As filed with the Securities and Exchange Commission on October 7, 1998
Registration Statement No. 333-56029
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C 20549
------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MITSUI VENDOR LEASING ASSET TRUST 1998-1
(Issuer of Securities)
MITSUI VENDOR LEASING FUNDING CORP. II
(Depositor of the above-referenced Trust)
(Exact Name of Registrant as Specified in Its Charter)
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DELAWARE 6799 APPLIED FOR
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
MITSUI VENDOR LEASING FUNDING CORP. II
6363 GREENWICH DRIVE, SUITE 100
SAN DIEGO, CALIFORNIA 92122
(619) 558-5004
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JOHN L. PLUNKETT, ESQ.
MITSUI VENDOR LEASING FUNDING CORP. II
6363 GREENWICH DRIVE, SUITE 100
SAN DIEGO, CALIFORNIA 92122
(619) 558-5004
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
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COPIES TO:
Siegfried P. Knopf, Esq. James J. Croke, Jr., Esq.
Brown & Wood LLP Cadwalader, Wickersham & Taft
One World Trade Center 100 Maiden Lane
New York, New York 10048 New York, New York 10038
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Approximate date of
commencement of proposed sale to the public:
As soon as practicable after
this Registration Statement becomes effective.
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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, 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. /_/
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED OFFERING AGGREGATE REGISTRATION
PRICE PER UNIT(1) OFFERING PRICE(1) FEE(2) (3)
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Class A-1 Receivable-Backed Notes.............. $200,000 100% $200,000 $59.00
- --------------------------------------------------- --------------- ------------------- -------------------- -----------------
Class A-2 Receivable-Backed Notes.............. $200,000 100% $200,000 $59.00
- --------------------------------------------------- --------------- ------------------- -------------------- -----------------
Class A-3 Receivable-Backed Notes.............. $200,000 100% $200,000 $59.00
- --------------------------------------------------- --------------- ------------------- -------------------- -----------------
Class B Receivable-Backed Notes................ $200,000 100% $200,000 $59.00
- --------------------------------------------------- --------------- ------------------- -------------------- -----------------
Class C Receivable-Backed Notes................ $200,000 100% $200,000 $59.00
=================================================== =============== =================== ==================== =================
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(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) A total Registration Fee of $303.03 has been previously paid by the
Registrant.
(3) Pursuant to Rule 457(o) under the Securities Act of 1993, the registration
fee has been calculated on the basis of the proposed maximum offering price for
the Notes.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted without the delivery of a final prospectus. This
prospectus shall not constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Preliminary Prospectus dated October 7, 1998; Subject to Completion
PROSPECTUS
Mitsui Vendor Leasing Asset Trust 1998-1
Issuer
$____% Class A-1 Receivable-Backed Notes $____% Class B Receivable-Backed Notes
$____% Class A-2 Receivable-Backed Notes $____% Class C Receivable-Backed Notes
$____% Class A-3 Receivable-Backed Notes
Mitsui Vendor Leasing Funding Corp. II
Trust Depositor
Mitsui Vendor Leasing (U.S.A.) Inc.
Seller and Servicer
--------------------------------
Mitsui Vendor Leasing Asset Trust 1998-1 (the "Trust" or the "Issuer")
is a limited purpose business trust to be formed under the laws of the State of
Delaware pursuant to a Trust Agreement, dated as of _________, 1998, between
Mitsui Vendor Leasing Funding Corp. II ("MVLFC II"), as trust depositor (in such
capacity, the "Trust Depositor" ), and Wilmington Trust Company, as owner
trustee (the "Owner Trustee"). MVLFC II is a wholly owned subsidiary of Mitsui
Vendor Leasing (U.S.A.) Inc. ("Mitsui Vendor Leasing"). The Trust will issue the
five Classes of Notes listed above pursuant to an indenture, dated as of
__________________, 1998 (the "Indenture"), between the Trust and Bankers Trust
Company, as indenture trustee (in such capacity, the "Indenture Trustee"). To
the extent described herein, payments of interest and principal on the Class B
Notes will be subordinated in priority of payment to interest and principal,
respectively, on the Class A Notes, and payments of interest and principal on
the Class C Notes will be subordinated in priority of payment to interest and
principal, respectively, on the Class A Notes and the Class B Notes. The Notes
will represent asset-backed debt obligations of the Trust and will be secured
pursuant to the Indenture, as more fully described herein, by (i) a pool of
manufacturing, business and healthcare equipment leases and conditional sale
agreements, (the "Contracts"), (ii) all of the Seller's interest in the related
equipment, and (iii) rights in the Sale and Servicing Agreement and Transfer and
Sale Agreement. See "Description of the Notes" herein. (cover continued on next
page)
--------------------------------
THERE ARE MATERIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE NOTES.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH UNDER
"RISK FACTORS" ON PAGE 17 OF THIS PROSPECTUS.
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND WILL NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF MITSUI VENDOR LEASING (U.S.A.) INC.,
MITSUI VENDOR LEASING FUNDING CORP. II OR ANY OF THEIR AFFILIATES, OTHER THAN
THE TRUST.
--------------------------------
THESE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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Price to Public Underwriting Proceeds to Issuer
(1) Discounts and (1)(3)
Commissions(2)
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Per Class A-1 Note............................................... % % %
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Per Class A-2 Note............................................... % % %
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Per Class A-3 Note............................................... % % %
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Per Class B Note................................................. % % %
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Per Class C Note................................................. % % %
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Total............................................................ $ $ $
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(1) Plus accrued interest, if any, at the applicable Interest Rate from
___________, 1998.
(2) MVLFC II and Mitsui Vendor Leasing have agreed to indemnify the
Underwriter against certain liabilities, including liabilities under
the Securities Act of 1933. See "Plan of Distribution."
(3) Before deducting expenses of this offering estimated to be $_______.
The Notes are offered by First Union Capital Markets, a division of
Wheat First Securities, Inc. (the "Underwriter"), subject to prior sale, when,
as and if issued to and accepted by it and subject to its right to reject any
order in whole or in part or to withdraw, cancel or modify any order without
notice. It is expected that delivery of the Notes will be made in book-entry
form only through the Same Day Funds Settlement System of The Depository Trust
Company, or through Cedel Bank, S.A. or the Euroclear System, on or about ,
1998.
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First Union Capital Markets
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The date of this Prospectus is _________, 1998.
(cover page continued)
The Contracts and related interests will be conveyed by Mitsui Vendor
Leasing (in such capacity, the "Seller") to the Trust Depositor pursuant to a
transfer and sale agreement dated as of __________________, 1998 (the "Transfer
and Sale Agreement") by and between the Seller and the Trust Depositor. The
Trust Depositor will concurrently convey such assets to the Trust pursuant to a
sale and servicing agreement dated as of __________, 1998 (the "Sale and
Servicing Agreement") among the Trust, the Trust Depositor, Mitsui Vendor
Leasing, as servicer (in its capacity as servicer, the "Servicer") and Bankers
Trust Company, as back-up servicer (in such capacity, the "Back-up Servicer")
and as Indenture Trustee.
Interest on the Notes will be payable monthly in arrears on the
twenty-fifth (25th day) day of the month (or, if such day is not a Business Day,
the next succeeding Business Day) beginning on ___________, 1998 (each, a
"Payment Date") with respect to the period from and including the immediately
preceding Payment Date (or, with respect to the initial Payment Date, the date
of issuance of the Notes) to and excluding such Payment Date. Principal payments
with respect to the Notes will be payable on each Payment Date to the extent
described herein. The stated maturity date with respect to the Class A-1 Notes
is the ________ ____ Payment Date, with respect to the Class A-2 Notes is the
________ ____ Payment Date and, with respect to the other Classes of Notes is
the ________ ____ Payment Date. The actual payment in full, however, of the
Notes could and is expected to occur earlier than such stated maturity dates.
See "Summary of Terms--Terms of the Notes--B. Principal" herein. In addition,
the Trust Depositor will have the option to repurchase all remaining Contracts
and related assets, and thus effect early redemption of the Notes, on any
Payment Date on or after which the aggregate of Discounted Contract Balances
(determined as described herein) of all Contracts included in the Contract Pool
has declined to 15% or less of such aggregate amount as of the initial Cutoff
Date. See "Summary of Terms--Terms of the Notes--C. Optional Redemption" herein.
The Notes are being offered pursuant to this Prospectus. Sales of the
Notes may not be consummated unless the purchaser has received this Prospectus.
The Trust Depositor does not intend to apply for listing of the Notes
on any securities exchange or for the inclusion of the Notes on any automated
quotation system.
There currently is no secondary market for the Notes and there is no
assurance that one will develop, or if one does develop, that it will continue
or provide sufficient liquidity.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
REPORTS TO NOTEHOLDERS
During such time as the Notes remain in book-entry form, periodic and
annual unaudited reports, containing information concerning the Trust, the
Contracts and the Notes, will be prepared by the Servicer and sent on behalf of
the Issuer to Cede & Co. ("Cede"), as nominee of The Depository Trust Company
("DTC"), and the Euroclear System ("Euroclear") or Cedel Bank, S.A. ("CEDEL") as
registered holders of the Notes. Such reports will be made available by DTC,
Euroclear or CEDEL and its participants to holders of interests in the Notes in
accordance with the rules, regulations and procedures creating and affecting
DTC, Euroclear and CEDEL, respectively. See "Description of the
Notes--Book-Entry Registration" and "--Reports" herein. Such reports will not
constitute financial statements prepared in accordance with generally accepted
accounting principles or that have been examined and reported upon by, with an
opinion expressed by, an independent or certified public accountant.
AVAILABLE INFORMATION
The Trust Depositor, as originator of the Trust, has filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
(together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes offered pursuant to this Prospectus and described
herein. For further information, reference is made to the Registration Statement
which may be inspected and copied at the public reference facilities maintained
by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549;
Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, Suite 1300, New York, New York 10048. Copies of the
Registration Statement may be obtained from the Public Reference Branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also maintains a public access site on the Internet
through the World Wide Web at which site reports, information statements and
other information, including all electronic filings, regarding the Trust
Depositor and the Trust may be viewed. The Internet address of such World Wide
Web site is http://www.sec.gov. The Servicer, on behalf of the Trust, will also
file or cause to be filed with the Commission such periodic reports as are
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the rules and regulations of the Commission thereunder. Copies of such
reports can be obtained as described above. However, in accordance with the
Exchange Act and the rules and regulations of the Commission thereunder, the
Servicer expects that the Trust's obligation to file such reports will be
terminated following the end of 1998.
Upon receipt of a request by an investor, or his or her representative,
within the period during which there is an obligation to deliver a Prospectus,
the Underwriter will promptly deliver, or cause to be delivered, without charge
and in addition to any such delivery requirements, a paper copy of this
Prospectus and a Prospectus encoded in an electronic format.
SUMMARY OF TERMS
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used in this summary are defined elsewhere in this Prospectus on the pages
indicated under the heading "Index of Terms" commencing on page 76.
There are material risks associated with an investment in the Notes.
See "Risk Factors" on page 18 for a discussion of certain factors that investors
should consider before making an investment in the Notes.
Issuer...................... Mitsui Vendor Leasing Asset Trust
1998-1, (the "Issuer" or the "Trust"), a
Delaware business trust to be formed by
the Trust Depositor and the Owner
Trustee pursuant to the Trust Agreement,
dated as of __________, 1998 (the "Trust
Agreement"), between the Trust Depositor
and the Owner Trustee. The principal
executive offices of the Trust will be
in Wilmington, Delaware, in care of the
Owner Trustee, at the address of the
Owner Trustee specified below.
Trust Depositor............. Mitsui Vendor Leasing Funding Corp. II,
a Delaware corporation (the "Trust
Depositor") and a wholly-owned, limited
purpose subsidiary of Mitsui Vendor
Leasing (U.S.A.) Inc. The Trust
Depositor's principal executive offices
are located at 6363 Greenwich Drive,
Suite 100, San Diego, California 92122
and its telephone number is (619)
558-5004. See "The Trust" herein.
Seller/Servicer............. Mitsui Vendor Leasing (U.S.A.) Inc., a
Delaware corporation ("Mitsui Vendor
Leasing," or, in its separate capacities
as a Seller under the Transfer and Sale
Agreement, or as Servicer under the Sale
and Servicing Agreement described
herein, the "Seller" and the "Servicer,"
respectively). Mitsui Vendor Leasing's
offices are located at 6363 Greenwich
Drive, Suite 100, San Diego, California
92122 and its telephone number is (619)
558-5004. See "Mitsui Vendor Leasing
(U.S.A.) Inc." herein.
Indenture Trustee........... Bankers Trust Company, a New York
banking corporation as indenture trustee
under the Indenture described herein (in
such capacity, the "Indenture Trustee").
The Indenture Trustee's corporate trust
office is located at Four Albany Street,
New York, New York 10004. See "The
Indenture--The Indenture Trustee"
herein.
Owner Trustee............... Wilmington Trust Company, a Delaware
Trust Company as owner trustee under the
Trust Agreement (the "Owner Trustee").
The Owner Trustee's offices are located
at 1100 North Market Street, Wilmington,
Delaware 19890.
Back-up Servicer............ Bankers Trust Company, a New York
banking corporation as back-up servicer
under the Sale and Servicing Agreement
described herein (in such capacity, the
"Back-up Servicer"). Pursuant to the
Sale and Servicing Agreement, the
Back-up Servicer will become the
successor Servicer upon any resignation
or termination of the Servicer. See "The
Transfer and Sale Agreement and Sale and
Servicing Agreement Generally--Back-up
Servicer" herein.
Cutoff Date................. With respect to the Contracts
transferred to the Trust on the Closing
Date, October 1, 1998, and with respect
to any Additional Contract or Substitute
Contract transferred to the Trust
thereafter, the opening of business on
the first day of the calendar month in
which such transfer occurs (each of such
dates, the "Cutoff Date," an "Additional
Contract Cutoff Date" or a "Substitute
Contract Cutoff Date," respectively).
The term "Cutoff Date," when used herein
in the context of general references to
the Contracts, should be deemed to
include a reference to the Additional
Contract Cutoff Date and Substitute
Contract Cutoff Date of any Additional
Contract or Substitute Contract included
in the Contracts, unless otherwise
specified or unless the context
otherwise clearly requires.
Closing Date................ On or about ________ __, 1998 (the
"Closing Date").
Collection Periods,
Calculation Dates,
Payment Dates
and Record Dates............ The period from and including the first
day of each calendar month to and
including the last day of the calendar
month (such last day, the "Calculation
Date" and each such period, a
"Collection Period").
A "Payment Date" is the twenty-fifth
(25th) day (or if any such date is not a
"Business Day," i.e., a day other than a
Saturday, a Sunday or a day on which
banking institutions in San Diego,
California or New York, New York are
authorized or obligated by any law or
regulation to be closed or a day that
Mitsui Vendor Leasing is not open for
business, then on the next succeeding
Business Day) of each calendar month
commencing ________ __, 1998. The
"Collection Period" relating to any
particular Payment Date shall be the
calendar month preceding the month in
which such Payment Date occurs.
With respect to any Payment Date and the
Notes, the "Record Date" is the day
immediately preceding each Payment Date
(or, with respect to any Definitive
Note, the last day of the calendar month
preceding the month in which such
Payment Date occurs).
The Notes................... $___________ aggregate principal amount
(the "Class A-1 Initial Note Principal
Balance") of _____% Class A-1
Receivable-Backed Notes (the "Class A-1
Notes"), $___________ aggregate
principal amount (the "Class A-2 Initial
Note Principal Balance") of _____% Class
A-2 Receivable-Backed Notes (the "Class
A-2 Notes"), and $___________ aggregate
principal amount (the "Class A-3 Initial
Note Principal Balance" and together
with the Class A-1 Initial Note
Principal Balance and the Class A-2
Initial Note Principal Balance, the
"Class A Initial Note Principal
Balance") of _____% Class A-3
Receivable-Backed Notes (the "Class A-3
Notes" and together with the Class A-1
Notes and the Class A-2 Notes, the
"Class A Notes"); $__________ aggregate
principal amount (the "Class B Initial
Note Principal Balance") of _____% Class
B Receivable-Backed Notes (the "Class B
Notes"); and $__________ aggregate
principal amount (the "Class C Initial
Note Principal Balance") of _____% Class
C Receivable-Backed Notes (the "Class C
Notes"; and together with the Class A
Notes and the Class B Notes, the
"Notes"). The Class A Initial Note
Principal Balance is equal to
approximately ____% of the sum of the
Discounted Contract Balances of all
Contracts included in the Contract Pool
(such sum, the "ADCB") as of the initial
Cutoff Date (with the Class A-1 Initial
Note Principal Balance, the Class A-2
Initial Note Principal Balance and the
Class A-3 Initial Note Principal Balance
equal to approximately __%, __% and __%,
respectively, of the initial ADCB of the
Contract Pool), the Class B Initial Note
Principal Balance is equal to
approximately _____% of the initial ADCB
of the Contract Pool, and the Class C
Initial Note Principal Balance is equal
to approximately _____% of the initial
ADCB of the Contract Pool.
The Notes will be issued by the Trust
pursuant to an indenture dated as of
________ __, 1998 (the "Indenture")
between the Issuer and the Indenture
Trustee. The Notes will be secured by
the Contracts and the other Trust Assets
pledged by the Issuer to the Indenture
Trustee under the Indenture. The Notes
will be available for purchase in
book-entry form only in minimum
denominations of $1,000 and integral
multiples thereof (except for one Note
of each Class which, for rounding
purposes, may be less than an integral
multiple thereof). The holders of
beneficial interests in the Notes held
in book-entry form ("Note Owners") will
not be entitled to receive Definitive
Notes except in the limited
circumstances described herein. See
"Description of the Notes--General" and
"--Definitive Notes" and "--Book-Entry
Registration" herein.
The Class B Notes and the Class C Notes
will be subordinated to the Class A
Notes to the extent described herein and
the Class C Notes will be subordinated
to the Class B Notes to the extent
described herein. See "Description of
the Notes--Allocations" herein.
Trust Assets................ The assets pledged to the Indenture
Trustee to secure the Notes will consist
the following (the "Trust Assets"): (i)
all right, title and interest of the
Seller conveyed pursuant to the Transfer
and Sale Agreement in and to (A) the
Contracts (including all Additional
Contracts and Substitute Contracts, if
any), (B) all monies due or to become
due in payment of such Contracts after
the related Cutoff Date, including any
prepayments, and any Recoveries received
with respect thereto, but excluding any
Scheduled Payments due prior to the
related Cutoff Date and any Excluded
Amounts, (C) the related Equipment
(which may be limited to a security
interest therein) including all proceeds
from any sale or other disposition of
such Equipment, (D) all related Contract
files (including the executed copy of
the Contract, any title document with
respect to the Equipment, and any
related documents delivered to the
Seller or held by the Servicer with
respect to the Contracts) (the "Contract
Files"), (E) any proceeds with respect
to each such Contract under any related
Vendor Assignment, Vendor Program
Agreement and any other guarantee or
similar credit enhancement with respect
thereto and (F) any Insurance Proceeds
with respect to each Contract, (ii) such
amounts as from time to time may be held
in the Collection Account, together with
all net investment earnings on funds
therein, (iii) the rights of the Trust
Depositor under the Transfer and Sale
Agreement, (iv) the rights of the Trust
under the Sale and Servicing Agreement ,
(v) amounts available, if any, in the
Reserve Fund, together with earnings on
the funds therein and (vi) proceeds of
any of the foregoing. See "The Transfer
and Sale Agreement and Sale and
Servicing Agreement
Generally--Conveyance of Contracts"
herein. For a description of Excluded
Amounts, see "The Contracts Generally".
A. Contracts............... The Contracts to be included in the pool
of Contracts pledged by the Issuer to
the Indenture Trustee pursuant to the
Indenture (the "Contract Pool") consist
of leases (each, a "Lease") or
conditional sale agreements (each, a
"CSA") relating to the lease or sale of
Equipment.
The Contracts have the characteristics
specified in the Transfer and Sale
Agreement and described herein, and will
be purchased by the Trust Depositor from
the Seller on the Closing Date pursuant
to the Transfer and Sale Agreement and
concurrently conveyed to the Trust by
the Trust Depositor pursuant to the Sale
and Servicing Agreement. The Seller,
will make certain representations and
warranties concerning the Contracts,
including that all of the Contracts are
commercial, rather than consumer, leases
or financing arrangements, and that no
adverse selection process was employed
in the selection of Contracts for sale
under the Transfer and Sale Agreement.
See "The Transfer and Sale Agreement and
Sale and Servicing Agreement
Generally--Representations and
Warranties," "Use of Proceeds" and "The
Contract Pool" herein.
As of the initial Cutoff Date, the
Contract Pool had the following
characteristics (unless otherwise noted,
percentages are calculated by reference
to Discounted Contract Balances of the
related Contracts as a percentage of the
ADCB of the Contract Pool):
(i) there were Contracts in
the Contract Pool;
(ii) the ADCB of the Contract
Pool was $ ;
(iii) the final scheduled
payment date of the Contract with the
latest maturity or expiration was ,
200_;
(iv) the average Discounted
Contract Balance was approximately $ ;
(v) all of the Contracts had
(A) original terms to maturity of not
less than months and not more than
months, with a weighted average original
term to maturity of approximately months
and (B) a remaining term to maturity of
not less than 1 month and not more than
months, with a weighted average
remaining term to maturity of
approximately months; and
(vi) the underlying end-users
of the Equipment (the "End-Users") in
respect of approximately % of the
Contracts were located in the State of
California; approximately % were located
in the State of __________;
approximately % were located in the
State of ; and in no other state
represented more 5.00% of the Contracts.
See "Risk Factors - Certain Risks
Associated with Geographic
Concentrations of Contracts" and "The
Transfer and Sale Agreement and Sale and
Servicing Agreement Generally --
Concentration Amounts" herein.
None of the Contracts was originated
outside the United States or was sold to
an End-User located, or permits the
related Equipment to be located, outside
the United States. For further
information regarding the Contracts ,
see "The Contract Pool" and "The
Contracts Generally," as well as "The
Sale and Servicing Agreement
Generally--Representations and
Warranties" and "--Concentration
Amounts" herein.
The statistical information concerning
the Contracts set forth in this
Prospectus is based upon information as
of the opening of business on the Cutoff
Date and, to the extent it involves
calculations of Discounted Contract
Balances or the ADCB, upon an assumed
discount rate for the Contracts that is
equal to _____% (the "Statistical
Discount Rate"). The actual Discount
Rate for the Contracts will be
calculated as determined under "ADCB"
below. Although the Discounted Contract
Balances and the ADCB calculated at the
Discount Rate will vary somewhat from
the Discounted Contract Balances and
ADCB calculated at the Statistical
Discount Rate, such variance will not be
material.
Between the initial Cutoff Date and the
Closing Date some amortization of the
Contract Pool is expected to occur. In
addition, certain Contracts included in
the Contract Pool as of the initial
Cutoff Date may be determined not to
meet the eligibility requirements for
the final Contract Pool, and may not be
included in the final Contract Pool. To
the extent a Contract is determined not
to meet the eligibility requirements for
the Contract Pool, the Seller will
pursue one of two options: (i)
repurchase the ineligible Contract or
(ii) substitute for the ineligible
Contract a new Contract having similar
characteristics and meeting the
requirements described herein (a
"Substitute Contract"). The combined
effect of amortization of the Contract
Pool, and any such repurchases or
substitutions, together with the
calculation in this Prospectus of
Discounted Contract Balances and the
ADCB using the Statistical Discount Rate
will be to cause the statistical
distribution of the characteristics as
of the Closing Date for the Contract
Pool to vary somewhat from the
statistical distribution of such
characteristics as of the initial Cutoff
Date as presented in this Prospectus.
However, the variance of the statistical
distribution of the characteristics for
the Contract Pool presented herein will
in no case be greater than 5% (plus or
minus) of the ADCB of the statistical
distribution of the characteristics for
the actual Contract Pool.
In addition, in connection with any
Contract for which a full contractual
payment has not been received from the
End-User for more than 120 days or which
the Servicer determines, in accordance
with its customary and usual practices,
is not collectible (each, a "Defaulted
Contract"), the Seller will have the
option under the Sale and Servicing
Agreement to substitute for such
Defaulted Contract one or more
Substitute Contracts. See "Mitsui Vendor
Leasing (U.S.A.) Inc.--Write-Off Policy"
herein.
Also, the Servicer may, at its option,
make a modification to or adjustment of
the terms of a Contract that would not
otherwise be permissible under the Sale
and Servicing Agreement (unless the
Contract was to be prepaid in full)
(each, an "Adjusted Contract"), if the
Servicer contemporaneously substitutes
one or more Substitute Contracts for
such Adjusted Contract. See "The
Transfer and Sale Agreement and Sale and
Servicing Agreement Generally --
Collection and Other Servicing
Procedures" for a description of
Contract modifications or adjustments
that are permissible servicing
activities under the Sale and Servicing
Agreement.
The ADCB of the Defaulted Contracts and
Adjusted Contracts for which the Seller
or Servicer may cause the substitution
of Substitute Contracts is limited to an
amount not in excess of 10% of the ADCB
of the Contract Pool as of the initial
Cutoff Date.
In addition, the Servicer may at its
option, under the terms of the Sale and
Servicing Agreement, permit or agree to
the early termination or full prepayment
of any Contract in certain
circumstances, and on the terms and
subject to the conditions more fully
specified in the Sale and Servicing
Agreement (any such Contract for which
there is an early termination or full
prepayment, a "Prepaid Contract"). Such
circumstances may include, without
limitation, a full or partial buyout of
the Equipment which is the subject of
the Contract, or an Equipment upgrade.
The amount of the prepayment in full
must not be less than the sum of (a) the
Discounted Contract Balance of such
Contract on the Determination Date
immediately prior to the date of
prepayment plus any accrued interest
thereon at the Discount Rate to the date
of prepayment and (b) any unreimbursed
Servicer Advances witih respect thereto.
With respect to any Prepaid Contract the
Servicer may at its option either (x)
include such prepayment in full in the
Available Amount for the related Payment
Date or (y) reinvest the prepayment
proceeds of such Prepaid Contract in one
or more new Contracts having similar
characteristics to such Prepaid Contract
(each, an "Additional Contract").
Additional Contracts and Substitute
Contracts (i) will be conveyed to the
Trust Depositor pursuant to the Transfer
and Sale Agreement, by the Trust
Depositor to the Issuer pursuant to the
Sale and Servicing Agreement, and in
turn pledged by the Issuer to the
Indenture Trustee pursuant to the
Indenture and (ii) must meet the
Contract Pool concentration limitations
and the other substitution or addition
requirements described herein. See "The
Transfer and Sale and Sale and Servicing
Agreement Generally--Representations and
Warranties" herein. In addition, either
the final scheduled payment on such
Substitute Contract or Additional
Contract will be on or prior to the
_______ ______ Payment Date or, to the
extent the final payment on such
Contract is due after the ______ ______
Payment Date, only Scheduled Payments
due on or prior to such date may be
included in the Discounted Contract
Balance of such Contract for the purpose
of making any calculation under the
Indenture or the Sale and Servicing
Agreement.
B. Equipment............... All of the Seller's right, title and
interest (which may be limited to a
security interest) in the Equipment
subject to each Lease and the security
interest of the Seller in the Equipment
subject to each CSA included in the
Contract Pool will be transferred to the
Trust Depositor pursuant to the Transfer
and Sale Agreement and to the Issuer
pursuant to the Sale and Servicing
Agreement and will be pledged by the
Issuer to the Indenture Trustee pursuant
to the Indenture. Equipment will include
a variety of machine tools (such as
machining centers, lathes, milling
machines and cutting machinery), medical
equipment (such as diagnostic and
therapeutic examination equipment for
radiology, nuclear medicine and
ultrasound and laboratory analysis
equipment), photo-finishing equipment,
plastic injection molding equipment and
computer equipment (such as inventory
control and tracking computer equipment,
computer work stations, personal
computers, data storage devices and
other computer related peripheral
equipment). See "The Contracts
Generally--Equipment" and "The Contract
Pool" herein. In the event the End-User
defaults in its obligation to make
payments under any Contract, the
Servicer will follow its customary and
usual collection procedures, which may
include the repossession and sale of any
related Equipment on behalf of the
Trust. Any Recoveries from such sale
shall constitute Available Amounts. See
"The Contracts Generally--Equipment,"
and "Description of the Notes--Defaulted
Contracts" herein.
C. Collection
Account............... A trust account will be established by
the Servicer in the name of and
maintained by the Indenture Trustee (the
"Collection Account") into which all
amounts that will be collected in
respect of the Contracts will be
deposited in accordance with the Sale
and Servicing Agreement and the
Indenture. See "Description of the
Notes--Collection Account" herein.
D. Vendor
Agreements............ The Seller acquired the Contracts by
assignments (each, a "Vendor
Assignment") from equipment
manufacturers, dealers and distributors
(each, a "Vendor") who originated the
Contracts in connection with the
acquisition or use by an End-User of a
Vendor's Equipment.
A substantial portion of the Vendor
Assignments (representing approximately
___% of the ADCB of the Contract Pool as
of the initial Cutoff Date) will be made
pursuant to finance program agreements
(each, a "Vendor Program Agreement")
with the Vendors pursuant to which the
Seller finances transactions relating to
the acquisition or use by an End-User of
the Vendor's Equipment. The Vendor
Assignments, the Vendor Program
Agreements or a combination thereof
generally provide for various forms of
support from Vendors with respect to the
Contracts. Such support generally
includes representations and warranties
by Vendors with respect to the Contracts
(and repurchase obligations in case of a
breach of such representations and
warranties) and remarketing support by
the Vendor with respect to the Equipment
in the event of an End-User default. The
Vendor Assignments and Vendor Program
Agreements generally do not provide
direct recourse against the Vendor for
End-User defaults. See "The Contracts
Generally--Vendor Program Agreements"
and "--Other Vendor Arrangements"
herein.
The Seller's rights under the Vendor
Assignments and the Vendor Program
Agreements (to the extent related to the
Contracts ) will be assigned to the
Issuer on the Closing Date and in turn
will be pledged by the Issuer to the
Indenture Trustee under the Indenture.
E. Reserve Fund............ A trust account has been established by
the Trust Depositor in the name of, and
maintained by, the Indenture Trustee
(the "Reserve Fund"). On the Closing
Date the Trust Depositor will deposit
(or cause to be deposited) $___________
in the Reserve Fund (which is equal to %
of the ADCB of the Contract Pool as of
the initial Cutoff Date) (the "Initial
Reserve Fund Deposit"). Pursuant to the
Sale and Servicing Agreement, the amount
on deposit at any time in the Reserve
Fund (the "Reserve Fund Amount") will be
required to equal the lesser of (a) the
Initial Reserve Fund Deposit and (b) the
aggregate outstanding principal amount
of the Notes. Such amount required to be
held in the Reserve Fund is referred to
herein as the "Required Reserve Fund
Amount."
Amounts held from time to time in the
Reserve Fund will continue to be held
for the benefit of the Noteholders
through the date on which the Notes are
paid in full. On each Payment Date, the
Reserve Fund Amount will be applied as
described under "Description of the
Notes--Allocations" and "--Reserve Fund"
herein to the extent that Available
Amounts with respect to any Payment Date
are less than the amount necessary to
pay interest on the Notes, provided that
upon the occurrence of an Event of
Default or a Restricting Event, any
amounts remaining in the Reserve Fund
shall be applied to pay the principal on
the Notes. On any Payment Date if, after
giving effect to all allocations and
distributions on such Payment Date, the
Reserve Fund Amount exceeds the Required
Reserve Fund Amount, such excess will be
distributed to the Seller. Upon any such
distributions to the Seller, the
Noteholders will have no further rights
in, or claims to, such amounts.
