment (the
"Residual Realizations").
<PAGE>
December , 1998
Page 2
The Issuer has requested that we provide to you our opinion
whether the transfer by Vendor Services to the SPC of the Leases, the Equipment
and the proceeds thereof could be recharacterized as a pledge by Vendor Services
to secure borrowings, rather than an absolute contribution by Vendor Services of
such assets, in the event that Green Tree Financial or Vendor Services became a
debtor in a case under the United States Bankruptcy Code (the "Code"). In
rendering such opinion, we have examined the Transfer Agreement and such
additional related documents, and we have reviewed such questions of law, as we
have considered necessary and appropriate for the purposes of the opinion
expressed herein. All capitalized terms used herein and not defined herein have
the meanings assigned to them in the Indenture.
I. Legal Background.
It is important to note that, in view of the lack of
authoritative case law directly on point, it is not possible to predict with
certainty the outcome if a court were to consider the proper characterization of
Vendor Services' transfer of the Leases and the Equipment to the SPC. In
determining whether a particular transfer is properly characterized as a sale or
a loan, courts have examined and analyzed a variety of factors which they have
deemed relevant. While these courts have set forth the factors considered to be
indicative of either a sale or a loan, they generally have provided little or no
analysis of why a particular factor or combination of factors was held to be
determinative./1/ In addition, the courts have differed in the importance and
relative weight to be accorded to these factual elements, so that their
decisions do not provide strong guidance for the application of consistently
applied or well developed legal doctrines./2/ Accordingly, our analysis is based
upon a review of existing case law, decided under the laws of various
jurisdictions,/3/ which
- ----------------------
/1/ There is strong authority for the proposition that the party asserting that
a transaction structured as a sale is in reality a loan must establish that fact
by evidence which is clear and convincing. In re Bevill Bresler & Schulman Asset
Management Corp., 67 B.R. 557, 596-98 (D.N.J. 1986); In re Candy Lane Corp., 38
B.R. 571, 577 (Bankr. S.D.N.Y. 1984) (citing Cross v. A.G.V. Assocs., Inc., 340
F.2d 42, 44 (2d Cir. 1964), cert. denied, 381 U.S. 913 (1965)); A.B. Lewis Co.
v. National Inv. Corp., 421 S.W.2d 723, 729 (Tex. Civ. App. 1967); see also Fox
v. Peck Iron & Metal Co., 25 B.R. 674, 688 (Bankr. S.D. Cal. 1982). But see In
re Hurricane Elkhorn Coal Corp. II, 19 B.R. 609, 618 (Bankr. W.D. Ky. 1982),
modified on other grounds, 32 B.R. 737 (W.D. Ky. 1983) (there is a "presumption
of includability in the estate, leaving it to the property claimant, even the
possessory claimant, to rebut the presumption. . .").
/2/ Moreover, with respect to the subject transaction, a court may exercise its
equitable authority to deem significant in its "characterization" analysis facts
or circumstances which do not exist as of the date hereof.
/3/ The case law strongly suggests that the determination of whether a transfer
of property is properly characterized as a sale or a loan - and consequently
excluded from or included in the debtor-transferor's estate - is ultimately
governed by applicable state law. See Butner v. United States, 440 U.S. 48, 54
(1979) ("Congress has generally left the determination of property rights in the
assets of a bankrupt's estate to state law"); see also Barnhill v. Johnson, 112
S. Ct. 1386, 1389 (1992) ("In the absence of any controlling federal law,
'property' and 'interests in property' are creatures of state law"); In re
Contractors Equip. Supply Co., 861 F.2d 241, 244 (9th Cir. 1988) ("Whether a
debtor in possession has an interest in property is determined by state law").
<PAGE>
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Page 3
we believe may be applicable by analogy but which would not necessarily be
deemed controlling by a court exercising jurisdiction under the Bankruptcy Code
of a proceeding instituted with respect to the SPC or Vendor Services.
Although no single factor is considered to be determinative in
the characterization analysis, the several factors which courts have considered
in their analysis generally concentrate on (a) the intent of the parties to the
transaction and (b) the economic substance of the transaction. Although
categorization of the factual elements assists in the review of case law, within
each such category the analysis is the same: an attempt to determine the true
nature of a particular transaction. Moreover, unless all of the factual elements
in a given transaction are indicative of either a sale or a loan, the
determination of its true nature, as discussed below, almost invariably requires
a balancing of factors to ascertain whether the transaction more closely
resembles a sale or a loan.
In determining whether a challenged transfer is properly
characterized as a loan or a sale, courts frequently refer to the intent of the
parties to the transaction. See, e.g., In re Bevill Bresler & Schulman Asset
Management Corp., 67 B.R. 557, 596-98 (D.N.J. 1986)(having determined that
agreements at issue were "hybrid" transactions possessing both sale and loan
characteristics, court rejected analysis based upon "weighing economic factors"
and gave effect to clearly expressed intent of sophisticated parties to
consummate sale rather than loan); In re Candy Lane Corp., supra note 1, 38 B.R.
at 576 (noting that under the Uniform Commercial Code, "the intent of the
parties governs whether a particular document or transaction creates a security
interest"); In re Lemons & Associates Inc., 67 B.R. 198, 210 (Bankr. D. Nev.
1986); see also In re Armando Gerstel, Inc., 65 B.R. 602, 604 (Bankr. S.D. Fla.
1986). The courts' analysis of the parties' intent is consistent with and
reflects recognition of the express provision of (S)9-102(1)(a) of the Uniform
Commercial Code, which provides that Article 9 applies to "any transaction
(regardless of its form) which is intended to create a security interest in
personal property . . ." (emphasis added) (hereinafter cited as the "UCC").
However, neither this provision nor any other relevant provision in the UCC
resolves the characterization issue. As noted by the Third Circuit in Major's
Furniture Mart, Inc. v. Castle Credit Corp. Inc., 602 F.2d 538, 543 (3rd Cir.
1979) (hereinafter referred to as "Major's Furniture"):
[T]he [Uniform Commercial] Code does not provide assistance in
distinguishing between the character [sale or loan] of such
transactions. This determination, as to whether a particular assignment
constitutes a sale or a transfer for security, is left to the courts
for decision.
<PAGE>
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Page 4
See also In re Evergreen Valley Resort, Inc., 23 B.R. 659, 661 (Bankr. D. Me.
