<PAGE>
As filed with the Securities and Exchange Commission on July 26, 2000
Registration Nos. 333-85811
333-85811-01
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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)
CONSECO FINANCE LEASE 2000-1, 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
registrants' principal executive offices)
BRIAN F. COREY, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
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<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...... $566,000,000 100% $566,000,000 $154,128(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, $93,408 has been previously paid calculated at a rate of
$278.00 per $1,000,000 registered and $60,720 is being paid herewith
calculated at a rate of $264.00 per $1,000,000 registered.
---------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 26, 2000
[CONSECO LOGO]
$561,951,252 (Approximate)
Conseco Finance Lease 2000-1, LLC,
Issuer
Conseco Finance Vendor Services Corporation,
Servicer
Lease-Backed Notes
We are offering the following classes of notes:
<TABLE>
<CAPTION>
Approximate
Original Price
Principal to Underwriting Proceeds to
Class Interest Rate Amount Public Discount Issuer
----- ------------- ------------ ------- ------------ -----------
<S> <C> <C> <C> <C> <C>
A-1 % $167,664,144 % % %
A-2 % 156,302,288 % % %
A-3 % 116,689,331 % % %
A-4 % 98,264,700 % % %
B % 23,030,789 % % %
------------ ------- ------- -------
Total $561,951,252 $ $ $
</TABLE>
Consider carefully the Risk Factors beginning on page 10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. 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 Conseco Finance Vendor Services Corporation,
Conseco Finance Corp. or any of their affiliates other than the issuer.
The notes will be delivered on or about , 2000.
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."
First Union Securities, Inc. Banc of America Securities LLC
The date of this prospectus is , 2000
<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............................................................. 10
THE ISSUER AND THE SPC................................................... 17
CONSECO FINANCE VENDOR SERVICES CORPORATION.............................. 19
THE LEASES............................................................... 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE
ISSUER.................................................................. 40
MANAGERS OF THE ISSUER................................................... 41
WEIGHTED AVERAGE LIFE OF THE NOTES....................................... 42
DESCRIPTION OF THE NOTES................................................. 48
DESCRIPTION OF THE CONTRIBUTION AND SERVICING AGREEMENT.................. 71
CERTAIN LEGAL ASPECTS OF THE LEASES...................................... 78
FEDERAL INCOME TAX CONSEQUENCES.......................................... 81
ERISA CONSIDERATIONS..................................................... 88
RATINGS OF THE NOTES..................................................... 89
USE OF PROCEEDS.......................................................... 89
UNDERWRITING............................................................. 90
LEGAL MATTERS............................................................ 91
INDEX OF PRINCIPAL TERMS................................................. 92
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES............ A-1
</TABLE>
You should rely only on the information contained in this prospectus.
Conseco Finance Vendor Services Corporation, the SPC, the issuer and the
underwriters have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent information,
you should not rely on it. Conseco Finance Vendor Services Corporation, the
SPC, the issuer and the underwriters are not making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted.
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 Conseco Finance Vendor Services Corporation or the
underwriters 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: Wells Fargo Center, Sixth Street and Marquette Avenue, MAC N9311-161,
Minneapolis, Minnesota 55479. These reports do not constitute financial
statements prepared in accordance with generally accepted accounting
principles. Neither Conseco Finance Corp. nor Conseco Finance 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. 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:
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
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..........
The issuer will issue the seven classes of notes
listed below, but we are not offering the Class C
or Class D notes pursuant to this prospectus:
<TABLE>
<CAPTION>
Original
Interest Principal
Class Rate Amount
----- -------- ------------
<S> <C> <C>
A-1....................................................... % $167,664,144
A-2....................................................... % $156,302,288
A-3....................................................... % $116,689,331
A-4....................................................... % $ 98,264,700
B......................................................... % $ 23,030,789
C......................................................... % $ 23,030,789
D......................................................... % $ 29,172,333
</TABLE>
The Class D notes will be subordinated to the Class C notes, the Class C
notes will be subordinated to the Class B notes, and the Class B notes will be
subordinated to the Class A notes. For a further explanation of this
subordination, see "Subordination" below. We intend to offer the Class C and
Class D notes to a limited number of qualified institutional investors in
private transactions. Accordingly, the information we provide in this
prospectus regarding the Class C and Class D notes is intended to provide
investors in the Class A and Class B notes with a better understanding of their
notes.
Issuer......................
Conseco Finance Lease 2000-1, LLC, a Delaware
limited liability company, will issue the notes.
The sole member of the issuer is Green Tree Lease
Finance II, Inc., a special-purpose corporation
that is a subsidiary of Conseco Finance Vendor
Services Corporation. Green Tree Lease Finance
II, Inc. is referred to as the "SPC" in this
prospectus.
Seller and Servicer.........
The issuer's assets will consist primarily of a
pool of equipment leases. Conseco Finance Vendor
Services Corporation will sell the leases to the
SPC, which will in turn sell them to the issuer.
Vendor Services will service the leases owned by
the issuer. As servicer, Vendor Services will
collect payments on the leases and enforce
defaulted leases when necessary. Vendor Services
is a wholly owned subsidiary of Conseco Finance
Corp., which was formerly named Green Tree
Financial Corporation. See "Risk Factors--Conseco
Inc. is exploring the sale of Conseco Finance
Corp."
1
<PAGE>
and "Conseco Finance Vendor Services
Corporation--Recent Developments."
Trustee................ Wells Fargo Bank Minnesota, N.A., 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, or if the 20th is not
a business day, the next business day, beginning
on August 21, 2000.
. Interest...............
Interest on the notes will accrue at the
applicable interest rate from each 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 other classes
of notes will be computed on the basis of a 360-
day year comprised of twelve 30-day months.
. 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:
1. First, all principal payable on the
notes will be paid to the Class A-1
notes until they are paid in full;
2. After the Class A-1 notes have been paid
in full, a portion or, in certain cases
if specified credit enhancement levels
for the Class A notes have not been
maintained, all 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;
3. 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, but only if specified
credit enhancement levels for the Class
A notes have been maintained;
2
<PAGE>
4. 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, but
only if specified credit enhancement
levels for the Class A and Class B notes
have been maintained; and
5. 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 D notes until paid in full, but
only if specified credit enhancement
levels for the Class A, Class B and
Class C notes have been maintained.
In general, the inability of the issuer to pay
the full amount due as principal to any class of
notes on any payment date will not be an event of
default unless that failure occurs on the stated
maturity date for that class. 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.......................................... August 20, 2001
A-2.......................................... April 20, 2003
A-3.......................................... April 20, 2004
A-4.......................................... August 20, 2005
B............................................ August 20, 2005
C............................................ August 20, 2005
D............................................ July 20, 2008
</TABLE>
. Closing Date............
, 2000.
. Subordination...........
The Class D notes will be subordinated to the
Class A, Class B and Class C notes, 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 trustee will first
apply the amount available for distribution
on the notes to pay interest on the Class A
notes pro rata among each class of Class A
notes, then interest on the Class B notes,
then interest on the Class C notes, and then
interest on the Class D notes, and
3
<PAGE>
- On each payment date, the trustee will then
apply the amount available, after paying
interest on the notes as described above, to
pay the amount of principal due on the Class
A notes, then the amount of principal due on
the Class B notes, then the amount of
principal due on the Class C notes, and then
the amount of principal due on the Class D
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 B, Class C
and Class D notes will be paid all interest and
principal due on them. However, principal
payments on all of the notes, including the Class
A notes, will be subordinated to the full payment
of all interest due on the notes, including the
Class D notes. For a more complete description of
the subordination of the Class B, Class C and
Class D notes, see "Description of the Notes."
. Ratings.................
We will not issue the notes unless Standard &
Poor's Rating Services and Moody's Investors
Service, Inc. have assigned the following ratings
to each class of notes:
<TABLE>
<CAPTION>
Class S&P Moody's
----- ---- -------
<S> <C> <C>
A-1............. A-1+ P-1
A-2............. AAA Aaa
A-3............. AAA Aaa
A-4............. AAA Aaa
B............... AA Aa2
C............... A A1
D............... BBB Baa2
</TABLE>
The rating of each class of notes addresses the
likelihood of the timely receipt of interest and
the 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."
4
<PAGE>
Issuer's Assets.............
Payments on the notes will be made solely from
the issuer's assets. The issuer's assets will
consist of:
- a pool of equipment leases;
- limited rights to the proceeds from the re-
lease or other disposition of the leased
equipment following expiration of each
lease; and
- amounts on deposit in the collection
account, the reserve account, the residual
account and several other incidental
accounts.
The Leases..................
As of July 1, 2000, the pool of leases that the
SPC will transfer to the issuer had the following
characteristics:
- the aggregate principal balance of the
leases was $614,154,373.70;
- there were 68,568 leases;
- the average lease principal balance was
approximately $8,956.87;
- approximately 33.41% of the leases related
to data processing equipment; approximately
25.80% of the leases related to office
machines; approximately 17.10% of the leases
related to telecommunications; and no other
equipment type represented more than 5.00%
of the leases;
- the obligors on approximately 12.40% of the
leases were located in California;
approximately 9.69% were located in New
York; approximately 7.69% were located in
Florida; approximately 6.36% were located in
Texas; approximately 5.84% were located in
New Jersey; and no other state represented
more than 5.0% of the leases;
- approximately 85.96% of the leases were
originated by Vendor Services, and the
remaining 14.04% of the leases were
originated by third parties and purchased by
Vendor Services;
- the remaining term of the leases ranged from
6 months to 84 months; and
- the weighted average remaining term of the
leases was approximately 38.43 months and
the
5
<PAGE>
weighted average original term of the leases
was approximately 49.32 months.
All the percentages shown above are based on an
assumed principal balance for each lease. 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, using an assumed discount rate of
8.30%. Based on this assumed discount rate, which
we refer to as the statistical discount rate, the
aggregate principal balance of the leases as of
July 1, 2000 was calculated to be $614,154,374.
For more information about the leases, see "The
Leases--Certain Statistics Relating to the Cut-
Off Date Pool".
The aggregate principal balance of the leases as
of each payment date will be calculated using a
discount rate of %. This discount rate will be
equal to the sum of (a) the weighted average
interest rate 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, the Class C notes and
the Class D notes, each weighted by (i) the
initial principal balance of each class and (ii)
the "weighted average life to maturity" of each
class determined at pricing using the methodology
described under "Weighted Average Life of the
Notes" in this prospectus, including the
assumption of a prepayment rate equal to 7% CPR,
(b) the trustee fee, and (c) the servicing fee.
As of the initial cut-off date, the aggregate
principal balance of the leases calculated using
that 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.
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.
6
<PAGE>
Leased Equipment and
Residual Realizations......
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 and to replenish
the reserve account if collections on the leases
are insufficient. As of July 1, 2000, Vendor
Services estimated the residual value of the
equipment subject to the leases to be
$65,825,144. However, the amounts the SPC
actually realizes from the disposition of the
equipment cannot be predicted with certainty and
could be less.
Reserve Account.............
The SPC will establish a reserve account and
deposit an amount equal to 3.25% of the initial
pool principal balance, or approximately
$19,960,017. The trustee will use amounts on
deposit in the reserve account to pay the
following amounts, in the following order, if
payments received on the leases are insufficient:
- amounts owed to the servicer, if Vendor
Services or an affiliate is no longer the
servicer, and amounts owed to the trustee;
- interest due on the notes in the order of
priority described under "Subordination"
above; and
- principal due on the notes in the order of
priority described under "Subordination"
above.
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 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
7
<PAGE>
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 purchasing a lease, 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 trustee will use
payments on the leases and any residual
realizations from the equipment collected during
the prior month in the following order of
priority:
1. to pay the fees of the trustee, to pay
some expenses of the trustee and to make
any required deposits in a portfolio
expense account;
2. if Vendor Services is no longer the
servicer, to pay the servicing fee to
the successor servicer;
3. to repay the servicer for any advances
it made in prior months but has not
recovered;
4. to pay interest on the notes in the
priority described under "Subordination"
above;
5. to pay principal on the notes in the
priority described under "Subordination"
above;
6. to deposit in the reserve account the
amount, if any, necessary to increase
its balance to the requisite amount;
7. to reimburse the trustee for any
expenses or liabilities not reimbursed
pursuant to clause (1) above;
8. if Vendor Services is the servicer, to
pay the servicing fee to Vendor
Services; and
9. to pay the remainder, if any, to the
SPC.