The Seller may, from time to time after
the date of this Prospectus, request
each Rating Agency that rated the Notes
to approve a decrease in the Required
Reserve Fund Amount. If each Rating
Agency delivers a letter to the Seller
and the Indenture Trustee to the effect
that such decrease in the Required
Reserve Fund Amount will not in and of
itself result in a qualification,
reduction or withdrawal of its then
current rating of any Class of Notes,
then the Required Reserve Fund Amount
will be so decreased. The Sale and
Servicing Agreement will be amended to
reflect such decrease in the Required
Reserve Fund Amount without the consent
of any Noteholder.
Terms of the Notes.......... The principal terms of the Notes will be
as described below:
A. Interest................ Interest on the outstanding principal
amount of the Notes will accrue on the
basis of a year of 360 days consisting
of twelve 30 day months from and
including the most recent Payment Date
on which interest has been paid (or, in
the case of the initial Payment Date,
from and including the Closing Date) to
but excluding the following Payment Date
(each period for which interest accrues
on the Notes, an "Accrual Period"),
except that interest on the Class A-1
Notes will be calculated on the basis of
the actual number of days in each
Accrual Period divided by 360. Interest
on the Notes will be payable on each
Payment Date to the holders of record of
the Class A Notes (the "Class A
Noteholders"), the holders of record of
the Class B Notes (the "Class B
Noteholders") and the holders of record
of the Class C Notes (the "Class C
Noteholders"; together with the Class A
Noteholders and the Class B Noteholders,
the "Noteholders") as of the related
Record Date. See "Description of the
Notes--General" and "--Interest" herein.
Interest on the Notes will be payable on
each Payment Date from Available Amounts
for such Payment Date, to the extent
Available Amounts remain after payment
of any unpaid Servicer Advances and the
Servicing Fee. If on any Payment Date,
after any unpaid Servicer Advances and
the Servicing Fee have been paid,
Available Amounts are insufficient to
pay all interest due on the Notes, the
remaining Available Amounts will be
allocated first to pay all interest due
on the Class A Notes (and will be
allocated among each Class of the Class
A Notes pro rata based on the ratio of
the interest payable on the Class A-1,
Class A-2 and Class A-3 Notes, as
applicable, to the interest payable on
the Class A Notes as a whole), second to
pay all interest due on the Class B
Notes, and third to pay all interest due
on the Class C Notes.
Available Amounts represent primarily
collections of payments due under the
Contracts, certain amounts received upon
the prepayment or repurchase of
Contracts or liquidation of the
Contracts and disposition of the related
Equipment upon defaults thereunder, and
proceeds of Servicer Advances, if any,
amounts allocated from the Reserve Fund,
if any, as well as earnings on amounts
held in the Collection Account and the
Reserve Fund. See "Description of the
Notes--Allocations" herein.
B. Principal............... Principal of the Class A Notes will be
payable on each Payment Date in an
amount equal to the Class A Principal
Payment Amount for such Payment Date, to
the extent Available Amounts remain,
after payment of any unpaid Servicer
Advances, the Servicing Fee and interest
payments due on the Notes. The Class A
Principal Payment Amount will be
allocated sequentially among the Class
A-1, Class A-2 and Class A-3 Notes so
that the entire Class A Principal
Payment Amount will be allocated, first,
to the Class A-1 Notes until the Class
A-1 Notes are paid in full, second, to
the Class A-2 Notes until the Class A-2
Notes are paid in full and, third, to
the Class A-3 Notes until the Class A-3
Notes are paid in full; provided that,
should any Event of Default or
Restricting Event have occurred and be
continuing, the Class A Principal
Payment Amount will continue to be
allocated first to the Class A-1 Notes
until the Class A-1 Notes are paid in
full but will otherwise be allocated
among the Class A-2 and Class A-3 Notes
on a pro rata basis. See "Description of
the Notes--Allocations" herein.
Principal of the Class B Notes will be
payable on each Payment Date in an
amount equal to the Class B Principal
Payment Amount for such Payment Date, to
the extent Available Amounts are
available therefor, after payment of any
unpaid Servicer Advances, the Servicing
Fee, interest payments due on the Notes,
and the payment of the Class A Principal
Payment Amount. See "Description of the
Notes--Allocations" herein.
Principal of the Class C Notes will be
payable on each Payment Date in an
amount equal to the Class C Principal
Payment Amount for such Payment Date, to
the extent Available Amounts are
available therefor, after payment of any
unpaid Servicer Advances, the Servicing
Fee, interest payments due on the Notes,
and the payment of the Class A Principal
Payment Amount and the Class B Principal
Payment Amount. See "Description of the
Notes--Allocations" herein.
The Class A Principal Payment Amount,
the Class B Principal Payment Amount and
the Class C Principal Payment Amount for
any Payment Date represent the
Applicable Percentage for each such
Class for such Payment Date times the
Aggregate Principal Paydown Amount for
such Payment Date. As a result of the
levels of the Applicable Percentage
described below, all amounts to be
distributed as principal of the Notes
will be distributed on the Class A-1
Notes until the Class A-1 Notes are paid
in full. In addition principal payment
amounts on the Notes of each Class are
payable on any Payment Date only to the
extent that Available Amounts for such
Payment Date remain after payment of any
unpaid Servicer Advances, the Servicing
Fee, interest payments on the Notes and,
in the case of the Class B Notes, the
Class A Principal Payment Amount and, in
the case of the Class C Notes, the Class
A Principal Payment Amount and the Class
B Principal Payment Amount. As a result,
any deficiency in the payment of such
principal payment amounts on any Payment
Date that is due to the limited
Available Amounts remaining after
payment of all amounts payable therefrom
having a higher priority will not
constitute an Event of Default under the
Indenture. To the extent the Notes of
any Class remain outstanding on the
stated maturity of such Class, failure
to pay the Notes of such Class in full
on such date will constitute an Event of
Default. See "Description of the
Notes--Events of Default."
The "Aggregate Principal Paydown Amount"
means, for any Payment Date, an amount
(not less than zero) equal to (a) the
ADCB of the Contract Pool as of the
beginning of business on the first day
of the immediately preceding Collection
Period, minus (b) the ADCB of the
Contract Pool as of the close of
business on the last day of the
immediately preceding Collection Period.
Such decline in the ADCB of the Contract
Pool for such immediately preceding
Collection Period may be through
payment, prepayment, default and
writeoff, determination of
ineligibility, substitution or addition
of the Contracts or as may otherwise be
described herein.
The "Applicable Percentage" means, (i)
for the Class A Notes, 100% until the
Class A-1 Notes are paid in full, and
thereafter _______%, (ii) for the Class
B Notes, 0% until the Class A-1 Notes
are paid in full, and thereafter
______%, and (iii) for the Class C
Notes, 0% until the Class A-1 Notes are
paid in full, and thereafter ___%. As of
the Closing Date, the aggregate initial
principal amount of the Notes will be
equal to approximately ___% of the
initial ADCB of the Contract Pool.
After the occurrence of an Event of
Default, or upon the occurrence and
during the continuance of a Restricting
Event, principal on the Notes will be
allocated among the Class A, Class B and
Class C Notes sequentially (i.e., no
principal will be paid on the Class B
Notes or the Class C Notes until the
Class A Notes have been paid in full,
and no principal will be paid on the
Class C Notes until the Class B Notes
have been paid in full); provided that
principal allocated in such manner to
the Class A Notes will be distributed
first to the Class A-1 Notes until the
Class A-1 Notes have been paid in full
and among the Class A-2 and Class A-3
Notes pro rata. See "Description of the
Notes--Allocations" herein.
Stated Maturity Date........ The stated maturity of the Class A-1
Notes is the Payment Date; the stated
maturity of the Class A-2 Notes is the
Payment Date; and the stated maturity of
each other Class of Notes is the Payment
Date. However, if all payments on the
Contracts are made as scheduled, final
payment with respect to the Notes (other
than the Class A-1 Notes) would occur
earlier than stated maturity.
C. Optional
Redemption.............. The Trust Depositor will have the option
to repurchase all remaining Contracts
and related assets, and thus effect the
early redemption of the Notes on any
Payment Date on or after which the ADCB
of the Contract Pool is less than or
equal to 15% of the ADCB of the Contract
Pool as of the initial Cutoff Date. The
price at which the Trust Depositor will
be required to purchase the Contracts in
order to exercise such option will be
equal to the greater of (i) the ADCB of
the Contract Pool and (ii) the amount
that when applied pursuant to the
Indenture together with all other
amounts available thereunder will be
sufficient to redeem the Notes at a
price equal to the unpaid principal
amount of the Notes plus accrued and
unpaid interest thereon through the
related Payment Date.
ADCB........................ The "ADCB" means, at any time, the sum
of the Discounted Contract Balances of
all Contracts included in the Contract
Pool at such time.
"Discounted Contract Balance" means with
respect to any Contract, (a) as of the
related Cutoff Date, the present value
of all of the remaining Scheduled
Payments becoming due under such
Contract after the applicable Cutoff
Date but not later than the _________
________ Payment Date, discounted at the
Discount Rate and (b) as of any other
date of determination, the sum of (i)
the present value of all of the
remaining Scheduled Payments becoming
due under such Contract on or after such
date of determination but not later than
the _________ ________ Payment Date,
discounted at the Discount Rate and (ii)
the aggregate amount of all Scheduled
Payments due and payable under such
Contract after the applicable Cutoff
Date and prior to such date of
determination that have not then been
received by the Servicer; provided that
the Discounted Contract Balance of any
Defaulted Contract will be equal to
zero. The Discounted Contract Balance
for each Contract shall be calculated
assuming:
(a) all payments due in any
Collection Period are due on
the last day of the Collection
Period;
(b) payments are discounted on a
monthly basis using a 30 day
month and a 360 day year; and
(c) all security deposits and
drawings under letters of
credit, if any, issued in
support of a Contract are
applied to reduce Scheduled
Payments in inverse order of
the due date thereof.
"Discount Rate" means, at any date of
determination, a per annum rate equal to
the sum of (i) the weighted average of
the Class A-1 Interest Rate, Class A-2
Interest Rate, Class A-3 Interest Rate,
Class B Interest Rate and Class C
Interest Rate, each weighted by (x) the
Class A Initial Note Principal Balance,
Class B Initial Note Principal Balance
or Class C Initial Note Principal
Balance, as applicable, and (y) the
expected weighted average life of each
Class of Notes, as applicable, assuming
a CPR of ___% and (ii) the Servicing Fee
Percentage.
"Scheduled Payments" means, with respect
to any Contract, the rent or financing
payment (whether principal or principal
and interest) scheduled to be made by
the related End-User under the terms of
such Contract after the related Cutoff
Date (provided that Scheduled Payments
do not include any Excluded Amounts).
Substantially all of the Contracts
provide for Scheduled Payments to be
made monthly.
Subordination............... The Class A Notes will be senior in
right of payment to the Class B Notes
and Class C Notes, and the Class B Notes
will be senior in right of payment to
the Class C Notes; in each case to the
extent described herein. See
"Description of the Notes--Allocations."
Servicing; Servicing
Fee; Servicer Advances...... The Servicer will be responsible for
servicing, managing and administering
the Contracts and related interests, and
enforcing and receiving collections on
the Contracts. The Servicer will be
required to exercise the degree of skill
and care in performing these functions
that it customarily exercises with
respect to similar property owned or
serviced by the Servicer in its
individual capacity.
The Servicer will be entitled on each
Payment Date to receive (a) a monthly
fee (the "Servicing Fee") equal to the
product of (i) one-twelfth of ___% (the
"Servicing Fee Percentage") and (ii) the
ADCB of the Contract Pool as of the last
day of the second preceding Collection
Period, payable out of Available
Amounts. In addition as compensation for
acting as Servicer, the Servicer will be
entitled to all late charges,
documentation fees, administrative
charges and extension fees paid by the
End-Users (such fees and charges are
included in definition of Excluded
Amounts and thus will not be required to
be deposited by the Servicer in the
Collection Account).
Under certain limited circumstances, the
Servicer may resign or be removed, in
which event the Back-up Servicer will be
appointed as successor Servicer. See
"The Sale and Servicing Agreement
Generally--Resignation and Certain Other
Matters Regarding the Servicer" and
"--Servicer Default" herein.
The Servicer will be required to cause
amounts collected on the Contracts to be
deposited to the Collection Account
maintained by the Indenture Trustee no
later than two Business Days following
the Servicer's determination that such
amounts relate to the Contracts or the
Equipment. The Servicer will also make
advances (each, a "Servicer Advance")
for delinquent Scheduled Payments, but
only to the extent it determines in its
sole discretion that such advances will
be recoverable in future periods from
Recoveries on the related Contract. Such
Servicer Advances are reimbursable from
Available Amounts as described herein.
See "The Transfer and Sale Agreement and
Sale and Servicing Agreement
Generally--Collection and Other
Servicing Procedures" herein.
Repurchase or
Substitution
for Certain Breaches
of Representations
and Warranties.............. Pursuant to the Transfer and Sale
Agreement and the Sale and Servicing
Agreement, the Seller will be obligated
to accept the reconveyance of a Contract
and the interest in the related
Equipment and to deposit the
corresponding Repurchase Amount, if the
interest of the Issuer or the
Noteholders in any of the related
Equipment, the related Contract, or the
related Contract File is materially
adversely affected by a breach of a
representation or warranty made by the
Seller with respect to such Contract and
if such breach has not been cured within
90 days of discovery of such breach. In
the alternative, and at the Seller's
option, the affected Contract may be
replaced with a Substitute Contract of
similar characteristics under the
standards applicable generally to
Substitute Contracts as described
herein.
Maturity and
Prepayment Conditions....... CSAs are generally prepayable by their
terms, and the Servicer will be
authorized to accept prepayments on
Leases in certain circumstances. Each
prepayment on a Contract, if such
Contract is not replaced by the Issuer's
reinvestment in a comparable Additional
Contract as described herein, will
shorten the weighted average remaining
term of the Contracts and the weighted
average life of the Notes. Such
prepayments of principal will be
included in the Available Amounts and
will be payable in whole or in part to
Noteholders on the Payment Date
following the Collection Period in which
such prepayment was received, as set
forth herein. The rate of prepayments on
the Contracts will also be affected
under certain circumstances relating to
breaches of representations, warranties
or covenants with respect to the
Contracts, since the Seller will be
obligated to repurchase materially
adversely affected Contracts unless it
provides a Substitute Contract for the
Contract related to the breached
representation or warranty.
Additionally, the rate of payments on
the Contracts will also be affected by
the timing of Recoveries on Defaulted
Contracts unless the Servicer provides a
Substitute Contract for the Defaulted
Contract, which substitution is in the
sole and absolute discretion of the
Servicer. A higher than anticipated rate
of prepayments will reduce the ADCB of
the Contracts more quickly than expected
and thereby reduce anticipated aggregate
interest payments on the Notes. Any
reinvestment risks resulting from a
faster or slower incidence of prepayment
of Contracts will be borne entirely by
the Noteholders. Such reinvestment risks
include the risk that interest rates may
be lower at the time such holders
received payments from the Issuer than
interest rates would otherwise have been
had such prepayments not been made or
had such prepayments been made at a
different time.
Risk Factors................ See "Risk Factors" for a discussion of
certain material risks that should be
considered in connection with an
investment in the Notes offered hereby,
including certain legal risks.
Federal Income Tax
Consequences................ In the opinion of Brown & Wood llp,
federal tax counsel to the Issuer, for
federal income tax purposes, the Notes
will be characterized as debt, and the
Issuer will not be characterized as an
association (or a publicly traded
partnership) taxable as a corporation.
Each Noteholder, by the acceptance of a
Note, will agree to treat the Notes as
indebtedness. See "Federal Income Tax
Consequences" herein.
ERISA Considerations........ Subject to the considerations discussed
under "ERISA Considerations" herein, the
Notes will be eligible for purchase by
employee benefit plans. Any benefit plan
fiduciary considering purchase of the
Notes should, however, consult with its
counsel regarding the consequences of
such purchase under ERISA and the Code.
See "ERISA Considerations" herein.
Rating...................... It is a condition to the issuance of the
Notes offered hereunder that the Class
A-1 Notes be rated at least "__" and
"__," that the Class A-2 and Class A-3
Notes be rated at least "___" and "___,"
that the Class B Notes be rated at least
"___" and "___," and that the Class C
Notes be rated at least "___" and "___"
by Moody's Investors Service, Inc. and
Duff & Phelps Credit Rating Co.,
respectively (collectively, the "Rating
Agencies"). A rating is not a
recommendation to purchase, hold or sell
Notes inasmuch as such rating does not
comment as to market price or
suitability for a particular investor.
Ratings address the likelihood of timely
payment of interest and the ultimate
payment of principal on the Notes
pursuant to their terms. Ratings will
not address the likelihood of an early
return of invested principal. There can
be no assurance that any rating will
remain for a given period of time or
that a rating will not be lowered or
withdrawn entirely if, in the judgment
of any Rating Agency, circumstances in
the future so warrant. See "Rating of
the Notes" herein.
RISK FACTORS
Prospective investors should carefully consider the following risk
factors before investing in the Notes.
Absence of Public Market; Limited Liquidity
There is currently no public market for the Notes and there is no
assurance that one will develop. The Underwriter expects, but is not obligated,
to make a market in the Notes. There is no assurance that any such market will
be created or, if so created, will continue. If no public market develops, the
Noteholders may not be able to liquidate their investment in the Notes prior to
maturity.
Prepayments on the Contracts Affect the Yield of the Notes
Because the rate of payment of principal on the Notes will depend,
among other things, on the rate of payment on the Contracts, the rate of payment
of principal on the Notes cannot be assured. Payments on the Contracts will
include Scheduled Payments as well as partial and full prepayments (including
any Scheduled Payment (or portion thereof) which the Servicer has received in
advance of its scheduled due date and which will be applied on such due date),
and any and all cash proceeds or rents realized from the sale, lease, re-lease
or re-financing of Equipment under any Prepaid Contract, payments upon the
liquidation of Defaulted Contracts (net of liquidation expenses), and payments
upon repurchases by the Seller as a result of the breach of certain
representations and warranties in the Transfer and Sale Agreement . The Servicer
may permit the End-User under a Contract that is not prepayable by its terms to
make an optional prepayment so long as such prepayment is in an amount which is
not less than the the sum of (a) the Discounted Contract Balance of such
Contract on the Determination Date immediately prior to the date of prepayment
plus any accrued interest thereon at the Discount Rate to the date of prepayment
and (b) any unreimbursed Servicer Advances with respect thereto.
The rate of early terminations of Contracts due to prepayments
(including prepayments caused by defaults on Contracts) is influenced by various
factors, including technological change, changes in customer requirements, the
level of interest rates, the level of casualty losses, and the overall economic
environment. Many prepayments occur at the option or request of customers, whose
motivations may not be known to the Servicer. No assurance can be given that
prepayments on the Contracts will conform to any historical experience, and no
prediction can be made as to the actual rate of prepayments which will be
experienced on the Contracts. In addition, since prevailing interest rates are
subject to fluctuation, there can be no assurance that Noteholders will be able
to reinvest the distributions on the Notes at yields equaling or exceeding the
yields on the Notes. It is possible that yields on any such reinvestments will
be lower, and may be significantly lower, than the yields on the Notes.
Noteholders will therefore bear all reinvestment risk resulting from the rate of
prepayments on the Contracts.
No Assurances Given as to Changes in the Ratings of the Notes
A rating is not a recommendation to purchase, hold or sell Notes
inasmuch as such rating does not comment as to market price or suitability for a
particular investor. Ratings of Notes will address the likelihood of timely
payment of interest and the ultimate payment of principal on the Notes pursuant
to their terms. The ratings of Notes will not address the likelihood of an early
return of invested principal. In addition, any such rating will not address the
possibility of the occurrence of an Event of Default or Restricting Event. There
can be no assurance that a rating will remain for a given period of time or that
a rating will not be lowered or withdrawn entirely by a Rating Agency if in its
judgment circumstances (i.e., such as the performance of the Contracts or the
Servicer) in the future so warrant. In the event that the rating initially
assigned to any Note is subsequently lowered for any reason, no person or entity
is obligated to provide any additional credit support therefor. For more
detailed information regarding the ratings assigned to any Class of the Notes,
see "Rating of the Notes" herein.
Subordination of the Class B Notes and the Class C Notes
To the extent described herein under the heading "Description of the
Notes -- Allocations": (i) payments of interest and principal on the Class B
Notes will be subordinated in priority of payment to interest and principal,
respectively, on the Class A Notes and (ii) payments of interest and principal
on the Class C Notes will be subordinated in priority of payment to interest and
principal, respectively, on the Class A Notes and the Class B Notes.
Delinquencies and defaults on the Contracts could eliminate the
protection afforded the Class C Noteholders by the Reserve Fund, and such Class
C Noteholders could incur losses on their investment as a result. Further
delinquencies and defaults on the Contracts could eliminate the protection
afforded the Class B Noteholders by the Reserve Fund and the subordination of
the Class C Notes, and such Class B Noteholders could incur losses on their
investment as a result. Even further, delinquencies and defaults on the
Contracts could eliminate the protection offered the Class A Noteholders by the
Reserve Fund and the subordination of the Class B Notes and the Class C Notes,
and such Class A Noteholders could also incur losses on their investment as a
result.
Certain Risks Associated with Geographic Concentrations of Contracts
The Contracts constituting the initial Contract Pool reflect
concentrations of End-Users thereon located in the States of __________, _____
and __________ equal to ____%, ___% and ___%, respectively, of the ADCB of the
Contract Pool as of the initial Cutoff Date. No other state accounts for more
than 5.00% of the Contract Pool. To the extent adverse events or economic
conditions particularly affect any of these states or the related geographic
regions, the delinquency and default experience of the Contract Pool could be
adversely impacted with corresponding negative implications for the timing and
amount of collections on the Contracts and possible delays or insufficiencies in
payments due to Noteholders.
Rate at which Equipment Becomes Obsolete Affects Prepayment Rate of the
Contracts and the Notes; Reinvestment Risk
Technological change could affect the Noteholders. For example, to the
extent that technological change results in changing demands for Equipment,
prepayments on the Contracts may increase. Such prepayments may result in
distributions to Noteholders of amounts which would otherwise have been
distributed over the remaining term of the Contracts and such distributions may
require the Noteholders to reinvest such prepayments in a less attractive
interest rate environment. See "--Prepayments on the Contracts Affect the Yield
of the Notes."
Declines in Market Value of Equipment; Shortfalls with respect to Available
Amounts to Pay the Notes
In the event a Contract becomes a Defaulted Contract, the only source
of payment for amounts expected to be paid on such Contract will be the income
and proceeds from the disposition of any related Equipment and a deficiency
judgment, if any, against the End-User under the Defaulted Contract. Since the
market value of the Equipment may decline faster than the Discounted Contract
Balance and may be subject to sudden, significant declines in value due to
technological advances, the Servicer might not recover the entire amount due on
the Contract and might not receive any Recoveries on the Equipment. To the
extent such deficiencies are realized, such deficiencies may create a shortfall
with respect to payments on the Notes.
Certain Legal Risks
Legal Risks Associated With Servicer's Retention of Contract Files. To
facilitate servicing and reduce administrative costs, the Contract Files will be
retained in the possession of the Servicer and not be deposited with the
Indenture Trustee or any other agent or custodian for the benefit of the
Noteholders. UCC financing statements will be filed reflecting the sale and
assignment of the Contracts and related interests described herein by the Seller
to the Trust Depositor pursuant to the Transfer and Sale Agreement, and by the
Trust Depositor to the Trust pursuant to the Sale and Servicing Agreement, and
the pledge of Trust Assets by the Issuer to the Indenture Trustee pursuant to
the Indenture. The Servicer's accounting records and computer files will be
marked to reflect such conveyances and pledge. Because the Contract Files will
remain in the Servicer's possession, however, if the Servicer, the Indenture
Trustee or a third party, while in possession of the Contracts, sells or pledges
and delivers such Contracts to another party in violation of the Sale and
Servicing Agreement and the Indenture, there is a risk that such party could
acquire an interest in the Contracts that would have priority over that of the
Noteholders. In such event, the remedy available to the Trust against the
Servicer or the Indenture Trustee (as applicable) would be limited to a claim
for breach of contract for violation of its obligations under those Operative
Documents or to indemnification to the extent of loss and expense caused by
gross negligence, willful misconduct or bad faith on its part. Any claim for
breach or indemnification would be subject to all available legal defenses, the
delay inherent in legal proceedings, and the ability of the breaching party to
pay any resulting damages of which there can be no assurance. Thus, even in the
event of recourse to the breaching party, distributions to Noteholders could be
adversely affected. See "Certain Legal Aspects of the Contracts--Transfer of
Contracts" herein.
Legal Risks Associated With Transfers of Interests in Equipment. In
connection with the conveyance of the Contracts to the Trust, the Seller's
right, title and interest in the related Equipment will be assigned by the
Seller to the Trust Depositor pursuant to the Transfer and Sale Agreement, and
by the Trust Depositor to the Trust pursuant to the Sale and Servicing
Agreement, and pledged by the Trust to the Indenture Trustee pursuant to the
Indenture. It has been the general policy of the Seller to file or cause to be
filed UCC financing statements with respect to Equipment relating to the
Contracts. Due, however, to the administrative burden and expense associated
with amending many filings in numerous states where Equipment is located, no
assignments of the UCC financing statements evidencing the security interest of
the Seller in the Equipment will be filed to reflect the Trust Depositor's, the
Trust's or the Indenture Trustee's interests therein. While failure to file such
assignments does not affect the Trust's interest in the Contracts (including the
security interest in the related Equipment granted pursuant to such Contract) or
perfection of the Indenture Trustee's interest in such Contracts, it does expose
the Trust (and thus Noteholders) to the risk that the Servicer could
inadvertently release its security interest in the Equipment of record, and it
could complicate or impede the Trust's (and the Indenture Trustee's)
enforcement, as assignee, of the Seller's right, title and interest in the
Equipment. While these risks should not affect the perfection or priority of the
interest of the Indenture Trustee in the Contracts or rights to payment
thereunder, they may adversely affect the right of the Indenture Trustee to
receive proceeds of a disposition of the Equipment related to Defaulted
Contracts. Additionally, statutory liens for repairs or unpaid taxes and other
liens arising by operation of law may have priority even over prior perfected
security interests in the Equipment assigned to the Indenture Trustee. See
"Certain Legal Aspects of the Contracts--Transfers of Interests in Equipment"
herein.
Risk of Ineffective Sale in Vendor Bankruptcy. The Seller initially
acquired the Contracts from Vendors. If the acquisition of a Contract by the
Seller is treated as a sale of such Contract from the applicable Vendor to the
Seller, such Contract generally would not be part of such Vendor's bankruptcy
estate and would not be available to such Vendor's creditors. If a Vendor became
a debtor in a bankruptcy case then, if an unpaid creditor of such Vendor or a
representative of such creditor, such as a trustee in bankruptcy, or such Vendor
acting as a debtor-in-possession, were to take the position that the sale of
such Contracts to the Seller was ineffective to remove such Contracts from such
Vendor's estate (for instance, that such sale should be recharacterized as a
pledge of Contracts to secure borrowings of such Vendor), then delays in
payments under the Contracts to the Issuer could occur and, should the court
rule in favor of such creditor, representative or Vendor, reductions in the
amount of such payments could result. Further, if the transfer of Contracts to
the Seller is recharacterized as a pledge, a tax or government lien on the
property of the pledging Vendor arising before the Contracts came into existence
may have priority over the Seller's (and hence the Trust Depositor's, the
Issuer's and the Indenture Trustee's) interest in the Contracts. In addition, to
the extent a Vendor has agreed under the related Vendor Assignment or Vendor
Program Agreement to perform certain obligations in connection with its sale of
Contracts to the Seller, application of federal and state bankruptcy and
insolvency laws in the event of the bankruptcy of such Vendor could affect the
interests of the Noteholders in the related Contracts if such laws result in any
obligations being written off as uncollectible or result in delay in payments
due in respect of such obligations. See "Certain Legal Aspects of the
Contracts--Certain Matters Relating to Bankruptcy."
Risk of Ineffective Sale in Bankruptcy of Mitsui Vendor Leasing. In the
Transfer and Sale Agreement, the Seller will warrant that the conveyance of the
Contracts to the Trust Depositor thereunder is a valid sale and transfer of such
Contracts to the Trust Depositor. Also pursuant to the Transfer and Sale
Agreement, the Seller and the Trust Depositor will covenant that they will each
treat the transactions described herein as a sale of the Contracts to the Trust
Depositor, and the Seller will agree to take all actions that are required under
applicable law to perfect the Issuer's ownership interest in the Contracts. See
"Certain Legal Aspects of the Contracts--Transfer of Contracts."
If, however, the transfer of the Contracts to the Trust Depositor were
treated as a pledge of the Contracts to secure a borrowing by the Seller, the
distribution of proceeds of the Contracts to the Issuer (and hence the
Noteholders) might be subject to the automatic stay provisions of the United
States Bankruptcy Code (Title 11 U.S.C. Section 101 et seq.) (the "Bankruptcy
Code") in the event of a bankruptcy proceeding with respect to the Seller, which
would delay the distribution of such proceeds for an uncertain period of time.
In addition, a bankruptcy trustee would have the power to sell the Contracts if
the proceeds of such sale could satisfy the amount of the debt deemed owed by
the Seller, or the bankruptcy trustee could substitute other collateral in lieu
of the Contracts to secure such debt, or such debt could be subject to
adjustment by the bankruptcy court if the Seller were to file for reorganization
under Chapter 11 of the Bankruptcy Code.
Risk of Rejection of "True Leases." A bankruptcy trustee or debtor in
possession under the Bankruptcy Code has the right to elect to assume or reject
any executory contract or unexpired lease which is considered to be a "true
lease" (and not a financing) under applicable law. Any rejection of such a
contract or lease would constitute a breach of such contract or lease, as
applicable, as of the day preceding the commencement of the applicable
bankruptcy case, entitling the nonbreaching party to a pre-petition claim for
damages.
Certain Contracts may be "true leases" under applicable law and thus
subject to rejection by the lessor under the Bankruptcy Code. Any such Contract
which is a "true lease" under applicable law and which is originated by a Vendor
and transferred to the Seller in a transaction whereby such Vendor continues to
be the "lessor" thereunder (such as a transfer by a Vendor to the Seller of a
security interest in such Contract or a transfer by a Vendor to the Seller of an
interest in the right to payments only under any such Contract), will be subject
to rejection by such Vendor, as debtor-in-possession, or by such Vendor's
bankruptcy trustee. Upon any such rejection, Scheduled Payments under such
rejected Contract may terminate and the Noteholders may be subject to losses if
the remaining unaffected Contracts, and security interests in the Equipment
related thereto, are insufficient to cover the losses.
The Seller will represent as of the initial Cutoff Date that, in the
Seller's reasonable judgment, the Discounted Contract Balance of the Contracts
in the Contract Pool that are "true leases" under applicable law does not exceed
__% of the ADCB of the Contract Pool as of such date.
Risks Associated with Insolvency of the Trust Depositor or the Trust.