1982); but see Octagon Gas Systems Inc. v. Rimmer (In re Meridian Reserve,
Inc.), 995 F.2d 948, 956-57, 957 n.9 (10th Cir.), cert. denied, 114 S. Ct. 554
(1993)./4/
While the parties' subjective intent to consummate a sale may
be manifest in the language employed in the operative documents, it is well
established that courts often will ignore the "labels" used by the parties and
conduct an independent examination of the objective intent or true nature of the
transaction. See In re The Woodson Co., 813 F.2d 266, 272 (9th Cir. 1987)
("Simply calling transactions 'sales' does not make them so. Labels cannot
change the true nature of the underlying transactions"); In re Joseph Kanner Hat
Co., Inc., 482 F.2d 937, 940 (2d Cir. 1973)
- --------------------
/4/ The Octagon Gas court held that accounts sold by a debtor prior to filing
for bankruptcy, though subject to the rights and interests of the purchaser,
nevertheless remain property of the debtor's bankruptcy estate under the
combined workings of Article 9 of the Oklahoma Uniform Commercial Code and
Bankruptcy Code (S) 541. The court concluded that because Article 9 treats the
interest transferred in a sale of accounts as a form of "security interest," the
seller of accounts does not part with all transferable rights in the accounts
even following an absolute assignment. 995 F.2d at 956. We do not believe that a
bankruptcy court properly applying the principles of Article 9 and the
Bankruptcy Code in a proceeding in which Green Tree Financial or Vendor Services
was the debtor would follow Octagon Gas. The Official Comments to Article 9
explain that the definitional labels employed by Article 9 were specifically
chosen to avoid reference to existing law. See Official Comment 1 to Section
9-102 (providing rationale for use of uniform definitional terms). Thus,
although the interest held by a buyer of chattel paper is termed a "security
interest" for the purposes of applying Article 9 perfection rules, this label
should not transform the underlying substantive nature of an absolute conveyance
of chattel paper under applicable state law. Moreover, Article 9 itself
recognizes that there may be a true sale of chattel paper. See Official Comment
2 to Section 9-102 ("Neither Section 9-102 nor any other provision of Article 9
is intended to prevent the sale of chattel paper. The determination of whether a
particular transfer of accounts or chattel paper constitutes a sale or a
transfer for security purposes (such as in connection with a loan) is not
governed by Article 9."). In sum, we do not believe that Octagon Gas properly or
definitively determines whether a seller of chattel paper retains any interest
or right where, as is anticipated by the Transfer Agreement, Vendor Services
intends to convey to the SPC all of its right, title and interest in and to the
Leases as a true sale, and where the SPC evidences its ownership interest by
filing appropriate financing statements. The Permanent Editorial Board for the
Uniform Commercial Code (the "PEB") came to a similar conclusion - that the
holding in Octagon Gas was erroneous - in its recently adopted comment to
Article 9. See PEB Commentary on the Uniform Commercial Code, Commentary No. 14
(Section 9-102(1)(b)) (Final Draft dated June 10, 1994). Moreover, Octagon Gas
is not controlling precedent with respect to a Minnesota court or a federal
court sitting in Minnesota and applying Minnesota law. You should recognize,
however, that if Octagon Gas were followed, it could result in a conclusion that
the Leases remained "property of the estate" of Vendor Services under (S) 541 of
the Bankruptcy Code.
Each of the Leases is "chattel paper" within the meaning of the UCC Under the
UCC, either the pledge or the sale of chattel paper may be perfected by means of
filing a UCC-1 financing statement. UCC (S) 9-302. (Possession by the secured
party is also effective to perfect either a pledge or a sale of chattel paper,
UCC (S) 9-305, but Vendor Services will retain custody of each Lease that
constitutes chattel paper.) Such filings therefore are a necessary, but not
necessarily sufficient, condition to concluding that a "true sale" of such
chattel paper or accounts has taken place. As noted in Part II infra, such
filings will be made with respect to the Leases, indicating that such filings
are being made in order to perfect sales of such Leases. Article 9 of the UCC
does not govern the sale of general intangibles. See Part III infra. You should
note that if a third party purchased Leases that constitute chattel paper for
new value and took possession of the chattel paper in the ordinary course of
business, such third party could prevail over a party whose purchase of such
chattel paper was perfected by means of filing in certain circumstances. See UCC
(S)9-308.
<PAGE>
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("courts will determine the true nature of a security transaction, and will not
be prevented from exercising their function of judicial review by the form of
words the parties may have chosen") (quoting 1 Gilmore, Security Interests in
Personal Property (1965) (S) 2.6, at 47);/5/ In re Evergreen Valley Resort Inc.,
supra, 23 B.R. at 661 ("the label attached to the transaction by the parties
does not control"); People v. Service Inst., Inc., 101 Misc.2d 549, 421 N.Y.S.2d
325, 326 (N.Y. Sup. Ct. 1979) ("The mere fact that a transaction may have been
denominated a sale rather than a loan is not determinative"); see also Major's
Furniture, supra, 602 F.2d at 543;/6/ In re Candy Lane Corp., supra note 1, 38
B.R. at 575; In re O.P.M. Leasing Services, Inc., 30 B.R. 642, 647-48 (Bankr.
S.D.N.Y. 1983). This objective intent and the true nature of the transaction are
to be determined from all of the facts and circumstances of the transaction. See
In re Golden Plan of California, Inc., 829 F.2d 705, 709 (9th Cir. 1987); In re
Candy Lane Corp., supra note 1, 38 B.R. at 576 ("an examination of the substance
of the documents in the context of the surrounding transaction")./7/ As stated
by the Third Circuit in reviewing prior cases:
[D]espite the express language of the agreements, the respective courts
examined the parties' practices, objectives, business activities and
relationships and determined whether the transaction was a sale or a
secured loan only after analysis of the evidence as to the true nature
of the transaction.
Major's Furniture, supra, 602 F.2d at 545 (emphasis added); see also In re
Evergreen Valley Resort, Inc., supra, 23 B.R. at 661; In re Carolina Utils.
Supply Co., 118 B.R. 412, 415 (Bankr. D.S.C. 1990). In sum, an examination of
the true nature of a transaction requires an analysis of the economic substance
and legal character of the transaction, which examination will enable the court
to resolve the ultimate issue in characterizing such transaction, i.e., "whether
the true nature of the transaction is such that the 'legal rights and economic
consequences of the agreement bear a greater similarity
- --------
/5/ In Kanner, the debtor assigned a legal claim against a third party pursuant
to an agreement providing that the debtor "absolutely assigned, transferred and
sold any and all right, title and interest it had" in the claim. 482 F.2d at
938. As discussed infra, the Second Circuit held that the assignment created
only a security interest, relying largely upon the fact that payments made on
the claims were to be applied in satisfaction of the debt secured and that any
balance would belong to the assignor.
/6/ In Major's Furniture, although the accounts receivable purchase agreement
contained the words "purchase" and "sale," the Third Circuit found, as discussed
infra, that the agreement provided for merely a transfer to secure indebtedness.
/7/ In evaluating the "context of the surrounding transaction," a court may be
expected to consider whether the transaction is characterized by the parties as
a sale or a loan not only in the operative documents, but also for accounting
and tax purposes.
<PAGE>
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Page 6
to a financing transaction or to a sale.'" In re Evergreen Valley Resort, Inc.,
supra, 23 B.R. at 661, quoting Major's Furniture, supra, 602 F.2d at 544./8/
In conducting an analysis of the economic substance and legal
character of a transaction, the case law indicates that the determination of
whether to recharacterize a sale of assets as a loan is largely a function of
the extent to which the risks and benefits associated with ownership have either
been retained or transferred by the transferor. See, e.g., Grossman v. Butcher,
1992 WL 158422, Slip Op. at 3 (Ohio Ct. App. June 30, 1992) (citing treatise for
view that in "true sale," buyer is subject to risk of loss and/or entitled to
benefit beyond fixed sum); In re Executive Growth Invs., Inc., 40 B.R. 417, 422
(Bankr. C.D. Cal. 1984) ("Traditionally, risk of loss has been regarded as one
of the hallmarks of ownership"); see also Major's Furniture, supra, 602 F.2d at
545-46; In re The Woodson Co., supra, 813 F.2d at 271-72; In re Lendvest
Mortgage, Inc. 119 B.R. 199, 200 (9th Cir. BAP 1990). Probably the most
important factor in an analysis of the allocation of risks and benefits is the
nature and level of recourse possessed by the putative buyer against the seller.