Optional Redemption.... Once the aggregate principal balance of the
leases is less than 20% of the aggregate
principal balance of the leases as of the cut-off
date, the issuer may redeem all the outstanding
notes. For a more complete description of this
redemption right, see "Description of the Notes--
Optional Redemption."
8
<PAGE>
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 "Federal Income Tax
Consequences."
ERISA Considerations........
Subject to the considerations described in "ERISA
Considerations," employee benefit and similar
plans that are subject to the Employee Retirement
Income Security Act of 1974, as amended, or to
Section 4975 of the Internal Revenue Code, may
purchase notes. A fiduciary of an employee
benefit or similar plans 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 structured to be
eligible securities for purchase by money market
funds under Rule 2a-7 under the Investment
Company Act of 1940. A money market fund should
consult its legal advisers regarding the
eligibility of the Class A-1 notes under Rule 2a-
7 and whether an investment in the Class A-1
notes satisfies the fund's investment policies
and objectives.
9
<PAGE>
RISK FACTORS
You should consider the following factors in deciding whether to purchase
notes.
The issuer has limited assets to make payments on the notes.
The issuer will have no assets other than the leases, 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 other
accounts established pursuant to the indenture or the contribution and
servicing agreement, and any investment earnings from amounts on deposit in
those accounts. 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 "--Some leases may not be
enforceable" below.
The Class B, Class C and Class D notes have a greater risk of loss from
delinquencies and defaults on the leases.
Delinquencies and defaults on the leases will result in a smaller amount of
cash available for distribution on a payment date. Because the available cash
is distributed in a specified order of priority, there is a risk that notes
that are lower in that order of priority may not receive some or even any of
the amount due to them on that payment date.
The more senior classes of notes have limited protection from delinquencies and
defaults.
The only protection against delinquencies and liquidation losses for the
more senior classes of notes is the subordination of the more subordinate
classes, residual realizations, plus the amounts, if any, on deposit in the
reserve account. High delinquencies and losses on the leases could eliminate
the protection afforded the Class B notes by the subordination of the Class C
and Class D notes, and the Class B noteholders could incur losses on their
investment as a result. Higher delinquencies and losses on the leases could
eliminate the protection offered to the Class A noteholders by the
subordination of the Class B, Class C and Class D notes, and the Class A
noteholders could incur a loss on their investment as a result.
Subordinated noteholders may not be able to direct the indenture trustee upon
an event of default under the indenture and may have limited rights upon
nonpayment of interest.
If an event of default occurs under the indenture, only the holders of the
most senior class of notes outstanding (for example, the Class A notes, or
after the Class A notes have
10
<PAGE>
been paid in full but the Class B notes are still outstanding, the Class B
notes) may waive the event of default, accelerate the maturity dates of the
notes or direct or consent to any action under the indenture. The holders of
the outstanding subordinate class or classes of notes will not have any rights
to direct or to consent to any action, other than a sale of the leases and
other assets pledged under the indenture, until each of the more senior class
or classes of notes has been paid in full.
Conseco Inc. is exploring the sale of Conseco Finance Corp.
On March 31, 2000, Conseco Inc. announced that it plans to explore the
possible sale of Conseco Finance Corp. No assurance can be provided as to the
timing or the terms of any such sale, including whether Conseco Finance would
be divided along asset lines and sold to a number of different purchasers.
Vendor Services is a wholly owned subsidiary of Conseco Finance Corp., and no
assurance can be provided as to whether Vendor Services might be included in a
sale of Conseco Finance or might be sold separately. Moreover, no assurance can
be given that any agreement will actually be reached for a sale of all or any
part of Conseco Finance if a purchaser is not found. Although the transaction
that is the subject of this prospectus is structured as a sale of the leases by
Vendor Services to the SPC, and by the SPC to the issuer, Vendor Services will
retain a number of significant obligations, including the obligation to
repurchase any lease for the breaches of any of the related representations and
warranties. In addition, Vendor Services acts as servicer of the leases and
disruptions or delays in collections could occur if a replacement servicer is
appointed. Neither Conseco Inc. nor Conseco Finance Corp. has guaranteed Vendor
Services' obligations with respect to the leases.
If Vendor Services became insolvent, there may be delays or reductions in
distributions to holders of notes.
. The transfer of the leases and equipment might be characterized 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
the transfer of the Leases and the equipment from Vendor Services to
the SPC should be characterized 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 these
insolvency laws, could be rejected by the trustee in bankruptcy or by
Vendor Services as debtor-in-possession, which would
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result in the termination of scheduled payments under those 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 90% of the
aggregate principal balance of the leases as of July 1, 2000 is
located. Even if these leases were not ultimately 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.
. The SPC might be consolidated with Vendor Services.
Dorsey & Whitney LLP will deliver a legal opinion to the effect that,
if Vendor Services were to become a debtor in a bankruptcy case, the
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 to prevent an insolvency of Vendor Services resulting in
the consolidation of the assets and liabilities of the SPC with those
of Vendor Services. These steps include the maintenance of separate
books and records and the insistence on arm's-length terms in all
agreements with Vendor Services and its affiliates. 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 reduce or delay the
issuer's receipt of payments on the leases, and you could incur a loss
on your investment as a result.
. The transfer of the leases to the SPC might be deemed a fraudulent
transfer.
If Vendor Services were to become bankrupt or insolvent, then the
bankruptcy court could rule that the transfer of the leases and the
equipment to the SPC was a fraudulent transfer if Vendor Services
received less than reasonably equivalent value or fair consideration
for the leases and the equipment and was insolvent when it made the
transfer or was rendered insolvent as a result of the transfer. In
that case, the court could subordinate the rights of the noteholders
to payments on the leases to the rights of Vendor Services' creditors,
and you could incur a loss on your investment as a result.
. Vendor Services will be allowed to commingle the collections on the
leases with its own assets.
While Vendor Services is the servicer, cash collections held by Vendor
Services will be commingled and used for its benefit until the second
business day after receipt, when those collections must be deposited
in a separate collection account. In the event of the insolvency of
the servicer or, in certain circumstances, the lapse
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of certain time periods, the issuer may not have a perfected ownership
or security interest in those collections, and you could suffer delays
or reductions in payments on the notes as a result.
. You are relying on representations and warranties made by Vendor
Services.
Vendor Services will make representations and warranties regarding the
leases, the equipment and other matters. See "The Leases--
Representations and Warranties Made by Vendor Services." In the event
that any representation or warranty with regard to a specific lease is
breached, is not cured within a specified period of time, and the
value of that lease is materially and adversely affected by the
breach, Vendor Services will be required to purchase the lease from
the issuer, or may be allowed to deliver a substitute lease therefor.
In the event of a bankruptcy or insolvency of Vendor Services, the
trustee may be unable to compel Vendor Services to repurchase leases,
and you could incur a loss on your investment as a result.
The SPC or the issuer might become insolvent.
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 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
specifically permitted activities. See "The Issuer and the SPC."
The leases may be prepaid or terminated before their scheduled termination
dates.
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
uncured breaches of the representations and warranties made by it with respect
thereto, as described in "The Leases--Representations and Warranties Made by
Vendor Services," or purchases by Vendor Services of leases because, as
servicer, it agreed to modifications of the terms of the lease. In addition,
the issuer will have the right to redeem all the outstanding notes when the
outstanding principal balance of the leases has been reduced to 20% or less of
the aggregate principal balance of the leases as of July 1, 2000, as described
under "Description of the Notes--Optional Redemption." 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 or the servicer otherwise agrees to purchase the lease or
substitute another 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
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of the equipment, changes in interest rates, changes in 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 that
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 those 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."
Vendor Services may 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,
.leases that have been modified, and
.leases that have been prepaid in full.
Although any substitute lease must satisfy certain criteria, we cannot assure
you that the delinquency and default experience of the issuer with respect to
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.
Residual realizations may be less than we expect, and will provide only limited
support for the notes.
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 the equipment. However, 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
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subject to some of the leases is zero or insignificant. 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, leases that have
been modified, and leases that have been prepaid in full. If Vendor Services
exercises this option, the residual realizations, if any, from the lease being
substituted for would belong to Vendor Services and would not be available to
make payments on the notes.
Moreover, any month's residual realizations not used to pay interest or
principal on the related payment date generally will be
(1) 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
(2) 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.
Some leases may not be enforceable.
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 some leases. See "Conseco Finance Vendor
Services Corporation--Documentation." Vendor 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 those leases where Vendor
Services' interest in the equipment is deemed a security interest rather than
ownership, and where no UCC financing statement was filed to perfect that
security interest, a purchaser of the related equipment from the applicable
obligor would acquire the equipment free and clear of the interest of Vendor
Services in the equipment, and a creditor of the obligor which has taken a
security interest in the 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 the equipment. Any such
purchaser, creditor or trustee would have an interest superior to the interest
of the issuer and the trustee in that equipment. 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
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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.
Vendor Services will hold the lease documents.
The servicer will hold the leases and certain related documents on behalf
of the issuer and the trustee. The leases will, however, be stamped within 90
days after the closing date to reflect that they have been pledged to the
trustee, and will 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
. 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 some
states, as described above under "The transfer of the leases and
equipment might be characterized as a borrowing by Vendor Services,"
. the transfer and assignment of the leases and rights to residual
realizations by the SPC to the issuer, and
. 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 these
transfers. Nevertheless, if, through inadvertence or otherwise, Vendor Services
were to sell any of the leases to another party, or grant a security interest
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,
that purchaser or secured party might acquire an interest in the leases
superior to the interest of the issuer and the trustee. 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.
The notes may have limited liquidity.
There is currently no market for the notes. The underwriters expect, but
will not be obligated, to make a market for the Class A and Class B notes. We
cannot assure you that a secondary market for the Class A and Class B 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 your notes for as long as the notes are
outstanding.
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THE ISSUER AND THE SPC
The Issuer
The issuer is a Delaware limited liability company. Green Tree Lease
Finance II, Inc. (the "SPC"), a Minnesota corporation, 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:
(1) acquiring the leases and rights to the residual realizations from
the SPC,
(2) pledging the leases and its rights to the residual realizations to
the trustee,
(3) performing its obligations under the contribution and servicing
agreement and the indenture, and
(4) 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,
and is prohibited from filing for bankruptcy without the approval of all of the
SPC's directors, including the independent directors.
The SPC
The SPC, as sole and managing member of the issuer, does not intend to
engage in any business or activities other than
(1) 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;
(2) acquiring, owning, leasing, transferring, receiving and pledging
the leases and related equipment, other similar leases and related
equipment, and related activities set forth in the SPC's articles of
incorporation; and
(3) engaging in any lawful act or activity and exercising any powers
permitted to Minnesota corporations 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 (1)
and (2) above may result in a downgrade of a rating issued by a rating
agency for 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 two directors who are "independent" of Vendor Services and its
affiliates, as defined in its articles.
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Transfer of Leases and Equipment
On the closing date, Vendor Services will contribute the leases and the
related equipment to the SPC pursuant to 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 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 substantially all of its assets to the trustee and
issue the notes pursuant to the indenture. The issuer's assets that will be
pledged to secure payment of the notes (the "Trust Estate") will consist of:
(1) a pool of equipment lease contracts with various lessees, borrowers
or other obligors thereunder, including all monies at any time paid or
payable thereon or in respect thereof from and after the applicable cut-
off date, which is July 1, 2000 or, in the case of substitute leases, the
first day of the month of transfer to the issuer (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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CONSECO FINANCE VENDOR SERVICES CORPORATION
General
Conseco Finance Vendor Services Corporation ("Vendor Services") offers
"small-ticket" equipment leasing programs, for assets with a purchase price
generally less than $100,000, to manufacturers, dealers and distributors,
facilitating the sale of their products to end-user customers. Vendor Services
originated approximately 48,000 leases worth $533 million in 1999, and serviced
a portfolio of $1.9 billion of leases at December 31, 1999.
Vendor Services is a leading independent provider of commercial equipment
finance programs with focus on computer, office products and telecommunications
markets, with headquarters in Paramus, New Jersey, additional operations in
Bloomington, Minnesota, and twelve regional sales offices located throughout
the United States. Vendor Services, a wholly owned subsidiary of Conseco
Finance, 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.