Certain restrictions have been imposed on the Trust Depositor and the Trust and
certain other parties to the transactions described herein which are intended to
reduce the risk of an insolvency proceeding involving the Trust Depositor or the
Trust. These restrictions include incorporating the Trust Depositor as a
separate, special purpose corporation pursuant to a certificate of incorporation
containing certain restrictions on the nature and scope of its business.
Additionally, the Trust Depositor may commence a voluntary case or proceeding
under any bankruptcy or insolvency law, or cause the Trust to commence a
voluntary case or proceeding under any bankruptcy or insolvency law, only upon
the affirmative vote of all its directors, including its independent directors,
as long as the Trust Depositor is solvent and does not reasonably foresee
becoming insolvent. The Trust Depositor's certificate of incorporation requires
that the Trust Depositor have at all times at least two independent directors.
However, no assurance can be given that insolvency proceedings involving either
the Trust Depositor or the Trust will not occur. In the event the Trust
Depositor becomes subject to insolvency proceedings involving the Trust, the
Trust's interest in the Trust Assets and the Trust's obligation to make payments
on the Notes might also become subject to such insolvency proceedings. In the
event of insolvency proceedings involving the Trust, the Trust's interest in the
Trust Assets and the Trust's obligation to make payments on the Notes would
become subject to such insolvency proceedings. No assurance can be given that
insolvency proceedings involving the Seller would not lead to insolvency
proceedings of either, or both, of the Trust Depositor or the Trust. In either
such event, or if an attempt were made to litigate any of the foregoing issues,
delays of distributions on the Notes, possible reductions in the amount of
payment of principal of and interest on the Notes and limitations (including a
stay) on the exercise of remedies under the Indenture and the Sale and Servicing
Agreement could occur, although the Noteholders would continue to have the
benefit of the Indenture Trustee's security interest in the Trust Assets under
the Indenture.
Certain States May Limit the Enforceability of Certain Lease
Provisions. Certain states have adopted a version of Article 2A of the UCC
("Article 2A"), which purports to codify many provisions of existing common law.
Although there is little precedent regarding how Article 2A will be interpreted,
it may, among other things, limit enforceability of any "unconscionable" lease
or "unconscionable" provision in a lease, provide a lessee with remedies,
including the right to cancel the lease contract, for certain lessor breaches or
defaults, and may add to or modify the terms of "consumer leases" and leases in
which the lessee is a "merchant lessee." However, in the Transfer and Sale
Agreement, the Seller will represent that (i) no Contract is a "consumer lease"
as defined in Section 2A-103(1)(e) of the UCC; and (ii) to the best of the
Seller's knowledge, each End-User has accepted the Equipment leased to it and,
after reasonable opportunity to inspect and test, has not notified the Seller of
any defects therein. Article 2A, moreover, recognizes typical commercial lease
"hell or high water" rental payment clauses (which clauses unconditionally
obligate the lessee to make all Scheduled Payments, without setoff) and
validates reasonable liquidated damages provisions in the event of lessor or
lessee defaults. Article 2A also recognizes the concept of freedom of contract
and permits the parties in a commercial context a wide degree of latitude to
vary from the provisions of the law.
Risks Associated With Limited Assets of the Issuer -- No Recourse to Mitsui
Vendor Leasing or its Affiliates
Neither the Seller nor any of its affiliates is generally obligated to
make any payments in respect of the Notes or the Contracts. However, in
connection with the sale of Contracts by the Seller to the Trust Depositor, and
the concurrent conveyance of such Contracts by the Trust Depositor to the Trust,
the Seller will make representations and warranties with respect to the
characteristics of such Contracts and, in certain circumstances, the Seller may
be required to repurchase Contracts from the Trust with respect to which such
representations and warranties have been breached. See "The Transfer and Sale
Agreement and the Sale and Servicing Agreement Generally--Representations and
Warranties" herein. Because the Trust will be a limited purpose trust with no
assets other than the Trust Assets, the Noteholders must rely solely upon the
Contracts, the Equipment and related security described herein as well as
amounts in the Reserve Fund, to the extent available, for payment of principal
and interest on the Notes. If payments made or realized from the Contracts and
the disposition proceeds of the Equipment are insufficient to make payments on
the Notes (and after all amounts in the Reserve Fund are used), no other assets
will be available for the payment of the deficiency.
Book-Entry Registration -- Noteholders Limited to Exercising Their Rights
Through DTC, Euroclear or CEDEL
The Notes offered hereby initially will be represented by one or more
Notes registered in the name of Cede & Co. and will not be registered in the
names of the beneficial owners or their nominees. As a result of this, unless
and until Definitive Notes are issued, beneficial owners will not be recognized
by the Issuer or the Indenture Trustee as Noteholders, as that term is used in
the Indenture. Hence, until such time, beneficial owners will only be able to
exercise the rights of Noteholders indirectly, through DTC, Euroclear or CEDEL
and their respective participating organizations, and will receive reports and
other information provided for under the Indenture only if, when and to the
extent provided by DTC, Euroclear or CEDEL, as the case may be, and its
participating organizations. See "Description of the Notes--Book-Entry
Registration."
USE OF PROCEEDS
The proceeds from the sale of the Notes, after paying the expenses of
the Issuer and the Trust Depositor, will be paid to Trust Depositor and in turn
the Seller in consideration of the transfer to the Trust of the Contracts and
related rights.
THE TRUST
The Notes offered hereby will be issued by the Trust which will be
established by the Trust Depositor at or prior to the Closing Date pursuant to
the Trust Agreement. The Contract Pool will be formed and transferred to the
Trust pursuant to the Sale and Servicing Agreement and pledged to the Indenture
Trustee pursuant to the Indenture.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OF THE TRUST
The Trust will be organized as a business trust formed in accordance
with the laws of the State of Delaware, pursuant to the Trust Agreement, solely
for the purpose of effectuating the transactions described herein. Prior to
formation, the Trust will have had no assets or obligations and no operating
history. The Trust will not engage in any business activity other than (a)
acquiring, managing and holding the Contracts and related interests described
herein, (b) issuing the Notes, (c) making distributions and payments thereon and
(d) engaging in those activities, including entering into agreements, that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or connected therewith. As a consequence, the Trust is not expected to
have any source of capital resources other than the Trust Assets. As of the date
of this Prospectus, neither the Trust Depositor nor the Trust is subject to any
legal proceedings.
THE CONTRACT POOL
The Contracts
The Contracts will be purchased by the Trust Depositor from the Seller
on the Closing Date (and as of the initial Cutoff Date) under a transfer and
sale agreement dated as of __________, 1998 (the " Transfer and Sale Agreement")
between the Trust Depositor and the Seller, as well as any Additional Contracts
and Substitute Contracts conveyed thereunder as described herein as of their
applicable Cutoff Dates. The Contracts will in turn be purchased by the Trust
from the Trust Depositor on the Closing Date (and as of the initial Cutoff Date)
under a sale and servicing agreement dated as of ______________, 1998 (the "Sale
and Servicing Agreement") among the Trust, the Trust Depositor, the Seller, the
Servicer, the Back-up Servicer and the Indenture Trustee, as well as any
Additional Contracts and Substitute Contracts conveyed thereunder as described
herein as of their applicable Cutoff Dates. The Contracts have been and will be
selected by the Seller from its portfolio of Contracts based on the criteria
specified in the Transfer and Sale Agreement. See "The Transfer and Sale
Agreement Generally--Representations and Warranties" and "--Concentration
Amounts" herein which specifically describe the criteria for eligibility in the
Contract Pool. The Seller will make certain representations and warranties
concerning the Contracts, including that all of the Contracts are commercial,
rather than consumer, leases or financing arrangements, and that no adverse
selection process was employed in the selection of Contracts for sale under the
Transfer and Sale Agreement.
For further information regarding the Contracts, see "The Contracts
Generally" herein and "The Contract Pool--Other Pool Data" below.
Other Pool Data
The statistical information concerning the Contracts set forth below is
based upon information as of the opening of business on the Cutoff Date and the
Statistical Discount Rate. Certain Contracts included in the Contract Pool as of
the initial Cutoff Date may be determined not to meet the eligibility
requirements for the final Contract Pool, and may not be included in the final
Contract Pool. While the statistical distribution of the characteristics as of
the Closing Date for the final Contract Pool and calculated at the actual
Discount Rate will vary somewhat from the statistical distribution of such
characteristics as of the initial Cutoff Date and calculated at the Statistical
Discount Rate as presented in this Prospectus, such variance will in no case be
greater than 5% (plus or minus) of the ADCB. The percentages and balances set
forth in each of the following tables may not sum to the indicated totals due to
rounding.
Contracts representing approximately _____% of the ADCB of the Contract
Pool as of the initial Cutoff Date provide for payments by the underlying
end-users of the Equipment (the "End-Users")thereunder on a basis other than
monthly payments. The composition and distribution of the Contracts by remaining
term, original term, Discounted Contract Balance, End-User industry, geographic
distribution, type of equipment and type of Contract are set forth in the
following tables and are reported as of the initial Cutoff Date. Classification
by End-User industry and type of equipment are based on Mitsui Vendor Leasing's
customary procedures for determining such classifications. The largest End-User
industry concentration, which represents an ADCB of $__________ or ____% of the
ADCB of the Contract Pool as of the initial Cutoff Date, relates to the
industrial equipment industry. See "Risk Factors--Certain Risks Associated with
Geographic or Industry Concentrations of Contracts" herein, and "The Contract
Pool--Delinquency and Loss Information" below.
None of the Contracts were originated outside the United States or were
sold to an End-User located, or permits the related Equipment to be located,
outside the United States.
At origination, the Contracts typically finance an amount substantially
equal to the dealer invoiced cost of the related Equipment. The amount financed
does not always exactly equal the dealer invoiced cost because the discount rate
established by Mitsui Vendor Leasing with the related Vendor under the related
Program Agreement may vary from the rate the Vendor uses in calculating the
Scheduled Payments due from the End-User.
The value of the Equipment may decline faster than the Discounted
Contract Balance and may be subject to sudden, significant declines in value.
See "Risk Factors --Declines in Market Value of Equipment; Shortfalls with
respect to Available Amounts to pay Notes." The Equipment includes three general
equipment categories: machining equipment, medical equipment and photographic
equipment. Machining equipment consists of both cutting machines, such as lathes
and grinders, and forming machines, such as press brakes. Medical equipment
consists of ultrasound and mammography imagers and analyzers used for testing in
laboratories. Photographic equipment consists of film processors used in retail
sales locations for on-site photo processing. See "Distributions of Contracts by
Equipment Type" in the tables below.
COMPOSITION OF THE CONTRACTS
ADCB $___________
Number of Contracts _____
Weighted Average Original Term (Range) _____
(in months)
Weighted Average Remaining Term ____
(Range)(in months)
Average Discounted Contract Balance $______
DISTRIBUTION OF THE CONTRACTS BY CONTRACT TYPE
Percentage of Number
Number of ADCD Percentage of
Contracts ADCD
CSAs % $ %
Leases % $ %
Total % $ %
DISTRIBUTION OF THE CONTRACTS BY STATE IN WHICH END-USERS ARE LOCATED
<TABLE>
<CAPTION>
State Number of Percentage of Number Discounted Contract Percentage
Contracts of Contracts Balance of ADCB
<S> <C> <C> <C> <C>
Alabama % $ %
Alaska % $ %
Arizona % $ %
Arkansas % $ %
California % $ %
Colorado % $ %
Connecticut % $ %
Delaware % $ %
District of Columbia % $ %
Florida % $ %
Georgia % $ %
Hawaii % $ %
Idaho % $ %
Illinois % $ %
Indiana % $ %
Iowa % $ %
Kansas % $ %
Kentucky % $ %
Louisiana % $ %
Maine % $ %
Maryland % $ %
Massachusetts % $ %
Michigan % $ %
Minnesota % $ %
Mississippi % $ %
Missouri % $ %
Montana % $ %
Nebraska % $ %
Nevada % $ %
New Hampshire % $ %
New Jersey % $ %
New Mexico % $ %
New York % $ %
North Carolina % $ %
North Dakota % $ %
Ohio % $ %
Oklahoma % $ %
Oregon % $ %
Pennsylvania % $ %
Rhode Island % $ %
South Carolina % $ %
South Dakota % $ %
Tennessee % $ %
Texas % $ %
Utah % $ %
Vermont % $ %
Virginia % $ %
Washington % $ %
West Virginia % $ %
Wisconsin % $ %
Wyoming % $ %
Total % $ %
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY EQUIPMENT TYPE
<TABLE>
<CAPTION>
Equipment Type Number of Percentage of Discounted Percentage of
Contracts Number of Contract Contract Balance ADCB
<S> <C> <C> <C> <C>
Machining Centers % $ %
Miscellaneous Machine Tools % $ %
Photo Finishing % $ %
Medical Diagnostic % $ %
Ultrasound
Lathes % $ %
Miscellaneous Medical % $ %
Diagnostic
Metal Working Tools % $ %
(Cutting Machinery)
Milling % $ %
Battery Chargers % $ %
Other % $ %
Total % $ %
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY CONTRACT BALANCE
<TABLE>
<CAPTION>
Discounted Contract Number of Percentage of Discounted Percentage of
Balance Contracts Number of Contracts Contract Balance ADCB
<S> <C> <C> <C>
$ 0 - $25,000 % $ %
$25,001 - $50,000 % $ %
$50,001 - $75,000 % $ %
$75,001 - $100,000 % $ %
$100,001 - $150,000 % $ %
$150,001 - $200,000 % $ %
$200,001 - $250,000 % $ %
$250,001 - $300,000 % $ %
$300,001 - $350,000 % $ %
$350,001 - $400,000 % $ %
greater than $400,000 % $ %
TOTAL % $ %
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY
REMAINING MONTHS TO STATED MATURITY
<TABLE>
<CAPTION>
Remaining Term Number of Contracts Percentage of Discounted Percentage of
(Months) Number of Contracts Contract Balance ADCB
<S> <C> <C> <C> <C>
0-6 % $ %
7-12 % $ %
13-24 % $ %
25-36 % $ %
37-48 % $ %
49-60 % $ %
61-72 % $ %
73-84 % $ %
Total % $ %
</TABLE>
DISTRIBUTION OF THE CONTRACTS BY
ORIGINAL CONTRACT TERM
<TABLE>
<CAPTION>
Original Term Number of Percentage of Discounted Percentage of
(Months) Contracts Number of Contract Balance ADCB
Contracts
<S> <C> <C> <C>
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
% $ %
Total % $ %
</TABLE>
Delinquency and Loss Information
Set forth below is certain information regarding the delinquency and
loss experience of Mitsui Vendor Leasing with respect to its portfolio of leases
and/or loan contracts (including, but not limited to, the Contracts) for users
of a variety of manufacturing, business and medical equipment, consisting
primarily of machine tools (such as machining centers, lathes, milling machines
and cutting machinery), medical equipment (such as diagnostic and therapeutic
examination equipment for radiology, nuclear medicine and ultrasound and
laboratory analysis equipment), photo-finishing equipment, plastic injection
molding equipment and computer equipment (such as inventory control and tracking
computer equipment, computer work stations, personal computers, data storage
devices and other computer related peripheral equipment). There can be no
assurance that the levels of delinquency and loss experience on the Contracts
will be comparable to that set forth below. Moreover, due to the acquisition of
contract portfolios from various Vendors and the development of additional
finance programs with various Vendors, the data set forth is not necessarily
comparable on a year-to-year basis.
<TABLE>
<CAPTION>
Mitsui Vendor Leasing (U.S.A.) Inc. Portfolio
Delinquency Experience
At
------------------------------------------------------------------------------------------
September 30, December 31, 1997 December 31, 1996 December 31, 1995
1998
<S> <C> <C> <C> <C>
Net Portfolio $ $253,174,525 $216,607,094 $137,386,576
Investment(1)
Delinquencies(2)
31-60 days % 1.95% 2.27% 3.29%
61-90 days % 0.65% 0.33% 2.21%
Over 90 days % 0.72% 0.24% 0.85%
Total (% of Net % 3.32% 2.84% 6.35%
Portfolio Investment)(3)
</TABLE>
- ---------------------
(1) "Net Portfolio Investment" equals the sum of the aggregate amount of
all scheduled payments required to be made under the terms of the
related contracts plus the booked residual value of the related
equipment, if any, plus the unamortized initial direct costs, less the
unearned income.
(2) Mitsui Vendor Leasing classifies contracts as delinquent at the time a
payment (or a portion thereof) remains unpaid 31 days or more following
the date on which such payment is due. The amount classified as
delinquent is the Net Portfolio Investment. Delinquent contracts are
written-off in their entirety when a determination is made that the
contract is uncollectible. See "Mitsui Vendor Leasing (U.S.A.)
Inc.--Write-Off Policy" herein.
(3) The percentages in any column may not total 100% due to rounding.
For purposes of the following table, "gross losses" indicates the Net
Portfolio Investment represented by those contracts that were written-off as
uncollectible by Mitsui Vendor Leasing during the periods indicated, measured by
the Net Portfolio Investment of each such contract outstanding at the time of
such write-off; and "net losses" represents gross losses after giving effect to
recoveries on such contracts from all sources, including vendor recourse, sales
or other dispositions of the related equipment or recoveries on guarantees or
other sources of credit enhancement for the related contract.
<TABLE>
<CAPTION>
Mitsui Vendor Leasing (U.S.A.) Inc. Portfolio
Loss Experience
For
-----------------------------------------------------------------------------------------
Nine Months Twelve Months Ended Twelve Months Ended Twelve Months Ended
Ended December 31, 1997 December 31, 1996 December 31, 1995
September 30,
1998
<S> <C> <C> <C> <C>
Net Portfolio Investment $ $253,174,525 $216,607,094 $137,386,576
(1)
Gross Losses $ $ 326,684 $ 396,771 $126,697
Recoveries $ $ 121,513 $ 120,369 $9,597
Net Losses $ $ 200,571 $ 276,402 $117,090
Net Losses as a Percentage %(2) 0.09% 0.16% 0.12%
of Average Net Portfolio
Investment (3)
</TABLE>
- ---------------------
(1) Net Portfolio Investment equals the sum of the aggregate amount of all
scheduled payments required to be made under the terms of the related
contracts plus the booked residual value of the related equipment, if
any, plus the unamortized initial direct costs, less the unearned
income.
(2) Annualized.
(3) Average Net Portfolio Investment is the average of the Net Portfolio
Investment at the beginning and at the end of each period indicated.
Mitsui Vendor Leasing's delinquency and net loss experience has
historically been affected by prevailing economic conditions, particularly in
industries and geographic regions in which it has end-user concentrations.
Recently, for example, certain segments of the machine tool industry have
experienced declining demand and pricing due to weakened export demand and to
general economic conditions affecting the markets for certain types of machine
tools. It cannot be predicted whether these or other trends will continue ,
increase or reverse, nor can any prediction be made as to the effect these
trends, combined with general and other specific economic developments, will
have on delinquency and net loss levels.
Proceeds from the resale or other disposition of the related equipment
constitute a significant component of Mitsui Vendor Leasing's recoveries on
defaulted contracts. The resale value of individual items of equipment may be
subject to obsolescence and sudden, significant decreases in value, whether or
not caused by changes in general economic conditions or conditions affecting
particular industries or geographic areas. Contractual recourse to Vendors, if
available, may be an additional source for recoveries on defaulted contracts.
The availability of such recourse is subject to economic conditions affecting
Vendors and the particular terms of the applicable Vendor Program Agreements.
See "The Contracts Generally -- Vendor Program Agreements".
The data presented in the foregoing tables are for illustrative purposes only
and there is no assurance that the delinquency or loss experience of the
Contracts will be similar to that set forth above. See "Risk Factors" and
"Certain Legal Aspects of the Contracts."
THE CONTRACTS GENERALLY
The Issuer will be entitled to all collections in respect of the
Contracts in the Contract Pool, except for (i) collections attributable to any
taxes, fees or other charges imposed by any governmental authority, (ii)
collections representing reimbursements of insurance premiums or payments for
certain services that were not financed by the Seller due on or after the
applicable Cutoff Date for such Contracts, (iii) all late charges and certain
other fees paid under the Contracts by the End-Users, (iv) collections (other
than amounts paid by the Seller or Servicer) in respect of Ineligible Contracts,
Warranty Contracts, Defaulted Contracts, Prepaid Contracts and Adjusted
Contracts which have been conveyed to the Seller or the Servicer as described
herein (amounts described in clauses (i) through (iv), "Excluded Amounts") and
(v) collections relating to payments which were scheduled to be made by the
End-Users on the Contracts pursuant to the terms of such Contracts prior to the
related Cutoff Date.
Contracts
The Contracts to be included in the Contract Pool are either leases
("Leases") or conditional sale agreements ("CSAs"). There is no limit on the
number of Contracts in the Contract Pool which may consist of any of the
foregoing types, although each Contract included in the Contract Pool is
required to be an "Eligible Contract" as of the applicable Cutoff Date.
Contracts Generally. The initial terms of the Contracts in the Contract
Pool generally range from one to seven years. Each Contract in the Contract Pool
is originated in the ordinary course of business by the related Vendor on its
standard, pre-printed forms and is assigned to the Seller pursuant to the
related Vendor Program Agreements or, in the case of one Vendor, is assigned to
the Seller as described below under "--Other Vendor Arrangements." The Contract
forms set forth the description of the Equipment and the amount and number of
rental or installment payments the End-User is unconditionally obligated to pay;
provided that certain of the Contracts in the Contract Pool allow the End-User
to terminate the Contract prior to its stated maturity under a formula which
provides a return in excess of the rate of return that would be earned from
receipt of the Scheduled Payments due under such Contract. Generally, each
Scheduled Payment is due in arrears on a monthly basis from the End-User and
represents the amortization, on a level basis, of the total amount than End-User
is required to pay throughout the term of a Contract.
While the terms and conditions of the Contracts do not generally permit
modification or termination by the End-User, such modification or termination
may be permitted with the consent of the Servicer. It is expected that the
Servicer will be allowed to consider and accommodate these modifications and
terminations with respect to Contracts included in the Contract Pool, pursuant
to the authority delegated to it in the Sale and Servicing Agreement, subject to
certain conditions and covenants of the Servicer.
Contracts generally include the End-User's undertaking, at its expense,
or agreement to: (i) maintain the Equipment in accordance with manufacturer
specifications; (ii) keep the Equipment free and clear of liens and
encumbrances; (iii) pay all taxes related to the Contract payments and the
Equipment; (iv) not modify the Equipment if that would change its originally
intended use; (v) not dispose of the Equipment or assign the Contract; (vi)
waive any rights to assert defects in the Equipment as a basis for setoff,
counterclaim or nonperformance under the Contract; (vii) indemnify against
liabilities arising from the use, possession or ownership of the Equipment; and
(viii) insure the Equipment against casualty loss and from liability claims in
amounts customary to the End-User's business. The Contracts provide specifically
identifiable events of default and remedies therefor. In most cases, the Seller
is (or its assignees are) authorized to perform the End-User's obligations under
the Contract at the End-User's expense, if it so elects, in cases where the
End-User has failed to perform.
The Leases to be included in the Contract Pool are substantially all
"net leases" under which the End-User assumes responsibility for the Equipment
as described in the preceding paragraph. Substantially all of the Leases are
leases intended for security as defined in Section 1-201(37) of the UCC. Under
leases intended for security, the lessor in effect finances the "purchase" of
the leased property by the lessee and retains a security interest in the leased
property. The lessee retains the leased property for substantially all its
economic life and the lessor retains no significant residual interest. Such
leases are considered conditional sales type leases for federal income tax
purposes and, accordingly, the lessor does not take any federal tax benefits
associated with the ownership of depreciable property. End of lease options for
such Leases depend on the terms of the related individual lease agreement, but
generally such terms provide for the purchase of the Equipment at a prestated
price, which may be nominal. It is not expected that any Leases will be included
in the Contract Pool that are "true leases" (that is, whereby the lessor bears
the risk of ownership and takes any tax benefits associated with the ownership
of depreciable property under applicable law and no title is conferred upon the
lessee).
Equipment
The Contracts cover a variety of new and used equipment relating
primarily to machine tools (such as machining centers, lathes, milling machines
and cutting machinery), medical equipment (such as diagnostic and therapeutic
examination equipment for radiology, nuclear medicine and ultrasound and
laboratory analysis equipment), photo-finishing equipment, plastic injection
molding equipment and computer equipment (such as inventory control and tracking
computer equipment, computer work stations, personal computers, data storage
devices and other computer related peripheral equipment) (collectively, the
"Equipment"). All of the interests of the Seller in the Equipment (which
consists or will consist of either title to the Equipment or a security interest
in the Equipment) will be transferred to the Trust Depositor and in turn to the
Issuer and then pledged by the Issuer to the Indenture Trustee under the
Indenture as collateral security for the Issuer's obligations in respect of the
Notes.
Vendor Program Agreements
A substantial portion of the Contracts included in the Contract Pool
(representing approximately __% of the ADCB of the Contract Pool as of the
initial Cutoff Date) consist of Contracts originated by Vendors and assigned to
the Seller pursuant to the Vendor Program Agreements. The Vendor Program
Agreements are agreements between the Seller and equipment manufacturers,
dealers and distributors ("Vendors") which provide the Seller with the
opportunity to finance transactions relating to the acquisition or use by an
End-User of a Vendor's Equipment. The Vendor Program Agreements provide the
Seller with a steady, sustainable flow of new business, generally with lower
costs of origination than asset-based financing marketed directly to End-Users.
Many of the Vendor Program Agreements provide various forms of support from the
Vendor to the Seller, including representations and warranties by the Vendor in
respect of the Contracts and related Equipment, credit support with respect to
defaults by End-Users and Equipment repurchase and remarketing arrangements upon
early termination of Contracts for default by the End-User. Some of the Vendor
Program Agreements are exclusive and provide that the Seller will finance all of
the Vendor's equipment sales (other than equipment sales financed independently
by End-Users). Other Vendor Program Agreements are non-exclusive and permit the
Vendor to finance its Equipment sales through other entities.
Each Vendor Program Agreement generally includes the following
provisions, among others:
1. Vendor representations, warranties and covenants regarding
each Contract assigned to the Seller, including among other things
that: the obligations of the End-User under the assigned Contract are
absolute, unconditional, noncancellable, enforceable in accordance with
its terms and free from any rights of offset, counterclaim or defense;
the Seller holds the sole original of the Contract and has either title
to or a first priority perfected security interest in the Equipment;
the Equipment has been irrevocably accepted by the End-User and will
perform as warranted to the End-User; and the assigned Contract was
duly authorized and signed by the End-User.
2. Remedies in the event of a misrepresentation or breach of a
warranty or covenant by the Vendor regarding an assigned Contract,
usually require the Vendor to repurchase the affected Contract for the
Seller's investment balance in the Contract plus costs incurred by the
Seller in breaking any underlying funding arrangement (which may or may
not be calculated in accordance with a specified formula).
3. In the case of Equipment, remarketing support from the
Vendor in the event of an End-User default and subsequent repossession
or return of the Equipment under the Contract (to assist the Seller in
realizing proceeds from the Equipment assigned as collateral security
to support the obligations of the End-User under the Contract).
4. The right of the Seller to further assign its interests in
assigned Contracts, all payments thereunder and any related interest in
Equipment.
In addition to the foregoing, a Vendor Program Agreement may include
recourse against the Vendor with respect to End-User defaults under certain
identified Contracts, (i) by specifying that the assignment of the Contract from
the Vendor to the Seller is with full recourse against the Vendor for such
End-User defaults, (ii) by specifying that the Vendor will absorb a limited
fixed dollar or percentage amount of "first losses" on the Contract, (iii) by
inclusion of the Contract in an "ultimate net loss pool" ("UNL Pool") created
under the Vendor Program Agreement or (iv) by providing for Vendor repurchase of
the Contract or Vendor indemnification payments for breaches of certain
representations and warranties made by the Vendor with respect to such Contract.
In the event of an End-User default under a Contract which was assigned by the
Vendor to the Seller subject to a UNL Pool, the Seller may draw against the UNL
Pool up to the amount of the Seller's remaining unpaid investment balance in the
defaulted Contract, but not in excess of the UNL Pool balance then available.
Drawings may also be made against a UNL Pool with respect to Contracts that are
not included in the Contract Pool and, accordingly, there can be no assurance
that the UNL Pool will be available in the event of an End-User default under a
Contract included in the Contract Pool.
Other Vendor Arrangements
Some Contracts (representing approximately __% of the ADCB of the
Contract Pool as of the initial Cutoff Date) have been originated by Vendors and
assigned to the Seller without a Vendor Program Agreement in place. Like the
assignments of Contracts under the Vendor Program Agreements, these Contracts
are typically assigned by a Vendor Assignment from the Vendor. These Vendor
Assignments will also generally contain many, if not all, of the
representations, warranties and covenants typically contained in Vendor Program
Agreements, as well as, in most cases, a Vendor repurchase requirement in the
event of a breach by the Vendor of such representations, warranties or covenants
and Vendor remarketing support in the event of an End-User default. These
assignments may or may not provide recourse against the Vendor for End-User
defaults.
Contract Files
The Seller will indicate in the appropriate computer files relating to
the Contracts that they have been transferred to the Issuer and pledged by the
Issuer to the Indenture Trustee under the Indenture as collateral security for
the Issuer's obligations in respect of the Notes. The Seller will also deliver
to the Indenture Trustee a computer file or microfiche or written list
containing a true and complete list of all Contracts which are included in the
Contract Pool, identified by account number and by the Discounted Contract
Balance as of the Cutoff Date.
Collections on Contracts
All collections received with respect to the Contracts will be
allocated as described herein. See "Description of the Notes--Allocations."
Prepayments will be given effect as of the last day of the Collection Period in
which they are received and Scheduled Payments of principal made in advance of
their due date will be given effect on their due date.
PREPAYMENT AND YIELD CONSIDERATIONS
The rate of principal payments on the Notes, the aggregate amount of
interest payments on the Notes and the yield to maturity of the Notes are
directly related to the rate of payments on the underlying Contracts. The
payments on such Contracts may be in the form of Scheduled Payments,
prepayments, made at the option or request of the related End-User or
liquidations due to default, casualty and other events, the likelihood of which
cannot be predicted. Any such payments may result in distributions to
Noteholders of amounts which would otherwise have been distributed over the
remaining term of the Contracts. In general, the rate of such payments may be
influenced by a number of factors, including general economic conditions. The
rate of principal payments with respect to any Class may also be affected by any
repurchase by the Seller or the Servicer pursuant to the Transfer and Sale
Agreement or Sale and Servicing Agreement, as applicable, of Ineligible
Contracts, Warranty Contracts and Defaulted Contracts. In the event of a
repurchase, the repurchase price will decrease the ADCB of the Contracts,
leading to a principal repayment and causing the corresponding weighted average
life of the Notes to decrease. See "Risk Factors--Prepayments on the Contracts
Affect the Yield of the Notes."