Other factors include the nature and scope of the role retained by the seller in
the administration of the assets and the proceeds thereof; the rate of return
paid to the putative buyer; and the transfer or retention of the right to enjoy
the value or surplus generated by the assets in excess of the consideration paid
therefor.9/ Recourse in a transaction generally involves some form of guarantee
- --------
/8/ There are, however, a few cases involving sophisticated parties in which the
courts either have given effect to the intent clearly expressed in the language
and terms of the operative documents without analyzing the economic substance
and legal character of the transaction, or have found the latter factors
outweighed by such clearly expressed intent. See In re National Equip. & Mold
Corp., 64 B.R. 239, 245 (Bankr. N.D. Ohio 1986) ("Such terms so clearly express
the intent of the parties that there is no reasonable or rational interpretation
which can be used to assert that the Debtor intended to retain any rights in the
accounts subsequent to its execution of the contract"); In re Bevill Bresler &
Schulman Asset Management Corp., 67 B.R. 557, 596-98 (D.N.J. 1986) (having
determined that agreements at issue were "hybrid" transactions possessing both
sale and loan characteristics, court rejected analysis based upon "weighing
economic factors" and gave effect to clearly expressed intent of sophisticated
parties to consummate sale rather than loan); see also In re Kassuba, 562 F.2d
511, 515 (7th Cir. 1977) ("However, appellants have admitted that they were
sophisticated in matters of real estate financing at the time of these
transactions . . . . Appellants have removed any doubt about the intent of the
parties"); cf. In re Lemons & Assocs., Inc., supra, 67 B.R. at 209-10 (guarantee
of payment "insufficient to outweigh objective indications of an intended
sale"); Indian Lake Estates Inc. v. Special Invs., Inc., 154 So.2d 883, 888
(Fla. Dist. Ct. App.), cert. denied, 161 So.2d 219 (1963) ("It is clear that the
intent of the parties controls in these cases").
/9/ The court in In re Evergreen Valley Resort Inc., supra, set out a list of
factors, including recourse, that bear upon the characterization analysis:
A security interest is indicated where the assignee retains a right to
a deficiency on the debt if the assignment does not provide sufficient
funds to satisfy the amount of debt. A security interest is also
indicated when the assignee acknowledges that his rights in the
assigned property would be extinguished if the debt owed were to be
paid through some other source. Likewise, a security interest is
indicated if the assignee must account to the assignor for any surplus
received from the assignment over the amount of the debt. Evidence that
the assignor's debt is not reduced on account of the assignment is also
evidence that the assignment is intended as security. Finally, the
contract language itself may express the intent that the assignment is
for security only.
23 B.R. at 661 (citations omitted).
<PAGE>
December , 1998
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of the performance of the underlying assets transferred, which can be structured
as a reserve fund, an obligation to substitute or repurchase underperforming
assets, or a guarantee of an agreed-upon return regardless of the performance of
those assets. Although the mere existence of recourse is itself not dispositive
of the proper characterization of a transaction,/10/ many courts have reasoned
that if the nature and level of recourse reveals that all or virtually all risk
of loss was retained by the transferor, the transfer should properly be
characterized as a loan.
Major's Furniture represents the most frequently cited case on
this topic, for its analysis of the nature and level of recourse and its holding
that a transfer structured as a sale should be recharacterized as a loan where
the transferee assumes almost none of the risks associated with ownership.
Major's Furniture involved a purported sale by Major's to Castle of accounts
receivable in which Major's effectively retained all risk associated with the
collectibility of the assigned accounts. The Third Circuit adopted the findings
and conclusions of the lower court and held that, notwithstanding the "sale"
language contained in the agreement, the transfer was merely a loan secured by a
pledge because "none of the risks present in a true sale is present here":
It appears that Castle required Major's to retain all conceivable risks
of uncollectibility of these accounts. It required . . . that Major's
warrant that the accounts were fully enforceable legally and were
"fully and timely collectible." It also imposed an obligation to
indemnify Castle out of a reserve account for losses resulting from a
customer's failure to pay, or for any breach of warranty, and an
obligation to repurchase any account after the customer was in default
for more than 60 days . . . Guaranties of quality alone, or even
guarantees of collectibility alone, might be consistent with a true
sale, but Castle attempted to shift all risks to Major's, and incur
none of the risks or obligations of ownership.
Major's Furniture, supra, 602 F.2d at 545; see also Blackford v. Commercial
Credit Corp., 263 F.2d 97, 106 (5th Cir.), cert. denied, 361 U.S. 825 (1959)
(transfer of accounts held a loan where transferor warranted that each account
would be paid timely, agreed to pay any amounts not timely paid and provided
similar protections "essentially guaranteeing [the transferees] that they will
suffer no loss on the transaction"); Fox v. Peck Iron & Metal Co., supra note 1,
25 B.R. at 690 ("Peck never assumed the normal risks of ownership, such as the
risk that the value of the property might decline . . ."); Abeloff v. Ohio
Finance Co., 313 Mich. 568, 21 N.W.2d 856 (Sup. Ct. Mich. 1946); Union Planters
Nat'l Bank v. United States, 426 F.2d 115 (6th Cir.), cert. denied, 400 U.S. 827
(1970).
- ---------------------
/10/ See Major's Furniture, supra, 602 F.2d at 544 ("[T]he presence of recourse
in a sale agreement without more will not automatically convert a sale into a
security interest"); Official Comment 4 to Section 9-502("there may be a true
sale of accounts or chattel paper although recourse exists"). Indeed, as
discussed infra, several cases have held that a transaction was a sale
notwithstanding significant or even complete recourse.
<PAGE>
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In In re The Woodson Co., supra, the Ninth Circuit found that
the transferees were relieved of all risk of loss and held, as a result, that
purported sales of interests in a mortgage broker's (Woodson's) loan portfolio
should properly be recharacterized as loans./11/ The transferees were relieved
of any risk of loss in that:
Woodson guaranteed monthly payments to each investor regardless of
whether borrowers made their monthly payments . . . . If a loan was
foreclosed, the investors had an option either to receive payment in
full (unpaid principal balance plus accrued interest) from Woodson or
to reimburse Woodson for the costs for foreclosure and to take title to
the property at the time of sale. No investor ever exercised this
latter option.
813 F.2d at 268./12/
Similarly, in In re S.O.A.W. Enterprises. Inc., 32 B.R. 279
(Bankr. W.D. Tex. 1983), the court considered the nature of transactions in
which S.O.A.W., a real estate developer, entered into financing arrangements
with a bank, Castle Rock, whereby Castle Rock "purchased" participations in
"Agreements for Deeds." The court concluded that the purported sales of
participations were properly recharacterized as loans because the transactions
were structured so that Castle Rock bore no risk of lo(S) In addition to an
absolute obligation on the part of S.O.A.W. to "repurchase" Castle Rock's
investment for any Agreement in default:
[B]oth S.O.A.W. and its President . . . personally guaranteed the
return to Castle Rock of its investment and guaranteed the interest to
be generated by investment. Thus, Castle Rock "participated" in no risk
of non-payment by the Agreement for Deed vendees because it did not
look to them for repayment.
- ----------------------
/11/ See also In re Executive Growth Invs., Inc., supra, 40 B.R. at 422 (court
held that transfer of interest in promissory note and collateral was properly
recharacterized as a loan where transferor retained the risk of loss by virtue
of an express contractual provision providing for full recourse).
/12/ This recourse mechanism differed from the device discussed in In re Golden
Plan of California Inc., 829 F.2d 705 (9th Cir. 1986), whereby the
seller-servicer of promissory notes and trust deeds would, in the event an
assigned obligation went into default, make "advances" on the defaulting
borrower's behalf. The Ninth Circuit, after reviewing the other servicing
functions performed by the seller-servicer, concluded that making "advances" did
not amount to a guarantee of repayment warranting recharacterization of the
transaction: "[D]espite a practice known as 'advancing,' the Bear investors
received no contractual guarantee of repayment or compensation in case of
foreclosure. Such assumption of risk strongly suggests that the Bear investors
were not in a creditor-debtor relationship with Golden Plan." 829 F.2d at 709.
The Woodson court, in fact, expressly distinguished the transaction in In re
Golden Plan of California Inc. noting that: "In contrast to our case, payments
[in the Golden Plan transaction] were not guaranteed (notes were assigned
without recourse), and upon foreclosure the purchasers were left to their own
remedies against borrowers. In other words, they bore the ordinary risks of
ownership." In re The Woodson Co., supra, 813 F.2d at 272 n.6.