Equipment Lease Business
Market Position
Vendor Services establishes customized financing programs for the end-user
customers of equipment vendors who meet Vendor Services' general customer
profiles. In total, as of December 31, 1999, Vendor Services had in its
portfolio a total of 110,000 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. These vendors include such
entities as 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.
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.
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Underwriting channels/procedures are divided into two main categories:
equipment dealers and manufacturers, and lessess. Listed below is an overview
of each category:
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.
Lessees
Vendor Services' 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. Financial
statements are required on most transactions over $50,000. Vendor Services uses
a proprietary automated credit scoring system, which is statistically based and
quantifies information obtained from customer's credit applications and credit
reports.
Documentation
Prior to funding a 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.
Transactions over $25,000 require regional manager approval and transactions
over $100,000 require credit management approval. 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. Collectors participate in
an incentive plan designed to maintain delinquency and legal transfers at or
below plan levels, maximize late charge collection and encourage teaming
philosophy. 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
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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 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 fall 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' 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.
Recent Developments
On March 31, 2000, Conseco Inc. announced its plan to explore the sale of
Conseco Finance. We can give you no assurance regarding the timing, price or
other terms related to the possible sale of Conseco Finance, including whether
Conseco Finance would be divided
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along asset lines and sold to a number of different purchasers. Vendor Services
is a wholly owned subsidiary of Conseco Finance, and we can give you no
assurance as to whether Vendor Services might be included in a sale of Conseco
Finance or might be sold separately. Moreover, we cannot assure you that any
agreement will actually be reached for a sale of all or any part of Conseco
Finance if a purchaser is not found.
Following Conseco Inc.'s March 31 announcement of its plan to explore the
sale of Conseco Finance, rating agencies lowered their ratings of the debt
obligations of Conseco Finance and placed some ratings of Conseco Finance's
debt obligations on review as the rating agencies analyze the impact of the
developing events. The uncertainty surrounding the ultimate outcome of Conseco
Inc.'s plan has made it more difficult for Conseco Finance to complete new
public securitization transactions.
Conseco Finance has been served with various lawsuits in the United States
District Court for the District of Minnesota. These lawsuits were generally
filed as purported class actions on behalf of persons or entities who purchased
common stock or options to purchase common stock of Conseco Finance during
alleged class periods that generally run from February 1995 to January 1998.
One of these lawsuits did not include class action claims. In addition to
Conseco Finance, some of Conseco Finance's current and former officers and
directors are named as defendants in one or more of the lawsuits. The lawsuits
have been consolidated into two complaints, one relating to an alleged class of
purchasers of Conseco Finance's common stock and the other relating to an
alleged class of traders in options for Conseco Finance's common stock. In
addition to these two complaints, a separate non-class action lawsuit
containing similar allegations was also filed. Plaintiffs in the lawsuits
assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934. In each case, plaintiffs allege that Conseco Finance and the other
defendants violated federal securities laws by making false and misleading
statements about Conseco Finance's current state and Conseco Finance's future
prospects, particularly about prepayment assumptions and performance of some of
our loan portfolios, which allegedly rendered Conseco Finance's financial
statements false and misleading. Conseco Finance filed motions to dismiss these
lawsuits. On August 24, 1999, Conseco Finance's motions to dismiss were granted
with prejudice. The plaintiffs subsequently appealed the decision to the U.S.
Court of Appeals for the 8th Circuit, and the appeal is currently pending.
Conseco Finance believes that the lawsuits are without merit and intends to
defend the lawsuits vigorously. However, the ultimate outcome of these lawsuits
cannot be predicted with certainty.
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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 held by the
issuer and pledged to the trustee, 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
. the type of equipment sold by the vendor,
. the average transaction size,
. the vendor's monthly lease volume,
. the general credit characteristics of the vendor's end-user customers,
and
. 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 the 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--If Vendor Services become insolvent,
there may be delays or reductions in distributions to holders of notes" 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
23
<PAGE>
schedules setting forth the specific terms of each lease transaction with that
particular obligor or (b) a specific lease agreement form containing all of the
terms and conditions of the lease transaction. In some cases, the lease may be
written on another form which was created by Vendor Services or by a customer.
Payments
All of the leases require that the obligor make payments thereunder on
fixed and predetermined dates. 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 determined by
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. All security deposits relating to the leases held by the issuer will be
deposited in a security deposit account in the name of the trustee.
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.
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.
Each lease requires the obligor 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 most transactions involving equipment with a cost of $200,000 or less,
the obligor is 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.
24
<PAGE>
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
. to repair such equipment,
. to make a termination payment to the lessor in an amount not less than
the required payoff amount, or
. in some cases, to replace such damaged or destroyed equipment with
other equipment of comparable use and value.
Under the contribution and servicing agreement, the servicer is permitted (in
the case of the destruction of the equipment related to a particular lease)
either to allow the obligor 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
Most of the leases permit the assignment thereof by the lessor or secured
party without the consent of the obligor. A small number of leases 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:
(1) may permit assignments to a parent, subsidiary or affiliate,
(2) permit the assignment to a third party, provided the obligor
remains liable under the lease or
(3) 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.
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.
25
<PAGE>
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 applicable cut-off date:
26
<PAGE>
(A) Each lease
(1) 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,
(2) 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
pursuant to the contribution and servicing agreement,
(3) 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 on arm's-
length terms and was validly assigned to Vendor Services by the
originator of such lease without recourse.
(4) 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;
27
<PAGE>
(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
(1) is located in the United States, and
(2) 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 2.5% 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);
(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 attached 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
Estate and are owned by the issuer in accordance with the terms of the
contribution and servicing agreement;
28
<PAGE>
(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 (1) 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 (2) 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 (1)
permit assignment to a subsidiary, corporate parent or other affiliate,
(2) permit the assignment to a third party, provided the obligor remains
liable under the lease, or (3) 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
(1) in United States dollars, and (2) 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 (1) to repair such equipment, (2) to make a
termination payment to the lessor in an amount not less than the required
payoff amount, or (3) 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;
29
<PAGE>
(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;
(DD) The obligor has made at least one payment under the lease; and
(EE) each lease which is in the form of a master lease agreement
incorporates one or more schedules each of which constitutes a separate
lease and each such lease in the form in which it has been transferred to
the SPC consists of one or more of the schedules each in its entirety;
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 second business day preceding the payment 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: (1) the scheduled
payment due in such Collection Period, together with any scheduled payments due
in prior Collection Periods and not yet received, plus (2) 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.
30
<PAGE>
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 for
. Liquidated Leases,
. Leases that have been prepaid in full, whether pursuant to their terms
or with the Servicer's consent ("Prepaid Leases"),
. Leases subject to repurchase as a result of a breach or representation
or warranty ("Warranty Leases"), and
. 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 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 June 30, 2007 or, to the extent
the final payment on such lease is due subsequent to June 30, 2007 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 July 1, 2000, which we refer to as the cut-off date pool and the initial
cut-off date, respectively. 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 8.30%. The
leases held by the issuer on the closing date may differ from the pool of
leases described here, but such differences will not be material.
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 $614,154,374.
The aggregate principal balance of each lease as of the initial cut-off date
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 68,568. The average
principal balance of the leases, as of the initial cut-off date, was
approximately $8,957.
31
<PAGE>
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>
68,568 $614,154,373.70 49.32 months 38.43 months $8,956.87
(7 months to 120 months) (6 months to 84 months) ($71.79 to $889,674.52)
</TABLE>
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:
32
<PAGE>
<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................. 687 1.00% $3,804,914.88 0.62%
Alaska.................. 105 0.15 791,421.04 0.13
Arizona................. 1,506 2.20 14,193,203.21 2.31
Arkansas................ 291 0.42 1,767,183.54 0.29
California.............. 7,369 10.75 76,136,978.36 12.40
Colorado................ 1,444 2.11 9,801,179.02 1.60
Connecticut............. 1,213 1.77 10,720,245.03 1.75
Delaware................ 386 0.56 4,379,831.70 0.71
District of Columbia.... 232 0.34 2,113,197.58 0.34
Florida................. 5,616 8.19 47,237,938.89 7.69
Georgia................. 1,677 2.45 13,406,556.44 2.18
Hawaii.................. 154 0.22 721,630.63 0.12
Idaho................... 163 0.24 761,918.51 0.12
Illinois................ 2,418 3.53 21,731,917.83 3.54
Indiana................. 1,274 1.86 9,065,802.21 1.48
Iowa.................... 561 0.82 3,691,110.34 0.60
Kansas.................. 606 0.88 5,936,012.31 0.97
Kentucky................ 634 0.92 4,072,591.67 0.66
Louisiana............... 914 1.33 6,541,322.31 1.07
Maine................... 270 0.39 1,612,058.95 0.26
Maryland................ 1,024 1.49 8,943,603.40 1.46
Massachusetts........... 2,244 3.27 19,450,777.94 3.17
Michigan................ 1,512 2.21 12,897,850.18 2.10
Minnesota............... 2,171 3.17 17,779,902.96 2.90
Mississippi............. 388 0.57 2,289,333.96 0.37
Missouri................ 1,210 1.76 11,076,768.45 1.80
Montana................. 196 0.29 791,044.89 0.13
Nebraska................ 234 0.34 1,286,143.29 0.21
Nevada.................. 909 1.33 9,119,906.09 1.48
New Hampshire........... 442 0.64 3,358,786.49 0.55
New Jersey.............. 3,511 5.12 35,858,497.67 5.84
New Mexico.............. 292 0.43 2,002,594.02 0.33
New York................ 5,764 8.41 59,494,579.63 9.69
North Carolina.......... 2,866 4.18 27,507,878.97 4.48
North Dakota............ 99 0.14 456,784.40 0.07
Ohio.................... 2,218 3.23 15,578,987.85 2.54
Oklahoma................ 739 1.08 5,872,085.13 0.96
Oregon.................. 795 1.16 6,736,085.82 1.10
Pennsylvania............ 3,900 5.69 37,346,490.11 6.08
Rhode Island............ 291 0.42 3,549,857.54 0.58
South Carolina.......... 947 1.38 7,086,118.52 1.15
South Dakota............ 123 0.18 559,100.22 0.09
Tennessee............... 867 1.26 10,302,931.04 1.68
Texas................... 3,821 5.57 39,067,812.92 6.36
Utah.................... 320 0.47 3,280,954.15 0.53
Vermont................. 153 0.22 943,911.89 0.15
Virginia................ 1,815 2.65 17,418,780.26 2.84
Washington.............. 1,167 1.70 9,910,160.32 1.61
West Virginia........... 221 0.32 1,220,071.72 0.20
Wisconsin............... 681 0.99 3,964,046.01 0.65
Wyoming................. 128 0.19 515,513.40 0.08
------ ------ --------------- ------
Total.................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
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.