In the event a Contract becomes a Defaulted Contract, an Adjusted
Contract or a Warranty Contract, the Seller or the Servicer, as applicable, will
have the option to substitute for the affected Contract another of similar
characteristics (a "Substitute Contract"), subject to an overall limitation, in
respect of Defaulted Contracts or Adjusted Contracts only, of an aggregate
amount not to exceed 10% of the ADCB of the Contract Pool as of the initial
Cutoff Date. In addition, the Servicer may at its option, under the terms of the
Sale and Servicing Agreement, permit or agree to the early termination or full
prepayment of any Contract in certain circumstances, and on the terms and
subject to the conditions more fully specified in the Sale and Servicing
Agreement (any such Contract for which there is an early termination or full
prepayment, a "Prepaid Contract"). Such circumstances may include, without
limitation, a full or partial buyout of the Equipment which is the subject of
the Contract, or an equipment upgrade. The amount of the prepayment in full must
not be less than the sum of (a) the Discounted Contract Balance of such Prepaid
Contract on the Determination Date immediately prior to the date of prepayment
plus any accrued interest thereon at the Discount Rate to the date of prepayment
and (b) any unreimbursed Servicer Advances witih respect thereto. With respect
to any Prepaid Contract the Servicer may at its option either (x) include such
prepayment in full in the Available Amount for the related Payment Date or (y)
reinvest the prepayment proceeds of such Prepaid Contract in one or more new
Contracts having similar characteristics to such Prepaid Contract (each, an
"Additional Contract"). The Additional Contracts and the Substitute Contracts
will have a Discounted Contract Balance equal to or greater than that of the
Contracts being replaced and the monthly payments on the Additional Contracts
and Substitute Contracts will be at least equal to those of the replaced
Contracts through the term of such replaced Contracts and shall provide for a
last Scheduled Payment which is not beyond the ____ ____ Payment Date, or to the
extent the last Scheduled Payment on such Contract is due after the ____ ____
Payment Date, only Scheduled Payments due on or prior to such date may be
included in the Discounted Contract Balance of such Contract.
The yield to maturity to the holders of the Notes will also be effected
by the exercise of the Trust Depositor of its right of optional redemption of
the Notes if the ADCB of the Contract Pool at such time is equal to 15% or less
of the ADCB of the Contract Pool as of the initial Cutoff Date. See "Description
of the Notes--Optional Redemption" herein.
The following chart sets forth the percentage of the Class A-1, Class
A-2, Class A-3, Class B and Class C Note Initial Note Principal Balance which
would be outstanding on the Payment Dates set forth below assuming a conditional
payment rate (a "Conditional Payment Rate" or "CPR") of ____%, ____%, ____% and
____%, respectively. Such information is hypothetical and is set forth for
illustrative purposes only. The CPR assumes that a fraction of the outstanding
Contract Pool is prepaid on each Payment Date, which implies that each Contract
in the Contract Pool is equally likely to prepay. The CPR measures prepayments
based on the outstanding Discounted Contract Balances of the Contracts, after
the payment of all Scheduled Payments on the Contracts during such Collection
Period. The CPR further assumes that all Contracts are the same size and
amortize at the same rate and that each Contract will be either paid as
scheduled or prepaid in full. The amounts set forth below are based upon the
timely receipt of scheduled monthly Contract payments as of the initial Cutoff
Date, assume that the Trust Depositor exercises its option to cause a redemption
of the Notes when the ADCB of the Contract Pool at such time is equal to 15% of
the ADCB of the Contract Pool as of the initial Cutoff Date, assumes the Closing
Date is _______ __, 1998 and is based upon the Statistical Discount Rate.
PERCENTAGE OF THE
CLASS A INITIAL PRINCIPAL AMOUNT,
CLASS B INITIAL PRINCIPAL AMOUNT, AND
CLASS C INITIAL PRINCIPAL AMOUNT
AT THE RESPECTIVE CPR SET FORTH BELOW
<TABLE>
<CAPTION>
% CPR % CPR
<S> <C>
Distribution Class Class Class Class Class Class Class Class Class Class
Date A-1 A-2 A-3 B C A-1 A-2 A-3 B C
Closing Date
% CPR % CPR
Distribution Class Class Class Class Class Class Class Class Class Class
Date A-1 A-2 A-3 B C A-1 A-2 A-3 B C
Closing Date
</TABLE>
Weighted Average Life (Years)
If the Trust Depositor does not exercise its option to cause a
redemption of the Notes when the ADCB of the Contract Pool at such time is equal
to 15% or less of the ADCB of the Contract Pool as of the initial Cutoff Date,
the average life of the Class A-1 Notes would be ____ years, ____ years, ____
years and ____ years, the average life of the Class A-2 Notes would be ____
years, ____ years, ____ years and ____ years, the average life of the Class A-3
Notes would be ____ years, ____ years, ____ years and ____ years, the average
life of the Class B Notes would be ____ years, ____ years, ____ years and ____
years, and the average life of the Class C Notes would be ____ years, ____
years, ____ years and ____ years for the ____% CPR, ____% CPR, ____% CPR and
____% CPR scenarios, respectively.
The weighted average life of a Class A-1 Note, a Class A-2 Note, a
Class A-3 Note, a Class B Note or a Class C Note is determined by (a)
multiplying the amount of cash distributions in reduction of the outstanding
principal amount of the Class A-1 Notes, outstanding principal amount of the
Class A-2 Notes, outstanding principal amount of the Class A-3 Notes,
outstanding principal amount of the Class B Notes or outstanding principal
amount of the Class C Notes, as the case may be, on any given Payment Date by
the number of months from the Closing Date to such Payment Date on which each
such principal payment is made, (b) adding the results and (c) dividing the sum
by the Class A-1 Initial Note Principal Balance, Class A-2 Initial Note
Principal Balance, Class A-3 Initial Note Principal Balance, Class B Initial
Note Principal Balance or Class C Note Initial Principal Balance, as the case
may be.
MITSUI VENDOR LEASING (U.S.A.) INC.
Mitsui Vendor Leasing (U.S.A.) Inc. ("Mitsui Vendor Leasing," and in
its capacity as the seller pursuant to the Transfer and Sale Agreement and as
servicer pursuant to the Sale and Servicing Agreement, the "Seller" and the
"Servicer," respectively) is a full service vendor leasing company which
originates and manages asset-based financing. Mitsui Vendor Leasing acquires
equipment leases and conditional sales contracts through various vendor programs
covering primarily machine tool equipment, medical diagnostic equipment,
photo-finishing equipment, plastic injection molding equipment and computer
equipment.
Mitsui Vendor Leasing, formerly known as Vendor Financial Services
Corporation, was incorporated in December 1992 in the State of Delaware. In
October 1993 it was acquired by Mitsui Leasing Capital Corporation (which
acquired 95.1% of its voting capital stock) and The Sakura Bank Limited (which
acquired 4.9% of its voting capital stock). Mitsui Leasing Capital Corporation
is a wholly-owned subsidiary of Mitsui Leasing and Development, Limited. As of
the date of this Prospectus, these shareholders continue to hold these
respective percentages of Mitsui Vendor Leasing's voting capital stock.
Mitsui Vendor Leasing's strategy has been to specialize in providing
vendors with fully functional captive finance capabilities. In filling this need
of vendors, Mitsui Vendor Leasing promotes a long-term, tightly coupled
strategic alliance with its vendor customers and becomes integrated into the
sales and administrative processes of these vendors.
As of the date of this Prospectus, Mitsui Vendor Leasing is involved in
various lawsuits arising in the ordinary course of its business. In the opinion
of management of Mitsui Vendor Leasing, the outcome of these matters will not
have a material adverse effect on the financial condition or results of
operations of Mitsui Vendor Leasing.
Mitsui Vendor Leasing's principal executive offices are located at 6363
Greenwich Drive, Suite 100, San Diego, California 92122.
Credit Underwriting Process
Mitsui Vendor Leasing's Risk Policy Manual provides the compliance
standards to be followed by all Mitsui Vendor Leasing credit analysts relating
to investment and risk management, credit underwriting and due diligence
standards. The primary factors involved in the extension of credit are (in order
of importance) (1) the credit strength of the underlying end-user of the
equipment, (2) the value of the equipment to be financed including Vendor
equipment remarketing support and (3) Vendor recourse.
A credit analyst must underwrite all credit requests. Each credit
analyst has an assigned approval authority based on experience and seniority
(reflecting an understanding of Mitsui Vendor Leasing's business), including
credit approval limits, applicable single transaction size and individual
end-user exposure. Personnel at Mitsui Vendor Leasing's offices have credit
approval authority up to $2,000,000.
Credit review procedures require the preparation of a credit
application setting out the structure and purpose of the transaction, the
background and business of the proposed end-user and the reasons for
recommending approval. Credit scoring is not used. In general, transactions in
excess of $75,000 require financial statement disclosure consisting of at least
the three most recent fiscal year-end financial statements and interim financial
statements. Additionally, information from credit reporting agencies, bank and
other credit references, trade references, and other information may be
evaluated. Transactions involving small, privately held companies exhibiting
limited financial resources require financial disclosure by their principals. An
approval may contain restrictive conditions including a reduced financing term,
related party guarantees or down payments.
In initially establishing a vendor program agreement or other form of
financing arrangement with a vendor, Mitsui Vendor Leasing completes a formal
underwriting review of such vendor to ensure that the vendor can perform the
financial and other obligations contained in any vendor program agreement. This
review encompasses financial information analysis, equipment evaluation, a
review of the quality of the end-user customer base and of relevant industry
data. Vendors are generally required to be established in their field and must
market industry-accepted equipment or other products. The vendor must have
sufficient financial resources to support the financing relationship
contemplated by Mitsui Vendor Leasing, and the vendor's equipment must maintain
a substantial market position or in some other appropriate manner demonstrate
marketplace acceptance.
Documentation and Pricing
Most contracts are written as full-payout finance leases, although in
some instances they are documented as conditional sales contracts (see "The
Contracts Generally" above). Mitsui Vendor Leasing's documentation department
both originates contracts for vendors that do not have such capabilities and
reviews vendor originated documentation. As a key control point within Mitsui
Vendor Leasing, pricing and credit approval are verified by this group and, when
all requirements are satisfied, transaction funding is authorized.
The yield at which Mitsui Vendor Leasing acquires a contract from a
vendor (in other words, the discount rate applied by Mitsui Vendor Leasing to
the scheduled payments to be received from the end-user), is set at the time the
end-user credit is approved by the vendor. However, the discount rate
established by Mitsui Vendor Leasing with such vendor may vary from the discount
rate the vendor uses in calculating the scheduled payments due from the
end-user, thus resulting in an amount financed by Mitsui Vendor Leasing that is
not exactly equal the dealer invoiced cost. End of the contract term fixed
equipment purchase options under contracts are priced at no more than such
amount financed by Mitsui Vendor Leasing. Most contracts acquired by Mitsui
Vendor Leasing provide for an end of contract term fixed equipment purchase
option (see "The Contracts Generally" above).
Payment Processing
Payments by end-users of amounts payable under their respective
contracts are made by check mailed to a Mitsui Vendor Leasing post office box or
by wire transfer to a Mitsui Vendor Leasing lock-box account. Invoices are
mailed to end-users instructing the end-users to forward payments to such Mitsui
Vendor Leasing post office box for processing by the lock-box bank at which such
Mitsui Vendor Leasing lock-box account is maintained. End- users that wish to
remit by wire transfer are provided with wire transfer instructions to remit to
such Mitsui Vendor Leasing lock-box account.
Invoices sent to end-users contain a remittance advice. The lock-box
bank processes the deposits and credits Mitsui Vendor Leasing's lock-box account
daily. The lock-box bank transmits the data electronically to Mitsui Vendor
Leasing's accounts receivable system. Mitsui Vendor Leasing's accounts
receivable system matches remittance information to cash deposits and applies
payments to end-user accounts. The following day, a daily summary of deposits
received by the lock-box bank is forwarded to Mitsui Vendor Leasing, together
with copies of checks and remittance advices and any other information passed
along with the payment. Unmatched deposits are recorded as unapplied cash for
further review and processing after investigation by Mitsui Vendor Leasing.
Contract Collections
Portfolio administrators are responsible for monitoring any change in
the status of a contract as well as collection of delinquent contracts.
Information on the activity of the Mitsui Vendor Leasing portfolio is available
through lease management software licensed by Mitsui Vendor Leasing. All
collection activity is entered into the system which includes collection
tracking capabilities. Portfolio administrators have available at their computer
terminals the latest status and collection history on each contract and related
end-user. Activity notes are input directly into the collection system in order
to facilitate monitoring of routine collection activity. Monthly portfolio
quality review meetings are held with senior managers to review the status of
various contracts and related end-users and of repossessed equipment.
When a payment is determined to not have been received within 10 days
of its contractual due date, Mitsui Vendor Leasing's lease management system
automatically assesses a late charge and generates a computerized invoice which
is sent directly to the end-user. Telephone contact is normally initiated when a
contract payment is 15 days past due. Generally, a demand letter is sent to the
end-user and all guarantors when a contract payment becomes 45 days past due.
Telephone contact will be continued throughout the delinquency period. In most
instances Mitsui Vendor Leasing will accelerate and demand payment from the
end-user of the balance due under a contract when a contract payment becomes
more than 90 days past due, but such action may be initiated more quickly, which
subjects the end-user to repossession of equipment and legal action to collect
the balance due.
Mitsui Vendor Leasing's Risk Policy Manual provides the compliance
standards to be followed by all Mitsui Vendor Leasing portfolio administrators
relating to the rewriting of transactions, transfers of interest and the
extension of time to make payments due under contracts. The approval required in
the case of end-user requests for contract restructuring or payment rescheduling
is the same as that required for a new transaction. Such restructuring or
rescheduling generally will only be approved in cases where it is believed that
an end-user's financial difficulties are only temporary and that the equipment
value will not be seriously impaired by such undertaking.
Write-Off Policy
Mitsui Vendor Leasing's Credit and Collections Manual provides the
standards to be followed for write-off of a contract balance, or a portion
thereof as uncollectible. Generally, such write-off is deemed appropriate when
one of two conditions is present. The first condition is when Mitsui Vendor
Leasing has determined that all or a portion of a receivable is uncollectible.
The second is when there is uncertainty as to the source or timing of the
eventual payoff of the contract but certainty that such payoff, if it occurs,
will be protracted as described below. Mitsui Vendor Leasing's classification
system is designed so that when a contract (or any portion thereof) is
classified as a loss, it must be written off as uncollectible within 30 days
after such classification.
When a scheduled payment under a contract reaches 180 days
contractually past due, the portion of the account that exceeds the net asset
value of the related equipment must be classified as a loss and written-off as
uncollectible. Mitsui Vendor Leasing then generally takes a reasonable period of
time (up to 6 months) to liquidate such equipment. If after such period the
equipment has not been liquidated, then the liquidation effort is considered
protracted and the remaining balance of the account is written-off in full
(regardless of the net asset value of equipment securing the contract).
THE TRUST DEPOSITOR
Mitsui Vendor Leasing Funding Corp. II (the "Trust Depositor") is
incorporated under the laws of the State of Delaware and is a wholly owned
subsidiary of Mitsui Vendor Leasing. On the Closing Date, the Contracts and
related interests described herein will be transferred by the Seller to the
Trust Depositor, and in return the Trust Depositor will pay to the Seller the
net proceeds received from the offering and sale of the Notes. See "Use of
Proceeds" herein.
The Trust Depositor has been formed solely for the purposes of the
transactions described in this Prospectus; and under its incorporation documents
and the Sale and Servicing Agreement, the Trust Depositor is not permitted to
engage in any activity other than (i) acquiring the Contracts and related
interests described herein, (ii) transferring and conveying the Contracts and
related interests described herein and its rights under the Transfer and Sale
Agreement to the Trust, and (iii) 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
Trust Depositor is prohibited from incurring any debt, issuing any obligations
or incurring any liabilities, except in connection with the formation of the
Trust and the issuance of the Notes. The Trust Depositor 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 and will have no
significant assets other than those conveyed to the Trust.
DESCRIPTION OF THE NOTES
The statements under this caption are summaries, do not purport to be
complete and are subject to and qualified in their entirety by reference to the
Sale and Servicing Agreement and the Indenture (the "Operative Documents").
Forms of the Operative Documents have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.
General
The Notes will consist of three Classes: the Class A Notes, the Class B
Notes and the Class C Notes. The Class A Notes are further divided into three
sub-Classes: the Class A-1 Notes, the Class A-2 Notes and the Class A-3 Notes.
The Notes will be issued pursuant to the Indenture between the Issuer and the
Indenture Trustee. The following summary describes the material terms of the
Notes and is qualified in its entirety by reference to the Operative Documents.
The Class A-1 Notes, the Class A-2 Notes, the Class A-3 Notes, the
Class B Notes and the Class C Notes will initially be represented by one or more
certificates registered in the name of the nominee of DTC (together with any
successor depositary selected by the Issuer, the "Depositary"), except as set
forth below under the heading "--Definitive Notes." The Notes will be available
for purchase in minimum denominations of $1,000 and in integral multiples
thereof in book-entry form. The Trust Depositor has been informed by DTC that
DTC's nominee will be Cede & Co. See "--Book-Entry Registration" and
"--Definitive Notes" below.
The Indenture Trustee will be granted a first priority lien on the
Trust Assets to secure the Notes. Distributions on the Notes (and each Class
thereof) will be allocated as provided herein. The Notes are nonrecourse
obligations of the Issuer only and do not represent interests in or obligations
of the Seller, the Servicer, the Trust Depositor, or any affiliate thereof.
Interest
Interest on the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes, the Class B Notes and the Class C Notes will accrue on the outstanding
principal amount thereof as of the preceding Payment Date (after giving effect
to all distributions and allocations on such date) (or, in the case of the
initial Payment Date, as of the Closing Date) at the applicable Class A-1
Interest Rate, the Class A-2 Interest Rate, the Class A-3 Interest Rate, the
Class B Interest Rate or the Class C Interest Rate, respectively, on the basis
of a year of 360 days consisting of twelve 30 day months from and including the
most recent Payment Date (or, in the case of the initial Payment Date, from and
including the Closing Date) to but excluding the following Payment Date (each
period for which interest accrues on the Notes, an "Accrual Period"), except
that interest on the Class A-1 Notes will be calculated on the basis of the
actual number of days in each Accrual Period divided by 360. Interest on the
Notes will be payable on each Payment Date to the holders of record of the Class
A Notes (the "Class A Noteholders"), the holders of record of the Class B Notes
(the "Class B Noteholders") and the holders of record of the Class C Notes (the
"Class C Noteholders"; together with the Class A Noteholders and the Class B
Noteholders, the "Noteholders") as of the related Record Date.
Interest on the Class A Notes is payable on a Payment Date from
Available Amounts on such date (and after application of such Available Amounts
to repay any outstanding Servicer Advances and to pay the Servicing Fee).
Interest on the Class B Notes is payable on a Payment Date from Available
Amounts on such date, but only after the application of such Available Amounts
to repay any outstanding Servicer Advances, to pay the Servicing Fee, and to pay
interest on the Class A Notes. Interest on the Class C Notes is payable on a
Payment Date from Available Amounts on such date, but only after the application
of such Available Amounts to repay any outstanding Servicer Advances, to pay the
Servicing Fee, and to pay interest on the Class A Notes and the Class B Notes.
If on any Payment Date, after any unpaid Servicer Advances and the
Servicing Fee have been paid, Available Amounts are insufficient to pay all
interest due on the Notes, the remaining Available Amounts will be allocated
first to pay all interest due on the Class A Notes (and will be allocated among
each Class of the Class A Notes pro rata based on the ratio of the interest
payable on the Class A-1, Class A-2 and Class A-3 Notes, as applicable, to the
interest payable on the Class A Notes as a whole), second to pay all interest
due on the Class B Notes, and third to pay all interest due on the Class C
Notes.
Principal
The stated maturity of the Class A-1 Notes is the Payment Date; the
stated maturity of the Class A-2 Notes is the Payment Date; the stated maturity
of each other Class of Notes is the Payment Date. However, if all payments on
the Contracts are made as scheduled, final payment with respect to the Notes
(other than the Class A-1 Notes) would occur earlier than stated maturity.
Principal of the Class A Notes will be payable on each Payment Date in
an amount equal to the Class A Principal Payment Amount for such Payment Date to
the extent Available Amounts are available therefor, but after payment from such
Available Amounts of any unpaid Servicer Advances, the Servicing Fee and
interest payments due on the Notes. Principal of the Class B Notes will be
payable on each Payment Date in an amount equal to the Class B Principal Payment
Amount for such Payment Date to the extent Available Amounts are available
therefor, but after payment from such Available Amounts of any unpaid Servicer
Advances, the Servicing Fee, interest payments due on the Notes, and the payment
of the Class A Principal Payment Amount. Principal of the Class C Notes will be
payable on each Payment Date in an amount equal to the Class C Principal Payment
Amount for such Payment Date to the extent Available Amounts are available
therefor, but after payment from such Available Amounts of any unpaid Servicer
Advances, the Servicing Fee, interest payments due on the Notes, and the payment
of the Class A Principal Payment Amount and the Class B Principal Payment
Amount. See "--Allocations" herein.
As a result of the levels of the Applicable Percentage described below,
all amounts to be distributed as principal of the Notes will be distributed on
the Class A-1 Notes until the Class A-1 Notes are paid in full. In addition,
failure to pay the Class A Principal Payment Amount, the Class B Principal
Payment Amount or the Class C Principal Payment Amount on any Payment Date prior
to the stated maturity date for such Class of Notes will not constitute an Event
of Default under the Indenture, except to the extent caused by any failure to
remit or allocate Available Amounts to be used to make such Class A Principal
Payment Amount, Class B Principal Payment Amount or Class C Principal Payment
Amount. See "--Events of Default."
As used herein, the following terms shall have the following meanings:
The "ADCB" means, with respect to the Contracts, the sum of
the Discounted Contract Balances of each Contract included in the group
of Contracts for which an ADCB determination is being made.
The "Aggregate Principal Paydown Amount" means, for any
Payment Date, an amount (not less than zero) equal to (a) the ADCB of
the Contract Pool as of the beginning of business on the first day of
the immediately preceding Collection Period, minus (b) the ADCB of the
Contract Pool as of the close of business on the last day of the
immediately preceding Collection Period. Such decline in the ADCB of
the Contract Pool for such immediately preceding Collection Period may
be through payment, prepayment, default and writeoff, determination of
ineligibility, substitution or addition of the Contracts or as may
otherwise be described herein.
The "Applicable Percentage" means, (i) for the Class A Notes,
100% until the Class A-1 Notes are paid in full, and thereafter _____%,
(ii) for the Class B Notes, 0% until the Class A-1 Notes are paid in
full, and thereafter _______%, and (iii) for the Class C Notes, 0%
until the Class A-1 Notes are paid in full, and thereafter ____%.
"Class A Principal Payment Amount" means, with respect to any
Payment Date, the lesser of (a) the aggregate outstanding principal
amount of the Class A Notes and (b) (i) the Applicable Percentage for
the Class A Notes for such Payment Date, multiplied by (ii) the
Aggregate Principal Paydown Amount for such Payment Date.
"Class B Principal Payment Amount" means, with respect to any
Payment Date, the lesser of (a) the aggregate outstanding principal
amount of the Class B Notes and (b) (i) the Applicable Percentage for
the Class B Notes for such Payment Date, multiplied by (ii) the
Aggregate Principal Paydown Amount for such Payment Date.
"Class C Principal Payment Amount" means, with respect to any
Payment Date, the lesser of (a) the aggregate outstanding principal
amount of the Class C Notes and (b) (i) the Applicable Percentage for
the Class C Notes for such Payment Date, multiplied by (ii) the
Aggregate Principal Paydown Amount for such Payment Date.
"Discounted Contract Balance" means with respect to any
Contract, (a) as of the related Cutoff Date, the present value of all
of the remaining Scheduled Payments becoming due under such Contract
after the applicable Cutoff Date but not later than the ____________
_______ Payment Date, discounted monthly at the Discount Rate and (b)
as of any other date of determination, the sum of (i) the present value
of all of the remaining Scheduled Payments becoming due under such
Contract on or after such date of determination but not later than the
____________ _______ Payment Date, discounted monthly at the Discount
Rate and (ii) the aggregate amount of all Scheduled Payments due and
payable under such Contract after the applicable Cutoff Date and prior
to such date of determination that have not then been received by the
Servicer; provided that the Discounted Contract Balance of any
Defaulted Contract will be equal to zero. The Discounted Contract
Balance for each Contract shall be calculated assuming:
(a) All payments due in any Collection Period are due
on the last day of the Collection Period;
(b) Payments are discounted on a monthly basis using a
30 day month and a 360 day year; and
(c) All security deposits and drawings under letters
of credit, if any, issued in support of a Contract
are applied to reduce Scheduled Payments in
inverse order of the due date thereof.
"Scheduled Payments" means, with respect to any Contract,
rent or financing payment (whether attributable to principal or
interest) scheduled to be made by the related End-User under the terms
of such Contract after the related Cutoff Date; provided that Scheduled
Payments will not include any Excluded Amounts. Substantially all of
the Contracts included in the Contract Pool provide for Scheduled
Payments to be made monthly.
Allocations
As Long As No Event of Default or Restricting Event Has Occurred and Is
Continuing. So long as no Event of Default or Restricting Event has occurred and
is continuing, on the second Business Day prior to each Payment Date (each, a
"Determination Date"), the Servicer shall instruct the Indenture Trustee to
withdraw, and on such Payment Date the Indenture Trustee acting in accordance
with such instructions shall withdraw, the amounts required to be withdrawn from
the Collection Account in order to make the following payments or allocations
from the Available Amounts for the related Payment Date, in the following order
of priority (in each case, such payment or transfer to be made only to the
extent funds remain available therefor after all prior payments and transfers
for such Payment Date have been made):
(A) pay to the Servicer, the amount of any
unreimbursed Servicer Advances;
(B) pay to the Servicer, the monthly Servicing Fee for
the preceding Collection Period together with any
amounts in respect of the Servicing Fee that were
due in respect of prior Collection Periods that
remain unpaid;
(C) pay to the Indenture Trustee, on behalf of the
Class A Notes, an amount equal to (i) interest
accrued in respect of such Class A Notes for the
Accrual Period immediately preceding such Payment
Date, plus (ii) any accrued and unpaid interest
from prior Accrual Periods; provided that, if the
Available Amounts remaining to be allocated as
described in this clause are less than the full
amount required to be so paid, such remaining
Available Amounts shall be allocated among each
Class of the Class A Notes pro rata based on the
ratio of the interest payable on the Class A-1,
Class A-2 and Class A-3 Notes, as applicable, to
the interest payable on the Class A Notes as a
whole;
(D) pay to the Indenture Trustee, on behalf of the
Class B Notes, an amount equal to (i) the interest
accrued thereon for the Accrual Period immediately
preceding such Payment Date, plus (ii) any accrued
and unpaid interest from prior Accrual Periods;
(E) pay to the Indenture Trustee, on behalf of the
Class C Notes, an amount equal to (i) interest
accrued thereon for the Accrual Period immediately
preceding such Payment Date, plus (ii) any accrued
and unpaid interest from prior Accrual Periods;
(F) pay to the Indenture Trustee, on behalf of the
Class A Notes, an amount equal to (i) the Class A
Principal Payment Amount for such Payment Date,
plus (ii) any unpaid Class A Principal Payment
Amount from prior Payment Dates;
(G) pay to the Indenture Trustee, on behalf of the
holders of the Class B Notes, an amount equal to
(i) the Class B Principal Payment Amount for such
Payment Date, plus (ii) any unpaid Class B
Principal Payment Amount from prior Payment Dates;
(H) pay to the Indenture Trustee, on behalf of the
holders of the Class C Notes, an amount equal to
(i) the Class C Principal Payment Amount for such
Payment Date, plus (ii) any unpaid Class C
Principal Payment Amount from prior Payment Dates;
(I) pay to the Indenture Trustee for deposit into the
Reserve Fund, an amount equal to the difference
between the Required Reserve Fund Amount and the
Reserve Fund Amount on deposit in the Reserve
Fund; and
(J) Available Amounts remaining, after the allocations
described in paragraphs (A) through (I) above,
shall be paid to the holder of the subordinate
interests in the Trust (which will initially be
the Trust Depositor) and will thereafter not be
available to make payments in respect of the Notes
or otherwise be part of Available Amounts.
So long as no Event of Default or Restricting Event has occurred and is
continuing, on each Payment Date the Class A Principal Payment Amount will be
allocated sequentially among the Class A-1, Class A-2 and Class A-3 Notes so
that the entire Class A Principal Payment Amount will be allocated, first, to
the Class A-1 Notes until the Class A-1 Notes are paid in full, second, to the
Class A-2 Notes until the Class A-2 Notes are paid in full and, third, to the
Class A-3 Notes until the Class A-3 Notes are paid in full.
As used herein, "Available Amounts" means as of any Payment Date, the
sum of (i) all amounts on deposit in the Collection Account as of the
immediately preceding Determination Date on account of Scheduled Payments, but
excluding the Excluded Amounts due on or before, as well as prepayments received
on or before, the last day of the Collection Period immediately preceding such
Payment Date (in each case other than Excluded Amounts); (ii) Recoveries on
account of previously Defaulted Contracts received as of the immediately
preceding Determination Date; and (iii) such amounts as from time to time may be
held in the Collection Account, together with earnings on funds therein.
Pursuant to the Indenture, on each Payment Date the Indenture Trustee
will distribute all amounts paid to it on behalf of any one of the Class A-1,
Class A-2, Class A-3, Class B or Class C Notes as described in the foregoing
paragraphs to the Noteholders of such Class pro rata in accordance with the
respective amounts owed thereto.
Following an Event of Default or Restricting Event. On each
Determination Date after the occurrence and during the continuance of an Event
of Default or Restricting Event, the Servicer shall instruct the Indenture
Trustee to withdraw, and on the related Payment Date the Indenture Trustee,
acting in accordance with such instructions, shall withdraw, the amounts
required to be withdrawn from the Collection Account in order to make the
following payments or allocations from the Available Amounts, in the following
order of priority (in each case, such payment or transfer to be made only to the
extent funds remain available therefor after all prior payments and transfers
for such Payment Date have been made):
(A) pay to the Servicer, the amount of any
unreimbursed Servicer Advance;
(B) pay to the Servicer, the monthly Servicing Fee for
the preceding Collection Period together with any
amounts in respect of the Servicing Fee that were
due in respect of prior Collection Periods that
remain unpaid;
(C) pay to the Indenture Trustee, on behalf of the
Class A Notes, an amount equal to (i) interest
accrued in respect of such Class A Notes for the
Accrual Period immediately preceding such Payment
Date, plus (ii) any accrued and unpaid interest
from prior Accrual Periods; provided that, if the
Available Amounts remaining to be allocated as
described in this clause are less than the full
amount required to be so paid, such remaining
Available Amounts shall be allocated among each
Class of the Class A Notes pro rata based on the
ratio of the interest payable on the Class A-1,
Class A-2 and Class A-3 Notes, as applicable, to
the interest payable on the Class A Notes as a
whole;
(D) pay to the Indenture Trustee, on behalf of the
Class B Notes, an amount equal to (i) the interest
accrued thereon for the Accrual Period immediately
preceding such Payment Date, plus (ii) any accrued
and unpaid interest from prior Accrual Periods;
(E) pay to the Indenture Trustee, on behalf of the
Class C Notes, an amount equal to (i) interest
accrued in respect of the Class C Notes for the
Accrual Period immediately preceding such Payment
Date, plus (ii) any accrued and unpaid interest
from prior Accrual Periods;
(F) pay to the Indenture Trustee, on behalf of the
Class A Notes, an amount equal to all remaining
Available Amounts for such Payment Date, until the
aggregate outstanding principal amount of the
Class A Notes has been paid in full; with all
amounts paid as described in this clause to be
allocated first to the Class A-1 Notes until the
Class A-1 Notes have been paid in full and then
among the Class A-2 and Class A-3 Notes, pro rata,
based on the outstanding principal amounts
thereof;
(G) after the Class A Notes have been paid in full,
pay to the Indenture Trustee, on behalf of the
Class B Notes, an amount equal to all remaining
Available Amounts for such Payment Date, until the
aggregate outstanding principal amount of the
Class B Notes has been paid in full; and
(H) after the Class B Notes have been paid in full,
pay to the Indenture Trustee, on behalf of the
Class C Notes, an amount equal to all remaining
Available Amounts until the aggregate outstanding
principal amount of the Class C Notes has been
paid in full.