<PAGE>
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Page 9
32 B.R. at 282-83. Moreover, under the operative agreement, Castle Rock, as
participant, actually received a greater rate of repayment and return than
S.O.A.W. received.
The foregoing discussion indicates that several courts have
considered substantial recourse and the retention by the transferor of the risk
of loss to be important factors in the characterization of a particular
transaction. However, several other courts have upheld transactions denominated
as sales notwithstanding such recourse and the failure to transfer risk of lo(S)
Most notably, the court in In re Lemons & Assocs., Inc., supra, addressed the
proper characterization of transactions between a mortgage company, Lemons,
which engaged in brokering real estate loans and buying and selling promissory
notes secured by deeds of trust, and the investors, who purportedly "purchased"
such notes. The court determined that the objective manifestation of the
parties' intent, as indicated by the testimony of transferees and the terms
(such as "purchase" and "sale") contained in various documents, outweighed other
factors which might otherwise be indicative of a loan.
The Court acknowledges that Lemons' practice of "guaranteeing" regular
returns to investors irrespective of the actual performance on the
notes, and, at return rates exceeding the interest rates paid by the
borrowers, does indicate that the investors bore none of the risks
normally accompanying a purchase. Similarly, the "Early Withdrawal"
provisions that allowed investors to disassociate themselves with notes
[that is, transfer their investment to another note in the event of
borrower default] suggests that the risk associated with an investment
purchase was lacking. On balance, however, the Court finds that these
inconsistencies are insufficient to outweigh the objective indications
of an intended sale manifested by the other documents.
In re Lemons & Assocs., Inc., supra, 67 B.R. at 210./13/ In addition to
analyzing the objective intent of the parties, the court in Lemons also noted
that characterization of the transactions as loans rather than purchases would
have at least two significant consequences. First, since none of the investors
were in possession of the notes, their security interests would not be perfected
and the investors "would be unsecured creditors of the estate only." Id. at 209.
Second, if no sale had occurred, the
- --------------------------
/13/ See also Lake Hiwassee Dev. Co. v. Pioneer Bank, 535 S.W.2d 323, 326-27
(Sup. Ct. Tenn. 1976) (court held that transaction involving transfer of notes
was sale notwithstanding provision of full recourse against seller and creation
of reserve fund, finding that "[t]he establishment of a reserve fund . . . is
not sufficient to convert an otherwise valid sale into a loan"); A.B. Lewis Co.
Inc. v. National Inv. Corp., 421 S.W.2d 723, 728 (Tex. Civ. App. 1967) (court
held that transfer of conditional sales contracts with full recourse was sale
and not loan, viewing full recourse as "a contingent obligation . . . not
inconsistent with a sale of the contract rather than a pledge to secure a
loan"); Indian Lake Estates, Inc. v. Special Invs., Inc., supra note 9,154 So.2d
at 891 (court held that transfer of contracts receivable was sale even though
transfer was accompanied by full recourse and guaranty of payment); General
Motors Acceptance Corp. v. Mid-West Chevrolet Co., 66 F.2d 1, 8 (10th Cir. 1933)
(court found "no substantial evidence . . . that the transactions were not sales
of contracts" despite full recourse against seller).
<PAGE>
December , 1998
Page 10
investors would be unable to claim an equitable ownership interest in the notes
under the Bankruptcy Code. Id. These observations suggest that a court may be
influenced in its decisionmaking by other considerations, such as the threat of
broad losses to "innocent" investors. Moreover, as previously noted, the
official commentary to Article 9 states that "a sale of accounts . . . or
chattel paper may exist even if there is a right of recourse." See note 4 supra.
II. The Factual Context.
In rendering the opinion expressed herein we have relied, as
to (i) factual matters, (ii) conclusions (other than matters of law) and (iii)
the actions that parties to the transaction will take or refrain from taking in
the future, to the extent we deemed such reliance proper, on certificates of
responsible officers of Vendor Services and the SPC, copies of which
certificates are attached hereto, and we have assumed, without independent
verification, that such certificates are correct. For purposes of the opinion
hereinafter expressed we note in particular the following terms of the transfer
of the Leases and the Equipment and related transactions, which, unless
expressly stated otherwise, we have established based upon a review of the
Transfer Agreement, the Indenture and related agreements:
1. Vendor Services will transfer the Leases and the
Equipment to the SPC pursuant to the Transfer Agreement. Following the transfer
of the Leases and the Equipment to the SPC, Vendor Services will have no right
to modify or alter the terms of such transfer, and no provision exists whereby
the consideration paid for the Leases and the Equipment may be modified
following such contribution.
2. The Transfer Agreement states that it is the intention of
Vendor Services that the transfer of the Leases and the Equipment from Vendor
Services to the SPC constitute an absolute assignment to the SPC of all of the
right, title and interest of Vendor Services to and in the Leases and the
Equipment.
3. We have assumed that Vendor Services, as Servicer, will
comply with the requirements of the Transfer Agreement, the Contribution and
Servicing Agreement and the Indenture relating to the filing of UCC-1 financing
statements and continuation statements in order to perfect the transfer of the
Leases under applicable state law.
4. Although the SPC, as a wholly-owned subsidiary of Vendor
Services, and Vendor Services, as a subsidiary of Green Tree Financial, prepare
consolidated statements for financial reporting purposes, Vendor Services is
accounting for the transfer of the Leases and the Equipment to the SPC pursuant
to the Transfer Agreement as an absolute assignment, rather than a borrowing by
the SPC, for accounting purposes. Similarly, although Green Tree Financial,
Vendor Services and the SPC are required to file joint income tax returns,
Vendor Services is treating the
<PAGE>
December , 1998
Page 11
transfer of the Leases and the Equipment to the SPC pursuant to the Transfer
Agreement as an irrevocable transfer of the benefits and burdens of ownership.
5. Neither Green Tree Financial nor Vendor Services has any
right to repurchase or otherwise to cause the reconveyance to itself of any of
the Leases or Equipment.
6. Neither Green Tree Financial nor Vendor Services has any
obligation to repurchase Leases or Equipment from the SPC or the Issuer, except
that Vendor Services will be obligated under the Contribution and Servicing
Agreement to repurchase (or to substitute a Substitute Lease for) any Lease
discovered to be in breach of a representation or warranty. We believe such
representations and warranties are of a kind customarily used in the sale of
lease contracts similar to the Leases.
7. Neither Green Tree Financial nor Vendor Services has any
obligation to provide the Issuer with protection against delinquencies and
losses on the Leases. Except as set forth in the Transfer Agreement, there are
no agreements or understandings affecting the obligations of Green Tree
Financial or Vendor Services with respect to delinquencies and losses on the
Leases.
8. Neither Green Tree Financial nor Vendor Services has
entered or will enter into any agreements or other arrangements whereby any
investor in the Notes would be protected against the risk of fluctuations in the
market value of the Leases.
9. Neither Green Tree Financial nor Vendor Services has
entered or will enter into any agreements or other arrangements whereby any
investor in the Notes would be protected against prepayments on the Leases.
Vendor Services will have the right, but not the obligation, to deliver
Substitute Leases to the SPC to replace (a) Liquidated Leases, (b) Leases
subject to repurchase as a result of a breach of a representation or warranty,
and (c) Leases that have undergone a material modification or adjustment to
their terms, provided that the aggregate Principal Balance of all such Leases
for which Vendor Services has substituted Substitute Leases may not exceed 10%
of the Initial Pool Principal Balance.