33
<PAGE>
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................. 67,306 98.16% $605,376,746.01 98.57%
31-60 Days Delinquent... 1,262 1.84 8,777,627.69 1.43
------ ------ --------------- ------
Total................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
34
<PAGE>
Leases by Equipment Type
The following table shows the type of equipment securing or otherwise
related to the cut-off date pool, 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.............. 36,855 53.75% $205,197,221.56 33.41%
Office Machines......... 14,955 21.81 158,436,507.43 25.80
Telecommunications...... 8,614 12.56 105,024,531.12 17.10
Auto Services........... 2,698 3.93 21,234,247.13 3.46
Healthcare Related...... 838 1.22 26,065,617.50 4.24
Laundry & Cleaning...... 762 1.11 22,851,160.80 3.72
Furniture............... 845 1.23 15,594,083.13 2.54
Machine Tool............ 821 1.20 18,959,351.27 3.09
Other................... 545 0.79 10,372,719.73 1.69
Recreation.............. 238 0.35 6,764,036.65 1.10
Secured Loans........... 101 0.15 7,680,310.47 1.25
Food & Lodging.......... 516 0.75 5,891,199.99 0.96
Printing................ 211 0.31 3,556,207.37 0.58
HVAC.................... 165 0.24 2,437,788.78 0.40
Imaging................. 201 0.29 1,616,078.15 0.26
Construction............ 46 0.07 663,747.36 0.11
Material Handling....... 87 0.13 996,525.66 0.16
Maintenance............. 32 0.05 299,748.67 0.05
Waste Management........ 28 0.04 342,852.30 0.06
Manufacturing........... 5 0.01 61,932.68 0.01
Transportation.......... 5 0.01 108,505.95 0.02
------ ------ --------------- ------
Total................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
35
<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.......... 53,815 78.48% $188,241,164.59 30.65%
$ 10,000.01 to
$ 25,000.00.......... 9,874 14.40 150,833,276.45 24.56
$ 25,000.01 to
$ 40,000.00.......... 2,611 3.81 81,200,997.74 13.22
$ 40,000.01 to
$ 60,000.00.......... 1,059 1.54 51,174,614.71 8.33
$ 60,000.01 to
$ 80,000.00.......... 420 0.61 28,980,473.63 4.72
$ 80,000.01 to
$ 100,000.00.......... 246 0.36 21,785,128.66 3.55
$100,000.01 to
$ 150,000.00.......... 316 0.46 37,964,786.28 6.18
$150,000.01 to
$ 200,000.00.......... 119 0.17 20,252,180.80 3.30
$200,000.01 to
$ 300,000.00.......... 60 0.09 14,075,476.57 2.29
$300,000.01 to
$ 400,000.00.......... 31 0.05 10,632,427.44 1.73
$400,000.01 to
$ 500,000.00.......... 11 0.02 4,893,760.36 0.80
$500,000.01 to
$1,000,000.00.......... 6 0.01 4,120,086.49 0.67
------ ------ --------------- ------
Total................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</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.......... 48,943 71.38% $150,481,149.86 24.50%
$ 10,000.01 to
$ 25,000.00.......... 12,793 18.66 150,793,227.79 24.55
$ 25,000.01 to
$ 40,000.00.......... 3,359 4.90 81,629,891.21 13.29
$ 40,000.01 to
$ 60,000.00.......... 1,722 2.51 63,139,371.64 10.28
$ 60,000.01 to
$ 80,000.00.......... 639 0.93 34,080,766.62 5.55
$ 80,000.01 to
$ 100,000.00.......... 323 0.47 22,495,535.26 3.66
$100,000.01 to
$ 150,000.00.......... 432 0.63 42,226,380.69 6.88
$150,000.01 to
$ 200,000.00.......... 179 0.26 24,190,293.38 3.94
$200,000.01 to
$ 300,000.00.......... 113 0.16 21,256,527.93 3.46
$300,000.01 to
$ 400,000.00.......... 30 0.04 8,667,144.57 1.41
$400,000.01 to
$ 500,000.00.......... 18 0.03 6,283,096.84 1.02
$500,000.01 to
$1,000,000.00.......... 17 0.02 8,910,987.91 1.45
------ ------ --------------- ------
Total................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
36
<PAGE>
Remaining Terms of Leases
The following table shows the remaining term of the leases in the cut-off
date pool 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... 4,694 6.85% $ 11,873,323.61 1.93%
13 Months to 24 Months... 24,459 35.67 113,102,423.46 18.42
25 Months to 36 Months... 22,335 32.57 159,486,816.21 25.97
37 Months to 48 Months... 9,127 13.31 148,236,756.47 24.14
49 Months to 60 Months... 7,741 11.29 165,778,713.67 26.99
Over 60 Months........... 212 0.31 15,676,340.28 2.55
------ ------ --------------- ------
Total.................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
Original Terms of Leases
The following table shows the original term of the leases in the cut-off
date pool 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.. 433 0.63% $ 1,462,647.53 0.24%
13 Months to 24 Months.. 7,771 11.33 24,272,681.95 3.95
25 Months to 36 Months.. 37,806 55.14 207,916,975.76 33.85
37 Months to 48 Months.. 6,932 10.11 65,407,145.75 10.65
49 Months to 60 Months.. 12,520 18.26 245,523,701.34 39.98
61 Months to 72 Months.. 3,033 4.42 60,178,634.12 9.80
73 Months to 84 Months.. 68 0.10 8,387,461.89 1.37
85 Months to 96 Months.. 4 0.01 369,512.25 0.06
108 Months to 120
Months................. 1 0.00 635,513.12 0.10
------ ------ --------------- ------
Total................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
Leases by Purchase Options
The following table shows the types of equipment purchase options related
to the cut-off date pool, 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. The purchase option types listed below indicate leases for
which the purchase price of the related equipment at the scheduled lease
termination date is set at
(1) $1.00 or another nominal amount ("Nominal Buyout"),
37
<PAGE>
(2) 10% or a similar fixed percentage of the original equipment cost
("Fixed Purchase Option"),
(3) the fair market value of the equipment at lease termination, as
determined pursuant to the Lease terms ("Fair Market Value") or
(4) a predetermined amount which the obligor is required to pay
("Guaranteed Purchase"):
<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>
Fair Market Value....... 37,507 54.70% $328,310,985.59 53.46%
Fixed Purchase Option... 5,352 7.81 46,583,124.64 7.58
Guaranteed Purchase..... 282 0.41 5,636,040.55 0.92
Nominal Buyout.......... 25,427 37.08 233,624,222.93 38.04
------ ------ --------------- ------
Total................. 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
Payment Frequency
The following table shows the frequency of payments required by the terms
of each lease included in the cut-off date pool:
<TABLE>
<CAPTION>
Aggregate
Statistical % of Statistical
% of Total Discounted Discounted
Number of Present Value Present Value of
Payment Frequency Number of Leases Leases of the Leases the Leases
----------------- ---------------- ---------- --------------- ----------------
<S> <C> <C> <C> <C>
Annual............ 59 0.09% $ 826,732.76 0.13%
Monthly........... 64,889 94.63 552,949,701.87 90.03
Quarterly......... 365 0.53 5,203,353.81 0.85
Semi Annual....... 4 0.01 31,342.59 0.01
Variable.......... 3,251 4.74 55,143,242.69 8.98
------ ------ --------------- ------
Total........... 68,568 100.00% $614,154,373.70 100.00%
====== ====== =============== ======
</TABLE>
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 held by the issuer and pledged to the trustee as of
December 31, 1996, December 31, 1997, December 31, 1998, December 31, 1999, and
June 30, 2000. Vendor Services was acquired by Conseco Finance 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
38
<PAGE>
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% 2.62%
12/31/98..................... $ 917,566,855 1.86% 0.35% 0.18% 2.39%
12/31/99..................... $1,039,673,059 1.85% 0.30% 0.13% 2.28%
6/30/00...................... $1,021,084,236 1.62% 0.49% 0.10% 2.21%
</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 held by the issuer and pledged to the trustee as of
December 31, 1996, December 31, 1997, December 31, 1998, December 31, 1999, and
June 30, 2000. Vendor Services was acquired by Conseco Finance 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%
12/31/98............................ $854,995,000 3.95%
12/31/99............................ $984,218,000 2.94%
6/30/00............................ $978,079,542 2.96%
</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 held by the issuer and
pledged to the trustee during the twelve-month periods ending December 31, 1996
and December 31, 1997, December 31, 1998, December 31, 1999 and during the six-
month period ending June 30, 2000. Vendor Services was acquired by Conseco
Finance in November 1996, and current management, accordingly, cannot certify
loss and recovery experience for prior periods. However, current
39
<PAGE>
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 at period end (gross of any
allowance for losses), and "net losses" means losses after recoveries measured
against the net investment of the leases at period end (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
Period Ended of Leases Investment Investment
------------ ------------ ----------------- -----------------
<S> <C> <C> <C>
12/31/96.................... $558,040,000 2.96% 1.83%
12/31/97.................... $672,210,148 1.66% 1.51%
12/31/98.................... $854,995,000 1.64% 1.57%
12/31/99.................... $984,218,000 3.61% 3.54%
6/30/00..................... $978,079,542 1.39% 1.20%
</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--Residual realizations may be less than we expect, and will provide
only limited support for the notes."
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
. acquiring the leases and rights to the residual realizations from the
SPC,
. pledging the leases and its rights to the residual realizations to the
trustee,
. executing and performing its obligations under the contribution and
servicing agreement and the indenture, and
. 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.
40
<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............... 51 Manager and Chair of Board of Managers
Phyllis A. Knight............... 37 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 of Conseco Finance
Corp. since September 1995. From 1983 to 1995, Mr. Gottesman was an attorney at
Briggs & Morgan, Professional Association, Minneapolis, Minnesota.
Phyllis A. Knight is Senior Vice President and Treasurer of Conseco Finance
Corp. She joined Conseco Finance in September 1994. Prior to joining Conseco
Finance, she was a Senior Manager at KPMG Peat Marwick.
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 SEC 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.
41
<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 using the
Discount Rate, 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 issuer will exercise its right to redeem
the notes on the payment date following the date on which the Lease Pool
Principal Balance is less than 20% of the Initial Pool Principal Balance and
with respect to the caption "Weighted Average Life to Maturity," the issuer
will not exercise that right at any time; (iii) payments are made on the notes
on the 20th day of each month commencing August 20, 2000; (iv) the notes are
issued on August 3, 2000; (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. We further assumed
that on the closing date the issuer will issue $167,664,144 aggregate principal
amount of 6.85806% Class A-1 notes, $156,302,288 aggregate principal amount of
7.31% Class A-2 notes, $116,689,331 aggregate principal amount of 7.45%
Class A-3 notes, $98,264,700 aggregate principal amount of 7.59% Class A-4
notes, $23,030,789 aggregate principal amount of 7.72% Class B notes,
$23,030,789 aggregate principal amount of 7.97% Class C notes, and $29,172,333
aggregate principal amount of 8.55% Class D notes. No representation is made
that these assumptions will be correct, including the assumption that the
leases will not experience delinquencies or losses.