Reserve Fund
A trust account has been established by the Trust Depositor in the name
of, and maintained by, the Indenture Trustee (the "Reserve Fund"). On the
Closing Date the Trust Depositor will deposit (or cause to be deposited)
$___________ in the Reserve Fund (which is equal to % of the ADCB of the
Contract Pool as of the initial Cutoff Date) (the "Initial Reserve Fund
Deposit").
Pursuant to the Sale and Servicing Agreement, the amount on deposit at
any time in the Reserve Fund (the "Reserve Fund Amount") will be required to
equal the greater of (a) the Initial Reserve Fund Deposit and (b) the aggregate
outstanding principal amount of the Notes. Such amount required to be held in
the Reserve Fund is referred to herein as the "Required Reserve Fund Amount."
Amounts held from time to time in the Reserve Fund will continue to be
held for the benefit of the Noteholders. On each Payment Date, funds will be
withdrawn from the Reserve Fund to the extent that Available Amounts with
respect to any Payment Date are less than the amount necessary to pay interest
on the Notes; provided that upon the occurrence of an Event of Default or a
Restricting Event, any amounts remaining in the Reserve Fund shall be applied to
pay the principal on the Notes. In addition, on any Payment Date if, after
giving effect to all allocations and distributions on such Payment Date, the
Reserve Fund Amount exceeds the Required Reserve Fund Amount, such excess will
be distributed to the Seller. Upon any such distributions to the Seller, the
Noteholders will have no further rights in, or claims to, such amounts.
The Seller may, from time to time after the date of this Prospectus,
request each Rating Agency that rated the Notes to approve a decrease in the
Required Reserve Fund Amount. If each Rating Agency delivers a letter to the
Indenture Trustee and the Seller to the effect that such decrease in the
Required Reserve Fund Amount will not in and of itself result in a
qualification, reduction or withdrawal of its then current rating of any Class
of Notes, then the Required Reserve Fund Amount will be so decreased. The Sale
and Servicing Agreement will accordingly be amended to reflect such decrease in
the Required Reserve Fund Amount without the consent of any Noteholder.
Defaulted Contracts
A Contract will be deemed to be in default (a "Defaulted Contract") if
(i) it is more than 120 days past due; or (ii) if at any time the Servicer
determines, in accordance with its customary and usual practices, that such
Contract is not collectible (taking into account any available Vendor recourse).
The current policy of the Servicer with respect to writing off Contracts is
described in "Mitsui Vendor Leasing (U.S.A.) Inc.--Write-Off Policy" above.
Upon classification as a Defaulted Contract, the Servicer shall
accelerate all payments due thereunder or take such other action as the Servicer
reasonably believes will maximize the amount of Recoveries in respect thereof
and shall otherwise follow its customary and usual collection procedures, which
may include the repossession and sale of the related Equipment on behalf of the
Issuer. In the event of a failure to pay and an inability to collect amounts due
from the End-User, the Trust will dependent on recoveries from the sale of the
related Equipment and, if available, Insurance Proceeds and amounts received in
respect of Vendor recourse to pay the Discounted Contract Balance and any
delinquent Scheduled Payments or other amounts due on the Defaulted Contract.
Any recoveries on account of a previously Defaulted Contract (including proceeds
of repossessed Equipment or other property, Insurance Proceeds and amounts
subsequently received pursuant to a Vendor Program Agreement with a Vendor, but
net of amounts representing costs and expenses of liquidation incurred by the
Servicer, such recoveries net of such amounts, "Recoveries") shall be deemed to
be Available Amounts.
Collection Account
The Servicer, for the benefit of the Noteholders, shall cause to be
established and maintained in the name of the Indenture Trustee, with an office
or branch of a depositary institution or trust company (which may include the
Indenture Trustee) organized under the laws of the United States of America or
any one of the states thereof and located in the state designated by the
Servicer, a segregated corporate trust account (the "Collection Account")
bearing a designation clearly indicating that the funds deposited therein are
held in trust for the benefit of the Noteholders; provided that at all times
such depositary institution or trust company shall be (a) the corporate trust
department of the Indenture Trustee or, (b) a depositary institution organized
under the laws of the United States of America or any one of the states thereof
or the District of Columbia (or any domestic branch of a foreign bank), (i) (A)
which has either (1) a long-term unsecured debt rating acceptable to the Rating
Agencies or (2) a short-term unsecured debt rating or certificate of deposit
rating acceptable to the Rating Agencies, (B) the parent corporation of which
has either (1) a long-term unsecured debt rating acceptable to the Rating
Agencies or (2) a short-term unsecured debt rating or certificate of deposit
rating acceptable to the Rating Agencies or (C) is otherwise acceptable to the
Rating Agencies and (ii) whose deposits are insured by the Federal Deposit
Insurance Corporation (the "FDIC," and any such depositary institution or trust
company, a "Qualified Institution"). Funds in the Collection Account generally
will be invested in (i) obligations fully guaranteed by the United States of
America, (ii) demand deposits, time deposits or certificates of deposit of
depositary institutions or trust companies having commercial paper with the
highest rating from each Rating Agency, (iii) commercial paper (or other
short-term obligations) having, at the time of the Indenture Trustee's
investment therein, the highest rating from each Rating Agency, (iv) demand
deposits, time deposits and certificates of deposit which are fully insured by
the FDIC, (v) notes or banker's acceptances issued by any depositary institution
or trust company described in (ii) above, (vi) money market funds which have the
highest rating from, or have otherwise been approved in writing by, each Rating
Agency, (vii) time deposits with an entity the commercial paper of which has the
highest rating from the Rating Agency, (viii) eligible repurchase agreements and
(ix) any other investments approved in writing by each Rating Agency
(collectively, "Eligible Investments"). Any earnings (net of losses and
investment expenses) on funds in the Collection Account will be held therein and
be treated as Available Amounts. The Servicer will have the revocable power to
instruct the Indenture Trustee to make withdrawals and payments from the
Collection Account for the purpose of carrying out its duties under the Sale and
Servicing Agreement.
Replacement Accounts
If any institution with which any of the accounts established pursuant
to the Sale and Servicing Agreement or the Indenture are established ceases to
be a Qualified Institution, the Servicer or the Indenture Trustee (as the case
may be) shall, within ten Business Days, establish a replacement account at a
Qualified Institution after notice thereof.
Events of Default
Allocations of Available Amounts will be made as described above under
"--Allocations--As Long As No Event of Default or Restricting Event Has Occurred
and Is Continuing" unless and until an Event of Default or Restricting Event has
occurred, in which case allocations of Available Amounts will be made as
described above under "--Allocations--Following an Event of Default or
Restricting Event." An "Event of Default" refers to any of the following events:
(a) failure to pay on each Payment Date the full
amount of accrued and unpaid interest on any Class
A Note, Class B Note or Class C Note;
(b) failure to pay the outstanding principal amount of
any Note, if any, on its related stated maturity
date;
(c) (i) failure on the part of the Seller or the
Servicer to make any payment or deposit required
under the Sale and Servicing Agreement or the
Indenture within three (3) Business Days after the
date the payment or deposit is required to be made
or (ii) failure on the part of the Seller, the
Servicer or the Issuer to observe or perform any
other covenants or agreements of such entity set
forth in the Sale and Servicing Agreement or the
Indenture, which failure has a material adverse
effect on the Noteholders and which continues
unremedied for a period of 60 days after written
notice; provided that only a five (5) day cure
period shall apply in the case of a failure by the
Seller or the Issuer to observe their respective
covenants not to grant a security interest in or
otherwise intentionally create a lien on the
Contracts;
(d) any representation or warranty made by the Issuer,
the Trust Depositor or the Seller in the Sale and
Servicing Agreement or the Indenture or any
information required to be given by the Seller or
the Trust Depositor to the Indenture Trustee to
identify the Contracts proves to have been
incorrect in any material respect when made and
continues to be incorrect in any material respect,
which failure has a material adverse effect on the
Noteholders and which continues unremedied for a
period of 60 days after written notice (it being
understood and acknowledged that, if any such
breach occurs with respect to one or more
Contracts, the Seller may remedy such breach by
the repurchase of such Contracts during such
period in accordance with the provisions of the
Sale and Servicing Agreement and the Transfer and
Sale Agreement);
(e) if a conservator, receiver or liquidator of the
Trust or the Trust Depositor was appointed or if
certain other events relating to the bankruptcy,
insolvency or receivership of the Trust or the
Trust Depositor were to occur (an "Insolvency
Event"); or
(f) the Issuer becomes an "investment company" within
the meaning of the Investment Company Act of 1940,
as amended.
An Event of Default may be waived if the Required Controlling Holders
provide written notice to the Issuer, the Trust Depositor, the Servicer and the
Indenture Trustee of such waiver. In the event the Trustee has actual knowledge
of an Event of Default, it will be required to notify, among others, the Issuer,
the Servicer and the Sellers.
If an Insolvency Event relating to the Trust Depositor or the Issuer
occurs, pursuant to the Sale and Servicing Agreement, on the day of such
Insolvency Event, the Trust Depositor will promptly give notice to the Trustee
of the Insolvency Event, and the Indenture Trustee will, if directed by the
Required Controlling Holders, promptly act to sell, dispose of or otherwise
liquidate the Contracts in a commercially reasonable manner and on commercially
reasonable terms. The proceeds from any such sale, disposition or liquidation of
Contracts will be deposited in the Collection Account and allocated as described
in the Sale and Servicing Agreement and herein. If the proceeds of any
collections on Contracts in the Collection Account allocated to Noteholders of
any Class is not sufficient to pay the aggregate outstanding principal amount of
the Notes of such Class in full, such Noteholders will incur a loss.
As used herein, "Required Controlling Holders" means (i) prior to the
payment in full of the Class A Notes outstanding, Class A Noteholders evidencing
more than 66 2/3% of the aggregate outstanding principal amount of the Class A
Notes, (ii) from and after the payment in full of the Class A Notes , Class B
Noteholders holding Class B Notes evidencing more than 66 2/3% of the
aggregate outstanding principal amount of the Class B Notes and (iii) from and
after the payment in full of the Class B Notes outstanding, Class C Noteholders
holding Class C Notes evidencing more than 66 2/3% of the aggregate
outstanding principal amount of the Class C Notes .
Restricting Events
Prior to the occurrence of a Restricting Event, allocations of
Available Amounts will be made as described above under "--Allocations--As Long
As No Event of Default or Restricting Event Has Occurred and Is Continuing"
unless and until an Event of Default or Restricting Event has occurred, in which
case allocations of Available Amounts will be made as described above under
"--Allocations--Following an Event of Default or Restricting Event." A
"Restricting Event" refers to any of the following events:
(a) as of any Payment Date, the weighted average ADCB during the
three (3) preceding Collection Periods of all Contracts in
respect to which a Scheduled Payment is more than sixty (60)
days past due at any time during such three (3) preceding
Collection Periods, exceeds ___% of the weighted average of
ADCB of all Contracts in the Contract Pool during such three
Collection Periods; or
(b) as of any Payment Date, the product of (i) two (2) multiplied
by (ii) the difference between (x) the sum of the ADCB for
each of the six (6) preceding Collection Periods of all
Contracts that became Defaulted Contracts during such six (6)
preceding Collection Periods and (y) Recoveries received
during such six preceding Collection Periods on account of all
Defaulted Contracts, exceeds ____% of the weighted average
ADCB of all Contracts in the Contract Pool during such six
Collection Periods; or
(c) a Servicer Default has occurred and is continuing.
Servicing Compensation and Payment of Expenses
The Servicer's compensation with respect to its servicing activities
and reimbursement for its expenses for any Collection Period will be a servicing
fee (the "Servicing Fee") calculated monthly, and payable on each Payment Date,
in an amount equal to the product of (i) one-twelfth, (ii) _____% (such
percentage, the "Servicing Fee Percentage") and (iii) the ADCB of the Contract
Pool as of the beginning of the related Collection Period. The Servicing Fee
will be funded from Available Amounts and will be paid on the Payment Date with
respect to each Collection Period from the Collection Account. In addition as
compensation for acting as Servicer, the Servicer will be entitled to all late
charges, documentation fees, administrative charges and extension fees paid by
the End-Users (such fees and charges are included in definition of Excluded
Amounts).
The Servicer will pay from its servicing compensation certain expenses
incurred in connection with servicing the Contracts including, without
limitation, expenses related to the enforcement of the Contracts, payment of the
fees and disbursements of the Indenture Trustee, Owner Trustee, the
Administrator and independent accountants, casualty insurance on Equipment (to
the extent the Contracts provide for the Seller to pay for such insurance) and
other fees which are not expressly stated in the Sale and Servicing Agreement to
be payable by the Trust or the Noteholders, the Trust Depositor (other than
federal, state, local and foreign income, franchise or other taxes based on
income, if any, or any interest or penalties with respect thereto, imposed upon
the Trust). In the event that Mitsui Vendor Leasing is acting as Servicer and
fails to pay the fees and disbursements of the Indenture Trustee or the Owner
Trustee (the "Trustees"), such Trustee will be entitled to receive the portion
of the Servicing Fee that is equal to such unpaid amounts. In no event will the
Noteholders be liable to the Trustees for the Servicer's payment of such
amounts, and any such amounts so paid to the Trustees will be treated as paid to
the Servicer for all purposes of the Sale and Servicing Agreement.
Record Date
Payments on the Notes will be made as described herein to the
Noteholders in whose names the Notes were registered (expected to be Cede, as
nominee of DTC) at the close of business on the Record Date. However, the final
payment on the Notes offered hereby will be made only upon presentation and
surrender of such Notes. All payments with respect to the principal of and
interest on the Notes (each, a "Distribution") will be made to DTC in
immediately available funds. See "Description of the Notes--Book-Entry
Registration."
Optional Redemption
The Trust Depositor may repurchase all remaining Contracts and related
assets, and thus effect the early redemption of the Notes on any Payment Date on
or after which the ADCB of the Contract Pool is equal to 15% or less of the ADCB
of the Contract Pool as of the initial Cutoff Date. The price at which the Trust
Depositor will be required to purchase the Contracts in order to exercise such
option will be equal to the greater of (i) the ADCB of the Contract Pool and
(ii) the amount that when applied pursuant to the Indenture together with all
other amounts available thereunder will be sufficient to redeem the Notes at a
price equal to the unpaid principal amount of the Notes plus accrued and unpaid
interest thereon through the date of redemption.
Reports
No later than the third Business Day prior to each Payment Date, the
Servicer will forward to the Indenture Trustee and each Rating Agency a
statement (the "Monthly Report") prepared by the Servicer setting forth certain
information with respect to the Contract Pool and the Notes, including: (i) the
ADCB (A) as of the end of the related Collection Period and (B) as of the end of
the second Collection Period preceding such Payment Date (or, in the case of
Contracts that were first added to the Contract Pool during the related
Collection Period, as of the Cutoff Date for such Contracts); (ii) the Class A
Principal Payment Amount, the Class B Principal Payment Amount and the Class C
Principal Payment Amount (including the calculations utilized in the
determination thereof); (iii) the ADCB of Contracts held by the Issuer which
were more than 30, 60, and 90 days delinquent as of the end of such Collection
Period; (iv) the Discounted Contract Balance of each Contract in the Contract
Pool that became a Defaulted Contract during such Collection Period and
cumulatively for each preceding Collection Period; (v) the monthly Servicing Fee
for such Collection Period; and (vi) the Available Amounts with respect to the
related Collection Period (including the calculation utilized in the
determination thereof).
With respect to each Payment Date, the Monthly Report also will include
the following information with respect to the Notes: (i) the total amount
distributed; (ii) the amount allocable to interest on the Notes and each Class
thereof; and (iii) the amount allocable to principal on the Notes and each Class
thereof. On each Payment Date, the Indenture Trustee (or an agent on its
behalf), will forward to each Noteholder of record a copy of the Monthly Report.
On or before ______ 31 of each calendar year, commencing _______ 31,
1999, the Indenture Trustee (or an agent on its behalf) will furnish (or cause
to be furnished) to each person who at any time during the preceding calendar
year was a Noteholder of record, a statement containing the information required
to be provided by an issuer of indebtedness under the Code for such preceding
calendar year or the applicable portion thereof during which such person was a
Noteholder, together with such other customary information as is necessary to
enable the Noteholders to prepare their tax returns. See "Certain Federal Income
Tax Matters."
List of Noteholders
At such time, if any, as Definitive Notes have been issued, upon
written request of any Noteholder or group of Noteholders of record holding
Notes evidencing not less than 10% of the aggregate unpaid principal amount of
the Notes, the Indenture Trustee will afford such Noteholders access during
normal business hours to the current list of Noteholders for purpose of
communicating with other Noteholders with respect to their rights under the
Indenture, the Sale and Servicing Agreement or the Notes. While the Notes are
held in book-entry form, holders of beneficial interests in the Notes will not
have access to a list of other holders of beneficial interests in the Notes,
which may impede the ability of such holders of beneficial interests to
communicate with each other. See "--Book-Entry Registration" below.
Book-Entry Registration
Noteholders may only hold their Notes through DTC (in the United
States) or CEDEL or Euroclear (in Europe) if they are participants of such
systems, or indirectly through organizations which are participants in such
systems.
Cede, as nominee for DTC, will hold the global Class A-1 Note or Notes,
the global Class A-2 Note or Notes, the global Class A-3 Note or Notes, the
global Class B Note or Notes, and the global Class C Note or Notes. CEDEL and
Euroclear will hold omnibus positions on behalf of their participants through
customers' securities accounts in CEDEL's and Euroclear's names on the books of
their respective Depositaries which in turn will hold such positions in
customers' securities accounts in the Depositaries' names on the books of DTC.
Citibank will act as depositary for CEDEL and Morgan Guaranty Trust will act as
depositary for Euroclear (in such capacities, the "Depositaries").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the UCC and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participating organizations ("Participants") and
facilitate the settlement of securities transactions between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of notes. Participants include the
Underwriter, securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system also is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other hand, will be effected
through DTC in accordance with DTC rules on behalf of the relevant European
international clearing systems by its Depositary. Cross-market transactions will
require delivery of instructions to the relevant European international clearing
system by the counterparty in such system in accordance with its rules and
procedures and within its established deadlines (European time). The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to its Depositary to take action
to effect final settlement on its behalf by delivering or receiving securities
in DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. CEDEL Participants and Euroclear
Participants may not deliver instructions directly to the Depositaries.
Because of time-zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
or a Euroclear Participant to a Participant will be received with value on the
DTC settlement date but will be available in the relevant CEDEL or Euroclear
cash account only as of the business day following settlement in DTC. For
information with respect to tax documentation procedures relating to the Notes,
see "Federal Income Tax Consequences."
Noteholders that are not Participants or Indirect Participants but
desire to purchase, sell or otherwise transfer ownership of, or other interests
in, Notes may do so only through Participants and Indirect Participants. In
addition, Noteholders will receive all distributions of principal and interest
on the Notes from the Indenture Trustee through DTC and its Participants. Under
a book-entry format, Noteholders will receive payments after the related Payment
Date, as the case may be, because, while payments are required to be forwarded
to Cede, as nominee for DTC, on each such date, DTC will forward such payments
to its Participants which thereafter will be required to forward them to
Indirect Participants or holders of beneficial interests in the Notes. It is
anticipated that the only Class A-1 Noteholder, Class A-2 Noteholder, Class A-3
Noteholder, Class B Noteholder and Class C Noteholder will be Cede & Co., as
nominee of DTC, and that holders of beneficial interests in the Class A-1 Notes,
Class A-2 Notes, Class A-3 Notes, Class B Notes or Class C Notes, respectively,
under the Indenture will only be permitted to exercise the rights of Class A-1
Noteholders, Class A-2 Noteholders, Class A-3 Noteholders, Class B Noteholders
or Class C Noteholders, respectively, under the Indenture indirectly through DTC
and its Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Notes and is required
to receive and transmit distributions of principal of and interest on the Notes.
Participants and Indirect Participants with which holders of beneficial
interests in the Notes have accounts similarly are required to make book-entry
transfers and receive and transmit such payments on behalf of these respective
holders.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of holders of
beneficial interests in the Notes to pledge Notes to persons or entities that do
not participate in the DTC system, or otherwise take actions in respect of such
Notes, may be limited due to the lack of a Definitive Note for such Notes.
DTC has advised the Trust Depositor that it will take any action
permitted to be taken by a Class A-1 Noteholder, Class A-2 Noteholder, Class A-3
Noteholder, Class B Noteholder or Class C Noteholder under the Indenture only at
the direction of one or more Participants to whose account with DTC the Class A
Notes, Class B Notes or Class C Notes are credited. Additionally, DTC has
advised the Trust Depositor that it may take actions with respect to percentage
interests in any particular Class of the Notes represented by holders of
beneficial interests evidencing that percentage, which actions may conflict with
other of its actions with respect to other percentage interests therein.
CEDEL is incorporated under the laws of Luxembourg as a professional
depositary. CEDEL holds securities for its participating organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depositary, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations and may include the Underwriter. Indirect access to CEDEL is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a CEDEL Participant,
either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates, and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 29 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator and all
Euroclear securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear Operator, not the Cooperative. The Cooperative establishes
policies for Euroclear on behalf of Euroclear Participants. Euroclear
Participants include banks (including central banks), securities brokers and
dealers and other professional financial intermediaries and may include the
Underwriter. Indirect access to Euroclear is also available to other firms that
clear through or maintain a custodial relationship with a Euroclear Participant,
either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions with respect to Notes held through CEDEL or Euroclear
will be credited to the cash accounts of CEDEL Participants or Euroclear
Participants in accordance with the relevant systems rules and procedures, to
the extent received by its Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences." CEDEL or the Euroclear Operator, as the
case may be, will take any other action permitted to be taken by a Noteholder
under the Indenture on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to its
Depositary's ability to effect such actions on its behalf through DTC.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Notes among participants of DTC,
CEDEL and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
Except as required by law, none of the Indenture Trustee, the Servicer,
the Seller, the Trust Depositor or the Owner Trustee will have any liability for
any aspect of the records relating to, actions taken or implemented by, or
payments made on account of, beneficial ownership interests in the Notes held
through DTC, or for maintaining, supervising or reviewing any records or actions
relating to such beneficial ownership interests.
Definitive Notes
The Notes will be issued in fully registered, authenticated form to
beneficial owners or their nominees (the "Definitive Notes"), rather than to DTC
or its nominee, only if (a) the Issuer (through the Administrator) advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as Depositary with respect to such Notes, and the
Indenture Trustee or the Issuer is unable to locate a qualified successor or (b)
the Issuer (through the Administrator) at its option elects to terminate the
book-entry system through DTC.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Indenture Trustee is required to notify all beneficial
owners for each Class of Notes held through DTC of the availability of
Definitive Notes for such Class. Upon surrender by DTC of the Definitive Note
representing the Notes and instructions for re-registration, the Indenture
Trustee will issue such Definitive Notes, and thereafter the Indenture Trustee
will recognize the holders of such Definitive Notes as Noteholders under the
Indenture (the "Holders"). The Indenture Trustee will also notify the Holders of
any adjustment to the Record Date with respect to the Notes necessary to enable
the Indenture Trustee to make distributions to Holders of the Definitive Notes
for such Class of record as of each Payment Date.
Additionally, upon the occurrence of any such event described above,
distribution of principal of and interest on the Notes will be made by the
Indenture Trustee directly to Holders in accordance with the procedures set
forth herein and in the Indenture. Distributions will be made by check, mailed
to the address of such Holder as it appears on the Note register. Upon at least
10 days' notice to Noteholders for such Class, however, the final payment on any
Note (whether the Definitive Notes or the Note for such Class registered in the
name of Cede representing the Notes of such Class) will be made only upon
presentation and surrender of such Note at the office or agency specified in the
notice of final distribution to Noteholders.
Definitive Notes of each Class will be transferable and exchangeable at
the offices of the Indenture Trustee or its agent in New York, New York, which
the Indenture Trustee shall designate on or prior to the issuance of any
Definitive Notes with respect to such Class. No service charge will be imposed
for any registration of transfer or exchange, but the Indenture Trustee may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
Administration Agreement
Mitsui Vendor Leasing, in its capacity as administrator (in such
capacity, the "Administrator"), will enter into an administration agreement (the
"Administration Agreement") with the Trust, the Trust Depositor and the
Indenture Trustee pursuant to which the Administrator will agree, to the extent
provided in the Administration Agreement, to provide the notices and to perform
other administrative obligations required to be provided or performed by the
Trust or the Owner Trustee under the Indenture. The Administrator in the
Administration Agreement agrees to perform certain accounting functions of the
Trust which the Owner Trustee is required to perform pursuant to the Trust
Agreement, including but not limited to maintaining the books of the Trust and
filing tax returns for the Trust. As compensation for the performance of the
Administrator's obligations under the Administration Agreement and as
reimbursement for its expenses related thereto, the Administrator will be
entitled to a monthly administration fee, which will be paid by the Servicer out
of the Servicing Fee, if available, and will not be separately payable from or
reduce the Amount Available.
THE TRANSFER AND SALE AGREEMENT AND
SALE AND SERVICING AGREEMENT GENERALLY
The following is a summary of the material terms of the Transfer and
Sale Agreement and Sale and Servicing Agreement, the forms of which were filed
as exhibits to the Registration Statement of which this Prospectus is a part,
and this summary is qualified in its entirety by reference to the Transfer and
Sale Agreement and Sale and Servicing Agreement, respectively.
Conveyance of Contracts
Pursuant to the Transfer and Sale Agreement, the Seller will sell,
transfer, assign, set over and otherwise convey to the Trust Depositor, without
recourse (except as expressly set forth in the Transfer and Sale Agreement) all
of the Seller's right, title and interest in and to (i) the Contracts (including
all Additional Contracts and Substitute Contracts, if any), (ii) all monies due
or to become due in payment of such Contracts on and after the related Cutoff
Date, any prepayments, and any Recoveries received with respect thereto, but
excluding any Scheduled Payments due prior to the related Cutoff Date and any
Excluded Amounts, (iii) the related Equipment (which may be limited to a
security interest therein), including all proceeds from any sale or other
disposition of such Equipment, (iv) the related Contract Files, (v) any proceeds
with respect to each such Contract under any related Vendor Assignment, Vendor
Program Agreement and any other guarantee or similar credit enhancement with
respect thereto, (vi) all payments made with respect to each such Contract under
any insurance policy covering physical damage to the related Equipment (the
"Insurance Proceeds") and (vii) all income and proceeds of the foregoing.
Pursuant to the Sale and Servicing Agreement, the Trust Depositor in turn will
sell, transfer, assign, set over and otherwise convey to the Issuer, without
recourse (except as expressly set forth in the Sale and Servicing Agreement) the
assets described in clauses (i) through (vii) in the preceding sentence and its
rights under the Transfer and Sale Agreement (referred to collectively as the
"Transferred Assets"). Pursuant to the Indenture, the Issuer will grant a lien
on (i) the Transferred Assets and (ii) such amounts as from time to time may be
held in the Collection Account, together with any net investment earnings on
funds therein, (iii) the rights of the Issuer under the Sale and Servicing
Agreement, and (iv) proceeds of any of the foregoing (collectively, the "Trust
Assets"), in favor of the Indenture Trustee to secure payment of its obligations
under the Notes and the Indenture. For a description of Excluded Amounts, see
"The Contracts Generally."
Under the Sale and Servicing Agreement, the Servicer will retain
custody of (but not title to) the Contracts, the Contract Files and any related
evidence of insurance payments, Scheduled Payments and any other similar
payments under the Contracts. From and after the conveyance of any Contracts to
the Trust Depositor, the Seller will cause its computer accounting systems to be
marked to show that the Contracts transferred thereunder have been conveyed to
the Issuer (and have been pledged by the Issuer to the Indenture Trustee under
the Indenture), and prior to conveyance the Seller or the Trust Depositor will
file UCC financing statements reflecting (A) the conveyance to the Trust
Depositor pursuant to the Transfer and Sale Agreement of the Transferred Assets
(other than the Trust Depositor's rights under the Transfer and Sale Agreement),
(B) the conveyance to the Issuer pursuant to the Sale and Servicing Agreement of
Transferred Assets and (C) the grant of a lien thereon and other Trust Assets in
favor of the Indenture Trustee pursuant to the Indenture. The Seller will notate
in the appropriate computer files relating to the Contracts, that all interests
in the Contracts have been conveyed to the Issuer pursuant to the Sale and
Servicing Agreement and have been pledged by the Issuer to the Indenture Trustee
pursuant to the Indenture. See "Certain Legal Aspects of the Contracts."