10. Vendor Services, directly or through sub-servicers, will
retain custody of the documents and records relating to the Leases, and the
Leases will not be stamped to evidence their assignment to the SPC. As a result,
if another lender or purchaser were to obtain possession of any Leases without
knowledge of their prior assignment to the SPC, such lender's or purchaser's
security or ownership interest would be prior to the ownership interest of the
SPC in such Leases. Vendor Services will hold the Lease Files strictly in a
fiduciary capacity, however, and UCC-1 financing statements will be filed in the
appropriate jurisdictions to reflect the contribution of the Leases. Vendor
Services will have no remaining rights in the Leases, and the only rights of
Vendor Services in the Leases and the Equipment will be pursuant to its
obligation to service the Leases and collect Residual Realizations as set forth
in the Contribution and Servicing Agreement.
<PAGE>
December , 1998
Page 12
11. There are no agreements, arrangements or understandings,
written or otherwise, with respect to the transfer of the Leases and the
Equipment other than as set forth in the Transaction Documents.
III. Applying the Law to the Instant Facts.
It is apparent, in applying the legal principles developed
from the cases discussed in Part I above to the facts summarized in paragraphs 1
through 11 of Part II above, that several attributes of the transaction
described therein argue strongly in favor of characterizing the transfer by
Vendor Services of the Leases and the Equipment to the SPC as a sale. At the
same time, certain other aspects of the transaction suggest a loan secured by
the Leases and the Equipment rather than a sale. On balance, however, we believe
that the factors which militate in favor of a court's characterizing the
transfer of the Leases and the Equipment as a "true sale" substantially outweigh
those which militate against such a characterization.
First, the parties' intent to have the transfer of the Leases
and the Equipment by Vendor Services to the SPC treated as a complete and
absolute contribution is clearly set forth in the Transfer Agreement. The
Transfer Agreement describes the transaction as a sale and assignment, and the
transaction will be treated by Vendor Services as a sale for accounting and tax
purposes.
Second, Vendor Services is obligated under the Transfer
Agreement to take the actions which are necessary to perfect the assignment of
the Leases and the Equipment by Vendor Services to the SPC under the laws of the
State of Minnesota. Although the taking of these actions does not settle the
"sale" question, the failure to take them would prevent a "sale" from taking
place. Thus, Vendor Services is required to file the UCC financing statement
which is necessary in order to perfect an assignment of the Leases under the UCC
of Minnesota. See note 4 supra./14/
In addition to the intent of the parties and the satisfaction
of state law requirements, the facts and circumstances surrounding the transfer
of the Leases and the Equipment are either indicative of or not inconsistent
with a "true sale" characterization. For example, whether the transferor or the
transferee services the accounts and notifies the obligor of the assignment may
- --------------------------
/14/ As stated in note 4, if a court applying Minnesota law followed the Octagon
Gas case, it could conclude that the Leases nevertheless remained "property of
the estate" of Vendor Services under (S) 541 of the Bankruptcy Code. As stated
in note 4, however, Octagon Gas is not controlling precedent with respect to
such a court. Perfection of the "security interest" in chattel paper granted by
Vendor Services to the Issuer in connection with its contribution of the Leases
to the Issuer will be governed by the law of the state where the "debtor's"
chief executive office is located. UCC (S)9-103(3). We therefore are of the
opinion that Minnesota law would govern perfection of the transfer of such
chattel paper by Vendor Services to the SPC in connection with the contribution
made pursuant to the Transfer Agreement. You should note, however, that
perfection of a competing possessory security interest in the Leases could be
governed by the laws of other jurisdictions. See UCC (S) 9-105(1).
<PAGE>
December , 1998
Page 13
influence the characterization of a transaction. See In re Alda Commercial
Corp., 327 F. Supp. 1315 (S.D.N.Y. 1971). In the instant case, Vendor Services
will continue to service the Leases in its capacity as the Servicer under the
Contribution and Servicing Agreement, and the Obligors will not be notified of
the assignment of the Leases. Nevertheless, while servicing by the transferee
with notice to the obligor of the sale may indicate a sale, servicing by the
transferor and an absence of notification does not necessarily prevent sale
treatment. See In re P.A. Bergner & Co. Holding Co., Nos. 91-05501 to 91-05516,
Slip Op. at 11-12 (Bankr. E.D. Wis. April 16, 1992) (sales of receivables deemed
"true arms-length sales" notwithstanding appointment of seller as servicer of
receivables); A.B. Lewis Co. Inc. v. National Inv. Corp., 421 S.W.2d 723, 728
(Tex. Civ. App. 1967) (giving reasons, on facts of case, that collection by
seller and non-notification of obligors of assigned sales contracts did not
require characterization of assignment as loan).
Another important factor examined by the courts is the extent
to which the purported buyer or seller of the Leases and the Equipment bears the
risks and enjoys the benefits of their ownership. The "benefits" associated with
ownership consist primarily of the opportunity for the buyer to retain any
excess above the purchase price of the property and to reap any gains that may
arise from an increase in the market value of the property. A purported seller's
right to repurchase the subject property or to substitute property, in order to
capture such increase or to retain any surplus remaining after the buyer has
received a discrete amount in respect of the transaction, may indicate that the
benefits of ownership have been retained by the transferor, suggesting a
debtor-creditor relationship rather than a seller-buyer relationship.
In the instant transaction, none of Green Tree Financial or
Vendor Services have any such rights. The SPC has no obligation to account for
or repay to Vendor Services any profit or surplus that the Leases or the
Equipment may generate. Any such profit will instead be paid to the SPC, as the
owner of the Equipment. See In re Joseph Kanner Hat Co., Inc., supra, 482 F.2d
at 940; In re Evergreen Valley Resort, Inc., supra, 23 B.R. at 661 ("a security
interest is indicated if the assignee must account to the assignor for any
surplus received from the assignment over the amount of the debt").
IV. Opinion.
In considering the opinion expressed below, you should be
aware that, to the best of our knowledge, there is no controlling statutory
provision and no judicial precedent that is directly on point. In addition,
certain of the judicial precedents which do exist may be viewed as inconsistent
with our opinion, although we believe such precedents are distinguishable from
the facts presented in this transaction. Finally, you should recognize that it
is impossible to predict with certainty the outcome of any future judicial
proceeding. Nevertheless, based on the foregoing examination and review and
based on the terms of the transaction as set forth above, it is our opinion that
if Green Tree Financial or Vendor Services became a debtor under the Code, the
transfer by Vendor Services to the SPC of the Leases, the Equipment and the
proceeds thereof would ultimately be characterized,
<PAGE>
December , 1998
Page 14
by a court exercising reasonable judgment under existing statutes and judicial
precedents, as a true sale, such that the Leases, the Equipment and the proceeds
thereof would not be property of Green Tree Financial's or Vendor Services
estate for the purposes of Section 541 of the Code (11 U.S.C. (S) 541), and as a
result (1) neither Section 362(a) of the Code (11 U.S.C. (S) 362(a)) nor Section
543 of the Code (11 U.S.C. (S) 543) would apply to the Leases, the Equipment and
the proceeds thereof in such an insolvency proceeding relating to Green Tree
Financial or Vendor Services (except that we express no opinion as to proceeds
of Leases held by Green Tree Financial or Vendor Services on the date Green Tree
Financial or Vendor Services were to become a debtor under the Code), and (2)
the Leases would not be subject to rejection under Section 365(a) of the Code
(11 U.S.C. (S) 365(a)) by or on behalf of Green Tree Financial or Vendor
Services. We express no opinion as to the availability of a preliminary
injunction or temporary restraining order pursuant to the broad equitable powers
granted to a bankruptcy court under Section 105 of the Code (11 U.S.C. (S) 105).
<PAGE>
December , 1998
Page 15
The opinion expressed herein is limited to questions of
federal law and the laws of the State of Minnesota. This opinion is being
delivered to you at the Issuer's request only for your use. It is not to be
circulated or republished to, or relied upon by, any other person without our
prior written consent.
Dated: December , 1998
Very truly yours,
CFS
Attachments: Exhibit A: Vendor Services Officer's Certificate
Exhibit B: SPC Officer's Certificate
<PAGE>
Exhibit 99.2
U.S. Bank Trust National Association Fitch IBCA, Inc.