42
<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 of the Initial Principal Balance of the
Class A-1 Notes Class A-2 Notes
-------------------------------------- --------------------------------------
CPR CPR
-------------------------------------- --------------------------------------
Payment Date 0% 5% 7% 9% 14% 0% 5% 7% 9% 14%
------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
August 2000............. 87.65 86.14 85.52 84.88 83.23 100.00 100.00 100.00 100.00 100.00
September 2000.......... 77.47 74.54 73.33 72.11 68.93 100.00 100.00 100.00 100.00 100.00
October 2000............ 67.15 62.90 61.15 59.38 54.81 100.00 100.00 100.00 100.00 100.00
November 2000........... 56.63 51.15 48.91 46.63 40.79 100.00 100.00 100.00 100.00 100.00
December 2000........... 46.10 39.50 36.80 34.06 27.07 100.00 100.00 100.00 100.00 100.00
January 2001............ 35.51 27.87 24.75 21.61 13.59 100.00 100.00 100.00 100.00 100.00
February 2001........... 24.83 16.25 12.76 9.24 0.31 100.00 100.00 100.00 100.00 100.00
March 2001.............. 14.32 4.89 1.07 0.00 0.00 100.00 100.00 100.00 97.52 88.83
April 2001.............. 3.87 0.00 0.00 0.00 0.00 100.00 94.35 90.68 86.99 77.67
May 2001................ 0.00 0.00 0.00 0.00 0.00 94.06 84.37 80.47 76.56 66.71
June 2001............... 0.00 0.00 0.00 0.00 0.00 84.80 74.59 70.49 66.38 56.09
July 2001............... 0.00 0.00 0.00 0.00 0.00 75.56 64.91 60.65 56.38 45.73
August 2001............. 0.00 0.00 0.00 0.00 0.00 66.24 55.22 50.83 46.45 35.52
September 2001.......... 0.00 0.00 0.00 0.00 0.00 57.07 45.77 41.27 36.79 25.67
October 2001............ 0.00 0.00 0.00 0.00 0.00 47.94 36.42 31.86 27.32 16.07
November 2001........... 0.00 0.00 0.00 0.00 0.00 38.83 27.17 22.57 17.99 6.70
December 2001........... 0.00 0.00 0.00 0.00 0.00 30.01 18.26 13.64 9.05 0.00
January 2002............ 0.00 0.00 0.00 0.00 0.00 21.43 9.66 5.03 0.46 0.00
February 2002........... 0.00 0.00 0.00 0.00 0.00 13.10 1.35 0.00 0.00 0.00
March 2002.............. 0.00 0.00 0.00 0.00 0.00 5.18 0.00 0.00 0.00 0.00
April 2002.............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Weighted Average Life to
Call
(in years)............. 0.39 0.35 0.33 0.32 0.29 1.24 1.14 1.10 1.07 0.98
Weighted Average Life To
Maturity (in years).... 0.39 0.35 0.33 0.32 0.29 1.24 1.14 1.10 1.07 0.98
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Percentage of the Percentage of the
Initial Principal Balance of the Initial Principal Balance of the
Class A-3 Notes Class A-4 Notes
-------------------------------------- --------------------------------------
CPR CPR
-------------------------------------- --------------------------------------
Payment Date 0% 5% 7% 9% 14% 0% 5% 7% 9% 14%
------------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Closing Date............ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
August 2000............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
September 2000.......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October 2000............ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November 2000........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December 2000........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
January 2001............ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
February 2001........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
March 2001.............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
April 2001.............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
May 2001................ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
June 2001............... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
July 2001............... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
August 2001............. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
September 2001.......... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
October 2001............ 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
November 2001........... 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00
December 2001........... 100.00 100.00 100.00 100.00 97.02 100.00 100.00 100.00 100.00 100.00
January 2002............ 100.00 100.00 100.00 100.00 85.60 100.00 100.00 100.00 100.00 100.00
February 2002........... 100.00 100.00 95.65 89.56 74.69 100.00 100.00 100.00 100.00 100.00
March 2002.............. 100.00 91.28 85.16 79.14 64.45 100.00 100.00 100.00 100.00 100.00
April 2002.............. 96.75 81.21 75.16 69.22 54.77 100.00 100.00 100.00 100.00 100.00
May 2002................ 86.91 71.55 65.59 59.74 45.57 100.00 100.00 100.00 100.00 100.00
June 2002............... 77.54 62.40 56.54 50.80 36.94 100.00 100.00 100.00 100.00 100.00
July 2002............... 68.48 53.59 47.85 42.23 28.72 100.00 100.00 100.00 100.00 100.00
August 2002............. 59.63 45.05 39.44 33.97 20.84 100.00 100.00 100.00 100.00 100.00
September 2002.......... 51.14 36.91 31.45 26.13 13.41 100.00 100.00 100.00 100.00 100.00
October 2002............ 42.98 29.12 23.82 18.66 6.38 100.00 100.00 100.00 100.00 100.00
November 2002........... 35.13 21.67 16.54 11.56 0.00 100.00 100.00 100.00 100.00 0.00
December 2002........... 27.63 14.60 9.64 4.84 0.00 100.00 100.00 100.00 100.00 0.00
January 2003............ 20.47 7.88 0.00 0.00 0.00 100.00 100.00 0.00 0.00 0.00
February 2003........... 13.67 0.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00
March 2003.............. 7.22 0.00 0.00 0.00 0.00 100.00 0.00 0.00 0.00 0.00
April 2003.............. 0.00 0.00 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 2.06 2.00 1.95 1.82 2.71 2.55 2.46 2.46 2.30
Weighted Average Life to
Maturity (in years).... 2.20 2.06 2.01 1.95 1.82 3.48 3.34 3.29 3.23 3.09
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Percentage of the
Initial Principal Balance of the
Class B Notes
--------------------------------------
CPR
--------------------------------------
Payment Date 0% 5% 7% 9% 14%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date.......................... 100.00% 100.00% 100.00% 100.00% 100.00%
August 2000........................... 100.00 100.00 100.00 100.00 100.00
September 2000........................ 100.00 100.00 100.00 100.00 100.00
October 2000.......................... 100.00 100.00 100.00 100.00 100.00
November 2000......................... 100.00 100.00 100.00 100.00 100.00
December 2000......................... 100.00 100.00 100.00 100.00 100.00
January 2001.......................... 100.00 100.00 100.00 100.00 100.00
February 2001......................... 100.00 100.00 100.00 100.00 100.00
March 2001............................ 100.00 100.00 100.00 98.96 95.30
April 2001............................ 100.00 97.62 96.08 94.52 90.60
May 2001.............................. 97.50 93.42 91.78 90.13 85.98
June 2001............................. 93.60 89.30 87.58 85.85 81.51
July 2001............................. 89.71 85.23 83.43 81.64 77.15
August 2001........................... 85.79 81.15 79.30 77.45 72.85
September 2001........................ 81.93 77.17 75.27 73.39 68.71
October 2001.......................... 78.08 73.23 71.31 69.40 64.67
November 2001......................... 74.25 69.34 67.40 65.47 60.72
December 2001......................... 70.53 65.59 63.64 61.71 56.96
January 2002.......................... 66.92 61.97 60.02 58.09 53.37
February 2002......................... 63.41 58.47 56.53 54.62 49.94
March 2002............................ 60.08 55.16 53.24 51.34 46.73
April 2002............................ 56.88 51.99 50.09 48.22 43.68
May 2002.............................. 53.78 48.96 47.08 45.24 40.79
June 2002............................. 50.84 46.08 44.24 42.43 38.08
July 2002............................. 47.99 43.31 41.51 39.74 35.49
August 2002........................... 45.21 40.63 38.87 37.14 33.02
September 2002........................ 42.54 38.07 36.35 34.68 30.68
October 2002.......................... 39.98 35.62 33.96 32.33 28.47
November 2002......................... 37.51 33.28 31.67 30.10 0.00
December 2002......................... 35.15 31.06 29.50 27.99 0.00
January 2003.......................... 32.90 28.94 0.00 0.00 0.00
February 2003......................... 30.77 0.00 0.00 0.00 0.00
March 2003............................ 28.74 0.00 0.00 0.00 0.00
April 2003............................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life To Call (in
years)............................... 1.93 1.80 1.75 1.71 1.59
Weighted Average Life To Maturity (in
years)............................... 2.14 2.01 1.97 1.92 1.80
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Percentage of the
Initial Principal Balance of the
Class C Notes
--------------------------------------
CPR
--------------------------------------
Payment Date 0% 5% 7% 9% 14%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date.......................... 100.00% 100.00% 100.00% 100.00% 100.00%
August 2000........................... 100.00 100.00 100.00 100.00 100.00
September 2000........................ 100.00 100.00 100.00 100.00 100.00
October 2000.......................... 100.00 100.00 100.00 100.00 100.00
November 2000......................... 100.00 100.00 100.00 100.00 100.00
December 2000......................... 100.00 100.00 100.00 100.00 100.00
January 2001.......................... 100.00 100.00 100.00 100.00 100.00
February 2001......................... 100.00 100.00 100.00 100.00 100.00
March 2001............................ 100.00 100.00 100.00 98.96 95.30
April 2001............................ 100.00 97.62 96.08 94.52 90.60
May 2001.............................. 97.50 93.42 91.78 90.13 85.98
June 2001............................. 93.60 89.30 87.58 85.85 81.51
July 2001............................. 89.71 85.23 83.43 81.64 77.15
August 2001........................... 85.79 81.15 79.30 77.45 72.85
September 2001........................ 81.93 77.17 75.27 73.39 68.71
October 2001.......................... 78.08 73.23 71.31 69.40 64.67
November 2001......................... 74.25 69.34 67.40 65.47 60.72
December 2001......................... 70.53 65.59 63.64 61.71 56.96
January 2002.......................... 66.92 61.97 60.02 58.09 53.37
February 2002......................... 63.41 58.47 56.53 54.62 49.94
March 2002............................ 60.08 55.16 53.24 51.34 46.73
April 2002............................ 56.88 51.99 50.09 48.22 43.68
May 2002.............................. 53.78 48.96 47.08 45.24 40.79
June 2002............................. 50.84 46.08 44.24 42.43 38.08
July 2002............................. 47.99 43.31 41.51 39.74 35.49
August 2002........................... 45.21 40.63 38.87 37.14 33.02
September 2002........................ 42.54 38.07 36.35 34.68 30.68
October 2002.......................... 39.98 35.62 33.96 32.33 28.47
November 2002......................... 37.51 33.28 31.67 30.10 0.00
December 2002......................... 35.15 31.06 29.50 27.99 0.00
January 2003.......................... 32.90 28.94 0.00 0.00 0.00
February 2003......................... 30.77 0.00 0.00 0.00 0.00
March 2003............................ 28.74 0.00 0.00 0.00 0.00
April 2003............................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life To Call (in
years)............................... 1.93 1.80 1.75 1.71 1.59
Weighted Average Life To Maturity (in
years)............................... 2.14 2.01 1.97 1.92 1.80
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Percentage of the
Initial Principal Balance of the
Class D Notes
--------------------------------------
CPR
--------------------------------------
Payment Date 0% 5% 7% 9% 14%
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Closing Date.......................... 100.00% 100.00% 100.00% 100.00% 100.00%
August 2000........................... 100.00 100.00 100.00 100.00 100.00
September 2000........................ 100.00 100.00 100.00 100.00 100.00
October 2000.......................... 100.00 100.00 100.00 100.00 100.00
November 2000......................... 100.00 100.00 100.00 100.00 100.00
December 2000......................... 100.00 100.00 100.00 100.00 100.00
January 2001.......................... 100.00 100.00 100.00 100.00 100.00
February 2001......................... 100.00 100.00 100.00 100.00 100.00
March 2001............................ 100.00 100.00 100.00 98.96 95.30
April 2001............................ 100.00 97.62 96.08 94.52 90.60
May 2001.............................. 97.50 93.42 91.78 90.13 85.98
June 2001............................. 93.60 89.30 87.58 85.85 81.51
July 2001............................. 89.71 85.23 83.43 81.64 77.15
August 2001........................... 85.79 81.15 79.30 77.45 72.85
September 2001........................ 81.93 77.17 75.27 73.39 68.71
October 2001.......................... 78.08 73.23 71.31 69.40 64.67
November 2001......................... 74.25 69.34 67.40 65.47 60.72
December 2001......................... 70.53 65.59 63.64 61.71 56.96
January 2002.......................... 66.92 61.97 60.02 58.09 53.37
February 2002......................... 63.41 58.47 56.53 54.62 49.94
March 2002............................ 60.08 55.16 53.24 51.34 46.73
April 2002............................ 56.88 51.99 50.09 48.22 43.68
May 2002.............................. 53.78 48.96 47.08 45.24 40.79
June 2002............................. 50.84 46.08 44.24 42.43 38.08
July 2002............................. 47.99 43.31 41.51 39.74 35.49
August 2002........................... 45.21 40.63 38.87 37.14 33.02
September 2002........................ 42.54 38.07 36.35 34.68 30.68
October 2002.......................... 39.98 35.62 33.96 32.33 28.47
November 2002......................... 37.51 33.28 31.67 30.10 0.00
December 2002......................... 35.15 31.06 29.50 27.99 0.00
January 2003.......................... 32.90 28.94 0.00 0.00 0.00
February 2003......................... 30.77 0.00 0.00 0.00 0.00
March 2003............................ 28.74 0.00 0.00 0.00 0.00
April 2003............................ 0.00 0.00 0.00 0.00 0.00
Weighted Average Life To Call (in
years)............................... 1.93 1.80 1.75 1.71 1.59
Weighted Average Life To Maturity (in
years)............................... 2.14 2.01 1.97 1.92 1.80
</TABLE>
47
<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 SEC as an exhibit to
the registration statement of which this prospectus is a part. Wells Fargo Bank
Minnesota, N.A., a national banking association headquartered in Minneapolis,
Minnesota, will be the trustee under the indenture.
Pursuant to the indenture, the issuer will issue seven classes of notes,
designated as the % Lease-Backed Notes, Class A-1, in the original principal
amount of $167,664,144, the % Lease-Backed Notes, Class A-2, in the original
principal amount of $156,302,288, the % Lease-Backed Notes, Class A-3, in the
original principal amount of $116,689,331, the % Lease-Backed Notes, Class A-
4, in the original principal amount of $98,264,700, the % Lease-Backed Notes,
Class B, in the original principal amount of $23,030,789, the % Lease-Backed
Notes, Class C, in the original principal amount of $23,030,789, and the %
Lease-Backed Notes, Class D, in the original principal amount of $29,172,333.
Only the Class A and Class B notes are being offered by this prospectus. The
issuer intends to sell the Class C and Class D notes privately to one or more
institutional investors.
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 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 August 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, St. Paul or Minneapolis,
Minnesota, 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 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. 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 person acquiring an ownership
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
48
<PAGE>
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.