Representations and Warranties
The Seller has made certain representations and warranties in the
Transfer and Sale Agreement with respect to the Contracts transferred thereunder
as of the Cutoff Date, and the Seller will similarly make or be deemed to have
made certain representations and warranties with respect to each Additional
Contract and Substitute Contract as of its related Cutoff Date, including that:
(i) the information with respect to the Contracts listed on the Schedule of
Contracts attached to the Sale and Servicing Agreement is true and correct in
all material respects; (ii) immediately prior to the transfer of a Contract and
any related Equipment (or security interest therein) to the Trust Depositor,
such Contract was owned by the Seller free and clear of any adverse claim; (iii)
no Scheduled Payment related to the Contract is (A) as of the date of sale or
transfer more than 60 days delinquent, (B) a payment as to which the related
Equipment has been repossessed or (C) a payment as to which the related
Equipment has been charged-off in accordance with the credit and collection
policies of the Servicer; (iv) no provision of the Contract has been either
waived, altered or modified in any respect, except as allowed under the Credit
and Collection policies of the Servicer and by instruments or documents
contained in the Contract File (other than payment delinquencies permitted under
clause (iii) above); (v) the Contract is a valid and binding payment obligation
of the End-User and is enforceable in accordance with its terms (except as may
be limited by applicable insolvency, bankruptcy, insolvency or other similar
laws affecting enforceability of creditors' rights generally and the
availability of equitable remedies); (vi) the Contract is not subject to rights
of rescission, setoff, counterclaim or defense and, to the Seller's knowledge,
no such rights have been asserted or threatened with respect to the Contract;
(vii) the Contract, at the time it was made, did not violate the laws of the
United States or any state in any manner which would materially and adversely
affect the enforceability or collectibility of such Contract; (viii) (A) the
Contract and any related Equipment have not been sold, transferred, assigned or
pledged by the Seller to any other person and (B) such contract is secured by a
fully perfected Lien of the first priority on the related Equipment (except to
the extent such perfection is not required in accordance with the applicable
End-User UCC Filing Requirement); (ix) all filings and other actions required to
be made, taken or performed by any Person in any jurisdiction to give the Trust
a first priority perfected Lien or ownership interest in the Contracts and a
first priority perfected security interest in the Seller's interest in the
Equipment have been made, taken or performed; (x) the End-User is not to the
Seller's knowledge, subject to bankruptcy or other insolvency proceedings; (xi)
the Contract is a U.S. dollar-denominated obligation and the related End-User's
billing address is in the United States; (xii) the Contract provides for
periodic Scheduled Payments to be made, which are principally due and payable on
a monthly or quarterly basis; (xiii) the Contract does not require the prior
written consent of an End-User or contain any other restriction on the transfer
or assignment of the Contract (other than a consent or waiver of such
restriction that has been obtained prior to the date of such Contract's
conveyance to the Issuer); (xiv) the obligations of the related End-User under
such Contract are irrevocable and unconditional and non-cancelable (without the
right to set off for any reason and net of any maintenance or cost per copy
charges); (xv) the Contract does not have a stated maturity of longer than ___
months; (xvi) no adverse selection procedure was used in selecting the Contract
for transfer; (xvii) the End-User under the Contract is required to maintain
casualty insurance or to self-insure with respect to the related Equipment;
(xviii) such Contract provides that in the event of a casualty loss in respect
of the related Equipment, the End-User is required to repair or replace the
related Equipment or pay an amount not less than the present value of all
remaining Scheduled Payments discounted at the Discount Rate plus any past due
amounts as of the date of determination; (xix) the Contract constitutes chattel
paper, an account, or a general intangible as defined under the UCC and if the
Contract constitutes "chattel paper" for purposes of the UCC, there exists an
original counterpart of the Contract in the Contract file; (xx) no Contract is a
"consumer lease" as defined in Section 2A-103(l)(e) of the UCC; (xxi) each Lease
is a "triple net lease" under which the End-User is responsible for the
maintenance of the related Equipment in accordance with general industry
standards applicable to such item of Equipment, which in all cases shall include
the payment of any taxes with respect to such Equipment; (xxii) no Contract
permits the End-User to make a prepayment of such Contract in full in an amount
less than the sum of (x) the Discounted Contract Balance of such Contract on the
Determination Date immediately prior to the date of prepayment plus any accrued
interest thereon at the Discount Rate to the date of prepayment and (y) any
unreimbursed Servicer Advances with respect thereto; (xxiii) by the Closing Date
or the related Cutoff Date (as applicable), the portions of the electronic
master record of the Seller relating to such Contract will have been clearly and
unambiguously marked to show that such Contract constitutes part of the Trust
Assets and is owned by the Trust in accordance with the terms of the Sale and
Servicing Agreement; (xxiv) the computer tape prepared by the Seller and
containing information with respect to such Contract that was made available by
the Seller to the Indenture Trustee on the Closing Date or the related Cutoff
Date (as applicable) and was used to select such Contract was complete and
accurate in all material respects as of the applicable Cut-off Date; (xxv) such
Contract was originated directly by the Seller or acquired by the Seller and has
sold and assigned by the Seller to the Trust Depositor without any fraud or
misrepresentation on the part of the Seller; (xxvi) such Contract is not subject
to any guarantee by the Seller nor has the Seller established any specific
credit reserve with respect to the related End-User; (xxvii) such Contract
provides that (A) the Seller (or its assignees) may accelerate all remaining
Scheduled Payments if the related End-User is in default under any of its
obligations under such Contract and (B) the related End-User may not elect to
utilize its security deposit to offset any remaining Scheduled Payment; (xxviii)
the related End-User is required to maintain the related Equipment in good
working order and bear all costs of operating the related Equipment (including
the payment of taxes); (xxix) such Contract has not been terminated as a result
of a casualty loss to the related Equipment or for any other reason; (xxx) the
Discounted Contract Balance of such Contract does not include the amount of any
security deposit held by the Servicer or the Seller; (xxxi) the related End-User
has represented to the Seller that such End-User has accepted the related
Equipment and has had a reasonable opportunity to inspect and test such
Equipment and the Seller has not been notified of any defects therein; (xxxii)
all payments in respect of such Contract will be made free and clear of, and
without deduction or withholding for or on account of, any taxes, unless such
withholding or deduction is required by law; (xxxiii) the related End-User is
unconditionally obligated to make periodic lease payments (including taxes)
notwithstanding damage to or destruction of the related Equipment, or any other
event in respect of the related Equipment, including equipment obsolescence; and
(xxxiv) such Contract is not a Defaulted Contract;
The foregoing representations and warranties, as appropriate, will be
reaffirmed by the Seller with respect to any Substitute Contract transferred to
the Trust Depositor. A Contract which satisfies all of the above representations
and warranties shall be termed an "Eligible Contract." Contracts with respect to
which the representations in clauses (iii) and (xxi) are not true shall also be
Eligible Contracts if all representations other than such representations are
true and if the Trust Depositor shall have received confirmation from each
Rating Agency that the discrepancy will not result in a reduction or withdrawal
of the then current ratings assigned to any Class of Notes. (A Contract that is
not an Eligible Contract is referred to herein as an "Ineligible Contract.") In
addition, the Seller will represent and warrant to the Trust Depositor that the
conveyance pursuant to the Transfer and Sale Agreement constitutes a valid sale
and assignment to the Trust Depositor of all right, title and interest of the
Seller in the related Contracts, whether then existing or thereafter created,
and the proceeds thereof, which is effective as of the date of conveyance of
such Contract.
Neither the Owner Trustee (either as Owner Trustee or in its individual
capacity) nor the Indenture Trustee (either as Indenture Trustee or in its
individual capacity) shall make or be deemed to have made any representations or
warranties, express or implied, regarding the Trust Assets or the transfers
thereof by the Seller, the Trust Depositor or the Issuer.
Under the terms of the Transfer and Sale Agreement and the Sale and
Servicing Agreement, each Contract must be an Eligible Contract as of its date
of transfer to the Issuer. The Seller will be obligated to repurchase from the
Trust any Ineligible Contract transferred by the Seller and any interest in
Equipment that is subject to such Ineligible Contract no later than 90 days
after the Seller becomes aware, or receives written notice from the Servicer,
the Issuer, the Trust Depositor or the Indenture Trustee of the breach of any
representation or warranty made by the Seller in the Transfer and Sale Agreement
, that materially adversely affects the interests of the Trust Depositor, the
Issuer or the Noteholders in such Contract or the related Contract File, which
breach has not been cured or waived in all material respects. This repurchase
obligation will constitute the sole remedy available to the Issuer, the Trust
Depositor, the Indenture Trustee and the Noteholders for a breach of a
representation or warranty by the Seller under the Transfer and Sale Agreement
with respect to such a Contract.
Pursuant to the Sale and Servicing Agreement, an Ineligible Contract
shall be reassigned to the Seller pursuant to the Transfer and Sale Agreement
and the Sale and Servicing Agreement as described in the preceding paragraph,
and the Seller to make a deposit in the Collection Account in immediately
available funds in an amount equal to the sum of the Discounted Contract Balance
of the Ineligible Contract (utilizing, for purposes of calculating the
Discounted Contract Balance, the Discount Rate at the time such Ineligible
Contract was transferred to the Issuer) and any outstanding Servicer Advances
thereon (unless the Seller is the Servicer, in which case such Servicer Advances
need not be so deposited). Any amount deposited into the Collection Account in
connection with the reassignment of an Ineligible Contract (the amount of such
deposit being referred to herein as a "Repurchase Amount" shall be considered
payment in full of the Ineligible Contract. Any such Repurchase Amount shall be
treated as an Available Amount. In the alternative, the Seller may convey to the
Trust a Substitute Contract (otherwise satisfying the terms and conditions
generally applicable to Substitute Contracts in other situations described
herein) in replacement for the affected Ineligible Contract, which shall
thereupon be reconveyed by the Trust to the Seller.
Concentration Amounts
In addition to the representations and warranties made by the Seller
with respect to the Contracts as described above under "--Representations and
Warranties," the Seller will represent and warrant in the Transfer and Sale
Agreement , as of the initial Cutoff Date, as follows:
(i) the ADCB of all Contracts with a single End-User as of the
initial Cutoff Date does not exceed ____% of the ADCB of the
Contract Pool as of the initial Cutoff Date;
(ii) the ADCB of all Contracts with the twenty (20) largest
End-Users (by ADCB of Contracts with such End-Users) as of
the initial Cutoff Date does not exceed ____% of the ADCB of
the Contract Pool as of the initial Cutoff Date;
(iii) the ADCB of all Contracts related to a single Vendor as of
the initial Cutoff Date does not exceed ____% of the ADCB of
the Contract Pool as of the initial Cutoff Date;
(iv) the ADCB of all Contracts with End-Users located in a single
State of the United States as of the initial Cutoff Date
does not exceed ____% of the ADCB of the Contract Pool as of
the initial Cutoff Date; and
(v) the ADCB of all Contracts with related Equipment of a single
type as of the Cutoff Date does not exceed ____% of the ADCB
of the Contract Pool as of the initial Cutoff Date.
On the date an Additional Contract or Substitute Contract is added to
the Contract Pool and the Seller will make the foregoing representations and
warranties as if such transfer occurred on the Closing Date; provided that, for
the purposes thereof (i) the Contract Pool on the Closing Date shall be deemed
to include such Additional Contract or Substitute Contract, as the case may be,
in lieu of the Contract being replaced or substituted and (ii) the Discounted
Contract Balance of such Additional Contract or Substitute Contract, as the case
may be, shall be equal to the Discounted Contract Balance thereof as of the
related Cutoff Date.
Pursuant to the Transfer and Sale Agreement and the Sale and Servicing
Agreement, the Seller will be obligated to repurchase from the Issuer such
number of Contracts as shall be necessary to remedy a breach of any of the
foregoing representations or warranties , which breach has not been cured or
waived in all material respects (each such Contract, a "Warranty Contract").
Such repurchase shall occur no later than 90 days after the Seller becomes
aware, or receives written notice from the Servicer, the Issuer, the Trust
Depositor or the Indenture Trustee of such breach. This repurchase obligation
will constitute the sole remedy against the Seller available to the Issuer, the
Trust Depositor, the Indenture Trustee and the Noteholders for a breach of one
of the foregoing representations or warranties.
Pursuant to the Transfer and Sale Agreement and the Sale and Servicing
Agreement, the Seller shall make a deposit in the Collection Account in
immediately available funds in an amount equal to the sum of the Discounted
Contract Balance of the Warranty Contract (together with accrued interest
thereon at the Discount Rate) and any outstanding Servicer Advances thereon
(unless the Seller is the Servicer, in which case such Servicer Advances need
not be so deposited). Such amount deposited into the Collection Account in
connection with the reassignment of a Warranty Contract shall be considered
payment in full thereof. Any such amount shall be considered a Repurchase Amount
and shall be treated as an Available Amount. In the alternative, the Seller may
to convey to the Issuer a Substitute Contract (otherwise satisfying the terms
and conditions generally applicable to Substitute Contracts in other situations
described herein) in replacement for the affected Warranty Contract, which shall
thereupon be reconveyed by the Issuer to the Seller.
Indemnification
The Sale and Servicing Agreement provides that the Servicer will
indemnify the Issuer, the Trust Depositor, the Indenture Trustee, their
respective officers, directors, agents and employees and the holders of any
Notes from and against any and all costs, expenses, losses, claims, damages and
liabilities to the extent that such cost, expense, loss, claim, damage or
liability arose out of, or was imposed upon the Issuer, the Trust Depositor, the
Indenture Trustee or the holders of any Notes through the Servicer's breach of
the Sale and Servicing Agreement, the gross negligence willful misfeasance or
bad faith of the Servicer in the performance of its duties under the Sale and
Servicing Agreement or by reason of reckless disregard of its obligations and
duties under the Sale and Servicing Agreement. Except as provided in the
preceding sentence, the Sale and Servicing Agreement provides that neither the
Servicer nor any of its directors, officers, employees or agents will be under
any other liability to the Issuer, the Trust Depositor, the Indenture Trustee,
the holders of Notes or any other person for any action taken, or for refraining
from taking any action, in good faith pursuant to the Sale and Servicing
Agreement; provided that neither the Servicer, nor any of its directors,
officers, employees or agents will be protected against any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith or gross
negligence of any such person in the performance of their duties or by reason of
reckless disregard of their obligations and duties thereunder.
In addition, the Sale and Servicing Agreement provides that the
Servicer is not under any obligation to appear in, prosecute or defend any legal
action which is not incidental to its servicing responsibilities under the Sale
and Servicing Agreement. The Servicer may, in its sole discretion, undertake any
such legal action which it may deem necessary or desirable for the benefit of
holders of Notes with respect to the Sale and Servicing Agreement and the rights
and duties of the parties thereto and the interest of Noteholders.
Pursuant to the Sale and Servicing Agreement, the Servicer, irrevocably
and unconditionally, (i) submits for itself and its property in any legal action
arising out of the Sale and Servicing Agreement and the other Operative
Documents, to the nonexclusive general jurisdiction of the courts of the United
States of America for the Southern District of New York, and appellate courts
therefrom and (ii) waives any objection it may have that any action therein was
brought in an inconvenient court. Notwithstanding the foregoing, a court may
determine, on its own motion, that an action brought against the Servicer in any
such court was brought in an inconvenient forum.
Collection and Other Servicing Procedures
Pursuant to the Sale and Servicing Agreement, the Servicer is
responsible for servicing, collecting, enforcing and administering the Contracts
in accordance with its customary and usual procedures for servicing contracts
comparable to the Contracts. _______ of the Contracts included in the Contract
Pool (representing ___% of the ADCB of the Contract Pool as of the initial
Cut-off Date) will be sub-serviced by the related Vendors, however, the Servicer
will remain primarily liable for all servicing functions with respect thereto.
In addition, the Servicer pursuant to the Sale and Servicing Agreement
will advance Scheduled Payments with respect to any Contract (a "Servicer
Advance") which were due in a Collection Period and were not received and
identified to a Contract by the close of business on the Determination Date, but
only to the extent that the Servicer, in its sole discretion, expects to recover
the Servicer Advance from subsequent payments on or with respect to the
Contract. The Servicer shall be entitled to reimbursement of Servicer Advances
from subsequent payments on or with respect to the Contract, including
collections of any prepayments, Repurchase Amount or Recoveries with respect to
such Contract, and, if the Servicer determines that Servicer Advances will not
be recovered from the Contracts to which the Servicer Advances were related,
from other Contracts included in the Contract Pool.
The Servicer may, consistent with its customary and usual servicing
procedures, agree to modifications or adjustments in Contract terms so long as
such adjustments do not (i) change the amount of any Scheduled Payment, (ii)
extend any Scheduled Payment (unless such extension is made in order to avoid
liquidation and maximize recoveries on the Contract and the term thereof does
not exceed six months or the stated maturity date of the Notes), (iii) cause the
release of any Equipment from the lien of the Indenture (unless Equipment of
comparable value is substituted) or (iv) cause any representation or warranty
made with respect to such Contract to become untrue.
Resignation and Certain Other Matters Regarding the Servicer
The Servicer may not resign from its obligations and duties under the
Sale and Servicing Agreement, except upon determination that such duties are no
longer permissible under applicable law. No such resignation will become
effective until the Back-up Servicer has assumed the Servicer's responsibilities
and obligations as successor Servicer under the Sale and Servicing Agreement.
Any person into which, in accordance with the Sale and Servicing
Agreement, the Servicer may be merged or consolidated or any person resulting
from any merger or consolidation to which the Servicer is a party, or any person
succeeding to the business of the Servicer, will be the successor to the
Servicer under the Sale and Servicing Agreement.
Servicer Default
In the event of any Servicer Default, the Indenture Trustee may, at the
direction of the Required Controlling Holders, by written notice to the Servicer
(and the Indenture Trustee, if given by the Noteholders) (a "Termination
Notice"), may terminate all of the rights and obligations of the Servicer, as
servicer, under the Sale and Servicing Agreement. Upon receipt by the Servicer
of such a Termination Notice, all authority and power of the Servicer under the
Sale and Servicing Agreement with respect to any Contract in the Contract Pool
will cease and the same will pass to and be vested in the Back-up Servicer, as
the successor Servicer pursuant to and under the Sale and Servicing Agreement.
A "Servicer Default" refers to any of the following events:
(a) any failure by the Servicer to make any payment, transfer or
deposit or to give notice to the Indenture Trustee to make any
payment, transfer or deposit pursuant to the Sale and
Servicing Agreement on or before the date occurring three (3)
Business Days after the date on which notice of such failure
requiring the same to be remedied shall have been received by
the Servicer from the Indenture Trustee, the Trust Depositor
or the Issuer (or to the Servicer, the Issuer, the Trust
Depositor and the Indenture Trustee by the Noteholders
representing in aggregate no less than 25% of the aggregate
outstanding principal amount of any Class of Notes affected
thereby) or after the Servicer's discovery of such failure; or
(b) failure on the part of the Servicer to deliver to the
Indenture Trustee and the Trust the "Servicer's Certificate"
as and when required to be delivered by the terms of the Sale
and Servicing Agreement; or
(c) failure on the part of the Servicer to duly observe or perform
in any material respect any other covenants or agreements of
the Servicer set forth in the Sale and Servicing Agreement
(or, if Mitsui Vendor Leasing is the Servicer, the Transfer
and Sale Agreement) which has a material adverse effect on the
Trust or the Noteholders, which continues unremedied for a
period of 30 days after the date on which written notice of
such failure requiring the same to be remedied shall have been
given to the Servicer by the Indenture Trustee, the Trust
Depositor or the Issuer (or to the Servicer, the Trust
Depositor, the Issuer and the Indenture Trustee by the
Noteholders representing in aggregate not less than 25% of the
aggregate outstanding principal amount of any Class of Notes
affected thereby) or after the Servicer's discovery of such
failure; or
(d) any representation, warranty or certification made by the
Servicer in the Sale and Servicing Agreement or in any
certificate delivered pursuant to the Sale and Servicing
Agreement shall prove to have been incorrect in any material
respect when made, which incorrectness has a material adverse
effect on the Trust or Noteholders and which continues to be
incorrect in any material respect for a period of 30 days
after the date on which written notice of such incorrectness
requiring the same to be remedied shall have been given to the
Servicer by the Indenture Trustee, the Trust Depositor or the
Issuer (or to the Servicer, the Trust Depositor, the Issuer
and the Indenture Trustee by Noteholders or by the Indenture
Trustee on behalf of Noteholders representing in aggregate not
less than 25% of the aggregate outstanding principal amount of
any Class of Notes adversely affected thereby) and such
incorrectness continues to affect such Noteholders materially
and adversely for such period; or
(e) an Insolvency Event shall occur with respect to the Servicer.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of five Business Days or
referred to under clause (c) or (d) for a period of 60 days (in addition to any
period provided in (a), (c) or (d)) shall not constitute a Servicer Default
until the expiration of such additional five Business Days or 60 days,
respectively, if such delay or failure could not be prevented by the exercise of
reasonable diligence by the Servicer and such delay or failure was caused by an
act of God or other similar occurrences. Upon the occurrence of any such event
the Servicer shall not be relieved from using its best efforts to perform its
obligations in a timely manner in accordance with the terms of the Sale and
Servicing Agreement and the Servicer shall provide the Issuer, the Trust
Depositor and the Indenture Trustee prompt notice of such failure or delay by
it, together with a description of its efforts to so perform its obligations.
The Servicer shall promptly after having obtained knowledge thereof, but in no
event later than two Business Days thereafter, notify the Indenture Trustee, the
Issuer and the Trust Depositor in writing of any Servicer Default.
Back-up Servicer
Bankers Trust Company will act as back-up servicer pursuant to the Sale
and Servicing Agreement (in such capacity, the "Back-up Servicer"). Under the
Sale and Servicing Agreement, following the termination or resignation of Mitsui
Vendor Leasing as Servicer, the Back-up Servicer has agreed to act as successor
Servicer, unless and until another successor is appointed pursuant to the terms
of the Sale and Servicing Agreement. Prior to such event, the Back-up Servicer
will have no other duties or obligations under the Sale and Servicing Agreement,
including, without limitation, the obligation to supervise the performance of
the Servicer, and will have no liability for any action taken or omitted by the
Servicer. In the event that the Back-up Servicer is unable as a matter of law to
act as successor Servicer as provided in the Sale and Servicing Agreement, the
Trust Depositor has the right to contract for the performance of such services
with others.
Bankers Trust Company is a New York banking corporation which is
______. Bankers Trust Company engages in general commercial banking and trust
business, offering a comprehensive range of corporate, commercial, correspondent
and individual banking services, both domestic and international, as well as a
wide range of trust and custodial services.
Evidence as to Compliance
The Sale and Servicing Agreement provides that on or before April 30th
of each calendar year (commencing April 30, 2000) the Servicer will cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer or the Trust Depositor) to furnish a report to
the effect that such firm has applied certain procedures agreed upon with the
Servicer and enumerated in the Sale and Servicing Agreement and examined certain
documents and records relating to the servicing of the related Contracts all as
described in the Sale and Servicing Agreement and that, on the basis of such
procedures, nothing came to the attention of such firm that caused them to
believe that such servicing was not conducted in compliance with the Sale and
Servicing Agreement except for such exceptions or errors as such firm shall
believe to be immaterial and such other exceptions as shall be set forth in such
statement.
The Sale and Servicing Agreement provides for delivery to the Issuer,
the Trust Depositor, the Indenture Trustee and each Rating Agency on or before
April 30th of each calendar year (commencing April 30, 2000) of a statement
signed by an officer of the Servicer to the effect that, to the best of such
officer's knowledge, the Servicer has performed its obligations in all material
respects under the Sale and Servicing Agreement throughout the preceding year
or, if there has been a default in the performance of any such obligation,
specifying the nature and status of the default.
Copies of all statements, certificates and reports furnished to the
Indenture Trustee may be obtained by a request in writing delivered to the
Indenture Trustee.
Amendments
The Sale and Servicing Agreement may be amended from time to time by
agreement of the Seller, the Servicer, the Issuer, the Trust Depositor and the
Indenture Trustee without the consent of any Noteholder (i) to cure any
ambiguity or mistake, (ii) to add any consistent provisions; or (iii) to add or
amend any other provision of the Sale and Servicing Agreement with respect to
matters or questions arising thereunder; provided that such action described in
the foregoing clauses (ii) and (iiii) shall not, as evidenced by an Opinion of
Counsel, adversely affect in any material respect the interests of the
Noteholders ; provided further that such action described in the foregoing
clauses (ii) and (iii) will be deemed not to affect adversely in any material
respect the interests of the Noteholders, and no such Opinion of Counsel will be
required, if each Rating Agency provides prior written confirmation that such
amendment will not result in a withdrawal or downgrade of the ratings then
assigned to the Notes.
The Sale and Servicing Agreement may also be amended from time to time
by the Seller, the Servicer, the Issuer, Trust Depositor and the Indenture
Trustee with the consent of the Required Controlling Holders for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Sale and Servicing Agreement or of modifying in any manner the
rights of Noteholders. No such amendment, however, may:
(i) increase or reduce in any manner the amount of, or accelerate
or delay the timing of, collections of payments on the
Contracts or distributions made on any Note or the rate of
interest payable thereon without the consent of each
Noteholder affected thereby; or
(ii) reduce the aforesaid percentage required to consent to any
such amendment or any waiver thereunder without the consent of
each Noteholder affected thereby; or
(iii) modify, amend or supplement the provisions of the Sale and
Servicing Agreement relating to the allocation of Available
Amounts (see "Description of the Notes--Allocations") without
the consent of each Noteholder.
Notwithstanding the foregoing, no such amendment shall be effective
unless and until each Rating Agency has notified the Issuer and the Indenture
Trustee that such amendment will not result in a withdrawal or downgrade of the
ratings then assigned to the Notes. Promptly following the execution of any such
amendment (other than an amendment described in the preceding paragraph), the
Indenture Trustee will furnish written notice of the substance of such amendment
to each affected Noteholder.
Termination
The Sale and Servicing Agreement will terminate upon final distribution
of all moneys or other property or proceeds of the Trust Assets in accordance
with the terms of the Sale and Servicing Agreement and the Indenture. Upon
termination of the Sale and Servicing Agreement, all right, title and interest
in the Trust Assets (other than amounts in accounts maintained by the Indenture
Trustee for the final payment of principal and interest to Noteholders) will be
conveyed and transferred to the Seller.
The Owner Trustee
Wilmington Trust Company will be the Owner Trustee under the Sale and
Servicing Agreement. Mitsui Vendor Leasing and its affiliates may from time to
time enter into banking and trustee relationships with the Owner Trustee and its
affiliates. Mitsui Vendor Leasing and its affiliates may hold Notes in their own
names; however, any Notes so held shall not be entitled to participate in any
decisions made or instructions given to the Owner Trustee by the Noteholders as
a group. The Owner Trustee's address is 1100 North Market Street, Rodney Square
North, Wilmington, Delaware 19890.
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust Assets may at the time be located, the Owner Trustee
will have the power to appoint a co-owner trustee or separate trustee of all or
any part of the Trust Assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Owner Trustee will
be conferred or imposed upon and exercised or performed by the Owner Trustee and
such separate trustee or co-trustee jointly, or, in any jurisdiction in which
the Owner Trustee will be incompetent or unqualified to perform certain acts,
singly upon such separate trustee or co-trustee who shall exercise and perform
such rights, powers, duties and obligations solely at the direction of the Owner
Trustee.
The Owner Trustee may resign at any time, in which event a successor
Owner Trustee will be appointed as provided in the Sale and Servicing Agreement.
The Servicer may also remove the Owner Trustee if such Owner Trustee ceases to
be eligible to continue as such under the Sale and Servicing Agreement. Any
resignation or removal of the Owner Trustee and appointment of a successor Owner
Trustee shall not become effective until acceptance of the appointment by the
successor Owner Trustee.
THE INDENTURE
General
The Notes will be issued pursuant to an Indenture between the Issuer
and the Indenture Trustee. Pursuant to the Sale and Servicing Agreement, the
Indenture Trustee will obtain the benefits of the Sale and Servicing Agreement
for itself and the Noteholders represented thereby.
Events of Default and Restricting Events; Remedies
If an Event of Default referred to in subparagraph (e) (see
"Description of the Notes--Events of Default") has occurred, then and in every
such case the unpaid principal of the Notes, together with interest accrued but
unpaid thereon, and all other amounts due to the Noteholders under the
Indenture, shall immediately and without further act become due and payable. If
any other Event of Default shall have occurred and be continuing, then and in
every such case, the Notes shall be accelerated with accrued but unpaid interest
thereon; provided that such Event of Default may be waived if the Required
Controlling Holders provide the Indenture Trustee, the Trust Depositor, the
Issuer and the Servicer written notice of such waiver.
The Indenture Trustee may, and shall, if so directed by the Required
Controlling Holders in writing, after the occurrence and during the continuance
of an Event of Default: (i) institute proceedings in its own name and as or on
behalf of a trustee for the collection of all amounts then payable on the Notes,
(ii) institute proceedings for the complete or partial foreclosure against the
Trust Assets, (iii) exercise any remedies of a secured party under the Uniform
Commercial Code, and (iv) direct the Owner Trustee to sell the Trust Assets or
any portion thereof or rights or interest therein, at one or more public or
private sales; provided that the Indenture Trustee may not sell or otherwise
liquidate the Trust Assets following an Event of Default, other than an Event of
Default described in subparagraphs (a) and (b) under "Description of
Notes--Events of Default," unless (A) the Holders of 100% of the aggregate
outstanding principal amount of the Notes consent thereto, (B) the proceeds of
such sale or liquidation distributable to the Noteholders are sufficient to
discharge in full all amounts then due and unpaid upon such Notes or (C) the
Indenture Trustee determines that the Trust Assets will not continue to provide
sufficient funds for the payment of principal of and interest on the Notes and
the Indenture Trustee provides prior written notice to each Rating Agency and
obtains the consent of the Required Controlling Holders.
Except as otherwise provided above, following and Event of Default, the
Indenture Trustee may, but need not, elect to maintain possession of the Trust
Assets.
No Holder of a Note will have any right to institute any proceeding,
with respect to the Indenture, unless (i) such Holder has previously given
notice to the Indenture Trustee of a continuing Event of Default, (ii) the
Holders of not less than 25% of the aggregate outstanding principal amount of
the Notes have made a written request to the Indenture Trustee to institute such
proceeding in respect of such Event of Default its own name as Indenture
Trustee, (iii) such Holder or Holders have offered to the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in complying with such request, (iv) the Indenture Trustee for 60 days after its
receipt of such notice, request and offer of indemnity has failed to institute
such proceedings, and (v) no direction inconsistent with such written request
has been given to the Indenture Trustee during such 60-day period by the Holders
of a majority of the aggregate outstanding principal amount of the Notes.
Subject to the provisions of the Indenture relating to the
duties of the Indenture Trustee, if an Event of Default occurs and is
continuing, the Indenture 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 Indenture Trustee reasonably believes it will
not be adequately indemnified against the costs, expenses and liabilities which
it may incur in complying with such request or direction.
The Indenture Trustee
The Indenture Trustee with respect to the Notes is Bankers Trust
Company, a New York banking corporation. Mitsui Vendor Leasing and its
affiliates may from time to time enter into banking and trustee relationships
with the Indenture Trustee and its affiliates. Mitsui Vendor Leasing and its
affiliates may hold Notes in their own names. However, any Notes so held shall
not be entitled to participate in any decisions made or instructions given to
the Indenture Trustee by the Noteholders as a group.
The Indenture Trustee's responsibilities will consist principally of
the distribution of monies received pursuant to the Sale and Servicing
Agreement, the authentication and registration of transfer of Notes under the
Indenture, and the delivery of certain information received from the Trust
Depositor and the Servicer.
For purposes of meeting the legal requirements of any jurisdictions in
which any part of the Trust Assets may at the time be located, the Indenture
Trustee will have the power to appoint a co-trustee or separate trustee of all
or any part of the Trust Assets. To the extent permitted by law, all rights,
powers, duties and obligations conferred or imposed upon the Indenture Trustee
will be conferred or imposed upon and exercised or performed by the Indenture
Trustee and such separate trustee or co-trustee jointly, or, in any jurisdiction
in which the Indenture Trustee will be incompetent or unqualified to perform
certain acts, singly upon such separate trustee or co-trustee who shall exercise
and perform such rights, powers, duties and obligations solely at the direction
of the Indenture Trustee.
The Indenture Trustee may resign at any time, in which event a
successor Indenture Trustee which meets the requirements of Section 310(a) of
the Trust Indenture Act of 1939, as amended (the "TIA"), will be appointed by
the Servicer. The Servicer may also remove the Indenture Trustee if the
Indenture Trustee ceases to be eligible to continue as such under the Indenture.
In such circumstances, a successor Indenture Trustee which meets the
requirements of Section 310(a) of the TIA will be appointed by the Servicer. Any
resignation or removal of the Indenture Trustee and appointment of a successor
Indenture Trustee does not become effective until acceptance of the appointment
by the successor Indenture Trustee.
Governing Law
The Indenture will be governed by the laws of the State of New York.