180 East Fifth Street One State Street Plaza
St. Paul, Minnesota 55101 New York, New York 10004
Standard & Poor's Ratings Services, First Union Capital Markets Corp.
a Division of The McGraw-Hill One First Union Center
Companies, Inc. Charlotte, North Carolina 28288
25 Broadway
New York, New York 10004
Re: Green Tree Lease Finance 1998-1, LLC
Lease-Backed Notes
Ladies and Gentlemen:
We have acted as counsel for Green Tree Financial Corporation,
a Delaware corporation ("Green Tree Financial"), Green Tree Vendor Services
Corporation, a Delaware corporation and a subsidiary of Green Tree Financial
("Vendor Services"), Green Tree Lease Finance II, Inc., a Minnesota corporation
and a subsidiary of Vendor Services (the "SPC"), and Green Tree Lease Finance
1998-1, LLC, a Delaware limited liability company of which the SPC is the sole
and managing member (the "Issuer"), in connection with the issuance of
Lease-Backed Notes (the "Notes") pursuant to an Indenture, dated as of
December 1, 1998 (the "Indenture") between the Issuer and U.S. Trust National
Association (the "Trustee"), as Trustee.
The Issuer was formed in November 1998 and is governed by a
Limited Liability Company Agreement (the "LLC Agreement") executed by the SPC as
its sole member. Pursuant to a Transfer Agreement dated as of December 1, 1998
(the "Transfer Agreement"), among the SPC, as Purchaser, and Vendor Services, as
Seller and Servicer, Vendor Services has sold certain leases, including all
collections received with respect to the leases and certain other related rights
(the "Leases") and its interests (which may be deemed an ownership interest or a
security interest, depending on the terms of the related Lease) in the equipment
related to such Leases (such interests being hereinafter referred to as the
"Equipment") to the SPC. The Leases will be transferred by the SPC to the Issuer
pursuant to the terms of a Contribution and Servicing Agreement dated as of
December 1, 1998 (the "Contribution and Servicing Agreement"), among the Issuer,
the SPC, Vendor Services, in its individual capacity and as Servicer, and the
Trustee. Pursuant to the
<PAGE>
December , 1998
Page 2
Contribution and Servicing Agreement, the SPC will also grant to the Issuer
certain rights to the proceeds of the Equipment (the "Residual Realizations").
Pursuant to the Indenture, the Issuer has issued six classes
of Notes with an aggregate principal amount of $ _____________ (the "Notes").
The Notes were offered to the public pursuant to the Prospectus dated
December __, 1998, by the Underwriters described therein (collectively, the
"Underwriters"). Principal of and interest on the Notes will be payable solely
from the Amount Available (consisting primarily of amounts received in respect
of the Leases).
The Issuer has requested that we render to you our opinion
whether, in the event Vendor Services became a debtor under the United States
Bankruptcy Code (the "Code"), a court would order that the assets and
liabilities of the SPC be consolidated with those of Vendor Services under
either the bankruptcy doctrine of substantive consolidation or the
non-bankruptcy law doctrines commonly referred to as "piercing the corporate
veil. /1/ In rendering the opinion set forth below, we have reviewed such
questions of law as we have deemed necessary and have examined (a) the Articles
of Incorporation and Bylaws of the SPC, (b) representations and warranties as to
matters of fact made by the Issuer in the Contribution and Servicing Agreement,
(c) representations and covenants of the SPC and Vendor Services contained in
the Transfer Agreement and the Contribution and Servicing Agreement, and (d)
such additional documents as we have deemed
- --------------------------
/1/ Substantive consolidation was accomplished in early cases by "piercing the
corporate veil" of the debtor, i.e., by finding that the entity with which
consolidation was sought was the "alter-ego" or an "instrumentality" of the
debtor which was used by the debtor to hinder, delay or otherwise defraud
creditors. See, e.g., Maule Industries, Inc. v. Gerstel, 232 F.2d 294 (5th Cir.
1956); Fish v. East, 114 F.2d 177 (10th Cir. 1940). Although later cases relaxed
the requirement of fraud in favor of the test described below, courts will still
pierce the corporate veil to effect a substantive consolidation if fraud or
similar activity is present. See, e.g., Carte Blanche (Singapore) Ptd., Ltd. v.
Diners Club International Inc., 2 F.3d 24 (2nd Cir. 1993). See also, e.g., In re
Daily, 107 B.R. 996 (Bankr. D. Hawaii 1989), rev'd on other grounds, 940 F.2d
1306 (9th Cir. 1991); In re Stop & Go of America, Inc., 49 B.R. 743 (Bankr. D.
Mass. 1985); In re Tureaud, 45 B.R. 658, 662-63 (Bankr. N.D. Okla. 1985), aff'd,
59 B.R. 973 (N.D. Okla. 1986).
Recent decisions have concluded that the comparison of the two doctrines is
not particularly suitable. See, e.g. F.D.I.C. v. Colonial Realty Co., 966 F.2d
57, 60-61 (2d Cir. 1992) ("The focus of piercing the corporate veil is the
limited liability afforded to a corporation[;]" whereas the focus of substantive
consolidation is "the equitable treatment of all creditors.") Federal courts
have increasingly looked to federal bankruptcy law precedent rather than state
corporate law doctrine when ruling on substantive consolidation motions. See,
e.g., Colonial Realty, 966 F.2d at 60-61; Eastgroup Properties v. Southern Motel
Assoc. Ltd., 935 F.2d 245 (11th Cir. 1991); In re Augie/Restivo Baking Co., 860
F.2d 515 (2d Cir. 1988); In re Auto-Train Corp., Inc., 810 F.2d 270 (D.C. Cir.
1987); In re Continental Vending Machine Corp., 517 F.2d 997, 1001 (2d Cir.
1975), cert. denied sub nom James Talcott, Inc. v. Wharton, 424 U.S. 913 (1976);
In re Flora Mir Candy Corp, 432 F.2d 1060 (2d Cir. 1970); Chemical Bank New York
Trust Company v. Kheel, 369 F.2d 845, 847 (2d Cir. 1966); Soviero v. Franklin
National Bank of Long Island, 328 F.2d 446 (2d Cir. 1964); Stone v. Eacho, 127
F.2d 284 (4th Cir.), cert. denied, 317 U.S. 635 (1942); but see In Re Moran
Pipe & Supply Co., Inc., 130 B.R. 588 (Bankr. E.D. Okla. 1991) (recent case
invoking substantive consolidation based on alter-ego theory). We will analyze
the question under both lines of authority.
<PAGE>
December , 1998
Page 3
necessary. Where matters of fact material to such opinions were not
independently established, we have relied, to the extent we deemed proper, on
certificates of public officials.
The power of a bankruptcy court to consolidate the assets and
liabilities of separate entities, which derives from the bankruptcy court's
equitable powers, is not defined in the Code and is not precisely defined in the
case law. /2/ See, e.g., In re Continental Vending Mach. Corp., 517 F.2d 997,
1000 (2d Cir. 1975), cert. denied sub nom. James Talcott, Inc. v. Wharton, 424
U.S. 913 (1976). Although the substantive consolidation cases decided under the
Code and its predecessor statute rely on certain factual matters, which are
discussed below, to support their conclusions, cases decided under the Code tend
to emphasize the balancing of the benefits and harm resulting from substantive
consolidation and whether any injustice or fraud has been perpetrated against
creditors. See, e.g., Holywell Corporation v. The Bank of New York, 59 B.R. 340
(S.D. Fla. 1996); In re DRW Property Co. 82, 54 B.R. 489 (Bankr. N.D. Tex.