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:
(a) Pledged Revenues on deposit in the collection account as of the
second business day preceding the related payment 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
(1) "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);
(2) any voluntary prepayments ("Prepayments") of scheduled payments
received on or after the cut-off date under the leases (unless Vendor
Services has delivered a substitute lease for that Prepaid Lease);
49
<PAGE>
(3) 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";
(4) any amounts paid by the issuer to redeem the notes as described
under "--Optional Redemption of Notes";
(5) 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
(6) 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):
(1) to pay the trustee fee to the trustee;
(2) to pay the trustee any expenses or liabilities incurred by the
trustee pursuant to specified provisions of the indenture;
(3) for each payment date on or prior to July 2001, to deposit the
amount, if any, required under the contribution and servicing agreement in
the portfolio expense account;
(4) to pay the servicing fee if Vendor Services or an affiliate is no
longer the servicer;
(5) to reimburse the servicer for unreimbursed Nonrecoverable Servicer
Advances made with respect to a prior payment date;
(6) to pay interest on the notes in the following order of priority:
(a) interest on the Class A notes,
(b) interest on the Class B notes,
(c) interest on the Class C notes, and
(d) interest on the Class D notes;
(7) to pay 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;
(8) from Available Pledged Revenues and any amounts 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;
50
<PAGE>
(9) to reimburse the trustee for any expenses or liabilities incurred by
the trustee and not paid reimbursed pursuant to clause (2) above;
(10) from Available Pledged Revenues only, for so long as Vendor
Services or an affiliate is the servicer, the servicing fee; and
(11) the remainder of Available Pledged Revenues, if any, to the SPC.
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
(1) the interest rate for such class (calculated in the manner described above)
and (2) the outstanding principal amount of such class prior to any principal
payment on such payment date. Interest on each class of the Class A notes will
accrue from and including the closing date to but excluding August 21, 2000 (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 bear interest
at the applicable interest rate, to the extent permitted by law, until paid.
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 ( 1) the Class B interest rate
and (2) 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 August 21, 2000 (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 bear
51
<PAGE>
allocated among the Class B notes pro rata, and the amount of such shortfall
will be carried interest at the Class B interest rate, to the extent permitted
by law, until paid.
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 (1) the Class C interest rate
and (2) 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 August 21, 2000 (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, 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 bear interest at the
Class C interest rate, to the extent permitted by law, until paid.
Class D Interest
Interest will be paid to the holders of the Class D 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 D interest rate on the outstanding principal amount of
the Class D 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 (1) the Class D interest rate
and (2) the outstanding principal amount of the Class D notes as of such
payment date. Interest on the Class D notes will accrue from and including the
closing date to but excluding August 21, 2000 (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, the Class B notes and the Class C
notes, is not sufficient to make a full payment of interest to the holders of
Class D notes, the amount of interest to be paid on the Class D notes will be
allocated among the Class D notes pro rata, and the amount of such shortfall
will bear interest at the Class D interest rate, to the extent permitted by
law, until paid.
Principal
For each payment date, each of the Class A noteholders, the Class B
noteholders, the Class C noteholders and the Class D noteholders will be
entitled to receive payments of principal, to the extent funds are available
therefor, in the priorities set forth in the indenture
52
<PAGE>
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 Class D noteholders, the Class D Principal Payment,
(e) to the extent that the Class B Floor exceeds the Class B Target
Investor Principal Amount, the Class C Floor exceeds the Class C Target
Investor Principal Amount and the Class D Floor exceeds the Class D 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,
the Class C notes and the Class D notes, in that order, until the
outstanding principal amount of each such class has been reduced to zero,
(f) to the extent the Class C Floor exceeds the Class C Target Investor
Principal Amount and the Class D Floor exceeds the Class D 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, and
(g) to the extent the Class D Floor exceeds the Class D Target Investor
Principal Amount, but the Class B Floor does not exceed the Class B Target
Investor Principal Amount and the Class C Floor does not exceed the Class
C Target Investor Principal Amount, Additional Principal shall be
distributed as an additional principal distribution payment on the Class
A, Class B and Class C 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 "Class A Principal Payment" shall equal (a) while the Class A-1 notes
are outstanding, (i) on all payment dates prior to the August 2001 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 or after the
August 2001 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.
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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.
The "Class D 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 D notes to the greater of the Class D
Target Investor Principal Amount and the Class D Floor.
"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, the Class C Principal Payment and the Class D
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 D Target Investor Principal Amount" with respect to each payment
date is an amount equal to the product of (a) the Class D 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 83.150%. The "Class B
Percentage" will be approximately 5.158%. The "Class C Percentage" will be
approximately 5.158%. The "Class D Percentage" will be approximately 6.534%.
The "Class B Floor" with respect to each payment date means (a) 3.875% 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, the outstanding principal
amount of the Class D 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.
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The "Class C Floor" with respect to each payment date means (a) 2.35% 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 D 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; 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 "Class D Floor" with respect to each payment date means (a) 1.60% 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 C notes is
equal to the Class C Floor on such payment date, the Class D Floor will equal
the outstanding principal amount of the Class D notes as of such payment date.
The "Monthly Principal Amount" for any payment date will equal the excess,
if any, of (a) the sum of the outstanding principal amount of the notes for
such payment date, over (b) 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 (1) the outstanding principal amount of the notes for
such payment date, minus (2) 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 "Lease Pool Principal Balance" on any date of determination is equal
to the aggregate Principal Balance of the leases on that 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 purposes of such calculation, that each scheduled payment
is due on the last day of the applicable Collection Period) at the
Discount Rate;
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(2) in the case of any lease that permits prepayment or early
termination only upon payment of a total amount 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 an amount 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. If the
servicer elects to make a Servicer Advance, the servicer will be entitled to
all late fees paid by the obligors on the leases with respect to those
deliquent payments; if the servicer elects not to make a Servicer Advance, all
late fees paid by the obligors on the leases with respect to those delinquent
payments must be deposited in the collection account and will be treated as
part of the pledged revenues when received.
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
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Liquidated Leases or leases for which Vendor Services delivers a substitute
lease (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--Residual realizations may be less than we expect, and will
provide only limited support for the notes." 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 $65,825,144. Actual Residual Realizations may be more
or less than Book Value. The Residual Realizations for a Collection Period not
distributed to noteholders, 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 remaining 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 3.25% of the Initial Pool Principal Balance into the Reserve Account.
In the event that Available Pledged Revenues are insufficient to pay the
amounts owing to the servicer for any Nonrecoverable Servicer Advances, to any
servicer other than Vendor Services or its affiliates for servicing fees, or to
the trustee for any amounts having priority over payments on the notes, or to
pay interest payments on the notes and the Class A Principal Payment, the Class
B Principal Payment, the Class C Principal Payment, the Class D 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
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that the Required Reserve Amount exceeds the Available Reserve Amount. The
"Required Reserve Amount" equals the lesser of (a) 3.25% 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, Class C Notes and Class D 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, Class B and Class C 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, the Class C notes or the Class D
notes, and (2) in the case of the Class B notes, prior to the payment of any
interest on the Class C notes or the Class D notes, and (3) in the case of the
Class C notes, prior to the payment of any interest on the Class D notes.
Likewise, the likelihood of payment of principal, to the extent of the Class A
Principal Payment, the Class B Principal Payment and the Class C Principal
Payment on a payment date on the Class A, Class B and Class C 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, the Class C notes or the Class D notes, (ii) in the case of the Class B
notes, prior to the payment of any principal on the Class C notes, and (iii) in
the case of the Class C notes, prior to the payment of any principal on the
Class D 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 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 Redemption of Notes
The issuer may redeem all of the outstanding notes on any payment date
following the date on which the Lease Pool Principal Balance is less than 20%
of the Initial Pool Principal Balance. The redemption 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.
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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," the "portfolio expense
account," the "security deposit account" and the "note distribution account"
(collectively, the "trust accounts"). An "eligible account" means any account
which is
(1) an account maintained with an Eligible Institution;
(2) 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;
(3) 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 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
(4) 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 under the indenture
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.
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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:
(1) 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;
(2) 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;
(3) 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;
(4) the amount of interest paid on the Class D notes, including any
unpaid interest from the prior payment date, and any remaining unpaid
interest on the Class D notes;
(5) the amount of principal paid on each Class of Class A notes;
(6) the amount of principal paid on the Class B notes;
(7) an amount of principal paid on the Class C notes;
(8) the amount of principal paid on the Class D notes;
(9) the Cumulative Loss Amount, if any, for such payment date;
(10) all substitute leases delivered by Vendor Services;
(11) the balance in the reserve account and the Required Reserve Amount;
(12) the balance in the residual account; and
(13) the balance, if any, in the portfolio expense 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
Holders of the notes may hold through DTC in the United States or
Clearstream Banking, societe anonyme or Euroclear in Europe if they are
participants of these systems, or indirectly through organizations that are
participants in these systems.
Cede & Co., as nominee for DTC, will hold the notes. Clearstream and
Euroclear will hold omnibus positions in the notes on behalf of the Clearstream
participants and the Euroclear participants, through customers' securities
accounts in Clearstream's and Euroclear's names on the books of their
respective depositaries, which in turn will hold such positions in customers'
securities accounts in the depositaries' names on the books of DTC.
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Transfers between DTC's participating organizations will occur in
accordance with DTC rules. Transfers between Clearstream participants and
Euroclear participants will occur in the ordinary way according to 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 Clearstream
participants or Euroclear participants, on the other, will be effected in DTC
according to 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 European international
clearing system by the counterparty in such system according to its rules and
procedures and within its established deadlines. 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 according to normal procedures for same-day
funds settlement applicable to DTC. Clearstream participants and Euroclear
participants may not deliver instructions directly to the depositaries.
Because of time-zone differences, credits of securities in Clearstream or
Euroclear for a transaction with a participant will be made during the
subsequent securities settlement processing, dated the business day following
the DTC settlement date, and these credits or any transactions in the
securities settled during the processing will be reported to the relevant
Clearstream participant or Euroclear participant on the following business day.
Cash received in Clearstream or Euroclear for sales of securities by or through
a Clearstream 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 Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
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.
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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.
Clearstream is incorporated under the laws of Luxembourg as a limited
liability company. Clearstream holds securities for its participating
organizations and facilitates the clearance and settlement of securities
transactions between Clearstream participants through electronic book-entry
changes in accounts of Clearstream participants, thereby eliminating the need
for physical movement of securities. Transactions may be settled in Clearstream
in any of 28 currencies, including United States dollars. Clearstream provides
to its Clearstream participants, among other things, services for safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream interfaces with domestic
markets in several countries. As a professional depository, Clearstream is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
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.
Indirect access to Clearstream is also available to others, such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream Participant, either directly or indirectly.
The Euroclear System was created in 1968 to hold securities for
participants of the Euroclear System 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
securities 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 described in Annex I hereto. The Euroclear
System is operated by Morgan Guaranty Trust Company of New York, Brussels,
Belgium office, under contract with Euroclear Clearance System, S.C., a Belgian
cooperative corporation. 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. 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.
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.
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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 securities
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 Clearstream or Euroclear
will be credited to the cash accounts of Clearstream participants or Euroclear
participants in accordance with the relevant system's rules and procedures, to
the extent received by its depositary. Such distributions will be subject to
tax reporting in accordance with relevant United States tax laws and
regulations. See "Certain Federal Income Tax Consequences" in this prospectus
and "Global Clearance, Settlement and Tax Documentation Procedures" in Annex I
to this prospectus. Clearstream 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 Clearstream 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, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of notes among participants of DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform the procedures and the procedures may be discontinued at any time.
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.
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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 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:
. to correct or amplify the description of the collateral or add
additional collateral;
. to provide for the assumption of the notes and the indenture
obligations by a permitted successor to the issuer (as described under
"--Certain Covenants");
. to add additional covenants for the benefit of the noteholders, or to
surrender any rights or power conferred upon the issuer;
. to convey, transfer, assign, mortgage or pledge any property to or
with the trustee;
. 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;
. 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;
. to modify, eliminate or add to the provisions of the indenture in
order to comply with the Trust Indenture Act of 1939, as amended;
. to avoid a reduction, qualification or withdrawal of any rating of the
notes; or
. 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,
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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:
. 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;
. impair the right to institute suit for the enforcement of certain
provisions of the indenture regarding payment;
. 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;
. 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;
. 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
Estate if the proceeds of such sale would be insufficient to pay the
principal amount and accrued but unpaid interest on the outstanding
notes;
. reduce the percentage of each 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;
. 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
. 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.
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Events of Default; Rights Upon Event of Default
"Events of default" under the indenture will consist of:
. a default for five calendar days or more in the payment of interest
due on any note;
. failure to pay the unpaid principal amount of any class of notes on
the stated maturity date or any redemption date for such class;
. 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
. certain events of bankruptcy, insolvency, receivership or liquidation
of the issuer.