Amendments
At any time and from time to time, the Trust and the Indenture Trustee,
with the written consent of the Required Controlling Holders, may execute a
supplement to the Indenture for the purpose of adding provisions to, or changing
or eliminating provisions of, the Indenture (including any appendix or schedule
hereto); provided that without the consent of each Noteholder under the
Indenture, no such amendment, supplement, waiver or consent shall
(i) reduce the amount or extend the time of payment of any amount
owing or payable under any Note or (except as provided in the
Indenture) increase or reduce the interest payable on any Note
(except that only the consent of the affected holder of a Note
shall be required for any decrease in an amount of or the rate
of interest payable on such Note or any extension for the time
of payment of any amount payable under such Note), or alter or
modify the provisions with respect to the order of priorities
in which distributions thereunder shall be made or with
respect to the amount or time of payment of any such
distribution, or
(ii) reduce, modify or amend any indemnities in favor of any
Noteholder or in favor of or to be paid by the Trust
Depositor, or alter the definition of "Indemnities" to exclude
any Noteholder (except as consented to by each Noteholder
adversely affected thereby), or
(iii) make any Note payable in money other than U.S. dollars, or
(iv) modify the definitions in the Indenture of Required
Controlling Holders, or otherwise modify the percentage of
Noteholders required to effect any modification of the
Indenture.
At any time and from time to time, the Trust and the Indenture Trustee,
without the consent of the Holders of any Notes and with prior notice to each
Rating Agency, may execute a supplement to the Indenture for any of the
following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of the Indenture, or better to
assure, convey and confirm unto the Indenture Trustee any
property subject or required to be subjected to the lien
created by the Indenture, or to subject to the lien created by
the Indenture;
(ii) to evidence the succession, in compliance with the applicable
provisions thereof, of another Person to the Issuer, and the
assumption by any such successor of the covenants of the
Issuer therein and in the Notes contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power
herein conferred upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property
to or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
therein or in any supplemental indenture which may be
inconsistent with any other provision therein or in any
supplemental indenture or the Operative Documents;
(vi) to evidence and provide for the acceptance of the appointment
thereunder by a successor Indenture Trustee with respect to
the Notes and to add to or change any of the provisions of the
Indenture as shall be necessary to facilitate the
administration of the trusts thereunder by more than one
Indenture Trustee;
(vii) decrease the Required Reserve Fund Amount; provided that each
Rating Agency delivers a letter to the Seller and the
Indenture Trustee to the effect that action will not in and of
itself result in a qualification, reduction or withdrawal of
its then current rating of any Class of Notes; and
(viii) to make any other provisions with respect to matters or
questions arising under the Indenture or in any supplemental
indenture; provided that such action shall not, as evidenced
by an Opinion of Counsel delivered to the Indenture Trustee,
adversely affect in any material respect the interests of the
Holders of the Notes; provided further that such action shall
be deemed not to adversely affect in any material respect the
interests of the Noteholders and no such Opinion of Counsel
need be delivered if each Rating Agency provides written
confirmation that such action will not result in a reduction
or withdrawal or downgrade of the ratings then assigned to the
Notes.
Termination
The Indenture will terminate upon final distribution of all moneys or
other property or proceeds of the Trust Assets in accordance with the terms of
the Indenture and the Sale and Servicing Agreement.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
Transfer of Contracts
As of the Cutoff Date, the Seller will sell the Contracts to the Trust
Depositor pursuant to the Transfer and Sale Agreement which in turn will be
immediately conveyed to the Issuer pursuant to the Sale and Servicing Agreement.
Under commercial law, the transfer of the Contracts to the Issuer is either a
sale of the Contracts to the Issuer or a grant of a security interest in such
property to the Issuer. The Trust Depositor has taken and will take all actions
that are required under applicable law to perfect the Issuer's interest in the
Contracts in the event the transfer by the Trust Depositor to the Issuer is
deemed to be a loan for commercial law purposes, and, in the event such transfer
is under commercial law or a grant of a security interest, it is the intent of
the Trust Depositor that the Issuer will at all times have a first priority
perfected security interest in the Contracts and in the proceeds thereof, with
certain exceptions. The Trust Depositor will represent and warrant to the Issuer
that, in the event the sale of such Contracts by the Trust Depositor to the
Issuer is deemed to create a security interest under the UCC, there will exist a
valid, subsisting and enforceable first priority perfected security interest in
the Contracts, in existence at the time of the date of conveyance, in favor of
the Issuer. For a discussion of the Issuer's rights arising from these
representations and warranties not being satisfied, see "The Sale and Servicing
Agreement Generally--Representations and Warranties."
Financing statements covering the Contracts will be filed under the UCC
by or on behalf of the Trust Depositor, the Issuer and the Indenture Trustee to
perfect their respective interests in the Contracts and continuation statements
will be filed as required to continue the perfection of such interests. In
addition, the Seller will indicate in the appropriate computer files relating to
the Contracts, that such Contracts have been transferred to the Issuer, and have
been pledged by the Issuer to the Indenture Trustee, and the Seller will deliver
to the Indenture Trustee a computer file or microfiche or written list
containing a true and complete list of all Contracts then being transferred to
the Issuer, identified by account number and by the Discounted Contract Balance
as of the related Cutoff Date. To facilitate servicing and reduce administrative
costs, however, the Contract Files will be retained in the possession of the
Servicer and not deposited with the Indenture Trustee or any other agent or
custodian for the benefit of the Noteholders. Because the Contract Files will
remain in the Servicer's possession, if a subsequent purchaser were able to take
physical possession of the Contract Files without knowledge of such assignment,
the Indenture Trustee's priority interest in the Contracts could be defeated. In
such event, distributions to Noteholders could be adversely affected.
There are also certain limited circumstances under applicable federal
or state law in which prior transferees of Contracts could have an interest in
such Contracts with priority over the Indenture Trustee's interest. A tax or
other government lien on property of the Seller or the Trust Depositor arising
prior to the time a Contract was conveyed to the Trust Depositor or the Issuer,
respectively, may, in either case, have priority over the interest of the Issuer
in such Contract. Under the Transfer and Sale Agreement, the Seller will warrant
to the Trust Depositor, and under the Sale and Servicing Agreement the Trust
Depositor will warrant to the Issuer, that the Contracts have been transferred
free and clear of the lien of any third party other than Permitted Liens. Each
of the Seller and the Trust Depositor will also covenant that it will not sell,
pledge, assign, transfer or grant any lien on any Contract included in the
Contract Pool, other than transfers made pursuant to the Sale and Servicing
Agreement or the Indenture. In addition, as described above under "The Trust
Depositor," the Trust Depositor has been organized as a "bankruptcy remote"
entity which is not engaged in any business or activities unrelated to the
transactions described herein.
Similarly, a tax or other government lien on property of the Issuer
arising prior to the time a Contract is pledged to the Indenture Trustee may
also have priority over the interest of the Issuer in such Contract. Under the
Indenture, the Issuer will warrant to the Indenture Trustee that the Contracts
have been pledged free and clear of the lien of any third party other than
Permitted Liens. The Issuer will also covenant that it will not sell, pledge,
assign, transfer or grant any lien on any Contract included in the Contract
Pool, other than pledges to the Indenture Trustee pursuant to the Indenture.
As used above, "Permitted Liens" shall mean (a) with respect to
Contracts in the Contract Pool: (i) liens for state, municipal or other local
taxes if such taxes shall not at the time be due and payable and (ii) liens in
favor of the Indenture Trustee created pursuant to the Indenture; and (b) with
respect to the related Equipment: (i) materialmen's, warehousemen's, mechanics'
and other liens arising by operation of law in the ordinary course of business
for sums not due, (ii) liens for state, municipal or other local taxes if such
taxes shall not at the time be due and payable, (iii) liens in favor of the
Indenture Trustee created pursuant to the Indenture, (iv) other subordinated
liens which are subordinated to the prior payment of the Notes on terms
described in the Sale and Servicing Agreement and (v) liens granted by the
End-Users or Vendors which are subordinated to the interest of the Issuer and
the Indenture Trustee in such Equipment.
Transfers of Interests in Equipment
In connection with the conveyance of the Contracts to the Issuer, the
Seller's right, title and interest in the related Equipment securing such
Contracts will be assigned by the Seller to the Issuer pursuant to the Sale and
Servicing Agreement, and pledged by the Issuer to the Indenture Trustee pursuant
to the Indenture. It has been the general policy of the Seller to file or cause
to be filed UCC financing statements with respect to Equipment relating to the
Contracts. Due, however, to the administrative burden and expense associated
with amending many filings in numerous states where Equipment is located, no
assignments of the UCC financing statements evidencing the security interest of
the Seller in the Equipment will be filed to reflect the Trust Depositor's, the
Issuer's or the Indenture Trustee's interests therein. While failure to file
such assignments does not affect the Issuer's interest in the Contracts
(including the security interest in the related Equipment granted pursuant to
such Contract) or perfection of the Indenture Trustee's interest in such
Contracts, it does expose the Trust Depositor and the Issuer (and thus
Noteholders) to the risk that the Servicer could inadvertently release its
security interest in the Equipment of record, and it could complicate or impede
the Trust Depositor's, the Issuers's (and the Indenture Trustee's) enforcement,
as assignee, of the Seller's right, title and interest in the Equipment. While
these risks should not affect the perfection or priority of the interest of the
Trust Depositor, the Issuer and the Indenture Trustee in the Contracts or rights
to payment thereunder, they may adversely affect the right of the Trust
Depositor, the Issuer and the Indenture Trustee to receive proceeds of a
disposition of the Equipment related to Defaulted Contracts. 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 Trust Depositor, the Issuer and in turn the Indenture
Trustee.
Certain Matters Relating to Bankruptcy
The Seller acquired the Contracts from Vendors. If the acquisition of a
Contract by the Seller is treated as a sale of such Contracts from the Vendors
to the Seller, such Contracts generally would not be part of the related
Vendor's bankruptcy estate and would not be available to such Vendor's
creditors. If a Vendor became a debtor in a bankruptcy case then, if an unpaid
creditor of such Vendor or a representative of such creditor, such as a trustee
in bankruptcy, or such Vendor acting as a debtor-in-possession, were to take the
position that the sale of such Contracts to the Seller was ineffective to remove
such Contracts from such Vendor's estate (for instance, that such sale should be
recharacterized as a pledge of Contracts to secure borrowings of such Vendor),
then delays in payments under the Contracts to the Issuer could occur or, should
the court rule in favor of such creditor, representative or Vendor, reductions
in the amount of such payments could result. Further, if the transfer of
Contracts to the Seller is recharacterized as a pledge, a tax or government lien
on the property of the pledging Vendor arising before the Contracts came into
existence may have priority over the Seller's (and hence the Trust Depositor,
the Issuer's and the Indenture Trustee's) interest in the Contracts. Certain
Contracts may be "true leases" and thus subject to rejection by the lessor under
the Bankruptcy Code. Any such Contract which is a "true lease" originated by a
Vendor and transferred to the Seller in a transaction whereby such Vendor
continues to be the "lessor" thereunder (such as a transfer by a Vendor to the
Seller of a security interest in such Contract or a transfer by a Vendor to the
Seller of an interest in the right to payments only under any such Contract),
will be subject to rejection by such Vendor, as debtor in possession, or by such
Vendor's bankruptcy trustee. Upon any such rejection, Scheduled Payments under
such rejected Contract may terminate and the Noteholders may be subject to
losses if the remaining unaffected Contracts, and security interests in the
Equipment related thereto, are insufficient to cover the losses.
In the Transfer and Sale Agreement, Mitsui Vendor Leasing will warrant
to the Trust Depositor that the conveyance of the Contracts by the Seller to the
Trust Depositor is a valid sale and transfer of such Contracts to the Trust
Depositor. In addition, the Seller and the Trust Depositor will treat the
transactions described herein as a sale of the Contracts to the Trust Depositor,
and the Seller will take all actions that are required under applicable law to
perfect the Trust Depositor's ownership interest in the Contracts.
Notwithstanding the foregoing, if the Seller became a debtor in a bankruptcy
case and an unpaid creditor of the Seller or a representative of creditors of
the Seller, such as a trustee in bankruptcy, or the Seller acting as a
debtor-in-possession, were to take the position that the sale of Contracts to
the Trust Depositor was ineffective to remove such Contracts from the Seller's
estate (for instance, that such sale should be recharacterized as a pledge of
Contracts to secure borrowings of the Seller), then delays in payments under the
Contracts to the Trust Depositor (and consequently to the Noteholders) could
occur or, should the court rule in favor of such creditor, representative or
debtor, reductions in the amount of such payments could result. If the transfer
of Contracts to the Trust Depositor is recharacterized as a pledge, a tax or
government lien on the property of the Seller arising before the Contracts came
into existence may have priority over the Trust Depositor's (and consequently
the Issuer's and the Indenture Trustee's) interest in the Contracts.
The Trust Depositor will warrant in the Sale and Servicing Agreement
that the security interest therein granted by the Issuer in favor of the
Indenture Trustee is a valid and duly perfected security interest, and will take
all actions that are required under applicable law to perfect the Issuer's and
the Indenture Trustee's respective interests in the Contracts sold by it.
Nevertheless, if the Trust Depositor were to become a debtor in a bankruptcy
case and an unpaid creditor of the Trust Depositor or a representative of
creditors of the Trust Depositor, such as a trustee in bankruptcy, or the Trust
Depositor acting as a debtor-in-possession, were to take the position that the
sale of Contracts to the Issuer was ineffective to remove such Contracts from
the Trust Depositor's estate (for instance, that such sale should be
recharacterized as a pledge of Contracts to secure borrowings of the Trust
Depositor), then delays in payments under the Contracts to the Issuer could
occur or, should the court rule in favor of such creditor, representative or
debtor, reductions in the amount of such payments could result. If the transfer
of Contracts to the Issuer is recharacterized as a pledge, a tax or government
lien on the property of the Trust Depositor arising before the Contracts came
into existence may have priority over the Issuer's and hence the Noteholder's
interest in the Contracts. If the transactions are treated as a sale of
Contracts, generally, the Contracts would not be part of the Trust Depositor's
estate and would not be available to the Trust Depositor's creditors.
Certain restrictions have been imposed on the Trust Depositor and the
Issuer and certain other parties to the transactions described herein which are
intended to reduce the risk of an insolvency proceeding involving the Trust
Depositor or the Issuer. These restrictions include incorporating the Trust
Depositor as a separate, special purpose corporation pursuant to a certificate
of incorporation containing certain restrictions on the nature of its business.
Additionally, the Trust Depositor may commence a voluntary case or preceding
under any bankruptcy or insolvency law, or cause the Trust to commence a
voluntary case or proceeding under any bankruptcy or insolvency law, only upon
the affirmative vote of all its directors, including its independent directors,
as long as the Trust Depositor is solvent and does not reasonably foresee
becoming insolvent. The Trust Depositor's certificate of incorporation requires
that the Trust Depositor have at all times at least two independent directors.
However, no assurance can be given that insolvency proceedings involving either
the Trust Depositor or the Trust will not occur. In the event the Trust
Depositor becomes subject to insolvency proceeding, the Trust, the Trust's
interest in the Trust Assets, and the Trust's obligation to make payments on the
Notes might also become subject to such insolvency proceedings. In the event of
insolvency proceedings involving the Trust, the Trust's interest in the Trust
Assets and the Trust's obligation to make payments on the Notes would become
subject to such insolvency proceedings. No assurance can be given that
insolvency proceedings involving Mitsui Vendor Leasing would not lead to
insolvency proceedings of either, or both, of the Trust Depositor or the Trust.
In either such event, or if an attempt were made to litigate any of the
foregoing issues, delays of distributions on the Notes, possible reductions in
the amount of payment of principal of and interest on the Notes and limitations
(including a stay) on the exercise of remedies under the Indenture and the Sale
and Servicing Agreement could occur, although the Noteholders would continue to
have the benefit of the Indenture Trustee's security interest in the Trust
Assets under the Indenture.
The right of the Indenture Trustee, as secured party under the
Indenture for the benefit of the Noteholders, to foreclose upon and sell the
Trust Assets is likely to be significantly impaired by applicable bankruptcy
laws, including the automatic stay pursuant to Section 362 of the Bankruptcy
Code, if a bankruptcy proceeding were to be commenced by or against the Trust,
and possibly the Trust Depositor, before or possibly even after the Indenture
Trustee has foreclosed upon and sold the Trust Assets. Under the bankruptcy
laws, payments on debts are not made and secured creditors are prohibited from
repossessing their security from a debtor in a bankruptcy case or from disposing
of security repossessed from such a debtor, without bankruptcy court approval.
Moreover, the bankruptcy laws generally permit the debtor to continue to retain
and to use collateral even though the debtor is in default under the applicable
debt instruments, provided generally that the secured creditor has the right to
seek "adequate protection." The meaning of the term "adequate protection" may
vary according to circumstances, but it is intended in general to protect the
value of the security from any diminution in the value of the collateral as a
result of the use of the collateral by the debtor during the pendency of the
bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict whether or to what extent the holders of the Notes
would be compensated for any diminution in value of the Trust Assets.
Furthermore, in the event a bankruptcy court determines that the value of the
Trust Assets is not sufficient to repay all amounts due on the Notes, the
Noteholders would hold secured claims only to the extent of the value of the
Trust Assets to which the holders are entitled, and unsecured claims with
respect to such shortfall. The bankruptcy laws do not permit the payment or
accrual of post-petition interest, costs and attorneys' fees during a debtor's
bankruptcy case unless, and then only to the extent, the claims are oversecured.
If an Insolvency Event with respect to the Trust Depositor were to
occur, then an Event of Default would occur with respect to the Notes, and
assuming the Trust Assets were not then subject to being involved in a
bankruptcy case, the Indenture Trustee would sell the Contracts and would use
the proceeds of such sale to pay the outstanding principal of and accrued
interest on the Notes to the extent and in the order of priority described under
"Description of the Notes--Allocations, Following an Event of Default or
Restricting Event." The Noteholders would suffer a loss if the sum of (i) the
proceeds of the sale allocable to the Noteholders and (ii) the proceeds of any
collections on the Contracts in the Collection Account allocable to the
Noteholders is insufficient to pay the Noteholders in full.
State laws impose requirements and restrictions relating to foreclosure
sales and obtaining deficiency judgments following such sales. In the event that
the Noteholders must rely on repossession and disposition of any Equipment to
recover amounts due on Defaulted Contracts, such amounts may not be realized
because of the application of these requirements and restrictions. Other factors
that may affect the ability of the Noteholders to realize the full amount due on
a Contract include the failure to file financing statements to perfect the
Seller's, the Trust Depositor's, the Trust's or the Indenture Trustee's, as
applicable, interest in the Equipment, depreciation, obsolescence, damage or
loss of any item of Equipment, and the application of federal and state
bankruptcy and insolvency laws. As a result, the Noteholders may be subject to
delays in receiving payments and losses if the remaining unaffected Contracts
are insufficient to cover such losses.
In addition, if a court, in a lawsuit by an unpaid creditor of the
Seller or by a representative of creditors of the Seller, such as a trustee in
bankruptcy, or by the Seller acting as a debtor-in-possession, were to find
that, at the time of or as a result of any transfer by the Seller of Contracts
to the Trust Depositor, (i) (A) the Seller entered into such transaction with
the intent of hindering, delaying or defrauding creditors or (B) the Seller
received less than a reasonably equivalent value or fair consideration as a
result of such transfer and (ii) the Seller (A) was insolvent or would be
rendered insolvent by such transfer, (B) was engaged in a business or
transaction for which its assets constituted unreasonably small capital after
such transfer or (C) intended to incur, or believed that it would incur,
indebtedness beyond its ability to pay as the obligations under such
indebtedness matured (as the foregoing terms are defined in or interpreted under
the relevant fraudulent conveyance statutes), such court could invalidate such
transfer to the Trust Depositor or the Trust, or substantively consolidate the
Trust Depositor, the Trust and the Seller, or subordinate the rights of the
Noteholders to the rights of unsecured creditors of the Seller, or take other
actions that would be adverse to the Noteholders.
The measure of insolvency for purposes of the foregoing will vary
depending on the law of the jurisdiction that is being applied. Generally,
however, an entity would be considered insolvent if the fair saleable value of
its assets is less than the amount of its liabilities (including contingent
liabilities) or the amount that will be required to pay its probable liabilities
on its existing debts as they become absolute and matured. The Trust Depositor
believes that it and the Seller have entered into these transactions for proper
purposes and in good faith and that the purchase price for the Contracts
represents reasonably equivalent value or fair consideration for the transfers
of such Contracts by the Seller to the Trust Depositor.
The Issuer will receive, on the Closing Date, a certificate from the
Seller to the effect that (i) the Seller did not intend, in entering into the
Transfer and Sale Agreement and consummating the transactions contemplated
thereby, to hinder, delay or defraud either then present or future creditors or
any other person to which the Seller was or would thereafter become, as of or
after the consummation of such transactions, indebted and (ii) the purchase
price for the Contracts sold under the Transfer and Sale Agreement represented
reasonably equivalent value or fair consideration as a result of the transfers
of such Contracts to the Trust Depositor. However, there can be no assurance,
however, that a court would reach the same conclusion.
Certain states have adopted a version of Article 2A of the UCC
("Article 2A"), which purports to codify many provisions of existing common law.
Although there is little precedent regarding how Article 2A will be interpreted,
it may, among other things, limit enforceability of any "unconscionable" lease
or "unconscionable" provision in a lease, provide a lessee with remedies,
including the fight to cancel the lease contract, for certain lessor breaches or
defaults, and may add to or modify the terms of "consumer leases" and leases
where the lessee is a "merchant lessee." However, in the Transfer and Sale
Agreement, the Seller will represent that (i) no Contract is a "consumer lease"
and (ii) each End-User has accepted the equipment leased to it and, after
reasonable opportunity to inspect and test, has not notified the Seller of any
defects therein. Article 2A, moreover, recognizes typical commercial lease "hell
or high water" rental payment clauses and validates reasonable liquidated
damages provisions in the event of lessor or lessee defaults. Article 2A also
recognizes the concept of freedom of contract and permits the parties in a
commercial context wide degree of latitude to vary provisions of the law.
FEDERAL INCOME TAX CONSEQUENCES
General
The following is a discussion of material United States federal income
tax consequences of the purchase, ownership and disposition of the Notes. The
discussion that follows, and the opinion described below of Brown & Wood llp,
federal tax counsel to the Trust Depositor ("Tax Counsel"), are based upon
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations promulgated thereunder, current administrative
rulings, judicial decisions and other applicable authorities in effect as of the
date hereof, all of which are subject to change, possibly with retroactive
effect. There are no cases, regulations, or Internal Revenue Service ("IRS")
rulings on comparable transactions or instruments to those described herein. As
a result, there can be no assurance that the IRS will not challenge the
conclusions reached herein, and no ruling from the IRS has been or will be
sought on any of the issues discussed below. Furthermore, legislative, judicial
or administrative changes may occur, perhaps with retroactive effect, which
could affect the accuracy of the statements and conclusions set forth herein as
well as the tax consequences to Noteholders.
This discussion does not purport to deal with all aspects of federal
income taxation that may be relevant to Noteholders in light of their personal
investment or tax circumstances nor to certain types of holders who may be
subject to special treatment under the federal income tax laws (including,
without limitation, financial institutions, broker-dealers, insurance companies,
foreign persons, tax-exempt organizations, and persons who hold the Notes as
part of a straddle, hedging, or conversion transaction). The discussion is
generally directed to prospective purchasers who purchase Notes at the time of
original issue, who are citizens or residents of the United States, and who hold
the Notes as "capital assets" within the meaning of Section 1221 of the Code. It
is recommended that taxpayers consult their own tax advisors and tax return
preparers regarding the preparation of any item on a tax return, even where the
anticipated tax treatment has been discussed herein. IT IS RECOMMENDED THAT
PROSPECTIVE INVESTORS CONSULT WITH THEIR OWN TAX ADVISORS AS TO THE FEDERAL,
STATE, LOCAL, FOREIGN AND ANY OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE,
OWNERSHIP AND DISPOSITION OF NOTES.
Opinion
In the opinion of Tax Counsel, for federal income tax purposes,
although no transaction closely comparable to that contemplated herein has been
the subject of any Treasury Regulation, revenue ruling, or judicial decision,
based on the application of existing law to the facts as set forth in the
applicable agreements, (i) the Issuer will not be treated as an association (or
publicly traded partnership) taxable as a corporation and (ii) the Notes will be
treated as indebtedness. An opinion of counsel does not foreclose the
possibility of a contrary determination by the IRS or by a court of competent
jurisdiction, or of a contrary position by the IRS or Treasury Department in
regulations or rulings issued in the future.
Although it is the opinion of Tax Counsel that the Issuer will not be
treated as an association (or publicly traded partnership) taxable as a
corporation and the Notes will be characterized as indebtedness for federal
income tax purposes, no assurance can be given that such characterization of the
Issuer and the Notes will prevail. If the Issuer were taxable as a corporation
for federal income tax purposes, it would be subject to corporate income tax on
its taxable income. The Issuer's taxable income would include all its income on
the related Contracts and other assets, which may be reduced by its interest
expense on the Notes if the Notes are respected as debt of such corporation. Any
such corporate income tax could materially reduce cash available to make
payments on the Notes. If, contrary to the opinion of Tax Counsel, the IRS also
successfully asserted that one or more of the Notes did not represent debt for
federal income tax purposes, the Notes might be treated as equity interests in
the Issuer. If so treated, it is possible that the Issuer might be treated as a
publicly traded partnership taxable as a corporation, (in which case the taxable
corporation would not be able to reduce its taxable income by deductions for
interest expense on Notes recharacterized as equity) unless the Issuer is able
to meet certain qualifying income tests or otherwise qualifies for an exemption
from the publicly traded partnership rules. Even if the Issuer is not taxed as a
corporation, treatment of the Notes as equity interests in a publicly traded
partnership could have adverse tax consequences to certain holders. For example,
income to certain tax-exempt entities (including pension funds) may constitute
"unrelated business taxable income," income to foreign holders generally would
be subject to U.S. tax and U.S. tax return filing and withholding requirements,
individual holders might be subject to certain limitations on their ability to
deduct their share of Issuer expenses, and income from the Issuer's assets would
be taxable to Noteholders without regard to (i) whether cash distributions are
made from the Issuer or (ii) the Noteholders' method of tax accounting.
The discussion that follows assumes that the Notes will be treated as
indebtedness for federal income tax purposes. The following discussion is also
based in part upon Treasury regulations interpreting the original issue discount
("OID") provisions of the Code. The OID regulations, however, are subject to
varying interpretations and do not address all issues that would affect
Noteholders.
Taxation of Interest Income to Noteholders
Based upon the discussion below under the heading "OID," Tax Counsel's
interpretation of (i) the definition of "qualified stated interest" and (ii)
other provisions of the OID Code sections and regulations, it is not expected
that the Notes will be issued with OID (i.e., any excess of the stated
redemption price at maturity over their issue price), other than perhaps with a
de minimis amount (i.e., 1/4 of the Notes stated redemption price at maturity
multiplied by the number of full years to maturity). In such case, the stated
interest on each class of Notes should be treated as qualified stated interest
and will be taxable as ordinary income for federal income tax purposes when
received or accrued in accordance with the Noteholders general method of tax
accounting.
OID
If a Note is issued at a discount from its principal amount or if the
stated interest on such Note is not treated as "qualified stated interest," the
Note would be treated as having OID. Under the OID regulations currently in
effect, in order to have qualified stated interest, the stated interest must be
"unconditionally payable" in cash or property at least once annually. Interest
is unconditionally payable only if reasonable legal remedies exist to compel
timely payment or the debt instrument otherwise provides terms and conditions
that make the likelihood of late payment (other than a late payment that occurs
within a reasonable grace period) or nonpayment a remote contingency. The Issuer
believes that the likelihood of late payment or nonpayment of the stated
interest on the Notes should constitute a remote contingency; the IRS, however,
may disagree. In such case, the stated interest on the Notes would not be
qualified stated interest and the Notes would be considered to have been issued
with OID.
If the Notes are in fact issued with a greater than de minimis amount
of OID or are otherwise treated as having been issued with OID, the following
rules should apply. The excess of the "stated redemption price at maturity" of a
Note (generally equal to its principal amount as of the date of issuance plus
all interest other than "qualified stated interest" payable prior to or at
maturity) over the original issue price (in this case, the initial offering
price at which a substantial amount of the Notes are sold to the public) will
constitute OID. A Noteholder must include OID in income as interest over the
term of the Note under a constant yield method. OID must be included in income
in advance of the receipt of cash representing that income. In general, the
amount of OID included in income is the sum of the "daily portions" of the OID
with respect to the Note for each day during the taxable year the Noteholder
held the Note. The daily portion generally is determined by allocating to each
day in an accrual period a ratable portion of the OID allocable to such accrual
period. The amount of OID allocable to an accrual period is generally equal to
the difference between (i) the product of the Notes' adjusted issue price and
its yield to maturity and (ii) the amount of qualified stated interest payments
allocable to such accrual period. The "adjusted issue price" of an OID Note at
the beginning of any accrual period is the sum of its issue price plus the
amount of OID allocable to prior accrual periods minus the amount of prior
payments that were not qualified stated interest.
Alternatively, because the payments on the Notes may be accelerated by
reason of prepayments on the Contracts, OID, other than de minimis OID, on the
Notes, if any, may have to be accrued under Code section 1272(a)(6), which
allocates OID to each day in an accrual period by taking the ratable portion of
the excess of (i) the sum of the present value of the remaining payments on a
Note as of the close of the accrual period and the payments made during the
accrual period that were included in the stated redemption price at maturity,
over (ii) the adjusted issue price of the Note at the beginning of the accrual
period. No regulations have been issued under Code section 1272(a)(6) and it is
therefor not clear if such section would apply to the Notes if they are treated
as having OID. Legislation has been proposed which if enacted, would require any
OID (or interest) on the Notes to be computed in accordance with the rules of
Section 1272(a)(6) and certain prepayment assumptions.
A holder of a Note issued with de minimis OID must include such OID in
income proportionately as principal payments are made on such Note.
Acquisition Premium
A holder that purchases a Note for an amount less than or equal to the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest but in excess of its adjusted issue price
(any such excess being "acquisition premium") and that does not make the
election described below under "Election to Treat All Interest as Original Issue
Discount" is permitted to reduce the daily portions of OID, if any, by a
fraction, the numerator of which is the excess of the holder's adjusted basis in
the Note immediately after its purchase over the adjusted issue price of the
Note, and the denominator of which is the excess of the sum of all amounts
payable on the Note after the purchase date, other than payments of qualified
stated interest, over the Note's adjusted issue price.
Market Discount
Whether or not the Notes are issued with OID, a subsequent purchaser
(i.e., a purchaser who acquires a Note not at the time of original issue) of a
Note at a discount will be subject to the "market discount rules" of Sections
1276 through 1278 of the Code. In general, these rules provide that if the
holder of a Note purchases the Note at a market discount (i.e., a discount from
its original issue price plus any accrued OID that exceeds a de minimis amount
specified in the Code) and thereafter recognizes gain upon a disposition (or
receives a principal payment), the lesser of (i) such gain (or the principal
payment) or (ii) the accrued market discount (not previously included in income)
will be taxed as ordinary income. Generally, the accrued market discount will be
the total market discount (not previously included in income) on the Note
multiplied by a fraction, the numerator of which is the number of days the
holder held the Note and the denominator of which is the number of days from the
date the holder acquired the Note until its maturity date. The holder may elect,
however, to determine accrued market discount under the constant yield method.
The adjusted basis of a Note subject to such election will be increased to
reflect market discount included in gross income, thereby reducing any gain or
increasing any loss on a subsequent sale or taxable disposition. Holders should
consult with their own tax advisors as to the effect of making this election.