1985); In re Donut Queen, Ltd., 41 B.R. 706 (Bankr. E.D.N.Y. 1984); In re Snider
Bros., Inc., 18 B.R. 230 (Bankr. D. Mass. 1982).
Although different cases phrase the applicable standard
differently, several recent decisions in the United States Courts of Appeals
describing the general standard for substantive consolidation in bankruptcy
proceedings can be summarized as follows:
(a) The proponent of substantive consolidation must show that
(1) there is substantial identity between the entities to be
consolidated, and (2) consolidation is necessary to avoid some
harm or to realize some benefit. Eastgroup Properties v.
Southern Motel Ass'n, Ltd., 935 F.2d 245, 249 (11th Cir.
1991); see also In re Auto-Train Corp., 810 F.2d 270, 276
(D.C. Cir. 1987).
(b) Once the proponent has made this prima facie showing, the
creditor objecting to substantive consolidation must show that
(1) it has relied on the separate credit of one of the
entities to be consolidated, and (2) it will be prejudiced by
substantive consolidation. Eastgroup, supra, 935 F.2d at 249;
see also In re Augie/Restivo Baking Co., Ltd., 860 F.2d 515,
518-19 (2d Cir. 1988); Auto-Train, supra, 810 F.2d at 276.
- ----------------------------
/2/ Courts generally have recognized that substantive consolidation affects the
substantive rights of creditors, and accordingly have treated substantive
consolidation as a remedy to be used only in unusual circumstances. See
Continental Vending, supra, 517 F.2d at 1001; Flora Mir Candy Corp, supra, 432
F.2d at 1062. See also Kheel, supra, 369 F.2d at 847 (it should be the "rare
case" where substantive consolidation is granted); In re DRW Property Co. 82, 54
B.R. 489, 494 (Bankr. N.D. Tex. 1986) (courts should grant substantive
consolidation sparingly because of the possibility of unfair treatment of some
creditors). Because the rules for substantive consolidation are not statutorily
provided, however, the courts must examine the facts and circumstances of each
case to determine if substantive consolidation is warranted. See 5 Collier on
Bankruptcy P. 1100.06[1] at 1100-35 (15 ed. 1995) (stating that substantive
consolidation cases are, to a great degree, sui generis).
<PAGE>
December , 1998
Page 4
(c) If an objecting creditor makes that showing, the court may
order consolidation only if the benefits of consolidation
heavily outweigh the harm. Eastgroup, supra, 935 F.2d at 249;
see also In re Gillen, 962 F.2d 796, 799 (8th Cir. 1992);
Auto-Train, supra, 810 F.2d at 276.
The analysis used in the piercing the corporate veil cases in
Delaware is similar, although stated differently. To pierce the corporate veil,
a court must first analyze the relationship between the two (or more) entities
involved to determine whether they are in fact conducting business as a single
entity, and second, conclude that the separate corporate form has been used to
wrongly or unfairly harm creditors. See, e.g., Alberto v. Diversified Group,
Inc., 55 F. 3d 201 (5th Cir. 1995) (summarizing Delaware law).
In determining whether the proponent has satisfied the
requirements set forth in clause (a) above (which can establish a prima facie
case for substantive consolidation), many courts have relied on a list of
objective factors. The most frequently cited list consists of the following:
(1) the degree of difficulty in segregating and
ascertaining individual assets and liabilities;
(2) the presence or absence of consolidated financial
statements;
(3) the profitability of consolidation of offices or
other operations at a single physical location;
(4) the commingling of assets and business functions;
(5) the unity of interests and ownership between various
corporate entities;
(6) the existence of parent and intercorporate guarantees
on loans; and
(7) the existence of transfers of assets without formal
observance of corporate formalities./3/
In re Vecco Construction Industries, Inc., 4 B.R. 407, 410 (Bankr. E.D. Va.
1980). Other factors cited include:
(8) the entities have common officers and directors;
- ---------------------------------
/3/ Accord, In re Murray Industries, Inc., 119 B.R. 820, 830 (Bankr M.D. Fla.
1990); In re Mortgage Investment Company of El Paso, Tex., 111 B.R. 604, 610
(Bankr. W.D. Tex. 1990); Holywell Corp., supra, 59 B.R. at 347.
<PAGE>
December , 1998
Page 5
(9) a subsidiary transacts business solely with its
parent; and
(10) both entities disregard the legal requirements of the
subsidiary as a separate corporation.
In re Gainesville P-H Properties, Inc., 106 B.R. 304, 306 (Bankr. M.D. Fla.
1989). It should be stressed, however, that the factors set forth above are
merely "examples of information that may be useful to courts charged with
deciding whether there is a substantial identity between the entities to be
consolidated and whether consolidation is necessary to avoid some harm or
realize some benefit." Eastgroup Properties, 935 F.2d at 250. Therefore,
although the proponent of consolidation may frame its argument using the factors
outlined above, the existence or absence of any number of those factors is not
necessarily determinative. Id. at 249.
In the piercing the corporate veil cases, the relevant factors
are set forth somewhat differently:
(1) insufficient capitalization of one entity;
(2) failure to observe corporate formalities;
(3) the solvency of each entity at the time of the
relevant transactions;
(4) "siphoning" of funds to dominant shareholder or
entity;
(5) absence of corporate records; and
(6) function of separate entity as a "facade" for the
dominant shareholder or entity.
See United States v. Golden Acres, Inc., 707 F. Supp. 1097, 1104 (D. Del. 1988)
(applying Delaware law); Mass v. McClenahan, 893 F. Supp. 225, 233 (S.D.N.Y.
1995).
Of the factors set forth above defining the relationship among
related corporations, the first, third, fourth, seventh, ninth and tenth factors
cited in the substantive consolidation cases, and the second and fifth factors
cited in the piercing the corporate veil cases, are precluded by provisions of
the SPC's Articles of Incorporation. The Articles of Incorporation of the SPC
require the SPC to (a) maintain books and records separate from any other person
or entity owning beneficially more than 50% of the outstanding shares of common
stock of the SPC and from any subsidiaries and affiliates of such owner
("Affiliates"); (b) maintain an office through which its business will be
conducted, which will be separate and apart from that of any Affiliates; (c) not
commingle its assets with those of any other entity; (d) observe the corporate
formalities of holding regular meetings of its board of directors, and having
the board of directors review the actions of its
<PAGE>
December , 1998
Page 6
officers, and authorize and approve all transactions outside the ordinary course
of business; and (e) confine its business activities to those transactions
contemplated by the Transfer and Servicing Agreement and the Contribution and
Servicing Agreement, and other similar transactions.
In Section 6.5 of the Contribution and Servicing Agreement,
the SPC covenants that it will conduct its business in its own name, it will
provide for its own operating expenses and liabilities and expenses from its own
funds, it will not hold itself, or permit itself to be held out, as having
agreed to pay, or as generally being liable for, the debts of Vendor Services,
and it will maintain an arm's length relationship with Vendor Services with
respect to any transactions between the SPC, on the one hand, and Vendor
Services, on the other. The SPC also covenants that it will at all times remain
adequately capitalized for the conduct of its business, and will not make any
dividend or other distribution to its shareholders unless its net worth
following such distribution is adequate for the normal obligations reasonably
foreseeable in the conduct of its business, although a court's examination of
this issue will necessarily be based on the facts and circumstances at that
time. Compliance with these covenants should preclude application of the sixth
factor cited in the substantive consolidation cases, and the first, third,
fourth and sixth factors cited in the piercing the corporate veil cases.
The factors that will be present among the SPC, on the one
hand, and Green Tree Financial and Vendor Services, on the other, are
consolidated financial statements, unity of interests and ownership, and common
directors and officers. These factors are generally present in all
parent-subsidiary situations, however, and have not been sufficient, by
themselves, to justify substantive consolidation or piercing the corporate veil.