Upon an event of default under the indenture, holders of (1) 66 2/3% of the
Class A Notes, or (2) if the Class A notes have been paid in full, 66 2/3% of
the Class B notes, (3) if the Class A notes and the Class B notes have been
paid in full, 66 2/3% of the Class C notes, or (4) if the Class A, Class B and
Class C notes have been paid in full, 66 2/3% of the Class D notes (the
"Controlling Noteholders") will have the right to declare all of the notes to
be immediately due and payable.
Under the Trust Indenture Act of 1939, the trustee may be deemed to have a
conflict of interest and be required to resign as trustee for the Class A
notes, the Class B notes, the Class C notes or the Class D notes if a default
occurs under the indenture. In these circumstances, the indenture will provide
for a successor trustee to be appointed for one or all of the Class A notes,
the Class B notes, the Class C notes and the Class D notes. In general, so long
as any amounts remain unpaid with respect to the Class A notes,
. only the trustee for the Class A noteholders will have the right to
exercise remedies under the indenture; and
. only the Class A noteholders will have the right to direct or consent to
any action to be taken, other than the sale of the leases.
In any case, the Class B, the Class C and the Class D noteholders will be
entitled to their respective shares of any proceeds of enforcement, subject to
the subordination of the Class B notes, the Class C notes and the Class D notes
to the Class A notes as described in this prospectus. When the Class A notes
are repaid in full, all rights to exercise remedies under the indenture will
transfer to the indenture trustee for the Class B notes.
Similarly, after the Class A notes are repaid in full and so long as any
amounts remain unpaid with respect to the Class B notes,
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. only the trustee for the Class B noteholders will have the right to
exercise remedies under the indenture; and
. only the Class B noteholders will have the right to direct or consent to
any action to be taken, other than the sale of the leases.
Similarly, after the Class A notes and the Class B notes are repaid in full
and so long as any amounts remain unpaid with respect the Class C notes,
. only the trustee for the Class C noteholders will have the right to
exercise remedies under the indenture; and
. only the Class C noteholders will have the right to direct or consent to
any action to be taken, other than the sale of the leases.
In any case, the Class D noteholders will be entitled to their respective
shares of any proceeds of enforcement, subject to the subordination of the
Class D notes to the Class A, Class B and Class C notes as described in this
prospectus. When the Class C notes are repaid in full, all rights to exercise
remedies under the indenture will transfer to the indenture trustee for the
Class D notes.
If the trustee relating to any class of notes resigns, its resignation will
become effective only after a successor trustee for that class of notes is
appointed and the successor accepts the appointment.
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 Estate or any portion thereof, exercise remedies as a
secured party, sell the Trust Estate or any portion thereof or elect to have
the issuer maintain possession of the Trust Estate and continue to apply
collections on the Trust Estate as if there had been no declaration of
acceleration. The trustee, however, will be prohibited from selling the Trust
Estate following an event of default, unless
(1) the holders of all the outstanding notes consent to such sale;
(2) 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
(3) the trustee determines that the Trust Estate 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 principal balance of each class of
notes.
Following a declaration upon an event of default that the notes are immediately
due and payable, any proceeds of liquidation of the Trust Estate, will be
applied in the following order of priority:
(1) to the servicer, the servicing fee (if Vendor Services or an
affiliate is no longer the servicer) and any Nonrecoverable Servicer
Advances;
(2) to the reimbursement of the trustee for its expenses;
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(3) to the payment of interest, including interest on overdue interest,
due on the Class A notes until paid in full (and among each class of 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, and then on the Class D notes
until paid in full;
(4) to the payment of principal on the Class A-1 notes until paid in
full;
(5) to the payment of principal on the Class A-2, Class A-3 and Class A-
4 notes, pro rata, until paid in full;
(6) to the payment of principal on the Class B notes until paid in full;
(7) to the payment of principal on the Class C notes until paid in full;
(8) to the payment of principal on the Class D notes until paid in full;
(9) to the servicer, the servicing fee (if Vendor Services or an
affiliate is the servicer); and
(10) 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, the Controlling Noteholders will have the right to
direct the time, method and place of conducting any proceeding or any remedy
available to the trustee, and the Controlling Noteholders 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
(1) such holder previously has given to the trustee written notice of a
continuing event of default,
(2) 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,
(3) such holder or holders have offered the trustee reasonable
indemnity,
(4) the trustee has for 60 days failed to institute such proceeding, and
(5) 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
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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
. the entity formed by or surviving such consolidation or merger is
organized under the laws of the United States or any state,
. 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,
. no event of default shall have occurred and be continuing immediately
after such merger or consolidation,
. 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,
. except as expressly permitted by the indenture, sell, transfer,
exchange or otherwise dispose of any of the Trust Estate,
. 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 Internal Revenue 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,
. dissolve or liquidate in whole or in part,
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. 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
. 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 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
Wells Fargo Bank Minnesota, N.A., 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. The documents will, however, be stamped to reflect
that they have been pledged to the trustee, and will 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. Nevertheless, 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--Some leases may
not be enforceable" 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:
(1) all scheduled payments made by or on behalf of obligors under the
leases;
(2) all prepayments (unless Vendor Services has delivered a substitute
lease for such lease);
(3) all amounts constituting Liquidation Proceeds on Liquidated Leases
(unless Vendor Services has delivered a substitute lease for such lease);
and
(4) 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
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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".
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 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
. 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),
. 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),
. 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
. 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
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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
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).
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
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effect are described under "Conseco Finance 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
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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 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 servicing fee, which will be payable to the
servicer from the amount available on each payment date. For each payment date
prior to and including the July 2001 payment date, the servicing fee will be an
amount equal to the product of one-twelfth of .50% 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); for each payment date after July 2001, or if a successor
servicer is acting as servicer prior to July 2001, the servicing fee will be
calculated at a rate of .75% per annum. If on any
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payment date the servicing fee then payable to a successor servicer is less
than $75,000 (either because of an insufficient Amount Available or because the
Lease Pool Principal Balance has been reduced), the trustee will withdraw the
amount of that deficiency from the portfolio expense account and pay it to the
successor servicer. The trustee will also withdraw funds from the portfolio
expense account to pay any expenses incurred in transferring servicing
responsibilities to the successor servicer. The servicing fee will also include
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 with respect to the
servicer;
(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; or
(f) the monthly loss percentage, as defined in the contribution and
servicing agreement, exceeds 7.0% in three consecutive payment dates, and
the holders of a majority in aggregate principal amount of each
outstanding class of notes (a "Note Majority") votes to declare an Event
of Termination has occured.
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.
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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 (except for the Event of Termination
described in clause (f) above), and at the written direction of the Controlling
Noteholders shall, terminate all of the rights and obligations of the servicer
under the contribution and servicing agreement in and to the leases, whereupon
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 receive the monthly servicing fee described under "--Servicing
Compensation and Payment of Expenses" above; provided, however, that any
successor servicer shall not 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.
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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 payment date next succeeding the later of the final
payment or other liquidation of the last lease or the disposition of all
equipment acquired upon termination of any lease. 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 "Conseco Finance 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
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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 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
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"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 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.
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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 the 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. There can be no assurance that the IRS will take
a similar view of these 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: (1) a
citizen or resident of the United States; (2) 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; (3) an estate the
income of which is subject to United States federal income taxation regardless
of its source; (4) 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 (5) certain trusts in
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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
former citizens of the United States whose income and gain on the notes will be
subject to 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 those 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. 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 that de minimis OID
in income as principal payments are made on the note.
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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, that 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 the 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 these
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 redemption amount
multiplied by the number of whole years to maturity, the note will be
considered to bear market discount in the hands of the United States Holder. In
that 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 the 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 a note with market discount.
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. This 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 the 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, the holder will be considered to have
purchased the note with amortizable bond premium equal in amount to the excess,
and may elect (in accordance with applicable Code provisions) to amortize the
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 that 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
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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 the 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 the holder, increased by the amount of any OID and market
discount previously included in income by the holder with respect to the note
and reduced by any amortized bond premium and any principal payments received
by the 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, (1) the
holder does not own, actually or constructively, a 10 percent or greater
interest in either Conseco Inc. or the issuer, (2) the holder is not, for
United States federal income tax purposes, a controlled foreign
corporation related, directly or indirectly, to the issuer through stock
ownership, (3) the holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code, and (4) 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 a note, unless (1) the 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 other conditions are met or (2)
this gain is effectively connected with the conduct by the holder of a
trade or business in the United States; and
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(c) a note held by an individual who is not a citizen or resident of the
United States at the time of his or her death will not be subject to
United States federal estate tax as a result of the individual's death,
provided that, at the time of the individual's death, the individual does
not own, actually or constructively, a 10 percent or greater interest in
either Conseco Inc. or the issuer and payments with respect to the 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 (1) 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 the owner is a United States Alien Holder and must provide the owner's
name and address, and United States taxpayer identification number, if any, or
(2) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business 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 the 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 of the certificate. 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 or IRS Form W-8BEN, 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
the required 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 or IRS Form W-8BEN must be filed within 30 days of the change.
IRS Form W-8 is valid until December 31, 2000. After December 31, 2000, only
IRS Form W-8BEN will be acceptable.
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 or IRS Form W-8BEN. 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 or Form W-8BEN) are satisfied. IRS
Form 1001 is valid until December 31, 2000. After December 31, 2000, only IRS
Form W-8BEN will be acceptable.
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 that trade or business, the
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United States Alien Holder, although exempt from United States withholding tax,
will generally be subject to regular United States income tax on the 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, a holder will be required to
provide to the Trustee or the paying agent, as the case may be, a properly
executed IRS Form 4224 or IRS Form W-8ECI 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 a lower
rate provided by an applicable treaty) of its effectively connected earnings
and profits for the taxable year, subject to 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 a United States Alien Holder if the 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 until December
31, 2000. After December 31, 2000, only IRS Form W-8ECI will be acceptable.
New Withholding Rules in 2001. Effective January 1, 2001, 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 the 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.
Effective January 1, 2001, statements made on IRS forms issued under the
prior regulations will no longer be valid and United States Alien Holders will
be required to provide certification on new forms which comply with the new
withholding rules. Under a special transition rule, prior to the January 1,
2001 effective date the trustee or the paying agent may request certification
of non-United States status on forms complying with the new withholding rules.
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 various 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 the holder (1) fails to furnish its TIN which, for an individual,
would be his or her social security number, (2) furnishes an incorrect TIN, (3)
is notified by the IRS that it has failed to report properly payments of
interest and dividends or (4) 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.
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In the case of a United States Alien Holder, under current Treasury
Regulations, backup withholding will not apply to payments made by the trustee
or any paying agent thereof on a note if the 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 the 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, the custodian, nominee or other agent
will not be required to apply backup withholding to the payments made to the
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 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 from backup withholding and the procedure for
obtaining 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 the holder to a
refund, provided that the required information is furnished to the IRS.
Possible Alternative Treatment of the Notes
If, contrary to the opinion of Counsel, the IRS 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 a publicly traded
partnership could have adverse tax consequences to some holders. For example,
income to foreign holders generally would be subject to federal income tax and
federal income 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.
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ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act ("ERISA") and
Section 4975 of the Code prohibit 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, the trustee, the owner of the equity
interest in the issuer, 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."
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 AVAILABILITY OF EXEMPTIVE RELIEF
FROM THE
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<PAGE>
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 Moody's (i) rate the
Class A-1 notes "A-1+" and "P-1," respectively, (ii) rate the Class A-2 notes,
Class A-3 notes and Class A-4 notes "AAA" and "Aaa," respectively, (iii) rate
the Class B notes at least "AA" and "Aa2," respectively, (iv) rate the Class C
notes at least "A" and "A1," respectively, and (v) rate the Class D notes at
least "BBB" and "Baa2," respectively. 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. 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 Conseco Finance
Corp. 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.
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<PAGE>
UNDERWRITING
The underwriters have agreed, subject to the terms and conditions of the
underwriting agreement, to purchase from the issuer the respective principal
amounts of notes set forth opposite their names below:
<TABLE>
<CAPTION>
Class A-1 Class A-2 Class A-3 Class A-4 Class B
Notes Notes Notes Notes Notes
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
First Union Securities,
Inc.................... $ $ $ $ $
Banc of America
Securities LLC.........
----------- ----------- ----------- ----------- -----------
Totals................ $ $ $ $ $
=========== =========== =========== =========== ===========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all of the notes offered in this prospectus, if any of such offered
securities are purchased.