Limitations imposed by the Code, which are intended to match deductions
with the taxation of income, may defer deductions for interest on indebtedness
incurred or continued, or short-sale expenses incurred, to purchase or carry a
Note with accrued market discount. A Noteholder who elects to include market
discount in gross income as it accrues, however, is exempt from this rule.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is .25% of
the remaining principal balance of the Note multiplied by its expected weighted
average remaining life. If market discount is de minimis, the actual amount of
discount must be allocated to the remaining principal distributions on the Note,
and when such distribution is received, capital gain will be recognized equal to
discount allocated to such distribution.
Amortizable Bond Premium
In general, if a subsequent purchaser acquires a Note at a premium
(i.e., an amount in excess of the amount payable upon the maturity thereof),
such Noteholder will be considered to have purchased the Note with "amortizable
bond premium" equal to the amount of such excess. A Noteholder may elect to
deduct the amortizable bond premium as it accrues under a constant yield method
over the remaining term of the Note. Under proposed regulations, if finalized,
accrued amortized bond premium may only be used as an offset against qualified
stated interest income when such income is included in the holder's gross income
under the holder's normal accounting system.
Election to Treat All Interest as Original Issue Discount
A holder may elect to include in gross income all interest that accrues
on a Note using the constant yield method described above under the heading
"OID," with modifications described below. For purposes of this election,
interest includes stated interest, OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium. In applying the constant yield method to a
Note with respect to which this election has been made, the issue price of the
Note will equal the electing holders adjusted basis in the Note immediately
after its acquisition, the issue date of the Note will be the date of its
acquisition by the electing holder, and no payments on the Note will be treated
as payments of qualified stated interest. This election, if made, may not be
revoked without the consent of the IRS. Holders should consult with their own
tax advisors as to the effect of making this election in light of their
individual circumstances.
Disposition of Notes
Generally, capital gain or loss will be recognized on a sale or other
taxable disposition of the Notes in an amount equal to the difference between
the amount realized (other than amounts attributable to, and taxable as, accrued
interest) and the Issuer's tax basis in the Notes. A Noteholders tax basis in a
Note will generally equal his or her cost increased by any OID or market
discount previously included by such Noteholder in income with respect to the
Note and decreased by any bond premium previously amortized and any principal
payments previously received by such Noteholder with respect to the Note.
Subject to the market discount rules of the Code, any such gain or loss will be
capital gain or loss if the Note was held as a capital asset. Capital gain or
loss will be long-term if the Note was held by the holder for more than one year
and otherwise will be short-term. In the case of a taxable individual
Noteholder, capital gain income will be long-term capital gain if the Notes have
been held for more than eighteen months, mid-term capital gain if the Notes have
been held for more than one year but not more than eighteen months, or
short-term capital gain if the Notes have been held for one year or less. Any
capital losses realized generally may be used by a corporate taxpayer only to
offset capital gains, and by an individual taxpayer only to the extent of
capital gains plus $3,000 of other income.
Information Reporting and Backup Withholding
The Indenture Trustee will be required to report annually to the IRS,
and to each Noteholder, the amount of interest paid on the Notes (and the amount
withheld for federal income taxes, if any) for each calendar year, except as to
exempt recipients (generally, corporations, tax-exempt organizations, qualified
pension and profit-sharing trusts, individual retirement accounts, or
nonresident aliens who provide certification as to their status). Each holder
(other than holders who are not subject to the reporting requirements) will be
required to provide, under penalties of perjury, a certificate (Form W-9)
containing the holder's name, address, correct federal taxpayer identification
number and a statement that the holder is not subject to backup withholding.
Should a non-exempt Noteholder fail to provide the required certification, the
Indenture Trustee will be required to withhold (or cause to be withheld) 31% of
the interest otherwise payable to the holder, and remit the withheld amounts to
the IRS as a credit against the holder's federal income tax liability.
Final regulations dealing with backup withholding and information
reporting on income paid to a foreign person and related matters (the "New
Withholding Regulations") were published in the Federal Register on October 14,
1997. In general, the New Withholding Regulations do not significantly alter the
substantive withholding and information reporting requirements, but do unify
current certification procedures and forms and clarify reliance standards. The
New Withholding Regulations generally will be effective for payments made after
December 31, 1999, subject to certain transition rules. The discussion set forth
above does not take the New Withholding Regulations into account. Prospective
Noteholders are strongly urged to consult their own tax advisor with respect to
the New Withholding Regulations.
Tax Consequences to Foreign Investors
Based upon Tax Counsel's opinion that the Notes will be treated as
indebtedness for federal income tax purposes, the following information
describes the general United States federal income tax treatment of investors
that are not United States persons (each a "Foreign Person"). The term Foreign
Person means any person other than (i) a citizen or resident of the United
States, (ii) a corporation or partnership (including any entity treated as a
corporation or a partnership for United States federal income tax purposes)
organized in or under the laws of the United States, unless, in the case of a
partnership, Treasury regulations provide otherwise, (iii) an estate the income
of which is includible in gross income for United States federal income tax
purposes, regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have the authority to control all
substantial decisions of the trust. Notwithstanding the preceding sentence, to
the extent provided in regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date that elect to
continue to be so treated also shall be considered United States persons.
(a) Interest paid or accrued to a Foreign Person that is not
effectively connected with the conduct of a trade or business
within the United States by the Foreign Person, will generally
be considered "portfolio interest" and generally will not be
subject to United States federal income tax and withholding
tax, as long as the Foreign Person (i) is not actually or
constructively a "10 percent shareholder" of the Issuer or a
"controlled foreign corporation" with respect to which the
Issuer is a "related person" within the meaning of the Code,
and (ii) provides an appropriate statement (Form W-8 or
similar acceptable certification) to the Indenture Trustee or
paying agent (generally the clearing agency, financial
intermediary, or broker) that is signed under penalties of
perjury, certifying that the beneficial owner of the Note is a
Foreign Person and providing that Foreign Person's name and
address. If the information provided in this statement
changes, the Foreign Person must provide a new Form W-8 within
30 days. The Form W-8 is generally effective for three years.
If such interest were not portfolio interest, then it would be
subject to United States federal income and withholding tax at
a rate of 30 percent unless reduced or eliminated pursuant to
an applicable income tax treaty. To qualify for any reduction
as the results of an income tax treaty, the Foreign Person
must provide the paying agent with Form 1001. This form is
also effective for three years.
(b) Any capital gain realized on the sale or other taxable
disposition of a Note by a Foreign Person will be exempt from
United States federal income and withholding tax, provided
that (i) the gain is not effectively connected with the
conduct of a trade or business in the United States by the
Foreign Person, and (ii) in the case of an individual Foreign
Person, the Foreign Person is not present in the United States
for 183 days or more in the taxable year. If an individual
Foreign Person is present in the United States for 183 days or
more during the taxable year, the gain on the disposition of
the Notes could be subject to a 30% withholding tax unless
reduced by treaty.
(c) If the interest, gain or income on a Note held by a Foreign
Person is effectively connected with the conduct of a trade or
business in the United States by the Foreign Person, the
holder (although exempt from the withholding tax previously
discussed if an appropriate statement (Form 4224) is furnished
to the paying agent) generally will be subject to United
States federal income tax on the interest, gain or income at
regular federal income tax rates. Form 4224 is effective for
only one calendar year. In addition, if the Foreign Person is
a foreign corporation, it may be subject to a branch profits
tax equal to 30 percent of its "effectively connected earnings
and profits" within the meaning of the Code for the taxable
year, as adjusted for certain items, unless it qualifies for a
lower rate under an applicable tax treaty.
As discussed above, the New Withholding Regulations were published in
the Federal Register on October 14, 1997, and generally will be effective for
payments made after December 31, 1999, subject to certain transition rules. The
discussion set forth above does not take the New Withholding Regulations into
account. Prospective investors that are Foreign Persons are strongly urged to
consult their own tax advisor with respect to the New Withholding Regulations.
CERTAIN STATE TAX CONSEQUENCES
Because of the differences in state tax laws and their applicability to
different investors, it is not possible to summarize the potential state tax
consequences of holding the Notes. IT IS RECOMMENDED THAT PURCHASERS OF NOTES
CONSULT THEIR OWN TAX ADVISORS REGARDING THE STATE TAX CONSEQUENCES OF
PURCHASING ANY NOTES.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
"ERISA"), imposes certain requirements on employee benefit plans subject to
ERISA ("ERISA Plans") and prohibits certain transactions between ERISA Plans and
persons who are "parties in interest" (as defined under ERISA) with respect to
assets of such Plans. Section 4975 of the Code prohibits a similar set of
transactions between certain plans or individual retirement accounts ("Code
Plans," and together with ERISA Plans, "Plans") and persons who are
"disqualified persons" (as defined in the Code) with respect to Code Plans.
Certain employee benefit plans, such as governmental plans and church plans (if
no election has been made under Section 410(d) of the Code), are not subject to
the requirements of ERISA or Section 4975 of the Code, and assets of such plans
may be invested in the Notes, subject to the provisions of other applicable
federal and state law. Any such plan which is qualified under Section 401(a) of
the Code and exempt from taxation under Section 501(a) of the Code is, however,
subject to the prohibited transaction rules set forth in Section 503 of the
Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that investments be made in accordance with
the documents governing the ERISA Plan. Before investing in the Notes, an ERISA
Plan fiduciary should consider, among other factors, whether to do so is
appropriate in view of the overall investment policy and liquidity needs of the
ERISA Plan.
Prohibited Transactions
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
parties in interest and disqualified persons with respect to ERISA Plans and
Code Plans from engaging in certain transactions involving such Plans or "plan
assets" of such Plans, unless a statutory, regulatory or administrative
exemption applies to the transaction. Section 4975 of the Code and Sections
502(i) and 502(l) of ERISA provide for the imposition of certain excise taxes
and civil penalties on certain persons that engage or participate in such
prohibited transactions. The Issuer, the Underwriter, the Seller, the Servicer,
the Trust Depositor, the Owner Trustee, the Indenture Trustee or certain
affiliates thereof may be considered or may become parties in interest or
disqualified persons with respect to a Plan. If so, the acquisition or holding
of the Notes by, on behalf of or with "plan assets" of such Plan may be
considered to give rise to a "prohibited transaction" within the meaning of
ERISA or Section 4975 of the Code, unless an administrative exemption described
below or some other exemption is available.
Any person who (a) has discretionary authority or control with respect
to the investment or management of the assets of a Plan or (b) has authority or
responsibility to give, or regularly gives, investment advice with respect to
the assets of a Plan pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with respect to such
assets and that such advice will be based on the particular needs of the Plan or
(c) is an employer of employees covered under the Plan, is a fiduciary of such
Plan, and should consider whether an investment in the Notes would involve a
conflict of interest or an act of self-dealing, in view of the identity of the
parties to the transaction and service providers to the Trust identified in this
Prospectus.
Depending on the relevant facts and circumstances, certain prohibited
transaction exemptions may apply to the purchase or holding of the Notes -- for
example, Prohibited Transaction Class Exemption ("PTCE") 96-23, which exempts
certain transactions effected on behalf of a Plan by an "in-house asset
manager"; PTCE 95-60, which exempts certain transactions between insurance
company general accounts and parties in interest; PTCE 91-38, which exempts
certain transactions between bank collective investment funds and parties in
interest; PTCE 90-1, which exempts certain transactions between insurance
company pooled separate accounts and parties in interest; or PTCE 84-14, which
exempts certain transactions effected on behalf of a Plan by a "qualified
professional asset manager." There can be no assurance that any of these
exemptions will apply with respect to any Plan's investment in the Notes or,
even if an exemption were deemed to apply, that any exemption would apply to all
prohibited transactions that may occur in connection with such investment.
Plan Asset Regulation
Pursuant to a Department of Labor regulation codified at 29 C.F.R.
section 2510.3-101 (the "Plan Assets Regulation"), in general when a Plan
acquires an equity interest in an entity such as the Issuer and such interest
does not represent a "publicly offered security" or a security issued by an
investment company registered under the Investment Company Act of 1940, as
amended, the Plan's assets include both the equity interest and an undivided
interest in each of the underlying assets of the entity, unless it is
established either that the entity is an "operating company" or that equity
participation in the entity by "benefit plan investors" is not "significant." In
general, an "equity interest" is defined under the Plan Assets Regulation as any
interest in an entity other than an instrument which is treated as indebtedness
under applicable local law and which has no substantial equity features. Thus,
if the Notes constitute debt with no substantial equity features for purposes of
the Plan Assets Regulation, then a Plan's acquisition of Notes will not cause
the assets of the Issuer to be deemed assets of such Plan for purposes of
section 404 and 406 of ERISA or section 4975 of the Code, and the Plan's
interest will be deemed to include solely an interest in such Notes. Conversely,
if the Notes constitute an equity interest for purposes of the Plan Assets
Regulation, then a Plan's acquisition of Notes may cause the assets of the
Issuer to be deemed to be assets of such Plan for purposes of sections 404 and
406 of ERISA and section 4975 of the Code. In such event, the fiduciary and
prohibited transaction restrictions of ERISA and section 4975 of the Code would
apply to transactions involving the assets of the Issuer, and could give rise to
a prohibited transaction for which no exemption is available.
Although there is little published authority available and there can be
no assurance in this regard, the Issuer believes that the Class A Notes, the
Class B Notes and the Class C Notes should be treated as debt rather than equity
interests under the Plan Assets Regulation. Accordingly, the assets of the
Issuer should not be deemed to be assets of Plans under the Plan Assets
Regulation or otherwise under ERISA as a result of the purchase of Notes by or
with the assets of Plans. However, before purchasing any Notes on behalf of a
Plan, an ERISA Plan fiduciary should make its own determination that the Class
of Notes being purchased will not constitute equity interests of the Issuer for
purposes of the Plan Assets Regulation.
Due to the complexity of these rules and the penalties imposed, any
fiduciary or other Plan investor who proposes to invest assets of a Plan in the
Notes should consult with its counsel with respect to the potential consequences
under ERISA and Section 4975 of the Code of doing so.
PLAN OF DISTRIBUTION
General
Subject to the terms and conditions set forth in an underwriting
agreement dated ________ __, 1998 for the sale of the Notes, the Trust Depositor
has agreed to sell to First Union Capital Markets, a division of Wheat First
Securities, Inc. (the "Underwriter") and the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all the Notes offered
hereby if any of such Notes are purchased.
The Underwriter has advised the Trust Depositor that the Underwriter
proposes initially to offer the Notes to the public at the price set forth on
the cover page hereof and to certain dealers at such price less a selling
concession not in excess of ____% of the initial principal amount of the Notes.
The Underwriter may allow and such dealers may reallow a concession not in
excess of ____% of the initial principal amount of the Notes. After the initial
public offering, the public offering price and such concessions may be changed.
The underwriting agreement provides that the Trust Depositor and Mitsui
Vendor Leasing, jointly and severally, will indemnify the Underwriter against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended, or contribute to payments the Underwriter may be required to
make in respect thereof.
In the ordinary course of its business, the Underwriter and its
affiliates have engaged and may engage in commercial banking and investment
banking transactions with Mitsui Vendor Leasing and its affiliates, including
the Trust Depositor.
RATING OF THE NOTES
It is a condition to the issuance of the Notes offered hereunder that
the Class A-1 Notes be rated at least "___" and "___," that the Class A-2 and
Class A-3 Notes be rated at least "___" and "___," that the Class B Notes be
rated at least "___" and "___,"and that the Class C Notes be rated at least
"___" and "___" by Moody's Investors Service, Inc. and Duff & Phelps Credit
Rating Co., respectively (collectively, the "Rating Agencies").
The ratings are not a recommendation to purchase, hold or sell the
Notes, inasmuch as such ratings do not comment as to market price or suitability
for a particular investor. Each rating may be subject to revision or withdrawal
at any time by the assigning Rating Agency. There is no assurance that any such
rating will continue for any period of time or that it will not be lowered or
withdrawn entirely by the Rating Agency if, in its judgment, circumstances so
warrant. A revision or withdrawal of such rating may have an adverse effect on
the market price of the Notes. The rating of the Notes addresses the likelihood
of the timely payment of interest and the ultimate payment of principal on the
Notes pursuant to their terms. The rating does not address the rate of
prepayments that may be experienced on the Contracts and, therefore, does not
address the effect of the rate of prepayments on the return of principal to the
Noteholders.
LEGAL MATTERS
Certain legal matters relating to the Notes, including certain federal
income tax matters, as well as other matters, will be passed upon for the Trust
Depositor and the Seller by Brown & Wood llp, New York, New York and, with
respect to certain matters arising under Delaware law, Richards, Layton &
Finger, Wilmington, Delaware. Certain legal matters for the Underwriter will be
passed upon by Cadwalader, Wickersham & Taft, New York, New York.
INDEX OF TERMS
Accrual Period, 11, 42
ADCB, 5, 13, 43
Additional Contract, 8, 35
Additional Contract Cutoff Date, 4
Adjusted Contract, 8
Administration Agreement, 54
Administrator, 54
Aggregate Principal Paydown Amount, 12, 43
Applicable Percentage, 13, 43
Article 2A, 20, 68
Available Amounts, 45
Back-up Servicer, 2, 4, 60
Bankruptcy Code, 19
Business Day, 4
Calculation Date, 4
Cede, 2
CEDEL, 2
CEDEL Participants, 52
Class A Initial Note Principal Balance, 5
Class A Noteholders, 11, 42
Class A Notes, 5
Class A Principal Payment Amount, 43
Class A-1 Initial Note Principal Balance, 5
Class A-1 Notes, 5
Class A-2 Initial Note Principal Balance, 5
Class A-2 Notes, 5
Class A-3 Initial Note Principal Balance, 5
Class A-3 Notes, 5
Class B Initial Note Principal Balance, 5
Class B Noteholders, 11, 42
Class B Notes, 5
Class B Principal Payment Amount, 43
Class C Initial Note Principal Balance, 5
Class C Noteholders, 11, 42
Class C Notes, 5
Class C Principal Payment Amount, 43
Closing Date, 4
Code, 69
Code Plans, 74
Collection Account, 9, 47
Collection Period, 4
Commission, 3
Conditional Payment Rate, 35
Contract Files, 6
Contract Pool, 6
Contracts, 1
Cooperative, 52
CPR, 35
CSA, 6
CSAs, 32
Cutoff Date, 4
Defaulted Contract, 8, 47
Definitive Notes, 53
Depositaries, 51
Depositary, 42
Determination Date, 44
Discount Rate, 14
Discounted Contract Balance, 13, 43
disqualified persons, 74
Distribution, 50
DTC, 2
Eligible Contract, 56
Eligible Investments, 47
End-Users, 7, 23
Equipment, 33
ERISA, 74
ERISA Plans, 74
Euroclear, 2
Euroclear Operator, 52
Euroclear Participants, 52
Event of Default, 48
Exchange Act, 3
Excluded Amounts, 32
FDIC, 47
Foreign Person, 72
gross losses, 31
Holders, 53
Indemnities, 63
Indenture, 1, 5
Indenture Trustee, 1, 4
Indirect Participants, 51
Ineligible Contract, 56
Initial Reserve Fund Deposit, 10, 46
Insolvency Event, 48
Insurance Proceeds, 54
investment company, 48
IRS, 69
Issuer, 1, 3
Lease, 6
Leases, 32
Mitsui Vendor Leasing, 1, 3, 39
Monthly Report, 50
MVLFC II, 1
Net Portfolio Investment, 30
New Withholding Regulations, 72
Note Owners, 5
Noteholders, 11, 42
Notes, 5
OID, 70, 72
Operative Documents, 41
Owner Trustee, 1, 4
Participants, 51
parties in interest, 74
Payment Date, 2, 4
Permitted Liens, 65
plan assets, 74
Plan Assets Regulation, 74
Plans, 74
Prepaid Contract, 8, 35
PTCE, 74
Qualified Institution, 47
Rating Agencies, 16, 75
Record Date, 5
Recoveries, 47
Registration Statement, 3
Repurchase Amount, 56
Required Controlling Holders, 49
Required Reserve Fund Amount, 10, 46
Reserve Fund, 10, 46
Reserve Fund Amount, 10, 46
Restricting Event, 49
Sale and Servicing Agreement, 2, 23
Scheduled Payments, 14, 44
Securities Act, 3
Seller, 2, 3, 23, 39
Servicer, 2, 3, 39
Servicer Advance, 15, 58
Servicer Default, 59
Servicer's Certificate, 59
Servicing Fee, 14, 49
Servicing Fee Percentage, 14, 49
Statistical Discount Rate, 7
Substitute Contract, 7, 35
Substitute Contract Cutoff Date, 4
Tax Counsel, 69
Termination Notice, 59
Terms and Conditions, 53
TIA, 63
Transfer and Sale Agreement, 2, 23
Transferred Assets, 54
true leases, 20
Trust, 1, 3
Trust Agreement, 3
Trust Assets, 5, 54
Trust Depositor, 1, 3, 41
Trustees, 49
Underwriter, 1, 75
UNL Pool, 34
Vendor, 9
Vendor Assignment, 9
Vendor Program Agreement, 10
Vendors, 33
Warranty Contract, 57
<TABLE>
<CAPTION>
=============================================================== =========================================================
<S> <C>
No dealer, salesman or other person is
authorized to give any information or to
make any representation not contained in
this Prospectus and, if given or made, MITSUI VENDOR LEASING ASSET TRUST 1998-1
such information or representation must Issuer
not be relied upon as having been
authorized by the Trust Depositor or the
Underwriter. This prospectus does not
constitute an offer to sell or a
solicitation of any offer to buy any
security other than the Securities
offered hereby, nor does it constitute
an offer to sell or a solicitation of an
offer to buy any of the Securities to
any person in any jurisdiction in which
the person making such offer or
solicitation to such person. Neither the MITSUI VENDOR LEASING II
delivery of this Prospectus nor any sale FUNDING CORP.
made hereunder shall under any Trust Depositor
circumstance create any implication that MITSUI VENDOR LEASING
the information contained herein is (U.S.A.) INC.
correct as of any date subsequent to the
date hereof. Seller and Servicer
_________________
TABLE OF CONTENTS
Page
REPORTS TO NOTEHOLDERS........................2 ____________________
AVAILABLE INFORMATION.........................3
SUMMARY OF TERMS..............................3 PROSPECTUS
THE TRUST....................................22 ____________________
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE TRUST............22
THE CONTRACTS GENERALLY......................32
MITSUI VENDOR LEASING (U.S.A.) INC.......... 39
THE TRUST DEPOSITOR......................... 41
DESCRIPTION OF THE NOTES.................... 41
THE TRANSFER AND SALE AGREEMENT AND SALE
AND SERVICING AGREEMENT GENERALLY.......... 54
THE INDENTURE............................... 62
CERTAIN LEGAL ASPECTS OF THE CONTRACTS...... 66
FEDERAL INCOME TAX CONSEQUENCES............. 70
CERTAIN STATE TAX CONSEQUENCES.............. 74 First Union Capital Markets
ERISA CONSIDERATIONS........................ 75
PLAN OF DISTRIBUTION........................ 76
RATING OF THE NOTES......................... 76
LEGAL MATTERS............................... 77 _______________, 1998
Until _______________, 1998, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligations of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotment or subscriptions.
=============================================================== =========================================================
</TABLE>
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the offering of the Notes being registered
hereby are estimated as follows:
SEC registration fee...........................................$ *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Blue sky fees and expenses...................................... *
Rating agency fees.............................................. *
Owner Trustee fee's and expenses................................ *
Indenture Trustee's fees and expenses........................... *
Printing........................................................ *
Miscellaneous................................................... *
------
Total...........................................................$
======
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Mitsui Vendor Leasing Funding Corp. II, the registrant, has undertaken
in its articles of incorporation and bylaws to indemnify, to the maximum extent
permitted by the Delaware General Corporation Law as from time to time amended,
any currently acting or former director, officer, employee and agent of the
registrant against any and all liabilities incurred in connection with their
services in such capacities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a. Exhibits:
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation of Mitsui Vendor Leasing Funding
Corp. II**
3.2 Bylaws of Mitsui Vendor Leasing Funding Corp. II**
4.1 Form of Trust Agreement**
4.2 Form of Sale and Servicing Agreement**
4.3 Form of Indenture (including forms of Class A Notes, Class B
Notes and Class C Notes) **
4.4 Form of Administration Agreement**
4.5 Form of Transfer and Sale Agreement**
5.1(a) Opinion of Brown & Wood LLP with respect to legality**
5.1(b) Opinion of Richards, Layton & Finger with respect to legality
8.1 Opinion of Brown & Wood LLP with respect to tax matters
23.1(a) Consent of Brown & Wood LLP (included as part of Exhibit
5.1(a))**
23.1(b) Consent of Richards Layton & Finger (included as part of
Exhibit 5.1(b))
23.2 Consent of Brown & Wood LLP (included as part of Exhibit 8.1)
24.1 Power of Attorney (included on page II-5)**
25.1 Statement of Eligibility and Qualification of Indenture Trustee*
* To be filed by amendment.
** Previously filed.
b. Financial Statement Schedules:
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of
expenses incurred or paid by a director, officer or controlling person
of such registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Act will be deemed to be part of this
registration statement as of the time it was declared effective.
(c) For purposes of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus will
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time will
be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to the Registration Statement on
Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego and State of California, on the 7th day
of October, 1998.
MITSUI VENDOR LEASING FUNDING CORP. II
By: /s/ John L. Plunkett
-----------------------------------
John L. Plunkett
Senior Vice President
Exhibit 5.1(b) (includes Exhibit 23.1(b))
[Letterhead of Richards, Layton & Finger, P.A.]
October 7, 1998
Mitsui Vendor Leasing Funding Corp. II
6363 Greenwich Drive, Suite 100
San Diego, California 92122
Re: Mitsui Vendor Leasing Asset Trust 1998-1
Registration Statement on Form S-1 (File No. 333-56029)
-------------------------------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel for Mitsui Vendor Leasing Funding
Corp. II (the "Registrant") in connection with the Registration Statement on
Form S-1 (File No. 333-56029) (the "Registration Statement"), filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), for the registration under the Act of Receivable-Backed Notes (the
"Notes") to be issued by Mitsui Vendor Leasing Asset Trust 1998-1, a Delaware
business trust (the "Trust") to be formed pursuant to a trust agreement (the
"Trust Agreement") among Wilmington Trust Company, a Delaware banking
corporation, and the Registrant. This opinion is being delivered to you at your
request.
For purposes of giving the opinions hereinafter set forth, our examination
of documents has been limited to the examination of originals or copies of the
following:
(a) The form of Trust Agreement attached as Exhibit 4.1 of the Registration
Statement (including the form of Certificate of Trust (the "Certificate of
Trust") attached as Exhibit A thereto); and
(b) The Registration Statement.
Initially capitalized terms used herein and not otherwise defined are used
as defined in the Trust Agreement.
For purposes of this opinion, we have not reviewed any documents other than
the documents listed above, and we have assumed that there exists no provision
in any document that we have not reviewed that bears upon or is inconsistent
with the opinions stated herein. We have conducted no independent factual
investigation of our own but rather have relied solely upon the foregoing
documents, the statements and information set forth therein and the additional
matters recited or assumed herein, all of which we have assumed to be true,
complete and accurate in all material respects.
With respect to all documents examined by us, we have assumed (i) the
authenticity of all documents submitted to us as authentic originals, (ii) the
conformity with the originals of all documents submitted to us as copies or
forms, and (iii) the genuineness of all signatures.
For purposes of this opinion, we have assumed (i) that the Trust Agreement
will constitute the entire agreement among the parties thereto with respect to
the subject matter thereof, including with respect to the creation, operation
and termination of the Trust, (ii) the due creation or due organization or due
formation, as the case may be, and valid existence in good standing of each
party to the documents examined by us under the laws of the jurisdiction
governing its creation, organization or formation, (iii) the legal capacity of
natural persons who are parties to the documents examined by us, and (iv) that
each of the parties to the documents examined by us has the power and authority
to execute and deliver, and to perform its obligations under, such documents. We
have not participated in the preparation of the Registration Statement and
assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding the
securities laws of the State of Delaware), and we have not considered and
express no opinion on the laws of any other jurisdiction, including federal laws
and rules and regulations relating thereto. Our opinions are rendered only with
respect to Delaware laws and rules, regulations and orders thereunder which are
currently in effect.
Based upon the foregoing, and upon our examination of such questions of law
and statutes of the State of Delaware as we have considered necessary or
appropriate, and subject to the assumptions, qualifications, limitations and
exceptions set forth herein, we are of the opinion that, when each of the Trust
Agreement and the Certificate of Trust has been duly authorized by all necessary
corporate action and has been duly executed and delivered by Wilmington Trust
Company and the Registrant:
1. Upon the filing of the Certificate of Trust with the Secretary of State
of the State of Delaware, the Trust will be duly formed pursuant to the Trust
Agreement; and
2. The Trust Agreement will constitute a valid and binding obligation of
the Registrant enforceable against the Registrant in accordance with its terms.
The foregoing opinion regarding enforceability is subject to (i) applicable
bankruptcy, insolvency, moratorium, reorganization, receivership, fraudulent
transfer and similar laws relating to or affecting the rights and remedies of
creditors generally, (ii) principles of equity (regardless of whether considered
and applied in a proceeding in equity or at law) and (iii) the effect of
applicable public policy on the enforceability of provisions relating to
indemnification or contribution.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In giving the foregoing consents, we do not thereby admit that we come within
the category of Persons whose consent is required under Section 7 of the Act, or
the rules and regulations of the Securities and Exchange Commission thereunder
with respect to any part of the Registration Statement, including this exhibit.
Very truly yours,
/s/ Richards, Layton & Finger
EAM
Exhibit 8.1 (includes Exhibit 23.2)
October 7, 1998
Mitsui Vendor Leasing Funding Corp. II
5353 Greenwich Drive, Suite 100
San Diego, California 92122
Re: Mitsui Vendor Leasing Funding Corp. II
Registration Statement on Form S-1
--------------------------------------
Ladies and Gentlemen:
We have acted as special federal tax counsel for Mitsui Vendor Leasing
Funding Corp. II, a Delaware corporation (the "Registrant"), in connection with
the filing by registrant of a registration statement on Form S-1 (such
registration statement, together with the exhibits and amendments thereto, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act") for the
registration under the Act of the Receivable-Backed Notes (the "Notes") of
Mitsui Vendor Leasing Asset Trust 1998-1 (the "Trust"). As further described in
the Registration Statement, the Trust will be formed by the Registrant pursuant
to a Trust Agreement between the Registrant and an Owner Trustee. The Notes will
be issued by the Trust pursuant to an Indenture between the Trust and an
Indenture Trustee.
We have advised the Registrant with respect to certain federal income tax
consequences of the proposed issuance of the Notes. This advice is summarized
under the headings "Summary of Terms - Federal Income Tax Consequences" and
"Federal Income Tax Consequences" in the Prospectus forming a part of the
Registration Statement. Such description does not purport to discuss all
possible federal income tax ramifications of the proposed issuance, but with
respect to those federal consequences that are discussed, in our opinion, the
description is accurate in all material respects. We confirm and adopt the
opinions set forth in the Prospectus as well as those opinions deemed to be
incorporated therein, and each such confirmed and adopted opinion represents our
opinion regarding the material federal income tax consequences of the purchase,
ownership and disposition of the securities of the applicable series.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as special federal tax
counsel to the Registrant) under the heading "Federal Income Tax Consequences"
in the Prospectus, without implying or admitting that we are "experts" within
the meaning of the Act or the Rules and Regulations of the Commission issued
thereunder, with respect to any part of the Registration Statement, including
this exhibit.
Very truly yours,