See Eastgroup, supra, 935 F.2d at 249-50; Augie/Restivo Baking Co., supra, 860
F.2d at 518-19; Auto-Train, supra, 810 F.2d at 276.
The existence of consolidated financial statements is
occasionally mentioned as one factor among several upon which substantive
consolidation may be founded. Gainesville P- H Properties, supra; Holywell
Corp., supra. Federal tax law and generally accepted accounting principles
require the consolidation of the financial statements of Green Tree Financial
and its subsidiaries, including Vendor Services and the SPC, for tax and
financial reporting purposes. The SPC is, however, required to maintain separate
accounting books and records. In addition, due to the limited nature of the
SPC's business, its assets and liabilities should be readily identifiable. The
SPC's only assets will be the Equipment and its membership interest in the
Issuer, and other similar assets in connection with other similar transactions,
and its only liabilities will be its expenses incurred in the course of
conducting its business of holding such assets. Accordingly, the difficulty of
disentangling the assets and liabilities of the parent and the subsidiary, which
is the principal concern associated with consolidated financial statements, will
not favor consolidation of the SPC with Green Tree Financial or Vendor Services.
See Gainsville P-H Properties, supra, 106 B.R. at 305-6 (regarding extent of
intermingling of assets required to justify substantive consolidation); DRW
Property Co. 82, supra, 54 B.R. at 495-96 (same).
<PAGE>
December , 1998
Page 7
Unity of ownership or interest, by itself, is not sufficient
to justify substantive consolidation or piercing the corporate veil. The
domination by a parent corporation of its subsidiary is noted by several courts
addressing substantive consolidation as a factor leading to the consolidation of
parent and subsidiary, if such domination causes the perpetration of a fraud:
The test set out in [Berger v. Columbia Broadcasting Sys.,
Inc., 453 F.2d 991, 995 (5th Cir. 1972), cert. denied, 409
U.S. 849 (1972)] requires that a plaintiff seeking to set
aside a corporate identity must show that there has been: (1)
Control, not mere majority or complete stock control, but
complete domination, not only of finances, but of policy and
business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own; and (2)
Such control must have been used by the defendant to commit
fraud or wrong, to perpetrate the violation of a statutory or
other positive legal duty, or a dishonest and unjust act in
contravention of plaintiff's legal rights; and (3) The
aforesaid control and breach of duty must proximately cause
the injury or unjust loss complained of.
Bendix Home Sys., Inc. v. Hurston Enters., Inc., 566 F.2d 1039, 1041 (5th Cir.
1978). Delaware courts also require the existence of fraud, or at least
injustice, prior to piercing the corporate veil. "In order to reach a parent
corporation under the alter-ego theory, the plaintiff must show fraud,
injustice, or inequity in the use of the corporate form." Sears, Roebuck & Co.
v. Sears plc, 744 F. Supp. 1297, 1304 (D. Del. 1990) (applying Delaware law);
see also Alberto v. Diversified Group, Inc., supra, 55 F.3d at 205-206 (applying
Delaware law).
Notwithstanding the fact that Vendor Services will own 100% of
the common stock of the SPC and that some of the SPC's directors will be
officers or directors of Green Tree Financial or Vendor Services, or both, the
SPC will act independently of Green Tree Financial and Vendor Services, due to
various provisions included in its Articles of Incorporation, the LLC Agreement
and provisions in the Contribution and Servicing Agreement. In addition to the
"independent director" requirement discussed below, these provisions include the
restrictions on the business purpose of the SPC, the requirement that the SPC
maintain separate books and records, the limitations of certain corporate
actions and the requirement that affiliate transactions be on an arms-length
basis. The SPC was created by Vendor Services in order to facilitate the
formation of the Issuer and the issuance of the Notes, and, if a court were to
determine that a fraud or injustice has been perpetrated on the creditors of
Green Tree Financial or Vendor Services as a result of the creation of the SPC
or the transfer of the Leases and the Equipment, such court might also decide
that the SPC functioned as a mere instrumentality of Green Tree Financial or
Vendor Services. In the absence of such a determination, however, the unity of
ownership between Green Tree Financial, Vendor Services, the SPC and the Issuer
would not be sufficient to justify substantive consolidation or the piercing of
the SPC's corporate veil under existing precedent.
<PAGE>
December , 1998
Page 8
The existence of officers and directors common to both a
company and its subsidiary is a factor referred to in both substantive
consolidation and some piercing the corporate veil cases as favorable to
consolidation. At least one of the SPC's directors will be independent, however,
as required by its Articles of Incorporation, and the Articles of Incorporation
require the affirmative vote of the independent director before a variety of
significant actions may be taken by the SPC. The remaining directors of the SPC
are expected to be either officers or directors of Green Tree Financial or
Vendor Services (or both). We are aware of no case in which the court ordered
substantive consolidation due solely to the existence of common officers and
directors, and some cases expressly state that merely having common officers and
directors is not sufficient to justify consolidation; it is instead the effect
of common officers and directors which must be avoided, namely, the domination
of one corporation by another. Bendix Home Sys., Inc. v. Hurston Enters., Inc.,
566 F.2d 1039, 1042 (5th Cir. 1978). However, not all courts make a distinction
between the existence and the effect of common officers and directors; they
simply mention it as a factor to be considered in a consolidation analysis.
We believe the common officers and directors factor is related
to the "domination" factor referred to above. Where there are common officers
and directors, presumably such common officers and directors could cause a
subsidiary to take actions for the benefit of the parent rather than the
subsidiary. For the purposes of this opinion, we have assumed that the SPC's
directors, particularly the independent director, will responsibly fulfill their
fiduciary obligations to the SPC, which should diminish the significance in the
eyes of a court of the existence of common officers and directors.
Throughout most courts' discussions of substantive
consolidation and piercing the corporate veil is the assumption, usually
explicit, that consolidation is justified to avoid an injustice or the
perpetration of a fraud. The enumerated factors described above as defining the
relationship between a subsidiary and its parent are often found where such
fraud or injustice exists, but they are not themselves evidence of fraud or
injustice. For the purposes of this opinion, we have assumed that the SPC and
its directors and officers will comply with the provisions of the SPC's Articles
of Incorporation and the SPC's Related Documents, and that none of the Issuer,
the SPC, Green Tree Financial and Vendor Services will attempt to perpetrate a
fraud or injustice in connection with the issuance of the Notes.
Subject to the discussion set forth above, and based upon the
continuing accuracy of the facts and assumptions set forth in this opinion, we
are of the opinion that, in the event Vendor Services became a debtor under the
Code, under existing statutes and precedents the assets and liabilities of
Vendor Services would not be consolidated with those of the SPC based upon any
legal theory currently recognized under applicable law and applicable to the
circumstances, including (i) case law concerning piercing the corporate veil or
(ii) any equitable doctrine analogous to the bankruptcy law doctrine of
substantive consolidation. We express no opinion as to the laws of any
jurisdiction other than the federal laws of the United States of America and the
laws of the State of Minnesota.
<PAGE>
December , 1998
Page 9
Although we believe this opinion represents a sound
application of existing statutes, regulations and case law, the situations
contemplated by this opinion involve equitable principles applied on a
case-by-case basis in the context of specific facts. This opinion is not a
guaranty of any specific decision by a particular court. Any determination by a
court depends on an examination of relevant law, facts and circumstances at a
particular time, and a court might reach a determination contrary to our
conclusion if the facts of the case differ from the assumed facts set forth
above (which reflect the provisions of the Articles of Incorporation and Bylaws
of the SPC, the LLC Agreement and the terms of the Related Documents to which
the SPC, the Issuer or Vendor Services are parties).
<PAGE>
December , 1998
Page 10
This opinion is being delivered to you at the Issuer's request
solely for your benefit and may not be relied upon by, nor may copies be
delivered to, any other person without our prior written consent.
Dated: December , 1998
Very truly yours,