The issuer has been advised by the underwriters that they propose initially
to offer the notes to the public at the respective price to public shown on the
cover page of this prospectus and to certain dealers at this price less a
concession not in excess of the respective amounts set forth in the table
below, expressed as a percentage of the related principal balance.
The underwriters may allow and dealers may reallow a discount not in excess
of the respective amounts listed in the table below to certain other dealers.
<TABLE>
<CAPTION>
Selling Reallowance
Class Concession Discount
----- ---------- -----------
<S> <C> <C>
A-1 Notes........................................... % %
A-2 Notes........................................... % %
A-3 Notes........................................... % %
A-4 Notes........................................... % %
B Notes............................................. % %
</TABLE>
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. These transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the notes.
If the underwriters create a short position in the notes in connection with
the offering, for example, if they sell more notes than are set forth on the
cover page of this prospectus, the underwriters may reduce that short position
by purchasing notes in the open market.
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
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representation that the underwriters will engage in transactions or that
transactions, once commenced, will not be discontinued without notice.
Conseco Finance Corp. has agreed to indemnify the underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended. The issuer estimates that it will incur expenses of $575,000 in
connection with the offering.
The notes are new issues of securities with no established trading market.
The issuer has been advised by the underwriters that the underwriters intend to
make a market in the United States in the Class A and Class B notes 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.
Upon receipt of a request by an investor who has received an electronic
prospectus from an underwriter or a request by such investor's representative
within the period during which there is an obligation to deliver a prospectus,
we and the underwriters will promptly deliver, or cause to be delivered,
without charge, a paper copy of the prospectus supplement and prospectus.
First Union Securities, Inc. and its affiliates have provided and may from
time to time provide investment banking, consumer banking and secured lending
services to Conseco Inc. and its affiliates, and/or have held or may hold
securities issued by Conseco Inc. and its affiliates.
Banc of America Securities LLC and its affiliates have provided and may
from time to time provide investment banking, consumer banking and secured
lending services to Conseco Inc. and its affiliates, and/or have held or may
hold securities issued by Conseco Inc. and its affiliates.
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.
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INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Additional Principal...................................................... 54
Adjusted Lease............................................................ 75
Administrative Fees....................................................... 76
Amortizable Bond Premium.................................................. 83
Amount Available.......................................................... 49
Article 2A................................................................ 79
Available Pledged Revenues................................................ 49
Bankruptcy Code........................................................... 80
Benefit Plan.............................................................. 88
Book Value................................................................ 57
Clearstream............................................................... 62
Class A Percentage........................................................ 54
Class A Principal Payment................................................. 53
Class A Target Investor Principal Amount.................................. 54
Class B Floor............................................................. 54
Class B Percentage........................................................ 54
Class B Principal Payment................................................. 54
Class B Target Investor Principal Amount.................................. 55
Class C Floor............................................................. 53
Class C Percentage........................................................ 54
Class C Principal Payment................................................. 54
Class C Target Investor Principal Amount.................................. 54
Class D Floor............................................................. 55
Class D Percentage........................................................ 54
Class D Principal Payment................................................. 54
Class D Target Investor Principal Amount.................................. 54
Code...................................................................... 81
Collection Period......................................................... 56
Cooperative............................................................... 62
Counsel................................................................... 81
CPR....................................................................... 42
Cumulative Loss Amount.................................................... 55
Definitive Notes.......................................................... 63
Delinquency............................................................... 34
Depository................................................................ 48
Discount Rate............................................................. 31
DTC....................................................................... 48
Eligible Institution...................................................... 59
ERISA..................................................................... 88
Euroclear................................................................. 62
Euroclear Operator........................................................ 62
Euroclear Participants.................................................... 62
Initial Pool Principal Balance............................................ 56
Insurance, Maintenance and Tax Accounts................................... 72
Lease Pool Principal Balance.............................................. 55
Liquidated Lease.......................................................... 56
Market Discount........................................................... 83
</TABLE>
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<TABLE>
<CAPTION>
Term Page
---- ----
<S> <C>
Monthly Principal Amount................................................ 55
Nonrecoverable Servicer Advance......................................... 56
note distribution account............................................... 59
Note Majority........................................................... 76
OID..................................................................... 82
Payment Shortfall....................................................... 73
Plan Assets Regulation.................................................. 88
Pledged Revenues........................................................ 49
Prepaid Leases.......................................................... 31
PTCE.................................................................... 88
Repurchase Event........................................................ 30
Required Payoff Amount.................................................. 30
Required Reserve Amount................................................. 57
Residual Event.......................................................... 57
Residual Realizations................................................... 57
Rules................................................................... 61
Scheduled Payments...................................................... 49
Servicer Advance........................................................ 56
Statistical Discounted Present Value of the Leases...................... 31
TIN..................................................................... 86
Transfer Agent and Registrar............................................ 64
Trust Accounts.......................................................... 59
Trustee................................................................. 2, 70
United States Alien Holder.............................................. 82
United States Holder.................................................... 81
U.S. Person............................................................. A-5
Warranty Leases......................................................... 31
</TABLE>
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ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the notes will be available only
in book-entry form, which are called global notes. Investors in the global
notes may hold such global notes through any of DTC, Clearstream 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 notes through
Clearstream and Euroclear will be conducted in the ordinary way in accordance
with their normal rules and operating procedures and according to conventional
eurobond practice for example, seven calendar day settlement.
Secondary market trading between investors holding global notes through DTC
will be conducted according to the rules and procedures applicable to U.S.
corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
participants holding Notes will be effected on a delivery-against-payment basis
through the respective Depositaries of Clearstream and Euroclear, in such
capacity and DTC participants.
Non-U.S. holders of global notes will be subject to U.S. withholding taxes
unless the holders meet certain requirements and deliver appropriate U.S. tax
documents to the securities clearing organizations or their participants.
Initial Settlement
All global notes will be held in book-entry form by DTC in the name of Cede
& Co. as nominee of DTC. Investors' interests in the global notes will be
represented through financial institutions acting on their behalf as direct and
indirect participants in DTC. As a result, Clearstream 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 notes through DTC will follow the
settlement practices applicable to United States corporate debt obligations.
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 notes through Clearstream 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 notes will be credited to the
securities custody accounts on the settlement date against payments in same-day
funds.
A-1
<PAGE>
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 be sure 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.
Trading between Clearstream and/or Euroclear participants. Secondary market
trading between Clearstream participants or Euroclear participants will be
settled using the procedures applicable to conventional eurobonds in same-day
funds.
Trading between DTC seller and Clearstream or Euroclear purchaser. When
global notes are to be transferred from the account of a DTC participant to the
account of a Clearstream participant or a Euroclear participant, the purchaser
will send instructions to Clearstream or Euroclear through a Clearstream
participant or Euroclear participant at least one business day prior to
settlement. Clearstream or Euroclear, as applicable, will instruct its
depositary to receive the global notes against payment. Payment will include
interest accrued on the global notes 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
notes. After settlement has been completed, the global notes will be credited
to the applicable clearing system and by the clearing system, in accordance
with its usual procedures, to the Clearstream participant's or Euroclear
participant's account. The global notes credit will appear the next day
European time and the cash debit will be back-valued to, and the interest on
the global notes 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, for example, the trade fails, the Clearstream or Euroclear
cash debit will be valued instead as of the actual settlement date.
Clearstream 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 Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the global securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream participants or Euroclear participants can elect
not to pre-position funds and allow that credit line to be drawn upon the
finance settlement. Under this procedure, Clearstream participants or Euroclear
participants purchasing global notes would incur overdraft charges for one day,
assuming they cleared the overdraft when the global notes were credited to
their accounts. However, interest on the global notes would accrue from the
value date. Therefore, in many cases the investment income on the global notes
earned
A-2
<PAGE>
during that one-day period may substantially reduce or offset the amount of
such overdraft charges, although this result will depend on each Clearstream
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 notes to the
respective Depositary for the benefit of Clearstream 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 Clearstream or Euroclear seller and DTC purchaser. Due to
time zone differences in their favor, Clearstream participants and Euroclear
participants may employ their customary procedures for transactions in which
global notes are to be transferred by the respective clearing systems, through
their respective depositaries, to a DTC participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream participant or
Euroclear participant at least one business day prior to settlement. In these
cases, Clearstream or Euroclear will instruct their respective depositaries, as
appropriate, to deliver the notes to the DTC participant's account against
payment. Payment will include interest accrued on the global notes 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 Clearstream
participant or Euroclear participant the following day, and receipt of the cash
proceeds in the Clearstream 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 Clearstream participant or
Euroclear participant have a line of credit with its clearing system and elect
to be in debit in anticipation of receipt of the sale proceeds in its account,
the bank-valuation will extinguish any overdraft charges incurred over that
one-day period. If settlement is not completed on the intended value date, for
example the trade fails, receipt of the cash proceeds in the Clearstream
participant's or Euroclear participant's account would instead be valued as of
the actual settlement date. Finally, day traders that use Clearstream or
Euroclear and that purchase global notes from DTC participants for delivery to
Clearstream 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 Clearstream or Euroclear for one day, until the
purchase side of the day trade is reflected in their Clearstream or
Euroclear accounts in accordance with the clearing system's customary
procedures;
(b) borrowing the global notes in the U.S. from a DTC participant no
later than one day prior to settlement, which would give the global notes
sufficient time to be reflected in their Clearstream 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 Clearstream
participant or Euroclear participant.
A-3
<PAGE>
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global notes holding securities through Clearstream
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
(1) 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
(2) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption of 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 and a certificate under penalties of perjury, the Tax Certificate
that such beneficial owner is,
. not a controlled foreign corporation within the meaning of Section
957(a) of the IRS code that is related, within the meaning of
Section 864(d)(4) of the code) to the trust or the Transferor and
. not a 10 percent shareholder within the meaning of Section
871(h)(3)(B) of the IRS code of the trust or the transferor. If the
information shown on Form W-8 or the Tax Certificate changes, a new
Form W-8 or Tax Certificate, as the case may be, 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, the
owner's agent, files by
A-4
<PAGE>
submitting the appropriate form to the person through whom it holds the
security, the clearing agency, in the case of persons holding directly 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.
A U.S. person is:
(1) a citizen or resident of the United States,
(2) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof, or
(3) an estate or trust the income of which is includible in gross income
for United States tax purposes, regardless of its source.
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 notes. You
are advised to consult your own tax advisors for specific tax advice concerning
your holding and disposing of global notes.
A-5
<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 , 2000.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<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.......... $157,348
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....................................... 12,652 *
----------
Total...................................................... $575,000 *
==========
</TABLE>
--------
* Other than the registration fee, all expense items are estimates.
Item 14. Indemnification of Directors and Officers.
Conseco Finance Lease 2000-1, 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 Conseco Finance
Lease 2000-1, 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>
Conseco Finance Corp. 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 Conseco Finance Corp.
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 and all subsequent amendments thereto of
Conseco Finance Lease 2000-1, LLC.
3.2* --LLC Agreement of Conseco Finance Lease 2000-1, LLC.
3.3* --Amended and Restated 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* --Form of 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 (included on signature page)
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>
--------
* Filed herewith.
** Previously filed.
*** To be filed by amendment.
II-2
<PAGE>
Item 17. Undertakings.
Each of the undersigned, Conseco Finance Lease 2000-1, 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 the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Paul, State of Minnesota, on the 26th day of July, 2000.
Conseco Finance Lease 2000-1, LLC
By: Green Tree Lease Finance II,
Inc.
/s/ Brian F. Corey
By: _________________________________
Brian F. Corey
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 the registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of St.
Paul, State of Minnesota, on the 26th day of July, 2000.
Green Tree Lease Finance II, Inc.
/s/ Brian F. Corey
By: _________________________________
Brian F. Corey
Senior Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 26, 2000.
Signature Title Date
* President (Principal
------------------------------------- Executive Officer)
Bruce A. Crittenden and Director
/s/ Phyllis A. Knight
------------------------------------- Senior Vice
Phyllis A. Knight President and July 26, 2000
Treasurer
(Principal
Financial and
Accounting Officer)
Director
*
-------------------------------------
Joel H. Gottesman
Director
*
-------------------------------------
Paul A. Boyum
*By /s/ Phyllis A. Knight July 26, 2000
----------------------------------
Phyllis A. Knight
Attorney-in-fact
II-5
